[2022] KEHC 17246 (KLR)

Bett v Mwananchi Credit Limited & another (Commercial Case 4 of 2016) [2022] KEHC 17246 (KLR) (1 December 2022) (Judgment)

Neutral citation: [2022] KEHC 17246 (KLR)

Republic of Kenya

In the High Court at Kajiado

Commercial Case 4 of 2016

SN Mutuku, J

December 1, 2022

Between

Collin Kiprono Bett

Plaintiff

and

Mwananchi Credit Limited

1st Defendant

Moran Auctioneers

2nd Defendant

Judgment

Introduction 1. By a Plaint filed on 21st June, 2016, the Plaintiff seeks against the Defendant an injunction to restrain the Defendants whether by themselves or their servants or agents or otherwise howsoever from advertising, selling and/or disposing by public auction or private treaty the Plaintiff’s property title number Kajiado/Kiputiei-North 19045; costs of the suit together with interest at commercial rates, as well as any other or further relief as the honourable court may be pleased to grant.

2. The Plaintiff’s claim stems from a loan agreement with the 1st Defendant on or about October, 2014 for which the Plaintiff used his property Kajiado/Kiputiei-North 19045 (suit property) as security. The Plaintiff defaulted in servicing the loan leading to the 1st Defendant instructing the 2nd Defendant to advertise, dispose of and/or sale of the suit property by public auction.

3. The Defendants filed their joint defence on 22nd November, 2016 stating that it was not disputed that the Plaintiff was advanced a loan of Kshs. 1,000,000/- to which the Plaintiff committed to repay in 2 months at a fixed compounded interest rate of 15% per month where the 1st instalment was to be made on or before 13th November, 2014.

4. The Defendants stated that the Plaintiff defaulted in repayments as agreed as a result of which the loan attracted compounded interest at 15% per month with the amount payable standing at Kshs. 4,565,446/- as at 13th August, 2015. This is what led the 1st Defendant to instruct the 2nd Defendant to recover the accrued amount of Kshs. 13,962,749/.

5. It is upon these instructions that the 2nd Defendant acted on by issuing 45 days’ notice of intended sale through a letter dated 6th May, 2016 which was received by the Plaintiff on 10th May, 2016. This suit was however compromised when the parties recorded a consent in this matter.

6. The consent is dated 17th October, 2017 and was filed in court on 18th October, 2017 to the effect that:i.The Plaintiff to pay the balance o the principal amount being Kshs 500,000/= in two (2) equal monthly instalments of Kshs 250,000/= as follows:-a.On or before the 31st October, 2017 the Plaintiff shall pay to the Defendants’ Advocates the first instalment.b.On or before the 30th November, 2017 the Plaintiff shall pay to the Defendants’ Advocates the 2nd instalment of Kshs 250,000/=.ii.Following payment of the instalments in 1(a) and (b) above, parties to mention the matter in court for directions on the issue of the accrued interest.iii.In default of payment of any instalment above warrants of attachment and sale of the property known as KJD/Kaputiei-North/19045 to forthwith issue.

7. Parties filed audit reports and written submissions on the issue of interest payable. The written submissions were highlighted orally in court through virtual proceedings on 23rd June, 2022.

8. In the Plaintiff’s submissions filed on 13th March, 2019, the Plaintiff through his counsel submitted that the 1st Defendant is a financial institution and as such it is subject to the Banking Act. He invoked the In duplum rule as captured under section 44A of the Banking Act, Cap. 488. The Plaintiff also cited Wilfred Omondi Opiyo v Mwananchi Credit Limited [2018]eKLR to support submissions that the 1st Respondent is a financial institution and hence subject to the Banking Act.

9. The Plaintiff submitted that the interest payable is Kshs. 236,250/-which the Plaintiff is willing to pay off immediately if so ordered.

10. The Defendants filed their submissions on 3rd May, 2019. They have taken a different view point. They urged that this court considers the loan agreement that spelt out the terms and conditions that governed the advancement of the principal sum and that the loan sum was payable at a fixed and compounded interest rate of 15% per month.

11. They argued that the failure by the Plaintiff to repay the loan meant that 15% compounded interest kept accruing every month and that as at 13th September, 2015, 13 months later with no repayments meant that interest had accrued to Kshs 1,950,000/- on interest payable alone. It was their case therefore that the amount stood at Kshs. 5,249,113/- inclusive of penalties for default.

12. The stand taken by the Defendants is that the 1st Defendant is not a financial institution as it is a non- deposit taking entity and that the transaction entered into with the Plaintiff was governed by the loan agreement dated 10th October, 2014. They argued that the induplum rule did not apply to them and further that they are not governed by the provisions of section 44 A of the Banking Act.

13. They relied on National Bank of Kenya Ltd v Pipeplastic Samkolit(K) Ltd & Another (2001) eKLR where the Court of Appeal stated that:“In these transactions of borrowing and lending, each party must comply with the conditions of the contract. It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a loan bargain, it is ordinary no part of equity’s function to allow the party to escape from a bad bargain.’’

14. The Defendants also invoked the doctrine of estoppel under section 120 of the Evidence Act and argued that the Plaintiff is estopped from arguing that the interest is exorbitant since he entered into a contract willingly and is bound by its terms.

Determination 15. Before me is the singular issue of interest payable to the 1st Defendant after the other issues have been resolved through a consent of the parties referred to in this judgment.

16. To my mind the central issue before me is whether the 1st Defendant is a financial institution or not. The answer to this issue will dictate the direction this court will take in determining this matter.

17. It is clear to me that both parties have taken different views on this issue, with the Plaintiff urging that the 1st Defendant is a financial institution and therefore subject to the Banking Act and the Defendants arguing in the opposite.

18. As argued by the Plaintiff, the 1st Defendant has described itself in the Chattels Instrument as a financing institution. The Banking Act defines a “financial Institution” as follows:“financial institution" means a company, other than a bank, which carries on, or proposes to carry on, financial business and includes any other company which the Minister may, by notice in the Gazette, declare to be a financial institution for the purposes of this Act;

19. “Financial business” is defined by the same Act as follows:a.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; andb.the employment of money held on deposit 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

20. The 1st Defendant has argued that they are not considered as a financial institution and therefore not governed by the Banking Act. That they are governed by the loan agreement. The Plaintiffs have argued that the In duplum rule applies in this case as it is unjust for the 1st Defendant to charge exorbitant interest.

21. It is my view that the 1st Defendant is in the business of lending, among other businesses it may be engaged in. It has also described itself as a financing institution. I also find persuasion in the opinion in Wilfred Omondi Opiyo v Mwananchi Credit Limited [2018] eKLR, and my understanding of the definition contained in the Banking Act as well as the self-description of the 1st Defendant in the Chattels Instrument to make a finding, which I hereby do, that the 1st Defendant is a financial institution as defined under the Banking Act. With that issue settled, I now turn to what the law says in respect to the issue under determination.

22. Section 44A of the Banking Act provides that:(1)An institution shall be limited in what it may recover from a debtor with respect to a non-performing loan to the maximum amount under subsection (2).(2)The maximum amount referred to in subsection (1) is the sum of the following—(a)the principal owing when the loan becomes non-performing;(b)interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and(c)expenses incurred in the recovery of any amounts owed by the debtor.(3)If a loan becomes non-performing and then the debtor resumes payments on the loan and then the loan becomes non-performing again, the limitation under paragraphs (a) and (b) of subsection (1) shall be determined with respect to the time the loan last became non-performing.

23. Simply put, the total amount payable under section 44A (1) is the total of the money stipulated under subsection (2), that is the principal amount owing when the loan becomes non-performing plus the interest in accordance with the contract between the parties, not exceeding the principal when the loan becomes non-performing and expenses incurred in the recovery of any amounts owed by the debtor.

24. In applying the In duplumrule, I am guided by the Court of Appeal decision in Mwambeja Ranching Company Limited and Another v Kenya National Capital Corporation [2019] eKLR, where the Court stated as follows:“The Induplum rule is concerned with public interest and its key aim was to protect borrowers from exploitation by lenders who permit interest to accumulate to astronomical figures. It was also meant to safeguard the equity of redemption and safeguard against banks making it impossible to redeem a charged property. In essence, a clear understanding and appreciation of the In duplum rule is meant to protect both sides.”

25. See also Housing Finance Company of Kenya Limited v Scholarstica Nyaguthii Muturi & Another [2020] eKLR where the Court of Appeal reiterated the In duplum rule as follows:“As we have shown section 44A of the Banking Act came into force on the 1st May, 2007. That provision of law sets up the maximum amount of money a banking institution that grants a loan to a borrower may recover on the original loan. The banking institution is limited in what it may recover from a debtor with respect to a non performing loan and the maximum recoverable amount is defined as follows in section 44A(2)……….”

26. In determining a matter, the court does not re-invent the wheel. It works with the materials presented to it by the parties to arrive at a determination. It is not for this court therefore to take pen and paper and with the aid of a calculator, work out the figures and arrive at a conclusion as to what interest is payable. It is for this court to determine the matter basing on the evidence presented to it by the parties.

27. I have noted that other than counsel for Defendants, counsel for the Plaintiff did not base his submissions on the audit report filed. I note that the written submissions were filed in 2019. The report by Interest Rates Advisory Centre (IRAC) on behalf of the Plaintiff is dated 4th December, 2019 while that by Shulunge & Co, Certified Public Accountants is dated 15th November, 2021. Counsel made oral highlights of their respective submissions on 23rd June, 2022 and none of them referred to the respective audit reports safe for the counsel for the Defendant referring to the figure recommended as payable interest in the said report.

28. This matter took considerable time to resolve with parties attempting to arrive at an amicable solution as court record shows.

29. The report by IRAC is based on In duplum rule and recommends payment of Kshs 1,000,000 as the amount of interest payable as per section 44A of the Banking Act. The report by the Shulunge & Co, Certified Public Accountants recommends payment of Kshs 1,991,450 inclusive of legal fees and professional fees. The Defendants do not prescribe to In duplum rule.

30. I have considered this issue. Having found that the 1st Defendant is bound by the provisions of the Banking Act, it is my considered view that the recommendations byIRAC be adopted by this court to arrive at a determination that the interest payable, after taking into account the In duplum rule, is Kshs 1,000,000 (one million) inclusive of the expenses referred to in section 44A (2) (c).

31. It is so ordered.

DATED, SIGNED AND DELIVERED THIS 1STDECEMBER, 2022. S. N. MUTUKUJUDGE