The High Court has ordered a hardware company and its managing director to pay more than Shs1.6 billion to Uganda Baati Limited for goods obtained through fraudulent trading, while also finding Stanbic Bank (U) Limited negligent in the handling of dishonoured cheques.
In a judgment delivered on March 9, 2026, Justice Stephen Mubiru ruled that Zimba Logistics & Hardware Ltd and its managing director Ali Teko Awazi were jointly liable for the unpaid value of steel products supplied by Uganda Baati.
At the same time, the court found that Stanbic Bank failed in its professional duty by holding onto dishonoured cheques for an extended period instead of promptly notifying its customer.
The judge said the bank’s delay prevented Uganda Baati from stopping further supplies to a client who had already defaulted on payments.
The dispute dates back to 2018 when Uganda Baati, a major manufacturer of steel building materials, entered into a credit supply agreement with Zimba Logistics.
Under the arrangement, the company was allowed to receive steel products on credit and make payment within 30 days.
To facilitate the transactions, Uganda Baati operated an account with Stanbic Bank under a “same-day value” arrangement. Under this system, cheques issued by Stanbic customers and deposited by Uganda Baati would be credited to its account immediately without undergoing the usual three-day clearing process.
Between August 8 and August 23, 2019, Uganda Baati supplied steel products worth about Shs1.66 billion to Zimba Logistics.
In payment, Awazi issued 24 personal cheques drawn on his account.
However, during an account reconciliation on August 28, Uganda Baati discovered that several of the cheques some deposited as early as August 10 had not cleared.
When the company sought clarification, Stanbic Bank subsequently dishonoured all 24 cheques at once.
A central issue in the case was whether Awazi could be held personally responsible for the debt incurred by his company.
Normally, company directors are shielded from personal liability by the doctrine of corporate personality. However, the court ruled that the circumstances justified lifting the corporate veil.
Justice Mubiru found that Awazi had issued multiple personal cheques without ensuring that sufficient funds were available to honour them.
“When a managing director issues personal cheques in payment of a corporate debt without a real intention of providing funds for their encashment, that conduct constitutes fraudulent trading,” the judge ruled.
The court therefore held Awazi jointly and severally liable alongside his company for the debt owed to Uganda Baati.
Justice Mubiru added that a cheque cannot be treated merely as a symbolic document.
“A security cheque is not a worthless piece of paper,” he said. “It carries with it the obligation that the drawer will ensure funds are available when the cheque is presented.”
While the court held Zimba Logistics responsible for fraudulent conduct, it also found Stanbic Bank negligent in the manner it handled the dishonoured cheques.
Uganda Baati argued that if the bank had informed it immediately that the cheques had been dishonoured, the company would have halted further deliveries of steel products to Zimba Logistics.
Instead, by the time the bank formally notified Uganda Baati on August 28, the manufacturer had already supplied an additional Shs1.2 billion worth of goods.
Justice Mubiru held that banks have a duty to promptly return dishonoured cheques and notify customers without delay.
“Banking practice dictates that a dishonoured cheque must be returned to the presenter without delay,” the judge said.
“When a bank retains a dishonoured cheque and fails to promptly inform the customer, thereby preventing the customer from taking protective action, the bank may be held liable for negligence.”
The court noted that because the cheques were drawn within the same bank, Stanbic should have known within one working day whether the account had sufficient funds.
By holding the cheques for several days before communicating the dishonour, the bank breached its duty of care.
In determining liability, the court applied the “but-for” test of causation.
Justice Mubiru considered whether Uganda Baati would have continued supplying goods to Zimba Logistics if the bank had promptly notified it of the dishonoured cheques.
The court concluded that the continued supply of goods was directly linked to the bank’s failure to communicate the dishonour.
The judgment also addressed the evidential value of police reports presented during the proceedings.
Justice Mubiru clarified that while a police report may confirm that an investigation occurred, it does not automatically prove the truth of every statement contained in the report.
“Although connivance may be established by inference rather than direct evidence, the evidence must lead to a conclusion that is not merely possible but the only reasonable explanation,” the judge stated.
The court ordered Zimba Logistics and Awazi to pay Uganda Baati Shs1,663,559,347 representing the unpaid value of steel products supplied.
Stanbic Bank was also found liable for negligence and ordered to compensate Uganda Baati for the loss of opportunity to take earlier legal action against the defaulting customer.
Justice Mubiru further awarded interest on the principal amount at a commercial rate of 25 percent per year from the date the suit was filed until the full amount is paid.
The ruling underscores the risks faced by company directors who engage in fraudulent trading and reinforces the duty of financial institutions to act promptly and responsibly when handling dishonoured cheques.
The case also highlights the circumstances under which courts may lift the corporate veil to hold company directors personally accountable for dishonest conduct.
