The Commercial Division of the Kampala High Court has ruled in favour of DFCU Bank, allowing it to recover $5,200,000 (over Shs 19 billion) from MTK Uganda, a veterinary pharmaceutical business previously owned by the late millionaire Francis Xavier Kitaka.

The ruling, delivered by Justice Thomas Ocaya, mandates MTK Uganda and its CEO, Fiona Kitaka Nakkazi Migadde, to jointly and severally repay the outstanding sum.

The court also ordered that interest on the amount, calculated at a rate of 12% per annum, be paid from the date of the suit’s filing until full repayment.

“Judgment is entered for the counterclaimant (dfcu) against the counter defendants (MTK Uganda and Fiona Kitaka Nakkazi Migadde) jointly and severally for recovery of the outstanding sum of USD 5,220,009 and accrued interest thereon up to the date of filing of this suit,” ruled justice Thomas Ocaya recently.

GENESIS

MTK Uganda, established in 1967, had been a profitable business specializing in the importation and distribution of pharmaceuticals for humans and animals.

In August 2017, MTK entered into a two-year contract with the Republic of Uganda through the Ministry of Agriculture, Animal Industry, and Fisheries for the supply of assorted animal vaccines.

To fulfil this contract, MTK secured trade finance from DFCU Bank, initially obtaining USD 3,500,000. Later, MTK requested an additional USD 1,500,000, bringing the total facility to USD 5,000,000. This loan was intended to provide working capital, purchase stock, and refinance existing loans.

The loan was secured with several properties, including land on Nasser Road in Kampala, prime land on High Street in Mbarara, and farmland on Buikwe Road, Njeru, Mukono District.

However, in 2019, MTK was accused of supplying fake cattle vaccines to the government, which led to the suspension of its contracts, rejection of goods, and the eventual expiration and destruction of procured products.

Following these events, DFCU Bank sued MTK for breach of the loan agreement and sought recovery of the outstanding sum, interest, and general damages. The bank argued that despite several demands, MTK failed to meet its obligations, prompting the sale of secured properties in Mbarara, Kampala, and Mukono. These sales realized Shs 1,710,000,000, leaving an outstanding balance of USD 5,220,009.

Justice Ocaya acknowledged the challenges faced by lenders like DFCU when loans become non-performing. He noted that banks must make provisions for such loans, which affects their capital and profitability.

He ruled that DFCU was entitled to recover the outstanding sum from MTK and its CEO.

Despite MTK’s claims that the supplied drugs were genuine and subsequent withdrawal of fraud charges by the Director of Public Prosecutions, the court found in favour of DFCU Bank.

The case highlights the difficulties faced by government suppliers when contractual disputes arise.