The High Court on Thursday allowed former MP Basil Criticos to seize cash and government bonds at the Central Bank of Kenya (CBK) belonging to the National Bank of Kenya (NBK) over unpaid Sh2.57 billion compensation.
Justice Dorah Chepkwony gave the seizure order after the politician convinced the court that the lender had refused to pay the billions in breach of judges’ orders.
This will see the former lawmaker tap into NBK’s Sh4.2 billion that was sitting in CBK vaults as of September and Sh46.6 billion worth of Treasury bills and bonds.
Attempts by NBK to appeal the decision at the Supreme Court were dismissed in December.
The judges found that the auction in September 2007 of 15,994.5 acres in Taita Taveta belonging to the former MP was undervalued after the forced sale failed to recognise buildings, sisal, quarry, and road network on the land.
The lender unsuccessfully sought to overturn the Sh2.57 billion award, arguing that the compensation risked pushing the bank into losses and derailing its lending obligations.
The award is more than three times the bank’s net profit of Sh807 million recorded in the nine months that ended September, underlining the impact of the judgment.
“I have read the notice of motion and the application is granted in terms of prayer 3,” Justice Chepkwony said.
In prayer 3, Mr Criticos through his lawyer Allen Gichuhi sought a garnishee order over NBK deposits at the central bank.
A garnishee order is a common form of enforcing a judgment debt against a creditor to recover money.
The court through the order directs a third party, in this case, the CBK that owes money to the debtor to instead pay a creditor.
The decision, however, comes after NBK was acquired by KCB Group, which has pumped billions of shillings to recapitalise and turn around the medium-sized lender.
The land was sold to the Settlement Fund Trustees (SFT) to recover a loan of Sh20 million advanced to a company in which Mr Criticos was a director and a shareholder.
The former Taveta MP acted as a guarantor and the bank sold the land after he defaulted on repayment.
In addition to the Sh2.28 billion compensation that excluded interest, the court directed NBK to refund Mr Criticos Sh35 million, which was the surplus from the sale.
The judges further faulted the bank for charging Mr Criticos what they termed excessive interest rates, declining his offers to redeem the debt and then proceeding to sell the property at less than the amount he offered, saying “it was a plain breach of a bank’s duty to act with care and in good faith”.
Mr Criticos told the court that the loan was advanced to his company, Agro Development Company in 1991.
He charged the property to Kenya National Capital Corporation, a subsidiary of NBK.
In April 1997, the bank wrote to him demanding about Sh66.5 million from the company plus interest of 35 per cent per month.
He was given three months to repay the amount, but his efforts to sell the land and offset the loan were frustrated by several court cases.
The bank then sold the land to SFT for Sh55 million through a private treaty, while the case was pending in court.
The bank also demanded a further Sh106 million from Mr Criticos.
The businessman had initially lost the case before the High Court but he successfully appealed.
The court ruled that it was morally wrong for the bank to raise the interest rate from 19 percent per annum to 35 percent per month, amounting to 420 percent per annum.
“The dispute between the parties was a commercial loan between a lender, borrower and guarantor. The applicant has not shown how a private commercial agreement between the parties and failure to repay a loan is a matter of general public importance,” the Court of Appeal judges said.
The lender went back to the Court of Appeal seeking the suspension of the decision and permission to move to the apex court, which while acknowledging the awards as hefty dismissed the suit.
The judges ruled that the dispute failed to meet the threshold of public interest for the Supreme Court’s hearing.
The bank told the court that the judgment will directly affect all players in the banking industry including depositors and borrowers, who place heavy faith in personal guarantees as security for loans.
