[2024] KECMT 133 (KLR)

Kabui v Capital Markets Authority (Tribunal Appeal 9A of 2022) [2024] KECMT 133 (KLR) (2 February 2024) (Judgment)

Neutral citation: [2024] KECMT 133 (KLR)

Republic of Kenya

In the Capital Markets Tribunal

Tribunal Appeal 9A of 2022

Paul Lilan, Chair, P.Wanga & Constance Gikonyo, Members

February 2, 2024

Between

Duncan Kabui

Appellant

and

Capital Markets Authority

Respondent

Judgment

Introduction l.Before us for determination is the Appeal dated l 5'h August 2022.

2. It emanates from the decision of the Capital Markets Authority, the Respondent herein, dated the 2nd of August 2022.

3. The Appellant being dissatisfied with the said decision of the Respondent lodged the present appeal wherein he seeks the following reliefs:a)This appeal be allowed;b)The entire decision of the Respondent dot d 2nd August 2022 be set aside; andc)The costs of this Appeal be awarded to the Appellant.

Background 4. On 61th February 2015, Chase Bank Kenya Limited (CBKLJ submitted an application to the Respondent for the issuance of a KSH 1 O billion Medium Term Note (MTN) ostensibly: - (a) to support the expansion of its branch network; (b), to bolster the capital base; (c) to invest in IT and product development; and (d) to provide financial support for onward lending activiti s.

5. The Appellant was the Group Managing Director of CBKL, a position he attained in December 2014. He joined the bank earlier in 1996 and rose through the ranks to the highest executive position in the organization.

6. After reviewing the said application of CBKL together with the accompanying Information Memorandum (IM), the Respondent approved it on 22nd April 2015. Following the approval, the first tranche of the MTN for KSh 3 billion with a provision for a KSh 2 billion green shoe option was officially listed at the Nairobi Securities Exe ange (NSE) on 22 June 2015.

7. On 7th April 2016, CBKL was placed under receivers ip by the Central Bank of Kenya (CBK) after facing liquify challenges . Consequently , CBKL's trading of the MTN at NSE was suspended on 8lh April 2016 following the intervention of the Respondent.

8. The Respondent subsequently initiated an inquiry into the. affairs of CBKL and issued a notice to show cause (NTSC) dated 51h July 2021 requiring the Appellant to answer to three allegations, namely: -a)In his capacity as the Group Managing Dire tor of CBKL, he prepared and published false and misleading financial statements for the year 2014 contained int e published Information Memorandum relating to overstatement of cash and balances with CBK; overstatement of interest income, and non-disclosure of related party loan advances.b)In his capacity as Group Managing Director of CBKLhe failed to disclose material information in the published lnforrnotion Memorandum relating to bonus payments to Mr Zaffru11ah Khan;c)In his capacity as director and also Group Managing Director of CBKL, as well as being a shareholder of o e of the recipients of a portion of the bonus payouts to Mr Khan, he was conflicted.

9. The Appellant responded to the NTSC through his advocates, Messer's Mungo Kisangani & Co. Advocates, by a letter date 21 sf March 2022. ·

10. The Respondent then established an ad hoc committee under the Capital Markets Authority Act. This committee conducted a hearing on the matters set out in the NTSC and eventually issu d its decision in a report dated 2nd August 2022.

11. In that decision, the Appellant was found culpable a d the Respondent imposed sanctions requiring the Appellant to pay penalty of KSh.5,000,000/= within 30 days, under Section 25A(i) ( ) (i) and Section 11 (3) (cc) of the Act. Further, the Appellant was barred from serving as a board member or holding any key position in any regulated entity for 10 years.

12. Being dissatisfied with the said decision, the Appellant lodged the present appeal.

The Appellant's Case 13. In his statement of facts dated 15th August 2~22 accompanying the Memorandum of Appeal, the Appellant avers that he was not to blame for the infractions which are the subject of the impugned decision of the Respondent. He asserts that the 2014 financial statements for CBKL were restated in 2015 without being presented to the board ahead of publication. He blames the auditors (Deloitte) for this occurrence as well as for publishing inflated cash balances and inaccurate_income figures.

14. Furthermore, he says that any inaccuracies related to loan advances to related parties and the property listed under Musharakah Investments in the 2014 financial statement are the responsibility of Deloitte ..

15. Regarding the alleged non-disclosure of a bonus payment to the former Group Managing Director (GMD), Mr Zaffrullah Khan (hereafter referred to as 'Mr Khan'), the Appellant denies this claim, stating that it was entirely a decision of the board, adding that the said board later revoked the decision to pay the bonus and instead treated the already disbursed payout as an unsecured loan to Mr Khan .

16. The Appellant argues that the penalty imposed on him is more severe compared to what was imposed on other directors of CBLKcaught up in similar situation, hence discriminatory and a violation of his constitutional rights, he argues.

17. He describes the sanctions imposed on him as "unfair" and "unlawful," maintaining that he acted professionally while relying on advice he received from advisors such as accountants and auditors.

Appellantssubmissions 18. Ms Amuka, Counsel for the Appellant in written submissions dated 11th August 2023 identified two issues for determination, namely:-·a.Whether the Appellant prepared and published false and misleading 2014 financial statements and was liable for any other alleged impropriety. •b.Whether the imposed penalty of a fine of Ksh.5,000,000/= and 10 years disbarment was discriminatory, excessive and unfair as against the Appellant.

19. Counsel submits that the Appellant was not involved in the preparation and publication of the 2014 financial statements. As such she argues that the Appellant was wrongly wrongly blamed citing the decision of the court of Appeal in Kiema Mutuku vs. Kenya Cargo HandlingService Ltd (1991 2KAR 258) and also in Re CardiffSavings Bank (1892) 2 Ch.100. Counsel argues that the Appellant should not have been held liable on account of the actions of others.

20. In similar vein, counsel seeks to distance the Appellant from culpability concerning the payment of a bonus to Mr Khan.

21. Counsel further submits that the penalty imposed on the Appellant was discriminatory contrary to Article 27 of the constitution. He argues that the Appellant was singled out and burdened with a higher penalty of KSh 5,000,000/= yet the other directors were penalized to pay a lower fine of KSh 2,500,000/=. To buttress the argument, he referred to relies on the decision in Ne/son Andayi Hovi vs. LSK & 3 others, (2018) e((LR.

22. On the harsh effects of the l 0-year disbarment, counsel has referred us to the decision of the Employment and Labor Relations Court in LG Electronics Africa Logistics Fze vs Charles Kimani (2012) eKLR.

23. Counsel urges this Tribunal to overturn the decision of the Respondent in its entirety but in what we understand to be an alternative prayer, he significantly requests us to consider reducing the fine to KSh 2,500,00?/= and also a reduction of the period of disqualification from serving in boards or key positions of regulated entities.

The Respondent's case 24. The Respondent's case is set out in a statement of Defence dated 20th September 20222 together with Statement of Facts of even date. In summary the Respondent's case is that the decision being challenged by the Appellant was lawful and arrived at after a fair due process .

25. Ot is stated that the Appellant was the Group Managing Director of CBKL and therefore was responsible in law to ensure that the financial statements in the IM were accurate and prepared according to the applicable International Financial Reporting Standards (IFRS) and by virtue of that role, it was his duty to scrutinize the financial statements to satisfy himself that they complied with the IFRS standards.

26. The Respondent contends that the inclusion of false, inaccurate and misleading financial statements in the IM and the omission of disclosures is a clear testament to the Appellant's failure in his oversight function as a member of the board and as a Group Managing Director of CBKL.

27. On the question of enforcement action, the Respondent stands by the sanctions imposed on the Appellant by the ad hoc committee saying that they were appropriate and justifiable in the circumstances.

28. The Respondent thus urges for the appeal to be dismissed with costs.

Respondent's Submissions 29. On 14th July 2023, Ms Amuka, the Advocate appearing for the Appellant and Mr. Githendu , advocate for the Respondent, took directions in which it was agreed to dispose of the hearing of this appeal by way of written submissions. We are grateful to both counsels for' the helpful submissions that they subsequently filed. The Respondent's written submissions dated 11th September 2023 are on record . He cited several previously decided cases, statutory provisions and the constitution, all of which we have read and given due consideration in this judgment. We summarize the submissions as follows:

30. Counsel for the Respondent identifies the following four issues: -a.Whether the Appellant in his capacity as the Group Managing Director failed in his oversight role leading to the preparation and · publication of false and misleading 2014 financial statements in the IM for the Medium-Term Note (MTN)?b.Whether the Appellant in his capacity as the Group Managing Director failed in his role by failing to disclose material information in the IM relating to the bonus payment to Mr. Zaffrullah Khan~c.Whether the Appellant being the Group Managing Director of CBKL was conflicted in receiving bonus funds through a company where he was a director?d.Whether the imposed penalty of a fine of Shs.5, 000,000/= and ten ( 10) years disbarment was discriminatory, excessive and unfair as against the Appellant?

31. According to counsel, it was a regulatory requirement for CBKL to make full disclosure of relevant information in the IM for both th·e empowerment and protection of prospective investors in the MTN. ·

32. Citing relevant statutory provisions, ( sections 30A to 30GA of the Capital Markets Act), regulations 12( 1) and 17( 1) of the Capital Markets ( Securities Public Offers Listing and Disclosures ) Regulations 2002, counsel states that it was the responsibility of directors of CBKL to ensure accuracy and completeness of the IM, containing financial statements and disclosures relating to: (a) Assets and liabilities; (b) Financial position; (c) Profits and losses; ( d) Prospects of the issuer; and (e) rights attaching to the securities.

33. It is further submitted that there were material misstatements and omissions in the IM, and non-disclosure of subsequent payments of KSh. 1 .052 billion to Mr. Khan, emphasizing further that the Appellant bore a higher responsibility by virtue of his position as Group Managing Director, citing the case of Bates vs Dresse, 251 U.S 524. He also refers to the decision in Australian Securities and Investments Commission vs Healey and Others [2011] FCA 717 which he .cites as spectacularly instructive on the degree of responsibility and duty applicable to directors.

34. It is argued that the Appellant's attempt to shift blame to the auditor did not take away statutory responsibility from the Appellant.

35. Moreover, it is submitted that besides the Appellant being complicit in irregular bonus payment to Mr Khan, he was conflicted since part of the said payment passed through a company known as. Rinascimento Global Limited which was partly owned by the Appellant. Referring to regulation l 3A, Counsel is of the view that the bonus payout was a significant material change of circumstances which should hove been disclosed through a supplementary IM, adding that the onus of such disclosure being placed on the shoulders of directors and the Chief · Executive.

36. Counsel thus seeks dismissal of the appeal and urges us not to disturb the enforcement action imposed by the Respondent arguing that the financial penalty and disqualification was appropriate and justifioble in the circumstances.

Analysis 37. Upon examination of the pleadings, the evidence on record and the law; considering the arguments presented by both t e Appellant and the Respondent through respective Counsel, we now analyze and make findings on each of the grounds as set out in the memorandum of appeal. In doing so, we shall endeavour to address the two central issues that emerge for determination in this appeal. These issues are;a)Whether the Appellant was responsible for the preparation and publication of false and misleading financial statements and material non-disclosures on the Information; andb)Whether the sanctions imposed on the Appellant were lawful and justifiable.c)Ground No.1

38. The Appellant alleges that the Respondent erred in fact and law by finding that the Appellant had prepared and published false and misleading 2014 financial statements which formed part of CBKL information memorandum for the approval of the issuance of a Medium Term Note by the Respondent in 2015.

39. The Appellant, from the very onset, adopted the position that he was not the one responsible for thepreporction and publication of the false and misleading 2014 financial statements contained in the IM.

40. In a letter dated 21st March 2022 written by his advocates in response to the Notice to Show Cause, the Appellant says in part as follows;"a)The 2014 financial statements were restated in 2016 without his (Appellant) knowledge, consultation or participaiton.b)The 2015 financial statements to the best of the Appellant's knowledge were not presented to the CBKL board of management for discussion, approval and signaturebefore theirpublication.c)The publication of the 2015 financialstatementsby Deloittewas for the reason stated in (b) above unprocedural and in violation of the establishedaccounting standards.DJ The alleged overstatementof cash balances and interestincome · was a resultof the unilateraldecision of Deloitte to publishthe 2015 financial statements without involving the Appellant and other directorsas aforesaid."

41. The above position is restated consistently in his statement of facts dated l 51h August 2022 and in his written submissions wherein counsel relieson the decision of the Court of Appeal in the case of Kiema Mutuku v. Kenya Cargo HaulingServices Ltd (1991) 2 KAR258 where the court held as follows;“There is, as yet, no liability without fault in the legal system in Kenya, and a plaintiff must prove some negligence against the defendant where the claim is based on negligence."

42. Counsel for the Appellant further cites and relies on the decision in Re CardiffSavings Bank (1982) 2 Ch where it was held as thus;“That a directorcannot be held liable for alleged wrongfulacts·of his fellow directorsin which he did not participate."

43. The Respondent on the other hand contends that the Appellant being a director and the then Group Managing Director of the CBKL was responsible for ensuring the accuracy of financial statements contained in the IM submitted to the Respondent.

44. It is thus common ground between the parties herein that the financial statements published in the IM were inaccurate and misleading. What is in dispute is whether the Appellant was liable for providing and publishing the inaccurate statements in the IM.

45. The Respondent submits that under Sections 30 E, 30F and 30GA of the CMA Act ("the Act"), as well as regulation 17( 1) ot the Capital Markets (Securities Public Offers Listing and Disclosures) Regulations 2002 (Regulations) liability for defective prospectus, squarely falls on the shoulders of Directors and Persons confirrninq acceptance of responsibility for the contents of the whole or part of the IM. The said provisions read as follows:Section 30E of the Act: Compensation for false or misleading prospectus1)This section applies to-o.an issuer of securities to which a prospectus relates;b.where the issuer is a body corporate, each person who is a director of that body corporate at the time when the prospectus is published; and each person who has given his consent to be named and is so named in the prospectus as a director or has agreed to become a director of that body corporate either immediately or at a future timec.each person who accepts, and is stated in the prospectus: or supplementary prospectus as accepting, responsibility for, ortor any part of, the prospectus or supplementary prospectus;SUBPARA d.SUBPARA e.f.each person not falling within paragraphs (a) to (e) who has authorized the contents of, or of any part of, the prospectus or supplementary prospectus.2)Any person to whom subsection (1) applies shall be jointly and severally liable to pay compensation to any person who acquires any of the securities, in reliance upon the prospectus, including acquisition in the secondary market, to which the prospectus relates and, suffers loss as a result of any untrue or misleading statement in the prospectus or the omission from it of any matter required by this Act to be included.3)Section 30F of the Act: Disclosure obligations1 J An issuer whose securities have been issued in accordance with an approved offer shall keep the Authority, members of the company and other holders of its securities, any listing exchange and the general public informed as soon as reasonably practicable, but in any event not later than the end of the next working day, of any information relating to the issuer and its subsidiaries which-c.is necessary to enable them to appraise the financial position and the state of corporate governance of the issuer and its subsidiaries:d.is necessary to avoid the establishment of a false market in its securities: ore.might reasonably be expected to materially affect market activity in the price of its securities.2)An issuer shall, in addition to the obligations imposed under subsection (1) comply with such other requirements as the Authority may prescribe.3)A person who contravenes this section commits an offence section 30GA of the Act: Form of report books, records and internal accounting directives1)Every issuer of securities, licensed and approved persons shall devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded : as necessary to permit the preparation of financial statements in conformity with the International Financial Reporting Standards.SUBPARA 2)3)An officer or director of an issuer, a licensed or an approved person or any other person acting under the direction thereof, shall not take any action to mislead an auditor engaged in the performance of an audit or review of the financial statements of that issuer, licensed or approved person that such action would render the issuer's financial statements materially misleading as to their completeness and correctness.Regulationl 7(1) of the Capital Markets (Securities Public Offers Listing and Disclosures) Regulations 20021)Subject to paragraphs (2) and (3), the persons who, for the purposes of these Regulations are responsible for a prospectus or a supplementary prospectus or a listing statement or a supplementary statement area.the issuer of the securities to which the prospectus or supplementary prospectus· or a listing statement or a supplementary statement relates;b.where the issuer is a body corporate, each person who is a director of that body corporate at the time when the prospectus or supplementary prospectus or a listing statement or a listing statement or a supplementary statement is published;c.where the issuer is a body_ corporate, each person who has given his consent to be named and is so named in the prospectus or supplementary prospectus or a listing statem_ent or a supplementary statement as a director or as having agreed to become a director of that body corporate either immediately or at a future time;d.each person who accepts, and is stated in the· prospectus or supplementary prospectus or a listing statement or a supplementary statement as accepting, responsibility for, or for any part of, the prospectus or supplementary prospectus:e.f..

46. To buttress the above point, counsel for the Respondent relies on the decision in Australia Securities and Investments Commission vs Healy and others [2001J FCA 717 wherein the High Court stated in part .os follows: - -." ... all directors must carefully read and understand financial statements ... such a reading and understanding would require a director to consider whether the financial statements were consistent with his or her knowledge of the company's financial position. This accumulated knowledge arises from a number of responsibilities a director has in carrying out the role and function of a director.... A director is not relieved of the duty to pay attention to the company's affairs which might be reasonably expected to attract inquiry, even outside the area of the director's expertise ... What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply ah enquiring mind to the responsibilities placed upon him or her."

47. Upon careful consideration of the documents made available to us and arguments presented by both parties, this Tribunal finds that the main inaccuracies in the IM were;a)overstatement of cash and balances at the bank by Ksh. 2,806,000/=;b)overstatement of cumulative interest earnings for the period 2011 to 2014 by Ksh. 1. 9 billion;c)misstatement of unsecured insider loans amounting to KSh. 4. 4 ..billion (musharakah investments) as assets yet; andd)the non-disclosures related to the onus payout.These were the conclusions of the ad hoc committee following analysis of the financial statements in the IM which have been annexed to the Respondent's bundle of documents or:i pages 121 to 266. The ad hoc committee report is on pages 285 to 298 of the said bundle. It states on page 287 that there was an overstatement of cash balances as of 31st December 2014 by KSh 2, 152,806,000, ie - 'cash balances in the published IM indicated the cash and balance with Central Bank as KSh. · 10,997,828,000 while the revised restated amount for the same period was shown as KSh 8,845,020,000 in the financial statements for the year 2014'. As this is not controverted, we have no basis upon · which to interfere with the finding

48. We agree that such inaccurate information in the IM painted an untrue picture of enhanced liquidity, high profitability and strong asset base of the issuer, which go against the very stringent regulatory requirements and responsibilities of directors set out extensively in the preceding paragraph 47 above. In summary, the said provisions under Part IV of the Act impose liability for defective prospectus upon directors and persons confirming acceptance of responsibility for the whole or part of the contents of IM ( s. 30E); set out disclosure obligations on financial status and governance of the issuer (s.30F); prescribe requirement for adequate internal controls and system to assure preparation of financial statements by IFRS standards ( s.30GA) Same conclusions flow as well in respect of the uncontroverted finding by the ad hoc committee regarding overstatement of interest income. The overstatement was ksh. 1. 9 billion for the financial years 2011 to 2014. Duty and correspondingliabilityof directors.Section 30 D as read together with section 30E of the CMA Act, provides that directors may be held criminally liable for defective, misleading as well as inaccurate statements in a prospectus and may be liable to pay compensation to any person who acquires any of the securities, in reliance upon the prospectus.Similarly, under regulation 12 (I) read together with regulation 17 (I) (b) of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, Directors are responsible for disclosure of a prospectus or information memorandum or a listing statement giving a true and fair view of the assets and liabilities, financial position and profits and losses of the issuer and prospects of the issuer of the securities and the rights attaching to those securities. ..

49. As a director and also Group Managing Director of CBKL, the Appellant held a position of authority and responsibility within the institution. Even under section 636 of the Compqnies Act, Act no 17 of 2015, the law imposes a statutory duty upon directors of a company to approve a financial statement only if they are satisfied that the statement gives a true and fair view of the company. It is reasonable to expect that he had the duty to oversee and ensure the accuracy and reliability of the financial statements published by CBKL.

50. On page 11 of the financial statements, the Appellant accepted and took responsibility for the financial statements. To this end, his responsibility is 'to the investing public at large and is distinct from that of external auditors whose duty primarily is to the company and its directors.

51. At page 15, it is recorded that the Appellant further authorized the issuance of the said inaccurate financial statements . By appending his signature, the Appellant indicated his approval and endorsement of the contents of the financial statements, including vouching for their accuracy and correctness, thus misleading the investing public

52. Worthy of consideration is clause 2. 2 of the IM which states that the. directors' responsibility (the Appellant included) for the information contained in the IM. The said clause states as follows;“... the directorsof the issuer whose names and profiles appear in section 12 of this informationmemorandum, accept responsibility for the informationcontained in this document... "

53. This Tribunal acknowledges that corporate executives and directors may delegate tasks, but ultimately it is the directors who bear primary responsibility for the completeness and accuracy of the IM. It is they who must be satisfied not only that the appropriate verification and recording exercise is carried out but also that the right people are providing accurate answers.

54. The upshot therefore is that Ground No. l of the Appeal fails.

Ground No.2 55. Turning to ground no.2 , the Appellant avers that the Respondent erred in fact and law by finding that the Appellant failed to disclose material information relating to the bonus payment to Mr. Zaffrullah Khan in the IM after the Bonus was made.

56. On this point it is admitted by the Appellant that a bonus payment to Mr Khan amounting to KSh. 1. 052 billion was approved by the board of CBKL on 14th May 2015. According to the minutes (pages 97 to 117 of the Respondent's bundle of documents), the meeting was chaired by Mr Khan himself and attended by the Appellant. The said meeting received and considered a report from the CEO on bond placement i.e. the MTN (see minute no. MIN4/2/2015) and reported that CMA had approved; that they were preparing to roll out the first tranche of KSh. 3 billion plus a KSh. 2 billion green shoe option. Then at minute. no. MIN 9 /2/2015, under Any Other Business,it is minuted at item 3 thereof as follows: -3. The committee formed to consider retirement bonus compensation for former GMD (now chairman) composed of Mr Shariff, Mr Wegeningen, the CEO, and Mr Demey reported that it had completed its work and Mr Wegeningen presented to the board the recommendation that the former GMD (Mr Zafrullah Khan) receives Kes. 1. 052 billion bonus to be paid to him over a 5- year period in equal instalments starting the current year 2015. The board unanimously approved the proposal and made the followingrecommendations. (1) A board remuneration committee to be set up to determine and propose performance bonuses for the bank's CEO and GMD. (2) Management to engage three consultants to propose a framework for awarding remuneration and bonus compensation for the CEO and GMD taking into....... (3) .........

57. It is noteworthy that this was shortly after the approval of MTN and within a few weeks before the initial listing of the MTN at the NSE. The bonus payout was then quickly released in tranches starting with KSh.252,784,656. 00 on 15th June, 2015 through Ava Trade Ltd;ksh.238,846,230. 00 on 15th June 2015 through Rinascimento Global Ltd;

ksh.236,381,355. 00 on 16th June 2015 through Rinascimento Global Ltd; ksh.174,482,500. 00 on 25th June 2015 through Bakst Investment Holdings and KSh. 201,607,500. 00 on 25th June 2015 through Van Wageningen Adriana & Carlo.

58. Without saying more, and aside from passing any value judgment on the· propriety or otherwise of the transactions, it suffices for us to observe that these hurried movements of huge payments which significantly eroded the issuer's previously declared cash balances should have been disclosed as quickly in a supplementary IM.

59. After disbursement of the said bonus, it was later reversed in December 2015 and treated as an unsecured related party loan again a material matter which ought to have been disclosed.q3. We now turn to the alleged non-disclosure and misc'lassification of what was termed as musharakah investments. "

60. MusharakahAccording to the report and findings of the ad hoc committee, the CBKL had an Islamic . financing product known as musharakah which accounted for a total of KSh. 4. 4 billion of its portfolio and reported as "other assets '' in the published IM. According to the Respondent, it turned out that these were unsecured related party loans (which did not earn interest nor yield rental income) issued to entities associated with directors and senior management of CBKL. The said "other assets" were restated in 2015. The regulator therefore found this to· be financial misreporting and non-disclosure which inaccurately enhanced the asset base of CBKL thus influencing investors to subscribe to the MTN.

61. IFRS is the standard in use, posing the question: is musharakah an asset or a liability? IFRS 9 emphasizes substance over form, requiring a thorough evaluation of economic substance for proper classification. Misclassification can distort financial statements and impact ratios, making it crucial to analyze contract terms, conditions, and economic reality.

62. Although a closer understanding of the workings of mushorokch. including the financial reporting and even its regulation in the Keny"i::m• Capital Markets, we need not pursue that endeavor in this instance since it is crystal clear that the "related party " aspect poignantly clouded what was described as m usharakah investment .

63. In this case, the musharakah agreements became an 'unsecured related party advance, involving the bank and its top management and even directors. There is ample evidence at page 295 to 301 of the Respondent's Bundle of Documents and also pages 6 to 7 of the report of Deloitte to CBKL Management showing that the Appellant was a shareholder in the companies that received the said related party loans.This triggered disclosure requirements of this material information.

64. The regulations define material information to mean;“Material information" means any informationthat may affect the· price of an issuer's securitiesor influence investment decisions and includesinformaiton on:(a)A merger, acquisitionor joint venture: (b) A block splitor stock dividend;(c)Earnings and dividendsof an unusualnature:(d)the acquisitionor loss of a significantcontract; (e) A significantnew product or discovery;(f)A change in controlor significantchange in management: (g) A call of securities for redemption;(h)The public or private sale of a significant amount o.f additional securities;(i)The purchase or sale of a significantasset;JA significantlabour dispute;(k)A significantlawsuitagainst the issuer;(l)Establishment of a programme to make purchases of the issuer's own shares;(m)A tender offerfor anotherissuer's securities;(n)Significant alteration of the memorandum and articles of associationof the issuer; or(o)Any other peculiar circumstances that may prevail with respect to the issuer or the relevant industry.

65. We agree that such should have been disclosed fully in the Initial IM. or· subsequent supplementary IM under related party agreements. This inclusion would have been significant for investors in making informed decisions.

66. The Appellant alongside the other directors of CBKL bore the responsibility for disclosure of the said material information.

67. It is thus our finding that his attempt to pass the buck is unsuccessful.Ground No.2 of the appeal also fails.

Ground No.3 68. In ground 3 of the appeal, the Appellant faults the Respondent's finding that the Appellant was conflicted in receiving part of the bonus payment made for Mr Khan and transferring the funds back to CBKL for· the purchase of shares during the CBKL rights issue through a related company.

69. The facts surrounding this point are not contested much by the Appellant. As already stated above, CBKL got the approval of its MTN application on 22nd April 2015. It's board met on 14th May 2015 and approved a bonus to Mr Khan which was then Channeled through some companies including Rinascimento Global Limited, a company partly owned by the Appellant.

70. The same money found its way back into CBKL for the purchase of shares in the very same MTN. In a nutshell, CBKL bought and "invested" in its own MTN using its 'own ' money disguised otherwise.

71. Besides the insider nature of this transaction, it is rather obvious that the Appellant was conflicted. As stated in Robinson vs Ranfon'tein Estates Gold Mining CO. Limited, 1921 AD 168 directors must exercise great caution and avoid being derailed by personal interests as they carry out fiduciary duty.

72. The ground of appeal fails.

Ground No.4 73. The Appellant contends that the Respondent grossly misdirected himself by treating his submissions superficially thus arriving at an erroneous decision.

74. Although the Appellant did not press this point in his written submissions, it is stated in paragraph 2 of his statement of facts that "The Appellant through the letter dated 2nd March 2022 filed a comprehensive response to the allegations raised in the NTSC".

75. In its response to this ground, the Respondent describes the Appellant's submissions on this aspect as being scanty.

76. It is evident from the report of the Ad Hoc Committee, that the said committee reviewed the Appellant's submissions and also heard the Appellant who was accompanied by his counsel on 30th March 2022 during the hearing of the NTSC via Zoom.

77. We are satisfied that the Appellant was given written notice containing sufficient details to inform him of the charges against him and the particulars of the same. He had more then adequate time to prepqre his Defence. He was granted reasonable opportunity to answer to the accusations which he did in writing through his counsel and further, he and his counsel made oral representations at a hearing. We are satisfied that the committee's proceedings met the threshold of fairness and" followed a due process provided for under statute and indeed met requirements under Section 4 of the Fair Administrative Actions Act

78. We therefore find that the ground of appeal lacks merit.

Ground No 5 and 6 79. In grounds 5 and 6, the Appellant has faulted the Respondent for taking into account extraneous facts and circumstances in imposing against the Appellant the usurious financial penalty of Kshs.5,000,000/= and for imposing an unknown penalty in law against the Appellant under section 25A (1) (c) (i). 84. We will start by considering whether the sanctions imposed against the Appellant were discriminatory ..

80. It is the Appellant's submission that the fine imposed oqoinst him was discriminatory as his fellow directors were sanctioned to pay a fine of 2,500,000/= while the fine imposed on him was Ksh.5, 000,000/=.

81. Relying on the provisions of Article 27 of the Constitution and the decision in Ne/son Andayi Havi v Law Society of Kenya & 3 others [2018] eKLR counsel urges this Tribunal to redeem the Appellant from the alleged discrimination.

82. The Respondent denies the alleged discrimination and submits that it considered each director's oral and written submissions and a determination was made in respect of each director on the merits of each case separately.

83. It is the Respondent's further submissions that the Appellant owed CBKL a higher duty of care, skill and diligence by virtue of his role as director, the Group Managing Director. Hence it is urged that the sanction ~as befitting of his level of responsibilities and authority.

84. We agree with the submissions of the Respondent and find that the imposition of a higher fine against the Appellant compared to his fellow directors was justifiable and commensurate with the greater responsibility that he held as director and the role he played as Group Managing Director.

85. Turning to the second limb, the Appellant faults the Respondent for imposing an unknown penalty in law against him under section 25A ( l) (c) (i).

86. In his written submissions however, counsel for the Appellant also submitted ( somewhat in the alternative ) that the ''disbarment" of the Appellant from holding office as a board member or key officer of a publicly listed company, issuer, licensee or any approved institution of the· Capital Markets for ten years as being excessive and should be reduced.

87. It is argued that the long period of disbarment impedes the Appellant's right to earn a living hence rendering him and his family destitute.

88. Section 25A ( l) ( c) (i) of the Act provides thus;25A.Imposition of additional sanctionsand penalties(1)Without prejudice to any other provision of this Act, the Authority may impose the following sanctions or levy financial penalties in accordance with this Act, for the breach of any provisions of this Act, the regulatoi ns, rules, guidelines, notices or directionsmade thereunder, or the rules of procedure of a secunties. commodiites or derivatives exchange,. by a licensed or approved person, issuer, employee or a director of a licensed or approved person or employee director of a issuer as provided under section 11 (3)(cc)-(cJwith respect to a director of an issuer or a licensed or approved person, including a securities, commodities or derivativesexchange-(i)disqualification of such person from appointment as a director of an issuer or licensed or approved person including, a securities,commoditiesor derivativesexchange:

89. It is clear from the above-mentioned section that there is jurisdiction to impose a sanction and the Respondent is allowed to disqualify one found to be in breach of any provision under the Act.

90. It is thus untrue that the disqualification of the Appellant was a penalty not known in law.

91. On whether the penalty was excessive, unjustified and an impediment to the Appellant's rights we find and hold that the Appellant held a position of high responsibility and authority. He was entrusted with the duty of ensuring the accuracy of information provided in the information memorandum for empowering and protecting the interests of the investing public.

92. The Appellant's actions or Jack thereof resulted in inaccurate disclosures· and publications as well as non disclosures which eventually resulted in investors, stakeholders and depositors in the institution he led suffering losses.

93. While the Appellant assertsthat the penalty is an impediment to his right • to employment and could leave him and his family destitute, it is important to balance his situation against the overarching obligation to protect investors in the capital markets.

94. We therefore also dismiss grounds 5 and 6 of the appeal.

Conclusion and Disposition 95. In conclusion, the main issues that emerged for determination are: -a.Whether the Appellant was responsible for the preparation and publication of false and misleading financial statements and material non-disclosures on the Information;b.Whether the sanctions imposed on the Appellant were lawful and justifiable;c.Which party shall bear the costs of this appeal

96. On the first issue, we already address it extensively. Relying on Sections 30 E, 30F and 30GA of the Act as well as regulation 17( 1) of the Regulations, we find and hold that the Appellant was responsible in his capacity as director and beyond that he shoulders higher responsibility as Group Managing Director.

97. It is to be observed that proper governance of regulated institutions is paramount as per the statutory and regulatory provisions alrea_dy discussed above . The instances where a director should not suffer from acts or omissions of others contemplated in the case of Re Cardiff Savings· Bank (1982) 2 Ch cited by Appellant are readily distinguishable from the case at hand. In this one, the duty of care is a statutory duty as already described above which the Appellant beached.

98. As already discussed at length in our analysis above, we find in favour of the Respondent on this issue.

99. On the 2nd issue, we have also explored it at length. We have already said the enforcement action is provided for under statute and the severity of those sanctions is a matter within the jurisdiction of the Respondent. Other than a call for leniency, there is no compelling ground advanced upon which to exercise our judicious discretion in favour of overturning the sanctions.

100. We therefore find in favor of the Respondent on this issue as well.

101. Finally, on costs, the general rule is that costs follow the event. The successful party gets the costs.

102. This Tribunal , by unanimous decision ( Hon. G. Wang'ong'u having recused himself and Hon. J. Ebooko abstaining ) determines that the entire appeal is without merit and make the following orders;a)The appeal is hereby dismissed in its entirety; andb)The costs of the appeal shall be paid by the Appellant.

DATED AND DELIVERED AT NAIROBITHIS 2ND DAY OF FEBRUARY 20241. Hon. Paul Lilan, MBS - (Chairman)2. Hon. Paul Wanga - (Member)3. Hon. Dr. Constance Gikonyo, PhD - (Member)