The High Court has allowed an entrepreneur to challenge a Sh211.2 million claim from Prime Bank, noting that preliminary evidence shows that the amount is in breach of the in duplum rule that stops interest accrual from exceeding the borrowed sum.
The court heard that Mary Syombua Ndeto, associated with Matex Hospital Supplies Limited, had pledged three properties to provide a guarantee of Sh54 million to the bank.
The principal loan was Sh72 million exclusive of interest, the court was told.
Mr Ndeto, who was jailed over the debt row, said the bank’s claim that the amount owed has grown to Sh211.2 million is a breach of section 44 of the Banking Act which caps interest recovered on defaulted loans at the principal owing at the time of default.
Justice Alfred Mabeya, setting aside an earlier judgement on October 23, 2019 against her, said Ms Ndeto will have a chance to question Prime Bank’s claim.
“It is not clear how the whooping sum of Sh211,248,361.79 was arrived at,” the judge said.
“It will be in breach of the in duplum rule. Even if interest is to be levied, the law is that the amount recoverable cannot be in excess of twice the amount lent. On that ground alone, I will grant the applicant an opportunity to challenge the plaintiff’s claim.”
The judge directed Ms Ndeto to file her defence within 14 days from the date of the ruling.
Two of the properties provided as security were sold for Sh13.7 million and Sh12 million. The in duplum rule initially applied to banks and financial institutions and seeks to curb the accumulation of interest rates and penalties to excessive levels.
Without an upper limit on interest accrual, borrowers are less likely to repay the ballooning debt while losing the assets pledged in the process.
The courts in August 2022 extended the application of the in duplum rule to non-banking lending businesses, opening a window for borrowers to challenge excessive interest charges from unregulated lenders.
In that judgement, Justice Mabeya said that the in duplum also applies to the Higher Education Loans Board (Helb) which had been sued by three former university students for charging exorbitant interest and penalties.
“A declaration hereby issues that the respondent (Helb) is not entitled to recover from the petitioners or its loanees an amount exceeding double the amount advanced in contravention of the in duplum rule,” the judge said in the judgement issued on August 19, 2022.
