[2025] KECPT 280 (KLR)

Magut & 6 others v Kitisuru Sacco Society Limited & another (Tribunal Case 456 of 2020) [2025] KECPT 280 (KLR) (29 April 2025) (Judgment)

Neutral citation: [2025] KECPT 280 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 456 of 2020

BM Kimemia, Chair, Janet Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

April 29, 2025

Between

Josephat Magut & 6 others & 6 others

Claimant

and

Kitisuru Sacco Society Limited

1st Respondent

Edward Mutie Ndiku

2nd Respondent

Judgment

1. The claim herein was brought by the Claimants as Plaintiffs vide the Plaint 18th November 2020, filed on even date.In the Plaint the Plaintiffs states that they were at all material times, employees of the 1st Defendant and guarantor of the 2nd Defendant that on 25th September 2018, the Plaintiffs guaranteed a loan by the 1st Defendant to the 2nd Defendant of Kshs 1, 602,771/= which was to be repaid in a period of 60 months in monthly instalments of Kshs 26,713/= continuing on 30th September, 2018 and revised through monthly deductions from the 2nd Defendant’s salary as an employee of the 1st Defendant; that the 2nd Defendant thereafter defaulted on the loan repayment and the Applicants were made to pay as guarantors, that the Plaintiffs were never satisfied of the default and subsequent recovery of the guaranteed rules ; that the plaintiffs seek an order to restrain the 1st Defendant from having to deduct their salary towards affiliating the loan arrears of the 2nd Defendant ; that the plaintiffs seek to be reconnected from the payment of the loan and the 2nd defendant to be condemned to bear the responsibility of repaying the loan orderly as the beneficiary of the loan advanced that repaying the loan being The Plaintiffs’ salary is an injustice to them as they were not beneficiaries to the said loan and they stand to suffer financial risk of the actions of the 1st Respondent continuously.

2. The Plaintiffs’ pray for judgement against the Defendants for;a.A restraining order restraining the defendants, their servants, agents, employees and/or anybody whatsoever deriving authority under them from making any deductions against the Plaintiffs’ accounts in a bid to offset the 2nd Defendants or any other member loan.b.A declaration that this honourable Tribunal be pleased to order that any member intended to be deducted by the 1st Defendant against the Plaintiffs’ salaries or Sacco deposits towards recovery of the loan due from the 2nd Defendant be refunded forthwith.c.Interests on (a) and costs of this suit. The 1st Defendant/ Respondent; on 30th June, 2022 filed a reply to the Statement of Claim (defence), dated 28th June 2022. Therein the 1st Defendant / Respondent denied that the Plaintiff were the employees but admits that it granted the 2nd Respondent/Respondent a loan of Kshs 1,602,771 which was recruited by the members that deposit into the society and to a appeal and some extent by the Plaintiffs/Claimants, through loan guarantee agreements that the Plaintiffs/Claimants had were responsible for repayment in ease of default, that further the loan was not conditional upon the 2nd Defendant/Respondent paying the same within the monthly instalments of Kshs 26,713/= and puts the Plaintiffs’/Claimants to strict proof thereof that the 2nd Defendant/ Respondent defaulted hence been called into make good the defaulted amount as per the loan agreement and the By-laws , that the 1st Defendant/Respondent denies the Plaintiff/Claimant’s averment that they were not justified of the default and subsequent recovering of the guaranteed sums, consequently, the 1st Defendant/Respondent prays that the Plaintiffs’/Claimants’ Claim is dismissed with costs.

Hearing Plaintiffs’/claimants’case 3. The Claimants’ witness, (Witness 1) Vincent Bandi sworn evidence at the hearing Claimants’ witness 1 stated that he is an employee of International School of Kenya and was a member of the 1st Defendant/Respondent Evidence1 produced in evidence the Plaintiffs’/Claimants’ trial bundles dated 5/11/2022 and containing documents marked as Plaintiffs’/Claimants’(Evidence1-6) He also produced in evidence in his witness statement filed on 18/11/2020 on sworn communication (Claimants Witness1) admitted that he guaranteed a loan given to the 2nd Defendant /Respondent by the 1st Defendant/Respondent; that the loan amount was Kshs 1,602,771/=; that the guarantors were 10 in number but the Claimants in this Claim are 7; that the loan repayment period was 60 months; 2nd Defendant/Respondent was deducted Kshs 26,713/= per month beginning September, 2018 that as guarantor he was to pay 10% thereof that the loan agreement form was signed by all guarantors; that as by further witness statement dated 11/11/2022, the 2nd Defendant/Respondent was making under- payments of Kshs 16,210/=; that the sum of Kshs 1,602,771 was entered into the member statement ; that the 2nd Defendant/Respondent did not sign part of the loan agreement neither was the agreement signed by the Treasurer and Chairman of the Credit Committee that the document contained marking in red with the middle one signed by the Chief Accountant .; that the documents filed by the Plaintiffs/Claimants were obtained from the 1st Defendant/Respondents book keeper; that as at the time the 2nd Defendant/Respondent was fired from his job, he would not know if he had been paying the loan.

4. Claimants’ witness 1 also said on cross-examination that he has not paid his loan portion of Kshs 120, 000/=, on cross-examination Claimants’ witness stated that the 2nd Defendant/ Respondent took more loan beyond the 3 times allowed by the By-laws; that the guarantors did not get any request from the 1st Defendant/Respondent that the 2nd Defendant/Respondent was topping up his loan.

Respondent’s case 5. The 1st Defendant/Respondents’ witness (Respondent witness1) Francis Kennedy variable was adduced sworn evidence in support of the 1st Defendant/Respondent case.Respondent witness1 stated that he works with the 1st Defendant/Respondent as a manager; having worked for 12 years as the only staff member.Respondent Evidence1 produced is the 1st Defendant/Respondent’s evidence in Claim the mentioned statement dated 27/07/2021 filed on sworn date and produced the List of Documents dated and filed on 27/07/2021 and produced the documents therein as the 1st Respondent’s exhibits 1-10.

6. On Cross-examination, Respondent witness1 agreed that he is involved in loan providence in the society and confirmed that declarations are done by way of election off which is done by the employer and in explaining under declaration of the 2nd Respondent, the society received only such amounts as deducted by the employer; that the loan agreement involved the loanee, the employer, the board and the guarantors ; that when the employer deducts loan it is upon the loanee to make payment of the under- deductions; that it is the responsibility of the loanee to repay the loan and the society contacts the guarantors upon default.

7. Respondent witness1 stated in further or Cross-examination that the society did not make any communication to the guarantors; that each loan borrowed by the loanee had its own guarantors; that approval is not done to the person, it is done by a chain of people; that as per the By- laws the form is supposed to be approved by 21 people but 3 can sign; that the credit committee participated in the approval of the 2nd Defendant/ Respondent’s loan: that on default the loanee is supposed to be given a worded communication that his loan is in default thereafter the default notice is issued; that as the time of filing suit by the Plaintiffs/Claimants, there was no deduction from them as guarantors, but the employer deducted in April 2021 and the restraining order was issued by the Tribunal in September 2021.

8. On re- examination, Respondent witness1 stated than all process was followed in signing the loan and the funds were dispatched in the sum of Kshs 1,602,771/= in September 2018; that as at the time the 2nd Defendant/Respondent was sacked the loan was being deducted through deductions by the employer.

9. On whether there is evidence that the 1st Defendant/ Respondent reached out to the guarantors, Respondent witness1 stated that the default notice one filed in the Respondent’s bundle of documents; that each of the 10 guarantors, 5 have discharged their obligation; that the accounts of the 2nd Defendant/ Respondent reflect the status.After learning of the Claimant’s and 1st Respondent's case, the Tribunal ordered the request for interlocutory judgement ledged against the 2nd Defendant and entered judgement of the Claimant in favour against the 2nd Respondent.

Submissions 10. The Claimants filed written submissions dated 27th August 2025 while the 1st Respondent filed written submissions dated 11th October, 2024.

Analysis and Determination 11. We have considered the pleadings of the parties, the statements and the documents produced, the oral evidence of the witnesses and the written submissions and find the following issues of determination:1. Whether or not the 1st Respondent is entitled to deduct the Claimants’ accounts to offset the 2nd Respondent's loan. It is not in issue that the 2nd Respondent as a member of the 1ST Respondent borrowed a loan of Kshs 1,602,771 of the book of the Loan Application Form No. 12 dated 5th September 2018.

12. It is also in issue that the Claimants herein hence among persons who guaranteed the 2nd Respondent’s said loan; neither is it that the 2nd Respondent amplified at the time to borrow the said amount of money is evident from the Loan Application Form aforesaid that all the guarantors signed the guarantee section of the form, thereby committing to pay the 2nd Respondent’s loan in the event of default.

13. We have perused the loan policy of the 1st Respondent and find that the Management Committee members do not have to sign the Loan Agreement Form. We are also cautioned that the loan application form was signed three officials under the stamp of the society on 12/9/2018 together with the loanee and as such, we see no reason to doubt that the loan application loan was proper. Further having perused the annual member Account statement of the 2nd Respondent, it is evident that the said sum of Kshs 1,602,771/= was disbursed to the 2nd Respondent’s account on 30/09/2018.

14. We also note from the same annual account statements for January to December 2019 and January to December 2021. Indeed, the 2nd Respondent was advanced other loans being Kshs 10,000/= on 31/10/2018, Kshs.90,000/= on 31/12/2018, Kshs.50,000/= on 31/01/2019, Kshs.10,000/= on 28/02/2019, Kshs.33,000/- on 31/03/2019, Kshs. 420/= on 31/08/2019, Kshs.180,000/= on 31/12/2019,, Kshs.60,000/= on 31/01/2020, Kshs.70,000/= on 28/01/2020, kshs.6000/= on 31/03/2020, Kshs.100,000/= on 31/05/2020; which loans cleared affected the monthly instalments as there was a very small difference between the loan balance on 30/09/2018, Kshs 1,589,427/= and the loan balance on 31/09/2020, Kshs 1,559,119/= when the 2nd Respondent’s deposits were applied.

15. Despite the evidence of Respondent witness1 that the other loans had different guarantors no evidence was adhered to that effect. There is also no clarity on how the additional loan arrears were separated from the loan of Kshs 1,602,771/= whereas the final balance as 31/12/2020 was accumulative up until deduction of the deposits and the payment thereafter on 31/10/2020, or a sum of Kshs 37,000/= towards the balance. It is our consideration therefore, that the 1st Respondent did not treat the loans according to the 1st Respondent the 2nd Respondent defaulted in the payment of his loan from July 2020 and it was confirmed by Respondent witness1 that the loans were serviced until the 2nd Respondent was served by his employer.Respondent witness1 stated that the 2nd Respondent was issued with a default notice on 17/9/2020, after which he paid the sum of Kshs 37,000/= on 31/10/2020.

16. We also note from the evidence of the Claimant’s and the 1st Respondent, that the Claimants were also served until a default notice which is acknowledged but validity disputed in the evidence of Claimant Witness 1 at the hearing and also in the Claimants’ submissions.

17. According to the loan policy produced by the Claimant in evidence, after 1 month of loan default the society issues a verbal follow up to establish the problem and communication to the defaulting member in writing. After 2 months of default a strongly worded letter to the member copying guarantors is issued. The member deposits are utilized to offset outstanding loan and the balance is apportioned to the guarantors.

18. In the present case, whereas there is email and oral evidence that the Claimants as guarantors received the notice dated 17th September,2020, informing them that the 2nd Respondent was a potential defaulter and there is no evidence they received a copy of the letter addressed to the 2nd Respondent concerning the default after 1 month. It is on the basis of the letters to the guarantors that the guarantors moved the Tribunal. 1×10 are of the view that the 2nd Respondent having disrupted the default by making a request for time and paying Kshs 37,000/= on 31/10/2025 and the 1st Respondent having allowed the same ought in the interest of all parties, to have sorted fresh Default notice to the 2nd Respondent after the confined default subsequent to 31/10/2020, with copy to the Claimants and thereafter issued personal notice to guarantors to remind them to pay their portions; before commencing recovery in April 2021, notice withstanding that the matter was in the Tribunal. As it were, the fact that the matter was in already in the Tribunal did not deter the 1st Respondent from making the recoveries in April 2021.

19. Whereas we conquer with the 1st Respondent that the Claimants were obligated under contract to pay the 2nd Respondent loan upon default, the 1st Respondent had a duty to diligently reach out the 2nd Respondent and more importantly notify the guarantors of the default as soon as possible by copy of the default notice addressed to the defaulter. The failure of the 1st Respondent to prove service of the Claimants with the 2nd Respondent’s default notice and the subsequent failure to issue further notices of continued default gives no option but to conclude that that the 1st Respondent chose to take the earlier way out to have the Respondent’s loan paid by the guarantors. We hold that the 1st Respondent will not be entitled to recover the loan balances of the 2nd Respondent from the Claimants from April, 2021.

20. In the upshot, we find that the Claimant’s case against the Respondents has merit.Consequently, we enter judgement against the 1st and 2nd Respondents pointy and severally and order as follows:a.The 1st Respondent is hereby restrained from continuing with the deduction of the Claimants’ accounts on the basis of the notice guarantors dated 17/09/2020. b.The 1st Respondent to refund to each Claimant any monies deducted from their account from April 2021 to August 2021 towards the 2nd Respondent's loan.c.The costs of this Claim are awarded to the Claimants with interest at Tribunal rates from the date of this judgement.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 29TH DAY OF APRIL, 2025. HON. B. KIMEMIA - CHAIRPERSON SIGNED 29. 4.2025HON. J. MWATSAMA - DEPUTY CHAIRPERSON SIGNED 29. 4.2025HON. BEATRICE SAWE - MEMBER SIGNED 29. 4.2025HON. FRIDAH LOTUIYA - MEMBER SIGNED 29. 4.2025HON. PHILIP GICHUKI - MEMBER SIGNED 29. 4.2025HON. MICHAEL CHESIKAW - MEMBER SIGNED 29. 4.2025HON. P. AOL - MEMBER SIGNED 29. 4.2025Tribunal Clerk JemimahNo appearance by partiesJudgment delivered in absence of the parties.