Capital Markets

Shah Munge fights fresh NSSF bid to seize its property

nssf

Signage is put up at the NSSF building in Nairobi. FILE PHOTO | NMG

Collapsed stockbroker Shah Munge is back in court fighting efforts to seize its property to recover millions of shillings belonging to the National Social Security Fund (NSSF) lost in a bank that went under more than a decade ago.

The firm of former Kenya Revenue Authority (KRA) director-general John Munge has moved to secure its shares in the Nairobi Securities Exchange (NSE), including his share of the bourse valued at Sh130 million.

Shah Munge & Partners is seeking to restrain the NSSF from executing a 2009 court judgment awarding the national pension scheme Sh1.2 billion in compensation.

The NSSF lost about a quarter of a billion shillings in the 2002 collapse of Euro Bank, a scandal which saw State corporations collectively lose Sh1.4 billion.

The money, the proceeds of a Treasury Bill trade, had been held there in Shah Munge’s office account under what are now disputed circumstances.

In 2003, the NSSF won a compensation award for Sh258 million (which later rose to over Sh600 million with interest) and a further Sh500 million in special damages.

In 2009, Justice Luka Kimaru ordered Shah Munge & Partners to pay the full sum after finding them responsible — alongside the Central Bank of Kenya (CBK), Euro Bank and Ben Mtuweta, an NSSF managing trustee — for the loss of Sh258 million in the irregular deposit at Euro Bank.

The fund has, however, had a hard time pursuing the debt and went as far as proposing to write it off last year.

READ: NSSF set to write off Sh251m lost in fallen Shah Munge

Mr Munge had been a director of both Shah Munge & Partners, which went into liquidation in late 2002, and Euro Bank, which collapsed not long after. He was forced to quit as Kenya’s chief taxman following the bank’s failure.

Lady Justice Jacqueline Kamau Tuesday ordered the parties to file their respective arguments by October 29 and to appear before her on November 11.

Mr Mtuweta, who died in 2012, allegedly ordered the transfer of the NSSF’s money from the CBK to Euro Bank in 2001 through Shah Munge’s account. The broker was accused of using the money to shore up its own operations.

READ: Man linked to NSSF loss of Sh256m dies but case unresolved

Other amounts deposited by various parastatals in the bank were suspected to have been used by powerful officials in former President Daniel Arap Moi’s government in the run-up to the 2002 General Election.

The biggest casualties were the National Hospital Insurance Fund, which lost Sh479 million, and Kenyatta National Hospital (Sh421 million). The Kenya Post Office Savings Bank, the Kenya Tourist Development Corporation, the Kenya Pipeline and the Kenya Sugar Board lost a combined Sh235 million.

Shah Munge’s suit follows a July 9 application by the NSSF in the same court to attach 1.5 million shares registered to it in the NSE. Lady Justice Kamau in July issued an order stopping Shah Munge from selling any of its NSE assets until the NSSF’s application is determined.

The pension scheme had sought the orders amid fears that Shah Munge could opt to sell its assets in the NSE, as it has been at liberty to sell since the securities exchange’s self-listing in July.

“If the shares are disposed of, execution of the decree will be a futile exercise as Shah Munge does not possess any other attachable assets which are known to NSSF,” said Desterio Oyatsi who is representing the pension scheme.

Mr Oyatsi added that his firm, Shapley Barret and Company Advocates, had found out about the shares registered to Shah Munge after extensive search for assets registered to the collapsed stockbroker.

Mr Munge said that his company is willing to abide by the court’s orders, but asked for an appeal already before Lady Justice Kamau to be determined first.

“The appeal has a reasonable chance of success. NSSF has commenced the process of execution by seeking to attach Shah Munge’s shares in the Nairobi Securities Exchange,” Shah Munge said in suit papers.

Mr Munge added that unless the court issues the restraining orders, his company would suffer substantial loss, rendering his appeal null and void.

Proceedings last week took an interesting turn after another firm, Southern Bell Limited, filed an objection to the NSSF’s application to sell Shah Munge’s assets in the NSE.

The firm claims that it bought 300,000 shares from Shah Munge’s one million shares in the NSE for Sh13 million in October 2011.

The firm’s director, John Mungai, added the shares have since matured to over 1.5 million, but it has not been able to transfer the ownership to its name owing to provisions in the NSE’s laws.

“On April 25 this year, during the Annual General Meeting, the NSE passed a resolution to offer a bonus of 20 shares for each share held,” said Mr Mungai.

“Pursuant to the said resolution, the shares acquired by Southern Bell were converted to 1.575 million. It was only on April 25 when the provisions on pre-emptive rights were lifted thus explaining why Southern Bell did not effect a registration of transfer.”

Southern Bell’s lawyer Guandrau Thuita said that his client formalised the purchase of the shares shortly after the NSE’s AGM, but a glitch involving the Central Depository and Settlement Corporation delayed the process.

The court order barring the transfer of Shah Munge’s shares came into effect before the transfer could be completed.

Southern Bell has faulted the NSSF for not pursuing Shah Munge’s property earlier, and has argued that it had other avenues of recovering the colossal funds from the stockbroker.

It wants the shares it has claimed left out of the pension scheme’s claim, and maintains that third parties should not be dragged into the matter. The firm has attached its agreement with Shah Munge to acquire the shares as part of evidence.

Lady Justice Kamau ordered the NSSF and Shah Munge to file their respective responses and return before her for a hearing on October 15.

The NSSF had last year told Parliament that it intended to write off the Sh258 million debt, just as Shah Munge had been offered a stake in the NSE, with its share value estimated to be in the region of Sh251 million.

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