Crane Bank Ghosts Return To Haunt DFCU In New Mortgages Case

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Six years after Cranes Bank was acquired by Dfcu bank, the ghosts of the former have returned to haunt the buyers after a new battle in regards the mortgages that Dfcu says it inherited.

In August last, the acting commissioner for land registration, Baker Mugaino, wrote that the office of the minister of State for Lands, Sam Mayanja, had received a petition from Salim Pyarali Hirani and Shamina Hirani, the directors of Master Electronics in relation to mortgages registered on their properties.

The mortgages were registered on properties folio 11 plot 88 South Street, folio 11 plot 56 seventh street, and plot 58 seventh street, Kampala in favor of Crane Bank Limited that the directors of Master Electronics asked the ministry to remove.

“They are maintained illegally on the land register,” the two petitioners said.

However, earlier, in June 2022, Minister Mayanja had in a memo to Mugaino noted that Crane Bank had been closed by the Bank of Uganda in January 2017 and therefore ceased to be a legal entity as a financial institution or bank.

The minister quoted the decision of the Supreme Court in an appeal by Sudhir Ruparelia against Crane Bank in receivership and Bank of Uganda.

According to Mayanja, the position of the Supreme Court is binding on everyone and that maintaining the mortgage entries on the land titles for the directors of Master Electronics amounts to interfering with the decision of Supreme Court.

“It tantamounts to unlawfully maintaining a mortgage interest to non- existent bank which amounts to contempt of court,” Mayanja said.

Later ,the acting commissioner for land registration wrote in a notice of intention to effect changes in the register as , ” the hon Minister of State (lands) advised to cancel the above entries under S [section] 91 (2) of the land Act Cap 277 for being illegally and wrongfully retained on the petitioner’s titles.”

According to Mugaino, he had to determine whether Crane Bank mortages are retained legally on the said land titles

He said any claim to the defunct Crane bank mortgages is invalid unless it’s supported by a mortgage assignment or transfer instrument from the receiver, Bank of Uganda to Dfcu.

The acting commissioner for land registration described Dfcu’s claim over the mortgages as complicated for violating section 12 of the Mortgage Act, absence of a memorandum endorsed or annexed to the defunct Crane bank mortgages.

” For that matter, there is no variation for the terms of the original Crane Bank Limited mortgage, and its existence as is is held in contravention of the law.”

He consequently had called for a public hearing for all the parties concerned which was scheduled to happen on August, 29, 2022 but before this could happen, Dfcu ran to the Commercial court challenging the move .

Through MMAKS Advocates, Dfcu told court that Master Electronics had got two loan facilities $ 3 million and Shs 3 billion from Crane bank that were secured by the mortgages and that the company had defaulted in servicing the loans which forced Crane bank to issue several default notices dating back to June 5, 2015.

According to Dfcu on, January 25, 2017, BoU in its capacity as the Crane Bank receiver, sold and assigned it the bank’s loan portfolio and the mortgages and other securities held including that of Master Electronics and the mortgage securities and that Master Electronics filed several suits through which it questioned its indebtedness to Crane bank.

The bank said that Master Electronics used the various suits to question mortgages whether were validly and lawfully assigned by BoU.

“The validity and enforceability of the mortgage securities by the plaintiff were upheld in all the various suits,” Dfcu said.

The bank said the validity and enforceability of mortgages can’t be now subject to inquiry by commissioner land registration under section 91 of the Land Act.

Dfcu noted that the assignment of the mortgage securities is not ” a variation of mortgage” within the meaning of section 12 of the Mortgage Act as that provision is limited to changes to the terms of the mortgage deed agreed between the mortgagor and the mortgagee [Crane bank].

” This doesn’t arise in the present case as the mortgagor is not a party to an assignment of mortgage security,” Dfcu noted.

The bank also notes that an assigned mortgage cannot without the sign-off by the mortgagor be varied to read the name of the assignee in place of the name of the mortgagee and assigned mortgages accordingly always continue to be held in the names of the original mortgagee (Crane bank ) but enforced in those names by the person deriving title under the original mortgagee (Dfcu).

Master Electronics responds

In response to the Dfcu’s suit, the directors of New Master Electronics, have filed a separate application in the same court asking it dismisses the bank’s case.

In the new application, the directors of Master Electronics says as an alleged aggrieved party, Dfcu has not exhausted a venue of being heard on its claims by the commissioner land registration at the public hearing.

” The respondent can only come to this honorable court by way of appeal against the decision of the Commissioner Land Registration delivered at the end of the public hearing,” the company says through its lawyers of Muwema company advocates.

The company says Dfcu’s suit is barred by law because it tries to re- litigate the settled question of the non-existence of the defunct Crane Bank through its claims of the validity and enforceability of the Crane bank’s mortgages.

“The suit is to the above extent, a perpetuation of an illegality as it maintains a fictitious and illegal entry of a non- existent bank on the land register in contravention of section 7 (1) financial institutions Act 2004 (as amended ) and section 91 land Act Cap 277,” the company says.

“The said impugned entries are therefore wrongly and illegally retained on the land register and the Commissioner Land Registration is within its statutory powers to remove them without recourse to the court.”

New Master Electronics insists that the mortgages on its properties weren’t part of the Crane Bank assets that BoU sold to the Dfcu under the Purchase of Assets and Assumption of Liabilities Agreement shortened as PAAL and Deed of assignment.

The agreement has since been attached to court documents by New Master Electronics .

” That this honourable court ought therefore not to lend its authority to the respondents abuse of court process and the perpetuation of illegalities maintained through the impugned suit,” New Master Electronics says.

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