[2024] KECPT 1701 (KLR)

Osumba v Magadi Savings & Credit Cooperative Society Limited (Tribunal Case 135 of 2019) [2024] KECPT 1701 (KLR) (31 October 2024) (Judgment)

Neutral citation: [2024] KECPT 1701 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 135 of 2019

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

October 31, 2024

Between

John Oringo Osumba

Claimant

and

Magadi Savings & Credit Cooperative Society Limited

Respondent

Judgment

1. The matter for determination is a Plaint dated 28th February 2019 and filed on 1st March 2019. In the Statement of Claim, the claimant avers that he charged his land LR No. Ngong/Ngong/57057 for a finance of Ksh. 4,000,000/= shillings from the Respondent. He further avers that he is up to date with the payments, yet the Defendants have written to him with the intention to foreclose. The claimant, therefore, prays fora.A declaration that the threatened action by the Defendant is premature and illegal.b.A permanent injunction restraining the Defendant jointly and/or severally by herself, through her agents, servants and/or employees from advertising, selling, trespassing, evicting, auctioning and/or in any other manner interfering with the suit property LR.No.Ngong/Ngong/57057. c.An order for accounts to be takend.Costs of the suit.e.Any other relief the Honourable court may deem fit to grant.The Claimant filed a witness statement and a List of Documents in support of her claim.

2. The Respondent filed a Response to the Claim dated 22nd May, 2019 and filed on 23rd May 2019. In their response, the Respondents admit that the Claimant was its member, and that he was given a loan of Ksh. 4,000,000/= that was to be repaid within 60 months at an instalment of Kshs. 93,070/-. The loan was secured by a charge on the Claimant’s property. The respondents aver that the Claimant defaulted in paying the instalments and clause 7 of the registered charge document provided for the consequences of default. The Respondent filed a witness statement, a bundle of documents, and a further bundle of documents.

3. During the hearing, the Claimant testified and the Respondents availed its credit officer, one John Wambua. The Claimant testified that he had a deposit account with the Sacco that had Kshs.1,400,000/= shillings and had authorized the Sacco to use it to offset some of the loans but the Sacco had not done so. The Respondent’s witness testified that the Claimant defaulted in 2016 and he gave his initial proposal in 2018, which was declined because it is the policy of the Sacco to only offset loans with savings when the savings are more than the defaulted amount. In this case, the savings were lower than the defaulted amount. He also testified that they only received 5 instalments from the Claimant since the filing of the suit. On cross-examination, the Respondent’s witness stated that the Sacco finally acted on the Claimant’s instructions in 2023 because there was a board decision to such effect.

4. Both parties filed their submissions.

5. In their submissions, the Claimants submit that they have already cleared the outstanding loan, and give a breakdown of how the payments were made.

6. The Respondents on the other hand refute the Claimant’s submissions. The Respondents state that the Claimant has made several admissions that he is still indebted to the Respondent and that the Claimant is introducing new evidence in his submissions, which this tribunal should not take into consideration. First that the Claimant has remitted only 5 payments since the filing of this case in contravention to this Tribunal’s order that he pays Kshs. 20,000/- every month from March 2023. It is also the Respondent’s position that the Claimant is introducing new facts through his submissions which is tantamount trial by ambush.

7. The Claimants filed further supplementary submissions.

Analysis 8. This Tribunal has taken note of the pleadings filed by the parties. It is not in dispute that the Claimant was a member of the Respondent. It is also not in dispute that the Claimant was advanced a facility by the Respondent, of Kshs. 4,000,000/= shillings secured by a charge on the Claimant’s property LR No. Ngong/Ngong/57057. The prayers in the Statement of Claim, are for this Tribunal to make a declaration that the action of the Respondent wanting to dispose of the security is premature and illegal and to also issue a permanent injunction to prevent the Respondents from dealing in any way with the charge property. The question before this Tribunal is whether the Claimant is entitled to the above prayers.

9. To answer the first prayer, this court notes that the charge document at paragraph 7(ii), give powers to the Respondent to exercise power of sale when there is a default in paying the instalments. This document has not been objected to by the Claimant. To answer this prayer, therefore, this court has to determine whether the Claimant defaulted on his instalments, thus giving effect to the default clause in the charge document.

10. The Claimant claims that the interest that was agreed to be paid per month was Kshs. 26,406/- per month on reducing balance. A look at the BOSA loan Application and Agreement form indicates that the interest on loan repayment agreed was to be Kshs. 26,406/- per month. However, there is no mention of whether the interest is on a reducing balance or not. However, the indication that the interests is Kshs. 26,406/- per month points to the direction that the loan was not on reducing balance, because the monthly interest for a reducing balance would vary based on the outstanding loan amount. However, from the loan statement supplied by the Respondent, the interest charged is Kshs. 39,000/- as opposed to Kshs. 26,406/- as stated in the loan application form. Without any convincing justification on this interest by the Respondent, we are inclined to believe that this interest is not properly lodged, and the correct interest is what is provided in the loan statement of Kshs. 26,406/-.

11. The other issue that this court needs to determine is whether the Respondent should have used the Claimant’s deposits to settle the loan when the Claimant instructed them to do so. According to the Respondents, it is against their by-laws to utilize the deposits to repay the loans, unless the loan is less that the deposits which would mean that the deposits would be depleted without satisfying the loans. This was adduced by the Respondent’s witness during the hearing. However, in the extract of the by-laws supplied by the Respondent, this Tribunal cannot see the exact provision that forbids them from doing so. The deduction of the Claimant’s deposit to repay the loan was ultimately done by the Respondent, despite the same being lower than the loan alleged to be outstanding. It is not disputed that the Claimant wrote a letter on 15th November 2018 to request a partial discharge of his deposit to repay the loan but the Respondent effected this in 2023. However, of important to note is that the Respondent utilized the whole deposits as opposed to the Kshs. 300,000/- that the Claimant had requested. The Claimant quotes section 36(1)(2) of the Sacco Societies Act in support of his claim. Section 36(1)(2) of the Sacco Societies Act provides as follows:“36 (1)A Sacco Society shall have a first charge against deposits and share capital and upon any dividend or interest payable to a member for any debt due to the Society from the member either as a guarantor or endorser of a loan or credit facility or for any other obligation.(2)A Sacco Society may refuse to allow withdrawals from any deposit account operated by a member where the member is in arrears on a debt owed to the Society.”

12. The wording of the section, through the use of the word “charge” seems to suggest that the deposits are to secure the liability, and not something that a member can resort too every time they lack money as a repayment method. This Tribunal is inclined to believe that the Respondents were right in doing this denying the Claimant’s request.

13. The other issue that this Tribunal notes is the treatment of upfront lumpsum payments made by the Claimant. The Respondent utilized the same to cover a single month while the expectations of the Claimant was that when he makes a lump sum payment, the same should have been spread over a number of months to prevent the levying of interests on the loanee during that time. We feel that the Respondent should give credit when a loanee pays a lumpsum upfront. The Respondent should have spread the surplus payments to cover the repayments of the subsequent months to prevent the levying of interests in the subsequent months.

14. The upshot of the above is that we order as follows:a.We are unable to reach a conclusive decision on the amount in dispute, if any. We, therefore, order the parties to engage an independent auditor to reconcile the accounts within 45 days herein and file a report in the Tribunal within 60 days of the date of this judgement.b.Costs of the auditor to be borne by the Respondent.c.Mention on 13. 2.2025.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 31ST DAY OF OCTOBER, 2024. HON. B. KIMEMIA CHAIRPERSON SIGNED 31. 10. 2024HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 31. 10. 2024HON. BEATRICE SAWE MEMBER SIGNED 31. 10. 2024HON. FRIDAH LOTUIYA MEMBER SIGNED 31. 10. 2024HON. PHILIP GICHUKI MEMBER SIGNED 31. 10. 2024HON. MICHAEL CHESIKAW MEMBER SIGNED 31. 10. 2024HON. PAUL AOL MEMBER SIGNED 31. 10. 2024Tribunal Clerk MutaiOmondi advocate holding brief for Ochanda for Claimant.Ms. Odhiambo holding brief for Ms. Wamuyu for Respondent.HON. B. KIMEMIA CHAIRPERSON SIGNED 31. 10. 2024