https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1014

Raja v Southern Credit Banking Corporation Ltd & 3 others (Civil Application E731 of 2025) [2026] KECA 1014 (KLR) (29 May 2026) (Ruling) Neutral citation: [2026] KECA 1014 (KLR) Republic of Kenya In the Court of Appeal at Nairobi Civil Application E731 of 2025 W Karanja, LA Achode & LM Njuguna, JJA May 29, 2026 Between Tanuj Gulabchend Raja Applicant and Southern Credit Banking Corporation Limited 1st Respondent Charles Kyalo Muthama 2nd Respondent Kiran Chandubhai Patel 3rd Respondent Gilbert Macharia Kibe 4th Respondent (Being an application for stay of execution under Rule 5(2)(b) of the Court of Appeal Rules pending the hearing and determination of an appeal from the Judgment and Decree of the High Court Commercial Division (P.M. Mulwa, J.) dated 6th November 2025 in COMM. Case No. 159 of 2004) Ruling 1.Before Court is the applicant’s notice of motion dated 4th December 2025 brought under Rule 5(2)(b),42 and 47 of the Court of Appeal Rules, (the rules) which seeks, in the main, an order of stay of execution of the judgement and resultant decree delivered in High Court Commercial Case No. 159 of 2004 on 6th November 2025 pending the hearing and determination of the applicant’s intended appeal. 2.The suit culminating in the impugned judgment was filed by Southern Credit Banking Corporation Limited, (the 1st respondent), to recover a debt of Kshs.215,607,678.96 from the applicant and the 2nd, 3rd and 4th respondents, who were directors and guarantors for the principal debtor, Eagle Aviation Limited. The 1st respondent (successor of Bullion Bank Limited) argued that an overdraft facility of Kshs.45 million was advanced to the principal debtor, secured by a debenture and personal guarantees from the 2nd, 3rd, and 4th respondents. The 1st respondent claimed the applicant fraudulently discharged the debenture when Kshs.82,793,505.70 was outstanding, depriving the Bank of its security. The 1st respondent sought recovery from the guarantors following the principal debtor’s default and subsequent receivership. 3.The applicant denied personal liability and fraudulent conduct, asserting the debenture release was done by the Bank’s officers. He also argued that the suit was discriminatory as not all directors were joined. He asserted that the interest claimed by the Bank was illegal. 4.On their part, the 2nd and 4th respondents claimed they ceased to be directors of the borrower in February 1997 and relied on a Memorandum of Understanding which they argued extinguished their liabilities. They also argued the guarantee was void ab initio for lack of execution by the 1st respondent. 5.On his part, the 3rd respondent admitted signing the guarantee but argued it was invalid and unenforceable. He claimed his guarantee was conditional on the debenture security being in place and that its release or variation without his consent discharged him from liability. He also argued the claim amount exceeded the guaranteed limit of Kshs. 45 million. 6.The trial court analyzed several issues, including, the validity of the guarantees, the effect of the debenture discharge, the impact of director resignations, and whether the claim was proved. The learned Judge found the 2nd, 3rd, and 4th respondents executed valid deeds of guarantee, each limiting liability to Kshs.45 million. The Judge also held that the guarantees are independent contracts enforceable upon the principal debtor’s default, and arguments against personal liability were dismissed. 7.The court found the debenture was released through the fraudulent acts of the applicant not with the Bank’s authorization. The Judge held that a surety cannot rely on a co-director’s fraud to escape liability where the creditor was the victim, and the release of the debenture did not discharge the guarantors from their obligations. 8.On the resignation of directors, the court ruled that guarantees are continuing obligations; a guarantor’s liability is not terminated merely because they cease to be a director unless the guarantee terms explicitly state otherwise or the creditor consents in writing. 9.Ultimately, the Judge found that the 1st respondent proved its claim on a balance of probabilities. Judgment was entered for the 1st respondent against the applicant herein and the 2nd, 3rd, and 4th respondents, jointly and severally, for Kshs.215,607,678.96, plus interest at 21% p.a. from February 1, 2004, until full payment, plus costs of the suit 10.Being aggrieved, the applicant filed the instant application. The 3rd respondent filed a separate application, being Civil Application No. E711 of 2025 seeking orders similar to the present ones. We were informed that conditional orders of stay were granted in that matter for a period of 60 days. The applicant herein maintained that he was not a party to that application; his circumstances are different, and his application ought to be considered on its own merits. The application is supported by grounds on its face and a supporting affidavit sworn by the applicant on 4th December 2025. 11.The application is not opposed as there were no replying affidavits, grounds of opposition or submissions filed by any of the respondents. 12.The applicants’ submissions are dated 22nd January 2026. It is submitted that the applicant has a strong case for appeal, challenging the High Court’s findings on fraud, the liability of guarantors, when the principal borrower (Eagle Aviation Limited) was not sued and the Judge’s reliance on a witness who was not an employee of the original bank at the time the events took place. The applicant contends that Southern Credit Banking Corporation, is no longer a licensed bank and is essentially non-existent and insolvent. Payment of the large judgment amount would cause irreparable loss because the money would not be recoverable if the appeal is successful. 13.It is the applicant’s case that Southern Credit Banking Corporation Limited merged with Equatorial Commercial Bank Limited in June 2010, and the name was changed to Spire Bank Limited in May 2016 which further supports the claim that the original entity is not operational, and the subsequent entities have not been joined as parties to these proceedings. 14.At the hearing of the application learned counsel, Mr. Harit Sheth appeared for the applicant; Mr. Abuya was present for the 1st respondent; Mr. Kabaiku appeared for the 2nd and 4th respondents and Mr Ochieng appeared for the 3rd respondent. 15.According to Mr. Sheth, the application has satisfied the two principles that are required to be demonstrated in applications of this nature. These are: arguability of the appeal and the nugatory aspect. On the limb of arguability, counsel urged that the 1st respondent was relying on the ground of fraud and yet no fraud had been proved; that there was no benefit to the applicant from any fraud and that the issue and also the locus standi of the 1st respondent are issues that will engage the bench sitting on the substantive appeal. 16.On the nugatory aspect, learned Counsel maintained that if they are asked to pay the money, who would the money be paid to as the Bank has since changed ownership about three times? Furthermore, the 1st respondent does not exist anymore. Therefore, counsel asked the Court to grant them unconditional orders of stay of execution as prayed. The application was supported by learned Counsel for the second, third and fourth respondents. 17.Mr. Abuya, for the 1st respondent addressed the Court on points of law as they had not filed any response to the application. He told the Court that the decree sought to be stayed is a money decree and in that regard the Court should not grant orders of stay as if the money is paid, it can always be refunded. Counsel maintained that the 1st respondent is still in existence, although evidence on record demonstrates something different. He urged us to dismiss the application, but in the event we are inclined to grant stay orders, the same should be conditional. 18.We have considered the application before us, the grounds and depositions in support of the same; the submissions and the relevant law. Having done so, our duty is twofold. First, to determine whether the applicant has demonstrated that his appeal is not frivolous and that it deserves to be ventilated before this Court; and second, that if execution is not stayed, the appeal, were it to succeed, will have been rendered nugatory, or useless. 19.This Court articulated these principles in Trust Bank Limited & Ano. -vs- Investech Bank Limited & 3 Others, Civil Application Nai. 258 of 1999 (unreported) where the Court stated that:“The jurisdiction of the Court under Rule 5(2) (b) is original and discretionary and it is trite law that to succeed an applicant has to show firstly that his appeal or intended appeal is arguable, to put another way, it is not frivolous and secondly that unless he is granted a stay the appeal or intended appeal, if successful will be rendered nugatory. These are the guiding principles but these principles must be considered against facts and circumstances of each case…” Emphasis ours. 20.See also Kinyanjui -vs- Tony Keter & 5 Others [2013] eKLR where this Court expounded the said principles as follows:“That in dealing with Rule 5(2) (b), the Court exercises original and discretionary jurisdiction and that exercise does not constitute an appeal from the judge’s discretion to this Court. The first issue for our consideration is whether the intended appeal is arguable. This Court has often stated that an arguable ground is not one which must succeed but it should be one which is not frivolous; a single arguable ground of appeal would suffice to meet the threshold that an intended appeal is arguable.” 21.For the applicant to succeed, he has an obligation to prove that he has an arguable appeal, that is, the appeal is not frivolous. Upon satisfying that principle, the applicant also has the additional duty to demonstrate that the appeal, if successful, would be rendered nugatory should the orders sought not be granted. 22.With regard to the arguability of the appeal, it is trite that by arguability, it does not mean that the appeal or intended appeal must be one that ought to succeed but rather one that raises a serious question of law or a reasonable argument deserving consideration by the Court. See Dennis Mogambi Magare -vs- Attorney General & 3 Others, Civil Application No. NAI 265 of 2011 (UR 175/2011). 23.We are persuaded that the question of whether fraud was proved against the applicant is not an idle one and deserves to be heard and determined on appeal. The question of the 1st respondent’s locus in view of the many times it has changed its identity raises an important legal point that the Court hearing the appeal will be called upon to determine. We are, therefore, satisfied that the applicant has demonstrated that his appeal is arguable. 24.On the nugatory aspect, the term “nugatory” has to be given its full meaning. It does not only mean worthless, futile or invalid. It also means trifling. See Reliance Bank Ltd -vs- Norlake Investments Ltd [2002] 1 EA 227 at page 232. 25.There is no uniform test on whether an appeal will be rendered nugatory or not, and it all depends on whether or not what is sought to be stayed if allowed to happen is reversible; or if it is not reversible whether damages will reasonably compensate the party aggrieved. 26.The applicant deposed that it is not clear who the money would be paid to if the Court was to order that the money be paid. That is so because the 1st respondent no longer exists and the Bank has changed hands severally since the disputed cause of action arose. This, according to the applicant, will create problems and in the event a refund of the money is ordered, it is not clear who would be responsible, given that the Banks that have succeeded the 1st respondent have not been made parties to this suit and the 1st respondent’s locus in the matter has been questioned. We agree. 27.Accordingly, we are satisfied that the applicant has demonstrated both principles of arguability and the nugatory aspect as required. We allow this application and stay execution of the judgment delivered on 6th November 2025 pending the hearing and determination of the appeal by the applicant herein. Costs of the application will be in the appeal. DATED AND DELIVERED AT NAIROBI, THIS 29TH DAY OF MAY 2026.W. KARANJA.......................JUDGE OF APPEALL. ACHODE.......................JUDGE OF APPEALL. NJUGUNA.......................JUDGE OF APPEALI certify that this is a true copy of the original.SignedDEPUTY REGISTRAR