[2020] KEHC 646 (KLR)

IN THE HIGH COURT OF KENYA

AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

COMM. CASE NO. E180 OF 2020

BETWEEN

SWETA JAYESHKUMAR KOTECHA............................................................PLAINTIFF

AND

VICTORIA COMMERCIAL BANK LIMITED...................................1ST DEFENDANT

NINE TRADING LIMITED...................................................................2ND DEFENDANT

DHIRAJ DEVAN DODHIA....................................................................3RD DEFENDANT

BHAVNI DHIRAJ DODHIA..................................................................4TH DEFENDANT

RULING

Introduction

1. The Plaintiff is the proprietor of the property; KISUMU/MUNICIPALITY/BLOCK 10/126 (“the suit property”). She has filed the Notice of Motion dated 2nd June 2020 seeking an injunction to restrain the 1st Defendant (“the Bank”) from selling the suit property in exercise of its statutory power of sale. She also seeks an order compelling the Bank to give an account of all securities held by it on the advances, credit, financial facilities or other accommodation made to the 2nd Defendant (“the Company”) and an order compelling the Bank, 3rd and 4th Defendants to give an account status of the Fixed Deposit Receipt by the 3rd and 4th Defendant issued as security to the Bank to guarantee the settlement of the liabilities of the Company.

2. The application is supported by the Plaintiff’s affidavit sworn on 2nd June 2020. It is opposed by the Bank through the replying affidavit of its Legal Officer, Clement Gitau, sworn on 30th June 2020. The 3rd and 4th Defendants rely on the affidavit of the 3rd Defendant sworn 27th July 2020. The Company has not filed any papers in response to the suit. The parties filed written submissions in support of their respective positions.

Background

3. Several facts are common ground as they are founded on a business relationship that is well documented. The Plaintiff’s spouse is a director of the Company while the 3rd and 4th Defendants are business partners of the Company. By a letter of offer dated 31st July 2018, the Bank at the request of the Company advanced it an overdraft facility of Kshs. 50 million for working capital requirements and two Hire Purchase facilities. The overdraft facility was secured by a charge over the suit property dated 20th September 2020, a pledge of lien deposit of Kshs. 25,000,000. 00 in the names of the 3rd and 4th Defendants, the Company’s corporate guarantee and the personal guarantees of Jayesh Korecha and Hurshi Dodhia.

4. By a letter of offer dated 3rd October 2018, the Bank advanced the Company an additional Hire Purchase Facility amounting to Kshs. 590,000. 00 secured by joint registration of the motor vehicle registration number KCR 702P in the name of the 1st and 2nd Defendants and personal guarantees of Jayesh Kotecha and Hurshu Dodhia.

Plaintiff’s Case

5. This suit and application was precipitated by the notice of demand dated 25th February 2020 served on the Plaintiff by the Bank’s Advocates requiring her to pay Kshs. 55,783,450. 42 amounts allegedly guaranteed by the Plaintiff. The Plaintiff states that she did not offer the suit property as a security to the Bank. She states that the suit property is the matrimonial home and that her spouse charged it to the Bank. Further, the letter only addressed the Plaintiff and the 2nd Defendant whereas the Bank had securities from the 3rd and 4th Defendants and also personal guarantees from the 3rd and 4th Defendants and Jayesh Kumar, Prabudhas Kotecha, Hursh Dhiraj Dodhia and Hiren Anil Kumar Joshi.

6. The Plaintiff further states that she also received another letter dated 25th February 2020 from the Bank’s Advocates addressed to the Company demanding Kshs. 1,489,061. 30 on account of certain banking facilities. Since she was not shown any demand letter made to the other guarantors, she contends that the Bank intends to recover its debt by selling the suit property. Through her Advocates, she requested the Bank to confirm whether the Bank had realised the amount which was secured by the 3rd and 4th Defendants and the floating debenture on the Company but it has refused to provide the information and details of all the securities.

7. The Plaintiff further states that she came to learn that the Bank’s Relationship Manager, Ayush Shah, who was handling the Company’s account and the 3rd and 4th Defendants, is the son in law of the 3rd and 4th Defendants. She complained that the Bank through its said employee in collusion with the 3rd and 4th Defendants released the Fixed Deposit Receipt (FDR) issued by the 3rd and 4th Defendants and has discriminately handled the security to the detriment of her interest. She further complains that the Bank released the funds in the FDR to the 3rd and 4th Defendants without the Plaintiff’s consent thus diminishing and affecting the Plaintiff’s interest in the secured assets consequently, the Bank is not entitled to exercise its statutory power of sale over the suit property since by its conduct, it has acquiesced to the release of the Plaintiff from its liabilities to the Bank.

8. The Plaintiff is aggrieved by the fact that the Bank has not given any account of the extent to which it has sought to recover the outstanding amount for the Company’s guarantors. She complains that after the security on the suit property was created, the Bank subsequently granted further and new advances to the Company which were not contemplated in the guarantees executed by the Plaintiff as such the security created over the suit property stands discharged by the conduct of the Defendants.

9. The thrust of the Plaintiff’s case for an injunction is that the statutory notice issued by the Bank claimed Kshs. 55,783. 450. 72 failed to take into account the other securities offered and only wanted to realize the full amount from selling the suit property.

The Bank’s Case

10. The Bank reiterated the Company’s obligation to make payments in satisfaction of the facility and the understanding that the Bank would exercise its statutory power of sale in the event the Company defaulted. The Bank states that when the Company defaulted in making payments, it issued a letter dated 7th January 2020 to the Company demanding settlement of the outstanding amount under the facility. On 25th February 2020, through its Advocates, G & A Advocates LLP, it issued a statutory demand notice under section 90 of the Land Act to the Plaintiff, Company and the guarantors. It further issued another statutory notice dated 10th June 2020 under section 96(2) of the Land Act to the Plaintiff, Company and guarantors.

11. The Bank rebuffed the Plaintiff’s contention that she did not charge the suit property and asserted that the charge was valid, lawful and regular and has never been subject of allegations of fraud. It confirmed that the Plaintiff’s spouse, Kotecha Jayeshkumar Prabhudas swore an affidavit of spousal consent which is contained in the charge document. It also rejected that Plaintiff’s argument that the charge over the suit property was intended to be a supplementary security subject to the Bank exercising its other rights. The Bank also referred to the provisions of the charge document which provide that it is a continuing security. The Bank stated that upon default, it served all guarantors demand letters but in so doing it was under no obligations to pursue the guarantors first. In answer to the Plaintiff’s contention that the lien deposit was released to the 3rd and 4th Defendants’, the Bank stated that it applied towards settling the outstanding overdraft facility leaving an outstanding balance of Kshs. 32,480,817. 29.

3rd and 4th Defendant’s Case

12. The 3rd and 4th Defendants confirm that they made a deposit of Kshs. 25,000,000. 00 in compliance with the Letter of Offer dated 31st July 2018 as security for advances to the Company. They confirmed that the Company defaulted on servicing the facility and in due course they received the demand letter dated 7th January 2020, the statutory notice dated 24th February 2020 and the notice to sell dated 10th June 2020. They further stated that on 9th June 2020, the Bank released the lien held in their names and utilized a total of Kshs. 25,288,767. 18 to settle part of the outstanding balance on the overdraft facility. The 3rd and 4th Defendants denied that they colluded with the Bank’s employees to release the lien deposit to them as alleged by the Plaintiff. They also stated that there is no cause of action against them.12.

Determination

13. The parties, in their written submissions, made arguments along the lines I have summarized above. The subject of the application is an injunction to restrain the Bank from exercising its statutory power of sale. In order to succeed, an applicant must meet the threshold established in Giella v Cassman Brown[1973] EA 348by satisfying three requirements; that it has a prima facie case with a probability of success, demonstrate irreparable injury which cannot be compensated by an award of damages if a temporary injunction is not granted, and if the court is in doubt, show that the balance of convenience is in its favour. In Nguruman Limited v Jane Bonde Nielsen and 2 Others NRB CA Civil Appeal No. 77 of 2012 [2014] eKLR, the Court of Appeal restated the three-part test and observed that:

These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. (SeeKenya Commercial Finance Co. Ltd V. Afraha Education Society [2001] Vol. 1 EA 86). If the applicant establishes a prima faciecase that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent will suffer, in the event the injunction is not granted, will be irreparable. In other words, if damages recoverable in law is an adequate remedy and the respondent is capable of paying, no interlocutory order of injunction should normally be granted, however strong the applicant’s claim may appear at that stage. If prima faciecase is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima faciecase does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between.

14. In this case, the Plaintiff contends that she has demonstrated that despite holding other securities against the Company and the 3rd and 4th Defendants, the Bank issued the statutory demand, seeking to recover the full amount owed by the Company without seeking to recover the amount from the guarantors and without addressing the demand to them.

15. Before I deal with the main issue, I propose to dispose of the Plaintiff’s insinuation that she did not offer the suit property as security. I use the word insinuation advisedly because there is nothing in the Plaint challenging the validity of the charge. As the Bank submits, it is regular, valid and legal on its face. The Plaintiff does not suggest, for example, that her signature was forged. She has not pleaded particulars of fraud or prayed for nullification of the charge. In fact, the prayers in the plaint are a tacit admission that she accepts the security but disputes liability under it and the right of the Bank to exercise its statutory remedies.

16. Since the charge over the suit property is valid, the Plaintiff’s obligation must flow from the terms therein. The Plaintiff has not pointed to any clause in the charge that requires the Bank to recover the debt from the guarantors or realise any other security before exercising its statutory and or contractual rights under the charge. As the Bank correctly points out, the charge was not created as a supplementary security as the Plaintiff bound herself to charge the suit property as a, “continuing security for the payment and discharge of all money, obligations and liabilities covenanted to be paid or discharged or otherwise secured by this charge.” Further, the Plaintiff covenanted to pay, “all money and discharge all obligations and liabilities … owing or incurred by the …… Borrower and for which the ….. Borrower may become liable ….” The charge itself disposes of the Plaintiff’s arguments that the Bank was not entitled to claim from her Kshs. 55,783. 450. 72, any part thereof or at all whether as the principal amount or interest accrued thereon.

17. The 3rd and 4th Defendants have affirmatively shown that the lien held in their names was released by the Bank on 9th June 2020 to settle the outstanding overdraft facility. This is supported by the Bank Statement which shows that on 31st May 2020, the amount due to the Bank under the overdraft was Kshs. 57,174,738. 37 and after the lien deposit was liquidated, the outstanding amount was Kshs. 32,480,817. 39. The Bank also produced the Company’s statement of the overdraft account as part of its deposition. Section 176 of the Evidence Act (Chapter 80 of the Laws of Kenya) creates a presumption in favour of the Bank as follows:

176. A copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence of such entry, and of the matters, transactions and accounts therein recorded.

The Plaintiff did not rebut the statements by any other evidence or point out any entries that were incorrect or erroneous. I accept the statements as true and correct and find that the lien deposit was liquidated to reduce the Company’s liabilities.

18. In order to exercise its statutory power of sale, the Bank must issue a notice under section 90 of the Land Act when the chargor defaults in any of its obligations under the charge. Such obligations include payment of interest or any other periodic payment or any part thereof due under the charge. If the chargor does not comply with the demand within 90 days after service of the notice, the chargee may proceed to sell the charged property. It is at this point that it is said the statutory power of sale has crystallised. Upon crystallization of the power of sale, the chargee is required to issue and serve on the chargor a 40-day notice to sell under section 96of the Land Act.

19. The Company, as borrower, has defaulted in its obligations. The Bank has issued the statutory notices under sections 90 and 96 of the Land Act which the Plaintiff has acknowledged. The Bank has also issued the same demands on the guarantors. The Plaintiff contests that amount claimed on account of the fact that the Bank has not pursued the guarantors. I have dealt with this issue elsewhere and I also find that failure to pursue the guarantor would only affect the amount claimed by the Bank. In this respect, the general principle is that the court will not issue an injunction to restrain a chargee from exercising the statutory power of sale on account of a dispute as to the amount owed (see Desai and Others v Fina Bank Limited [2004] 2 EA 46 and Mrao Limited v First American Bank of Kenya Limited [2003] KLR 125).

20. From the totality of the material placed before the court, I do not find any evidence of collusion, breach or other wrong that would invalidate the charge or impair the Plaintiff’s obligations thereunder. The Company is indebted and the Bank has complied with the statutory procedures necessary to exercise its power of sale. I therefore find and hold that the Plaintiff has not established a prima facie case with a probability of success in that respect. In light to the Nguruman Case (Supra), the inquiry as to whether an injunction ought to be granted, ends.

21. However, and for purposes of completeness, I will proceed to consider the other conditions for grant of injunction. Whether the Plaintiff will suffer irreparable damage which cannot be compensated by damages is answered by section 99(4) of the Land Act which states that, “A person prejudiced by unauthorized, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power.”

22. The balance of convenience is against the Plaintiff. The debt remains unpaid and will continue to accrue interest. There is a real risk that the debt may outstrip the value of the suit property and the Bank may not recover the full debt. On the other hand, if the property is sold and the court finds that in favour of the Plaintiff, the Bank will be in a position to compensate the Plaintiff.

Disposition

23. For reasons I have set out, the Notice of Motion dated 2nd June 2020 is dismissed with costs to the 1st, 3rd and 4th Defendants.

DATEDandDELIVEREDatNAIROBIthis14th day of DECEMBER 2020.

D. S. MAJANJA

JUDGE

Court of Assistant: Mr M. Onyango

Mr Mogeni instructed by Mogeni and Company Advocates for the Plaintiff.

Mr Meli instructed by G & A Advocates LLP for the 1st Defendant.

Ms Wangui instructed by Ngeri, Omiti and Bush Advocates for the 3rd and 4th Defendants.