Fidelity Bank row exposes claims of illegal insider loans

Milimani commercial courts: The owner of Diamond Plaza wants CBK ordered to investigate the Sh68m loan. Photo/File
Milimani commercial courts: The owner of Diamond Plaza wants CBK ordered to investigate the Sh68m loan. Photo/File 

A bid by Fidelity Bank to auction a prime commercial property in Parklands has taken a new twist after the owner of the building at the centre of the dispute raised claims of insider lending by top shareholders of the bank against CBK rules.

Madatali Saburalli Chatur, owner of the Diamond Plaza, has applied for orders compelling the Central Bank of Kenya (CBK) to investigate circumstances surrounding a loan advanced by Fidelity Bank to a firm linked to its top shareholders and also issue an injunction against the planned sale of the property.

Fidelity Bank has issued an auction notice against Diamond Plaza to recover Sh68 million loan arrears advanced to Discovery Health East Limited, a health insurance company, in which Mr Chartur was a director.

Mr Chartur has since left his position at Discovery Health, but Fidelity Bank is moving to auction his property over claims that he used the title on which the building stands as collateral for the loan.

Mr Chatur has, however, introduced a new twist claiming that Discovery Health is owned by Sultan Khimji, a major shareholder of Fidelity Bank, and he was just a proxy used to conceal Mr Khimji’s interest in the business since the loan was advanced in breach of CBK guidelines on insider loans.

He is accusing Fidelity Bank of flouting section 11 of the Banking Act and the Central Bank of Kenya code of conduct, which limits the amount of insider loans that a bank can advance, by intentionally concealing Mr Khimji’s interest in the new outfit.

“The Court be pleased to direct the Governor (of Central Bank of Kenya) to investigate and report to this honourable court the role of the affairs of the 2nd defendant (Discovery Health) and ascertain whether his conduct was and/or is contrary to the provision of the Central Bank of Kenya Act,” argues Mr Chatur in his court papers.

In his defence, Mr Khimji says Mr Chatur’s claims are baseless and terms them a bid to evade repaying the loan owed to the bank.

“The plaintiff (The insurance company) and Mr Madatali Chatur have clearly sought to exploit my good will in trying to assist the 2nd defendant (Discovery Health) in good faith for the purpose of trying to evade the plaintiff’s proper and lawful obligations to the defendant.”

The Diamond Plaza owner claims that Mr Khimji approached him in 2006 with a request to be the director of the company and proxy shareholder since his role as a director at the bank would make it difficult for him to finance the new company.

The court has given an order barring the lender from selling the piece of Land LR No 209/518/7 Nairobi, which is one of the three parcels on which the Diamond Plaza stands.

Diamond Plaza houses more than 60 business including banks, supermarkets, restaurants and shops.