Shumuk Aluminium Industries has been ordered by the Commercial Court to pay Bank of Baroda more than Shs 16.4 billion after losing a long-running legal battle over unpaid loan facilities.
Justice Patience Rubagumya dismissed Shumuk’s case and instead ruled in favour of the bank, finding that the company had defaulted on its loan obligations and that the bank acted lawfully when it recalled the credit facilities.
Mukesh Shukla, the company’s chairman, was also found personally liable under a guarantee he signed, exposing him to repayment of up to Shs 6.36 billion if the company fails to meet its obligations.
The judgment is a major setback for Shumuk, which is a household name in Uganda’s manufacturing sector.
Founded by businessman Mukesh Shukla, the Shumuk Group is one of Uganda’s largest indigenous industrial conglomerates. The group manufactures and distributes a wide range of products including aluminium cookware, plastics, steel products, household goods, packaging materials and consumer products.
Over the years, it has grown into one of the country’s biggest employers in the manufacturing sector.
Shukla is a controversial and outspoken businessman. He has in the past attempted but failed to get into elective local politics.
On June 29, 2018, Bank of Baroda granted Shumuk an overdraft facility of Shs 6.36 billion and a letter of credit facility worth Shs 1,3 billion for a period of 12 months.
The credit facilities were secured through mortgaging the company properties at Lugogo UMA Showground and other places and backed by guarantees from both Shukla and Uganda Aluminium Ltd.
However, relations between the parties deteriorated seven months later when the bank issued demand notices requiring repayment.
Shumuk told court that the facilities had been recalled illegally and prematurely. The company maintained that it had been servicing the loans and accused the bank of acting in bad faith.
It also challenged the figures being demanded and alleged that the bank had improperly converted dollar-denominated facilities into Uganda shillings.
On its part, Bank of Baroda argued that Shumuk had stopped paying accrued interest and had failed to maintain required funds on its account.
According to the bank, these defaults made the facilities non-performing and entitled it to demand immediate repayment.
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In her ruling, Justice Rubagumya said the January 25, 2019 notices by the bank were lawful demand notices and not illegal notices of sale as claimed by Shumuk.
She also found that Shumuk’s own witnesses acknowledged that the credit facilities were repayable on demand.
The bank records that were displayed in court showed that the company had failed to pay accrued interest on the overdraft and letter of credit facilities for several months.
Justice Rubagumya noted that the company’s witnesses could not produce evidence showing that repayments had been ignored by the bank or that the debt calculations were wrong.
“Although PW1 and PW2 insisted that some deposits by [Shumuk] towards the settlement of the facilities were not credited to their loan accounts, they did not present any evidence to that effect,” she said.
She also rejected Shumuk’s argument that the bank had wrongly converted $ 1.25 million instead of $ 1.1 million.
On the central issue of the loan recall, the court left no doubt about its position.
“In light of the [bank’s] uncontested evidence, I find that the recall of the credit facilities on 25th January, 2019 was legal and lawful,” Justice Rubagumya ruled.
She concluded that Shumuk breached the loan agreements by failing to pay accrued interest, failing to maintain required funds on the letter of credit account and refusing to clear outstanding indebtedness.
The biggest consequence of that finding is the enormous financial liability now hanging over the company.
Justice Rubagumya said Shumuk must pay a total of Shs16.48 billion immediately at an interest rate of 10% per year until payment is made. She also ordered the company to meet the bank’s legal costs.
As for Shukla, Justice Rubagumya ruled that he remains personally liable for up to Shs 6.36 billion as a guarantor.
