Equip Agencies Limited v I & M Bank Limited [2017] KEHC 10051 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND ADMIRALITY DIVISION

CIVIL CASE NO. 420 OF 2016

FAST TRACK

EQUIP AGENCIES LIMITED --------PLAINTIFF/APPLICANT

VERSUS

I & M BANK LIMITED---------DEFENDANT/RESPONDENT

RULING

1. This ruling relates to a Notice of Motion Application (herein “the Application”), dated 25th August 2016 and amended on 10th November 2016. It is brought under the provisions of; Section 1A, 1B, 3A, 59 & 63 (e) of the Civil Procedure Act, (Cap 21) Laws of Kenya, Orders 40 Rules 1(a) 2, 4 and 10, Orders 51 Rule 1 of the Civil Procedure Rules, 2010, Sections 82, 84, 90 (2) & (3), 96, 97, 103, 104(3), 105 and 106 of the Land Act.

2. The Applicant is seeking for orders:

a) That pending hearing and determination of this suit, this  Honourable Court be pleased to grant an order of temporary injunction restraining the Defendants whether by itself, its employees, servants, agents or auctioneers from doing any of the following acts, that is to say, from advertising for sale, selling whether by public auction or private treaty, disposing of or otherwise howsoever completing by conveyance orappointing Receivers or exercising any power conferred by Section 90(3) of the Land Act by leasing, letting, charging or otherwise howsoever interfering with the Plaintiff’s ownership of and title to all that parcel of Land known as Mainland North VI/3075 Changamwe, Mombasa.

b) That this Honourable Court be pleased to grant an order of temporary injunction restraining the Defendants whether by themselves, their employees, servants, agents or auctioneers from doing any of the following acts, that is to say, from advertising for sale, selling whether by public auction or private treaty, disposing of or otherwise howsoever completing by conveyance or transfer of any sale concluded by public auction or private treaty, taking possession, appointing Receivers of exercising any power conferred by Section 90(3) of the Land Act by leasing, letting, charging or otherwise howsoever interfering with the Plaintiff’s ownership of title to all that parcel of Land known as Mainland North VI/3075 Changamwe, Mombasa until the determination of the suit.

c) That prayer 2 and 3 be granted pending hearing and determination of this Application;

d) That an order be made under the doctrine of lis pendens and Section 106 of the Land Registration Act, (previously enshrined under Section 52 of the Indian Transfer Property Act (1959) (Repealed), that pending final determination of this suit in accordance with the law, ALL FURTHER REGISTRATION or change of registration in the ownership, leasing, subleasing, allotment, user, occupation or possession or in any kind of right, title or interest in the Charged Properties with any Land registry, Government Department and all other registering authorities be and is hereby prohibited in ALL THAT parcel of land known as LR NO. 209/4535 and Mainland North VI/3075 Changamwe, Mombasa

e) That, interlocutory mandatory injunctions do issue compelling the Defendant to render a true, proper and accurate account to the Plaintiff(s) and the Court on the actual status of the charge account(s).

f) That an interlocutory mandatory injunction do issue compelling the Defendant to withdraw or issue an amendment notice withdrawing any adverse notice or information advanced to any Licensed Credit Reference Bureau and to expunge the Plaintiff’s name from any list it has issued to any or all Credit Reference Bureaus in regard to the purported loan(s) herein.

g) That costs of and occasioned by this Application be provided for.

3. The Application is supported by the grounds on the face of it and an affidavit dated 10th November 2016 sworn by Divyesh Patel Indubhai, a director of the Plaintiff Company.

4. The Applicant’s case is that on or about the year 2006, the Applicant opened a bank account with the Defendant (herein “the Respondent”), whereby a banker-customer relationship was created. That subsequently and pursuant to the powers conferred on the directors of the Applicant Company under the Memorandum and Articles of Association of the Applicant Company, the Applicant approached the Respondent for grant of financial facilities.

5. On or about March 2011, the Applicant requested the Respondent and the Respondent agreed to grant the Applicant a term loan of Kshs 75, 000, 000 vide a letter of offer dated 11th March 2011, for the specific purpose of the purchase of property known as LR No. 209/4535 and Mainland North VI/3075 Changamwe, Mombasa (herein “the suit property”). It was agreed that the term loan facility would be repaid in a maximum of 24 monthly instalments of approximately Kshs 3,125,000 each exclusive of interest.

6. In consideration of grant of the term loan the Applicant charged the suit property vide a charge instrument executed on 12th September 2012 by its directors and on 12th October, 2012 by the Respondent.  However, the charge was not registered or stamped until 4th March, 2014 being 17 months after.

7. According to the Applicant, it was expressly agreed in the charge instrument that it only secured the “maximum principal amount of up to Kshs. 75,000,000 or such lower sum.” That no further charge or supplemental charge was thereafter created although the Respondent has in the course of its dealing with the Applicant obtained other facilities secured by other properties.

8. The Applicant further avers that the Applicant through coercion has tried to consolidate its securities through issuance of letters of offer but none of these have been endorsed on the current charge.

9. The Applicant avers that by 1st July 2013 it had fully amortised the sum of Kshs. 75,000,000 by a payment of Kshs. 88,972,620 and therefore the Respondents have no basis upon which they are continuing to hold the security.

10. That by an omnibus notice issued on 13th May 2016, the Respondent lumped up the amount secured by three separate charges and made a demand upon the Applicant of a sum of excess of Kshs. 1. 2 billion within 90 days intimating that it would sell the property unless the amount is paid. That, the said Statutory notice is therefore null and void ab initio and unenforceable in law.

11. That further the Respondent has threatened to forward to the Credit Reference Bureau inaccurate, adverse credit information and have the Applicant and its directors listed as defaulters. That, if allowed to publish the information the same will occasion the Applicant untold suffering especially due to the nature of their business and the fact that they are not in a position of default in regard to the above loan.

12. The Applicant further argued that the suit it has filed herein is competent and with a high probability of success and that the suit property is unique in character and valued at more than, Kshs. 500,000,000 and if the orders sought are not granted more than 200 employees of the Applicant stand to lose the means of livelihood.

13. However the Application was opposed by Gilbert Banda, the Relationship Manager Corporate Division of the Defendant Company; vide a Replying Affidavit sworn on 14th September, 2016.  He deposed that; Equip group comprising the Applicant, Unicom Limited and Intertractor Company Limited executed various letters of offer between 2007 and 2015 and duly accepted all the terms and conditions governing the various Letters of Offer.

14. Consequently the Applicant, the Respondent and the Guarantors executed the facility letter dated 11th March 2011 extending Credit facilities to the Applicant Group of Companies as aforesaid and later the same Parties executed the facility letter dated 11th November 2015 restructuring the facilities advanced to this Group of Companies.

15. That all Parties including the Applicants agreed that under the restructured facility, the terms of the facility letter would prevail and that the facility would continue to be secured by the existing securities. The Respondent further advanced a Term Loan facility for the sum of Kshs. 613,000,000 at an interest rate, to be determined by the bank at its sole and absolute discretion, subject to a minimum of the Bank’s Kenya Shilling Base Rate plus 10. 13% p.a. and that the borrowers and the present Applicant acknowledged that Borrower-Equip Agencies Ltd were indebted to the bank as at the close of business on 10th November 2015 in the sum of Kshs 1,113,017,032. 01, as an overdraft facility and Kshs 220,260,000 in letters of Credit.

16. That this addition facility was secured by the existing securities including the Legal Charge over L.R. No. MN/VI/3075 (Mombasa) registered in the name of the Applicant, and the Borrower and the Guarantors, inclusive of the present Applicants accepted all the terms and conditions of the said Letter of Offer, and the Applicant as Guarantor executed an omnibus counter guarantee whereby the Applicant undertook to unconditionally and on demand indemnify the bank against all claims in respect to various facilities advanced to the Respondent.

17. That the Applicant irrevocably allowed the Respondent to proceed against and recover from any property of the Company including any credit balance held by the Respondent and any security for the time being held by the Respondent on account of the Applicant by sale or otherwise and allocate and apply the net proceeds of the sale and realisation in such manner as the Respondent may deem fit.

18. That it was further agreed by the Parties that the Counter Indemnity will be a continuing one and will remain in force until the Guarantor is finally discharged of all liabilities.

19. The Respondent termed the averments in the Supporting Affidavit of Divyesh Indubhai Patel as unfounded allegations and averred that all the legal Charges were duly registered at the Land’s Office.  That the Applicant executed all letters of offer accepting additional facilities, agreed to the right to combine and consolidate any of the Applicant’s accounts and has in the past admitted the debt and made promises to settle it but have failed to honour it

20. That the Applicant has admitted at paragraphs 20 of the Plaint that indeed the said debt is genuinely owed and that Equip Agencies Limited (Borrower) would be able to pay the same had the government settled certain decretal sums allegedly owed to it. The Applicant has at all material times been aware of the due debt and the issue of taking of accounts is a red herring as it has not been repaying the debt.

21. That the bank cannot wait for settlement of the debt owed to the Applicant by the Government of Kenya. It is material to note since the Applicant obtained judgement on 2nd December 2011 it has not demonstrated why it has not taken steps since then to recover the debt.

22. The Respondent averred that following persistent default aforesaid, the bank instructed its advocates to issue the Statutory Notice under the Land Acts. The Statutory Notice was duly issued to the Chargors by registered mail, receipt of which is acknowledged at paragraph 22 of the Supporting Affidavit, and that the notice is valid in law as it sets out the outstanding debt.

23. The Respondent further argued that all advances were made with the consent of the Applicant and it is stopped from denying that they duly executed the memoranda of acceptance in support of all facility letters. That the Applicant’s own valuer Kiragu & Mwangi Ltd has stated in the valuation report at page 62 that the buildings are in a deplorable state with missing doors, windows, lack of toilet facilities and most ceilings having fallen off and the forced sale value in October 2013 was put at Ksh.135 million.

24. Further that the Applicant has misled the Court when it alleged at paragraph 6 of its Affidavit that the charged property is valued at Ksh.500 million when no current valuation report has been exhibited to support that allegation. In addition, there is no evidence of any marked improvement of the property as alleged at paragraph 34 of the Applicant’s Affidavit and that the Applicant unlawfully entered into a tenancy agreement without consent of the Respondent in contravention of Section 87 of the Land Act.

25. The Parties agreed to dispose of the Application by filing written submissions and highlighting the same. I have considered the Application, the respective Affidavits and the submissions filed and I find the issues raised for determination are:

(i) Whether the charge herein is defective and/or invalid.

(ii) Whether the Statutory notices issued are valid

(iii) Whether the Applicant has met the conditions for grant of an order for temporary injunction.

(iv) Whether the Court should grant interlocutory mandatory injunction

(v) Whether an order can be made under the doctrine of lis pendens and Section 106 of the Land Registration Act,

26. I shall first deal with the issue of the validity of the charge.  Without repeating the arguments herein, the Applicant argued that the charge document was not registered until 31st March 2014, that is 17 months later; or within 42 days after creation as required under sections 96 and 99 of the Companies Act, in force then. Thus the charge is invalid and no statutory power of sale can arise or emanate therefrom. The case of; Ibis Aviation vs Equitorial Commercial Bank CA No. 257 of 1999was cited to argue that section 96 of the Companies Act renders void any charge otherwise created than as provided therein as against the liquidator and any creditor of the Company if it is not registered within the stipulated time.  These requirements are also provided for under XXXII of the Companies Act 2012.

27. The Respondent in response argued that the property was charged on 4th March 2014 and that the Applicant is only raising the issue of the validity of the charge at this time of the suit. The Respondent relied on the case of; Coast Brick Tiles & Tiles vs. Premchand (1996) EA  and argued that the Applicant has not discharged its burden of proof under section 107 and 109 of the Evidence Act in the light of legal requirement that who alleges proves.

28. That section 56 of the Land Registration Act, deals with the form and effect of registration of a charge and no legal charge can be registered unless the Registrar is satisfied that all the necessary consents and requirements have been fulfilled. Registration therefore automatically confers statutory compliance. Further reliance was placed on the case of; Al-Jalal Enterprises Limited vs. Gulf Bank Limited (2014) eKLR where the Court found that a challenge to the validity of a charge at the time of the hearing of the suit was an afterthought.  The case of; King’orani Investments c. Ltd vs Kenya Commercial Bank Limited & Another (2007) eKLR, was also cited where the Court held that a challenge on the validity of the security documents after 10 years of registration has no merit and stated as follows;

“ even if we ignore all else, the attempt to disown the Debentures on grounds they are invalid is proof of the Plaintiff’s poor attitude towards its obligation to the bank and the debt owed and this cannot be allowed.”

29. Be that as it were from the decisions above, it is clear that Courts are not inclined to uphold arguments questioning the validity of a charge document long after the Borrower has received the Banking facility utilised the same and/or is in default. In the case of; Coast Brick & Tiles vs Premchand (supra), the Court had this to say;

“By s 32 upon registration the land specified becomes liable as security.  In view of these provisions I think that anyone who challenges the validity of a duly registered instrument (if he can do so at all) must discharge a substantial onus.  The second reason for my opinion that the onus is heavy is based upon the particular facts of this case.  The mortgage was duly registered on February 27, 1956, and the Plaint in the action is dated September 21, 1960; no hint of any alleged invalidity was given during these four and half years.  ….A case so presented cannot inspire confidence.”

30. The holding in the above case was also adopted in the case of; Al-Jalal Enterprises Limited vs Gulf African Bank Limited (supra) where the Court stated as follows;

“16. Further the absence of past allegations raised concerning the validity or otherwise of the charge gives the impression that the current allegations are an afterthought.  This issue has been addressed by the Court of Appeal since 1966 where the Court has found no sympathy for debtors who after executing valid security instruments later turn around and challenge the validity years later when the bank commences the sale of the securities.   In the present case, it is unconscionable to turn and purport to use any baseless excuse to frustrate the bank from realizing its security after it has lent money to the Plaintiff.”

31. I have considered the rival arguments regarding the validity of the charge.  It is a fact that under section 96 of the Companies Act, Cap 486 of Laws of Kenya (repealed), that the charge is required to be registered within 42 days of its creation. Whose duty is it then to register a charge?  Registration pursuant to section 96 is effected by lodging of the mortgage debenture or other instrument of charge with the Registrar.  Primarily it is the duty of the Company to register the charge, but the Companies Act No. 17 of 2015 under section 878(2) provides that Registration may be effected on application of any person interested therein. In practice, when a registrable charge is created, in favour of a bank, registration is effected by the bank or its solicitors.  If a registrable charge is not registered within 42 days (under the repealed Companies Act), or 30 days of its creation under Companies Act No. 17 of 2015,  it becomes null and void as against the Liquidator of the Company, an administrator of the Company and any Creditor of the Company.  It is not null and void against the borrower who has benefitted from the loan facility.  Failure to register a charge within the stipulated time does not affect the operations of a contract or obligation for repayment of the money secured by the charge. And when a charge becomes void for want of registration the money secured by the charge becomes payable immediately (section 889(3) Companies Act No. 17 of 2015).

32. However where the failure to register a charge is accidental or is not of a nature to prejudice the position of creditors or shareholders the Court may order that the time for registration shall be extended.

33. I note that the suit herein was filed in the month of August 2016, two years after the alleged date of registration of the charge.  From the averments by the Parties, the security herein was granted vide a letter of offer dated 11th March 2011 and it is alleged that a charge was created over the suit property, 17 months after creation.  The question is this: why didn’t the Applicant raise this issue earlier than the expiry of the 17 months and/or after the registration of the charge?

34. In the case of; Re C L Nye Ltd, (1969) 2 All E.R. 587; on appeal, (1970) 3 W.L.R. 158, a company wanted to buy certain premises, and negotiated a loan from the Westminster Bank on the security of the premises.  On 28th February, 1964, the transfers of the premises, sealed by the vendors, were handed over to the bank, or possibly to a solicitor acting for the bank, together with a charge sealed by the company.  The transfers and the charge were undated.  By an oversight, the charge was not registered with the Registrar of Companies.  On 18th June, 1964, the oversight was noticed, and on 3rd July the solicitor acting for the bank applied for registration of the charge.  He inserted 18th June in the charge, and on 3rd July, he presented an application for registration of particulars of the charge.  The application stated, incorrectly, that the charge had been executed on 18th June, 1964.  The particulars were registered by the Registrar on 3rd July, that is to say, within twenty one days of 18th June (the date inserted in the charge), but not within twenty-one days of 28th February (the actual date of execution of the charge).  In July, 1964, the company went into liquidation.  On 16th November, 1967, the Registrar issued a certificate of registration.  The liquidators sought a declaration that the charge was void on account of non-registration within twenty-one days from the date of its creation.  The bank contended that the certificate of registration was conclusive evidence that the requirements of the Companies Act, 1948, had been complied with.  Plowman, J., held that the charge was void, since it had not been registered in due time, but the Court of Appeal reversed his decision on the ground that once the Registrar’s certificate has been granted, section 98(2) of the Companies Act, 1948, applied and so the certificate was conclusive evidence that all the requirements of the Act had been complied with. Thus the charge in favour of the bank was valid. (emphasis mine)

35. Based on the facts herein and the authorities cited above, I find no merit in the argument that the charge herein is invalid for failure to stamp and/or register it in accordance with the provisions of section 96 and 99 of the Companies Act which were in force at the time, in that the charge herein was registered on 31st March 2014, though outside the time limits.

36. The other issue raised by the Applicant is non-compliance with section 82, 84 and 85 of the Land Act.  The Applicant’s argument is that the Respondent did not seek further and/or supplementary charges in relation to the suit property and the same remained the security for the sum of Kshs. 75,000,000 which has been fully repaid in the sum of Kshs. 88,972,920. 00 by 1st May 2013.  That, although section 82 of the Land Act recognises that the chargee may be granted further advance, this section should be read together with section 84 of the Act, whereby the Applicant is required to execute such Memorandum, which legitimize any further lending and bring it within the ambit of the charge.  The case of; Kisimani Holdings Ltd. & Another vs Fidelity Bank Limited was cited to argue that by not specifically executing the Memorandum, the Defendant was in breach of the Law.

37. However, the Respondent argued that the right of consolidating and tacking was contractually agreed on by the Parties under clause 2. 3 of the Charge dated 4th March 2014, and distinguished the case of; Kisimiani Holdings (supra) as the tenets of section 82 and 83 have already been provided for in the charge.

38. Before I deal with this issue of non-compliance with section 82, 84 and 85 of the Land Act. I also wish to deal with the other related issues raised by the Applicant namely the issue of the doctrine of consolidation and tacking and of continuing securities in banking law.

39. The Applicant submitted that consolidation in banking practice has never meant enhancement.  That consolidation involves combination of various sub-credit lines within a formally approved maximum limit or head-room. That it is mandatory under the Land Act, to create a Memorandum that is endorsed on the charge before a security created for one transaction becomes enforceable as a security for enhanced facility or another debt.  That section 83 of the Land Act clearly provides that where a chargor has more than one charge with a single charge of several securities, he may discharge any of those charges without having to redeem all the charges. Reliance was placed on the cases of; Kakamega District Co-operative vs Co-operative Bank of (Kenya) Limited & Another, (2013) EKLR and  Jane Wangui Kinuthia vs Barclays Bank of Kenya (2007) EKLR, to argue that, a continuing security can only be interpreted within the description of the charge

40. That the doctrine of “continuing securities” in banking transactions arises from the practice whereby the banks do offer facilities which may be rolled over or renewed if the terms and conditions of the facility remain materially unchanged, the doctrine takes effect.  However, the said facilities must be within the headroom created by the securities. The Court was referred to Clause 8,1 of the first charge that provided for a continuing security.  Finally, the Applicant argued that since the other loans have separate securities from the one herein, the security herein ought to be discharged.

41. I have considered the arguments raised in relation to sections 82, 84 and 85 of the Land Act, 2012, and I find that the relevant provisions in the charge relating to continuing security, consolidation and combination are found under clause 2. 3 and 8. 1 which state as follows;

Clause 2. 3 states:

“each of the chargor and the Borrower hereby agrees that the chargee may at any time without notice notwithstanding any settlement of account or other matter whatsoever combine or consolidate all or any of the chargor’s and/or the Borrower then existing accounts including accounts in their respective names or jointly with others(whether current deposit loan or of any other nature whatsoever whether subject to notice or not and whether in Kenya Shillings or in any other currency) wheresoever situtate and set-off or transfer any sum standing to the credit of any one or more such accounts in or towards satisfaction of any obligations and liabilities of each of the chargor and the Borrower to the chargee whether such obligations or liabilities be present, future, actual, contingent, primary, collateral, several or joint.  Where such combination set-off or transfer requires the conversion of one currency into another such conversion shall be calculated at the then prevailing buying rate of exchange of the chargee or such other bank in Kenya nominated by the chargee (as conclusively determined by the chargee) for purchasing the currency for which each of the chargor and the Borrower is liable with the existing currency.”

Clause 8. 1 states:

“this security shall be a continuing security for the payment of the secured obligations or so much thereof as may from time to time be outstanding notwithstanding the winding-up insolvency incapacity or liquidation of the chargor or the Borrower (as the case may be) or any settlement of account or other matter whatsoeverand is in addition to and shall not merge with or otherwise prejudice or affect any contractual or other right or remedy or any guarantee lien pledge bill note charge or other security (whether created by the deposit of documents or otherwise) now or hereafter held by or available to the chargeeand shall not be in any way prejudiced or affected thereby or by the invalidity thereof or by the chargee now or hereafter dealing with exchanging, releasing, varying or abstaining from perfecting or enforcing any of the same or any rights which the chargee may now or hereafter have or giving time for payment or indulgence or compounding with any other person liable.”

42. My findings therefore are that Parties herein executed several letters of offer between year 2007 and 2015, as deposed by the Respondent and subsequently led to the grant of various facilities secured by different securities. The charge documents executed contained inter alia the clauses of continuing security, consolidation and tacking.  Under clause 2. 3 cited above, the chargee has a right to combine or consolidate all or any of the chargor’s or borrowers existing account.  The continuing guarantee clause is a continuing obligation of the guarantor despite completion of payment of the sum guaranteed, the guarantee remains in full force and effect for so  long as the Borrower has any liability or obligation to the creditor under the charge and until all of those liabilities and obligations have been fully discharged thus this clause is inserted with the sole intention of enabling the security to cover all future advances and thus overcome the rule in Clayton’s Case (Devaynes vs Noble (1816).  Without this clause any future credits to the account would reduce the amount secured/guaranteed and any further advances (or debits) would be new debts and not covered.  Therefore in the instant case, the Applicant can only be released upon settlement of all liabilities to which the guarantee relates.

43. The Applicant also argued that the statutory notice issued is invalid. That the omnibus statutory notice of sale issued is unlawful, irregular and invalid and argued that a statutory notice can only be issued when the Chargor is in default. That the charge over the property L.R. No. 209/4525 was to secure a sum of Kshs. 450,000,000 granted in the year 2011 and not any other sum.  As such the demand in the statutory notice for the sum of Kshs. 1. 3 billion is unlawful and includes illegal interest charged based on rates beyond the rates allowed under the law.

44. That the charge had a repayment date in 2010, a year before it was created and that makes it bad in law for failure to comply with the provisions of section 56 of the Land Registration Act. Even, then, when the repayment date is unknown, one cannot be held in default and the intended sale is thus unlawful. Neither has a notice been sent to the tenant.

45. In further arguments on interest rates, the Applicant submitted that there is an over charge of interest in the sum of Kshs 488, 000, 000, which is contrary to section 44A of the Banking Act. Further the Limitation of Actions Act forbids the charging of penalties that are over two years old. The Respondent relied on the cases of; Karmali  vs CFC Bank HCCC No. 3 of 2016 and Juma vs Habib 1975 E.A. 108where the Court held that, interest rate excess of 48% p.a. may lead to an assumption, unless the contrary is proved, that it is excessive.

46. The Respondent however argued that default triggers entire debt to be called up. Reference was made to clauses 5 of the charge document which requires the bank to serve a 90 days’ notice upon the chargor and copy to the guarantors. Therefore the notices cannot be faulted as the bank has the power to tack and consolidate the charges. There was no default to serve the tenants as they are only served when the 40 days is issued.

47. On the argument that all persons who consented to the creation of the security ought to have been served, it was argued that section 104 of the Lands Act empowers the Court to authorise or approve the remedy applied for or proposed by the chargee, notwithstanding that some procedural errors took place during the making of any notices served in connection with that remedy if the Court is satisfied that;-

(i) The chargor or other person applying for relief was made fully aware of the action required to be taken under or in connection with the remedy, and

(ii) No injustice will be done by authorising or approving the remedy, and may approve or authorise that remedy on any conditions as to expenses, damages, compensation or any other relevant matter as the Court thinks fit.

48. The Respondent argued that the Applicant admitted the total indebtedness to the chargee and therefore the complaint on illegal interest rates does not arise and neither has it been proved that illegal interest was charged.  That it is ironical that, the Applicant’s attempts to depart from the admissions made by complaining that the interest rates are usurious and illegal yet the letter of offer and the letter of restructure provided for a minimum rate of 10. 13% per annum and that the Bank may in its sole and absolute discretion from time to time determine the rate of interest.

49. That it is trite law that a dispute on account of interest is not a basis for grant of an injunction order. Reference was made to the case of; Argos Furnishers Limited vs Ecobank Kenya Limited and Another (2014) eKLRand the Halsbury’s Laws of England vol. 32 4th Editionparagraph 723 which states as follows;

“The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has begun a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged.  He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee claims to be due to him, unless, on the terms of the mortgage, the claim is excessive.”

50. Further reference was made to the case of;Iqbal Transporters    Limited vs Bank of Baroda (K) Limited (2015)and the Court of Appeal case of; Fina Bank Limited vs Ronak (2001) 1 E.A., 54.

51. I have considered the argument on statutory notices issued by the Respondent and in particular a statutory notice of sale issued on 13th May 2016. The Applicant does not dispute having received this notice. The only issue is that it is an omnibus statutory notice demanding in excess of 1. 3 billion. However, I note that from the Replying Affidavit, the Applicant is alleged to have signed a facility letter dated 11th November 2015, restructuring the facilities advanced to it where it was agreed that the terms of the facility letter would prevail.  And that the facility would continue to be secured by the existing securities and based on that the bank advanced a term loan of Kshs. 613,000,000 which the Applicant acknowledged their indebtedness to the Respondent and consented to the legal charge over L.R. No. MN/VI/3075 Mombasa registered in the name of the Applicant to secure the debt.  I have noted that a copy of the document restructuring the facility is annexed to the Replying Affidavit marked as “GB1” and which the Applicant signed the accepting to be bound by its terms and conditions. Also annexed is an omnibus Counter Guarantee signed by the Parties where the Applicant is alleged to have consented to the Respondent recovering the loan facilities from any of the property of the Company and/or any security for the time being held by the Respondent.

52. The Applicant averred in ground (i) of the grounds in support of the Application that it was coerced into consolidation of the securities through issuance of letters.  I am unable to see any evidence of coercion and/or undue influence as it is evident that the Applicants have signed the relevant document and are certainly not amateur not versed with banking practise in relation to procuring banking facilities and grant of securities for the same. There is evidence that they have a long relationship with the Respondent.

53. I am therefore satisfied that the statutory notices issued herein are not invalid. The issue of a memorandum giving effect to any further sums advanced is cured by the rights accruing to the Respondent to tack, consolidate and/or recover the sums owing under the continuing security clause in the charge document and/or the clauses in the charge document allowing the Respondent to call up the debt upon default as herein stated. The provisions of section 104(2)(d)(i)(ii) of the Lands Act aforesaid  supports this position.

54. The next issue to consider is whether the Applicant has established a prima facie case.  In the case of; Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others (2003) IKLR 125at page 137, the Court defined “ A Prima facie” case as follows:

“……a case in which on the material presented to 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.”

55. In the instant case, the Applicant submitted that it has established a prima facie case by proving that; the charges herein are invalid and incapable of giving rise to statutory power of sale, the statutory notices are fatally defective and invalid, that the statutory power of sale has not arisen, and the intended listing of the Applicants with the Credit Reference Bureaus is improper, illegal and meant to defeat, coerce the Applicant to make payment not due to the Respondent.  That the right to tack and consolidate the loan was not properly exercised and that the Applicant will suffer irreparable harm in that it’s long standing business, as a leading Equipment importer would be injured irreparably in a manner that will not be compensated by damages.  It also stands to lose its credit rating, stores and equipment and that its 200 employees will lose their means of livelihood. That the Respondent will not suffer any prejudice as it can be adequately compensated by way of damages with the assets which are worth 2. 6 billion.

56. Reference was made to the case of; Giella vs Cassman Brown & Company Ltd (1973) E.A. 358 and Ngurumani Ltd vs Jan Bonde Nielson & 2 Others Court of Appeal No. 77 of 2012 which state;-

“We reiterate that in considering whether or not a prima facie case has been established, the Court does not hold a mini trial and must not examine the merits of the case closely.  All that the Court is to see is that on the face of it, the person applying for an injunction has a right, which has been violated or is, threatened with violation.  Positions of the Parties are not to be proved in such a manner as to give a final decision in discharging a prima facie case. The Applicant need not establish title; it is enough if he can show that he has a fair and bona fide question to rise as to the existence of the right which he alleges. The standard of proof of that prima facie case is on a balance or, as otherwise put, on a preponderance of probabilities.”

57. However, the Respondent submitted that the Applicant has not established that it will suffer irreparable loss which cannot be compensated by an award of damages.  That it has already admitted the debt and not repaid it. It is trite law that a property offered as security becomes a commodity for sale in the event of default. The Respondent relied on the case of; John Nduati Kariuki t/a Johester Merchants vs National Bank of Kenya Ltd. (2006) EKLR, where the Court stated;

“A bank has no money of its own and it is axiomatic that it uses public funds to trade with.  The Applicant obtained a large amount of those funds and had full benefit of it.  He offered securities knowing fully well that they would be sold if he defaulted on the terms stated in the security documents.  He cannot be heard to say, as he does, that the securities are unique and special to him.  We think the bank is capable of refunding such sums as may be found due to the Applicant, if any and that capability has not been challenged.”

58.  I have considered the arguments on whether or not the Applicant has established a prima facie case.  Having found that the validity of the charges, and the statutory notice issued are not invalid and that there is no dispute that the various facilities were advanced to the respective Borrowers and secured inter alia by the suit property herein and have not been fully repaid and is not disputed by the Applicant, I am unable to find that a prima facie has been established.

59. I shall now move to the issue of Lis Pendens. The Applicant referred the Court to the Black’s Law Dictionary 9th edition which defines; “Lis Pendens” as the jurisdiction, power or control acquired by a Court over property while a legal action is pending. The case of; Bernadette Muriu vs National Security Fund Board of Trustees & 2 Others (supra) was cited where the Court  stated;-

“as for the doctrine of “Lis pendens”, this is enshrined in section 52 of the ITPA (Indian Transfer of Property Act).  It provides:  “During the active prosecution in any Court having authority in British India, or established beyond the limits of British India by the governor-general in council of a contentional suit or proceedings in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any Party to the suit or proceedings so as to affect the right of any other Party thereto under any decree or order which may be made therein except under the authority of the Court and in such terms as it may impose……..”

60. However the Respondent argued that, that the doctrine of Lis Pendens under section 52 of the Indian Transfer of Properties Act (repealed) does not apply to charged property and the bank cannot be stopped under the doctrine when exercising the statutory power of sale.   That B.B. Mitra on Transfer of Property Act 1882 has held that Lis Pendens does not apply to a suit for redemption brought by the mortgagor who has given the mortgagee under the mortgage an express power of sale.  Similarly in the case of; Aprotech Services Ltd vs Savings & Loans Kenya Ltd (2001) LLR 1498,  the Court held that the doctrine of Lis Pendens was not meant to apply to situations of mortgages as it would be a great clog to commercial activities involving land as security.

61. That the case of Al-Jalal Enterprises Ltd (supra) was relied on where the Court held that;

“the doctrine as embodied in section 52 of the repealed Indian Transfer of Property Act has no application whatever to a mortgagor who has given, under that mortgage, an express power of sale and that, he cannot, by starting a suit, perhaps a perfectly useless suit for redemption, derogate from that which he has, in express terms, conferred on the mortgagee by the instrument, namely, the power of sale.”

62. Based on the legal principles in the above cited cases and with which I concur with and the relevant provisions of section 52 of the Transfer of Property Act (repealed), I find  that the Respondent’s power of sale cannot be stopped on the doctrine of Lis Pendens.  Even then, having found that a prima facie case has not been established, the grant of the orders prayed for in reliance to this doctrine would be contradictory.

63. Finally I wish to make an observation that prayers seeking for interlocutory mandatory injunction cannot be granted at an interlocutory stage of trial as held in the case of; Kenya Breweries Ltd. Vs Washington Okeyo Civil Appeal No. 332 of 2000, where the Court stated;

“A mandatory injunction can be granted on an interlocutory application as well as at the hearing, but in the absence of special circumstances, it will not normally be granted.  However, if the case is clear and one which the Court thinks ought to be decided at once or if the act done is a simple and summary one which can be easily remedied, or if the defendant attempted to steal a march on the Plaintiff’s ….. amandatory injunction will be granted on an interlocutory application.”

64. All in all I find that in relation to the specific prayers in the Application, prayer 1 is spent. Prayer 2 was amended to seek for orders pending the hearing and determination of the suit, and is similar to prayer 3 save for the fact that the suit properties referred to therein are different. I find that the Applicant has not proved the three prayers on merit in relation to these prayers. Prayer 4 is spent. Prayer 5 is considered and found not to merit and is declined. Prayer 6 is seeking for an order to compel the Respondent to issue the Applicant with statement of accounts. There is no evidence that the same have been requested for and denied. Even then the Applicant has annexed a loan statement on the affidavit in support of the Application as proof of payment of Kshs 88,972,620 and further alleges excess interest rate charged. This can only be based on statements within their knowledge, even though in the interest of justice the Respondent should as a matter of good banking practice supply the Applicant with up to date bank statements showing the true state of affairs. As the main suit is still to be heard, the same can be dealt with under the pre-trial requirements/directions. As regards prayer 7, the law is clear if a borrower or guarantor has a bank facility in default that information should be given to the Credit Reference Bureaus. I find no basis upon which to issue an order for withdrawal of any notices issued.

65. The upshot of all this is that the Notice of Motion Application dated 25th August 2016 and amended on 10th November 2016 is hereby dismissed with costs to the Respondent.

Dated, delivered and signed on this 1st day of November 2017, at Nairobi.

G. L. NZIOKA

JUDGE

In the presence of :

Mr. King’ara for the Applicant

Mr. King’ata for Allen Gichuhi for the Respondent

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