Politics and policy

Two former bank directors to pay Sh1.5bn for breach of trust

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MILIMANI LAW COURTS: Two former executive directors of Trust Bank Limited have been ordered to pay the bank over Sh1.5 billion for breach of trust. PHOTO/FILE

MILIMANI LAW COURTS: Two former executive directors of Trust Bank Limited have been ordered to pay the bank over Sh1.5 billion for breach of trust. PHOTO/FILE 

By PAUL OGEMBA Daily Nation

Posted  Friday, May 31   2013 at  18:19

In Summary

  • The judge said it was established at the time of winding up of the bank that its business was carried out with intent to defraud the creditors and for other fraudulent purposes and that the two former directors were parties to the scheme.
  • He said the directors misrepresented to the creditors and to the court that the withdrawals were made to offset a loan agreement between Trust Capital Services and Trust Bank Limited when they knew all along that the transactions were not sanctioned through a proper channel.

Two former executive directors of Trust Bank Limited have been ordered to pay the bank over Sh1.5 billion for breach of trust.

Justice Eric Ogola found Ajay Shah and Praful Shah guilty of misfeasance, failing to discharge their duties diligently, transparently and non-fraudulently leading to the bank’s closure in 1999.

“The incident happened at a time when banks just used to go under and depositors losing their life long savings without a soul on earth caring. The managers had a responsibility to the depositors and despite being their trustees, they failed to act responsibly and became liable,” said Ogola.

The judge also declared that Mr Ajay and Mr Praful while acting as executive directors of Trust Bank, now in liquidation, breached their “fiduciary duties” to the company by allowing Trust Capital Services Limited in which they had personal interest to withdraw from the bank Sh241.4 million in 1998 without proper security.

Fraudulent actions

The judge said it was established at the time of winding up of the bank that its business was carried out with intent to defraud the creditors and for other fraudulent purposes and that the two former directors were parties to the scheme.

According to the liquidator, Trust Bank lost the sum of Sh241,442,376 within a span of 7 days in September 1998 through an account not registered in the bank but which was being operated by Mr Ajay and Mr Praful.

“It is evident that money was withdrawn from the Bank through Trust Capital Services without sanction of the bank through an account which did not exist in its accounts. What worries most is how the massive withdrawals were done within a space of seven days,” said Ogola.

He ruled that the two directors owe an explanation to depositors of Trust Bank since they participated in the withdrawal and siphoning of millions of shillings when they were aware the bank was about to collapse.

“Despite admitting that Trust Capital Services owed the bank over Sh246.6 million, they have not provided any evidence to show that they have refunded a single coin which brings into question their loyalty and trust to the bank’s depositors,” ruled Ogola.

He said the directors misrepresented to the creditors and to the court that the withdrawals were made to offset a loan agreement between Trust Capital Services and Trust Bank Limited when they knew all along that the transactions were not sanctioned through a proper channel.

Law flouted

He ruled that the directors’ actions offended Section 11 of the Banking Act since they knowingly participated in carrying out their duties with clear intent to defraud customers of Trust Bank Limited.

“After considering all factors, I thus order that Mr Ajay and Mr Praful are liable to make good and pay Deposit Protection Fund Board as Liquidator of Trust Bank Limited Sh1,549,591,424 being the amount due in the account of Trust Capital Services as at February 2010,” ruled Ogola.