https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13083

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT MACHAKOS** **CIVIL APPEAL NO. E159 OF 2025** AMKA CREDIT LIMITED……………………………………………………APPELLANT VERSUS KAREN NDUNGE THOMAS………………………………...…….………. RESPONDENT **JUDGMENT** 1. The Appellant, aggrieved by the decision of the Adjudicator, Hon. B. A Luova, in the Machakos Small Claims Court Case No. SCCCOM/E075/2025 on 12th June 2025, preferred the present appeal. 2. In the Memorandum of Appeal dated 4th July 2025, the Appellant’s appeal is premised on grounds that: 3. The Adjudicator erred in law by declining to award the Appellant interest despite having found that the Respondent was bound by the terms of the contract she freely and willingly entered into with the Appellant. 4. The terms of the contract provided for payment of interest; the Adjudicator erred by declining to award interest. 5. The Adjudicator erred in believing that the issue of interest was time-barred. 6. The background of the case, briefly, is that by a Statement of Claim dated 10th February, 2025 and filed on 12th February 2025, the Claimant instituted a claim seeking: 7. Judgment in the sum of Kshs. 250,000/= 8. Costs of the claim 9. Interest on the amount and cost 10. The Appellant claimed that on 11th November 2024, the Appellant advanced the Respondent a loan of Kshs. 250,000/= and by a written agreement dated 11th November 2024, the parties executed the contract. 11. The Appellant stated that the parties agreed that the said amount was to be repaid within a month from the date of advancement, with interest at 30% per month. 12. The Appellant further stated that the Respondent paid Kshs. 75,000/=, being interest for one month, but failed to settle the principal sum, further interest, and penalty of Kshs 1,000/= with effect from the date of default. 13. The Respondent, in her response dated 27th February 2025, denied the claim in totality. 14. The Respondent averred that though she applied for Kshs. 250,000/-, she never received the amount and therefore is not indebted to the Claimant. 15. The Respondent further averred that the Claimant was unlawfully engaged in the business of lending money at interest, which amounted to banking business contrary to the law. 16. The Respondent further contended that since the Claimant was allegedly conducting banking business without the requisite license, the loan agreement was illegal and therefore unenforceable. 17. The matter proceeded by way of documents as permitted under the Small Claims Court Act. 18. The Adjudicator found that the Respondent admitted to having applied for the loan and had not disputed either the loan application or the signature appended to the acknowledgement form. 19. The Adjudicator further found that the Claimant had proved that the loan was disbursed to the Respondent. The Adjudicator held that the evidential burden had shifted to the Respondent to rebut the Claimant's evidence, which she failed to do. Consequently, the Adjudicator found that the Respondent had been advanced a loan of Kshs. 250,000/=. 20. The Adjudicator found that although the Personal Loan Agreement provided for interest at the rate of 30% per month, the agreement also required the Respondent to pledge collateral, which the Respondent identified as a television, sofa set and dining table. 21. **T**he Adjudicator found that no explanation had been advanced by the Appellant as to why the claim was filed after the loan had become due and why, in accordance with the parties' agreement, the pledged collateral had not been realised upon the Respondent's default. On those grounds, the Adjudicator declined the claim for interest. 22. On whether the claim had been proved, the Adjudicator found that the Claimant admitted the Respondent had repaid Kshs. 75,000/=, leaving an outstanding balance of Kshs. 175,000/=. The Adjudicator further considered the Respondent's submissions on the legality of the transaction and the authorities relied upon, including *Kennedy Ongiro Mogire & 2 Others v George Morara Nyangate & 2 Others [2020] eKLR* 23. The Adjudicator distinguished the authorities relied upon by the Respondent, finding that those cases concerned the issue of exorbitant interest, whereas in the present case the issue of interest had already been determined. 24. Consequently, the Adjudicator found that the Claimant had proved its claim for Kshs. 175,000/=, being the outstanding balance of the loan advanced to the Respondent. 25. The appeal was canvassed by way of written submissions. 26. The Appellant submitted that the appeal arises from the judgment of the Small Claims Court delivered on 12th June 2025, in which the Court awarded it Kshs. 175,000/= but declined to award interest despite finding that the parties had entered into a valid and binding loan agreement. 27. The Appellant argued that the Adjudicator erred in law by declining to award interest after finding that the loan agreement expressly provided for interest at the rate of 30% per month. It was submitted that the documentary evidence established the parties' agreement on interest. 28. The Appellant further submitted that the Adjudicator erred in finding that the claim for interest had been filed late, contending that the claim was founded on the contractual documents executed by the parties and that the issue of limitation did not arise. 29. It was further submitted that by declining to award contractual interest, the Adjudicator effectively rewrote the terms of the parties' agreement contrary to Section 97 of the Evidence Act and the principle in *National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another (2001) KCEA 362 (KLR) (8 June 2001) (Judgment)*, that courts cannot rewrite contracts voluntarily entered into by parties. 30. The Respondent submitted that the Appellant was not entitled to the contractual interest of 30% per month as the Statement of Claim did not specifically pray for such interest and parties are bound by their pleadings. 31. The Respondent further submitted that although she had applied for a loan of Kshs. 250,000/=, the Appellant failed to prove that the said amount was disbursed to her. It was contended that the burden of proof lay with the Appellant under Sections 107 and 108 of the Evidence Act. 32. The Respondent further submitted that the Appellant was engaged in the business of lending money without the requisite licence under the Banking Act. 33. In support of that contention, the Respondent relied on a letter from the Central Bank of Kenya and argued that the loan agreement was illegal and unenforceable. 34. In the alternative, the Respondent submitted that the contractual interest of 30% per month, equivalent to 300% per annum, was unconscionable, contrary to public policy and ought not to be enforced by the Court. 35. In support of the foregoing submissions, the Respondent relied on, *inter alia,* *Cornella Nabwananabangala v Molyne Credit Limited [2019] eKLR,* *Kennedy Ongiro Mogire & 2 Others v George Morara Nyangate & 2 Others[2020] eKLR*, *Margaret Margaret Njeri Muiruri v Bank of Baroda (Kenya) Ltd CA Civil Appeal No. 282 of 2024 [2014] eLKR*, *Kenya Commercial Finance Company Ltd v Ngeny & Another [2002] 1KLR*, *Strydom v Vendside Ltd {2009} EWHC 2130 (QB)* and the principles set out in *Halsbury's Laws of England*. 36. I have considered the record of appeal, the memorandum of appeal and the rival submissions. I believe the only issues for determination are whether the Appellant is entitled to payment of interest and at what rate on the amount found due to the Appellant by the trial court, and whether the agreement between the parties was enforceable. 37. The Appellant’s appeal is limited to the issue of interest, because the Respondent did not appeal the dismissal of her counterclaim; the Court cannot reconsider it, as it is not a subject of the appellate proceedings. 38. On the enforceability of the agreement in light of the Respondent’s objection based on the provisions of the Banking Act, the Court is guided by the holding of the Court of Appeal in the case of Abdulkadir Shariff Abdirahim & another v Awo Shariff Mohammed T/A A. S. Mohammed Investments [2013] KECA 59 (KLR), where the Court held as follows: *“Nor do we find anything in the Banking Act, on the facts of this case, which would have required the respondent to first register himself as a banking or financial institution before he could enter into the kind of agreement pleaded between himself and the* *1st appellant. Under the Banking Act, an entity must be registered under that Act before it can engage in “banking business”, which is defined to mean:* *the accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice;* *the accepting from members of the public of money on current account and payment on and acceptance of cheques; and* *the employing of money held on deposit or on current account, or any part of the money, by lending, investment or in any other manner for the account and at the risk of the person so employing the money.* *Under the same Act, “financial business”**is defined in terms very similar to “banking business”, excluding only clause (b) above.* *There was no evidence that the respondent was in the business of accepting deposits from the members of the general public and lending or investing the same at his risk.”* 1. Therefore, unless the Respondent proves that the Appellant was carrying on a deposit-taking or banking business requiring a licence, the mere fact that the Appellant may have been unlicensed *ipso facto* may not render the loan agreement illegal. 2. There is clearly a difference between the business of lending money and carrying out a banking business. 3. This distinction was brought out by the court in John G. Kamuyu & Another v Safari 'M' Park Motors [2013] eKLR, where Lady Justice Nyamweya, as she then was, held that the Banking Act primarily regulates institutions engaged in deposit-taking and the utilisation of those deposits and does not apply to the mere lending of money by a private person. 4. A person who advances his own money to another person under a private loan agreement is not necessarily conducting banking business within the meaning of the Banking Act. 5. I have reviewed the documents presented before the Small Claims Court, and I am satisfied that they demonstrate an applicable interest rate of 30% per month, which translates to 360% per annum. 6. It is correct as submitted by the Appellant that Courts generally uphold freedom of contract, including agreed interest rates. 7. However, courts retain equitable jurisdiction to refuse enforcement of terms that are oppressive, penal, extortionate, unconscionable, or contrary to public policy. 8. I find that an interest rate of 30% per month, which translates to a 360% annual rate, is not a genuine commercial rate but a punitive and unconscionable rate designed to punish default rather than compensate for delayed payment. 9. I find that the agreed default interest of 30% per month is so oppressive, extortionate, or unconscionable as to justify judicial interference. 10. I find that the Subordinate Court misdirected itself by declining to award interest as per the agreement between the parties, evident from the documents presented before the said court. 11. I find that the Appellant is entitled to payment of interest on delayed payments. 12. I also find that the interest rate of 30% per month is contrary to public policy, is unconscionable, and liable to judicial intervention, being way above commercial rates as regulated by the Government of Kenya. 13. Since it is evident that the trial court misdirected itself in law by ignoring the evidence of agreement between the parties on payment of interest and further erred in denying the Appellant payment of interest on the amount found due. 14. I find that the Appellant has made out a case for setting aside the subordinate court’s decision not to award the Appellant interest on amounts found due from the Respondent. 15. And since I have also found the claimed interest rate of 30% per month unconscionable and contrary to public interest, I decline to award the Appellant payment of interest at the rate of 30% per month. 16. The Appeal succeeds. In the circumstances of the case and in the exercise of discretion, I order as follows 1. The decision of the Subordinate Court denying the Appellant interest on the amount of KShs 175,000 found due and owing to the Appellant in its judgment delivered on 12th June 2025 is hereby set aside. 2. The Respondent shall pay the Appellant interest at court rates on the judgment amount of KShs 175,000 from the date of institution of the suit at the subordinate court until payment in full. 3. The Appellant shall have the costs of the Appeal. Dated, signed and delivered via Microsoft Teams at Mombasa this 20th day of August 2026. Emmanuel Bitta Judge of the High Court In the presence of: Francis C/A Ngolya for the Appellant Muumbi for the Respondent