The High Court has ordered First Community Bank to refund Sh1.2 million to a Kisumu-based company for negligence after unknown persons opened an account in the firm’s name where cheques stolen from the company would be deposited and money withdrawn.
Jumbo Foam Mattresses Industries Ltd told the court that cheques would be stolen from its accounts office, and deposited in the account that was opened without its knowledge.
It was after reporting the matter to the Banking Fraud that the forgeries were detected and the firm discovered that the account was opened by two strangers, Philip Owala Odera Odero and Simon Okumu Majimbo in February 2014.
Justice Roselyn Aburili ruled that the lender failed to exercise due diligence when the account was opened and allowed it to operate, causing the company loss of money.
The two individuals used forged documents to open the account and cheques would vanish from the company and be deposited in the account before being withdrawn.
“I am satisfied that the appellant proved on a balance of probabilities that the respondent was negligent in the manner that it handled the entire transaction with the persons who turned out to be fraudsters, leading to the appellant losing substantial sums of money where its cheques were deposited and withdrawn from an account opened and operated by the fraudsters,” Justice Aburili said.
The judge said the evidence presented before the court was that the bank did not conduct a search at the company’s registry or conduct background checks as required when the bank account was opened.
She said had the lender carried out due diligence on the directors of the company, it could have easily found out that the individuals opening the account were not the actual directors or even its representatives.
The bank defended itself saying the two individuals presented an original certificate of incorporation, original KRA PIN, original Memorandum of Association of the company, original sealed resolutions from the company, original identity cards of the directors, passport photos and bank statements as a reference, for account opening.
The judge, however, said in as much as the documents presented were forgeries, the bank and or its agents did not aid in the fraud.
The company lost the case at the lower court but won after appealing to the High Court.
