THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

COMMERCIAL DIVISION

CIVIL SUIT NO. 94 OF 2008

1. R.S PATEL LIMITED ]

2. JAYANTILAL V. PATEL ] ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

PLAINTIFFS

VERSUS

1. HENRY WAMBUGA (LIQUIDATOR OF AFRICAN ]

TEXTILE MILLS LIMITED) ]

2. MUKWANO ENTERPRISES LIMITED ] :::::::::::::::::::::

DEFENDANTS

1st DEFENDANT’S WITNESS STATEMENT (DW 1)

My name is SYLVESTER HENRY WAMBUGA, an Advocate of the High

Court of Uganda with vast experience in Liquidation matters acquired as a
result of my training as an Advocate, a lecturer in commercial transactions
at the Law Development Centre and as a Liquidator of Rautogrove
Limited, the 1st Defendant and I hereby state as follows.

1. I am the first Defendant in the above suit in my capacity as the

Liquidator of African Textile Mill Limited (In Liquidation) hereinafter
referred to as the “Company”.

2. On the 13th day of May 2005 the Company by way of a special

resolution resolved to be wound up under a members’ voluntary
winding up and as such Mr. Clive Mutiso was appointed the first
 liquidator. However he subsequently resigned for reasons unknown
to me.

3. Upon the resignation of Mr. Clive Mutiso, I was appointed the

liquidator of the Company vide a special resolution dated 22nd day of
July 2005 which was signed by the 2nd Plaintiff and Mr. Praful R.
Patel.

4. Mr. Mutiso did not hand over to any documents or file whatsoever
and as such i had to compile my own file so as to perform my
duties. During all the time i have been the Liquidator i have not
received any record of the activities of Mr. Clive Mutiso as Liquidator
of the Company and neither have I ever met him as his whereabouts
have been and are still unknown to me.

5. At the time of my appointment, the Company was not in operation

as it had no working capital and was heavily indebted to
Cooperative Bank (In Liquidation) to the tune of Ushs.
1,200,000,000/= (one billion two hundred million). The Cooperative
Bank had earlier tried to put the Company in Receivership although
unsuccessfully but was still threatening to do so. After my said
appointment the debt to the Cooperative Bank was renegotiated to
Ushs. 1,000,000,000/= (Uganda Shillings one billion) payable
immediately.

6. Since the Company was un-operational it could not pay the

renegotiated debt and as such alternative means of payment had to
be sought. At the time of my appointment I was informed by the 2nd
 Plaintiff and Mr. Praful Patel that they had an arrangement with Mr.
Ashwin Patel to help them get a good buyer. In the circumstances it
was deemed necessary for a meeting to be held with the concerned
persons to find a way forward. The meeting was held, attended by
Ashwin, Praful, the 2nd Plaintiff, Ravi, Thakore and myself whereby it
was agrred that Ashwin would help the Company to secure an
overdraft from Crane Bank Limited to pay off Cooperative Bank and
thereafter the title to Plot 78-96 would be released and then given
to Crane Bank Limited to register its mortgage.

7. The overdraft was secured and Cooperative Bank was paid the said
sum of Ushs. 1,000,000,000/= whereupon the title was released.
After the release of the title the Company applied to Crane Bank
Limited (hereinafter referred to as the “Bank”) to convert the
overdraft into a loan facility which application was granted on the
10th day of April 2006 whereby the sum of USD 800,000 was granted
to the Company as a fresh on demand loan at an interest rate of
11% p.a. repayable in six months. The loan was accordingly
secured by personal guarantees from Mr. Ashwin Patel, the 2nd
Plaintiff, Mr Praful Patel, Mr. Ravi Patel, Mr. Thakore Patel and myself
in my capacity as the Liquidator. It was also secured by a mortgage
on land comprised in Plot 78-96 Palisa Road belonging to the
Company and Plots 1 and 3 belonging to Art Investments Limited
wherein Mr. Ashwin Patel, Mr. Ravi Patel and Mr. Thakore Patel are
shareholders and directors. I see no basis whatsoever, both in law
and common sense, for the allegation by PW 1 in paragraph 6 of his
statement that upon acquisition of said facility I needed to seek
fresh mandate from the Company because whatever I did was
necessary for the beneficial winding up of the affairs of the
Company.
8. The Company failed to repay the loan as per the mortgage or at all
and accordingly an application was made to the bank to convert the
facility into Uganda shillings and thereafter grant an extension of
the time within which to repay. The application was granted on the
18th day of December 2006 with the involvement of Mr. Ashwin Patel
who is a valued customer of the Bank. The extension was for
another six months and as such the debt ought to have been repaid
by 18th day of June 2007.

9. From the time of my appointment up to the time of application for

extension for repayment of the loan I was never approached by any
prospective buyer and neither was any introduced to me by the 2nd
Plaintiff and Mr. Praful Patel. Further during the same period I
authorised the 2nd Plaintiff to reopen the mill using part of the loan
facility but he miserably failed as a result of which he was chased
away from the factory by the workers and the mill was closed. As
such it was not possible to repay the loan at all.

10. In light of the matters aforesaid, in exercise of my powers as the

Liquidator, I had to protect the interest of the guarantors some of
whose other properties were at stake and also ensure that the Bank
was paid. Accordingly I decided to advertise the Company’s assets
for sale which was within my powers without consulting the 2nd
Plaintiff or Mr. Praful Patel, not being obliged to so. I did not consult
them because for over a year from the time of my appointment they
had failed to come up with the purported good buyer and had failed
also to run the factory to service the loan.

11. On the eve of the sale of the assets as advertised I was served with
an interim order staying the sale pending the determination of HCCS
 No. 141 of 2007 wherein my appointment as liquidator was being
challenged. I had however received bids from only two people for
Ushs. 1,5000,000,000/= and Ushs. 1,250,000,000/= I had also
received an inquiry from the 2nd Defendant’s Sister Company
Mukwano Industries Limited who letter told me they were no longer
interested. However as a result of the stay I held a meeting with Mr.
Sam Ahamya of M/s Ahamya Associates who had filed the suit and
another meeting with Mr. Praful Patel and the 2nd Plaintiff whereby
we agreed to suspend the sale to enable them try to get a buyer or
money from other sources. The Interim order and the suit were
unconditionally withdrawn and I gave the 2nd Plaintiff and Praful the
benefit of doubt to look for the money or the buyer but it was never
agreed that I would not sell and or advertise the assets as alleged
by the 2nd Plaintiff and in any case it was not within my powers to do
so.

12. Still the 2nd Plaintiff and Praful failed to get the buyer or the money
and on the 3rd day of April 2007 the Bank wrote to me stating that
the Company had not shown any ability to pay and therefore owing
to the demand nature of the facility they demanded repayment of
the entire facility by the 23rd April 2007. I notified all the guarantors
of the loan including the 2nd Defendant about the demand. However
no payment was made by the stated date. The Bank did not act on
its threat to summarily recover the loan.

13. On the 5th day of May 2007 I receipt from Praful two letters one from
Global Diaspora Advisory Council and Agro Group of Industries
Limited notifying me about negotiations they had held with the
‘management of the Company’. I was never involved in any such
negotiations as the liquidator who had the mandate to commit the
Company and neither was I favoured with any notification of the
 same. Accordingly I told Praful to get back to the authors of the
letter and tell them to meet me directly such that we could discuss
the contents of their letter. My request was however not honoured
and as such I ignored their letters. Nevertheless, the 2nd Defendant
and Praful met the Bank Officials and presented the proposals to
them which proposals were however rejected as I was letter
informed by the General Manager.

14. Although I ignored the letters and the proposals were rejected by
the Bank, the Bank did not take immediate steps to realise the
securities. It is important to note that although it had been indicated
in the letter from Global Diaspora Advisory Council that
negotiations with the ‘Management of the Company’ were almost
complete which was to result into immediate investment of at least
3 billion shillings, no such monies were invested.

15. Consequently on the 11th day of June the Bank instructed M/s
Nagwala, Rezida & Co Advocates to recover the all the outstanding
amounts pursuant to which instructions the said lawyers wrote to
me a letter on the 14th day of June 2007 demanding repayment of
the entire outstanding sum by the 18th day of June 2007, which was
the last date of repayment according to the extended period. I
immediately notified the guarantors of the facility requiring them to
ensure repayment but still no payment was made. It is clear from
the matters aforesaid that the Company failed to repay the loan
within the entire repayment period.

16. However although the lawyers demanded repayment by the 18th

June 2007, they did not take any steps to realise the securities and
on the 3rd day of July 2007 the lawyers wrote to me the final letter
 demanding repayment within 10 days from receipt. A similar letter
was addressed to all the guarantors including the 2nd Defendant but
still there was no repayment and the lawyers did not take
immediate action. It was not until the 3rd day of August 2007 that
M/s Frobisha –B- Ijambere, Bailiffs & Auctioneers were instructed to
realise the securities. The Auctioneers wrote to me a demand letter
notifying me of the advertisement of the property in the Monitor
newspaper of the same day wherein they indicated that the
advertised properties were to be sold after 30 days.

17. All the Guarantors were notified about the intended sale but still no
repayment was made whereupon I decided to find out from the said
auctioneers whether they had received any bids for the properties.
Mr. Musa Ibanda told me that he had received only two bids for the
Plot 78-86 Palisa Road, Mbale the highest being Ushs.
1,000,000,000/= and one for Plots 1 & 3 Kitintale Way.

18. It was upon such finding that I requested the auctioneers not to sell
to allow me try to find a better buyer. I accordingly contacted Mr.
Thakore Patel, one of the guarantors and notified him of the
situation whereupon he introduced me to Mr. Amirali Karmali, a
director in the 2nd Defendant who offered a maximum of USD
1,200,000/= (United States dollars one million two hundred
thousand) for Plot 78-86 Palisa Road. The offer was the best in the
circumstances and therefore I had no alternative but to accept the
same since it was sufficient to offset the entire outstanding to the
Bank which would also save the guarantors and their properties. I
accordingly received a cheque of the said amount which I deposited
with the Bank. Soon thereafter I received a called from PW 4,
Captain Juma Seiko at 2.00 pm. as I was about to enter a lecture
 room at the Law Development Centre to teach informing me that he
was interested in saving the Company and that I should not sell its
assets. I told him to contact the Bank and convince them to
withdraw the assets from sale but he told me that Mr. Kalan, the MD
had rejected his proposal and instead referred him to Mr. Sudhir
Ruparelia. I accordingly told him that it was not within my powers
therefore to halt the sale. It is not true as alleged by PW 4 in
paragraph 6 of his statement that when ‘they’ called me again I had
switched off my phone. In fact Gen. (Rtd) Salim Saleh called me on
the same day and asked me why I was selling the assets alleging
that he knew what I was doing with the Bank. He did not mention
anything to do with Citibank or any effort to secure money to save
the assets. I was never notified about the General’s request to
Citibank to save the assets and I only got to know about his letter
when I was supposed with the Plaint in this suit.

19. The cheque was however cleared on the 4th day of September 2007
whereupon the sale agreement was executed.

20. From the time of the letters from Global Diaspora Advisory
Council and Agro Group of Industries Limited to the time of the
sale no money was ever paid as per their undertaking and neither
did they assign any reason for such failure.

21. In the circumstances I did the best I could and with all diligence to
ensure that the assets of the Company were sold at the best price
available. I accordingly saved the guarantors and their property and
also managed to pay off the Cooperative Bank which was within my
mandate as a liquidator. It is not true that I was supposed to pay off
such debts in consultation with the Directors as alleged by Mr. Praful
Patel in paragraph 2 of his statement because the directors powers
ceased immediately upon appointment of the liquidator and further
 doing so would amount to fettering the exercise of my powers. It is
also not true that before selling the assets I had to first consult with
my principal, the Company, because my mandate to sell was given
at the time of my appointment.

22. Further I am not aware of the Ushs. 22.3 billion ascertained by the
purported reputable valuer, as alleged in paragraph 15 of PW 1’s
statement, in any case the price in respect of sales under winding
up does not have to be determined by such valuation but by the
market forces of demand and supply. Further I was never made
aware of any visit by the 2nd Defendant’s officials to the 2nd Plaintiff
and their offer of USD 3.5 million and the subsequent rejection of
the same as alleged by PW 1 in paragraph 16 of his statement.

23. It is not true as alleged by PW 2 that I had details regarding money

that was supposed to come on account of a consent judgment
between Afric Co-operative Society and the Attorney General. I was
never notified of the same by the parties involved or any other
person and I cannot comprehend the connection between my duties
and the said consent judgment. Nonetheless PW 2 falls short of
stating when the money was supposed to come and the basis of
such statement. As such it is very unfortunate for PW 2 to rely on
such an unfounded statement to allege that I hurriedly connived
with the 2nd Defendant to sell the assets.

24. I am not aware of the extra USD 300,000 that PW 2 alleges

was supposed to pay to me and ‘others’ because as far as I am
concerned the transaction was concluded and vacant possession
given.
 25. I accordingly pray the suit against me be dismissed as it is
misconceived.

Dated at Kampala this 18th day of September 2008

___________________________

SYLVESTER HENRY WAMBUGA