The National Bank of Kenya (NBK) has suffered a blow after the Court of Appeal declined its bid to overturn the Sh2.2 billion compensation awarded to former MP Basil Criticos by the Supreme Court.
The lender wanted the court to allow the appeal of the compensation arguing that the Sh2.28 billion award is astronomical and risks pushing it into losses and affecting its businesses.
Justices Hannah Okwengu, Ali-Aroni, and John Mativo concurred that the payout amount is huge but the dispute did not meet the public interest threshold for a Supreme Court hearing.
“The dispute between the parties was a commercial loan between a lender, borrower, and guarantor. The applicant has not shown how a private commercial agreement between the parties and failure to repay a loan is a matter of general public importance,” the judges said.
The lender was ordered by the Appellate court to pay the former as compensation for auctioning his sisal farm 14 years ago.
The award is half the bank’s net income of Sh5.4 billion recorded in the year ended September, underlining the impact of the judgment. NBK was acquired by KCB Group, which pumped billions of shillings to recapitalise the medium-sized lender.
The court had found that the auction of the 15,994.5 acres in Taita Taveta in September 2007 was undervalued. The land had buildings, sisal, a quarry, and a road network but it was sold for Sh55 million.
The land was sold to the Settlement Fund Trustees (SFT) to recover a loan of Sh20 million advanced to Agro Development Company Ltd, a company in which Mr Criticos was a director and a shareholder. The former Taveta MP acted as a guarantor and the bank sold the land after he defaulted on repayment.
The lender went back to the Court of Appeal seeking the suspension of the decision and permission to move to the apex court.
The bank told the court that the judgment directly and substantially affects all players within the banking and financial sector be they depositors, borrowers, lenders, and the public, who place heavy reliance on the terms of the charges or personal guarantees as security for loans.
Senior counsel George Oraro for NBK said it is only a decision of the Supreme Court that can settle the law regarding the applicability and enforcement of charges and guarantees, to foster stability and certainty concerning advances, securities, and obligations of competing parties within the banking and financial sector.
But Mr Criticos through Allen Gichuhi said where a dispute is primarily resolved by interpreting an agreement between parties, such a dispute cannot be said to be a matter of general public importance.
On the issue of the award of damages, Mr Gichuhi said the bank acted in contempt of court and sold the property at a gross undervalue. He said it is a good precedent for the banking industry to observe the rule of law, and the equity of redemption and that damages would be assessed if the statutory power of sale was abused.
“From the excerpts cited above and the court’s reasoning, we are convinced that there is no conflicting jurisprudence and uncertainly in law that has arisen regarding whether a guarantee for a specific sum is discharged by payment only of the specific sum, notwithstanding the express provisions therein for the payment of interest, costs, and other charges,” the judges said.
The court had earlier said it was morally wrong that the bank to raise the interest rate from 19 percent per annum to 35 percent per month, amounting to 420 percent per annum.
