The Court of Appeal has backed the dismissal of a former managing director of CIC Insurance Asset Management, Peter Mwaura, for misleading the board over Sh605 million deposits at the collapsed Imperial Bank.
The three-judge bench held that the insurer had valid grounds to end the employment relationship on claims that he performed his duties negligently and caused deposits to be made at Imperial Bank in excess of the agreed Sh485 million limit.
The court found that his 2016 exit followed a lawful disciplinary process and a voluntary resignation.
Mr Mwaura reckoned that he was forced to resign and sought Sh29 million in compensation, reinstatement and damages.
The bench overturned a 2019 finding of the Employment and Labour Relations Court that Mr Mwaura had been forced to resign after misleading the company chief executive and the board about the true financial position of the company’s deposits at Imperial bank.
While ruling on Mr Mwaura’s appeal and across-appeal filed by the company, the court said the record showed he chose to resign after a disciplinary process, rather than being pushed out through intolerable conduct by his employer.
The legal dispute originated from events of October 13, 2015 when Imperial Bank was placed under the management of the Kenya Deposit Insurance Corporation (KDIC). On the same day CIC’s board sought an urgent update on its exposure to the troubled lender.
Imperial Bank’s collapse sent shockwaves through Kenya’s financial sector after the Central Bank of Kenya placed the commercial bank under receivership over massive fraud linked to its top management. This was after the board of the mid-sized lender alerted it to suspected insider malpractice.
The bank had 28 branches when its board uncovered massive fraud, including billions of shillings in fraudulent, off-the-books transactions.
To stabilise the situation and protect customers, the regulator appointed the KDIC as receiver, while Kenya Commercial Bank later acquired some Imperial Bank assets and took responsibility for a share of liabilities. The bank had assets of Sh70.3 billion.
This triggered enquiries by CIC’s board on the level of the insurer’s exposure. Mr Mwaura, then managing director and principal officer of CIC Asset Management, reported that the group’s funds held Sh334 million at the bank. He said he had obtained the information from the company’s investment manager.
However, in December 2015, while Mr Mwaura was on leave, a request from the Capital Markets Authority prompted an internal check that revealed the actual exposure stood at Sh605 million. Two deposits of Sh200 million and Sh83 million had been omitted from the earlier report.
CIC issued Mr Mwaura with a notice to show cause and summoned him to a disciplinary hearing in February 2016.
The insurer said his role included supervising investment functions, ensuring reconciliations were done, and keeping the board accurately informed about risk exposure.
It was claimed that deposit of the CIC’s funds at the bank had been limited to Sh485 million at the material time based on June 2015 financials. It was further submitted that during the disciplinary proceedings, he regretted not regularly checking whether the respondent was excessively exposed to any bank.
However, Mr Mwaura argued he had relied on information from an investment manager and later claimed he was pressured to resign within minutes by the then CEO after the hearing.
He denied the alleged negligence and stated that after being misled by the investment manager, he unintentionally and excusably misled the CIC board and CEO on its exposure level.
“Owing to pressure, coercion, intimidation and threats, the appellant handed in a two-line resignation letter and left the premises. By a letter dated February 16, 2016, the CEO accepted his resignation letter,” the court heard.
He sued, seeking reinstatement, terminal dues and damages running into over Sh29 million.
CIC countered that the executive had acknowledged gaps in oversight, including failures in reconciliation and monitoring exposure limits, and that the board had resolved to terminate his employment for negligence but offered him the option to resign due to his long service.
He joined the company in 1985 as an assistant accountant and rose to the position of managing director/principal officer – CIC Asset Management Ltd at the time of exit, earning a monthly salary of Sh1.9 million at the time of termination.
The appellate court agreed with the insurer’s position, with the judges saying constructive dismissal requires conduct by an employer that is so serious it amounts to a fundamental breach of contract.
“We are not persuaded that the appellant was constructively dismissed. The record shows that his employment was due for termination owing to his own undoing, but he chose the easier alternative of resigning. His resignation letter does not in any way exhibit that he was forced to resign by his employer,” the court said.
It noted that the board had “valid reasons to consider terminating the claimant’s services” over the alleged negligence in his duties.
The judges pointed to admissions made during the disciplinary process that proper reconciliations would have exposed the discrepancy earlier and that exposure to the bank had not been checked regularly. They also cited board minutes showing the decision to allow him to resign as an alternative to termination.
“Upon various considerations, it was unanimously agreed that the appellant’s employment would be terminated but given his long service he would be given an opportunity to resign instead if he so wished,” the court quoted from the record.
The court concluded that the resignation letter did not show coercion and that Mr Mwaura “chose the easier alternative of resigning” in the face of an impending termination.
As a result, the judges set aside the lower court’s finding of constructive dismissal and rejected most of the claims against CIC. They allowed only a limited claim for 12 days’ unpaid salary for February 2016, which the insurer indicated it would settle subject to confirmation.
