The collapse of Crane Bank late last year took Uganda and its financial system by surprise.

Now latest efforts by Bank of Uganda to recover more than $100 million dollars from proprietor businessman Sudhir Ruparrelia have unveiled a myriad of questions about the Central Bank itself and a number of international audit firms that for years gave the fallen lender a clean bill of health.

The major question is how did the bank — the third largest by assets — collapse with so many eyes watching?

Well-placed sources have indicated to The EastAfrican, that after a series of failed compromise meetings, Mr Ruparrelia both directly and through surrogates will try to push back against the Central Bank by questioning how it handled his bank’s collapse.

One such effort was seen on July 12 when private businessman Derrick Nsereko describing himself as an aggrieved Ugandan citizen served a notice of intention to sue the Central Bank for “regularly giving Crane Bank Ltd a clean bill of financial health” since 1995 and assuring the general public of the lender’s sound financial standing when “these authoritative assurances were not entirely true.”

The notice came as Mr Ruparellia started a calculated but aggressive pushback against the Central Bank while at the same time trying to change the narrative though he personally continues to avoid the news media and his lawyers have maintained muted silence on the matter.

Internal financial engineering

On June 30, BoU filed a civil suit at the Commercial Court against Mr Ruparrelia and his investments firm Meera Investments Ltd, seeking to recover as “damages or as equitable compensation for breach of fiduciary duty or as money by which the first defendant has been unjustly enriched.”

The details of the 28-page plaint tell of a labyrinth of internal financial engineering that fraudulently saw billions transferred out of Crane Bank, and Mr Ruparrelia own 100 per cent of the Bank through various fronts and questionable transactions.

“By means of elaborate illegal arrangements made with Kantaria (and subsequently White Sapphire) as well as Sanghani, the first defendant dishonestly concealed his ownership and control of the Plaintiff [Crane Bank] from Bank of Uganda, the plaintiff’s depositors and others including the plaintiff’s auditors,” states the plaint filed by BoU’s lawyers.

The Central Bank wants to recover some $104 million Mr Ruparrelia apparently “extracted” from Crane Bank. It also wants him to pay Ush52 billion ($1.4 million) staff contributions he failed to remit to the National Social Security Fund.

READ: Fall of Crane Bank calls for crucial regulatory changes

However, Crane Bank’s actual indebtedness is Ush17 billion ($0.4 million), but it ballooned because of fines and penalties levied by NSSF.

The monies demanded include some $80 million with interest from October 26, 2013 when it was apparently moved, $9.2 million, “extracted from the plaintiff by the first defendant or under his direction or with his knowledge, purportedly for the supply of core banking systems and software licenses.

Another $3.5 million and Ush8.2 billion ($0.2 million) was withdrawn on December 27, 2014 while some $990,000 is for properties wrongfully bought or transferred.

State House meeting

Mr Ruparrelia was given 15 days to respond to the suit but by Friday July 14, there was no indication of his response at the Court’s registry, and the courts had also started the annual court vacation.

Various sources confirmed that Mr Ruparrelia, officials from the Central Bank, Ministry of Finance and the Attorney General’s Chambers held a meeting with President Yoweri Museveni at State House to broker a settlement possibly out of court, but it ended inconclusively.

Journalist Andrew Mwenda, CEO of the Independent Magazine attended the meeting and was apparently introduced by the President as his “strategic advisor” on the matter. Mr Mwenda did not answer or return calls from this writer.

Daily Monitor reported that the meeting had set conditions for Mr Ruparrelia to pay back the money to avoid prosecution. Our sources also confirmed that while Mr Ruparrelia was amenable to the payback, he also pinpointed officials at the Central Bank whom he accused of failing in their supervisory work.

He was also reportedly uncomfortable with the involvement and role of Attorney General William Byaruhanga with whom, it is understood, he has a business dispute with.

MoU

But The EastAfrican has also learnt that prior to the State House meeting, Mr Ruparrelia and BoU had reached an understanding and in fact signed a memorandum of understanding in which the businessman had agreed to pay back the money in a period of five years. It is understood that he was therefore shocked when not only the Central Bank chose to shorten the period to one year, but also go ahead with the suit.

In that agreement, sources say, BoU had agreed not to prosecute Ruparrelia, not to go after his properties and to step in in case he was sued privately.

Our sources dismissed local media reports that Mr Ruparrelia was staking his high value properties like the Speke Resort Munyonyo and Kampala Boulevard as security.

The plaint also makes no mention of the other properties Mr Ruparrelia is known to own, focusing only on the 48 titles of freehold properties housing the Cranes Bank’s branches.

BoU says the properties were “purchased and or developed using the plaintiff’s monies and were fraudulently transferred…into the names of the second defendant (Meera Investments) and then purportedly leased back to the Plaintiff.”

READ: Two more of troubled Kampala mogul's forex bureaus closed

ALSO READ:Troubled Kampala mogul's forex bureaus closed

BoU’s wide net

If the case goes to trial, it is likely to have wide ramifications beyond Uganda. For one, the plaint names Kenyan banker and businessman Rasiklal Chhotalal Kantaria, described as a nominal owner of “White Sapphire,” the majority shareholder in Crane Bank.

BoU claims Mr Ruparrelia only used Mr Kantaria as a front to dodge a provision in the Financial Institutions Act (FIA) on shareholding. Others named in the plaint are Jitendra Sanghani, Mr Ruparrelia’s wife, Joystna and children as some of those used as fronts while he continued to fully own and control the bank.

In the plaint, Kantaria is described as a “prominent and experienced Kenyan banker, the founder of Prime Bank Ltd and chairman of the First Merchant Bank Ltd in Malawi, and Capital Bank in Botswana.”

BoU took control of Crane Bank on October 20, 2016 on grounds that the bank was “undercapitalised and posed a systemic risk to the Banking Sector in Uganda.”

On January 20, this year, Crane Bank was placed under receivership and subsequently its assets and liabilities were transferred to DFCU Bank.