[2022] KEHC 17093 (KLR)

Tahir Sheikh Said Investments Limited v KCB Bank Kenya Limited & another (Civil Case E013 of 2020) [2022] KEHC 17093 (KLR) (7 October 2022) (Ruling)

Neutral citation: [2022] KEHC 17093 (KLR)

Republic of Kenya

In the High Court at Mombasa

Civil Case E013 of 2020

MN Mwangi, J

October 7, 2022

Between

Tahir Sheikh Said Investments Limited

Plaintiff

and

KCB Bank Kenya Limited

1st Defendant

Jamii Flour Millers Limited

2nd Defendant

Ruling

1. The application before this court is a notice of motion dated November 3, 2020 brought under the provisions of section 68 of the Land Registration Act No 3 of 2012, sections 1A, 1B, 3A & 3B of the Civil Procedure Act, cap 21 and order 40 rules 1 & 2 of the Civil Procedure Rules, 2010. The plaintiff seeks the following orders-i.Spent;ii.Spent;iii.Spent;iv.That there be a temporary injunction restraining the 1st and 2nd defendants, by themselves, their agents, servants or employees from selling, transferring, alienating, presenting any instrument for registration, at any registry or body, or in any other way disposing all that parcel of land known as Mombasa/Block I/316 pending the hearing and determination of the suit;v.That there be a prohibitory order prohibiting the registration of any instrument, other than this Court order, against the title of that parcel of land known as Mombasa/Block I/316 pending the hearing and determination of the suit;vi.That the 1st defendant be compelled to supply to the plaintiff and the Court copies of the documents listed in schedule I herein below, and such documents to be provided within thirty (30) days or such other period as the Court will deem just; andvii.The costs of this application be awarded to the plaintiff.

2. The application is anchored on two affidavits sworn on November 3, 2020 and February 18, 2022, by Tauhida Tahir Sheikh Said, one of the plaintiff’s directors. In response thereto, the 1st defendant filed two affidavits sworn on January 22, 2021 and March 30, 2022 by Francis Kiranga a Section Head Credit Support Unit for the 1st defendant. The 2nd defendant filed a replying affidavit sworn on January 22, 2021 by Rakesh Kumar Bvats the Group Finance Controller of Comply Industries Limited, with the 2nd defendant being one of the companies that are part of the said group.

3. The application herein was canvassed by way of written submissions. The plaintiff’s submissions were filed on February 21, 2022 by the law firm of Gikandi & Company Advocates. The 1st defendant’s submissions were filed on April 4, 2022 by the law firm of Munyao, Muthama & Kashindi Advocates, whereas the 2nd defendant’s submissions were filed by the law firm of Hamilton Harrison & Mathews Advocates on April 1, 2022.

4. Mr Gikandi, learned Counsel for the plaintiff relied on section 3 of the Judicature Act and submitted that the issue of lis pendens comes to play and that if the matter herein goes for trial, it will be wrong for the suit property to be further alienated. He stated that the plaintiff was the registered owner of the suit property that secured a loan in the year 2022 advanced to TSS Grain Millers Limited (hereinafter referred to as the borrower). He stated that the borrower also created a debenture over its assets, a maize and wheat milling plant and silos erected on the suit property in favour of the 1st defendant. He admitted that the borrower defaulted and the 1st defendant resorted to selling the suit property, namely, maize and wheat milling plant and silos by public auction, but the sale was not finalized since the High Court in Mombasa HCCC No 3 of 2016 issued an injunction restraining the said sale.

5. He further submitted that thereafter, the borrower and the 1st defendant agreed that the borrower be placed under administration instead of selling the security, and Mr PVR Rao, an insolvency practitioner, was appointed Administrator on May 30, 2016. It was stated by Counsel that since the 1st defendant had resolved to recover its loan through the administration route, it had effectively precluded realization of the guarantor’s security while the administration subsisted. In addition, he stated that even if the suit property was to be sold, fresh statutory notices had to be issued and any sale had to be by public auction since the 1st defendant had elected this mode out of the seven modes provided for under Section 98(1) of the Land Act, 2012 which are disjunctive in nature. He added that the 1st defendant was bound by that election. Mr Gikandi cited the case of Joseph Siro Mosioma v Housing Finance Company of Kenya & 3 others [2008] eKLR, and stated that even if the 1st defendant was to resort to a sale by private treaty, then there should be a good reason for so resorting.

6. Mr Gikandi contended that the sale and transfer were done contrary to a restriction placed over the suit property. He further contended that as a guarantor, the plaintiff is entitled to information including that which relates to the administration of the borrower, which the 1st defendant has refused to provide the plaintiff with.

7. He relied on the provisions of section 66 of the Companies Act and submitted that there is no merit in the objection that since Ustawi Grain Millers Limited is not a party to the suit herein, the injunction must be refused. He cited the case of Said Ahmed v Manasseh Denga & another [2019] eKLR, where the Environment and Land Court granted an injunction even though the suit property had been transferred to the purchaser. He contended that prayer No. 4 herein has not been overtaken by events. In addition, he submitted that the 2nd defendant can still be restrained from selling or transferring the suit property to any other party if the facts justify it. Mr Gikandi relied on the case of Naftali Ruthi Kinyua v Patrick Thuita Gachure & another [2015] eKLR. He also relied on articles 48 and 50 of theConstitution of Kenya, 2010 and submitted that where a dispute arises out of some issue, a fair chance should be given for the Court to determine the dispute.

8. He was of the view that the sale of the property in dispute would run against Article 40 of the Constitution of Kenya, 2010. He submitted that the 1st defendant was estopped from selling the suit property in exercise of the statutory power of sale once it agreed to appoint an Administrator to run the borrower’s affairs, to receive money and pay off the loan. To this end, Mr. Gikandi relied on the case of David Karanja Kamau v Harrison Wambugu Gaita & another [2020] eKLR and stated that one of the remedies under Section 90 of the Land Act, 2012 is the power to appoint a Receiver of the income of the charged land.

9. He referred to the Supreme Court of India decision in National Insurance Company v Masan & another, 2006 (2) SCC 641 1A and the Kenya Court of Appeal decision in Praful Shah v Deposit Protection Fund Board as Liquidator of Trust Bank Ltd (In Liquidation) & another [2019] eKLR and submitted that the 1st defendant had the right to sell the suit property but it chose to recover its loan by placing the borrower under administration. Mr. Gikandi further submitted that the borrower was operating from the suit property hence income from the administration was synonymous with income from the suit property.

10. He submitted that the liability of the plaintiff is dependent on the liability of the borrower, thus any variations of the contract between the 1st defendant and the borrower vary the contract between the 1st defendant and the plaintiff if the latter is made aware, and discharges the plaintiff if it is not made aware. Mr Gikandi cited the case of Platinum Traders Ltd v East African Portland Cement & Co. Ltd & another [2012] eKLR and the case of David Harris v Middle East Bank Kenya Limited & 3 others [2019] eKLR, to bolster his submissions.

11. He contended that clause 5. 7 of the letter of offer dated August 8, 2014 provides that interest would be varied with written notices, but the 1st defendant had not presented evidence that it issued any written notice before variation of the interest charged. He relied on the Court of Appeal decision in Margaret Njeri Muiruri v Bank of Baroda (K) Ltd [2014] eKLR and Section 84 of the Land Act. He also cited Section 44A of the Banking Act Cap 488, which codifies the in diplum rule and submitted that the sum advanced to the borrower was Kshs. 500,000,000/= hence the 1st defendant could not possibly demand Kshs 1,015,243,946. 61 as at March 7, 2016. Mr. Gikandi cited the case of Givan Okallo Ingari & another v Housing Finance Company of Kenya Limited [2007] eKLR and submitted that the 1st defendant could not levy whatever interest it wished to, contrary to the Banking Act, Cap 488 and the contract; and then ask the Court to look away since it can pay damages.

12. He stated that the borrower had a potential buyer willing to pay Kshs 810,000,000/= for its business which offer was communicated to the borrower’s Administrator and the 1st defendant but the latter did not pursue the offer as two years later, the 1st defendant and the Administrator accepted Kshs 350,000,000/= for the same assets. In addition, Mr Gikandi stated that the 1st defendant sold the suit property to Bakhressa Grain Milling (K) Limited by private treaty and later on, the suit property was transferred to the 2nd defendant as a sale from Bakhressa Grain Milling (K) Limited to the 2nd defendant and this information was not shared with the plaintiff.

13. Mr Gikandi relied on the case of Thomson Smith Aikman, Alan Malloy & others v Muchoki & others [1972] eKLR and submitted that this Court should not sanitize an unlawful deprivation of property at the pain of damages. He further submitted that the balance of convenience tilts in favour of granting an injunction since the suit property remains intact while the 1st defendant continues to receive revenue from the borrower’s administration. He also relied on the case of United Airlines Limited v Kenya Commercial Bank Limited [2017] eKLR, Part III regulation 3. 2.8 of the Guideline on Consumer Protection- CBK/PG/22 and Section 22 of the Civil Procedure Act, Cap 21 and submitted that the 1st defendant did not oppose the prayer for production of documents, and it did not contend that it was not in possession of the said documents.

14. Mr Munyao, learned Counsel for the 1st defendant submitted that the plaintiff is not the registered owner of the suit property as it was sold to Bakhressa Grain Milling (K) Limited in May 2017 and thereafter transferred to the 2nd defendant, therefore, the charge/chargor relationship that previously existed between the 1st defendant and the plaintiff, respectively, was extinguished and the 1st defendant, had no legal obligation to issue the plaintiff with fresh statutory notices before selling the suit property. He contended that the sale transaction between the 1st defendant, Bakhressa Grain Milling (K) Limited and the 2nd defendant did not involve the plaintiff, thus the 1st defendant had no obligation to serve statutory notices upon the latter which was no longer the chargor.

15. Mr Munyao pointed out that the plaintiff’s Counsel challenged the 1st defendant’s exercise of its statutory power of sale in Mombasa HCCC No 3 of 2016 where one of the issues that was raised included the issue of service of the statutory notices under the Land Act, and the Court therein deemed it fit to discharge the interim orders of injunction thus paving the way for the 1st defendant to sell the suit property. Mr. Munyao submitted that the plaintiff is barred from re-opening litigation on the issue of the exercise of the 1st defendant’s statutory power of sale. He stated that the issue of sale of the suit property to Bakhressa Grain Milling (K) Limited by the 1st defendant was also litigated upon in Mombasa ELC No 18 of 2018, which suit was struck out.

16. He contended that after the 1st defendant exercised its statutory power of sale over the suit property, the plaintiff’s equity of redemption was extinguished and in the event the plaintiff has any claim in regard to the sale and transfer of the suit property, its remedy lies in damages under the provisions of Section 99(4) of the Land Act, 2012.

17. Mr Munyao relied on the case of Giella v Cassman Brown [1973] EA 358 and submitted that the plaintiff had failed to meet the three limbs required for the grant of injunctive orders. On the issue of prima facie case, he relied on the case of Mrao v First American Bank of Kenya Limited & 2 others [2003] KLR 125 and stated that the suit herein challenges the sale and transfer of the suit property to the 2nd defendant, which sale involved the 1st defendant, Bakhressa Grain Milling (K) Limited and the 2nd defendant, thus if this Court was to grant an order to set aside the sale, the property would revert to Bakhressa Grain Milling (K) Limited and not to the plaintiff.

18. Mr Munyao submitted that the 1st defendant placed TSS Grain Millers Ltd under administration pursuant to its remedies contained in the various debentures created by TSS Grain Millers Ltd in favour of the 1st defendant and the provisions of Section 534 of the Insolvency Act, 2015; and not by the consent of the 1st defendant and the plaintiff. He contended that the appointment of an Administrator over the assets of TSS Grain Millers Limited did not bar the 1st defendant from selling the plaintiff’s property. He cited the case of Sammy Kanyi v UAP Insurance Company Limited Nairobi ELRC Case No 63 of 2019 and submitted that the 1st defendant herein acted within its rights and powers in selling the suit property to Bakhressa Grain Milling (K) Ltd. He stated that the ruling of the Court also distinguished the case of David Karanja Kamau v Harrison Wambugu Gaita & another [2020] eKLR, which was been cited by the plaintiff in support of its assertion that the 1st defendant was barred from selling the suit property because of the appointment of an Administrator.

19. He submitted that the doctrine of election of remedies and rule of estoppel do not apply herein since the 1st defendant did not appoint a Receiver of the income of the charged property as it appointed an Administrator over the assets of TSS Grain Millers Ltd, a remedy accorded to the 1st defendant under the provisions of the Insolvency Act, 2015 and the terms of the debentures that TSS Grain Millers Ltd created over its assets. In addition, he stated that the plaintiff’s submissions regarding extension and variation of the terms of the contract were not applicable herein since the 1st defendant did not vary the charge document between itself and the plaintiff nor the debentures executed by TSS Grain Millers Ltd and itself.

20. Mr Munyao cited the case of Mbuthia v Jimba Credit Finance Corporation and another [1988] eKLR and stated that it is trite that a chargee is not required to issue fresh statutory notices every time a sale of charged property fails to take place, thus the interim orders of injunction granted in Mombasa HCCC No 3 of 2016 only suspended but did not extinguish the statutory notice that had been previously issued by the 1st defendant. He argued that there is no legal requirement for the 1st defendant to re-issue fresh notices after the interim orders were discharged by the Court. He relied on the case of Francis Mogaka Maranya v National Bank of Kenya & another Nairobi Civil Appeal No 60 of 1997 and stated that pursuant to the provisions of Section 98 of the Land Act and the charge documents, the 1st defendant was entitled to sell the suit property either by public auction or by private treaty.

21. It was submitted by Mr Munyao that the 1st defendant was not prevented by the in duplum rule from demanding the total outstanding amount of loan since the total principal amount secured by the debentures was USD 9,500,000. 00 and Kshs 538,921,000. 00. He submitted that the plaintiff had not adduced evidence to demonstrate that the 1st defendant charged unlawful interest on the loan amounts. In submitting that a dispute as to the interest rate charged does not avail the chargee an order of injunction, he relied on the holding in Jim Kennedy Kiriro Njeru v Equity Bank (K) Limited [2019] eKLR.

22. He also submitted that the plaintiff had not demonstrated that it would suffer irreparable loss that could not be compensated by an award of damages. He stated that the plaintiff does not have proprietary interest over the suit property, thus it cannot suffer loss if the orders sought in the instant application are not granted as Section 99(4) of the Land Act, 2012provides for the remedy of damages in the event of a wrongful exercise of the statutory power of sale. In making reference to the case of Kitur & another v Standard Chartered Bank & 2 others [2002] eKLR, he submitted that the plaintiff would not suffer irreparable loss because the value of the suit property is known and the 1st defendant is a well known bank that is capable of compensating the plaintiff in damages in the unlikely event that the suit herein would be decided in favour of the plaintiff.

23. Mr Munyao indicated that the plaintiff fully participated in the proceedings in Mombasa HCCC No 3 of 2016 as well as Mombasa ELC No 18 of 2018, and it all along knew that the suit property had been sold to Bakhressa Grain Milling (K) Limited thus the balance of convenience tilts in favour of upholding the sale of the suit property which has already been concluded.

24. Mr. Mugambi, learned Counsel for the 2nd defendant relied on the case of Giella v Cassman Brown(supra) and submitted that the 2nd defendant is a bonafide purchaser for value of the suit property thus the plaintiff does not have an arguable case. He referred to the case of Weston Gitonga & 10 others v Peter Rugu Gikanga & another [2017] eKLR and stated that the 2nd defendant herein holds a certificate of lease of the suit property, it purchased the suit property in good faith, it had no knowledge of any fraud neither was it a party to any fraud and that the plaintiff had not proved otherwise. He stated that the 1st defendant had authority to sell it from to Bakhressa Grain Milling (K) Limited which was the registered owner of the suit property at the time.

25. He relied on the provisions of order 2 rule 10(1)(a) of the Civil Procedure Rules and submitted that fraud must not only be pleaded but the particulars of fraud must be particularized by the party pleading fraud and the allegations must be strictly proved. He stated that in this case, the plaintiff only alleged fraud but did not give the particulars of what it alleged to be acts of fraud committed by the defendants. In addition, Mr. Mugambi contended that the plaintiff cannot sustain a case of fraud since fraud is a tort which is limited to three years within which an action can be brought. He indicated that in this case, the 1st defendant sold the suit property to Bakhressa Grain Milling (K) Limited in May 2017 whereas the plaintiff filed the suit herein in November, 2020, outside the limitation of actions.

26. On the doctrine of election, Mr. Mugambi relied on clause 20. 2 of the letter of offer dated July 4, 2021 and clause 19 of the further charge dated April 29, 2011, and submitted that the plaintiff signed both the letter of offer and a further charge signaling its acceptance to the terms contained therein and that the 1st defendant’s rights and remedies were cumulative and not elective. He contended that the plaintiff’s argument that once the bank agreed to appoint an Administrator to run the affairs of the borrower it was estopped from selling the suit property in exercise of its statutory power of sale does not hold. He relied on the case of Sammy Kanyi v UAP Insurance Company Limited (supra). He submitted that the case of David Karanja Kamau v Harrison Wambugu Gaita & another (supra) cited by the plaintiff is distinguishable from the facts of this case since in that case, the bank had elected to sue for the outstanding loan amount thus the Court held that it had lost its right to statutory power of sale.

27. On whether the 1st defendant was required to issue fresh statutory notices, Mr. Mugambi referred to the case of Mbuthia v Jimba Credit Finance Corporation and another (supra) and submitted that once a chargee’s statutory power of sale arises upon issuance of proper notices and the sale does not proceed for whatever reason, the chargee is under no obligation to re-issue fresh notices. He also submitted that the 1st defendant had the right to dispose of the suit property through public auction or by private treaty as provided for under clause 9(c) of the further charge. He contended that in as long as the bank acted in good faith, sale by private treaty was still an option. He relied on the Court of Appeal decision in Francis Mogaka Maranya v National Bank of Kenya Limited (supra).

28. In submitting that the law is that the equity of redemption is lost on the completion of a valid agreement for sale, Mr Mugambi relied on the case of Ze Yun Yang v Nova Industrial Products Limited[2003] 1 EA 362. He posited that the sale of the suit property to Bakhressa Grain Milling (K) Limited and later on to the 2nd defendant effectively locked out the plaintiff’s right of redemption over the suit property.

29. On whether the plaintiff shall suffer irreparable injury, Mr. Mugambi submitted that the rights of a chargor who has been prejudiced by a defective sale can only be remedied in damages since having charged the property, a chargor converts it to a commercial commodity with a monetary value that can be easily ascertained.

30. He submitted that the balance of convenience tilts in favour of allowing the 1st defendant to liquidate and recover its outlay and the innocent purchaser for value to get possession of its property.

31. In a rejoinder, Mr. Gikandi submitted that there is a whole process in the case herein that is contrary to the Constitution. He sought for status quo to be maintained so that the property is not alienated. On whether there is irreparable loss, he stated that an illegal act will definitely lead to irreparable loss.

Analysis and Determination 32. I have considered the application filed herein, the affidavits filed in support thereof, the replying affidavits by the defendants and the written and oral submissions made by Counsel for the parties. The issues that arise for determination are whether an order for injunction should be granted and if the 1st defendant should be compelled to supply the plaintiff with the documents specified in Schedule I of the application herein.

33. In the affidavit filed by the plaintiff, it deposed that it is the registered owner of all that parcel of land known as Mombasa/Block I/316 holding a lease of 99 years with effect from October 1, 1948 from the Kenya Railways Corporation and that it authorized TSS Grain Millers Limited to construct and run a maize and wheat milling plant on the said property. He averred that at the request of TSS Grain Millers Limited, the plaintiff offered the suit property to secure loan facilities advanced to TSS Grain Millers Limited under letters of offer dated March 7, 1998, July 4, 2011, October 2, 2012, January 8, 2013, and August 8, 2014 and the 1st defendant created a further charge dated 17th April, 1998 and a further charge dated April 29, 2011 over the suit property.

34. It was stated by the plaintiff that in early 2016, the 1st defendant threatened to sell the suit property in exercise of its statutory power of sale which exercise was challenged by the plaintiff and TSS Grain Millers Limited and the sale scheduled for January 25, 2016 was suspended. That the 1st defendant and TSS Grain Millers Limited agreed to appoint an Administrator over the latter company, who would then profitably manage the said company and pay off the loan due to the 1st defendant. The plaintiff further stated that it was surprised when the 1st defendant purported to sell the suit property to Bakhresa Grain Milling Kenya Limited sometime in August, 2017 which sale was challenged by the plaintiff vide Mombasa ELC No 18 of 2018. It was stated that the 1st defendant and Bakhresa Grain Milling Kenya Limited entered into a deed of settlement through which the sale of the suit property was reversed.

35. The plaintiff contended that the 1st defendant has now offered to sell the suit property to the 2nd defendant, which sale is unlawful, illegal, mala fide, and fraudulent. The plaintiff stated that the Banking Fraud Investigation Unit wrote to the Land Registrar on April 23, 2017 placing a restriction on all transactions on the suit property, among others, pending investigations, which restriction has never been lifted or challenged as provided by law, yet the 1st defendant has purported to transact on the suit property.

36. It was stated by the plaintiff that from the statement of accounts for the period between November, 2014 and January, 2016, the rate of interest applied was not the contractual rate yet no notice was issued prior to varying the rate, and that the unlawful variation had unlawfully fettered the plaintiff’s equity of redemption and caused the debt to spiral out of proportion. The plaintiff deposed that since the appointment of the Administrator, the 1st defendant had not made available a statement of accounts showing how much has been recovered from the administration, how the money has been applied and how much is outstanding. It further deposed that the milling plant was leased for a sum of USD 300,000. 00 per month thus the 1st defendant should have collected over USD 10,800,000. 00 between 2017 to date and the debt owed to the 1st defendant would have been repaid fully obviating the need to sell the suit property. It was stated that it is of utmost importance for the plaintiff to be supplied with a complete and comprehensive statement of accounts.

37. The plaintiff averred that it is merely a guarantor of the loan granted to TSS Grain Millers Limited hence its obligation is secondary. In addition, the Administrator had not issued a statement that he was of the opinion that the objects of administration would not be achieved hence the 1st defendant could not commence a parallel and inconsistent process to realize the suit property.

38. The 1st defendant in its replying affidavit deposed that the plaintiff charged the suit property to secure a loan of Kshs 325,000,000/= and it further charged the suit property to secure a further loan of Kshs 175,000,000/=. It averred that the plaintiff’s sister company Tahir Sheikh Said Grain Millers Ltd (TSS Grain Millers Ltd.) erected a grain milling plant, machinery, silos, equipment and other developments on the suit property. Subsequently, TSS Grain Millers Ltd created various securities by way of debentures in favour of the bank to secure loans advanced to it by the 1st defendant, but in the year 2016, the plaintiff and her sister company defaulted in servicing the credit facilities advanced to them by the 1st defendant.

39. The 1st defendant averred that as at March 7, 2016 when the 1st defendant was exercising its statutory power of sale, the plaintiff and TSS Grain Millers Limited owed the 1st defendant a sum of Kshs 1,015,243,946. 61 which continues to attract interest and other charges. He contended that the suit property was sold to Bakhressa Grain Milling (K) Ltd through private treaty on May 5, 2017, for Kshs 600,000,000/= thus extinguishing the plaintiff’s equity of redemption since its interest in the suit property no longer existed. That on July 10, 2020 the said company and the 1st defendant entered into a deed of settlement which entitled the 1st defendant to dispose of the suit property to any third party. The 1st defendant stated that consequently, on December 27, 2019, it entered into an agreement for the sale of the suit property to Jamii Flour Millers Limited at Kshs 300,000,000/=.

40. It was stated by the 1st defendant that indeed the Banking Fraud Investigation Unit wrote to the Land Registry on April 23, 2017 placing a restriction on all transactions on the suit property however, vide a letter dated September 6, 2017, the Banking Fraud Investigation Unit lifted the said letter of restriction in respect of the suit property herein. The 1st defendant contended that the sale of the suit property at Kshs 300,000,000/= was not illegal as the same was based on the deed of settlement between Bakhressa Grain Milling (K) Ltd and the 1st defendant. In addition, the 1st defendant stated that the interest rates that it applied were those contained in the letter of offer and charge documents.

41. The 1st defendant averred that the Administrator of TSS Grain Millers Ltd informed it that during the course of the administration of the company, Bakhressa Grain Milling (K) Ltd made an offer to the Administrator to lease the grain milling plant at a monthly rent of USD 300,000. 00 but the lessee operated the grain milling plant for a few months and forfeited the lease agreement dated March 15, 2017. He also averred that even though Bakhressa Grain Milling (K) Ltd made an offer to the Administrator to purchase the grain milling plant for Kshs 810,000,000/= via a letter dated July 27, 2017, the intended transaction did not materialize since the said company withdrew from the transaction.

42. The 1st defendant contended that it is only the assets of TSS Grain Millers Ltd that were the subject of the administration and not the plaintiff’s property. In addition, it stated that the plaintiff is seeking to set aside the sale of the suit property but the terms of the agreement for sale had already been actualized after the transfer of the property to Ustawi Grain Millers Limited, hence there is nothing to set aside. The 1st defendant averred that the plaintiff is still indebted to the 1st defendant and it has not made any effort to settle the said loan. It further averred that the prayer for production of documents is misconceived since the prayer for supply of documents is in the nature of a final prayer which can only be granted after hearing parties on the merits of the case. It was stated that the process of discovery and production of documents by parties is well provided for under the provisions of order 11 rule 3(2)(d) of the Civil Procedure Rules, 2010.

43. The 2nd defendant in its replying affidavit deposed that sometime in February, 2018, Engaano Miller, a sister company to Ustawi Grain Millers Limited learnt from the 1st defendant that one of its customers by the name Bakhressa Grain Milling (K) Ltd was intending to dispose of the suit property for purposes of settling a loan that had been advanced to them by the bank. That they instructed Hamilton Harrison & Mathews Advocates to carry out due diligence on the land, and in turn, the said law firm carried out a search on the suit property and established that the nature of the title was leasehold registered to Bakhressa Grain Milling (K) Ltd on 21st August, 2017 and a certificate of lease issued in their name on the same date. They also established that the property was charged to the 1st defendant to secure the sum of Kshs 600,000,000/=.

44. The 2nd defendant averred that a further historical search revealed that the suit property was sold to Bakhressa Grain Milling (K) Ltd in the year 2017 by the 1st defendant in exercise of its statutory power of sale. He further averred that Hamilton Harrison & Mathews Advocates also established that the 1st defendant and Bakhressa Grain Milling (K) Ltd later on entered into a deed of settlement which entitled the 1st defendant to dispose of the suit property to any third party for purposes of settling the loan advanced by the 1st defendant to them. It was stated by the 2nd defendant that they were satisfied with the due diligence carried out and agreed to make a bid for the purchase of the land. He stated that Engaano Millers Limited is not incorporated in Kenya and they decided to use the sister company, the 2nd defendant herein to follow up on the purchase of the property.

45. It was stated by the 2nd defendant that after negotiations with the 1st defendant, it accepted their offer of Kshs 300,000,000/= which culminated into the signing of the sale agreement dated December 27, 2019. However, since the 2nd defendant had changed its name during the pendency of the transaction, they nominated the 2nd defendant to be the transferee of the suit property herein. The 2nd defendant averred that the suit property was registered in favour of Ustawi Grain Millers Limited and a Certificate of lease issued on October 12, 2020. The 2nd defendant deposed that contemporaneous with its efforts to acquire the suit property, it also carried out due diligence on the mill and thereafter approached the Administrator with an offer to buy the mill and after negotiations, the Administrator accepted the 2nd defendant’s offer of Kshs 350,000,000 which culminated into the signing of the sale agreement dated December 27, 2019.

46. The plaintiff filed an affidavit in response to the 1st defendant’s replying affidavit where it deposed that the 1st defendant wrongly presumes that the plaintiff is only seeking to stop the exercise of the statutory power of sale whereas in paragraph (d) of the plaint, the plaintiff seeks the setting aside of any sale to the 2nd defendant. It was averred that the substratum of the suit still exists and merits preservation by an injunction. He further deposed that despite the fact that the 2nd defendant has changed its name to Ustawi Grain Millers Limited, a change of name, without more, does not affect legal rights or obligations.

47. The plaintiff averred that the 1st defendant wrongfully treats the plaintiff as the borrower when the borrower, and the person with the primary duty to repay the loan, is TSS Grain Millers Limited. It further averred that Mr Kiranga, the 1st defendant’s deponent cannot rely on information from the Administrator since nothing was presented to show that the offer was in fact withdrawn and that the lease was terminated. The plaintiff stated that the existence of order 11 of the Civil Procedure Rules, 2010 does not preclude the Court from making an order for discovery, if merited, even before that stage of the suit since the information sought is required to enable the plaintiff get the suit ready for the case management conference.

48. The 1st defendant filed a further affidavit sworn on March 30, 2022 where it was deposed that by creating the charges herein, the plaintiff agreed to pay the 1st defendant the principal money and interest secured by the charges including fees and other charges, thus the 1st defendant was entitled to sell the suit property in the event of default in repayment of the loan facilities. It further deposed that TSS Grain Millers Limited created separate securities in the form of debentures to secure an aggregate sum of USD 9,500,000. 00 and Kshs 538,921,000/=

49. An order for temporary injunction is provided for under Order 40 Rule 1 of the Civil Procedure Rules, 2010which states as hereunder: -“Where in any suit it is proved by affidavit or otherwise—a.that any property in dispute in a suit is in danger of being wasted, damaged, or alienated by any party to the suit, or wrongfully sold in execution of a decree; orb.that the defendant threatens or intends to remove or dispose of his property in circumstances affording reasonable probability that the plaintiff will or may be obstructed or delayed in the execution of any decree that may be passed against the defendant in the suit, the court may by order grant a temporary injunction to restrain such act, or make such other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal, or disposition of the property as the court thinks fit until the disposal of the suit or until further orders."

50. An order for an interlocutory injunction is a discretionary remedy that is granted on the basis of evidence and sound legal principles. In an application for an interlocutory injunction the onus is on the applicant to satisfy the Court that it should grant an injunction. In the case of Nguruman Limited v Jan Bonde Nielsen & 2 others [2014] eKLR, the Court of Appeal when dealing with a similar application held that: -“In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;a.establish his case only at a prima facie level,b.demonstrate irreparable injury if a temporary injunction is not granted, andc.ally any doubts as to (b) by showing that the balance of convenience is in his favour.”

51. The Court of Appeal in the case of Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] eKLR, considered what constitutes a prima facie case and stated as follows -“So what is a prima facie case" I would say that in civil cases it is a case in which on the material presented to the Court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter. A prima facie case is more than an arguable case. It is not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the Applicant’s case upon trial. That is clearly a standard, which is higher than an arguable case.”

52. It is not disputed that through a further charge dated April 17, 1998 and a further charge dated April 29, 2011, the plaintiff charged the suit property herein to secure loan facilities of Kshs 325,000,000/= and Kshs 175,000,000/=, respectively. It is also not disputed that TSS Grain Millers Limited, the plaintiff’s sister company created separate securities in the form of debentures over its assets being a grain milling plant, machinery, silos, equipment and other developments on the suit property, to secure an aggregate sum of USD 9,500,000. 00 and Kshs 538,921,000/= from the 1st defendant.

53. The 1st defendant contended that as at March 7, 2016, the plaintiff and TSS Grain Millers Limited owed the 1st defendant Kshs 1,015,243,946. 61. It is noteworthy that TSS Grain Millers Limited defaulted in servicing the said credit facilities and as a result, the 1st defendant decided to exercise its statutory power of sale against the suit property, which at the time was registered in the name of the plaintiff. In a bid to stop the sale of the suit property, the plaintiff and TSS Grain Millers Limited filed Mombasa HCCC No 3 of 2016 against the 1st defendant, and they managed to obtain an interim injunction restraining the 1st defendant from proceeding with the intended sale. Judge PJ Otieno on March 27, 2017 discharged the said interim orders.

54. The 1st defendant sold the suit property to Bakhressa Grain Milling (K) Limited through a private treaty for Kshs 600,000,000/=. It is evident that at this point, ownership of the suit property passed from the plaintiff to Bakhressa Grain Milling (K) Limited which was subsequently issued with a Certificate of lease dated August 21, 2017. The plaintiff averred that after it filed Mombasa HCCC No 3 of 2016, the 1st defendant and TSS Grain Millers Limited by consent appointed an Administrator over the assets of TSS Grain Millers Limited. It was contended by the plaintiff that the 1st defendant was bound by the doctrine of election and could not sell the suit property in exercise of its statutory power of sale since it chose to recover its loan by placing TSS Grain Millers Limited, (the borrower), under administration.

55. The 1st defendant on the other hand averred that the doctrine of election of remedies and rule of estoppel do not apply herein since the 1st defendnat did not appoint a Receiver of the income of the charged property, as it appointed an Administrator over the assets of TSS Grain Millers Ltd, a remedy accorded to the bank under the provisions of the Insolvency Act, 2015 and the terms of the debentures that TSS Grain Millers Ltd created over its assets. It is not disputed that what was placed under administration were the assets of TSS Grain Millers Limited and not the suit property herein. It is also noteworthy that the said assets do not form part of the subject matter herein thus this Court shall refrain from addressing issues touching on the said assets.

56. I am of the considered view that, in determining whether the applicant has established a prima facie case, Courts are cautioned from making final findings of contested facts and the law as was held by the Court in the case of Mbuthia v Jimba Credit Corporation Ltd [1988] eKLR, where it was held that -“In an application for interlocutory injunctions, the court is not required to make final findings of contested facts and law and the court should only weigh the relative strength of the parties cases.”

57. In view of the foregoing, it is evident that the plaintiff’s case is anchored on the claim that it was the registered owner of the suit property herein and the 1st defendant illegally and/or fraudulently sold it to the 2nd defendant therefore, if the Court does not grant an injunction, and issue an order of inhibition, the substratum of the suit herein shall be extinguished. The defendants on the other hand contend that the 2nd defendant is the registered owner of the suit property thus the only remedy available to the plaintiff is provided for under Section 99 (4) of the Land Act, 2012. The 1st defendant averred that prior to selling the suit property to the 2nd defendant, it got into a deed of settlement with Bakhressa Grain Milling (K) Ltd where it was allowed to dispose of the suit property to any third party for purposes of settling a loan advanced to the said company.

58. Section 99(4) of the Land Act, 2012 provides that-“A person prejudiced by an unauthorized, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power.”

59. Indeed, it was stated by the 2nd defendant that its sister company Engaano Miller incorporated in Uganda was contacted by the 1st defendant and was informed that one of its customers by the name Bakhressa Grain Milling (K) Ltd was intending to dispose of the suit property for purposes of settling a loan that had been advanced to the latter company by the 1st defendant, and after carrying out its due diligence, the 2nd defendant made an offer which was accepted by the 1st defendant and it bought the said property thereafter and was issued with a Certificate of lease dated October 12, 2020.

60. The Court of Appeal in Kitur & Anor v Standard Chartered Bank & Anor (No 2) [2002]1 KLR 640 at page 645 held as follows on the issue of irregular sale of property -“The law itself provides that any injury to a charger by way of irregular exercise of the power of sale by a chargee or auctioneer, shall be compensated by an award of damages. (See Section 77(3) of the registered Land Act and Section 26(1) of the Auctioneers Act.”

61. In similar vein, the Court of Appeal in Nancy Kahoya Amadiva v Expert Credit Limited & another [2015] eKLR held that-“The 2nd respondent argues that he was an innocent purchaser for value and was not party to the fraud. This brings us to the question; what is the extent of due diligence to be exercised by a purchaser". In Captain Patrick Kanyagia and Another v Damaris Wangeci and others, this court held that there is no duty cast, in law, on an intending purchaser at an auction sale, properly advertised, to inquire into the rights of the mortgagee to sell. This was also reiterated by this court more recently in David Katana Ngomba v Shafi Grewal Kaka [2014] eKLR. In Priscilla Krobought Grant v Kenya Commercial Finance company Ltd and others Civil Appeal No 227 of 1995 (unreported), this court held that a purchaser at a public auction was protected by section 69(B) of the Indian Transfer of Property Act and could only lose the protection if it was proved that there was an improper or irregular exercise of the statutory power of sale of which the purchaser had notice. In the present case, the appellant has not demonstrated that the 2nd respondent had any notice of irregular exercise of the statutory power of sale by the 1st respondent or indeed whether there was any such irregular exercise of the statutory power of sale. As per the testimony of the 2nd respondent before the trial court, the 2nd respondent’s action to purchase was based on the advertisement for sale advertised in the newspaper. The 2nd respondent duly participated in the auction and his bid was accepted. We are reluctant to diminish the exercise of the statutory power of sale stemming from statute in the absence of impropriety being attributed to the mortgagee. We are satisfied that the present appeal does not fall within an instance when we are called upon to interfere with the settled principle of law regarding protection of the exercise of statutory power of sale. If we were to interfere with this power, the acceptance of charge as security would in itself diminish with the attendant consequences of limiting access to finance as banks would not readily accept charges as security.”

62. In light of the above and the provisions of Section 99(4) of the Land Act, 2012, the 2nd defendant bought the suit property from Bakhressa Grain Milling (K) Limited who bought it from 1st defendant via private treaty. The 2nd defendant being a bonafide purchaser for value is the registered owner of the suit property and not the plaintiff herein. In the said circumstances, I find that the plaintiff has not established a prima facie case with a probability of success.

63. On whether the plaintiff will suffer irreparable harm which cannot be adequately compensated by an award of damages, this Court has already held that the 2nd defendant is the registered owner of the suit property and the only remedy available to the plaintiff is damages. Therefore, this Court finds that the plaintiff can be adequately compensated by an award of damages. The issue of a balance of convenience does not arise since the Court is not in doubt.

64. On the prayer for supply of documents, the 1st defendant did not deny being in possession of the documents required by the plaintiff. The 1st defendant stated that the process of discovery and production of documents by parties is well provided for under the provisions of order 11 rule 3(2)(d) of the Civil Procedure Rules, 2010. This Court holds that the 1st defendant should supply the plaintiff with the said documents for purposes of preparing for pre-trial directions and for hearing of the main suit.

65. The upshot is that the application dated November 3, 2020 partly succeeds in the following terms-i.The 1st defendant is hereby ordered to supply to the plaintiff and to the Court copies of the documents listed in Schedule I of the application dated November 3, 2020. The said documents shall be supplied within thirty (30) days of the date of this ruling; andii.Costs shall abide the outcome of the main suit.It is so ordered.

DATED, SIGNED AND DELIVERED AT MALINDI ON THIS 7TH DAY OF OCTOBER, 2022. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM.NJOKI MWANGIJUDGEIn the presence of:Mr. Gikandi for the plaintiffMr. Kariuki Henry for the 1st defendantMr. Mugambi for the 2nd defendantMr. Oliver Musundi – Court Assistant.