Commercial Court Halts Auction Sale of Shumuk Properties

The court has halted the sale of the multi-billion shilling property of businessman Mukesh Shukla.

Bank of Baroda Uganda Limited was set to sell the property in an auction over a sh7.6b debt.

The bank had issued a 30-day ultimatum to the businessman to clear the debt owed by his company,

Shumuk Aluminium Industries Limited or its proceeds to sell the properties. The properties are located on Plot 24, Mukabya Road in Kampala, Plot No.M700 and the land at the Uganda Manufacturers Association showground at Lugogo, Kampala.

John Paul Edoku, the Commercial Court registrar, issued the directive on March 28, in the presence of the parties.

Shukla was represented by Badru Bwango, while the bank was represented by John Fisher Kanyemibwa.

“An interim order is hereby issued to restrain the respondent, its agents, servants or anyone claiming title under it from selling, disposing of, transferring and or tampering with the said property until the final disposal of the main case,” Edoku ordered.

Edoku said it would be a travesty of justice for the bank to dispose of the mortgaged properties before the determination of the case.

“The intended sale of the said properties during the pendency of the main suit and counterclaim shall amount to unjust enrichment of the bank circumvention of the due process of court in determining the matter in dispute,” the registrar said.

Edoku observed that there were triable issues that needed to be investigated and inquired into by the court in regard to the mortgaged properties by the bank.

“The applicant is likely to suffer irreparable harm if the bank is not restrained from selling the property,” the registrar said.

Court documents indicate that Shukla has been a customer of Bank of Baroda since 1992, during which it has had transactions of over $5m (sh19b).

The bank has had transactions with Shukla’s companies such as Shumuk Properties Limited, Shumuk Tours and Travel Limited as well as the predecessor East African Aluminium Works Limited.

“The plaintiff has since 1994 operated a loan account for both credit and overdraft facility with the bank, which he has always serviced promptly as agreed,” court documents read in parts.

Shukla, therefore, seeks a declaration that the bank is in breach of the loan contract and that the bank was wrong to recall the credit facilities.  

The businessman also seeks a permanent injunction, restraining the bank from selling, disposing of and evicting him from the said properties.

Jhanjari Sanal, the bank’s chief manager in charge of credits, in his affidavit, said: “By statutory notice dated January 25, 2019, the bank acting through its lawyers, then known as Kateera and Kagumire (currently H&G Advocates) demanded the applicant to settle the debt within 45 working days from the date of the said notice, but Shulda refused to pay the loan.”

Court documents indicate that in 2018, the bank granted Shumuk Aluminium Industries an overdraft and loan facility, of sh6.3b and S350,000 (shi. 3b), respectively.

According to court documents, the bank extended a credit and overdraft facility at an interest rate of 26% per annum.

Shukla contends that for the last 10 years, he has consistently reduced on the overdraft facilities to the bank, thereby leading to a strangulation of its operations, which has in turn reduced its income

returns and ability to remit loan payments under its loan account.

“I have been religiously servicing the said loan facilities ever since its disbursement and a copy of the bank statement shall be produced at the hearing in proof of the said facts,” he says.

Shukla, however, says on January 25, 2019, the bank, without prior demand or warning, issued a notice of sale of its securities on grounds that he was not servicing the loan.

He purports that the amounts claimed in the notice of default as outstanding under the mortgage is incorrect because it does take into account the several payments that have been made towards the repayment of the loan.

Shukla says the initial loan contract for January 31, 2017 was for 48 months from January 2017 and it still has more than 20 months to run and hence there is no justification for its recall by the bank.

He says the action of the bank to adjust the base lending rate upwards was in total breach of the terms of the loan contract and constituted an illegality since it was done in bad faith.