SBM Bank (Kenya) has been ordered to pay Afrasia Bank over $7.5 million (Sh892 million), which the Mauritius-based lender deposited in collapsed Chase Bank in April 2016.
Justice Wilfrida Okwany ruled that SBM is culpable for all liabilities of Chase Bank –which it acquired in 2018— including the monies deposited by Afrasia Bank.
The judge said the Transfer of Business Act was applicable in the deal and since SBM did not publish the mandatory notice under the law, it is liable for all Chase Bank dues.
“I, therefore, find that the respondent is liable for all liabilities of Chase Bank including the appellant’s claim herein,” said the judge.
The money was placed in a one-month fixed deposit account earning interest of 2.35 percent per year but Chase Bank buckled and was placed under receivership on April 7, 2016. This was before Afrasia’s short-term investment was due to mature on April 18, 2016.
Chase Bank was acquired by SBM Bank on August 17, 2018, and Afrasia argued that it inherited the liability.
This was because it did not publish notices in the Kenya Gazette and national newspapers for two months, as required by provisions of Section 3(1) of the Transfer of Business Act and as read together with Section 4 of the said Act, stating whether it was assuming all liabilities of Chase bank.
The court heard that failure to publish the mandatory notice meant that SBM was fully and directly liable to pay the amount plus interest.
Justice Okwany said depositors were entitled to be informed of the transfer of assets and liabilities as required by law.
SBM opposed the claim saying the general public was informed about assets that were to be taken over by SBM and those that would remain under Chase Bank (in receivership).
The matter was referred to an arbitrator who dismissed the claim arguing that it was against public policy. Afrasia appealed the decision before the High Court.
The judge faulted the tribunal saying it erred by cherry-picking Acts that the parties needed to comply with while leaving out the Transfer of Business Act.
“In the instant case, I have already found that the tribunal erred in excluding the applicability of a law that was intended to protect the general public by preventing fraudulent transfers of business,” the judge said.
SBM claimed that Afrasia’s deposit was among Chase Bank’s assets and liabilities that remained with Kenya Deposit Insurance Corporation.