Wakilii

Abisha Steel Industries Limited (In recievership) and 2 Others v Exim Bank (U) Limited and Another (HCCS 5 of 2017)

High Court · [2023] UGHC 299 · 2023 Judgment for Defendant (Partly Allowed) AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit by ordinary plaint challenging bank's recovery proceedings and appointment of receiver
Decision
Plaintiffs' suit largely dismissed. Plaintiffs entitled to detailed account of receivership proceedings from Defendants within 30 days.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that the Bank did not breach the loan facility contracts by making the challenged deductions during the moratorium period. However, the Bank breached the Mortgage Act 2009 by failing to issue fresh demand and default notices after the borrower complied with the initial notices and subsequently defaulted again. Despite this procedural breach, the appointment of the Receiver was lawful under the debenture clauses. The Plaintiffs' suit was largely dismissed, but the court declared that the Plaintiffs are entitled to a detailed account of the receivership proceedings under the Insolvency Act 2011.

Outcome

Plaintiffs' suit largely dismissed. Plaintiffs entitled to detailed account of receivership proceedings from Defendants within 30 days.

Facts

Abisha Steel Industries Ltd obtained three credit facilities from Exim Bank (U) Ltd totaling USD 2,008,000, secured by a mortgage over land and floating debentures over all assets. Abisha defaulted on the loans. The Bank issued demand and default notices on May 4, 2016, requiring payment of USD 136,046.62 within 45 working days. Abisha paid USD 170,000 on June 21, 2016, covering the arrears. However, Abisha subsequently failed to make scheduled monthly installments. On November 14, 2016, the Bank appointed Felix Musiime as Receiver and Manager over all mortgaged assets. The Receiver advertised the assets for sale on November 17, 2016, and sold them to Balteck Construction & Trading Company Ltd on April 2, 2019. The Plaintiffs challenged the Bank's recovery proceedings, alleging breach of contract, premature recall of the loan, and unlawful appointment of the Receiver.

Issues

  1. Whether the suit by Abisha Steel Industries Ltd (the 1st Plaintiff) is maintainable?
  2. Whether Exim Bank (U) Ltd (1st Defendant) is in breach of contract?
  3. Whether the appointment of Mr. Felix Musiime (the 2nd Defendant) as a Receiver and manager was lawful?
  4. Whether Exim Bank (U) Ltd (1st Defendant) is liable for causing the alleged financial loss to the Plaintiffs?
  5. Whether there are any remedies available to the parties?

Orders

  • The Plaintiffs' suit is dismissed, save for the Plaintiffs' entitlement as ordered.
  • A declaration is issued that the Plaintiffs are entitled, pursuant to sections 179, 180, 189 & 190 of the Insolvency Act 2011, to a detailed account of the Receivership over the 1st Plaintiff's assets, which the Receiver, and by implication, the Bank must make available to them.
  • The Defendants shall, within thirty (30) days from the date of this Judgment, avail to the Plaintiffs, and also to this court, by filing with the Registrar of this Court, detailed Account reports of the Receivership over the assets of the 1st Plaintiff.
  • No order as to costs.

Rules and key headnotes

Banking & Finance — Loan Facilities — Grace Period — Call Loans vs Term Loans — Liquidation During Moratorium
During a grace period on a term loan, a bank may book the loan as a call loan to accommodate the moratorium where the borrower pays only interest. Upon expiry of the grace period, the call loan is liquidated and the term loan is booked to support payment of both principal and interest installments. An erroneous auto-debit of principal during the grace period that is promptly reversed does not constitute breach of contract.
Banking & Finance — Mortgage Enforcement — Mortgage Act 2009 — Fresh Notices After Compliance and Subsequent Default
Where a mortgagor complies with a demand and default notice issued under section 19 of the Mortgage Act 2009 by paying the arrears within the stipulated time, but subsequently defaults again by failing to make scheduled installments, the mortgagee is legally obliged to issue fresh demand and default notices before exercising remedies under sections 20, 22, or 26 of the Act. The mortgagee may only proceed with recovery steps, including appointing a receiver or selling the mortgaged property, upon the mortgagor's failure to comply with such subsequent notices.
Banking & Finance — Receivership — Appointment Under Debenture — Validity Despite Mortgage Act Breach
Where a bank appoints a receiver under a validly registered debenture clause, the appointment may be lawful even if the bank failed to comply with the notice requirements of the Mortgage Act 2009. The appointment under the debenture is a separate contractual remedy that does not depend solely on compliance with the Mortgage Act procedures.
Company Law — Debentures — Registration — Effect of Non-Registration — Duty to Register
Under section 105(1) of the Companies Act 2012, a charge created by a company is void against the liquidator and any creditor unless the prescribed particulars and instrument are delivered to the registrar for registration within 42 days of creation. The duty to register a charge falls on the borrower company, not the lender. However, a lender seeking to enforce a charge must prove that it was validly registered.
Banking & Finance — Receivership — Receiver's Duty to Account — Insolvency Act 2011
Under sections 179, 180, 189, and 190 of the Insolvency Act 2011, a receiver is legally bound to account by way of preliminary and other reports for all amounts and values of assets and incomes that come into his hands, including proceeds from the sale of mortgaged assets and how they were applied. The receiver must exercise his powers in the best interests of the grantor and persons claiming through the grantor. Where a bank has given an indemnity undertaking to the receiver, the bank must also take responsibility for ensuring proper accountability.
Civil Procedure — Costs — Discretion — Failure to Comply with Law
Under section 27 of the Civil Procedure Act, a court has discretion to make no order as to costs where a successful party has failed to comply with the law in material respects. A defendant's failure to comply with statutory notice requirements, even where ultimately successful on the merits, may justify denying costs.

Legislation cited (13)

Cases cited (4)

  • Housing Finance Bank Ltd & Anor v Edward Musisi (SCCA No. 22 of 2010)
  • GT Bank (U) Ltd v Richline International Ltd & Anor (HC (OS) No. 10 of 2014)
  • Margherita Millers Ltd & Anor v Housing Finance Bank Ltd & Anor (HCCS No. 390 of 2018)
  • Banco Arabe Espanol v Bank of Uganda (SCCA No. 8 of 1998)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Abisha Steel Industries Limited (In recievership) and 2 Others v Exim Bank (U) Limited and Another (HCCS 5 of 2017) [2023] UGHC 299 (27 February 2023)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.