Court dismisses Magoola application in Equity Bank loan dispute

The High court has dismissed an application by businessman Dr Matthias Magoola seeking orders for reconciliation and audit of his loan and current accounts held with Equity Bank Uganda.

In her ruling, Justice Susan Abinyo found that the application lacked merit and would delay the disposal of the main suit.

“Accordingly, this court finds that this application lacks merit and is dismissed with costs in the cause,” she ruled.

Magoola had sought, among other remedies, an order compelling the bank to account for and reconcile his loan facilities to determine the actual outstanding debt, as well as orders for variation, consolidation and restructuring of the loans.

He also applied for a permanent injunction restraining the bank from enforcing recovery measures pending determination of the main suit.

Court records show that in August 2024, Magoola filed the application against Equity Bank Uganda Limited and Equity Bank, challenging the handling of his loan accounts.

By consent of both parties in December 2024, KPMG was appointed to conduct a comprehensive audit of the loan arrangements and determine the outstanding amounts. The audit report was later submitted to court.

However, Magoola subsequently sought to set aside the appointment of KPMG, requesting that the Institute of Certified Public Accountants of Uganda (ICPAU) nominate an independent audit firm.

The court later allowed the change and directed ICPAU to appoint another auditor.

In opposing the application, the bank argued that the dispute revolves around reconciliation of accounts, alleged wrongful debits and determination of outstanding loan obligations matters that can only be resolved through a full audit and trial.

The bank also dismissed allegations of predatory lending, maintaining that such claims must be subjected to audit and evidentiary scrutiny.

Justice Abinyo held that allowing continuous amendments based on new developments would set a bad precedent and delay justice.

“This court finds that if a party seeks amendment of pleadings whenever new developments arise, it would cause unnecessary delays in the disposal of cases,” she ruled.

She further noted that any additional evidence regarding payments made after filing of the suit can be presented during the main hearing.

The ruling means the matter will proceed to full trial for determination of the outstanding loan dispute between the parties.

Magoola’s loan battle

Equity Bank Ltd extended up to $100 million (about Shs 368.7 billion) in financing to support the construction of facilities, importation of hi-tech medical equipment and machinery, as well as working capital. The Uganda Development Bank contributed $20 million (Shs 73.7 billion), while Tropical Bank provided an additional $2 million (Shs 7.3 billion), all in the form of loans.

In January 2023, Kaweesi and Partners Advocates, acting on behalf of Tropical Bank, published a notice to auction some of Magoola’s properties in Matugga to recover outstanding loan obligations. The properties include Kyadondo Block 82 Plots 1081 and 1082, measuring approximately 51 acres, as well as an additional 9.5 acres located near the Dei Pharmaceutical facility.

Magoola had earlier applied for a loan of about $60 million (Shs 221 billion) from Equity Bank to boost Dei Industries. However, when the Covid-19 pandemic struck, his partners identified an opportunity in vaccine production. They persuaded him to shift focus from the initial pharmaceutical manufacturing project to vaccine development.

With limited capital, Magoola returned to Equity Bank and applied for an additional $60 million (Shs 221 billion) under Dei BioPharma Ltd to facilitate the production of Covid-19 vaccines.

Dei Industries later defaulted on the loans after the business failed to perform as expected. This prompted the Bank of Uganda (BoU) to direct Equity Bank to recall both facilities, citing concerns over the client’s ability to service the debt.

“Equity Bank explained to BoU that their client would offset the loans once production and sale of drugs and vaccines commenced, but the regulator declined,” a source said. “BoU’s position is justified, although there is also pressure from importers who risk losing market share if local manufacturing takes off.”

During the same period, Magoola’s company, Dei Minerals, was struggling to pay $72,437,850 (Shs 268 billion) in legal fees to former Urban Development minister and Kampala lawyer Isaac Musumba. The amount represents 30 percent of the decretal sum of $211,459,500 awarded to Dei Minerals International in a dispute with Videocon Industries Ltd, a UK-India-based firm.

The case stemmed from a breach of contract after Videocon allegedly failed to return Dei’s mining licences, leading to the loss of the licences, mines and the associated income.

On December 13, 2022, Equity Bank’s then managing director, Anthony Kituuka, petitioned the then Deputy now Governor of Bank of Uganda, Michael Atingi-Ego, seeking approval to downgrade the credit facilities extended to Dei Industries International Ltd. The bank also requested exemption from provisioning requirements for 12 months and permission to restructure the facilities.

However, in a letter dated January 17, 2023, Atingi-Ego declined the request, noting that the credit facilities had already been restructured multiple times and that any further restructuring would contravene Regulation 13(c) of the Financial Institutions Regulations.

“The wheat factory, which was the primary source of repayment for the credit facility from Equity Bank, is not operational, and therefore there are no cash flows to service the loans as intended,” Atingi-Ego stated.

This publication could not verify how much the petitioners have paid or how much they owe him.

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