Tycoon Mohan Galot has won a 30-year-old court battle against Standard Chartered after the Court of Appeal ruled that the lender was wrong in appointing receiver managers to run his business over a loan in 1990.
A bench of three judges faulted the lender for appointing A.D. Gregory and C.D. Cahill as managers in September 1990 to run Manchester Outfitters Ltd (now known as King Woolen Mills Ltd) and Galot Industries.
The Appeals court has referred the case to the High Court to assess and award damages.
Justice Sankale ole Kantai said the charge by the lender had to be executed, stamped and registered at the Registry of Lands to have legal effect and there was a provision in the Act on how that charge would be discharged upon repayment of the sum secured.
“That document stated in clear terms that it superseded all previous agreements in respect of the facility offered and that it contained the entire agreement between the parties. The 1st respondent (the lender) had no valid or legal instrument on which it could appoint the 2nd respondent as receiver/manager,” the judge said in a decision concurred by Asike Makhandia and Pauline Nyamweya.
The judge said the appointment of the receivers to manage the affairs of King Woolen Mills was illegal, null and void.
Evidence presented in court was that the lender was carrying financing industries and providing other financial facilities but had not had a customer relationship with the Galots’ firm.
The firm borrowed a loan in March 1982 from the lender of 1,300,000 Deutsche Marks and 1,050,000 Swiss Francs.
His lawyer Philip Nyachoti said the loan was terminated in 1986 and converted to local currency.
Mr Nyachoti said in the new agreement, the lender had no right to appoint receivers and the new debenture to be created was to be co-shared with another one held by KCB Group.
He submitted that the debenture ceased to be operational when the foreign currency loan was converted to a loan in local currency.
The lender first demanded payment of Sh14.2 million with interest in 1989 and the firm asked for time to restructure its loans with its bankers, KCB.
The parties held discussions and the firm agreed to sell some plots it owned to raise money.
The talks fell through and the lender made new demand of Sh19 million failure to which it would appoint receivers.
Mr Nyachoti said the appointment of the managers led to the closure of its business in Athi River as the company suffered losses in terms of machinery, finished goods, spare parts and raw materials such as dyes and chemicals.
The lender, through senior counsel George Oraro, opposed the appeal and filed a counter-claim of Sh24.8 million with interest since 1982.
