CAK penalises Royal Mabati Sh2.6m for defrauding customers

Royal Mabati Factory has lost an appeal to overturn a Sh2.65 million penalty for misleading customers that they deliver purchased roofing products countrywide for free.

The Competition Tribunal has also found the beleaguered roofing materials firm guilty of forcing buyers to change product specifications after receiving payments and lengthy delays in refunding clients for cancelled orders.

In addition to the cash penalty, the tribunal has also ordered Royal Mabati to pay up outstanding refunds for cancelled orders within 60 days or deliver roofing materials to complainants within 30 days.

The besieged firm has also been directed to pull down and cease further misleading advertisements on free countrywide delivery of roofing materials in print and electronic media dating as far as January 2019.

Additionally, it is required to sensitise sales and customer care representatives on provisions of section 55 of the Competition Act, which outlaws misrepresentation of product features, including pricing, to customers.

The Competition Authority of Kenya (CAK) said on Tuesday the tribunal’s ruling “will deter suppliers of goods and services from engaging in conduct that misrepresents the terms of a transaction to consumers and encourage implementation of robust and fair complaints redress mechanisms”.

The tribunal dismissed with costs a plea by Royal Mabati seeking to quash the financial penalty imposed by the competition watchdog in May 2020.

The CAK said the penalty was based on six percent of Royal Mabati’s gross annual sales revenue for 2017 and that other mitigating factors, including but not limited to the effects of Covid-19 on the business, were also considered.

The CAK issued a cease-and-desist order to the firm on January 19, 2019, on misleading advertisements after receiving complaints from customers.

“Uncontroverted evidence on record shows that despite having been issued with a cease-and-desist order, the appellant [Royal Mabati] continued to offend the said order and provisions of the Act,” the tribunal noted in the ruling.

“The respondent [CAK] continued to receive new complaints in the course of the investigations and after the issuance of the cease-and-desist order.”

A spot-check on social media on Tuesday revealed a string of complaints from Royal Mabati clients alleging delayed delivery of orders, some which are more than four months overdue.

The CAK had sanctioned the firm following the completion of an investigation into complaints raised by 13 clients who had been short-changed by the manufacturer of roofing materials.

The investigations, conducted between March 2018 and April 2020, found the firm guilty of late delivery and subjecting clients to a “protracted wait” for refunds for failed orders.

Royal Mabati was also found culpable of forcing customers to change the “profile of the iron sheets from the original order” and demanding payment for deliveries which were to be done free of charge.

The firm, however, notified the tribunal of its intention to appeal the decision in June 2020 but filed its appeal more than a year later in September 2021 after successfully applying to be allowed to do so out of stipulated time.

It argued that it was not given a fair hearing because it was not involved in the investigations, it met its obligations to complaining customers before the penalty was imposed and that the unfulfilled obligations for refunds were due to circumstances beyond its control.

The tribunal held that the CAK notified Royal Mabati of its investigations and that the firm failed to provide evidence against the imposition of the financial penalty.

“The appellant [Royal Mabati] neither provided any evidence to support its said ground of appeal nor made submissions on the same. We do not, therefore, agree with the appellant’s submissions that the respondent erred by imposing a financial penalty of Sh2,652,363.47,” the tribunal said in the ruling dated April 12.

“We accordingly arrive at the ineluctable conclusion that the appeal herein is for dismissal.”

This is the latest scandal involving the growth-hungry roofing materials firm, which was founded in 2005.

Royal Mabati’s managing director, Moses Ikinya Kang’arua, in September 2019 denied 12 counts of charges, ranging from fraud in relation to tax to altering statements in income tax returns, omitting to declare income taxes and value-added taxes, under-declaring imports and substituting and removing goods in a bonded warehouse.

A year earlier in March 2018, the firm was sued by Manu Chandaria-owned Mabati Rolling Mills over alleged infringement on the latter’s trademark for Versatile brand, leading to confusion in the market.

***Updated