A bench of three Court of Appeal judges found that the auction of the 15,994.5 acres in Taita Taveta belonging to Mr Criticos in September 2007 was undervalued.
The award is twice the bank’s net income of Sh1.1 billion recorded in the year ended December, underlining the impact of the judgment.
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.
National Bank of Kenya (NBK) has been ordered by a court to pay former MP Basil Criticos more than Sh2.2 billion after auctioning his sisal farm 14 years ago.
A bench of three Court of Appeal judges found that the auction of the 15,994.5 acres in Taita Taveta belonging to Mr Criticos in September 2007 was undervalued given that there were buildings, sisal, quarry, and road network on the land.
The award is twice the bank’s net income of Sh1.1 billion recorded in the year ended December, underlining the impact of the judgment. The decision, however, comes after NBK was acquired by KCB Group #ticker:KCB , which has pumped billions of shillings to recapitalise 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 the result, subject to what we shall shortly state with regard to the crops, we find the appellant's valuation report to be solid in content and uncontroverted. It was not to be merely wished away. And we are on balance persuaded by the appellant’s contention that the suit property was sold at an undervalue,” Justices Roselyn Nambuye, Wanjiru Karanja and Patrick Kiage said.
In addition to the Sh2.28 billion compensation, 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’.
“Our foregoing analysis leads to the inescapable conclusion that the appellant was treated by the respondents in a shabby and wholly unacceptable, if not tyrannous, the manner in the entire transaction,” the judges said.
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 percent 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 lost the case before the High Court but he appealed.
He argued that the demand from the bank was never issued to him but to the company, which did not own the land.
His lawyer Allen Gichuhi also blamed the judge for failing to consider that the bank frustrated his efforts to repay the debt by rejecting the Sh63 million he had offered.
Mr Gichuhi said there was no basis for the bank imposing an interest rate of 35 percent per month, which amounted to 420 percent per annum whereas there was no provision for interest to be computed monthly.
NBK opposed the case arguing that the loan should have been cleared by February 1996 and that Mr Criticos delayed the recovery of the loan by filing court cases.
“While we note that the charge had a condition granting the respondents the exclusive right to vary the rate of interest at any time without advising the chargee, we find it unconscionable and morally wrong that the bank would raise the interest rate from 19 percent per annum to the impossibly high rate of 35 percent per month, amounting to 420 percent per annum,” the judges said.
