National Bank of Kenya (NBK) has been ordered to pay Ecobank over half-a billion shillings for a botched financing deals linked to the supply of digital driving licences.
Justice Grace Nzioka ruled that NBK had to pay Sh549.3 million based on an agreement signed three years ago, which compelled the lender to pay Ecobank on account of a firm that had been subcontracted to supply the digital driving licences.
Under the deal, NBK had committed to pay Ecobank within 150 days after inking the licence deal for a loan the lender had offered Pesa Print, to kick-start production of the second generation smart card driving licenses.
NBK has secured the Sh2.3 billion deal from National Transport and Safety Authority (NTSA) for the smart card driving licences, but the lender subcontracted Pesa Print for the job.
Justice Nzioka found NBK had breached terms of the financing deal after it failed to wire payments due to Pesa Print directly to Ecobank to settle a $3.5 million loan offered to the subcontractor.
NBK said payment to Ecobank was based on it receiving payment from NTSA for the contract, arguing that the transport regulator had delayed settling the bill.
“It is crystal clear that, the payment to the Plaintiff (Ecobank) by the Defendant (NBK) was based on ‘receipt and stamping of tax invoice number 00229’ and not on receipt of payment from NTSA. The period of payment is clear,” the Judge said.
NBK maintained that it could only pay the money after receiving funds from NTSA.
Court documents showed that Pesa Print assigned all dues under the contract to Ecobank and in November 2017, the sub-contractor notified the lender that it had to pay all proceeds under invoice 00229 to Ecobank. The letter was acknowledged on November 27, 2017 and the lender undertook to settle the amount within 150 days.
After the lapse of the 150 days, Ecobank demanded payment twice in April and June 2018 but NBK requested for an extension by another 150 days. The requested was allowed but after the lapse, NBK said it was yet to get funds from NTSA.
The parties later entered into negotiations but Ecobank moved to court accusing NBK of trying to vary the terms of the assignment, by alleging that payment was subject to receipt of funds from NTSA.
NBK remained categorical that payment was subject to receipt of the funds. The parties held meetings in December where they agreed that a fresh financial guarantee to be issued. And after the issuance of the new guarantee, NBK said its obligation on payment was limited to seven days after receiving funds from NTSA. And since the funds have not been received, the payment cannot be effected.
But Justice Nzioka dismissed the defence saying, “I find and hold that the Defendant is liable to pay the Plaintiff the subject sums or proceeds of tax invoice number 00229 dated pursuant to the notice of assignment served upon it.
The Defendant has in all its correspondence to the Plaintiff has undertaken to make the payment.”
National Bank won the tender in 2015, defeating 22 companies that had also lodged bids to supply the second generation licences.
The tender was challenged in court and although the High Court allowed NBK to proceed with the project, the lender was required to raise Sh1.2 billion from a third party financial institution before the tender can proceed.