Chandaria & another v Chase Bank Kenya Limited (In Liquidation) & another [2022] KEHC 12692 (KLR)

Chandaria & another v Chase Bank Kenya Limited (In Liquidation) & another (Civil Case E962 of 2021) [2022] KEHC 12692 (KLR) (Commercial and Tax) (7 July 2022) (Ruling)

Neutral citation: [2022] KEHC 12692 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Case E962 of 2021

WA Okwany, J

July 7, 2022

Between

Dhiren Chandaria

1st Plaintiff

Sophie Chandaria

2nd Plaintiff

and

Chase Bank Kenya Limited (In Liquidation)

1st Defendant

Venap Auctioneers

2nd Defendant

Ruling

1. The applicant filed the application dated December 14, 2021 seeking the following orders:-1. Spent2. Spent3. The 1st defendant be ordered to file, under oath, the following documents and information:a.Copies of complete statements of account from 2012 to November 30, 2021 pertaining to the purported demand of kshs 39,790,548. 40 in respect of the 1st plaintiffs account in compliance with section 177 of the Evidence Act.b.Copy of the executed letter of offer and any executed legal charge over the 1st plaintiffs property known as L R no 27754, house number 38M, Kihingo Village, Kitisuru Estate, Nairobi.c.The 40-day notification of sale under section 96(2) and evidence of service on the 2nd plaintiff under section 96(3)(c) of the Land Act.d.Copy of any court order obtained under section 79(7) of the Land Act granting leave to sell the 1st plaintiffs property known as L R no 27754, house number 38M, Kihingo Village, Kitisuru Estate, Nairobi.e.Spousal consent to create a charge over L R no 27754, house number 38M, Kihingo Village, Kitisuru Estate, Nairobi.f.Letter dated January 26, 2021, Ref: KDIC/Res/MLS/3/1/5 Vol 11 (1) causing the registration of the restriction under section 76 of the Land Registration Act.g.Copy of the valuation report giving the market value of kshs 115 million and details of how the valuer accessed the property without the permission of the plaintiffs.4. The chief land registrar be ordered to forthwith remove the restriction as entry number 5 registered against the 1st plaintiffs property L R no 27754, house number 38M, Kihingo Village, Kitisuru Estate, Nairobi.5. Pending the hearing and determination of the suit, the court be pleased to issue an injunction restraining the 1st and 2nd defendants, their servants, agents and/or employees, or otherwise howsoever, from selling, transferring, alienating, advertising for sale by public auction or inviting bids for sale by private contract or in any manner whatsoever interfering with the plaintiffs' property known as L R no 27754, house number 38M, Kihingo Village, Kitisuru Estate, Nairobi.6. Costs be awarded to the plaintiffs in any event.

2. The application is supported by the affidavit sworn by the 1st plaintiff’s affidavit and is based on the following grounds:-1. Leave to file suit under section 56(2) of the Kenya Deposit Insurance Act against the 1st defendant was granted on December 10, 2021 in E884 of 2021 Dhiren Chandaria & Anor v Chase Bank Kenya (In liquidation).Suit property threatened with unlawful auction sale2. The 45-day redemption notice issued by the auctioneer expires on December 10, 2021 and the property will be advertised for sale on December 14, 2021 causing embarrassment to the applicants who will be viewed as loan defaulters. Thereafter the public auction is fixed for January 14, 2022. Threatened sale is unlawful3. The defendants are illegally purporting to exercise a statutory power of sale on the basis of an alleged informal charge. The illegalities for such a sale are as follows:-a.The purported statutory demand notice dated January 29, 2021 does not refer to any court order under section 79(7) of the Land Act authorizing the sale of the applicants' matrimonial property on the basis of an informal charge.b.There is no spousal consent to charge the matrimonial home.c.The mandatory 40-day statutory notice was not issued under sections 96(2) and (3)(c) of the Land Act.d.The respondent does not hold the original title over the suit property to create an informal charge.e.There is absolutely no debt outstanding as the 1st plaintiff repaid the unsecured loan on January 3, 2014. f.Almost 8 years have passed since the applicant repaid the debt and there is no basis to purport to hold a statutory power of sale on any purported time barred debt.g.Any claim for purported interest penalty is time barred under section 4(5) of the Limitation of Actions Act after the end of two years from the date on which the cause of action accrued.h.Unlawful restriction be removed4. Restriction as entry number 5D registered against the suit property should be removed by order of the court for having been unlawfully registered by the 1st defendant.Production of documents and access to information5. The court has jurisdiction to compel the production of documents as the 1st defendant has not responded to the formal letter of demand for production of information and documents. The plaintiffs have no records after 8 years since the debt was fully paid.Orders of injunction should be granted6. Serious issues of law have been raised warranting the granting of all orders sought and avoid a grave injustice to the plaintiffs.

3. The 1st respondent opposed the application through the replying affidavit of its liquidation agent Mr Geoffrey Nyakundi who states that the 1st plaintiff applied for a loan of kshs 63,000,000 to purchase house number 38 M situated on land reference number 27754 in Nairobi (hereinafter “the suit property”) and agreed to charge the said property as security for the loan. He states that an informal charge was registered against the said house as security for the loan facility.

4. He avers that the plaintiff was duly notified that he was required to pay the outstanding loan amount following the placing of the 1st respondent under receivership. He further avers that the plaintiff did not comply with the notice after which the 1st respondent issued a statutory notice dated January 29, 2021 demanding payment of the outstanding sum of kshs 39,790,548. 40.

5. It is the 1st respondent’s case that the property was registered in the name of the 1st plaintiff who did not disclose that the subject property was matrimonial property.

6. The application was canvassed by way of written submissions which I have considered. The main issue for determination is whether the applicant is entitled to the reliefs sought in the application.

7. The three conditions for the grant of a temporary injunction were well set out in the case of Giella vs Cassman Brown & Co Ltd(1973) E A 385, at page 360 where Spry J held that:-“The conditions for the grant of an interlocutory injunction are ...well settled in East Africa. First, an applicant must show a prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which would not adequately be compensated by an award of damages. Thirdly, if the court is in doubt, it will decide an application on the balance of convenience."

8. In Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others [2003] KLR 125}}, Bosire, JA defined what constitutes a prima faciecase as follows:-“...So what is a prima facie case? I would say that in civil cases it is a case in which on the material presented to the court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter...a prima facie case is more than an arguable case. It is not sufficient to raise issues. The evidence must show an infringement of a right, and the probability of the applicant's case upon trial. That is clearly a standard which is higher than an arguable case."

9. The agreement between the parties herein was with respect to an informal charge. The legality of such agreements is spelt out under section 79 of the land Act which provides as follows:-“Informal charges.79(6) An informal charge may be created where –(a)a chargee accepts a written and witnessed undertaking from a chargor, the clear intention of which is to charge the chargor’s land or interest in land, with the repayment of money or money’s worth, obtained from the chargee;(b)the chargor deposits any of the following-(i)a certificate of title to the land;(ii)a document of lease of land;(iii)any other document which it is agreed evidences ownership of land or a right to interest in land.(7)A chargee holding an informal charge may only take possession of or sell the land which is the subject of an informal charge, on obtaining an order of the court to that effect.(8)An arrangement contemplated in subsection (6) (a) may be referred to as an "informal charge" and a deposit of documents contemplated in subsection (6) (b) shall be known and referred to as a "lien by deposit of documents."(9)A chargee shall not possess or sell land whose title document have been deposited with the chargor under an informal charge without an order of the Court. “

10. Section 2 of the Land Act defines a charge as follows:-“Charge” means an interest in land securing the payment of money or money’s worth or the fulfillment of any condition, and includes a subcharge and the instrument creating a charge, including –a.an informal charge, which is a written and witnessed undertaking, the clear intention of which is to charge the chargor’s land with the repayment of money or money’s worth obtained from the chargee….”

11. The provisions of section 79 of the Land Act make it mandatory for the chargee to seek a court order before selling the charged property. The applicants contend that the intended sale is illegal as the chargee did not obtain a court order before issuing the statutory notice. The applicants also raised the issue of spousal consent which is a requirement before selling of the charged property. The plaintiffs further maintained that they had paid the full purchase price.

12. Having regard to the affidavit evidence presented before this court, I find that the failure, by the 1st respondent, to comply with the above cited provisions of the law constitute a prima facie case that would require interrogation at the trial. In the premises, I find that there is need to protect the subject matter of the suit as the plaintiffs stand to suffer a greater risk of injustice if the injunctive orders sought are not granted.

13. Turning to the plaintiffs’ prayer for an order directing the 1st defendant to deposit the various listed documents in court, I find that the bank is the custodian of the said documents and it will only be just, fair and prudent to make an order for their production.

14. In the upshot, I find that the plaintiffs’ application is merited and I allow it in terms of prayer nos 3 and 5 only. The costs of this application shall abide the outcome of this suit.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 7TH DAY OF JULY 2022. W A OKWANYJUDGEIn the presence of: -Mr Gichuhi for plaintiffs.Mrs Maina for Issa for defendantsCourt assistant- Sylvia