Court name
Commercial Court of Uganda
Judgment date
13 January 2004

Tobacco Commodity Traders International Corporation & Anor v Mastermind Tobacco (U) Ltd & Anor (Miscellaneous Application-2002/660) [2004] UGCommC 1 (13 January 2004);

Cite this case
[2004] UGCommC 1


(Arising out of Companies Cause No. 18 of 2002)







1.       The applicants prayed this Court to order the cancellation of the transfer and registration of the suit property: LRV 2188 Folio 17, Plot 58 Luthuli Avenue, Bugolobi, Kampala from Mastermind (U) Ltd. (“MASTERMIND”) to Central Tobacco Ltd (“CENTRAL TOBACCO”), which transfer was purportedly effected on 14/05/2003. The grounds for the application were that the transfer was void, and that it was effected only to defeat the ongoing liquidation process of MASTERMIND, as well as to defeat the claims of all other creditors in this liquidation process.
2.       The First Applicant is also the Petitioner in the ongoing petition for the liquidation of MASTERMIND (per Company Cause No. 18 of 2002) which is aimed at winding up MASTERMIND for failure to pay its debts. The Second, Applicant is also the Interim Liquidator of MASTERMIND. The petition was filed on 25/09/02, and was duly advertised in the NEW VISION and the MONITOR newspapers of 08/11/02 and 12/11/02, respectively. The petitioner also applied (per MA 708/2002 seeking an order to appoint an Interim Liquidator who would take charge of MASTERMIND’s assets - which were otherwise at risk of wasting away. That application was heard on 02/10/03, and the Court made an order on 05/03/03 appointing the Official Receiver as the Interim Liquidator. The Interim Liquidator duly advertised his appointment in the NEW VISION newspaper of 10/03/03, as well as in the UGANDA GAZETTE of 29/03/03. The Applicants contended that all throughout the above period (from the presentation of the petition on 25/09/02, to the advertising of the petition, and appointment of the Interim Liquidator on 05/03/03, the suit property was and remained an asset of MASTERMIND. In particular, MASTERMIND became proprietor of that property on 12/03/96 - as per the certificate of Title. Thereafter, MASTERMIND remained the registered owner of that property at the time of the presentation of the instant petition on 25/09/02; and, indeed, even at the time of the appointment of the Interim Liquidator on 05/03/03.

3.       Very soon thereafter, however, MASTERMIND purported to effect the
transfer of this property to CENTRAL TOBACCO. That was on 14/05/03, mere 9 or so days after the appointment of the Interim Liquidator for MASTERMIND’s assets. On 13/10/03, the Official Receiver/Interim Liquidator reported to this Court:

(a)      that the above transfer had been effected;

(b)      that the transfer had been effected without the Interim Liquidator’s knowledge;
(c)      that MASTERMIND’s General Manager (one, Bernard Rubia) had previously filed with the Interim Liquidator a Statement of Affairs of MASTERMIND, but that the Statement did not include the suit property or any other real property;

(d)      that to the surprise of the Interim Liquidator, he received an inquiry from the tenant of the suit property (in response to the above newspaper advertisements) asking who was to receive that property’s rents. That thereupon, the Interim Liquidator made a search and established that indeed the legal ownership of the suit property was in the names of MASTERMIND - and thereupon, the Interim Liquidator took the tenancy of that property, and received its rent payments for the March-August, 2003;

(e)      that on 17/06/03, the Interim Liquidator wrote to MASTERMIND’s General Manager questioning him as to why the suit property was not included in MASTERMIND’s statement of Affairs;

(f)      that on 29/08/03, the Official Receiver/Interim Liquidator lodged a caveat on the suit property under Instrument No. 334112.

4.       For their part, both the Second Respondents and the Registrar of Titles conceded that at the time of the First Applicant’s filing of the petition, MASTERMIND appeared on the Certificate of Title as the registered legal owner of the suit property. However, they contended that the equitable owner was CENTRAL TOBACCO - commencing from 26/09/97 when MASTERMIND and CENTRAL TOBACCO executed the transfer of that property from MASTERMIND to CENTRAL TOBACCO (but without actually registering that transfer). The Applicants stated that such registration came belatedly, only on 14/05/03 (admittedly after the appointment of the Interim Liquidator). In this regard, the Respondents relied heavily on the legal opinion of the Solicitor-General contained in his letter dated 25/08/03, which was addressed to the Permanent Secretary of the Ministry of Health. In that letter, the learned Solicitor opined, inter alia:

(a)      that CENTRAL TOBACCO transferred its legal title to MASTERMIND on 18/03/96, in a move to enable MASTERMIND to mortgage that property to TROPICAL AFRICA BANK for a loan facility;

(b)      that notwithstanding the above legal transfer, CENTRAL TOBACCO remained the equitable (and therefore, the rightful owner) of the suit property;

(c)      that CENTRAL TOBACCO secured the tenant for the suit premises, but the tenancy agreement had to be executed in the names of MASTERMIND, the registered proprietor — and that indeed the rents which were thereafter collected, were not for the benefit of MASTERMIND, but for the benefit of CENTRAL TOBACCO;

(d)      that on 26/02/97, MASTERMIND executed a transfer of the suit property back to CENTRAL TOBACCO, pending actual transfer, when MASTERMIND would have cleared/repaid the bank loan and the mortgage released (which happened only in December 2002); and

(e)      that the transfer process (began subsequent to December 2002) was finally actualized on 04/05/03 when the Uganda Revenue Authority released the transfer document. Ten days later (on 14/05/03), CENTRAL TOBACCO was formally registered as legal proprietor of the suit property.

5.       The Official Receiver supported the learned counsel for the Applicant
(Mr. Kabiito Karamagi) in challenging the purported transfer of the suit property from MASTERMIND to CENTRAL TOBACCO. In this regard, both counsel emphasised the fraudulent nature of that transfer transaction; and prayed Court to cancel the transfer and the registration.

For their part, both CENTRAL TOBACCO and the Registrar of Titles were represented by one counsel, Mr. McDosman Kabega. He reiterated the above facts, and challenged the prayer for cancellation of the transfer on the grounds that fraud had not been proved, nor had it been particularised — contrary to both case law (see especially Kampala Bottlers V Damanico (U) Ltd, S.Ct. Civil Appeal No. 22/92); and our statutory law (see, in particular, section 2 of the Civil Procedure Act).

6.       The Court has listened very attentively, to the arguments of all parties to this application. However, foremost in the Court’s consideration was the law of this country that is applicable to land transfers during the pendency of liquidation proceedings. In particular, section 227 of the Companies Act is paramount. In this Court’s view, this application stands or falls on the consideration of that section. That section is pivotal, in as much as without the Court’s leave to the contrary, the rule that it stipulates appears to be absolute. The section provides as follows;

“227. In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer shares, or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.” [emphasis added]
The language of the above-quoted section is plain, succinct and unambiguous. After the commencement of the winding up of a company, no disposition of any of that company’s property can be effected - whether by sale, transfer, bequest, alteration on otherwise — without the court’s order. Indeed, the severity of this rule is mirrored and manifested afresh in the complimentary rule immediately next to it - namely, section 228, which prohibits and voids.

“.. any attachment, distress or execution put in force against the estate or effects of the company after the commencement of the winding up...”

Similarly, section 231 provides that;

‘231. When a winding up order has been made or an interim liquidator has been appointed under section 238, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.”

Moreover, section 226 permits application to be made to the competent court to stay any suit or proceeding that is pending against the company during the period between the presentation of the winding up petition, and the making of the winding up order.

7.       It is quite evident that the legislative scheme of the above provisions of the Companies Act seeks to preserve the assets and properties - let alone the liabilities and status - of the Company by way of maintaining the status quo once proceedings for winding up the company commence. The cluster of statutory rules ensures that the status quo is not disturbed either by dispositions of the company’s property; or by attachment or distress thereof; nor indeed by judicial flat in actions or proceedings pending at the presentation of the winding up petition, or commenced or continued after the making of the winding up order.

8.       The rule in section 227 is stated in wide and general terms - and, Therefore, binds all and sundry. Accordingly, once the proceedings for a company’s winding up have commenced, neither the company itself, nor its agents, or other officials; nor indeed even the Registrar of Titles, has any authority to transfer or effect any purported transfer of that company’s property. Indeed, of all the persons who must effect such transfers, the Registrar appears to have very special and specific statutory responsibility. Section 230 of the Companies Act stipulates that:

“On the making of a winding up order, a copy of the order shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the registrar for registration.”

Accordingly, from the time of the winding up order, the Registrar becomes possessed of that information and knowledge. That knowledge cannot in good conscience allow the Registrar to effect any subsequent transfer(s) of that company’s properties. Any such action on the part of the Registrar must, by application of the law, be rendered null and void and of no effect whatsoever. In the instant case, the Registrar (Mr. Vincent Nyombi) testified before this Court on 04/11/2003 that:

“The transfer of the suit property from MASTERMIND to CENTRAL TOBACCO went through my office. ... The transfer was accompanied by a consent form signed by the Commissioner for Land Administration (Mrs. Mulinde Kintu). It was valued for stamp duty by the Chief Government Valuer, signed by Mr. Okolong Charles (a Government Valuer).”

9.       On the basis of the above, the Registrar effected the purported Transfer on 14/03/03. Sadly, very sadly, this was not only wrong; it was illegal. By this action, the Registrar egregiously offended not only the rule in section 227, but also the clear intent and spirit of section 230 of the Companies Act - in as much as both the winding up order and the appointment of the Interim Liquidator had already been made on 05/03/03 (some 9 days before the Registrar’s purported transfer of 14/03/03).

10.      In similar vein, the dealings between MASTERMIND and CENTRAL TOBACCO touching the purported transfer of the suit property were equally illegitimate, illegal and void. Both companies breached the prohibition of section 227 of the Companies Act. The aggravating factor in their case was the fact that the key officers of the one company were also top stakeholders in the other company. In this regard, Mr. Francisco Mugabe was not only the Chairman of the MASTERMIND, he was also the majority shareholder in CENTRAL TOBACCO - and all other stakeholders were Mugabe’s family members. Mr. Mugabe did append his signature to the impugned transfer. As Chairman of MASTERMIND, Mr. Mugabe fully knew and ought to have known the sequence of the winding up of his company - from the presentation of the petition on 25/09/02, to the two newspaper advertisements of 08/11/02 and 12/11/02 to the Court’s hearing of the application on 02/01/03, to the Court’s order of 05/03/03 for winding up the company and the appointment of an Interim Liquidator, as well as the official Receiver’s advertisement of 10/03/03 of his appointment as Interim Liquidator (in both the NEW VISION and the UGANDA GAZETTE). From all the above, and more, Mr. Mugabe could not be heard to plead ignorance of the facts of this case. Indeed he did not so plead. Equally, he cannot plead ignorance of the law stipulated in section 227 of the Companies Act, and all the associated sections discussed in paragraph 6 above. Because of the Mugabe nexus to CENTRAL TOBACCO as majority shareholder, all the above arguments against MASTERMIND apply just as equally to CENTRAL TOBACCO.

11.      In light of the factors considered in paragraph 10 above, I find that MASTERMIND and CENTRAL TOBACCO’s purported transfer of the suit property (at Plot 58 Luthuli Avenue, Bugolobi) was null and void; and must be cancelled in the interests of all bona fide creditors of MASTERMIND - including CENTRAL TOBACCO, if it too is such a creditor in respect of this particular property or other outstanding obligation. In particular, I find that Mugabe and MASTERMIND knowing that they knew about the fate of the company, completely failed, nay neglected, to consult (let alone approach) the Interim Liquidator in a bid to sort out the matter of the Bugolobi property. Instead, they chose to effect the purported transfer of this property while keeping both the Interim Liquidator and this Court completely in the dark.

12.      Having found for the applicants, as I have done in paragraph 11 above, on a legal point of paramount importance, it is not necessary to consider any other grounds for this application. However, for the sake of completeness, I will touch briefly on two other grounds, namely: (i) the effect of the tenancy agreement of the property; and (ii) the alleged fraud by the Respondents in effecting the purported transfer of the suit property.

Tenancy Agreement

13.      The Tenancy Agreement for the suit property was executed between MASTERMIND and the Ministry of Health/Nutrition and Early Childhood Project C’CHILD’. This was on 1st February, 2000 - long after MASTERMIND had become the legal proprietor of the property. From that point on, the Tenant (i.e. the Government of Uganda represented by the Ministry of Health through CHILD) treated MASTERMIND as its only Landlord, and paid whatever rents it paid to MASTERMIND. Indeed, the Tenancy Agreement itself expressly stated in its paragraph... that “the Landlord is the registered proprietor” of the suit property. The Tenancy agreement was renewed on ... with exactly the same identical terms as those of the previous Agreement. Upon appointment of the Interim Liquidator for MASTERMIND, and the advertisement, CHILD took trouble to inquire from the Interim Liquidator as to who (between MASTERMIND and the Interim Liquidator) CHILD was to remit the property’s rents to. The Interim Liquidator quite correctly advised that the rents be paid to him as Official Receiver. CHILD then complied, and paid the rents to the Official Receiver/Interim Liquidator for the entire period January - August 2003.

14.      In all these transactions concerning tenancy agreements and payment Of rentals, CENTRAL TOBACCO did not feature at all. I therefore find the Solicitor General’s legal opinion on this matter to be quite perplexing. In his letter of 25/08/03 addressed to the Permanent Secretary of the Ministry of Health, the learned Solicitor General opined that:

“Although the [suit] property had been legally transferred to Mastermind Tobacco (U) Ltd on 12/03/96, yet Central Tobacco Stores Ltd retained the equitable interest in the property i.e. remained the rightful owner thereof”

With respect, this view of the law appears to have been understated. Normally, it is the transferee (not the transferor) of property who retains an equitable interest. He does so as long as the transfer is not yet formally registered. Upon formal registration, the transferee’s equitable interest transforms into a legal interest. Thereupon, the transferor retains no interest at all in the property, having relinquished the same to the transferee. This position is comparable to the analogous position of the transfer of a company’s shares and debentures.

15.      The learned Solicitor General further opined that:

“Mastermind Tobacco (U) Ltd executed a transfer dated 28” February, 1997 to transfer the property back to Central Tobacco Stores Ltd. The transfer could only be effected after Mastermind Tobacco (U) Ltd had cleared the Bank loan(s) and Tropical A Africa Bank Ltd had released both the mortgage and Further Charge registered on 5 July 1996 and 26 May 1998, respectively.”

Again, I find these statements to be contradictory and inconsistent, if not absurd. Why did MASTERMIND execute a transfer to CENTRAL TOBACCO in February 1997 when it fully knew that such a transfer could not be effected until MASTERMIND had cleared its loan obligations with the Bank - a process that was bound to take years to accomplish? Indeed, why execute the transfer (in February 1997), long before the Further Charge was registered (in May 1998)? Clearly, the Bank could not release both securities until December, 2002.

In light of the above, I find no legitimate reason as to why the parties acted with such extreme and undue haste to transfer the property in February, 1997 when so much still needed to be put in place (until December 2002, i.e. a space of approximately 6years). The alleged transaction is thus manifestly suspect.


16.      The Applicants’ learned counsel submitted that the transfer transaction of the suit property is fraught with fraud. Counsel defined “fraud” to mean “dishonest dealing in land.” I find that definition to be quite adequate. Jowitt’s Dictionary of English Law (2nd Edn.., 1977) Vol.1, at page 827 defines fraud, inter alia, as:

‘In equity and upon the equitable principles which are now
applicable in any court, fraud may be described as an infraction
rules of fair dealings.”

It is impossible to lay down a definition completely comprehending fraud; fraud is infinite: crescit in orbe dolus.
Fraud sometimes exists where no wrongful intention is proved. In this sense the word, ‘fraud’ or ‘constructive’ or Legal fraud, ‘is a comprehensive expression which indicates the cases which a court will not enforce or will set aside a contract, instrument or transaction, in which the court is of opinion that it is unconscientious for a person to avail himself of the advantage which
he has obtained Torrance v
Bolton (1873(L.R. 8 Ch. at p. 124).”

Similarly, Black’s Law Dictionary (6th Edn., 1990) at p. 661 defines fraud, inter alia, as

Fraud is either actual or constructive. Actual fraud consists in deceit, artifice, trick, design, some direct and active operation of the mind;
Constructive fraud consists in any act of commission or omission
contrary to legal or equitable duty, trust, or confidence justly reposed, which is contrary to good conscience and operates to the injury of another. Or, as otherwise defined, it is an act, statement or omission which operates as a virtual fraud on an individual, or which, if generally permitted, would be prejudicial to the public welfare, and yet may have been unconnected with any selfish or evil design. “[emphasis added]

I find the definition of fraud to be sufficiently comprehensive to encompass the purported suit transfer — particularly so in as much as to permit such a transfer would directly and egregiously offend the public interest that is articulated in section 227 of the Companies Act to the effect that once a winding up of a company has commenced, any disposition of that company’s assets shall be void — unless the court otherwise orders.

17.      To summarise this fraud aspect of the matter, I would emphasize the following points:

(i)      In view of Mr. Mugabe’s Chairmanship of the transferor company while he was also at the same time the majority shareholder of the transferee company, the purported transfer could not be said to have been transacted at arms length, thus, the transaction is highly suspect.

(ii)     Given Mr. Mugabe’s dual and intimate involvement in both the transferor and transferee companies, he was duty-bound to consult with the Official Receiver/Interim Liquidator on such an important matter as disposition of property of the company in liquidation. He did not.

(iii)    If indeed CENTRAL TOBACCO had had a legitimate claim to the rent payments from the suit property, it would have come out in the open and forcefully made its claim — especially during the eight months (Jan-Aug. 2003) when the Official Receiver was the one receiving those rents. It did not.

(iv)     Mr. Mugabe’s affidavit of 31/10/03 states that the consideration for transfer of 14/05/03 was Ushs.l00m/=. Yet Annex “D” to that same affidavit shows a consideration Ushs.120m/=. Additionally, CENTRAL TOBACCO adduced no evidence at all as to whether or not any consideration was ever paid in respect of the first transfer of the suit property (from CENTRAL TOBACCO to MASTERMIND in 1996). As I understand it, that transfer had been effected merely to enable MASTERMIND access certain bank loan(s). If then that original transfer was made gratuitously, how come the transfer of the same property from MASTERMIND back to CENTRAL TOBACCO had a consideration of Ushs.l00m/= (or Ushs.120m/=)? These contradictions and inconsistencies are indicia of dishonest dealings - see especially Katwiremu v Katarikawe.

(v)      It is curious, at best that the application for the appointment of an Interim Liquidator was heard in this Court in January 2003, and in February of that same year, CENTRAL TOBACCOE lodged its transfer process (a process that had previously been allowed to stall for over 5 years).

In the circumstances of this case then, the totality of all the evidence points to the unmistakable existence of dishonesty, deceit, artifice and unfair dealing. I am satisfied that the allegation of constructive fraud has been sufficiently borne out in this case.

18.      In light of all the above, I am inclined to grant the instant application. I find that the purported transfer of the suit property dated 14/05/03 from MASTERMIND TOBACCO LTD was void and illegal; and was meant only to defeat the claims of bona fide creditors of MASTERMIND, as well as defeat the present liquidation process of that company.

19.      Accordingly:

(1)      the registration of that transfer, under Instrument No. 333 of 14/05/03, is hereby cancelled;

(2)      any and all dealings in the suit property transacted or otherwise entered into subsequent to the purported transfer of that property are hereby cancelled;

(3)      CENTRAL TOBACCO LTD is to make a full account (to the
Official Receiver) regarding all payments made as rental income in respect of the suit property for the period from end August 2003 to today; and is to remit all such rental income to the Official Receiver;

(4)      the costs of this application are awarded to the Applicant against the Respondents, jointly and severally.