B D & D M R v Prime Bank Ltd [2017] KEHC 8699 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

FAMILY DIVISION

MISC. PETITION NO. 6 OF 2015

(CONSOLIDATED WITH HCCC NO. 84 OF 2015 (O.S.))

IN THE MATTER OF THE ESTATE OF RAJ HARI KRISHNA DEVANI, A MENTALLY INCAPACITATED PERSON)

B D …………………................1ST PETITIONER /1ST RESPONDENT

D M R……………................…2ND PETITIONER/2ND RESPONDENT

VERSUS

PRIME BANK LTD………............APPLICANT/INTERESTED PARTY

RULING

1. On 26th January 2015 the petitioners B D and D M R filed a petition (Misc. Petition No. 6 of 2015) under the Mental Health Act (Cap 248) under Articles 28, 31and54 of the Constitution of Kenya 2010 seeking that R H K D be declared to be suffering from mental disorder as defined under the Act;that the 1st petitioner be appointed the guardian of R H K D with powers to take any action necessary to seek and obtain medical treatment for him; that the petitioners be jointly appointed as the managers of the estate of R H K D with powers to take action necessary subject to the provisions of the Act for the protection and preservation of his estate including recovery of all monies payable to him, payment of all his just debts, management of all his businesses, execution of deeds and documents on his behalf and application for stay or such relevant action of all court proceedings instituted by or against him; and to take any necessary action to preserve and protect his interest.

2. With the petition was filed, under certificate of urgency and exparte, a chamber application dated 26th January 2015 seeking that pending the hearing and determination of the petition, the 1st petitioner be appointed as the guardian of R H K D with powers to take any action necessary to seek and obtain medical treatment for him; the petitioners be appointed as the managers of his estate with powers to take any action necessary subject to the provisions of the Act for the protection and preservation of his estate including the recovery of all monies payable to him, payment of all just debts, management of all his businesses, execution of deeds and documents on his behalf and application for stay or such relevant action of all court proceedings instituted by or against him and to take any other necessary action to preserve and protect his interest. The application also sought that pending the hearing and determination of the petition, an order does issue for the preservation and maintenance of status quo, by restraining the sale by way of private treaty or auction, leasing, transfer or any dealing of all that property known as LR No. 7785/39 (IR 30715) Ruaka Road, Old Runda Estate, by Prime Bank Ltd, its agents, employees or otherwise howsoever; and an order for the preservation and maintenance of status quo of his estate including all property, shares and assets. Lastly, it was sought that the application be heard in camera, and the court does issue an order restraining the court registry from releasing for perusal or publication to the media, its agents and/or any third party the pleadings and/or proceedings herein.

3. On the same day the application went before Judge Achode who certified it as urgent. She granted prayers 4 and 5 which sought as follows:-

“4. THAT pending the hearing and determination of this petition, this Honourable Court be pleased to grant orders for preservation and maintenance of status quo, by restraining the sale by way of private treaty or auction, leasing, transfer or any dealing of all that property known as Land Reference Number 7785 (I.R. 30715) Ruaka Road, Old Runda Estate, by Prime Bank, its agents, employees or otherwise howsoever.

“5. THAT pending hearing and determination of this petition, this Honourable Court be pleased to grant orders for preservation and maintenance of status quo of the Estate of R H K D including all properties, shares, and assets.”

4. On 18th February 2015 the application dated 26th January 2015 was heard. The petitioners reported that the respondents had been served but had not filed any response. A ruling was delivered on 19th February 2015 in which the court found that R H K D had been proved to be a person suffering from mental disorder who could not take care of himself or conduct his own affairs. The application was allowed.

5. On 17th March 2015 Prime Bank Limited (the applicant) filed a motion dated the same day seeking to be enjoined as an interested party, claiming to have been aggrieved and seriously affected by the orders made on 26th January 2015 and 19th February 2015. It sought that the orders be varied, discharged and/or set aside in regard to L.R. No. 7785/39 (I.R. No. 30715) Ruaka Road, Nairobi. The Bank’s case was that the orders had affected its rights as chargees in a loan granted to Adra International Limited on the security of, inter alia, a charge over L.R. No. 7785/39 (I.R. No. 30715) registered in the names of Sasha Holdings Limited (“the chargor”). The borrower had utilized the facilities, but had committed default leading to the issuance of the statutory notice of sale and notice to sell by public auction both of which had been served. It was stated that the directors of Adra International Limited included R H K D and S.H. G H, and that they were also the directors of Sasha Holdings Ltd. The two directors had guaranteed the loan facility. This information was, according to the Bank, known to the petitioners, and yet they had not disclosed it to the court. It was claimed that the intention of the petitioners had been to use the petition (and the declaration of R H K D) as a mental patient and the other orders in the Petition) to unlawfully stop the auction. The actions were unlawful, unfair, and improper because, according to the Bank, it had not been made a party to the petition, and yet court orders had been issued against it which had affected its rights as a chargee without being afforded a hearing. The petition and application had not been indicated to be served on it, and had not been served; the orders granted were of permanent nature; under the Act, the court had no jurisdiction to grant an injunction against the property of a limited liability company; the petition and application touched on property charged to the Bank which property did not belong to R H K D, and was not part of his estate; these facts were known to the petitioners but were not disclosed to the court making the orders; and the petitioners were complete strangers to the bank-customer, borrower-lender and chargor-chargee relationships between the Bank and the various companies and parties.

6. The petitioners opposed the Bank’s application dated 17th March 2015 by filing grounds of opposition and replying affidavits. At this stage, it should be pointed out that after the petitioners obtained the contested orders, they filed H.C. Misc. Cause No. 84 of 2015(O.S.) against the Bank, Sasha Holdings Limited and Adra International Limited seeking a declaration that due to the mental incapacity of R H K D all the deeds, actions, commitments, obligations, duties and promises in connection with any charges, guarantees, agreements and promissory notes written or oral, contained in any document or deed or memoranda, is declared null and void for want of capacity. It was sought that a declaration does issue that all actions by R H K D in relation and in connection with Shimmers Boutique Limited, Simkan Investments Limited, Shimmers Group Limited and Shimmers Investments Limited and their assets especially L.R .No. 7785/39 Runda, L.R. No. 214/394 Muthaiga and L.R. No. 14897 Tiwi, Kwale, are null and void due to illegality for breach of trust, and lack of mental capacity and any transfers, charges, promissory notes or agreements executed by R H K D be declared null and void. Basically, the petitioners were saying that the charge documents that the Bank was relying on were not executed by R H K D, and, if they were, he could not have understood the contents or what they meant as he was by the time mentally ill. Further, that R K (the chairman of the Board of Directors of the Bank) and V.N. Ponda (a member of the Board of the Bank) were old friends of the late H D and his wife B D, and knew R H K D and his mental condition, and had manipulated these relationships to create the said charge. It was alleged that no monies had been disbursed following the charge. Lastly, it was alleged that R H K D and V.N. Ponda were trustees in respect of the assets of the estate of the late H D, and that they had fraudulently betrayed this trust by using LR No. 7785/39 (IR No. 30715) Ruaka Road, Old Runda, Nairobi to obtain the loan now being sought to be recovered by the Bank.

7. The replying affidavit to the Bank’s application dated 17th March 2015 basically raised the issues in the originating summons (HC Misc. No. 84/2015).

8. On 30th June 2016 the two causes were consolidated. Subsequently, it was directed that the Bank’s application dated 17th March 2015 (the instant application) be heard. Counsel (Mr. Mwangi for the Bank and Mr. Mbaabu and M/s Ithondeka for the petitioners) filed written submissions in the application. I have considered these submissions with great care.

9. The background of this case is that the 1st petitioner is the sister of R H K D. Their mother is B H K D who swore a further affidavit to support the petition. B H K D’s husband was the late H D who died on 19th April 2001. R H K D is married to A G D. The two are formally separated and divorce proceedings are ongoing. In the petition, the 1st petitioner and her mother (B D) swore affidavits to say that it was the late H D who built the family home on L.R. No. 7785/39 (I.R. No. 30715) Ruaka Road, Old Runda, Nairobi. By the time of his death the property was registered in the name of Shimmers Boutique Limited, a company associated with him. The two had, however, since learnt that on 5th May 2013 this company had transferred the property to Sasha Holdings Ltd. The transfer had been executed by R H K as director of both companies. He had executed on behalf of the transferor and transferee. He had then used the property as security and had made Sasha Holdings Limited to borrow a total of Kshs.250,000,000/= from both the Bank and African Banking Corporation. Adra International Limited, a company associated with R H K D had been involved in the borrowing transaction. Subsequently, they had on 12th January 2015 seen an advertisement by Garam Investments Auctioneers seeking to sell the property on 27th January 2015 over failure to repay the loan. The concern of the petitioners was that R H K had undertaken all these transactions leading to the intended sale without reference to, and knowledge, of the family. The family had no idea why such large borrowing had been necessary, and how the money had been spent. They did not know how, without a grant of letters of representation, R H K had been involved in the transactions leading to the transfer of the property to companies related to him. They gave incidents to show that R H K was throughout these transactions mentally ill, and had been in and out of hospitals for treatment. Owing to this mental condition he was unable to sustain social relationships, unable to sustain his marriage, did not want to associate with family members, had behaved in an irrational and temperamental manner, was acting criminally and had been captured and manipulated by his “friends and business associates.” It is at this point that the petition was filed.

10. t is the petitioners’ case that some of the people who had taken advantage of R H K D’s situation and condition were the Bank’s chairman R K and director V.N. Ponda. They (the petitioners) annexed the transfer and abstract of title in which the borrowing and charge were indicated.

11. A S is the Chief Manager of the Bank’s Credit Department. He swore an affidavit to show all the transactions leading to the borrowing, utilization of the funds, the default, notification of sale, redemption notice, certificate of service and the advertisement of sale by public auction. The Bank’s case was that the petition was filed to challenge the process through which the late H D’s property came to be owned and/or managed by R H K D. The petitioners were challenging the process through which the chargor company (Sasha Holdings Limited) had furnished the property as security for the indebtedness of the borrower (Adra International Limited). The case was that the petition was misconceived because the property of a limited liability company was different from the property of the director or shareholder of the company; that the charged properties of Sasha Holdings Limited were not part of the estate of R H K D. Further, the Bank challenged the claim that R H K D was mentally ill. Lastly, A S swore that B D had been fully updated on the indebtedness of the borrower and chargor, and of the fact that the property had been charged to the Bank. When the notification of sale was served on her, it was deponed, she had sought indulgence from the Bank promising to clear the debt in three months. This was contained in her letter ‘AS 12’ dated 21st January 2015. According to the Bank, therefore, when she failed to honour the promise she went to file the petition in order to stop the sale. Indeed, using the orders in the petition she had managed to stop the sale.

12. I have considered all these material. It is clear that the petition and the accompanying chamber application (both filed on 26th January 2015) did not indicate any respondent. They did not indicate that the pleadings were to be served on the Bank, or any other person. In the application, an order was sought as follows:-

“6. THAT this application is heard in camera, and the court does issue an order restraining the Court Registry from releasing for perusal or publication to the media, its agents and/or any third party the pleadings and/or proceeding herein.”

An order was sought, and was granted, seeking to restrain the sale (public auction), leasing, transfer or any dealing of L.R. No. 7785/39 (I.R. No. 30715) Ruaka Road, Old Runda, Nairobi, by Prime Bank Ltd, its agents, employees or otherwise howsoever.

13. It goes without saying that the petitioners knew that, owing to the charge over the property, the Bank was going to be greatly affected by the orders sought in the petition. The Bank was legally and constitutionally entitled to be enjoined as a party and to be served with the petition and application. The Bank was entitled to be heard before its rights over the property were prejudiced or affected.

14. Secondly, the property was not the property of R H K D. It belonged to Sasha Holdings Limited. It had been charged to the Bank which was selling it to realize the security owing to the non-service of the loan. It was wrong for the petitioners to mislead the court into granting orders of protection and preservation over this property.

15. Thirdly, it was an abuse of the process of the court for the petitioners, who knew about the charge and the indebtedness to the Bank, to invoke the Mental Health Act (Cap 248) to challenge what was purely a commercial transaction involving the Bank, Sasha Holdings Limited and Adra International Limited.

16. Fourthly, the petitioners and B D had failed to make a material disclosure to court that they were fully aware of the borrowing, the charge, the failure to service the loan and the intended public auction. They failed to disclose that B D had promised to repay the loan, and had failed to honour the promise. It is settled law that if an interlocutory injunction has been obtained by means of misrepresentation or concealment of material facts, the same will, on the application of the party aggrieved, be discharged (Ragui -v- Barclays Bank of Kenya Ltd, H.C. Milimani Commercial Courts Civil Suit No. 92 of 2002).

17. Fifthly, R H K D may have been the shareholder and/or director of Sasha Holdings Limited and Adra International Limited. However, the companies were each a legal entity separate from him (Priority Development Company Ltd -v- Hacienda Development Holdings Limited and Hacienda Development Limited, HCC No. 354 of 2009 at Mombasa). The property in question did not belong to him and could not therefore have been made the subject of the orders. It was not part of his estate available for preservation or protection.

18. Lastly, the petitioners’ counsel summarized the issues for determination of the matter to be:-

(a) what role was played by R K in the affairs of the D family, involving R H K D;

(b) whether the Bank applied the provisions of ITPA and the Land Act in relation to the charges and the advertisement of the suit property;

(d) whether the notification of sale was issued and served.

Counsel then urged the court to dismiss the application because:-

a) these suits raised fundamental legal issues concerning the validity of the documents executed by a person who has mental deficiency; and

b) the suits raised issues of trusteeship, disbursement of the facility and the statements of accounts, validity of the charge and further charge.

It was submitted that all these issues could only be determined by full trial, and, therefore, that it was in the interest of justice to maintain the status quo; that no prejudice would be occasioned to the Bank by the maintenance of the status quo.

19. It is my considered view that the petitioners, by misrepresentation and concealment of material facts, misled the court into issuing the orders that the Bank is complaining about. The Bank was exercising its statutory right of sale under the charge after the large loan in excess of Kshs.250,000,000/= went unpaid by Sasha Holdings Limited and Adra International Limited. The Bank was a material party, owing to the charge, who ought to have been enjoined in the petition to be able to protect its claim. However, from day one the petitioners sought to secretly and stealthily obtain orders, and thereby steal a march, as it were, on the Bank. Further, like has been said in the foregoing, this was a purely commercial transaction that ought not to have found its way in the Family Division.

20. In conclusion, in the wider interests of justice and in effort to stop this blatant abuse of the process of this court, I allow the Bank’s application dated 17th March 2015 in the following terms:-

a) Prime Bank Limited is hereby enjoined in the petition;

b) Misc. Petition No. 6 of 2015 and Misc. HCCC No. 84 of 2015(O.S.), both in the Family Division, High Court at Milimani are each struck out with costs for being an abuse of the process of the Court;

c) for the avoidance of doubt, the orders issued by the court on 26th January 2015 and 19th February 2015 in Misc. Petition No. 6 of 2015 are hereby discharged; and

d) the costs of the application shall be borne by the petitioners.

DATED and DELIVERED at NAIROBI this 7TH FEBRUARY 2017

A. O. MUCHELULE

JUDGE