There’s panic at Tropical Bank Uganda Limited and its client IT Office [U] Limited after the later failed to pay back a loan the former secured.
IT Office Uganda Limited took a loan of Shs 6.840 billion from Prime Finance Company Limited, owned by Sudhir Ruparelia. This money has now accumulated to over Shs 21 billion.
On March 13, 2020, Prime Finance Company Limited extended a Shs 5.7 billion loan facility to IT Office [U] Limited at an interest of 5 percent per month for the agreed period of four months, with Tropical Bank Uganda undertaking in writing to pay the loan should IT Office [U] Limited fail to meet it’s obligation.
Four years down the road, IT Office has not paid back hence the accumulation of the debt.
Background
In February 2020, IT Office [U] Limited requested the said loan from Prime Finance Company Limited, with Tropical Bank Uganda, the banker of the IT solutions company, accepting an irrevocable undertaking binding IT Office [U] and Tropical Bank Uganda Limited to repay the principal and the interest on the loan once it accrued. The total amount of over Shs 6.840 was supposed to be repaid by July 9, 2020.
According to daily post website, citing a source in the bank, the purpose of the loan from Prime Finance Companies Limited was to clear off outstanding loan liabilities of over 5.7 billions which IT office (U) Limited owed to Tropical Bank (U) LTD in order to secure another huge loan.
It has come to light that after IT Office failed to pay, it’s guarantor Tropical Bank Uganda Limited are not willing to repay Prime Finance Company Limited its money, or transfer the collateral properties of IT Office [U] Limited to the lender, claiming that the loan transaction was fraudulent, an allegation the bank’s senior staff who did the paperwork dismiss, saying internal procedures allowed them to sign on behalf of the bank, and that is what they did to benefit the bank, and not them as individuals.
Under the irrecoverable undertaking, Tropical Bank Uganda as the undertaker guaranteed that the debt was recoverable against them with 5 percent interest per month until full repayment, regardless if their client IT Office [U] Limited was able or unable to repay the debt.
Important to note, is that the IT Office [U] Limited’s loan of Shs 5.7 billion from Prime Finance Company Ltd helped the bank to recapitalise as demanded of it by the Bank of Uganda [BoU], the regulator of the banking industry in the country. This money from Prime Finance Company Limited would enable IT Office [U] Limited to secure another Shs 10 billion from Tropical Bank Uganda since the bank still held the company’s collateral including various pieces of land, and a motor vehicle worth billions of shillings.
Indeed, staff of the bank confirm that IT Office [U] Limited started overdrawing its account after paying the Shs 5.7 billion debt to Tropical Bank Uganda, making the bank a beneficiary of Prime Finance Company Limited’s money.
However, despite several reminders that Tropical Bank Uganda pays the debt to Prime Finance Company Limited, the former has not been cooperative. The bank in a bizarre move shifted goal posts, running to BoU, claiming that the Shs 5.7 billion loan transaction was a result of fraud, but the response from Prime Finance Company made Bank of Uganda advise Prime Finance Company that it seeks remedies available to it under the Contract Act 2010, BoU having recognised that there was an irrecoverable undertaking on the side of Tropical Bank Uganda to repay the loan and interest at the time of signing the agreement.
Following BoU advice, Prime Finance Company Limited, through its lawyer, would on December 4, 2022, file a suit against IT Office [U] and Tropical Bank Uganda, and on August 30, 2021, court ruled in favour of Prime Finance Company Limited for recovery of Shs 6.84 billion, repayable at interest rate of 5 percent per month on the decretal sum till payment in full and costs in the main suit and application be borne by the respondents. But since the ruling, no repayment has been made by Tropical Bank Uganda.
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