The Kenya Commercial Bank (KCB) has received a court’s approval to sell seven houses owned by a real estate developer amid a Sh446 million loan dispute and claims of Sh60 million overcharged interest.
Justice Peter Mulwa allowed the bank to proceed with the intended sale of the units owned by Mahugu Limited, which are situated in Kerarapon, Karen in Nairobi after finding that the developer failed to establish a strong case against the lender’s intention.
The judge said that the developer also failed to demonstrate that it stands to suffer any loss that would not be compensated by damages.
“It is a settled principle that once property is offered as security, it becomes a commodity for sale in the event of default. Once property is offered as security it by that very fact becomes a commodity for sale. And there is no commodity for sale whose loss cannot be compensated adequately in damages,” said the judge.
Justice Mulwa stated that a court should not restrain a mortgagee, such as a bank, from exercising its statutory power of sale because the amount due is in dispute.
Through its director Makenna Wambui Nyammo, the company wanted the court to temporarily restrain the bank and its agents from selling, transferring, disposing of, leasing, or interfering with the housing units.
She also applied for an order restraining the bank from evicting the company’s tenants or interfering with their occupation of the houses.
The bank granted her a loan of Sh446.2 million in 2013, and a further Sh39.7 million in 2015, for the completion of 20 villas on the suit property.
The facility was secured by a charge over the property and a sum of Sh50 million that was in a fixed deposit account.
She said that proceeds from the sale of 10 villas amounting to Sh500 million were deposited in her account in 2022 before the bank issued statutory notices.
Upon engagement of auditors, she alleged that it was discovered the bank had overcharged Sh60 million in interest. She said the intended sale would affect third parties who were holding an interest in two of the houses and the disposal by the bank would expose her to third-party claims and irreparable harm.
However, the bank responded that the company had defaulted on the loan, necessitating the exercise of its statutory power of sale.
The bank further contended that the amount in the fixed deposit account was waived before disbursement of the loan and the claim of Sh500 million repayment was disputed for lack of supporting evidence.
The bank added that the issue of ownership of the two units by third parties was determined in another legal dispute, where the court found that the company had sold the units without the bank’s consent in breach of the charge terms.
In the ruling, Justice Mulwa dismissed the application and ruled that the balance of convenience favoured the bank as it was seeking to recover a legally enforceable debt through a process that is recognized in both statute and case law.
“To restrain the exercise of that right without sufficient justification would unduly fetter the bank’s commercial rights and undermine the security regime established under the Land Act,” said the judge.
He added that claims of overpayment and account mismanagement were unsupported by credible evidence, and the right of the bank to realise its security under statute had not been successfully challenged.
