Uganda’s Central Bank has lost a five year legal battle in the country’s Supreme Court against Sudhir Ruparelia, the founder of the defunct Crane Bank Limited in a landmark decision that could affect its bank supervision powers while raising questions about a potential revival of the collapsed lender.

The former Crane Bank was placed under statutory management by Bank of Uganda (BOU) in September 2016 following a damning audit report that revealed insufficient capital levels, shrinking liquidity ratios, surging loan default levels and gross mismanagement, among others. For instance, the non-performing loan ratio recorded in the bank’s credit portfolio was estimated at 30 percent, a figure higher than the overall industry loan default rate that stood at less than 10 percent during the same period.

Signs of financial distress felt by the collapsed lender were evidenced by an emergency financial support request of Ush147 billion($41 million) made to the Central Bank almost a month before the statutory intervention decision was taken, according to reports received by the EastAfrican in 2017. After four months of statutory management actions, BOU transferred certain assets and customer deposits belonging to the former Crane Bank to DFCU Bank Limited in a controversial transaction valued at Ush200 billion($56 million) that was concluded in January 2017.

The Central Bank and Crane Bank Limited subsequently sued Sudhir Ruparelia over massive fraud committed against the failed bank during 2017. Ruparelia was accused of siphoning Ush397 billion ($111.8 million) from the failed bank over a three year period. Ruparelia owned less than 50 percent shares in the former Crane Bank Limited prior its collapse, according to previous court records.

Though the Central Bank lost the case in the High Court and Court of Appeal respectively, it filed another appeal in the Supreme Court last year that was mysteriously withdrawn in December 2021. As a result, the Supreme Court ruled in favour of Sudhir Ruparelia and closed the matter on Friday morning in a dramatic court case that left egg on BOU’s face inspite of a much hyped legal gamble conceived by its lawyers.

The outcome of this case could signal an end to years of regulatory impunity exhibited by BOU against struggling banks- a prominent feature documented in a report issued by the Parliamentary Committee on Statutory Agencies, Commissions and Enterprises in 2020. The legal judgement is also likely to influence proceedings in a recent case filed by the former owners of Crane Bank Limited against DFCU Bank in a European Court last year. This legal action serves as an escalation in a long fight waged by owners of the collapsed bank against the industry regulator and may unravel more details surrounding the controversial sale of selected Crane bank assets and deposits to DFCU Bank Limited, local observers say.

“We put up a strong case based on facts and the law particularly the Financial Institutions Act. BOU claimed our client owned 100 percent shares in Crane Bank but we proved them wrong on this allegation. It also claimed that our client stole money from Crane Bank Limited but presented insufficient evidence in Court. This ruling will certainly tame BOU’s impunity in matters of bank supervision and the courts have clarified that certain clauses in the Financial Institutions Act must be interpreted with restraint by the regulator,” said Joseph Matsiko, a lawyer at Kampala Associated Advocates, a law firm that represented Sudhir Ruparelia in the landmark court case.

Central Bank officials declined to discuss the matter when contacted by The EastAfrican on Friday evening.

On the other hand, the idea of a revived Crane Bank in the aftermath of the historic court decision remains shrouded in suspense and mystery amidst legal excitement and the fallout of the Covid-19 pandemic on the local economy over the past two years.