Fredrick A Makumbi v KCB Bank Kenya Ltd [2018] KEHC 6576 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT VOI LAW COURTS

COMMERCIAL CASE NO 7 OF 2017

FREDRICK A. MAKUMBI..........................PLAINTIFF

VERSUS

KCB BANK KENYA LTD.........................DEFENDANT

RULING

INTRODUCTION

1. The Plaintiff’s Notice of Motion application dated 27th September 2017 and filed on 28th September 2017 was brought pursuant to the provisions of Section 1A, 3A, 63(e) and Order 40 Rules 1, 2, 4 of the Civil Procedure Act and Rules.  Prayers Nos (1) and (3) therein were spent. Prayers No (5), (6) and (7) of the said application appeared more like grounds of the said applications. The pending prayers that had been sought were as follows:-

1. Spent.

2. THAT pending hearing and disposal of the suit  filed herein this Honourable Court be pleased to grant to the Plaintiff/Applicant a temporary injunction restraining the Defendant/Respondent by itself, agents or otherwise howsoever  from selling and/or disposing of the properties namely L.R. No 1956/888, 1956/889 and 1956/890, Voi.

3. Spent.

4. That the relief sought was necessary so as to allow the court interrogate the property and/or validity of the sale process in light of the deficiencies stated herein.

5. That at the circumstances were such that the Plaintiff was possessed of a prima facie case that would likely succeed at the trial.

6. That all events, the balance of convenience would also favour the maintenance of the status quo, as otherwise the substratum of these proceedings would dissipate with ruinous consequences on the applicant should the property be sold in these impugned circumstances.

THE PLAINTIFF’S CASE

2. The Plaintiff swore an Affidavit on 27th September 2017 in support of his application. His Written submissions were dated 14th November 2017 and filed on 15th November 2017.

3. His case was that the Defendant had sought to realise his properties namely L.R. No. 1956/888, LR No 1956/889 and LR No 1956/890 Voi (herein referred to as “subject properties”) without furnishing him with the requisite notices under the Land Act, 2012.  He contended that the Notice issued in accordance with Section 90 (2) of the Land Act was defective because the same purported to call for the entire mortgage sum instead of the arrears. He also stated that he was not issued with the forty (40) days Notice prior to the Auctioneers issuing him with the forty five (45) days Notice.

4. It was his further averment that the Defendant had levied interest contrary to the provisions of Section 44A of the Banking Act and as a result of the deviations or irregularities, the sums it had demanded from him were exorbitant.

5. He was emphatic that the disposition of his properties was immature as his rights of redemption had been abridged or impinged.  He therefore urged this court to grant him the orders he had sought in his application as it had the sacred duty to check illegality where the same was manifest.

THE DEFENDANT’S CASE

6. In response to the Plaintiff’s application, on 14th November 2017, Kennedy Kasamba, the Defendant’s Senior Recovery Manager swore a Replying Affidavit that was filed on 15th November 2017. The Defendant’s Written Submissions were dated 15th December 2017 and filed on 18th January 2018.

7. The Defendant’s case was that it advanced the Plaintiff financial accommodation in sum of Kshs 35,000,000/=, that was secured by the aforesaid subject properties that were registered in his name. He, however, defaulted in payment on his loan as a result of which it commenced proceedings to realise its securities. As at 7th October 2017, the outstanding loan stood at Kshs 74,182,935. 05/=. It was its contention that despite him having averred that the sums due and owing were exorbitant, the said allegation had not been substantiated by any evidence at all.

8. Pursuant to orders issued in HCCC No 31 of 2013 Fredrick A Makumbi vs KCB Kenya Ltdon 18th September 2014 to reissue fresh statutory Notices to him, it served him with fresh statutory notices but he continued to default in payment of the outstanding monies that were due and owing to it. Before it could realise the subject properties, it carried out a forced sale valuation of the same as was required by the law.

9. It denied that it had infringed on the provisions of Section 44A of the Banking Act as he had contended and pointed out that in the event the orders he sought were granted, it risked more accrual of the debt.

10. It pointed out that the Plaintiff’s application was an abuse of the court process and therefore urged this court to dismiss the same with costs to it.

LEGAL ANALYSIS

11. The Plaintiff submitted that the Notice the Defendant issued under the provisions of Section 90(1) of the Land Act called for the entire outstanding amount instead of calling on him to settle the outstanding arrears. He was, however, emphatic that the arrears in the sum of Kshs 50,304,763/= was misleading because as at 31st August 2016, the Defendant had applied an interest rate of 14. 5% in excess of the Banking Law amendment that became effective from 24th August 2016.

12. It was therefore his argument that since the said Notice had departed from the mandatory provisions of the statute, in particular the duplum rule, any subsequent notices issued under Section 96(2) of the Land Act and the Auctioneers Act were left hanging.

13. He relied on the case of Trust Bank Limited vs Eros Chemicals (2000) 2 EA 550 where the Court of Appeal held that the object of a Notice under Section 69A of the Indian Transfer of Property Act (ITPA) (now repealed) was to guard the mortgager’s right of redemption through the issuance of the three (3) months’ statutory notice. He argued that although the said Act has since been repealed, the policy was retained in the Land Act.

14. He also contended that the Defendant never served him with a notice under Section 96 of the Land Act as none came to his attention.

15. In support of his submissions that he would suffer damages if the order of injunction was not granted, he referred this court to the case of Joseph Gichanga vs Co-operative Bank Limited [msa HCCC 74/2000]UR where Maraga J ( as he then was) held that the condition to the effect that an applicant will suffer irreparable damages if an injunction is not granted is only considered if such applicant proves that he has a prima facie case with probability of success.

16. He added that his failure to pay the sum of Kshs 10,000,000/= as this Court had ordered as a condition for granting of an interlocutory injunction pending the hearing and determination of this application should not cause him to be denied the relief he had sought.

17. On its part, the Defendant argued that the Plaintiff did not establish that he had a prima facie case with probability of success. It referred to the cases of Mrao vs First American Bank of Kenya Ltd & 2 Others [2003] KLR 125and Kenya Commercial Finance Co Ltd vs Afraha Education Society [2001] 1 EA 86 which had reiterated the criteria of the granting of an interlocutory judgment as had been set out in the case of Giella vs Cassman Brown [1973] EA 358.

18. It pointed out that the Plaintiff had admitted that the subject properties were charged to it to secure a loan from it and that he did not deny that he had consistently defaulted in payment of the loan as was evidenced in the bank statements it had annexed to its Replying Affidavit.

19. It also referred this court to the case of Kyangaro vs Kenya Commercial Bank & Another [2004] 1 KLR where it was held that an applicant seeking injunctive orders to restrain a chargee from realising its security could not continue being in default of payment of outstanding monies and still retain possession of the security. The court therein added that courts should not be converted to havens of refuge by defaulters.

20. As regards the statutory notices, it submitted that it fully complied with the law. It pointed out that it issued the Plaintiff with the three (3) months’ statutory notice dated 29th September 2016 in accordance with Section 90(1) and (2) of the Land Act. It further issued the Plaintiff with the forty (40) days. Notice under Section 96(2) of the Land Act. It stated that M/S Keysian Auctioneers issued the Plaintiff with a forty five (45) days’ notice dated 13th July 2017 and Notification of Sale. It further stated that it had obtained the forced sale valuation from M/S Value Line Consulting Limited as was evidenced in its Valuation Report that was dated 14th March 2017.

21. It was emphatic that the said notices were not defective as had been contended by the Plaintiff. It pointed out that the Notice under Section 90(1), (2), (3), (e) of the Land Act demanded the sum of Kshs 50,304,763. 76 being the arrears of the entire debt that stood at Kshs 67,523,901. 11 and that there was no ambiguity in the said Notice.

22. Going further, it argued that the fact that there was a dispute in accounts was not a basis for granting for an injunction. In this regard, it referred this court to the case of Fina Bank vs Ronak Ltd [2001] EA 54.

23. It averred that the Banking (Amendment) Act was assented on 24th August 2016 but that the commencement date was 14th September 2016. It pointed out that the three (3) months’ Notice dated 29th September 2016 clearly indicated that the outstanding amount due and owing to it by the Plaintiff continued to attract interest at the rate of 14. 5%, last applied on 31st August 2016, which was before commencement of the Banking (Amendment) Act, 2016.

24. It was categorical that the Plaintiff had not provided the court with any material evidence to demonstrate that it had applied illegal or excessive interest. It was also its argument that Section 33 B (1) (a) of the Banking Act in fact provided that a financial institution could set a maximum interest chargeable for a credit facility at no more than four per cent (4%), the base rate set and published by the Central Bank.

25. It placed reliance on the case of Malkit Singh Pandhal vs NIC Bank Ltd & Another [2015] eKLRwherein it was held that the fact that an applicant disputed the interest was not a basis to be granted an injunction. It was therefore its argument that the realisation of its security could not in any way occasion the Plaintiff loss which an award of damages could not remedy.

26. It also referred this court to several other cases where the common thread was that a financial institution could realise its securities where a chargor had defaulted in payment of the outstanding monies - See Sammy Japhet Karuku vs Equity Bank Ltd & Another [2014] eKLR, Amos Wangeera Njoroge & 9 others vs Serah Wamuyu Muriuki & Another [2014] eKLRand Milimani Motors (K) Ltd vs Commercial Bank Ltd [2014] eKLR.

27. It submitted that the balance of convenience titled in its favour as there was a risk of the debt accruing and it not being able to realise its security as was addressed in the case of Andrew Muriuki Wanjohi vs Equity Building Society Ltd & 2 others [2006] eKLR. It thus this court to dismiss the Plaintiff’s application with costs to it because it was an abuse of court process.

28. After considering the submissions by the Plaintiff and the Defendant, it was evident that the issues that had been placed before this court were:-

1. Whether or not the Defendant’s three (3) months Statutory Notice of 29th September 2016 complied with the provisions of Section 90(1) of the Land Act;

2. Whether or not the Defendant issued the Plaintiffs the forty (40) days Notice pursuant to the provisions of Section 96(1) and (2) of the Land Act;

3. Whether or not the Plaintiff had satisfied the conditions for the granting of an interlocutory injunction pending the hearing and determination of this case.

29. Section 90 (1) and (2) of the Land Act provides as follows:-

1. If a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be in default for one month, the chargee may serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.

2. The notice required by subsection (1) shall adequately inform the recipient of the following matters—

a. the nature and extent of the default by the chargor;

b.  if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;

c.  if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified;

d.  the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and

e.  the right of the chargor in respect of certain remedies to apply to the court for relief against those remedies

30. A perusal of the three (3) months statutory Notice dated 29thSeptember 2016 was clear that the total outstanding debt was Kshs 67,523,901. 11/= but that the arrears were 50,304,763. 76 as at 27thSeptember 2016. The Notice had in part also stated as follows:-

“By reason of the above said default to honour your obligations to us, the debt amount has now become due AND NOTICE is hereby given that we, KCB BANK KENYA LIMITED, (the successor in title of Savings and Loan Kenya Ltd) of P O Box Number 48400 00100, Nairobi, the Chargee of the aforementioned property now demand from you the following amounts: Kenya Shillings Fifty Million Three Hundred and Four Thousand Seven Hundred and Sixty Three and Seventy Six Cents Only (Kshs 50,304,763. 76) being the amount of arrears due and owing on your stated account with the bank as at 27th September, 2016. The sum continues to attract interest at the rate of 14. 5% last applied on 31st August, 2016.

TAKE NOTICE that unless the aforesaid default is rectified and the aforesaid amounts of arrears, together with further interest that will accrue as aforesaid is paid to the Bank THREE (3) MONTHS from the date of service of this notice the Bank shall, after expiry of this notice exercise the remedy of Sale against you as stipulated under Section 90 (3) (e) of the Land Act, 2012 for the recovery of the amount outstanding and remaining unpaid together with interest thereon at the rate(s) stated above plus all costs and other charges ensuing therefrom.”

31. The said Notice set out the nature and extent of the default to be rectified by clearly indicating the amount of arrears that were in the sum of Kshs 50,304,763/=, it gave the period of three (3) months within which the arrears were to be paid, it gave the consequences of not rectifying the default and informed the Plaintiff of his right to apply to court against those remedies. The said three (3) months notice was strictly in accordance with Section 90(2) of the Land Act as it was crystal clear on what the Plaintiff was required to do. Consequently, the Plaintiff’s assertion that the said notice was defective fell by the way side.

32. Turning to the forty (40) days Notice under Section 96(2) of the Land Act, the said Section provides as follows:-

a. Where a chargor is in default of the obligations under a charge and remains in default at the expiry of the time provided for the rectification of that default in the notice served on the chargor undersection 90(1), a chargee may exercise the power to sell the charged land.

b.Before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell in the prescribed form and shall not proceed to complete any contract for the sale of the charged land until at least forty days have elapsed from the date of the service of that notice to sell.

33. This court noted that in its Notice dated 27th April 2017 issued pursuant to Section 96(2) of the Land Act, the Defendant stated as follows:-

“The nature and extent of your default is that your term loan account number MG113100367 is in arrears of Kshs 57,459,113. 36 as at 11th April, 2017 and the total outstanding debt amount due to the Bank in respect of your term loan account number MG113100367 at 11th April, 2017 is Kshs 71,238,756. 91. You are required to pay the outstanding debt amount within the period of this notice in order for you to rectify the default.

TAKE NOTICE that unless the aforestated amount, together with further interest that will accrue as aforesaid is paid to the Bank FORTY (40) DAYS from the date of service of this Notice to Sell, the Bank shall, after expiry of this notice commence sale of the charged property for the recovery of the amount outstanding and remaining unpaid together with interest thereon at the rate(s) stated above plus all costs and other charges ensuing therefrom.

TAKE FURTHER NOTICE that the sale of the charged property shall be by public auction or private treaty and any party payment or installments made by yourself and/or any proposals made shall be received without prejudice and shall not constitute a waiver of this notice and unless the entire amount together with interest thereon shall have been received in full before then, the sale of the property shall go on such payment notwithstanding.”

34. This notice was by all means valid as it fully complied with the provisions of Section 96 of the Land Act. This court had occasion to deal with a similar issue in Andymac Limited vs Faulu Bank Limited [2017] eKLR, a case that the Plaintiff relied upon in support of his case herein.

35. Having said so, the pertinent question herein was whether or not the Plaintiff received the said notice under Section 96 of the Land Act. A perusal of the Notice of 29th September 2016 showed that the same was posted to the Plaintiff at P.O. Box 681 80109 Mombasa, P.O. Box 41125 80100 Mombasa, P.O. Box 664 80300 Voi and P.O. Box 330 80300 Mombasa. The postal addresses were the same ones that were in the Notice of 27th April 2017 issued pursuant to Section 96 of the Land Act. The Certificate of postage of 10th May 2017 showed that the said Notice was sent to the Plaintiff through P.O. Box 330 80300 Mombasa and P.O. Box 41125 80100 Mombasa.

36. This court observed that the Plaintiff never denied that P.O. Box 330 80300 Mombasa and P.O. Box 41125 80100 Mombasa belonged to him. In the absence of any evidence, it concluded that since he received the Statutory Notice of 29th September 2016, he could not therefore be heard to say that he did not receive the Notice of 27th April 2017. It therefore took the firm view that the Plaintiff’s assertion that he never received the said Notice of 27th April 2017 was an attempt to escape from meeting the obligations he had towards the Defendant herein.

37. In respect to the question of whether or not the Plaintiff had demonstrated the conditions set out in the case of Giella vs Cassman Brown(Supra), this court came to the conclusion that he had failed to establish that he had a prima facie case with probability of success and that if the interlocutory injunction was not granted as he had sought, damages would not be an adequate remedy in the event he was successful in his claim. Indeed, other than contending that the Defendant had breached the Banking Act, the Plaintiff did not demonstrate how this was so.

38. Although he implored this court not to consider the fact that he had failed to deposit a sum of Kshs 10,000,000/= this court could shut its eyes to the fact that the Plaintiff had failed and/or neglected to deposit a part of the monies that were not in dispute herein. Indeed on 11th October 2017, this court ordered him to deposit the sum of Kshs. 10,000,000/= as his counsel had informed the court that the Defendant’s claim for arrears minus interest was Kshs 35,000,000/=. There was therefore real danger in the Defendant not being able to realise its securities if the Plaintiff continued to default in payment of the loan.

39. As was held in the case of Malkit Singh Pandhal vs NIC Bank Ltd & Another [2015] eKLR, the fact that an applicant disputed the interest was not a ground to grant an interlocutory judgment. In fact, the Plaintiff failed to prove that the Defendant had levied illegal charges, which would have persuaded this court to find that he had a prima facie case with a probability of successful and consequently that he would suffer loss that could not be compensated by way of damages.

40. Accordingly, having considered the Affidavit evidence, the Written Submissions and case law that was relied upon by the respective parties, this court came to the firm conclusion that the balance of convenience titled in favour of the Defendant in this court not granting the interlocutory injunction against it. Appreciably, the Plaintiff herein could not fail to pay the outstanding amount due and owing to the Defendant and still retain the subject properties. This was a commercial transaction of willing parties. In the premises foregoing, the Defendant ought not to be restrained from exercising its statutory rights of sale that had already crystallised.

DISPOSITION

41. For the foregoing reasons, the upshot of this court’s Ruling was that the Plaintiff’s Notice of Motion application dated 27th September 2017 and filed on 20th September 2017 was not merited and the same is hereby dismissed with costs to the Defendant.

42. It is so ordered.

DATED at NAIROBI this  25th day of  May  2018

J. KAMAU

JUDGE

READ, DELIVERED and SIGNED at VOI this 30th day of May 2018

F. AMIN

JUDGE