https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/7580

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **COMMERCIAL AND TAX DIVISION** **COMMERCIAL APPEAL NO. E212 OF 2023** **HOUSING FINANCE COMPANY OF KENYA LTD………APPELLANT** **VERSUS** **BERNARD MAINA KIMINDA (Sued as the Legal Representative and Administrator of the estate of the late JAMES KIMINDA NDEGWA (deceased)………………………….……..…1ST RESPONDENT** **KENYA RAILWAYS CORPORATION…….…………2ND RESPONDENT** *(Being an Appeal from the Judgment and Decree of Hon. Wendy Micheni, CM delivered on 7th August 2023 in MCC NO. 3242 OF 2008)* **JUDGMENT** 1. The 1st Respondent sued the Appellant together with the 2nd Respondent by the plaint dated 28th September 2004 and amended on 12th January 2005, seeking a permanent injunction restraining sale or interference with the suit property, refund of Kshs. 71,611.76 being overpayment and in the alternative, proper accounts, the 2nd Respondent to account if the said amounts were remitted to the Appellant and a declaration that the charges and penalties levied were unlawful, and costs of the suit. 2. The Plaintiff's case was that he purchased the suit property in 1987 through financing advanced by the Appellant in the sum of Kshs. 162,000/= repayable over ten years through salary deductions remitted by the 2nd Respondent, his employer. He contended that despite fully servicing the loan, the Appellant issued a statutory notice claiming outstanding arrears of Kshs. 1,343,677.90/=. The Plaintiff further alleged that several payments were not credited to his account, resulting in an overpayment of Kshs. 71,611.76 and failure by the Appellant to render proper accounts. 3. The trial court, in its judgment, issued a permanent injunction restraining the Appellant from putting up for sale, or transferring, or disposing of the suit property, awarded costs to the 1st Defendant and proceeded to dismiss the suit against the 2nd Respondent. 4. Aggrieved by the judgment the Appellant challenged the trial court’s judgment and filed the memorandum of appeal dated 5th September 2023 and amended on 3rd November 2023 on the grounds that: 5. *The Learned Magistrate misapplied the in duplum rule by holding that the loan became non- performing in June 2001 whereas the last instalment was made in June 2002, the court failed to find that the operative day of computing the in duplum rule was 16th May 2007 and lastly by failing to appreciate that the figures in the statutory notice dated 27th February 2001 was valid and correct* 6. *The Appellant further argues that the trial court issued contradictory findings by ordering reconciliation and capping of the loan account while simultaneously finding that the Respondent had fully repaid the loan* 7. *The Learned Magistrate erred in law and in fact by on the one hand finding that the Appellant had rightfully notified the Respondent of variation in interest rates and on the other hand holding that the variation of 26% interest was outrageous and above the Central Bank of Kenya approved loan rate.* 8. *That the Learned Magistrate wrongly found that the loan had been fully repaid.* 9. *That the Learned Magistrate erred in law and in fact in failing to appreciate the evidence on record that demonstrated that the 1st Respondent was notified from time to time upon variation of applicable interest rates.* 10. *The Learned Magistrate erred in law and fact in restraining the Appellant from exercising its statutory power of sale.* 11. *The Learned Magistrate erred in fact in failing to find that the 1st Respondent was indebted to the Appellant.* 12. *The Learned Magistrate erred in disregarding the evidence adduced that demonstrated that the 1st Respondent had admitted his indebtedness to the Appellant.* 13. *The Learned Magistrate erred in fact in failing to find that the Appellant maintained true and proper accounts of the 1st Respondent’s loan account.* 14. *In the circumstances, the Learned Magistrate erred in law by arriving at the decision that curtailed and restrained the Appellant’s statutory power of sale, and ultimately denied the Appellant of its right to access justice and to a fair hearing.* 15. The appeal was heard by way of written submissions. The Appellant filed submissions dated 20th February 2026, while the 1st Respondents filed submissions dated 19th February 2026. 16. The Appellant submits that the trial court erred in law and fact in finding that the Respondent had fully discharged the mortgage debt and in consequently restraining the Appellant from exercising its statutory power of sale over the charged property. It was contended that the Respondent had been advanced a mortgage facility secured by a Charge dated 31st March 1987 and had admittedly defaulted in repayment, necessitating issuance of statutory notices by the Appellant. 17. The Appellant faulted the learned magistrate for misapplying section 44A of the Banking Act on the *in duplum* rule. It argued that the court erroneously treated the loan as having become non-performing in 2001 without considering that the Respondent had resumed repayments thereafter, thereby requiring computation from the date the loan last became non-performing. The Appellant further submitted that the court failed to properly apply the transitional provisions under section 44A (6) applicable to loans advanced before the section came into operation. 18. The Appellant further submitted that the learned magistrate improperly rewrote the contract between the parties by disregarding the agreed terms of the Charge, particularly on interest variation. It was argued that courts are bound to uphold contractual bargains unless fraud, coercion or undue influence is pleaded and proved, none of which had been established in the present case. 19. On the issue of indebtedness, the Appellant submitted that the evidence adduced before the trial court, including statements of account and correspondence from the Respondent, unequivocally demonstrated persistent default and acknowledgment of debt. It was contended that the finding that the Respondent had fully repaid the loan was unsupported by evidence and contrary to the record. Reliance was placed on *Karugi & Another v Kabiya & 3 Others [1983] KECA 38 (KLR)* and *James Muniu Mucheru v National Bank of Kenya Ltd (supra)* on the burden and standard of proof. 20. The Appellant also challenged the grant of a permanent injunction restraining the exercise of the statutory power of sale, arguing that the Respondent had admitted default and had failed to satisfy the legal threshold for injunctive relief. It was submitted that disputes on the amount owing could not, of themselves, bar a chargee from exercising its statutory remedies. 21. On costs, the Appellant invoked section 27 of the Civil Procedure Act and submitted that costs ought to follow the event. It ultimately urged the Court to allow the appeal and set aside the judgment of the trial court. 22. The 1st Respondent opposed the appeal and urged the Court to uphold the judgment of the trial court. He submitted that the deceased, James Kiminda Ndegwa, purchased the suit property in 1987 through a mortgage facility advanced by the Appellant in the sum of Kshs.160,000/=, repayable through salary deductions effected by Kenya Railways Corporation. It was contended that although the deceased retired in 1992, he continued servicing the loan directly and eventually challenged the Appellant’s attempts to realize the security on grounds that the loan had been fully repaid and overpaid. 23. The 1st Respondent submitted that the learned Magistrate properly applied section 44A of the Banking Act and correctly found that the loan became non-performing in 2001. It was argued that the *in duplum* rule applied retrospectively to the facility notwithstanding that it had been advanced before the enactment of section 44A, and that the Appellant could not lawfully recover interest exceeding the principal outstanding. 24. The 1st Respondent further submitted that the statutory notices demanding Kshs.1,249,424.30 and later Kshs.1,943,677.90 were unlawful, punitive and contrary to the *in* *duplum* rule, considering that the principal amount advanced was only Kshs.162,000/=. It was contended that the Appellant failed to produce a lawful recalculation separating principal from interest or demonstrating compliance with the statutory cap. 25. On the complaint that the trial court rewrote the contract, the 1st Respondent submitted that while courts do not ordinarily interfere with contractual terms, they are entitled to decline enforcement of illegal, oppressive or unconscionable provisions. It was argued that the escalation of interest rates to 26% caused oppressive and unconscionable debt accumulation. 26. The 1st Respondent maintained that the deceased had fully discharged the loan. That payments amounting to Kshs.188,000/= were remitted through the deceased’s employer, in addition to further payments made directly by the deceased after retirement, resulting in total repayments exceeding the recoverable debt once interest was capped under the *in duplum* rule. 27. It was further argued that no valid statutory power of sale could arise once the trial court found that no lawful debt remained outstanding. 28. The 1st Respondent also urged the Court to take into account the prolonged history of the dispute, noting that the matter had remained in court since 2004 and that the deceased died shortly after delivery of the judgment at the age of 83 years. It was submitted that the Appellant should not benefit from delays in litigation while continuing to levy punitive interest against the estate. 29. The 1st Respondent submitted that the Appellant had failed to demonstrate any misdirection in fact or law to warrant appellate interference and urged the Court to dismiss the appeal with costs, uphold the judgment of the lower court, and order discharge of the title to the suit property in favour of the deceased’s estate. **Analysis and determination** 1. I have considered the pleadings, the evidence tendered before the trial court, the judgment appealed from, the memorandum of appeal and the rival submissions by counsel. The issues for determination are: 2. *Whether the learned Magistrate misapplied the in duplum rule under section 44A of the Banking Act?* 3. *Whether the learned Magistrate improperly rewrote the contract between the parties?* 4. *Whether the trial court erred in finding the loan had been fully paid and in granting a permanent injunction restraining the Appellant from exercising its statutory power of sale.* 5. *Whether the Appellant kept proper accounts and whether the 1st Respondent overpaid and is entitled to refund and ancillary relief.* 6. *Who should bear the costs of the appeal.* 7. Before I delve further into these identified issues, it is imperative to appreciate the scope, ambit and authority of a first appellate court when deciding first appeals. In the case of **Prudential Assurance Company of Kenya Limited v Sukhwinder Sigh Jutley and Another [2007] eKLR**on the role of a first Appellate Court, the Court of Appeal stated that: ***“As a first appellate court, it is our duty to treat the evidence and material tendered before the superior court to a fresh and exhaustive scrutiny and draw our own conclusions bearing in mind that we have not seen or heard the witnesses and giving due allowance for this.”*** 1. The dispute in the present case arose from a mortgage facility advanced by the Appellant to the deceased, James Kiminda Ndegwa, in the sum of Kshs.162,000/= secured by a Charge over LR No. 2641/SEC.11/MN/Kiembeni Estate Phase II. The deceased contended that he had fully repaid the loan and challenged the Appellant’s attempt to realize the security as demanding unlawful and excessive sums contrary to section 44A. 2. The Appellant’s primary complaint is that the learned Magistrate erred in finding that the loan became non-performing in the year 2001 and in consequently applying the *in duplum* rule from that date. The Appellant contends that the last instalment was paid in June 2002 and therefore the operative date for purposes of section 44A ought to have been 16th May 2007 when the section came into operation. 3. **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 payment 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.*** ***(4) This section shall not apply to limit any interest under a court order accruing after the order is made.*** ***(5) n this section –*** ***(a) “debtor” includes a person who becomes indebted to an institution because of a guarantee made with respect to the repayment of an amount owed by another person;*** ***(b) “loan” includes any advance, credit facility, financial guarantee or any other liability incurred on behalf of any person; and*** ***(c) a loan becomes non-performing in such manner as may, from time to time, be stipulated in guidelines prescribed by the Central Bank.*** 1. The purpose of the *in duplum* rule is now settled. It is designed to apply to formal loans given by financial institutions. It is intended to protect borrowers from oppressive accumulation of interest and to ensure that once a loan becomes non-performing, recoverable interest does not exceed the principal outstanding at the time the loan became performing. 2. In **Mwambeja Ranching Company Limited & another v Kenya National Capital Corporation [2019] eKLR** the Court stated the rationale for the *in duplum* rule: ***“The in duplum 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.”*** 1. Further **Section 44 (6)** of the **Banking Act** provides that it shall apply: ***“…with respect to loans made before this section comes into operation, including loans that have become non-performing before this section comes into operation. Provided that where loans became non-performing before this section comes into operation, the maximum amount referred to in subsection (1) shall be the following –*** 1. ***The principal and interest owing on the day this section comes into operation; and*** 2. ***Interest, in accordance with the contract between the debtor and the institution, accruing after the day this section comes into operation, not exceeding the principal and interest owing on the day this section comes into operation; and*** 3. ***Expenses incurred in the recovery of any amounts owed by the debtor.”*** 4. The above section was intended to apply retrospectively. The court therefore disagrees with the Appellant that the rule ought to apply from 16th May 2007 when the provisions section 44 came into force. Section 44 is clear that the *in duplum* rules will applies to loans made before the section came into operation and to include the time when the loan became non-performing.. 5. The evidence on record demonstrates that the deceased encountered repayment difficulties long before 2007. The learned Magistrate analyzed the repayment history and concluded that the facility had effectively become non-performing in 2001. I find no basis upon which this Court can interfere with that factual finding. The mere fact that sporadic payments were made thereafter did not necessarily cure the earlier default nor render the account fully performing once more. 6. In any event, even applying section 44A (6) of the Banking Act, the Appellant was under a duty to demonstrate through proper accounts the lawful amount recoverable upon application of the statutory cap. The Appellant did not avail before the trial court a clear recalculation separating principal from interest or demonstrating compliance with section 44A. Instead, the statutory notices issued demanded Kshs.1,249,424.30 and later Kshs.1,943,677.90 against a principal sum of Kshs.162,000/=. 7. I therefore agree with the learned Magistrate that the sums demanded were excessive and offended the i duplum rule. *Whether the trial court improperly rewrote the parties’ contract* 1. The Appellant argued that the learned Magistrate rewrote the parties’ contract by interfering with agreed interest rates and holding that the interest charged at 26% was outrageous and punitive. 2. It is indeed trite that courts do not rewrite contracts for parties. In **National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR**, the Court of Appeal stated: ***“A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of their contract unless coercion, fraud or undue influence are pleaded and proved.”*** 1. However, courts will not enforce contractual provisions that are illegal, unconscionable or contrary to statute. (See **Pius Kimaiyo Langat v Co-operative Bank of Kenya Ltd [2017] KECA 152 (LR**). 2. In the present case, the learned Magistrate did not rewrite the contract between the parties. Rather, the court subjected the interest levied by the Appellant to statutory scrutiny under section 44A of the Banking Act. Once the interest charged exceeded the statutory limitation, the court was entitled to decline enforcement of the unlawful portion thereof. I thus find that the trail magistrate was proper in her analysis. *Whether the trial court erred in finding the loan had been fully paid and in granting the reliefs sought* 1. The evidence before the trial court showed that substantial repayments were made through salary deductions by the 2nd Respondent and further payments were made directly by the deceased after retirement. The deceased also complained that several payments had not been credited to his account and sought reconciliation of accounts. 2. Notably, the Appellant did not place before the court a coherent reconciliation demonstrating the exact principal outstanding, the applicable lawful interest after application of Section 44A, and the actual balance due. In the absence of such evidence, the learned Magistrate cannot be faulted for concluding that the recoverable debt had either been extinguished or substantially overpaid. 3. The burden lay upon the Appellant, as the chargee and account holder, to prove the borrower’s lawful indebtedness on the balance of probabilities. On review of the record, I am not persuaded that the Appellant discharged that burden. 4. The Appellant also challenged the permanent injunction restraining it from exercising its statutory power of sale. A chargee’s statutory power of sale can only arise where there exists a lawful and subsisting debt and where valid statutory notices have been issued. In **Mbuthia v Jimba Credit Finance Corporation Ltd [1988] KLR 1**, the Court emphasized that the statutory power of sale must be exercised strictly within the confines of the law. 5. Once the learned Magistrate found that the debt demanded offended the *in duplum* rule and that the recoverable amount had effectively been extinguished through repayments the magistrate correctly concluded there was no lawful basis for the statutory power of sale. I cannot, therefore, fault the learned magistrate for issuing the permanent injunction. 6. I have also had regard to the surrounding circumstances. This dispute has been in litigation since 2004, and the deceased died shortly after the impugned judgment and was of advanced age. While sympathy is not decisive, these facts underscore the need to enforce statutory protections against oppressive lending. 7. Ultimately, I find that the learned Magistrate applied the law correctly, assessed the evidence fairly and reached a reasonable conclusion. The Appellant has not demonstrated any misdirection in law or fact sufficient to warrant interference by this Court. 8. In the result, the appeal is without merit and is dismissed with costs to the 1st Respondent. 9. For avoidance of doubt: 1. ***The Judgment and Decree delivered on 7th August 2023 in CMCC No. 3242 of 2008 are hereby upheld.*** 2. ***The permanent injunction restraining the Appellant from selling, transferring or in any manner interfering with LR No. 2641/SEC.11/MN/Kiembeni Estate Phase II is hereby affirmed.*** 3. ***The Appellant shall bear the costs of this appeal.*** It is so ordered. **JUDGMENT** delivered virtually, dated and signed at **NAIROBI** This **14th** day of **May** 2026. **P.M. MULWA** **JUDGE** **In the presence of:** *Ms. Natalie Obago h/b for Mr. John Mbaluto* for Appellant *Ms. Waiganjo* for 1st Respondent Court Assistant*: Lispa*