REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI COMMERCIAL COURTS
MISC. CIVIL SUIT NO. 430 OF 2017
IN THE MATTER OF INTEX CONSTRUCTION LIMITED
AND
IN THE MATTER OF THE LAND ACT, NO. 10 OF 2012
AND
IN THE MATTER OF AN APPLICATION TO SELL LAND SUBJECT OF AN
INFORMAL CHARGE
AFRICAN BANKING CORPORATION LIMITED……….……………………………………………………..APPLICANT
VERSUS
INTEX CONSTRUCTION LIMITED………………………….1ST RESPONDENT
SAMIT GEHLOT………………………………...…………….2ND RESPONDENT
RULING
1. This ruling is in respect to an Originating Summons dated 23rd October, 2017, filed by the applicant African Banking Corporation Limited in which it seeks authorization to sell property Title Number Athi River /Athi River Block 5/44 in the name of Intex Construction Limited to recover an outstanding loan facility. The applicant also prays for costs to be provided for.
2. The application is anchored on the grounds in support thereof, as well as by the supporting affidavit sworn by Evalyn Gachoki, the supplementary affidavit, and a further supplementary affidavit sworn by Kajuju Marete on 9th March, 2022 and 21st August, 2023, respectively.
3. The application is opposed by a replying affidavit and supplementary affidavit sworn by Samit Gehlot, the 2nd respondent and the Managing Director of Intex Construction Limited, sworn on and 10th June, 2018 and 17th July, 2018, respectively.
4. Directions were given for the parties to canvass the application by way of written submissions. The applicant filed submissions dated 25th March, 2022 through the firm of Kimani Michuki Advocates, while the respondents filed submissions dated 10th June, 2023 by Oraro & Company Advocates.
Applicant’s submissions
5. Mr. Gakunga, learned Counsel for the applicant submitted that the applicant granted to the 1st respondent various loan facilities consolidated into one to the tune of Kshs 300,000.000/=. That the said facility was secured by a legal charge over the property Title No. Athi River/Athi River Block 5/44, the parties intended to charge the 2nd respondent’s property, and they executed the charge documents which were attested to. The 2nd respondent further deposited the property’s original title documents with the applicant, intending to register the charge. Counsel contended that the fraudulent refusal to register the charge and the receipt of the benefits under the letter of offer resulted in the creation of an informal charge in favour of the applicant. Counsel submitted that the legality of an informal charge is recognized by Section 79 (6) of the Land Act. He submitted that in realization of a debt from an informal charge, Section 79(7) requires the chargee to seek leave of the Court before taking possession of the property. It was argued that the respondent’s acts of depositing the title with the applicant created an informal charge as was held in the case of Tassia Coffee Estate Limited and another vs Milele Ventures Limited [2014] eKLR.
6. Counsel submitted the debt is admitted, thus the property used as security ought to be sold as the amount in arrears was Kshs 523,778.534.00 as of October 2017. He stated that where the power of sale arises the Chargee has a right to exercise it, and ought not to be stopped. He also stated that whenever a property is offered as security to the bank it becomes the property of the bank subject to sale upon default. He cited the decision in John Nduati Kariuki t/a Johester Merchants vs National Bank of Kenya Ltd [2006] eKLR.
7. Counsel argued that the alleged dispute on accounts does not and has not affected the applicant’s security nor does it allow the respondent to stop making monthly payments. That HCCC No. 282 of 2017 and HCCC No. 104 of 2018 relate to separate securities and more specifically, HCCC No. 282 of 2017 relates to breach of contract receivables, and in the absence of proof of payment, the Court granted release of the funds in the escrow account by the ruling delivered on 28th July, 2020.
8. Mr. Gakunga argued that a secured creditor can pursue any of his rights at any time or times simultaneously or contemporaneously or successively or not at all. He urged this Court to be guided by the Court of Appeal decision in Barclays Bank of Kenya Ltd vs Kepha Nyabers & 191 others & another [2013] eKLR.
9. He stated that the requisite demand notices were served in accordance with the law but the respondent failed to take any necessary steps to rectify the defect and clear the outstanding arrears. Counsel pointed out that the leave sought is under Sections 79(4) and 79(7) of the Land Act.
Respondent’s submissions
10. Mr. Orora, learned Counsel for the respondents submitted that the informal charge fails to comply with the provisions of Section 79(6) of the Land Act, as the purported charge is neither written and witnessed, with an undertaking from the chargee, nor is it registered in the name of the chargor.
11. Counsel argued that the applicant’s conduct of filing multiple suits and employing several modes available to it to realize the defaulted amounts is illegal and prejudicial to the respondent. According to Counsel, the applicant ought to be guided by Section 90(3) of the Land Act, 2012 and elect one method of recovering the loan at a time, as opposed to employing all the methods at the same time. He placed reliance on the case of Clesoi Holdings Limited v Prime Bank Limited [2016] eKLR, which explained the rationale behind the importance of election as opposed to a charge pursuing several remedied for recovery of the loan advanced.
12. Mr. Oraro submitted that the leave sought during the pendency of the proceedings in HCCC No. 282 of 2017, HCCC No. 104 of 2018 and Insolvency Causes No. E032, E033, E034 and E036 of 2022 amounts to an abuse of the process of the Court and is an attempt by the applicant to prematurely deny the respondents their right to a fair hearing under Article 50 of the Constitution. He contended that the sale of the Athi River property would, for all intents and purposes, render the proceedings within the main suit nugatory and academic in nature.
13. He further submitted that the amount in default is disputed thus leave to sell the property ought to be denied. He relied on the doctrine of lis pendens which prevents a party from transferring or otherwise attempting to deal in any property during the active litigation of a case in Court. Counsel urged this Court to dismiss the Originating Summons dated 10th June, 2023.
ANALYSIS AND DETERMINATION.
14. I have considered the Originating Summons, the affidavits filed by both parties and the submissions relied on by Counsel for the parties. Two issues arise for determination-
i. Whether there was the intention to create an informal charge; and
ii. Whether leave ought to be granted to the Bank to realize the security.
Whether there was an intention to create an informal charge
15. Section 2 of the Land Act defines a charge as follows:
“Charge” means an interest in land securing the payment of money or money’s worth or the fulfillment of any condition, and includes a subcharge and the instrument creating a charge, including –
(a) an informal charge, which is a written and witnessed undertaking, the clear intention of which is to charge the chargor’s land with the repayment of money or money’s worth obtained from the chargee….”
16. Section 79(6)(a)(b) of the Land Act, 2012 provides for the formation of an informal charge as follows:
“An informal charge may be created where –
a. A chargee accepts a written and witnessed undertaking from a chargor, the clear intention of which is to charge the chargor’s land or interest in land, with the repayment of money or money’s worth, obtained from the chargee plus interest as agreed by the chargor and the chargee;
b. The chargor deposits any of the following –
(i) A certificate of title to the land;
(ii) A document of lease of land;
(iii) Any other document which it is agreed evidences ownership of land or a right to interest in land.”
17. From a reading of the above provisions, it is clear that in order for an informal charge to be created, what is required is for the intention of the parties to be in writing. The parties should disclose the clear intention of offering the property as security for a loan facility. The deposit of the title document with the chargee is sufficient proof of exhibiting the intention of the parties.
18. In the instant suit, the applicant has adduced evidence of the letter of offer in which the respondents intended to charge the property Athi River/Athi River Block 5/44 as security for a loan facility advanced by the applicant. It is evident from annexure ii of the letter of offer dated 28th December, 2015 that the respondents intended to create a legal charge over the property Athi River /Athi River Block 5/44 and Nairobi/Block No. 92/86 as security for the loan of Kshs 300,000,000/= advanced by the applicant.
19. There is also evidence that property Athi River/Athi River Block 5/44 registered in the name of the 1st respondent, Intex Construction Limited, was to be transferred to the 2nd respondent, Samit Gehlot, before being charged to the applicant. A transfer form executed by the directors of the 1st respondent has been availed as evidence. However, in the absence of a consent from the Land Control Board to transfer the suit property to the 2nd respondent, the transfer was not effected. The applicant asserted that the respondents frustrated the process of obtaining the said consent.
20. I concur with the holding in the case of Tassia Coffee Estate Limited and another v Milele Ventures Limited [2014] eKLR, where the Court stated thus-
“By depositing the title deed with the Plaintiff, the Defendant created an informal charge in favour of the Plaintiff over the suit property as security for payment of the balance of purchase of purchase price and other parcels of land. The Plaintiffs became chargees of an informal charge over the suit property and enjoyed a lien by deposit of the documents.”
21. A similar position was held by the Court in the case of Lincoln Kivuti Njeru vs Insurance Company of East Africa [2007] eKLR, where the Court held
as follows-
“….informal charges must be by way of instruments and evidenced in writing and that the Defendant must enter into further charges or agreements in the event that they want security provided for other monies found to be owed.”
22. Based on the evidence relied on by the applicant herein, it is my finding that it has demonstrated that the properties Athi River/Athi River Block 5/44 and Nairobi/Block No. 92/86 together with other securities were deposited with it for purposes of securing payment of the debt advanced to the 1st respondent. The respondents have through the affidavit of Samit Gehlot admitted to having deposited the title documents with the applicant, although the 2nd respondent denies that the same was in favour of the repayment of the loan facility advanced.
23. It is therefore this Court’s finding that the parties intended to create a charge over the property Athi River/Athi River Block 5/44.
whether leave ought to be granted to the Bank to realize the security
24. Having found that the applicant has demonstrated that there was an intention of the parties to create a charge over the suit property, I now seek to determine whether the applicant ought to be granted leave to realize the security as per the provisions of Section 79(7) of the Land Act, 2012 which provides as follows:
“A chargee holding an informal charge may only take possession of or sell the land which is the subject of an informal charge, on obtaining an order of the court to that effect.”
25. It is trite law that a party seeking to realize the security created by an informal charge must seek leave from the Court to do so. In this instance, the title document to the suit property, being Athi River/Athi River Block 5/44 was not transferred to the 2nd respondent.
26. The respondents opposed the present application for leave being granted to the applicant to realize the informal charge and argued that the same is an abuse of the Court process as the applicant is employing all remedies available, to simultaneously to recover the amount due as provided for under Section 90(3) of the Land Act.
27. It is trite law that parties are bound by their commercial agreements and must keep their part of the bargain. Courts should not rewrite contracts for the parties. In National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] KLR 112 p. 118, the Court of Appeal held the following-
“...A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”
28. In considering the relationship between the parties, the applicant has no money of its own and uses money from its depositors to trade. This Court is bound to protect the intention of both the parties herein as it is not disputed that the 1st respondent was advanced money which it has failed to repay thus occasioning the applicant to incur losses. In the circumstances, I find that the applicant is by the provisions of Section 79(7) of the Land Act entitled to the leave sought to realize the informal charge.
29. The upshot is that the Originating Summons dated 23rd October, 2017 is merited. The same is allowed as follows-
(i) This court grants leave to the Applicant/Chargee herein African Banking Corporation Limited to sell the immovable property known as Athi River/Athi River Block 5/44 to recover the outstanding loan balance on the account of the 1st respondent/borrower; and
(ii) The applicant is awarded costs of the application.
DATED, SIGNED and DELIVERED at NAIROBI on this 26th day of January, 2024. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Mr. Gakunga for the applicant
Ms Arora h/b for Mr. Oraro for the respondents
Ms. Wokabi – Court Assistant.
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI COMMERCIAL COURTS
MISC. CIVIL SUIT NO. 430 OF 2017
IN THE MATTER OF INTEX CONSTRUCTION LIMITED
AND
IN THE MATTER OF THE LAND ACT, NO. 10 OF 2012
AND
IN THE MATTER OF AN APPLICATION TO SELL LAND SUBJECT OF AN
INFORMAL CHARGE
AFRICAN BANKING CORPORATION LIMITED……….……………………………………………………..APPLICANT
VERSUS
INTEX CONSTRUCTION LIMITED………………………….1ST RESPONDENT
SAMIT GEHLOT………………………………...…………….2ND RESPONDENT
RULING
1. This ruling is in respect to an Originating Summons dated 23rd October, 2017, filed by the applicant African Banking Corporation Limited in which it seeks authorization to sell property Title Number Athi River /Athi River Block 5/44 in the name of Intex Construction Limited to recover an outstanding loan facility. The applicant also prays for costs to be provided for.
2. The application is anchored on the grounds in support thereof, as well as by the supporting affidavit sworn by Evalyn Gachoki, the supplementary affidavit, and a further supplementary affidavit sworn by Kajuju Marete on 9th March, 2022 and 21st August, 2023, respectively.
3. The application is opposed by a replying affidavit and supplementary affidavit sworn by Samit Gehlot, the 2nd respondent and the Managing Director of Intex Construction Limited, sworn on and 10th June, 2018 and 17th July, 2018, respectively.
4. Directions were given for the parties to canvass the application by way of written submissions. The applicant filed submissions dated 25th March, 2022 through the firm of Kimani Michuki Advocates, while the respondents filed submissions dated 10th June, 2023 by Oraro & Company Advocates.
Applicant’s submissions
5. Mr. Gakunga, learned Counsel for the applicant submitted that the applicant granted to the 1st respondent various loan facilities consolidated into one to the tune of Kshs 300,000.000/=. That the said facility was secured by a legal charge over the property Title No. Athi River/Athi River Block 5/44, the parties intended to charge the 2nd respondent’s property, and they executed the charge documents which were attested to. The 2nd respondent further deposited the property’s original title documents with the applicant, intending to register the charge. Counsel contended that the fraudulent refusal to register the charge and the receipt of the benefits under the letter of offer resulted in the creation of an informal charge in favour of the applicant. Counsel submitted that the legality of an informal charge is recognized by Section 79 (6) of the Land Act. He submitted that in realization of a debt from an informal charge, Section 79(7) requires the chargee to seek leave of the Court before taking possession of the property. It was argued that the respondent’s acts of depositing the title with the applicant created an informal charge as was held in the case of Tassia Coffee Estate Limited and another vs Milele Ventures Limited [2014] eKLR.
6. Counsel submitted the debt is admitted, thus the property used as security ought to be sold as the amount in arrears was Kshs 523,778.534.00 as of October 2017. He stated that where the power of sale arises the Chargee has a right to exercise it, and ought not to be stopped. He also stated that whenever a property is offered as security to the bank it becomes the property of the bank subject to sale upon default. He cited the decision in John Nduati Kariuki t/a Johester Merchants vs National Bank of Kenya Ltd [2006] eKLR.
7. Counsel argued that the alleged dispute on accounts does not and has not affected the applicant’s security nor does it allow the respondent to stop making monthly payments. That HCCC No. 282 of 2017 and HCCC No. 104 of 2018 relate to separate securities and more specifically, HCCC No. 282 of 2017 relates to breach of contract receivables, and in the absence of proof of payment, the Court granted release of the funds in the escrow account by the ruling delivered on 28th July, 2020.
8. Mr. Gakunga argued that a secured creditor can pursue any of his rights at any time or times simultaneously or contemporaneously or successively or not at all. He urged this Court to be guided by the Court of Appeal decision in Barclays Bank of Kenya Ltd vs Kepha Nyabers & 191 others & another [2013] eKLR.
9. He stated that the requisite demand notices were served in accordance with the law but the respondent failed to take any necessary steps to rectify the defect and clear the outstanding arrears. Counsel pointed out that the leave sought is under Sections 79(4) and 79(7) of the Land Act.
Respondent’s submissions
10. Mr. Orora, learned Counsel for the respondents submitted that the informal charge fails to comply with the provisions of Section 79(6) of the Land Act, as the purported charge is neither written and witnessed, with an undertaking from the chargee, nor is it registered in the name of the chargor.
11. Counsel argued that the applicant’s conduct of filing multiple suits and employing several modes available to it to realize the defaulted amounts is illegal and prejudicial to the respondent. According to Counsel, the applicant ought to be guided by Section 90(3) of the Land Act, 2012 and elect one method of recovering the loan at a time, as opposed to employing all the methods at the same time. He placed reliance on the case of Clesoi Holdings Limited v Prime Bank Limited [2016] eKLR, which explained the rationale behind the importance of election as opposed to a charge pursuing several remedied for recovery of the loan advanced.
12. Mr. Oraro submitted that the leave sought during the pendency of the proceedings in HCCC No. 282 of 2017, HCCC No. 104 of 2018 and Insolvency Causes No. E032, E033, E034 and E036 of 2022 amounts to an abuse of the process of the Court and is an attempt by the applicant to prematurely deny the respondents their right to a fair hearing under Article 50 of the Constitution. He contended that the sale of the Athi River property would, for all intents and purposes, render the proceedings within the main suit nugatory and academic in nature.
13. He further submitted that the amount in default is disputed thus leave to sell the property ought to be denied. He relied on the doctrine of lis pendens which prevents a party from transferring or otherwise attempting to deal in any property during the active litigation of a case in Court. Counsel urged this Court to dismiss the Originating Summons dated 10th June, 2023.
ANALYSIS AND DETERMINATION.
14. I have considered the Originating Summons, the affidavits filed by both parties and the submissions relied on by Counsel for the parties. Two issues arise for determination-
i. Whether there was the intention to create an informal charge; and
ii. Whether leave ought to be granted to the Bank to realize the security.
Whether there was an intention to create an informal charge
15. Section 2 of the Land Act defines a charge as follows:
“Charge” means an interest in land securing the payment of money or money’s worth or the fulfillment of any condition, and includes a subcharge and the instrument creating a charge, including –
(a) an informal charge, which is a written and witnessed undertaking, the clear intention of which is to charge the chargor’s land with the repayment of money or money’s worth obtained from the chargee….”
16. Section 79(6)(a)(b) of the Land Act, 2012 provides for the formation of an informal charge as follows:
“An informal charge may be created where –
a. A chargee accepts a written and witnessed undertaking from a chargor, the clear intention of which is to charge the chargor’s land or interest in land, with the repayment of money or money’s worth, obtained from the chargee plus interest as agreed by the chargor and the chargee;
b. The chargor deposits any of the following –
(i) A certificate of title to the land;
(ii) A document of lease of land;
(iii) Any other document which it is agreed evidences ownership of land or a right to interest in land.”
17. From a reading of the above provisions, it is clear that in order for an informal charge to be created, what is required is for the intention of the parties to be in writing. The parties should disclose the clear intention of offering the property as security for a loan facility. The deposit of the title document with the chargee is sufficient proof of exhibiting the intention of the parties.
18. In the instant suit, the applicant has adduced evidence of the letter of offer in which the respondents intended to charge the property Athi River/Athi River Block 5/44 as security for a loan facility advanced by the applicant. It is evident from annexure ii of the letter of offer dated 28th December, 2015 that the respondents intended to create a legal charge over the property Athi River /Athi River Block 5/44 and Nairobi/Block No. 92/86 as security for the loan of Kshs 300,000,000/= advanced by the applicant.
19. There is also evidence that property Athi River/Athi River Block 5/44 registered in the name of the 1st respondent, Intex Construction Limited, was to be transferred to the 2nd respondent, Samit Gehlot, before being charged to the applicant. A transfer form executed by the directors of the 1st respondent has been availed as evidence. However, in the absence of a consent from the Land Control Board to transfer the suit property to the 2nd respondent, the transfer was not effected. The applicant asserted that the respondents frustrated the process of obtaining the said consent.
20. I concur with the holding in the case of Tassia Coffee Estate Limited and another v Milele Ventures Limited [2014] eKLR, where the Court stated thus-
“By depositing the title deed with the Plaintiff, the Defendant created an informal charge in favour of the Plaintiff over the suit property as security for payment of the balance of purchase of purchase price and other parcels of land. The Plaintiffs became chargees of an informal charge over the suit property and enjoyed a lien by deposit of the documents.”
21. A similar position was held by the Court in the case of Lincoln Kivuti Njeru vs Insurance Company of East Africa [2007] eKLR, where the Court held
as follows-
“….informal charges must be by way of instruments and evidenced in writing and that the Defendant must enter into further charges or agreements in the event that they want security provided for other monies found to be owed.”
22. Based on the evidence relied on by the applicant herein, it is my finding that it has demonstrated that the properties Athi River/Athi River Block 5/44 and Nairobi/Block No. 92/86 together with other securities were deposited with it for purposes of securing payment of the debt advanced to the 1st respondent. The respondents have through the affidavit of Samit Gehlot admitted to having deposited the title documents with the applicant, although the 2nd respondent denies that the same was in favour of the repayment of the loan facility advanced.
23. It is therefore this Court’s finding that the parties intended to create a charge over the property Athi River/Athi River Block 5/44.
whether leave ought to be granted to the Bank to realize the security
24. Having found that the applicant has demonstrated that there was an intention of the parties to create a charge over the suit property, I now seek to determine whether the applicant ought to be granted leave to realize the security as per the provisions of Section 79(7) of the Land Act, 2012 which provides as follows:
“A chargee holding an informal charge may only take possession of or sell the land which is the subject of an informal charge, on obtaining an order of the court to that effect.”
25. It is trite law that a party seeking to realize the security created by an informal charge must seek leave from the Court to do so. In this instance, the title document to the suit property, being Athi River/Athi River Block 5/44 was not transferred to the 2nd respondent.
26. The respondents opposed the present application for leave being granted to the applicant to realize the informal charge and argued that the same is an abuse of the Court process as the applicant is employing all remedies available, to simultaneously to recover the amount due as provided for under Section 90(3) of the Land Act.
27. It is trite law that parties are bound by their commercial agreements and must keep their part of the bargain. Courts should not rewrite contracts for the parties. In National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] KLR 112 p. 118, the Court of Appeal held the following-
“...A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”
28. In considering the relationship between the parties, the applicant has no money of its own and uses money from its depositors to trade. This Court is bound to protect the intention of both the parties herein as it is not disputed that the 1st respondent was advanced money which it has failed to repay thus occasioning the applicant to incur losses. In the circumstances, I find that the applicant is by the provisions of Section 79(7) of the Land Act entitled to the leave sought to realize the informal charge.
29. The upshot is that the Originating Summons dated 23rd October, 2017 is merited. The same is allowed as follows-
(i) This court grants leave to the Applicant/Chargee herein African Banking Corporation Limited to sell the immovable property known as Athi River/Athi River Block 5/44 to recover the outstanding loan balance on the account of the 1st respondent/borrower; and
(ii) The applicant is awarded costs of the application.
DATED, SIGNED and DELIVERED at NAIROBI on this 26th day of January, 2024. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Mr. Gakunga for the applicant
Ms Arora h/b for Mr. Oraro for the respondents
Ms. Wokabi – Court Assistant.