Court stops bank from recovering Sh86m loan default
Absa Bank Kenya Plc has suffered double loss after a High Court judge barred the lender from auctioning a prime city property in its quest to recover a loan of Sh86 million owed by a Nairobi businessman.
This came against the background of a pending court directive for Absa to pay the loan defaulter Sh1.5 billion after the bank was found culpable of leaking confidential information about the borrower to third parties.
In the latest order, the bank has been barred from selling the Kitusuru property belonging to businessman David Abai Omusala, who runs a transport business, who has defaulted on a Sh86 million loan.
“A temporary injunction order be and is hereby issued restraining the bank and its employee or agents from advertising for sale, selling private treaty, or conducting or concluding a public auction of all that land pending the hearing and determination of the suit,” directed Justice Josephine Mong’are.
She further issued an order preventing the transfer of the title of the property to a third party pending the determination of the case.
Abai obtained the orders after Absa Bank moved to seize his assets to recover unpaid loans, which stood at Sh86.4 million as of September 30, 2022.
The bank says that the loan has fallen into arrears and continues to accrue interest, despite its calls for the company to regularise the account.
The bank has moved to realise its facility lent to Abai after he defaulted to pay the loan which he secured with the Kitusuru property.
The orders barring the auction and the transfer of the property comes 10 months after another High Court judge slapped the bank with a Sh1.5 million compensation order for breach of confidentiality
Justice Njoki Mwangi directed the Absa bank to compensate Abai who is a director of New Mega Africa Limited the billions of shillings, ruling that it was unfair for the bank to have leaked the trader’s financial statements with strangers without his consent.
Contractual duty
“The court finds that the bank owed the client a fiduciary and contractual duty, but it was in breach of those duties which caused Abai to lose business and funds. He is entitled to compensation of Sh1,512,533,679 from Absa bank plus interest accrued,” ruled Justice Njoki.
The court compensated Abai the compensation for loss of income, goodwill and fixed assets.
The Judge entered the judgement in favour of Abai and his company after Absa failed to defend the lawsuit.
“The defendant herein having been duly served and having failed to file defence within the stipulated period of time, and upon application of the plaintiff’s advocate, I enter interlocutory judgment as prayed,” the judgment reads.
The award comes after the director of New Mega Africa Ltd, a transport company in the country sued the bank claiming that it had violated his rights by disclosing his confidential information to third parties without his permission.
Abai argued that the move by the bank to leak his financial details to strangers without his consent led to financial sabotage in July 2021.
The lawsuit dispute between Absa and New mega Africa stemmed from the bank’s alleged refusal to approve the company’s loan request on time, crippling its business.
The advance was secured through a charge over a property located in Kitisuru, Nairobi among securities.
New Mega Africa Limited transports clinkers from Kenya to Tororo in Uganda for the manufacture and processing of cement and other related products.
Financial institution
Once processed to finished products, the company would transport the same to various outlets within the East African region.
The company explains that because of the good relationship existing between it and the bank, the financial institution accorded it various financial facilities, which were fully secured through a charge over a property located in Kitisuru, Nairobi among other securities.
Due to its good business performance, Abai indicated the company’s main client known as Mombasa Cement Limited added 11 trucks under an arrangement of lease to own.
All the payments were processed through the firm’s account held at the bank.
By the time Covid-19 struck the country in March 2020, the company said its facility with the bank had grown to Sh72 million, broken down under various heads such as term loan, invoice discounting, overdraft and bank guarantee.
But due to the covid-19 effects, the transport company said through Kirui Kamwibua & Company advocates that its main client- Mombasa Cement Limited varied its payment period from the initial seven days to 7 to 14 days to a period between 45 to 60 days.
Because of these changes, the transport firm says it sought for an additional facility of Sh5 million to cushion on fuel demands due to the increase in the payment period.
“Despite the bank, its employees or agents promising to assist the firm to cover up for the period increase, it failed to do so notwithstanding the securities it held over the firm,” said Abai, adding that by the time the request was approved, the business had suffered and grounded.
Abai said that numerous letters to the bank requesting it to restructure the loan were met with long delays affecting the firm’s operations.
He said that due to this failure, the business nosedived as he had to ground some of his trucks, thereby, defaulting on his obligations both to the Mombasa cement limited and the bank. “In the meantime, one of the bank’s employees was leaking the firm’s confidential information to third parties, and that information had dire consequences on my business,” he told the judge.
The court heard that due to the leakage, the firm’s creditors and other suppliers descended upon it thereby seriously interrupting the business operations.
