KDIC escalates fight with Absa over Sh215 million premium refund row

Absa Bank along Muindi Mbingu Street in Nairobi.

Photo credit: File | Evans Habil | Nation Media Group

The Kenya Deposit Insurance Corporation (KDIC) has escalated its battle with Absa Bank Kenya over a Sh215 million refund claim by the lender for alleged excess premium payments to the statutory deposit protection fund.

The Nairobi Securities Exchange (NSE)-listed lender filed a suit against KDIC on October 14, 2023, seeking a refund of Sh215, 346,841 on grounds that it was an overpayment on premiums. The lender also demanded interest on the disputed amount at commercial rates of 14 percent from the date of payment of each premium till payment in full.

In its suit, Absa Bank said it paid its annual premium--which is usually based on a percentage (of 0.15 percent) of annual total deposits-- to KDIC, but later realised that it had by ‘innocent mistake’ overpaid by a margin of Sh215,346,841 and that the overpayment, unless refunded, will amount to unfair enrichment.

The suit also contained an alternative request that the overpaid amount, including the interest, is applied prospectively towards Absa’s annual contribution from the date of judgment of the Court, until full reconciliation.

In the ruling, the court determined that KDIC had failed to file a defence within the stipulated time and therefore High Court Judge Nixon Sifuna delivered a ruling in favour of Absa Bank on March 15, 2024.

“The defendant(KDIC), having inordinately failed to file a defence within the stipulated time, judgement in default of defence is hereby entered for the Plaintiff (Absa Bank) against the defendant in accordance with Order 10 Rule 10 of the Civil Procedure Rules. The plaintiff (Absa Bank)'s claim being a liquidated demand, this is a final judgment and not an interlocutory judgment,” said Prof Sifuna.

“The same is for the sum of Sh215, 346,841 plus interest at the court rate of 14 percent per annum from the date this suit was filed, to the date of this judgment.

“The same is entered in terms of prayer of (iii) of the plaint (charge), which is that this sum be applied prospectively towards the plaintiff’s (Absa Bank) annual contribution from the date of this judgment until full reconciliation. Each party shall bear its own costs of this Application, as well as those of the suit itself.”

However, KDIC appealed the ruling and sought orders to stay the execution of the ruling pending the hearing and determination of the application and the intended appeal in October.

KDIC, through Waweru Gatonye & Company advocates, says the ruling could potentially create a loophole where other member institutions may rely on it (ruling) to reduce their contributions to the statutory deposit protection fund.

“This will render meaningless the deposit insurance scheme and expose customers/depositors of banking and financial institutions,” KDIC says through court papers.

“Furthermore, as a consequence of nullifying Section 21 of the Government Proceedings Act, Cap 40 Laws of Kenya, the ruling now exposes the National Government departments as well as the County Government to the real risk of execution proceedings being instituted against them to the detriment of the larger public.”

Absa Bank Kenya through Mohammed Muigai LLP Advocates argues that in declining to grant an extension of time for KDIC to file its statement of defence, the Superior Court took ‘cognizance of the fact that the Applicant (KDIC) had repeatedly failed to abide by court directions without cause and further, the applicant (KDIC) had not presented any draft statement of defence for the court to satisfy itself that the defence raised bona fide triable issues.”

The lender also argues that the amounts it claimed were overpayments made to the KDIC which in effect means that the lender’s account with the deposit insurer is in a surplus.

“As such the applicant (KDIC) shall suffer no harm if the Respondent (Absa Bank Kenya Plc) adjusts its contributions to recover the overpaid claims,” says Absa.

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