At the heart of the dispute is whether NBK has charged interest contrary to Islamic Banking law, under which the parties signed when the Sh1.95 billion loan was borrowed.
Kencom Sacco Society Ltd accuses NBK of extortion because the sum claimed was not in line with the principles of Islamic banking.
The Sacco said it borrowed Sh1.95 billion from the bank and the lender has so far collected Sh2.4 billion, an amount that is Sh400 million above what was borrowed.
The National Bank of Kenya (NBK) is facing off with a Sacco linked with its current owner, KCB #ticker:KCB, over an estate worth Sh3.9 billion developed using a loan advanced by the lender.
At the heart of the dispute is whether NBK has breached part of the agreement and charged interest contrary to Islamic Banking law, under which the parties signed when the Sh1.95 billion loan was borrowed.
Kencom Sacco Society Ltd accuses NBK of extortion because the sum claimed was not in line with the principles of Islamic banking.
Justice Mary Kasango has already issued temporary orders barring NBK from selling or transferring the 113 housing units in Kasarini, off Kiambu road, pending the determination of the case.
The Sacco told the court the replacement charge and any money borrowed were based on Musharaka and Mudharaba financial arrangements, which under the Islamic law of banking, profit is only charged after the principal amount has been settled.
The Sacco said it borrowed Sh1.95 billion from the bank and the lender has so far collected Sh2.4 billion, an amount that is Sh400 million above what was borrowed.
Further, the Sacco accuses the lender of charging interest right from the inception of the borrowing and as the matter stands, the bank was asking for Sh982,785,763, a calculation that does not factor in the principles of Islamic Banking Law. The figure according to the Sacco is erroneous and meant to arm-twist it.
The court also heard the Sacco independently requested for an expert opinion on Islamic law who pointed out many shortcomings in NBK’s operation of the accounts.
The Sacco rushed to court arguing that many individuals have bought the units but were unable to complete payment because the lender has failed to register the partial discharges.
“It is only fair that the plaintiff (Sacco) is given an opportunity to pursue its claim for proper and strict compliance with the Islamic Banking principles by restraining the defendant, otherwise the plaintiff and the many individuals who have bought houses hereon will be exposed to suffering and irreparable loss,” the Sacco said.
In an affidavit sworn by Josephat Mutuku, the secretary general, the Sacco said it purchased the land in Kasarani with intentions of putting up residential houses. The units include 113 units of 4-bedroom maisonettes with DSQ, shared recreational centre, a nursery school, commercial centre, swimming pool and a playground. The plan also entailed drilling of two boreholes, a man-made lake, a backup generator and paved roads with street lighting.
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