Mukesh v Bank of Baroda (Uganda) Limited (Miscellaneous Application 2013 of 2023) [2023] UGCommC 208 (28 September 2023)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

# **MISCELLANEOUS APPLICATION NO. 2013 OF 2023** ARISING FROM CIVIL SUIT NO. 0522 OF 2023

MUKESH SHUKLA ::::::::::::::::::::::::::::::::::::

#### **VERSUS**

### <table> BANK OF BARODA (UGANDA) LTD :::::::::::::::::::::::::::::::::::

## (Before: Hon. Lady Justice Patricia Mutesi)

#### **RULING**

This application arises out of Civil Suit No. 0522 of 2023 ("the main suit") between the Applicant and Shumuk Tours & Travel (U) Ltd as plaintiffs and the Respondent as the defendant. In the main suit, The Applicant contests the Respondent's continued retention of the owner's copy of the certificate of title for the land comprised in Kibuga Block 29 Plot 205 situate in Mulago belonging to the Applicant and the refusal to release the mortgage on the same land.

The application was brought by notice of motion under Section 98 of the Civil Procedure Act and Order 52 rule 1 and 3 of the Civil Procedure Rules. Similar to orders sought in the main suit, this application seeks an order for the release of the owner's copy of the certificate of title for property comprised in Kibuga Block 29 Plot 209 situate at Mulago to the Applicant by the Respondent bank and an order for the release of the legal mortgage on the same property.

The application is supported by the affidavit of the Applicant in which he averred that he is the registered proprietor of the property comprised in Kibuga Block 29 Plot 209 situate in Mulago in the district of Kampala, and that the said property was given as security for a credit facility extended by the Respondent to Shumuk Tours & Travels (U) Ltd (1st Plaintiff in the main suit). He states that the Respondent willingly wrote off the said facility in the year 2019 as uncollected and removed it

from its known assets and the loan account was even closed permanently. Further that the Respondent has to-date never issued a notice of default of the said facility nor a notice of sale of the security, and that it is just and equitable that this court issues the orders sought.

The Respondent opposed the application through the affidavit in reply affirmed by Ravi Aditya, its Chief Manager. Briefly, he affirmed that the Applicant's company, M/S Shumuk Tours and Travel Limited, holds an overdraft account No. 95010400000208 at Kampala road branch with a balance of USD 153,456.00. The said overdraft is secured by a legal mortgage on the applicant's property comprised in Kibuga Block 29 Plot 205 situate at Mulago and not Kibuga Block 29 Plot 209 situate at Mulago. Further that the said balance arose out of an overdraft facility in the sum of USD 200,000.00 which was granted to the said company on 30th March 2016.

He further averred that in the course of M/S Shumuk Tours and Travel Limited utilizing the overdraft, its sister company, M/S Shumuk Aluminium Industries Limited, which is also under the management of the Applicant, willfully defaulted on facilities in the sums of UGX 6,622,093,474/= and USD 57,712.00 granted by the Respondent. The Respondent then assessed a high risk of M/S Shumuk Tours and Travel Ltd similarly defaulting on its overdraft. In order to mitigate the risk of default on the overdraft and in accordance with banking norms and banking practice, on 31st December 2019, the Respondent wrote off the overdraft and duly informed the borrower of the action through various meetings with the Applicant. He stated that writing off the overdraft did not absolve M/S Shumuk Tours and Travel Limited of its obligations to settle the debt. Further that the Applicant was surety for the overdraft and he is yet to be discharged, and he has no right to the release of the mortgage and the release of the owner's copy of the land pledged as security until the written off overdraft is recovered.

The Applicant did not file an affidavit in rejoinder.

# **Representation and hearing**

The Applicant was represented by Mr. Bwango Allan of M/s Bwango Araali & Co. Advocates while the Respondent was represented Mr. John Fisher Kanyemebwa of M/S H&G Advocates. The hearing proceeded by way of written submissions. The parties filed written submissions which I have considered.

## Determination

# Issue 1: Whether the Applicant is entitled to the orders sought?

The Applicant is the Managing Director of M/S Shumuk Tours and Travel Limited (hereinafter 'the "borrower"). On 30th March 2016, the borrower obtained an overdraft facility from the Respondent in the sum of USD 200,000 on overdraft account number 95010400000208 at the Respondent's Kampala Road branch. The Applicant was a surety for the overdraft facility. The facility was also secured by a legal mortgage on the land comprised in Kibuga Block 29 Plot 205 situate at Mulago.

The borrower defaulted on the overdraft repayment. The borrower's sister company, Shumuk Aluminium Industries Limited, of which the Applicant is the managing director, also defaulted on facilities it had been given by the Respondent with outstanding balances of UGX 6,622,093,474/= and USD 57,712.00. On $31^{st}$ December 2019, the respondent wrote off the borrower's overdraft balance in a bid to mitigate the risk of further loss. Through several meetings held with the Applicant in a bid to chart a way forward on full repayment of the overdraft, the Respondent made the applicant aware that the overdraft balance had been written off. The Applicant has now brought the Respondent to this court asserting that the effect of writing off the unpaid overdraft balance was that the overdraft was cleared and that the borrower is no longer indebted in any way to the Respondent. On its part, the Respondent maintains that writing off the overdraft did not absolve the borrower of its obligations to settle the debt. Therefore, to determine this application, this Court needs to clarify on the legal effect of writing off a debt.

I had the opportunity to address this legal question in **Post Bank (U) Limited v** Henry Ssali Tamale, High Court Civil Suit No. 729 of 2016. In that case, the plaintiff had sued the defendant to recover the outstanding balance of a loan. The defendant argued, inter alia, that the loan balance was no longer recoverable since it had been written off. In dealing with that argument, I quoted with approval the case of Samuel Black T/A S B Coaches v DFCU Bank Ltd High Court Civil Suit No.

416 of 2009 [2015] UGHCCD 69 (20th August 2015) in which Hon. Lady Justice Hellen Obura held that:

"... It cannot therefore be said that by writing off a debt the borrower is discharged from liability to pay as wrongly argued by the plaintiff. If that were the position, then there would be many deliberate loan defaulters with a view of benefitting from the write off. That would be contrary to the banking laws, customs and practices and a disincentive for banks to lend money and in my view it could not have been the intention of the Financial *Institutions Credit Capitalisation and Provisioning Regulations 2005."*

I concluded that the writing off of a debt by a financial institution does not discharge a borrower from the liability to repay the debt. This interpretation is also reflected in decisions from other common law jurisdictions.

On the same legal question, the Court of Appeal of Kenya in **Nicholus Mahihu** Muriithi v Barclays Bank Kenya Limited Civil Appeal No. 340 of 2012 stated that the fact that a bad debt has been written off does not suggest the absence of a legitimate claim against the debtor whose debt is being written off. Rather it is done for purposes of taxation and book keeping and only if there are no or only slim chances of recovering the debt. But if the debtor's financial status improves, nothing stops the creditor from pursuing and recovering the debt.

Furthermore, the Supreme Court of India in Salim Akbarali Nanji v Union of India & Ors, Civil Appeal No. 6715 of 2004 explained this banking concept thus:

"It is no doubt true that amounts advanced by banks must be recovered. Such debts should not be permitted to become non-performing assets. However, one cannot lose sight of the realities of the situation. Having regard to the nature of banking business, it is possible that the bank may commit an error of judgment in advancing funds to a particular party or industry ... The writeoff is only an internal accounting procedure to clean up the balance sheet and it does not affect the right of the creditor to proceed against the **borrower to realise the dues.**" (Emphasis added).

The Supreme Court of India, therefore, held that by writing off the debt owed to it by the appellant, the respondent bank did not absolve the former from liability and the respondent was not barred from following up on recovery.

Accordingly, I am in agreement with the Respondent's argument that writing off the debt owed by the borrower on 31st December 2019 did not mean that the debt was forgiven and that the Applicant / defendant was discharged from liability. The Applicant still owes money to the Respondent which is recoverable. For this reason, the security for the overdraft cannot be released unless and until the borrower fully clears the outstanding balance.

In light of the above findings, I dismiss the application with costs awarded to the Respondent.

Patricabenter

Patricia Mutesi **JUDGE**

$(28/09/23)$