The High Court has directed three trading companies to pay Kenya Commercial Bank (KCB) a combined debt of Sh140 million arising from commercial financing agreements for Safaricom dealership businesses.
In the separate judgments issued by Justice Rhoda Rutto, the court directed Jatcom Agency Limited to pay Sh47 million, Charingcross Communication Agency (Sh45.8 million), and Talk Cell Technologies Limited (Sh47.2 million).
The judge found that the companies and their directors had breached their respective Murabaha Financing Agreements, where the lender had advanced them various loans in 2022 for their Safaricom dealership businesses to purchase Safaricom products.
“Thus, the court finds that the quantum of the debt has been sufficiently proven, and judgment should be entered for the amount specified in the prayer,” said Justice Rutto.
Murabaha is an Islamic financing system used to provide working capital, trade financing, and asset acquisition financing on terms compliant with the Sharia law to avoid charging interest.
The financier buys an asset that has been identified by its client (borrower) from a third party and then sells the same to the borrower for the original purchase price, and the borrower pays the new price in installments.
In this case, Jatcom and Talkcell had been advanced Sh54.6 million each, while Charingcross got Sh50.5 million. Court papers show that the loans were to be serviced in monthly installments over a period of 60 months.
However, they defaulted on their payment obligations, citing financial constraints, and this prompted the bank to seek legal redress.
KCB claimed financial loss and suffering, saying the companies had stopped channeling their entire Safaricom dealership commissions to it, contrary to the facility agreement.
Through the testimony of Ferdinand Kalafweri, the bank’s credit recovery manager, the financier proved its claim through exhibits such as copies of the agreements and also referred to the personal guarantees and indemnity executed by the directors of the companies as part of the securities.
The court found there was no dispute regarding the existence and validity of the Murabaha agreements between the parties.
Justice Rutto said that the bank had established a strong case against the defendants, the evidence being uncontroverted. She said the evidence tabled demonstrated that a valid and binding contract existed between the parties, which was subsequently breached by the defendants.
The financial facilities had also been secured by letter of assignment from the companies to Safaricom, undertaking that the proceeds and or commission would be remitted through their accounts with the bank for the duration of the facilities.
The order for payment of defaulted amounts extends to the companies’ directors and the loan guarantors, as they had made undertakings that, in the event of default by the companies, they would make full payment of the losses, damages, and expenses of such default.
“The language of the contract itself strengthens the plaintiff's position. The document is titled Personal Guarantee and Indemnity. The inclusion of the term "indemnity" creates a primary obligation, allowing the creditor to pursue the guarantor independent of any action against the principal debtor,” said Justice Rutto.
The court stated that the primary condition for the directors’ liability was the default by the companies, which was proved by the bank.
The bank’s claim was uncontested, as the defendants did not submit a defense during proceedings.
