Mukwano Enterprises Limited v Ranchhobhai Shivabhai and Another (Civil Application No. 16 of 2019) [2020] UGSC 63 (23 December 2020)

# **THE REPUBLIC OF UGANDA**

# IN THE SUPREME COURT OF UGANDA

# AT KAMPALA

# **(CORAM: OPIO-AWERI, MUGAMBA, MUHANGUZI, TUHAISE, CHIBITA, JJSC)**

# **CIVIL APPLICATION No. 16 of 2019**

### **MUKWANO ENTERPRISES LIMITED APPLICANT**

#### **AND**

#### **1. RANCHHOBHAI SHIVABHAI PATEL**

st

### **2. HENRY WAMBUGA (LIQUIDATOR OF**

#### **RESPONDENTS AFRICAN TEXTILE MILL LIMITED):::**

(An application arising from the judgment of the Supreme Court (Mwangusya, Opio - Aweri, Mwondha, Tibatemwa, Mugamba, JJ. SC) dated 6th November, 2018 in Civil Appeal No. 06 of 2017)

### **RULING OF THE COURT.**

*Ci* Mukwano Enterprises Limited, hereinafter referred to as "the applicant", filed this application by Notice of Motion under Rule 2(2) of the Supreme Court Rules seeking orders that:

**(i) This honorable Court recalls its judgment dated 6th November, 2018, reviews and varies or amends by giving the declaration and order that the applicant company acquired good title as bonaflde purchaser for value of the**

**suit property from the second respondent as liquidator of the first respondent.**

**(ii) This honorable Court sets aside part of its judgment that the suit property had a value of UGX. 22,300,000,000= before sale. AND or in the alternative the Court orders a refund of the monies paid by the applicant for purchase of the suit property plus the cost of improvements effected thereon by the applicant.**

**(iii) The costs of this application.**

The application is supported by an affidavit sworn by **Rukhsana Amirali Karmali,** the Managing Director of the applicant company.

The grounds for this application are:

- 1. That there are errors and matters that were overlooked contrary to the intention of the court when delivering the judgment in Civil Appeal No.6 of 2017 in the following manner; - i. That the decision that the liquidator assumed powers of the directors is inconsistent with the resolution that the applicant should have inquired further whether the actions by the liquidator were proper. - ii. That the conclusion that the indoor management rule does not apply to the affairs of the company in liquidation is absurd and resulted in injustice and abuse of court process. - iii. That the court overlooked the fact that the sale of the suit property was consensual and was conducted after the

respondent / plaintiffs withdrawal of H. C. C. S No. 155 of 2005.

- 2. That there is evidence on record that the sale of the suit property to the applicant was consensual and was done under the voluntary liquidation backed by a special resolution which appointed the first respondent as liquidator. - 3. That the second respondent who had injuncted the sale of the suit property consented to the withdrawal of the injunctive order under **H. C Commercial Court Misc. Application No. 141 and 142 of 2007,** and to the withdrawal of the entire **H. C Civil Suit No. 155 of 2007** between Ranchhobhai Shivabhai Patel Limited JV Patel PR Patel AND the Liquidator of African Textile Mill Limited (In Liquidation); - 4. That the Court made an error that there was a valid valuation report of the entire property at UGX. 22,300,000,000/= before the sale whereas not, which created a wrong inference that the sale was at an under value. - 5. That the Court made an error that the indoor management rule does not apply to the affairs of a company in liquidation whose principal officer is only the liquidator. - 6. That the foresaid errors of the Court occasioned serious injustice, and absurdity to the applicant company which purchased the suit property at valuable consideration of USD 1,200,000/= which benefited the first respondent to settle indebtedness and is now deprived of the suit property and improvements she effected plus the consideration to acquire it.

7. That it is in the interest ofjustice to recall, review and amend or vaiy the judgment and orders of the Honorable Court.

The application was opposed by the affidavit in reply sworn by **Prafulchandra Ranchhobhai Patel** which stated as follows:

- 1. That the applicant is not a *bonafide* purchaser for value. - 2. That the arguments do not reflect that the 48 current members */*shareholders of ATM and or any of consented to the sale of the suit property through a special resolution. - 3. That the applicant . is estopped from approbating and reprobating having benefited from the value on the said annexture during the taxation of the bill of cost. - 4. That since the applicant purchased the property in total disregard of the law, he is estopped from recovering the purchase consideration of USD \$ 1,200,000 from African Textiles Mills Ltd in liquidation. - 5. That the developments that were put on the land by the applicant is new evidence that was never ever pleaded before any court. - 6. That upon taking possession of the property, the applicant sold off machinery belonging to African Textiles Mills Ltd in liquidation some of which was brand new. - 7. That the applicant has been in occupation of the premises which he has been renting out to the public for ware housing space and receiving income form the same up to date.

- 8. That the income the applicant has earned for the past 13 years is more than enough to offset the 1,200,000 USD dollars. - 9. That should court be inclined to order the respondent to refund the consideration, that it should be conditioned on the applicant handing over the suit property to M/s ATM together with all the machines the applicant found on the suit property.

## **Background to the Application:**

The facts leading to this application are as follows:

The 1st respondent and Jayantilal V. Patel (herein after called the 1st respondent and another) owned 49% shares in African Textile Mill Ltd (herein called "ATM") while the Ugandan government owned 51% shares with full management and administrative powers. Sometime in 1996, the government sold the 51% share interest to the 1st respondent who then became the majority shareholder.

In 1998, the respondents in a bid to revitalize the operations of the company obtained a loan from the defunct Cooperative Bank Ltd. However, before the full repayment of the loan, the Cooperative Bank Ltd was put under statutory liquidation by the Bank of Uganda and the entire loan was recalled.

The 1st respondent and another entered into a repayment schedule agreement with the Bank of Uganda to liquidate the loan but failed to comply with the schedule. In 2005, the 1st respondent and another put the company under voluntary winding up and appointed Mr. Clive Mutiso (one of the directors) as the liquidator. When Mr. Clive

Mutiso resigned, the 2nd respondent took over as liquidator of the company.

At the time of appointment of the 2nd respondent as liquidator, the company's outstanding loan to the defunct Cooperative Bank Ltd was UGX. 1,200,000,000 (One billion, two hundred million shillings). The said loan was renegotiated and reduced to One billion shillings (UGX. 1,000,000,000) which was to be paid in lump sum. The respondent and anoth.er\_were unable to settle the said amount on their own. They obtained a loan of \$ 800,000 (Eight hundred thousand US dollars) from Crane Bank Limited for a duration of 6 months to settle the old outstanding amount.

The aforementioned loan was secured by a demand promissory note, a letter of continuing security, a debenture covering a floating charge on all assets of the company. In consequence, there was a registered mortgage of the following properties: Plot 78-96 Pallisa Road Mbale in the names of African Textiles Mill Ltd, Plot No. <sup>1</sup> and 3 Kitintale Way Mbuya, Kampala in the names of M/s Art Investment Limited, and Plot No. 152, 6th Street Industrial Area, Kampala in the names of Ravi Patel and Thakore Patel.

In addition, there were personal guarantees by Mr. J. V Patel, Mr. R. R Patel, Mr. Ashwin Patel, Mr. Thakore V Patel, Mr. Ravi C Patel and the 2nd respondent. The earlier loan owed by the company to Cooperative Bank Ltd (in liquidation) appears to have been paid off.

The company defaulted on their loan from Crane Bank Ltd and applied for an extension of the period for repayment for another 6 months. The repayment date was then moved to 18th June 2007.

On 12th and 13th, June, 2007, the 2nd respondent advertised the mortgaged properties for sale. The 1st respondent and another challenged the sale and obtained an interim order of stay. The 1st respondent still had not paid by the agreed date.

On 3rd August, 2007, Crane Bank Limited lawyers advertised the properties for sale yet again.

On 4th September, 2007, the 2nd respondent sold the mortgaged property to Mukwano Enterprises Limited. Among the properties sold was land comprised in LRV 786 Folio 12 78-96 Pallisa Road, Mbale. The 1st respondent and another sued the 2nd respondent **vide HCCS No.094 of 2008** for the following.

- (a) **"A declaration that the sale and transfer of the suit land and developments thereon comprised in LRV 786 Folio 12 plot 78-96 Pallisa Road, Mbale measuring up to 9.19 Hectares by the 1st defendant was fraudulent, illegal, irregular and therefore unlawful.** - (b) **An order that the sale of the suit property comprised in LRV 786 Folio 12 plot 78-96 Pallisa Road Mbale be nullified and the property revert to M/s African Textile Mill Ltd.** - **(c) Recovery of the suit land comprised in LRV 786 Folio 12 plot 78-96, the factory machinery, the buildings and**

**other developments thereon (herein after collectively referred to as "the suit property")**

- **(d) General damages** - (e) **A permanent injunction severally and jointly against the defendants their agents, servants, and or workmen from interfering with the suit property or taking possession of the suit property.** - (f) **An order for temporary injunction jointly and severally against the defendants, their servants, agents and/or workmen wasting damaging, alienating or transferring the suit property to third parties.** - **(g) An order directing the 1st defendant to render account of the proceeds of the sale.** - (h) **Costs of the suit."**

The High Court dismissed the suit. It found that though there were some irregularities in the conduct of the transaction of sale by the 2nd respondent as liquidator of ATM (in liquidation) they were not fatal to the transaction. The Court found that the Applicant was **a** bonafide purchaser for value without notice and issued a permanent injunction against the 1st respondent from interfering with the applicant's enjoyment and possession of the suit property.

Being dissatisfied with the decision of the High Court, the 1st respondent unsuccessfully appealed to the **Court of Appeal vide C. A. C. A No. 7 of 2010.**

The 1st respondent, still being dissatisfied with the decision of the Court of Appeal, lodged a second appeal to this Court vide **SCCA No. 06 of 2017.** The appeal was allowed and the Court set aside the concurrent findings ofthe lower courts. The Court made the following orders:

- 1. Since the appeal has partially succeeded, the appellant is entitled to one third of the costs in this Court and the court of appeal to be borne by the 1st respondent. The High Court order on costs remains in force. - 2. The transfer of the suit property by the 1st respondent to the 2nd respondent is hereby nullified and an order hereby issues for the cancellation of the 2nd respondent's name from the certificate of title and restoration of the name of M/s African Textile Limited (in Liquidation). - 3. The High Court order for the 1st respondent to render an account of the proceeds of the sale is re-affirmed. He should do so by filing it in the High Court and this Court and by providing copies to the Appellant's counsel, all within a period not exceeding 30 days from the date of delivery of the judgment. - 4. The 2nd respondent shall meet costs in this court and in the courts below.

Pursuant to that decision, the applicant brought the present application seeking for Court to recall its judgment in **SCCA No. 06 of 2017.**

### **Representation:** At the hearing, Mr. Christopher Bwanika and Mr. Tonny Arinaitwe appeared for the applicant. Mr. Paul Sebunya appeared for the 1st respondent whereas Mr. Robert Bantu and Mr. Heniy Nyegenye appeared for the 2^ respondent.

Mr. Trevor Turyagyenda, Legal Officer and Mr. Anthony Chaco, Manager, Mukwano Enterprises Ltd were in court.

Both counsel filed written submissions which were adopted entirely.

## **Applicant's case:**

Counsel for the applicant submitted that the application properly falls within the ambit of rule 2(2) of the rules of the court which permits the Court to review itsjudgment in order to prevent abuse of power and that it is in the interest ofjustice to do so. They cited this Court's decisions in the cases of **Elizabeth Nalumansi Wamala vs. Jolly Kasande & Others, SCC Appl. No. 29 of 2017 & Mohammad Mohammad Hamid vs. Roko Construction Limited, S. C. Misc. Cause No. 18 of 2017.**

It was the applicant's submission that the gist of the application is about resolving whether or not Section 301 of the repealed Companies Act Cap. 110, was properly applied in the judgment before court.

He contended that section 301(1) (a) of the repealed Act which the court relied on to make the final decision is utterly inapplicable to the case and that the misapplication of the law negates the meeting of the ends ofjustice.

Counsel contended that, in making a finding of the existence of an arrangement between the liquidator / second respondent and Crane Bank, the court overlooked and/ or did not consider correctly the record and law defining an arrangement. He argued that for there to be an arrangement in law, there had to be an element of give and take which was missing in this case. He relied on the definition of the term arrangement as envisaged in "words and phrases".

Counsel submitted that the 1st respondent's counsel in his earlier submissions for the appeal, relied on the definition in **Black's Law Dictionary** which defines an arrangement to mean a plan of a debtor for the settlement, satisfaction or extension of the time of payment of his debts. He further argued that an arrangement involves a financially troubled business working out an agreement with its creditors under re organization plan permitting it to stay in business, rather than going bankrupt and that in the instant case, the transaction fell short of the requirements of an arrangement as envisaged in section 301(1) (a) of the repealed Companies Act.

That the liquidator gave no inducement to the Bank and evidently received no benefit or favor from the bank. That the evidence of DW1 and PW 4 states how unrelenting the Bank was, and how difficult it was for him to stop the Bank in his capacity as an emissary from a Government Minister.

He further contended that the liquidator had knowledge that the Bank was inclined to sell at a lower price unfavorable to the company and the liquidator as an agent sought to get a better buyer.

It was his submission that although ATM was in liquidation, the rights of Crane Bank Ltd as a secured creditor under his security could not be prejudiced by the liquidation and that a secured creditor can go ahead and sell as was done in this case. **(See Re East Kent Shipping Co (1868) 18 L. T 748)**

Counsel argued that holding otherwise would be prejudicial to the banking sector as a whole.

Counsel contended that the members are barred by estoppel from challenging the sale that naturally accrued from their sanctioned and supported borrowing. He referred to section 114 of the Evidence Act and **Halsbury's Laws of England 3rd Edition, Vol 15.**

He submitted that the mortgage in the course of liquidation/ voluntary winding up, created an estoppel against the respondent to assert the sanction spoken about under section 301 (1) (a) and 244 (1) d, e, f of the repealed companies Act. That they took a benefit out of the redemption by the liquidator when their personal guarantees and other properties were released as a result ofrepaying Crane Bank Ltd.

On the issue of the valuation report that placed the value of the suit property at shs. 22,324,127,000/=, counsel for the applicant submitted that no Valuation Report was tendered in as evidence before court. He argued against the court's finding that the liquidator sold at an under value given that there is no value set for the property. That the notion of fair price has been a subject ofjudicial consideration in various jurisdictions. He explained that this would amount to court setting standards of proof of valuation.

Counsel argued that the types of value include market value, use value, investment value, tax value, insurable value, liquidation value. He relied on the case of **White** & **Co Ltd vs. The City of Tororo (1955) or 320 ay 326,** which defined the term "value" to mean; "actual Value," assessed value, fair value, intrinsic value, market value sale value, and in other ways.

He further argued that if the value of the suit property was indeed 22,324,127,000/= there would have been no need for further collateral for the loan from Crane bank because the value of collateral for the loan should have a correlation to the amount borrowed. He relied on **GM Combined Limited vs A. K Detergent Uganda Limited, SCCA No. 07 of 1998,** to support this argument.

On the issue of the indoor management rule, counsel for the applicant submitted that the court misapplied the indoor management Rule. He stated that that rule is founded on the principle in **Royal British Bank vs. Turquand (1856)** that persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed, and are not bound to inquire whether acts ofinternal management have been regular.

Counsel argued that it is noteworthy that in the above case, Mr. Tarquand was a liquidator. That the world is entitled to respect and recognize the liquidator as properly clothed with all authority to

represent the company in liquidation and even carry on under the authority of a secured creditor, Crane Bank. That in any case the present situation was of voluntary winding up and there is no evidence that they had no confidence in a liquidator they appointed themselves. He wondered on what basis would the public doubt his authority to redeem what he had mortgaged.

On the remedies, Counsel for the applicant prayed that the cancellation of title order be set aside and for an order that the applicant was a *bonafide* purchaser without notice.

Counsel stated that this court should consider the proportionality of the illegality to the benefit accrued from the consideration paid under illegal transaction. That the applicant saved the suit property from being bought at Shs. 1,000,000,000/= and other properties that the bank had attached. It also saved the directors from personal liability. That the proportionality to that extent was a savior of great importance to the entire company in liquidation and personnel associated with it.

Counsel stated that in the alternative, this court be pleased to order a refund of the monies paid by the applicant for purchase of the suit property plus the cost of improvements effected thereon by the applicant. He also prayed for costs of this application.

## **1st respondent's case.**

Counsel for the 1st respondent, submitted that the applicant's application was misconceived and that it did not disclose any error

apparent on the record warranting the invocation of the inherent powers of this court under rule 2(2) of this Court's rules.

On the issue of whether there was an arrangement between Crane Bank Ltd and the liquidator or not, counsel argued that the definition of the term arrangement clearly supports the 1st respondent's assertion of an arrangement between Crane Bank Ltd and 2nd Respondent. He argued that the record clearly shows that the 2nd respondent as the Liquidator of ATM (in liquidation) wrote to the bailiff appointed by Crane Bank Ltd, a secured creditor and proposed that he be allowed to be solely responsible for the sale of the mortgaged property and in turn settle the debt between the parties. And that each party held up its end of the bargain.

He submitted that an arrangement with creditors under section 244 (e) of the repealed Companies Act Cap. 110 applies to both secured and unsecured creditors.

On the issue of applicability of section 301 (1) of the repealed Companies Act Cap. 110 to the instant facts, counsel for the 1st respondent contended that the sanction of a special resolution by the shareholders of African Textile Mills Ltd (in liquidation) as required under sections 301(1) and section 244 (e) of the repealed companies Act, is a statutory exception to the general rule that the Liquidator assumes all rights and responsibilities of officers and directors of the company. He argued that he could only exercise his powers through the sanction of the company shareholders.

He further contended that the 2nd respondent also lacked the requisite authority/sanction to enter into an arrangement with Crane Bank Ltd, the mortgagee to sell the suit property to the applicant.

On the issue of the validity of the valuation certificate in which the suit property was valued at Ugshs. 22,324,127,000/=, counsel for the 1st respondent submitted that the Valuation certificate was exhibited in Court as Exh. P 30.

Counsel argued that although the comprehensive Valuation Report showing the specific breakdown of all items was not tendered in court, a valuation certificate which provided a summarized break down of the value of plant and machinery and land and buildings was tendered in court and marked Exhibit P.30. He submitted that the value of the property was never challenged by any of the parties when leading evidence and contesting it now would amount to retrying the case. Counsel further submitted that the Applicant and the 2nd respondent did not provide court with an alternative valuation report or certificate that informed the decision to sell the property at USD 1,200,000 at the time ofsale and even later when the issue came up at trial.

He contended that it is no wonder that the courts relied on said valuation certificate in order to establish the value of the property which was shs. 22,324,127,000/= being shs. 11,944,127,000/= for plant and machinery whereas the value of the Land and Buildings was placed at 10, 380,000,000/-.

Counsel further contended that as observed by court, the only important item missing from the valuation certificate was the forced sale value and that this did not invalidate the valuation report.

In addition to the above submissions, it was counsel for the 1st respondents submissions that the applicant used the suit property value in the valuation certificate as a threshold for the taxation of his instruction fees in the Court of Appeal. He argued that counsel for the applicant is therefore, estopped from arguing that the value of the suit property is not Shs. 22,324, 127,000/=.

In response to the Applicant's argument that the machineiy was obsolete as per the sale agreement, counsel for the 1st respondent argued that this argument was untenable because the notice when the property was advertised on the 12th and 13th, February, 2007, included the plant and machineiy as part and parcel of African Textile Mills Ltd.

On the issue of the misapplication of the indoor management rule, counsel submitted that it is not in dispute that the Applicant had actual notice that the 2nd respondent was a Liquidator of ATM during the sale of the property. That in fact, in clause 4 of the sale agreement, the applicant had actual notice that the suit property, at the time of its sale, was mortgaged to Crane Bank Ltd and that proceeds of the sale were to settle the Crane Bank's debt.

Counsel submitted that having had notice that the 2nd respondent has no authority from the shareholders and creditors of the company as required under sections 299, 301 and 304 of the repealed

Companies Act, Cap 110 to enter into an arrangement with Crane Bank Ltd, the Applicant cannot rely on the indoor Management Rule, hence this court's reliance on the case of **B. Ligget (Liverpool) Ltd vs. Barclays Bank [1928] <sup>1</sup> KB 48** is merited. He argued that court's finding is in line with section 14 of the Judicature Act Cap. 13 which provides that written law takes precedence over common law.

Counsel argued that the indoor Management rule is a common law principal which does not take precedence over provisions of the law.

## **Remedies;**

Counsel for the 1st respondent prayed court to maintain that the Applicant was not a *bonafide* purchaser for value.

He also prayed court to find that the applicant is not entitled to a refund ofUSD 1,200,000. Counsel relied on the case of **Sinba (K) Ltd** & **Ors vs.** Uganda **Broadcasting Corporation, SCCA No. 03 of 2014** and argued that no court can enforce an illegal contract or allow itself to be made an instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal. He also relied on the case of **Bostel Brothers** Ltd **vs. Hurlock [1948] 2 ALL ER 312,** for the argument that what is done in contravention of the provisions of an Act of Parliament cannot be made the subject matter of an action.

He prayed court to dismiss the application with costs.

## **2nd respondent's case**

On the issue of the applicability of sections 244 and 301 of the repealed companies Act, counsel submitted that the finding is not based on evidence but on assumption that the property could not have been sold without the consent of Crane Bank Limited, who was the mortgagee. He argued that it is legal for a mortgagor to deal in the property without the consent of the mortgagee but subject to the mortgage as correctly found by the Court of Appeal in its decision.

Counsel submitted that consent or acquiesce to the sale, if any, by Crane Bank could not amount to an arrangement with creditors within the meaning of section 244(1) (e) of the repealed Act.

Counsel submitted that for there to be an arrangement, there should be some difficulty in enforcement of rights and a creditor must agree to modify or compromise his rights. Under section 3 of the Deeds of Arrangement Act, Cap. 75, all unregistered deeds of arrangement are void. That therefore, any arrangement with the creditors that would have a binding effect on the Company would have to be registered. Counsel added that in court there was no such enforceable arrangement that required the sanction of a special resolution.

Counsel submitted that the finding of court contradicts section 301(1) (b) and (2) which clearly obliged a liquidator to exercise without a sanction, the powers of a liquidator in section 244(2) (a).

company. Counsel invited court to conclude that it is an error on the face of the record for court to find that it is forbidden to pay creditors in a members' voluntaiy winding up without the special resolution of the

On the issue of the validity of the Valuation Report, Counsel invited this court to reject the alleged valuation report which was admitted in evidence as Ex. P30 in the light that the report was not an agreed document as per the scheduling memorandum and that that document was a mere certificate of value which does not indicate the description of the property valued or its owner and has no addressee. That it was not tendered in evidence by the author who could have clarified on the particulars of the property valued and ownership. That it must therefore not be relied on because it lacks evidential value.

## **1st respondent's reply to the 2nd respondent's submissions. Applicability for sections 244(1) (d) (e) and section 301(1) (a) of the repealed companies Act.**

Counsel for the 1st respondent submitted that there is ample evidence on the record to show that there was an arrangement between the Liquidator and Crane Bank Ltd i.e. the witness statement of Musa Ibanda on pages 186-188 for the record of appeal. He argued that it was not in dispute that Crane Bank as a creditor of ATM in liquidation immediately after the stated impugned transaction was paid in full by the 2nd respondent without the consent ofthe company shareholders which was also unlawful as the same contravened sections 244(1) (d) and section 301(1) of the repealed Companies Act cap 110 That therefore there was no error apparent on the face of the record

On the valuation report, Counsel for the 1st respondent submitted that the evidence led before the trial court shows that that court conclusively examined the valuation report before tendering evidence of its certificate which was marked as exhibit P 30. He argued that there are various reasons why a person / entity commissions a Valuer to value their property and in this case it was to determine the fair market value of the suit property, hence including the forced sale value was not relevant.

Counsel submitted further that the <sup>1</sup>st respondent's claim that the 2nd respondent sold the property at a liquidation value is introducing fresh evidence because in the trial court, he stated that he sold the suit property based on the market forces of demand and supply. He stated that the 2nd respondent has not, and neither at the trial, availed court with any evidence in form of a report determining the liquidation value of the suit property which is arrived at by a professional expert as the net value of the company s assets after deducting its liabilities.

He contended that the argument that the suit property was sold in a haste is incorrect because there was no justification for the Liquidator to sell the suit property without first valuing the same, without seeking the consent of the company shareholders, its creditors, yet as a Liquidator he had a legal obligation to do so. He reiterated his prayer for the court to dismiss the application with costs.

## CONSIDERATION:

The applicant is calling upon this court to review its judgment in **of 2017,** and as a result, make a declaration that the applicant company acquired good title as purchaser for value of the suit property from the second respondent as Liquidator of the first respondent, set aside part of its judgment that the suit property had a value of UGX. 22,300,000,000/=, and in the alternative order a refund of the monies paid by the applicant for purchase of the suit property plus the cost of improvements effected thereon by the applicant.

**Rule 2(2)** of the Rules of this Court, under which the applicant has brought this application provides as follows:

*"Nothing in these Rules shall be taken to limit or otherwise affect the inherent power of the Court...to make such orders as may be necessary for achieving the ends ofJustice or to prevent abuse of the process of any such court, and that power shall extend to setting aside Judgments which have been proved null and void after they have been passed..."*

**I** i|

It is clear from the above provision that this Court may review its judgment for purposes of: (i) achieving the ends of justice; (ii) preventing abuse of process of court and (Hi) setting aside its judgment which has been proved null and void after it has been passed.

In *Ori nt Bank Ltd. v. Fredrick Zaabwe & Anor, Civil Appln No. 17 of 2007,* this Court observed as follows:

*"It is trite law that the decision ofthis Court on any issue of fact or law is final, so that the unsuccessful party cannot <sup>a</sup>PP^y for* **its** *reversal. The only circumstances under which this Court may be asked to re-visit its decision are as set out in Rules 2(2) and 35(1) of the Rules of this Court. On the one hand, Rule 2(2) preserves the inherent power of the Court to make necessary orders for achieving the ends of justice, including ordersfor inter alia* -

*'...setting aside judgments which have been proved null and void after they have been passed..."* (Emphasis is added)

The scope of this court's inherent power under rule 2(2) were explained in *Orient Bank (supra)* which cited with approval *Sir Charles Newbold P's holding in Lakhamshi Brothers Ltd vs. R. Raja & Sons (1966) E. A. 313* at *page 314* where he attempted to define the scope of the power of review as follows:

*"These are the circumstances in which this court will exercise itsjurisdiction and recall itsjudgment, that is, only in order to give effect to its intention or to give effect to what clearly would have been its intention hadtherenot been an omission in relationtptheparticular matter.*

*But this application ... go far beyond that. It asks, as I have said, this court in the same proceedings to sit in Judgment on its own previousjudgment. There is a principle which is of the very qregtestjmportance in the administration of Justice and that principle is this: it is in the interest of all persons that there should be an end to litigation."* (Emphasis mine)

This position was reiterated in the case of **Isaya Kalya & 2 others vs. Macekenyu Ikagobya, SCC Appl. No. 28 of 2015** where the court stated as follows:

*"Where a party believes that the court made an error offact or law in its Judgment, that party will only succeed in moving the court to correct that error if the error falls under the three instances indicated in rule 2(2) of the rules of this court. And as rightly stated in Haridas v. Suit. Usha Rani Banik & Others (supra) the error should be apparent on the face of the record where, without argument, one sees the error staring one in the face".*

The requirement that an application for reviewunder rule 2(2) should not be a disguised appeal cannot be over emphasised. This court will be quick to dismiss an application for review whose grounds are framed as grounds of appeal. This court is a final appellate court of the land and its decisions should be respected. This is in line with the principle that there should be an end to litigation. It is only in

that this court's exceptional circumstances discussed above decisions should be recalled.

It is upon this background that the Court in *Orient Bank Ltd. v. Fredrick Zaabwe* & *Anor* (supra), having determined that all the alleged grounds of the application for review sought to overturn the court s alleged erroneous" views on issues and amend them to what in the applicant s opinion were the right position of the law, dismissed the application.

I

In so doing, the Court made the following observations:

*"From both the said motion and the written submissions, it appears that learned counsel forthe applicant, wittingly or unwittingly, seeks to go beyond the confines ofthe two rules. We allude to this because notwithstanding the assurances in the applicant's written submissions that "the Court is not being invited to sit on appeal against itself'; there are aspects of the application that can hardly be described in any other way. Apart from three out of the fifteen grounds on which the application is made, the rest of the grounds listed in the motion are assertions that the Court made erroneous findings of fact or law allegedly because its attention was not drawn to one thing or another...*

*Obviously, some of the grounds may well have passed as plausible grounds of appeal if the applicant had a right of appeal However, as rightly conceded by learned counselfor the applicant, this Court being the final court of appeal in*

## *the legal system of this country, cannot be asked to sit on appeal against its decision"*

in the case of Isaya Kalya & 2 Others vs. Macekenyu Ikagobya (supra), while dismissing the application for review, the court held as follows:

*The grounds of the application, however, show that what the applicants seek is not correcting an error apparent on the face ofthe record, orpointing out any obvious mistake that all agree must be corrected, but reversing all the findings that the court made in its Judgment. Indeed, the import of 10 out of 14 grounds ofthe application is to show that this court erred both infact and law to arrive at itsfindings. To borrow the words of the East African Court of Justice in Independent Medico Legal Unit vs. Attorney General ofthe Republic ofKenya, Application No. 02 of2012, the major characteristic is-*

"...dissatisfaction and aggrievement by the applicant at the court's particular findings, views, opinions, conclusions, ...and decisions on the numerous points raised as grounds of the prayer for review. They all seek to overturn the court's 'erroneous' views on these points, and transform them instead into the 'correct' views desired by the applicant. Unfortunately for the applicant, that cannot be. The court cannot under the subterfuge of a 'review' engage in what is in truth an appeal'."

The grounds of the instant application

Motion and the affidavit in support *\** disguised appeal. I will reproduce them for easier reference.

- 1. That there are errors and matters that were overlooked contrary to the intention of the court when delivering the judgment in Civil Appeal No.6 of 2017 in the following manner; - (i) That the decision that the liquidator assumed powers of the directors is inconsistent with the resolution that the applicant should have inquired further whether the actions by the liquidator were proper.

**i**

- (ii) That the conclusion that the indoor management rule does not apply to the affairs of the company in liquidation is absurd and resulted in injustice and abuse of court process. - (iii) That the court overlooked the fact that the sale of the suit property was consensual and was conducted after the respondent / plaintiffs withdrawal of H. C. C. S No. 155 of 2005. - record that the sale of the suit consensual and was done 2. That there is evidence on property to the applicant was under the voluntary liquidation backed by a special resolution which appointed the first respondent as liquidator. - 3. That the second respondent who had injuncted the sale of the suit property consented to the withdrawal of the injunctive order under H. C Commercial Court Misc. Application No. 141 and 142 of 2007, and to the withdrawal of the entire H. C Civil Suit No. 155 of 2007 between Ranchhobhai Shivabhai Patel Limited JV Patel PR Patel AND the Liquidator of African Textile Mill Limited (in Liquidation); - 4. That the Court made an error that there was a valid valuation report of the entire property at UGX. $22,300,000,000/$ = before the sale whereas not, which created a wrong influence that the sale was at an under value. - 5. That the Court made an error that the indoor management rule does not apply to the affairs of a company in liquidation whose principal officer is only the liquidator. - 6. That the foresaid errors of the Court occasioned serious injustice, and absurdity to the applicant company which purchased the suit property at valuable consideration of USD 1,200,000/= which benefited the first respondent to settle indebtedness and is now deprived of the suit property and improvements she effected plus the consideration to acquire it.

## **7. That it is in the interest ofjustice to recal amend or vary the judgment and orders ofthe Honorable Court."**

The nature ofthe applicant's application can be best described by the persuasive case of **IndependentMedico Legal Unit vs. Attorney <sup>G</sup>eneralofthe Republic ofKenya, Application No. 02 of2012,** the major characteristic is-

..**.dissatisfaction and agreement by the applicant at the court s particular findings, views, opinions, conclusions, and decisions on the numerous points raised as grounds of the prayer for review. They all seek to overturn the court's 'erroneous' views on these points, and transform them instead into the 'correct' views desired by the applicant. Unfortunately for the applicant, that cannot be. The court cannot under the subterfuge of a 'review' engage in what is in truth an appeal'.**

Based on the aforementioned grounds, this court is being called upon to re-evaluate the evidence on whether the applicant was a *bonafide* purchaser for value without notice, determine whether there was an arrangement between the liquidator of ATM (in Liquidation) and Crane Bank Ltd, and the indoor Management rule.

There is no doubt that this application falls outside the scope of review of a judgment. Venturing outside the confines ofreview would

**29**

mean that the Court is sitting in its own appeal. It is on this basis that we find that this application is barred in law.

The Courts at all levels adjudicated upon and resolved all the issues being raised by the applicant. This court found that the transaction of sale of the suit property was illegal and that the illegality was also imputed on the applicant as transferee of the suit property.

The applicant's dissatisfaction with the said decision cannot form a basis of an application for review and the recall of the judgment in Civil Appeal No. 06 of 2017.

The application, therefore, collapses on this ground.

We however note that the issue of the status of the plant and machinery was not clearly captured in the orders of the Court.

The uncertainty is clearly brought to light in the 1<sup>st</sup> respondent's affidavit in reply in which he avers as follows:

We will state them for easier reference.

"13. In further reply to the contents of paragraph 8 of the affidavit in support of this Application I contend that upon taking possession of the suit property, the Applicant sold off all machinery belonging to M/s African Textiles Mills Ltd in liquidation some of which were brand new.

16. In further reply to the contents of paragraph 8 of the affidavit in support of this application I contend that if this Honorable Court is inclined to order M/s African Textile Ltd in

*liquidation*—*to*—*refund\_\_the US \$ 1,200,000 purchase consideration to the Applicant, the stated refund should be conditioned on the Applicant handing over the suit property to M/s African Textile Mills Ltd in liquidation together with all the machinery the Applicant found on the suit property as at the thne*—*when*—*the*—*applicant took possession of the same."* {Emphasis mine).

The 1st respondent's averments are to the effect that the Applicant sold off the plant and machinery as soon as it took possession of the suit property. The 1st respondent is under the impression that the decision of the Court in **SCCA No. 6 of 2017,** was not a natural consequence of the nullification of the transaction of sale of the suit property and prays that if the court is inclined to order for a refund of the purchase price to the Applicant, it should be conditioned on the handing over of the suit property to ATM (in liquidation) together with all the machinery the applicant found on the suit property when it took over.

This is not a correct representation of the intention of the court in **SCCA No. 6 of 2017.** On 6th November, 2018, when this Court allowed the appeal, set aside the concurrent findings of the Court of Appeal and the High Court and made its own orders, the intention of court was to set aside the illegal sale of the suit property and return all the property that constituted part of the suit property to the 1=\* respondent and the Company.

Order 2 of this Court's orders reads as follows:

*"The ^f^UhesuUproperty by the respondent to the respondent is hereby nullified and an order hereby issues for the cancellation of the 2™ respondent's name from the certificate of title and restoration of the name ofM/s African Textile Limited, in liquidation"* (Emphasis mine).

f

It is implied in the aforesaid order that all the property that was subject of the nullified sale would be returned to their original owner ATM (in liquidation). This is in line with the clause 5(c) of the 1st Respondent and another's amended plaint that read as follows:

*5 (c):*

**I**

*"Recovery of the suit land comprised in LRV 786 Folio 12 plot 78-9, the factory machinery, the buildings and other developments thereon (herein after collectively referred to as "the suit property")*

The suit property has always consisted of the land, buildings and machinery.

This decision is in line with this court's decision in the case of **Sinba (K) Ltd and 4 others vs. Uganda Broadcasting Corporation, SCCA No. 3 of 2014, which** clearly stipulates the effect of illegality on a transaction. In that case, the Court adopted the High Court's position in the case of **Kanoonya David vs. Kivumbi & 2 Others HCCS No. 616 of 2003** (unreported) that stated that:

*"An illegality vitiates the transfer of title with the result that the sold property remains the property of*

*its owner. In this owner and at the second defendant. case the property cannot vest in the same time vest in the purchaser the »*

The import of this decision is that all the property that is subject to the illegal sale remains the property of the initial owner and upon the decision of this court all the property that the applicant had obtained pursuant to the illegal sale was to be returned to its original owner.

This however, has not been the case.

In order to give effect to the Court's intention as of 6th November, 2018, when the judgment of this court in **SCCA No. 6 of 2017** was delivered, we would make the following orders:

- 1. The judgment of this court in **Civil Appeal No. 06 of 2017** is maintained subject to the clarifications. - 2. The Applicant immediately returns to the M/s African Textile Mills Limited (in liquidation) the plant and machinery that was in the factory as at the time it took over. - 3. In the event the return of the plant and machinery as directed in (2) is not immediately practicable, the Applicant shall pay to the 1st Respondent the equivalent of Uganda Shillings 11, 944,127,000/= per Valuation Certificate dated 14th May, 2004, being the replacement value of the plant and machinery. - 4. The Applicant will pay the costs of this application.

**33**

Dated at Kampala this ddy of 2020.

**RUBBY OPIO-AWERI**

**JUSTICE OF THE SUPREME COURT**


**JUSTICE OF THE SUPREME COURT**


JUSTICE OF THE SUPREME COURT


**JUSTICE OF THE SUPREME COURT**

**MIKE J. CHIBITA**

**JUSTICE OF THE SUPREME COURT**

**-**

**II**