i m bank t ltd vs bharat kumar karsandas ruparelia three others 2022 tzhccomd 373 23 november 2022

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION)

AT DAR ES SALAAM COMMERCIAL CASE NO. 6 OF 2022 I & M BANK (T) LTD ………………………………………………PLAINTIFF

VERSUS BHARAT KUMAR KARSANDAS RUPARELIA……………1st DEFENDANT AMIN MOHAMED VALJI…………………………………...2nd DEFENDANT MAURI-TAN HOLDINGS LIMITED…….…………………3rd DEFENDANT COSMEC SECURITY SYSTEMS LIMITED…………………4th DEFENDANT JUDGMENT. Date of Last Order: 4/10/2022 Date of Judgment: 23/11/2022. MARUMA J. The Plaintiff I & M BANK (T) LTD a limited liability company and a licensed banking institution is suing the Defendants jointly 1 and severally for the sum of TZS 4,568,351,658.47/=) plus interest and costs as an outstanding amount resulted from an overdraft facility advanced to the 1st and 2nd Defendants and guaranteed by the 3rd and 4th Defendants. The background of the dispute is to the effect that on 21st November, 2018 the 1st and 2nd Defendants were granted by the Plaintiff a credit facility of TZS. 3,500,000,000/= based on terms and conditions accepted by the 1st and 2nd Defendants and by the 3rd and 4th Defendants as guarantors. The facility was secured by immoveable properties, include Plot Nos. 97, 98 and 99 Nyerere Road Industrial Area, Dar es Salaam with title No. 15056. The corporate guarantees of the 3rd and 4th Defendants including Plot Nos. 101, 102, and 103 Nyerere Road Industrial Area, Dar es Salaam, with title No. 186078/15 of the 3rd Defendant. It is alleged that before the completion of the loan term, 8th November 2019 the 3rd Defendant submitted a written request to the

Plaintiff, signed by the 1st and 2nd Defendants as directors of the 3rd Defendant, for the conversion by the 1st and 2nd 2 Defendants of the overdraft credit facility into a term loan facility of five years to the 3rd Defendant. The loan which was granted on 6th January 2020 at a tune of TZS. 3,500,000,000/= with a tenor of sixty (60) months to take over the overdraft credit facility of the 1st and 2nd Defendants on the agreed terms and conditions of the credit facility which was duly accepted by all four Defendants on 8th January 2020 executed with additional securities deeds of assignment of rental income in respect of immoveable properties on Plots No. 97, 98 and 99 Nyerere Road Industrial Area, Dar es Salaam. Title No. 15056 and Plots No. 101, 102 and 103 Nyerere Road Industrial Area, Dar es Salaam. Title No. 186078/15 and properties, each one charged to secure the sum of TZS. 4,375,000,000/= plus interest and other charges. It was also alleged that the purpose of the subsequent facility to the 3rd Defendant was frustrated by an agency notice of attachment of the 1st and 2nd Defendants’ overdraft accounts by the Tanzania Revenue Authority following the 1st Defendant’s Tax liability as liquidator of one Calico Textile Industries Limited. The fact that 3 was communicated in writing to the 3rd Defendant by the Plaintiff through the letter dated 15th June 2020. It was alleged

further that on 6th July 2020 the Plaintiff received written communication from the 3rd Defendant to withdraw its previous request of the five years term loan credit facility for the purpose of taking over the overdraft credit facility of the 1st and 2nd Defendants followed by further correspondence dated 31st August 2020 from the 2nd Defendant (On behalf of himself and the 1st Defendant) and from the 3rd Defendant instructing the Bank not to transfer the outstanding liabilities of the 1st and 2nd Defendants under the overdraft credit facility to the 3rd Defendant under the term loan credit facility. Hence, the Defendants continue to be jointly and severally liable to the Plaintiff under the initial overdraft credit facility dated 21st November 2018. In alternative under the subsequent term loan facility dated 6th January 2020 either as principal borrowers or as guarantors. On 5th and 6thNovember 2020 the Plaintiff served demand notices dated 2nd November 2020 to the Defendants followed by further notices on 9th 4 November 2021 together with the statutory default notices under the Land Act 113 R.E 2019 which were served to the Defendants. To claim the outstanding amount of TZS. 4,568,351,658.47/=. The Plaintiff therefore claims for the following order and reliefs; 1. Judgment in his favour against jointly and severally all four Defendants for TZS. 4,568,351,658.47/= 2. Interest and Default Interest at the aggregate rate of 19.5% per annum from 1st January 2022 until Judgment or sooner payment.

3. Interest at the Court rate post -Judgment.

4. Defendants jointly and severally be Ordered to pay the costs 5. Such further Orders and reliefs this Hon. Court deems just, equitable and convenient. 5 During the hearing of the dispute, the parties were represented by Mr. Zacharia Daudi, Advocate for the Plaintiff and Mr. Edward Nelson Mwakingwe assisted by Emmanuel Saghan, Advocate for the 1st Defendant. The 2nd, 3rd, and 4th Defendants were discharged from this suit following the consent judgment in respect to the 2nd , 3rd and 4th Defendants dated 7th June 2022. To prove its case, the Plaintiff summoned Mr. Krishnan Ramachandaran, head of corporate banking (PW1), who tendered seventeen (17) exhibits, including an offer letter accepted by the customer and the 1st and 2nd Defendants (Exhibit P1), a request for the loan (Exhibit P2), a promissory note payable on demand (Exhibit P3), a deed of assignment (Exhibit P4), a request letter from the customer to convert the OD to a term loan (Exhibit P5). Offer letters signed by the customer (Exhibit P6). TRA notice to recover tax in favour of the bank requesting Mr. Bharat to make a payment (Exhibit P7). A letter from the bank to the customer informing them of the payment and requesting that they contact TRA (Exhibit P8). A request from the third defendant to the bank 6 to withdraw the third defendant's application for an overdraft transfer facility (Exhibit P9). A letter from the

1st Defendant on arrears of 90 days (Exhibit P10) a letter from the 1st and 2nd Defendants to the bank requesting that we hold interest applications until internal matters are resolved (Exhibit P11). A letter from the second defendant to the bank requesting that the third defendant not be transferred (Exhibit P12). A letter from the 3rd Defendant that the loan obligation is not to be transferred to the 3rd Defendant (Exhibit P13). a letter from the Bank to the 3rd Defendant on approval of the application, though not because of TRA notices (Exhibit P14). A demand notice to the 1st and 2nd Defendants to recall the loan with 14 days’ notice to make the payment (Exhibit P15). account statement certified by the Bank (Exhibit P16). An affidavit certifies the authenticity of the bank statement (Exhibit P17). On the Defendant’s side, Mr. Bharat Kumar Karsandas Ruparelia (DW1) testified against the Plaintiff’s claims in support of five exhibits, including a deed of assignment of rental income dated 8th Jan 2020 (Exhibit D1), a mortgage 7 dated 8th March 2020 (Exhibit D2), a mortgage deed dated 23rd March 2020 (Exhibit D3), Certificate of Registration dated 23rd March 2020 (Exhibit D4), a consolidated form (BRELA application form for change of names) dated 28th April 2020 (Exhibit D5). In determining the dispute with respect to the remaining 1st Defendant, the Court framed four issues,

including whether there is an existing overdraft facility between the Plaintiff and the 1st Defendant. If issue No. 1 is answered in affirmative, whether the said overdraft facility was converted into a term loan issued to the 3rd Defendant Mauri - Tan Holdings Limited. What are the rights and liabilities of the 1st Defendant into the term loan transferred to Mauri - Tan Holdings Limited, and to what relief are the parties entitled. Starting with the 1st issue, whether there is an existing overdraft facility between the Plaintiff and the 1st Defendant. The evidence of both PW1 and DW1 admitted that the Plaintiff and the 1st & 2nd Defendants were entered into an agreement of an overdraft facility of TZS. 3,500,000,000/= in 21st November 2018 8 (Exhibit P1) as reflected both in the plaint and written statement of defence for the 1st Defendant as well as in their witness statements. Therefore, the 1st issue is answered in affirmative. Concerning the second issue, whether the aforementioned overdraft facility was converted into a term loan granted to the 3rd Defendant, Mauri-Tan Holdings Limited. The evidence from PW1 under paragraph 7 of the witness statement established that before the completion of the tenor of the 1st credit facility, the 3rd Defendant submitted to the Plaintiff a written request dated 8th November 2019 signed by the 1st and 2nd Defendants as Directors of the

3rd Defendant for conversion of the 1st and 2nd Defendants overdraft credit facility (Exhibit P5) into a term loan facility of five years to the 3rd Defendant. PW1 went to testify that the said request was granted, and on 6th January 2020 the Plaintiff advanced to the 3rd Defendant a term loan facility of TZS 3,500.000,000/= with a tenor of sixty (60) months to takeover the overdraft credit facility of the 1st and 2nd Defendants upon the terms and conditions of the Plaintiff’s credit agreement facility 9 letter dated 6th January 2020 which was duly accepted by all four Defendants on 8th January 2020 (Exhibit P6). This evidence was seconded by DW1 in his witness statement under paragraphs 10,11, 12 and 13. Therefore, the 2nd issue is also answered in affirmative. On the 3rd issue, what are the rights and liabilities of the 1st Defendant under the term loan transferred to Mauri - Tan Holdings Limited. PW1 testified that the purpose of the 6th January 2020 term loan facility (Exhibit P6) to the 3rd Defendant, namely the takeover of the overdraft credit facility of the 1st and 2nd Defendants was frustrated following the service upon the Plaintiff of an agency notice and attachment of the 1st and 2nd Defendants’ overdraft account by the Tanzania Revenue Authority (TRA) in relation to the 1st Defendant’s tax liability as liquidator of one Calico Textile Industries Limited. PW1

further testified that such notice was communicated in writing by the Plaintiff to the 3rd Defendant by its letter dated 15th June 2020 (Exhibit P8). PW1 added that on 6th July 2020 the Plaintiff received written 10 communication from the 3rd Defendant withdrawing its previous application for the five years term loan credit facility for the purpose of taking over the overdraft credit facility of the 1st and 2nd Defendants followed by further correspondence of 31st August 2020 from the 2nd Defendant (on behalf of himself and the 1st Defendant) and from the 3rd Defendant instructing the Bank not to transfer the outstanding liabilities of the 1st and 2nd Defendants under the overdraft credit facility to the third Defendant under the term loan credit facility. Reference was made to Exhibits P8, P9, P10, PI 1, PI2, Pl3 and P14 tendered as evidence. PW1 testified that the 1st and 2nd Defendants continue to be jointly and severally liable to the Plaintiff under the initial overdraft credit facility dated 21st November 2018, in the alternative under the subsequent term loan facility dated 6th January, 2020 either as principal borrowers or as guarantors. The 1st Defendant strongly disputed the Plaintiff’s claims that there are any outstanding amounts due or any rights to interest and costs related to any overdraft facility following the 11 takeover of the 1st facility by the 3rd

Defendant. The 1st Defendant’s argument was that since the terms and conditions under the term loan facility offered by the Plaintiff (the 2nd Facility’) in favour of the 3rd Defendant (the ‘Current Borrower’) were duly signed and accepted on the 8th January 2020 by the directors of the 3rd Defendant thus novated all the terms and conditions of the first facility. DW1 added that after the perfection and registration of all the security documents in favour of the Plaintiff at the company and land registries, all the rights and liabilities of the previous borrowers to the Plaintiff immediately passed to the current borrower. Furthermore, DW1 contended that the Plaintiff's approach was in breach of the second facility's terms and conditions and not otherwise based on several admissions made by the plaintiff in their letter dated 8th September, 2020, addressed to the current borrower, which contain statements, most notably on the facts cited that , “…The securities pledged to secure the term loan has already been registered -with the Lands registry and charged to 12 the bank since April, 2020 to secure the exposure in the name of Mauri - Tan Holdings Limited…” DW1 also argued that through a consent judgment entered on the 7th June 2022 the rest of the Defendants including the current borrower, have agreed to settle the matter amicably. The plaintiff had nothing to claim against the

1st Defendant after the rest of the defendants, specifically the current borrower, agreed to the plaintiff's claims. Since the principal debtor has agreed to settle its liabilities, all the alleged guarantors including the 1st Defendant are discharged. Assessing the evidence above It is quite clear that the second facility with a purpose of taking over the 1st facility was duly executed between the Plaintiff and the 3rd Defendant on the 8th January 2020 as per the testimonies of PW1 and DW1 as stated above, where the 3rd Defendant was advanced a term loan facility of TZS 3,500.000,000/= with a tenor of sixty (60) months by the Plaintiff. Then comes the question of what the status of 13 the first facility will be. The Law of Contract Act, Cap 345 of 2018, Section 2 (e) provides that, “…Every promise and every set of promises, forming the consideration for each other, is an agreement…” Taking the definition above and applying it to the matter at hand, the request made by the 1st and 2nd Defendants on November 2019 which was accepted by the Plaintiff on 6th January 2020 and duly signed by the 3rd Defendant on 8th January 2020 amounted to an agreement following the proposal from the 1st and 2nd Defendants and acceptance by the 3rd Defendant. This means the said communication was completed when the Plaintiff communicated a letter of credit issued on 6th January 2020 to the 3rd

Defendant and its acceptance was completed when it was signed on 8th January 2020 by the 3rd Defendant. This is when communication is said to be complete and the agreement becomes binding for the Plaintiff and the 3rd Defendant. Moreover, going by Section 62 of the Act (supra), it clearly provided that, I quote, 14 62. “ …Where the parties to a contract agree to substitute a new contract for it, or to rescind or alter it the original contract need not be performed…” In the present matter, the execution of the second facility agreement on 8th January 2022, was when the 3rd Defendant took over the overdraft credit facility of the 1st and 2nd Defendants and relieved them of the liabilities of the first credit facility as stipulated by Section 62 above and the authority cited by the 1st Defendant in the case of M/s Musilanga Engineering vs P.F. Nyakutonya Nvanigesera & Another (1986) TLR 115 the Court before His Lordship Mwalusanya J as he then was Held that; "…"It is obvious that the defendant was in breach of the contract for the debt that was assigned to him under the doctrine of novation. This doctrine recognises that one party to a contract can release the other and substitute a third person who then undertakes to perform the released person's obligations. Thus, by agreement, a new contract replaces the original contract. That 15 doctrine is recognised in our country and it is

under s. 62 of the Tanzania Contract Act. Cap. 433, which reads: If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed. That is exactly what happened here. By virtue of the letter Exh A there was created a new contract between the plaintiff and defendant instead of the original contract between the plaintiff and Musoma Foodstuffs Trading Co. Therefore, as to what transpired earlier between those two old contracting parties is irrelevant here. We are only concerned with the new contract…” Non-existence of the first facility was also admitted by PW1 during cross examination when he admitted that each facility has its own letter, they are two different facilities, and you can have them separately depending on the customers. The evidence that the second facility was frustrated by the agency note from the Tanzania Revenue Authority (TRA) and the attachment of the 1st and 2nd Defendants’ overdraft account in relation to the 1st Defendant’s tax liability as liquidator of one 16 Calico Textile Industries Limited has nothing to do with the agreement concluded between the Plaintiff and the 3rd Defendant. The second credit facility was neither between the Plaintiff and the 1st nor the 2nd Defendant. Besides, reading the said notice (Exhibit) it was concerning the 1st Defendant. Also, despite the fact

that the 3rd Defendant issued a withdrawal of its previous application to take over the overdraft credit facility of the 1st and 2nd Defendants and further instructions thereon. At this juncture, I have to remind the Plaintiff that once the communication between herself and the 3rd Defendant was completed, under Section 5 of the Law of Contract (Supra) there was no revocation as it provides that, 5 (1) “…A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. 17 (2) An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards…” On that stand, since the agreement was duly executed by the Plaintiff and the 3rd Defendant, there was no room for revocation as stipulated above, and therefore the withdrawal request by the 3rd Defendant has no legal basis in the existence of the second credit facility. This was also in support of the PW1’s testimony during cross examination that the defendant's request was approved, documents were completed and granted as securities were perfected, and the Plaintiff was in the process of convection by closing the old account and opening the new account in the system. The evidence shows that the documents were signed and completed but not implemented within the system, meaning the agreement was

concluded. PW1 is also confused about when the contract is said to be concluded. According to him, since the second loan was not created in the bank system, it is only the original facility reflected 18 there, which means the bank is yet to honour the terms and conditions of the agreement, a definition that is wrong based on the provisions of Sections 5 and 37 of the Law of Contract (Supra). Moreover, as argued by the 1st Defendant (DW1), the letter dated 8th September 2020 (Exhibit P14) addressed to the current borrower revealed the facts I quote, “…The below securities pledged to secure the term loan has already been registered -with the Lands registry and charged to the bank since April, 2020 to secure the exposure in the name of Mauri - Tan Holdings Limited…” This demonstrates the fact that the Plaintiff was aware of the existence of the second facility, which purposely took over the first facility. Also, going by the record, on 7th June 2022 the Plaintiff entered into a settlement with the 2nd ,3rd and 4th Defendants in respect of the 2nd loan facility, whereby the 2nd 19 Defendant agreed to pay the outstanding amount in respect of the second facility, allowing the Plaintiff to discharge the liabilities of the 2nd, 3rd and 4th Defendants. So, if the 2nd, 3rd and 4th Defendant were liable for the 2nd facility, how would the first credit facility remain in force? From these

findings, I am of the satisfied view that the Plaintiff has directed herself wrongly in approaching the first credit facility, which is not in existence in the eyes of the law. On that basis, even the alternative approach proposed to be considered in this case fails, as the 1st Defendant cannot be found liable for the claim, which is not justifiable. All of these findings point to the third issue: not answering in the affirmative. For the aforesaid and observations made, as the 3rd issues is not in affirmative, I find nothing to consider on the last issue as the 1st Defendant is not liable for any liability in respect of the first or the second credit facilities. In the event, I am of the settled view that the Plaintiff has failed to establish her claims against the 1st Defendant as per 20 required standards of civil cases. I therefore, finds the case has no merit and proceed to dismiss it with costs. Dated at Dar es Salaam on this 23rd day of November, 2022 Z.A.Maruma.

JUDGE 21