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Oil and gas tycoon sues bank to block auction of assets over Sh631m debt
The petitioners argue that the failure by CBK to enact a legal framework to regulate Islamic banking in the country violates the constitution by failing to offer them equal protection and benefit of the law.
Mombasa-based oil and gas tycoon Ibrahim Hussein Mahadi and his company Mahadi Energy have sued Premier Bank, seeking to block the lender from auctioning assets charged to a Sh631.5 million loan.
Mr Mahadi and his company also want an order issued, pending hearing and determination of the case, directing the Central Bank of Kenya (CBK) to produce in court the authority in law under which Premier Bank (formerly First Community Bank), is undertaking Islamic banking business in the country.
The petitioners argue that the Islamic banking model contravenes the provisions of the Banking Act, which prohibits a bank from trading and acquiring property, puts a cap on the interest that a bank can charge, and the in-duplum rule which puts a cap on what the bank can recover.
Through Mutisya Mwanzia & Ondeng Advocates, the petitioners say that from 2011 to 2017, Premier Bank advanced to them loans that were in the nature of murabaha and musharakah concepts of financing that follow the Islamic Law.
According to the petitioners, the loans were secured through charges on their properties, and they (petitioners) substantially settled the loan.
They argue that despite making payments, they are not reflected in the statements received from the bank.
“For years, the petitioners have requested and demanded to be furnished with bank statements from Premier Bank Ltd to no avail, and it is only after one of the petitioner’s advocates made persistent complaints to CBK that the bank released partial statements.
“The total payments which have been made by the petitioners in settlement of the facilities is approximately Sh530 million but these are not reflected in the bank statements furnished,” part of the case documents state.
According to the petitioners, sometime in 2020, the bank compelled the company and its sister companies to sign a deed of settlement for alleged credit facilities, which were never advanced but which the bank seeks to recover.
“The deed of the settlement the petitioners aver are in violation of the constitution as the first respondent (bank) did not advance any monies on account of the deed settlement to entitle the bank to exercise a statutory power of sale,” part of the case documents state.
They further argue that commercial banking and company laws appropriate for the implementation of Islamic banking and financial contracts do not exist in the country.
“It is therefore necessary that special laws for the introduction and practice of Islamic banking are put in place,” argue the petitioners.
They argue that CBK has set regulations that guide banks on interest rates but there is nothing that protects the consumers of Islamic banks.
The petitioners argue that the failure by CBK to enact a legal framework to regulate Islamic banking in the country violates the constitution by failing to offer them equal protection and benefit of the law.
The petitioners want a declaration that banks operating in the country cannot offer Islamic banking facilities until a legal framework is set by the law regulating how such facilities are to operate and the calculation of profits.
They also want a declaration that CBK has violated the constitution by allowing Premier Bank to operate an Islamic banking business in the country without a statutory framework or regulations guiding such operations.
The petitioners are also seeking a declaration that banks offering Islamic banking facilities shall be obligated by law to file a case in court to obtain a decree before the commencement of the process of sale of the security whether immovable or movable for any loans already given.
They also want an order issue directing the Attorney General and the Kenya Bankers Association to take steps to ensure that a statutory/regulatory framework is put in place to regulate the manner in which the operations or lending is to be undertaken by banks offering Islamic banking facilities.
