Background and Introduction
The Plaintiffs’ Case:
1. By way of a Further Amended Plaint dated 7th March 2023, the Plaintiffs sought to invalidate the auction of 28th May 2019 of the suit property and to recover compensation flowing from it. Their case rests on the uncontroverted facts that they were the registered proprietors of L.R. No. 209/8000/188, New Muthaiga Estate, Nairobi (the suit property), which they charged to the 1st Defendant (the Bank) as guarantors to secure credit facilities extended to a company known as ADM Consulting Limited (ADMCL) in the aggregate sum of Kshs. 43,000,000/-. Upon default by ADMCL, the Bank exercised its statutory power of sale and sold the suit property to the 2nd Defendant (BHAVIN) by public auction on 28th May 2019.
2. The Plaintiffs contend that the auction was tainted with illegality and bad faith, in that the Bank sold the suit property for Kshs. 64,000,000/-, a sum representing less than 75% of its open market value, contrary to Section 97(1), (2) and (3) of the Land Act. They rely on a valuation report prepared by Messrs. Knight Frank Valuers Limited, dated 21st March 2019 and commissioned at their own instance, which placed the open market value of the suit property at Kshs. 100,000,000/.
3. The Plaintiffs further point to an earlier valuation commissioned by the Bank itself, prepared by Highland Valuers Limited and dated 21st December 2018, which placed the market value of the suit property at Kshs. 92,000,000/-. They argue that it defies commercial logic that the property could have depreciated from this figure to the Kshs. 85,000,000/- as reflected in the valuation report dated 1st April 2019 which the Bank ultimately relied upon, which is a drop of Kshs. 7,000,000/- within the space of just 3 months.
4. They contend, additionally, that the Bank unreasonably and without justification fettered their equitable right of redemption by declining to issue a Letter of no Objection in favour of Spire Bank Limited, the institution the Plaintiffs had approached to finance a sale they had themselves negotiated with a third-party purchaser, notwithstanding that the parties were, at the time, engaged in active negotiations.
5. Finally, the Plaintiffs contend that upon realizing Kshs. 64,000,000/- from the sale, the total sum recovered by the Bank rose to Kshs. 104,555,558.98/-, a figure exceeding twice the principal sum advanced of Kshs. 43,000,000/-, in breach of the in duplum rule.
6. Flowing from these contentions, the Plaintiffs sought a declaration that the sale was void for breach of Section 97(1) and (3) of the Land Act, an order setting it aside, for the suit property to be re-conveyed to them and that the Defendants be permanently restrained from interfering with it. They also sought a declaration that their equitable right of redemption had been improperly fettered.
7. Alongside this, they claimed general damages for breach of statutory duty and for fraud, as well as punitive damages against the Bank. In the alternative, should the sale not be set aside, they sought Kshs. 36,000,000/- in damages, being the shortfall between the property's market value and the sale price, together with interest at 14% per annum from the date of sale.
The Bank’s Case:
8. The Bank opposed the suit through an Amended Statement of Defence and Counterclaim dated 18th May 2023. It confirmed that the suit property was sold and transferred to BHAVIN, and that the transfer was registered on 2nd July 2019, rendering him the registered proprietor.
9. The Bank contends that the Plaintiffs are estopped from re-litigating the propriety of the exercise of the statutory power of sale, this issue having already been raised and resolved in Nairobi HCCC No. 25 of 2018, Mohan Singh Dhariwal v. I & M Bank Limited & Another, a suit which was compromised by a Consent dated 11th May 2018 and adopted as an order of the Court on 1st October 2018. That the consent afforded the Borrower and the Plaintiffs a defined period within which to settle the outstanding debt, failing which the Bank was entitled to realize its security. The Bank argues that the consent has never been set aside, varied, or impeached, and stands as binding on the parties.
10. The Bank further maintains that it was the Plaintiffs themselves who moved the Court by an application dated 1st March 2019, resulting in a consent order for a fresh valuation of the suit property. That valuation was undertaken by Real Appraisal Limited, whose report dated 1st April 2019 returned an open market value of Kshs. 85,000,000/- and a forced sale value of Kshs. 63,750,000/-. The report was furnished to the Plaintiffs on 3rd April 2019, and no objection was raised at the time.
11. More importantly, the Bank explains the disparity between the two sets of figures in the valuation reports on the basis that the Kshs. 100,000,000/- relied on by the Plaintiffs represented an open market value, not a forced sale value. It maintains that it properly relied on the Real Appraisal valuation, which represented the best price reasonably obtainable at the material time.
12. The Bank also denies ever refusing to issue a Letter of no Objection, stating that it required only an undertaking from Spire Bank Limited that it would settle the outstanding balance of Kshs. 45,000,000/-. It further denies any breach of the in duplum rule, contending that the principal sum advanced under the facilities was, in fact, Kshs. 78,000,000/-.
13. By way of Counterclaim, the Bank seeks judgment against the Plaintiffs for Kshs. 22,168,630.77/- together with interest at 13% per annum until payment in full, and costs.
Bhavin’s Case:
14. BHAVIN opposed the suit by way of a Statement of Defence dated 16th March 2023. His case, in essence, is that no fraud was proved against him, that the suit property was transferred to him regularly and by consent of the relevant parties, that he was under no obligation to procure his own valuation report, and that he is a bona fide purchaser for value without notice, having learnt of the auction only through newspaper advertisements.
The Hearing:
15. At the hearing the Plaintiffs called two witnesses: Mr. Mohan Singh Dhariwal (PW1), who is also the 1st Plaintiff, and Mr. Tavinder Singh Dhariwal (PW2). The Defendants called Mr. Andrew Muchina (DW1), who testified on behalf of the Bank, and Mr. Bhavin Gudka Harilal Shah (DW2), the 2nd Defendant. Their testimonies mirror their respective pleadings, and as such, rather than regurgitating them here, I shall refer to them as necessary in my analysis and determination of the issues raised, which now follows.
Analysis and Determination
16. Having considered the pleadings, the evidence on record and the rival submissions of counsel, the following issues arise for determination:
i. Whether the Plaintiffs’ challenge to the valuation and exercise of the statutory power of sale is res judicata;
ii. Whether the 1st Defendant sold the suit property at an undervalue contrary to Section 97 of the Land Act, No. 6 of 2012;
iii. Whether the Plaintiffs have made out any claim against the 2nd Defendant;
iv. Whether the 1st Defendant fettered the Plaintiffs’ equitable right of redemption;
v. Whether the 1st Defendant breached Section 44A of the Banking Act and holds a refundable surplus;
vi. Whether the Plaintiffs are entitled to damages, whether general, punitive or exemplary; and
vii. Whether the 1st Defendant’s Counterclaim is sustainable.
viii. Who should bear the costs of the suit and the counterclaim.
i. Whether the Plaintiffs’ challenge to the valuation and the exercise of the statutory power of sale is res judicata:
17. Section 7 of the Civil Procedure Act codifies the doctrine of res judicata. As the Court of Appeal held in John Florence Maritime Services Limited & Another V Cabinet Secretary, Transport and Infrastructure & 3 Others, [2015] eKLR, for a plea of res judicata to succeed, the party invoking it must establish, conjunctively, that the matter directly and substantially in issue in the subsequent suit was also directly and substantially in issue in the former suit; the former suit was between the same parties, or parties under whom they or any of them claim, litigating under the same title; the matter in issue had been heard and finally decided by a court of competent jurisdiction; and the court which decided the former suit was competent to try the subsequent suit. These conditions are conjunctive, not disjunctive, such that the absence of any one of them is fatal to the plea.
18. The Bank anchors its plea of res judicata on the existence of an earlier suit, HCCC No. 25 of 2018. The existence of that suit is not in dispute between the parties. The Plaint dated 22nd January 2018 commencing the suit is exhibited in the Plaintiffs' Trial Bundle, and it is apparent from its face that the suit was between the Plaintiffs, the Bank, and ADMCL, substantially the same parties as are before this Court, arising from the same credit facilities and concerning the same suit property.
19. It is equally apparent that the question of valuation was squarely before the Court in that earlier suit. Paragraph 19 of the Plaint avers that:
“… In further breach of fiduciary duty of care imposed upon the Defendant by law, the Defendant has failed, refused and or neglected to prepare a mandatory, recent, valid and/or proper valuation of the subject property to determine the correct, and fair market value of the property thereby making the intended sale not only unlawful and irregular but also grossly unjust and prejudicial to the Plaintiffs.”
20. This averment is reinforced by the relief sought. Prayer 2 of that Plaint sought ‘An order for independent valuation by competent and registered valuers to establish the true value of all that property known as LR No 209/8000/188 (IR 110270), New Muthaiga Nairobi City.’
21. It is clear from the foregoing that the question of valuation of the suit property, the very issue now being urged before this Court, was directly and substantially in issue in the earlier suit, as between the same Plaintiffs and the Bank, litigating over the same suit property and arising from the same credit facilities.
22. Where I part company with the Bank, however, is on the requirement that the matter must have been heard and finally decided. This requirement lies at the very heart of the doctrine, for res judicata operates to bar re-litigation precisely because the matter has already received the considered judgment of a competent court, and not merely because it was once raised between the parties. A plea of res judicata cannot rest on the mere fact that an issue was pleaded in an earlier suit; it must be shown that the issue was actually determined.
23. The record before me shows that the valuation dispute raised in HCCC No. 25 of 2018 was never determined on its merits. Rather than proceeding to a hearing and a determination of whether the valuation then impugned was proper, the parties elected to record a consent for a fresh valuation to be undertaken. That consent resolved the manner in which the dispute would be addressed going forward; it did not, on any fair reading, pronounce upon the merits of any valuation, whether the one then impugned or any other.
24. That valuation was subsequently carried out by Real Appraisal Limited and it is that very valuation, and not the one originally impugned in HCCC No. 25 of 2018, which the Plaintiffs now challenge in the present suit. The present valuation did not exist at the time the earlier suit was filed, and cannot, therefore, be said to have been in issue in it, still less to have been barred by it. To hold otherwise would be to stretch the doctrine of res judicata beyond its proper compass. This ground accordingly fails, and I proceed to determine the matter on its merits.
ii. Whether the Bank sold the Charged Property at an undervalue contrary to Section 97 of the Land Act, No. 6 of 2012:
25. I now turn to what is, in my view, the central issue in this suit and that is whether the sale of the suit property by public auction on 28th May 2019, at a price of Kshs. 64,000,000/-, was conducted at an undervalue in breach of the Bank’s statutory duty under Section 97 of the Land Act, 2012.
26. Section 97(1) imposes upon a chargee exercising the statutory power of sale a duty of care to the chargor and any guarantor to obtain the best price reasonably obtainable at the time of sale. Section 97(2) obliges the chargee, before exercising that power, to ensure that a forced sale valuation is undertaken by a valuer. Section 97(3) creates a rebuttable presumption of breach of the duty imposed under subsection (1) where the property is sold at 25% or below the market value at which comparable interests in land of the same character and quality are being sold in the open market.
27. The purpose of a valuation under Section 97(2) is twofold. First, to protect the chargor's right to property by securing the best price reasonably obtainable and second, to guard against an unscrupulous chargee disposing of charged property at a price bearing no true relationship to comparable interests in land of like character and quality.
28. I am well guided by the Court of Appeal's observation in Cedarwood Hotels & Resorts Investment Company Ltd v Garam Investments Auctioneers & Kenya Commercial Bank Ltd [2024] KECA 1067 (KLR), in which the court cited with approval from Olkasasi Limited V Equity Bank Limited, [2015] eKLR, that the mere fact that a chargor's valuation is significantly higher than the chargee's valuation does not, without more, establish undervaluation. The party impugning a valuation report must dislodge it by evidence and legal parameters acceptable in the practice and profession of valuers.
29. This was reiterated in ABSA Bank Kenya PLC V Owuor, [2025] KEHC 4692 (KLR), where the Court held that a party alleging undervaluation must satisfactorily demonstrate why the valuation relied upon does not reflect the best price obtainable, and that cogent evidence, not a mere counter-valuation, is required.
30. Four (4) valuation reports of the suit property were placed before the Court:
a) a report dated 8th October 2012 by Chrisca Real Estates Valuers, returning an open market value of Kshs. 85,000,000/-;
b) a report dated 27th June 2017 by Kiragu Mwangi Limited, expressed as an update of the Chrisca report, returning a market value of Kshs. 90,000,000/- and a forced sale value of Kshs. 67,500,000/-;
c) a report dated 21st December 2018 by Highland Valuers Limited, returning a market value of Kshs. 92,000,000/- and a forced sale value of Kshs. 69,000,000/-; and
d) a report dated 21st March 2019 by Knight Frank Limited, returning a market value of Kshs. 100,000,000/-.
31. Against this ascending sequence of value stands the valuation that was ultimately relied upon by the Bank, which was prepared by Real Appraisal Limited on 1st April 2019. The impugned report placed the open market value of the suit property at Kshs. 85,000,000/- and the forced sale value at Kshs. 63,750,000/-.
32. I accept the Bank’s submission that the benchmark for a sale by public auction is the forced sale value, not the open market value, and that the Plaintiffs' persistent conflation of the two figures reflects a misapprehension of the statutory scheme. I equally accept that a valuation is not an exact science, and that a mere disparity between two valuers' opinions does not, without more, establish negligence or impropriety on the part of either.
33. That said, what gives me a pause is not the existence of a disparity between valuers, but the trajectory disclosed by the Bank’s own evidence. It was DW1 who confirmed that the first three valuations by Chrisca, Kiragu Mwangi and Highland, were all procured by the Bank itself, from valuers drawn from its own panel. These are not, therefore, valuations tendered by an interested party seeking to inflate the property's worth. They are the Bank’s own record of the property's value over a period of some six (6) years, which reflect an upward trajectory of the value of the suit property, from Kshs. 85,000,000/- in 2012 to Kshs. 92,000,000/- in December 2018.
34. It is against this consistent and self-generated trend that the sudden reduction to Kshs. 85,000,000/- in the Real Appraisal Report of April 2019, a fall of Kshs. 7,000,000/- within approximately three months of the Highland valuation, falls to be assessed. I have scrutinized with some care the explanation offered by the Bank, through DW1, for this reversal. Two things stand out from the record.
35. First, on cross-examination, DW1 made a series of candid concessions including the fact that the remarks contained in the Real Appraisal Report mirrored those in the earlier valuations, that there had been no material changes on the ground between December 2018 and April 2019, that market prices in the area were, generally, on an upward trajectory and, significantly, that the property's incline had never previously affected its value and had, in fact, already been addressed in the earlier reports.
36. Second, in re-examination, DW1 sought to explain the Kshs. 7,000,000/- reduction by reference to precisely that same incline, testifying that the property's steep northward slope towards the Thigiri River was a material factor bearing on its marketability, and that comparatively level parcels were attracting higher prices.
37. I am unable to reconcile these two positions. A physical characteristic that DW1 himself conceded, on cross-examination, had never previously affected value and had been addressed in earlier reports cannot, in the same breath, be advanced in re-examination as the operative explanation for a sudden and material depreciation arising three months later. The topography of the suit property did not change between December 2018 and April 2019 and DW1's own evidence establishes that much. If the slope had already been factored into, and had not depressed the Highland valuation of Kshs. 92,000,000/-, it cannot credibly be resurrected as the cause of a Kshs. 7,000,000/- fall in the very next valuation exercise, absent some change in circumstance that was neither pleaded nor put in evidence.
38. I have also considered the Bank’s detailed criticism of the Knight Frank Report including its limited inspection and what DW1 termed to be an estimate value, the absence of disclosed qualifications for its author, and the fact that it was procured unilaterally by PW1 and never furnished to the Bank prior to the sale. I note, however, that the Plaintiffs' case does not in fact depend on the Knight Frank Report being accepted. Even if I were to disregard it entirely, there are still three remaining valuations, all commissioned by the Bank, which independently establish an unbroken appreciating trend from 2012 to December 2018.
39. While I accept that the proper reference point for a sale by public auction is the forced sale value, and not the open market value, it would reasonably follow that if the open market value was on a consistent appreciating trend, some explanation ought to have been offered as to why the corresponding forced sale value should nonetheless depreciate. None has been, and what has been proffered is, I must say, unpersuasive.
40. I have not overlooked the Bank’s submission that the Plaintiffs are estopped from asserting that the suit property was sold at an undervalue, given PW1's admission that he was personally involved in negotiating a redemption figure of Kshs. 65,000,000/-, with Spire Bank expected to finance Kshs. 45,000,000/- of that sum. In my view, as much as this may be so, this evidence does not still answer to the more fundamental question of whether the Bank discharged its duty under Section 97(1). The duty imposed upon a chargee under that provision cannot be displaced by whatever figure the parties may, in the course of settlement discussions, have informally floated between themselves.
41. The duty to obtain the best price reasonably obtainable at the time of sale is a statutory duty, framed in mandatory terms. It exists independently of the parties' negotiating positions, precisely because the Land Act recognizes that a chargor under financial pressure, as the Plaintiffs plainly were here, is not always well placed to protect their own interests in the value of the charged property. To allow a redemption figure floated in negotiation to operate as a ceiling on the Bank's own statutory obligation would be to permit the chargee to import, through the back door of estoppel, a standard lower than the one the statute itself prescribes.
42. I note, finally, that the sale price of Kshs. 64,000,000/- against the open market value of Kshs. 85,000,000/- adopted by Real Appraisal Limited represents approximately 75.3% of that figure and would be narrowly above the threshold in Section 97(3) at which the rebuttable presumption of breach would arise. However, given my findings above as to the unreliability of the Real Appraisal open market value itself, I am satisfied that had the open market value been properly assessed consistently with the trend of the other valuation reports, the resulting percentage would have fallen at or below the statutory threshold provided for in Section 97(3).
43. Applying the principles in Palmy, Cedarwood Hotels, and ABSA Bank Kenya PLC v Owuor, [supra], I am satisfied that the Plaintiffs have demonstrated a material and unexplained departure from an established valuation trend which the Bank has not sufficiently answered to. The evidence and the testimonies presented before me are sufficient, in my view, to dislodge the Real Appraisal valuation and to establish, on a balance of probabilities, that the suit property was sold at an undervalue, in breach of the duty imposed upon the Bank under Section 97(1) of the Land Act.
44. Having found the Real Appraisal valuation of April 2019 unreliable, and being satisfied that the suit property was sold at an undervalue, I consider it necessary, and indeed possible on the record before me, to determine what the forced sale value ought properly to have been at the material time. I do not consider the Highland valuation of December 2018 an appropriate figure to adopt for this purpose, notwithstanding that it forms part of the established trend I have already discussed. It was, after all, the very valuation the Plaintiffs impugned in HCCC No. 25 of 2018, and it was precisely to resolve that impasse that the parties recorded a consent for a fresh valuation to be undertaken. To now treat the Highland figures as the final word on value would be to resurrect, through the back door, a valuation the parties themselves agreed required revisiting.
45. I turn, instead, to the Knight Frank Report of March 2019, which, while criticized by the Bank on grounds I have already considered, has the advantage of being the valuation most contemporaneous with the date of sale, and whose open market value of Kshs. 100,000,000/- is consistent with and indeed represents the logical continuation of, the unbroken appreciating trend independently established by the Bank's own three antecedent valuations. I note, however, that the Knight Frank Report furnishes no corresponding forced sale value, and is limited to an assessment of open market value alone.
46. This does not, in my view, present an insurmountable difficulty. The Bank's own panel valuers, in both the Kiragu Mwangi Report of 2017 and the Highland Report of December 2018, applied a consistent and unvarying discount of twenty-five per centum in arriving at forced sale value from open market value; Kshs. 67,500,000/- against Kshs. 90,000,000/- and Kshs. 69,000,000/- against Kshs. 92,000,000/-, respectively. There is no evidence before me of any change in market conditions or in the character of the property that would justify departing from that consistently applied ratio as at the date of sale.
47. Applying the same 75% ratio to the Knight Frank open market value of Kshs. 100,000,000/- yields a forced sale value of Kshs. 75,000,000/- as at the material time. Measured against this figure, the sum of Kshs. 64,000,000/- actually realized on sale falls short by Kshs. 11,000,000/-. I accordingly find that the forced sale value of the suit property as at 28th May 2019 was Kshs. 75,000,000/-.
iii. Whether the Bank fettered the Plaintiff’s equitable right of redemption:
48. I turn now to the third issue for determination which is whether the Bank, in the period preceding the auction of 28th May 2019, unlawfully fettered the Plaintiffs' equitable and statutory right to redeem the suit property, whether by the conditions attached to the issuance of the Letter of no Objection in favour of Spire Bank Limited, or by the debits posted to the loan account on 30th April 2019.
49. Section 89(1) of the Land Act, 2012 guarantees a chargor the right to redeem charged land at any time before the charged interest is sold. It is trite that this right must not be rendered illusory by the charge and a chargee who exercises its powers so as to make redemption practically impossible may be found to have improperly fettered that equity. Equally well established, however, is the countervailing principle that a chargee retains the right to protect its security and is not obliged to release it save upon terms that adequately safeguard its interests.
50. As was held by the Court of Appeal in Barclays Bank of Kenya Ltd v Kepha Nyabera & 191 Others, [2013] eKLR and applied in Peter Munga V African Seed Investment Fund LLC, [2017] eKLR, a secured creditor has a free hand as to when to act, and on what terms, without direction from the debtor, save where the parties have expressly agreed otherwise.
51. I have considered the rival evidence on this issue. I will deal first with the Letter of no Objection. The true complaint by the Plaintiffs, as I understand it, is not that the Letter of no Objection was refused outright by the Bank, but that unreasonable conditions were attached to its issuance. Both PW1 and PW2 conceded, on cross-examination, that the Bank did not at any time undertake to issue the Letter of no Objection unconditionally and that it was within its rights to give conditions before issuance of the letter.
52. Considering the evidence placed before me, a chargee who even takes time to engage with a redemption proposal but attaches its own conditions so as to secure its position cannot be said to have fettered the chargor’s equity of redemption. Such a charge would be exercising a right that both parties' witnesses accepted the Bank was entitled to. I am therefore not persuaded that by imposing a requirement for an undertaking from Spire Bank Limited to remit the balance of the facility directly to the Bank together with a requirement for a deposit to demonstrate the Plaintiffs' seriousness was inherently onerous. The Bank’s submission that this is a conventional feature of bank to bank refinancing arrangements remains uncontroverted. There is nothing on the face of it that offends commercial reasonableness.
53. I am fortified in this view by the context in which the condition was imposed. It is not disputed that the Plaintiffs and the underlying borrower had, by this stage, already defaulted on the credit facilities, failed to honour the Consent recorded in HCCC No. 25 of 2018, and mounted more than one unsuccessful application to restrain the sale. This is corroborated by the testimony of DW 1.
54. I likewise bear in mind the observation of the Court of Appeal in Mwambeja Ranching Company Ltd & Another V Kenya National Capital Corporation, [2019] KECA 436 (KLR), that funds advanced by a chargee are not the chargee's own but those of its depositors and shareholders, who are equally entitled to protection. A chargee that insists on adequate assurance before parting with its security is not thereby acting oppressively, but prudently.
55. In fact, the Plaintiffs' own letter of 17th May 2019 sent from their advocates, K. Mberia & Partners, acknowledged that they were aware of the Bank’s reservations about unconditionally releasing the property to Spire Bank, given the Plaintiffs' prior conduct. PW1 admitted, on cross-examination, that as at 15th May 2019 there was no offer letter from Spire Bank or any prove that Spire Bank had committed to refinance the Plaintiffs. PW2 further admitted that the money that the Bank required to be deposited was with him but the family did not wish to deposit it as it would get swallowed up in interest. For all these reasons, this limb of the issue is answered against the Plaintiffs and in favor of the Bank.
56. The second limb of the issue is the Plaintiffs' contention that the Bank, on 30th April 2019, unilaterally loaded Loan Account No. *****1201 with 82 separate debits totaling Kshs. 12,529,212.58, all posted within a single day, at the height of the redemption negotiations, and that this had the effect of inflating the redemption figure and rendering it a moving and opaque target.
57. I note, with some concern, that this contention has not been substantively responded to by the Bank save to state that the entries were made after the Bank had migrated to a new system and represented the amounts in debit as at that time. No documentary or other evidence was offered to prove this fact neither did DW1 explain why the debits bore no narration or itemization despite conceding that the Court could not, without more, be in a position to interpret the meaning of the entries.
58. It is the chargee, as custodian of the loan account, who is best placed to explain debits posted to that account, particularly where they are substantial in number and value and considering the timing of the debits. Where such debits go unexplained, I am entitled to draw an adverse inference against the reliability of the redemption figure that was commu
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The Plaintiffs’ Case:
1. By way of a Further Amended Plaint dated 7th March 2023, the Plaintiffs sought to invalidate the auction of 28th May 2019 of the suit property and to recover compensation flowing from it. Their case rests on the uncontroverted facts that they were the registered proprietors of L.R. No. 209/8000/188, New Muthaiga Estate, Nairobi (the suit property), which they charged to the 1st Defendant (the Bank) as guarantors to secure credit facilities extended to a company known as ADM Consulting Limited (ADMCL) in the aggregate sum of Kshs. 43,000,000/-. Upon default by ADMCL, the Bank exercised its statutory power of sale and sold the suit property to the 2nd Defendant (BHAVIN) by public auction on 28th May 2019.
2. The Plaintiffs contend that the auction was tainted with illegality and bad faith, in that the Bank sold the suit property for Kshs. 64,000,000/-, a sum representing less than 75% of its open market value, contrary to Section 97(1), (2) and (3) of the Land Act. They rely on a valuation report prepared by Messrs. Knight Frank Valuers Limited, dated 21st March 2019 and commissioned at their own instance, which placed the open market value of the suit property at Kshs. 100,000,000/.
3. The Plaintiffs further point to an earlier valuation commissioned by the Bank itself, prepared by Highland Valuers Limited and dated 21st December 2018, which placed the market value of the suit property at Kshs. 92,000,000/-. They argue that it defies commercial logic that the property could have depreciated from this figure to the Kshs. 85,000,000/- as reflected in the valuation report dated 1st April 2019 which the Bank ultimately relied upon, which is a drop of Kshs. 7,000,000/- within the space of just 3 months.
4. They contend, additionally, that the Bank unreasonably and without justification fettered their equitable right of redemption by declining to issue a Letter of no Objection in favour of Spire Bank Limited, the institution the Plaintiffs had approached to finance a sale they had themselves negotiated with a third-party purchaser, notwithstanding that the parties were, at the time, engaged in active negotiations.
5. Finally, the Plaintiffs contend that upon realizing Kshs. 64,000,000/- from the sale, the total sum recovered by the Bank rose to Kshs. 104,555,558.98/-, a figure exceeding twice the principal sum advanced of Kshs. 43,000,000/-, in breach of the in duplum rule.
6. Flowing from these contentions, the Plaintiffs sought a declaration that the sale was void for breach of Section 97(1) and (3) of the Land Act, an order setting it aside, for the suit property to be re-conveyed to them and that the Defendants be permanently restrained from interfering with it. They also sought a declaration that their equitable right of redemption had been improperly fettered.
7. Alongside this, they claimed general damages for breach of statutory duty and for fraud, as well as punitive damages against the Bank. In the alternative, should the sale not be set aside, they sought Kshs. 36,000,000/- in damages, being the shortfall between the property's market value and the sale price, together with interest at 14% per annum from the date of sale.
The Bank’s Case:
8. The Bank opposed the suit through an Amended Statement of Defence and Counterclaim dated 18th May 2023. It confirmed that the suit property was sold and transferred to BHAVIN, and that the transfer was registered on 2nd July 2019, rendering him the registered proprietor.
9. The Bank contends that the Plaintiffs are estopped from re-litigating the propriety of the exercise of the statutory power of sale, this issue having already been raised and resolved in Nairobi HCCC No. 25 of 2018, Mohan Singh Dhariwal v. I & M Bank Limited & Another, a suit which was compromised by a Consent dated 11th May 2018 and adopted as an order of the Court on 1st October 2018. That the consent afforded the Borrower and the Plaintiffs a defined period within which to settle the outstanding debt, failing which the Bank was entitled to realize its security. The Bank argues that the consent has never been set aside, varied, or impeached, and stands as binding on the parties.
10. The Bank further maintains that it was the Plaintiffs themselves who moved the Court by an application dated 1st March 2019, resulting in a consent order for a fresh valuation of the suit property. That valuation was undertaken by Real Appraisal Limited, whose report dated 1st April 2019 returned an open market value of Kshs. 85,000,000/- and a forced sale value of Kshs. 63,750,000/-. The report was furnished to the Plaintiffs on 3rd April 2019, and no objection was raised at the time.
11. More importantly, the Bank explains the disparity between the two sets of figures in the valuation reports on the basis that the Kshs. 100,000,000/- relied on by the Plaintiffs represented an open market value, not a forced sale value. It maintains that it properly relied on the Real Appraisal valuation, which represented the best price reasonably obtainable at the material time.
12. The Bank also denies ever refusing to issue a Letter of no Objection, stating that it required only an undertaking from Spire Bank Limited that it would settle the outstanding balance of Kshs. 45,000,000/-. It further denies any breach of the in duplum rule, contending that the principal sum advanced under the facilities was, in fact, Kshs. 78,000,000/-.
13. By way of Counterclaim, the Bank seeks judgment against the Plaintiffs for Kshs. 22,168,630.77/- together with interest at 13% per annum until payment in full, and costs.
Bhavin’s Case:
14. BHAVIN opposed the suit by way of a Statement of Defence dated 16th March 2023. His case, in essence, is that no fraud was proved against him, that the suit property was transferred to him regularly and by consent of the relevant parties, that he was under no obligation to procure his own valuation report, and that he is a bona fide purchaser for value without notice, having learnt of the auction only through newspaper advertisements.
The Hearing:
15. At the hearing the Plaintiffs called two witnesses: Mr. Mohan Singh Dhariwal (PW1), who is also the 1st Plaintiff, and Mr. Tavinder Singh Dhariwal (PW2). The Defendants called Mr. Andrew Muchina (DW1), who testified on behalf of the Bank, and Mr. Bhavin Gudka Harilal Shah (DW2), the 2nd Defendant. Their testimonies mirror their respective pleadings, and as such, rather than regurgitating them here, I shall refer to them as necessary in my analysis and determination of the issues raised, which now follows.
Analysis and Determination
16. Having considered the pleadings, the evidence on record and the rival submissions of counsel, the following issues arise for determination:
i. Whether the Plaintiffs’ challenge to the valuation and exercise of the statutory power of sale is res judicata;
ii. Whether the 1st Defendant sold the suit property at an undervalue contrary to Section 97 of the Land Act, No. 6 of 2012;
iii. Whether the Plaintiffs have made out any claim against the 2nd Defendant;
iv. Whether the 1st Defendant fettered the Plaintiffs’ equitable right of redemption;
v. Whether the 1st Defendant breached Section 44A of the Banking Act and holds a refundable surplus;
vi. Whether the Plaintiffs are entitled to damages, whether general, punitive or exemplary; and
vii. Whether the 1st Defendant’s Counterclaim is sustainable.
viii. Who should bear the costs of the suit and the counterclaim.
i. Whether the Plaintiffs’ challenge to the valuation and the exercise of the statutory power of sale is res judicata:
17. Section 7 of the Civil Procedure Act codifies the doctrine of res judicata. As the Court of Appeal held in John Florence Maritime Services Limited & Another V Cabinet Secretary, Transport and Infrastructure & 3 Others, [2015] eKLR, for a plea of res judicata to succeed, the party invoking it must establish, conjunctively, that the matter directly and substantially in issue in the subsequent suit was also directly and substantially in issue in the former suit; the former suit was between the same parties, or parties under whom they or any of them claim, litigating under the same title; the matter in issue had been heard and finally decided by a court of competent jurisdiction; and the court which decided the former suit was competent to try the subsequent suit. These conditions are conjunctive, not disjunctive, such that the absence of any one of them is fatal to the plea.
18. The Bank anchors its plea of res judicata on the existence of an earlier suit, HCCC No. 25 of 2018. The existence of that suit is not in dispute between the parties. The Plaint dated 22nd January 2018 commencing the suit is exhibited in the Plaintiffs' Trial Bundle, and it is apparent from its face that the suit was between the Plaintiffs, the Bank, and ADMCL, substantially the same parties as are before this Court, arising from the same credit facilities and concerning the same suit property.
19. It is equally apparent that the question of valuation was squarely before the Court in that earlier suit. Paragraph 19 of the Plaint avers that:
“… In further breach of fiduciary duty of care imposed upon the Defendant by law, the Defendant has failed, refused and or neglected to prepare a mandatory, recent, valid and/or proper valuation of the subject property to determine the correct, and fair market value of the property thereby making the intended sale not only unlawful and irregular but also grossly unjust and prejudicial to the Plaintiffs.”
20. This averment is reinforced by the relief sought. Prayer 2 of that Plaint sought ‘An order for independent valuation by competent and registered valuers to establish the true value of all that property known as LR No 209/8000/188 (IR 110270), New Muthaiga Nairobi City.’
21. It is clear from the foregoing that the question of valuation of the suit property, the very issue now being urged before this Court, was directly and substantially in issue in the earlier suit, as between the same Plaintiffs and the Bank, litigating over the same suit property and arising from the same credit facilities.
22. Where I part company with the Bank, however, is on the requirement that the matter must have been heard and finally decided. This requirement lies at the very heart of the doctrine, for res judicata operates to bar re-litigation precisely because the matter has already received the considered judgment of a competent court, and not merely because it was once raised between the parties. A plea of res judicata cannot rest on the mere fact that an issue was pleaded in an earlier suit; it must be shown that the issue was actually determined.
23. The record before me shows that the valuation dispute raised in HCCC No. 25 of 2018 was never determined on its merits. Rather than proceeding to a hearing and a determination of whether the valuation then impugned was proper, the parties elected to record a consent for a fresh valuation to be undertaken. That consent resolved the manner in which the dispute would be addressed going forward; it did not, on any fair reading, pronounce upon the merits of any valuation, whether the one then impugned or any other.
24. That valuation was subsequently carried out by Real Appraisal Limited and it is that very valuation, and not the one originally impugned in HCCC No. 25 of 2018, which the Plaintiffs now challenge in the present suit. The present valuation did not exist at the time the earlier suit was filed, and cannot, therefore, be said to have been in issue in it, still less to have been barred by it. To hold otherwise would be to stretch the doctrine of res judicata beyond its proper compass. This ground accordingly fails, and I proceed to determine the matter on its merits.
ii. Whether the Bank sold the Charged Property at an undervalue contrary to Section 97 of the Land Act, No. 6 of 2012:
25. I now turn to what is, in my view, the central issue in this suit and that is whether the sale of the suit property by public auction on 28th May 2019, at a price of Kshs. 64,000,000/-, was conducted at an undervalue in breach of the Bank’s statutory duty under Section 97 of the Land Act, 2012.
26. Section 97(1) imposes upon a chargee exercising the statutory power of sale a duty of care to the chargor and any guarantor to obtain the best price reasonably obtainable at the time of sale. Section 97(2) obliges the chargee, before exercising that power, to ensure that a forced sale valuation is undertaken by a valuer. Section 97(3) creates a rebuttable presumption of breach of the duty imposed under subsection (1) where the property is sold at 25% or below the market value at which comparable interests in land of the same character and quality are being sold in the open market.
27. The purpose of a valuation under Section 97(2) is twofold. First, to protect the chargor's right to property by securing the best price reasonably obtainable and second, to guard against an unscrupulous chargee disposing of charged property at a price bearing no true relationship to comparable interests in land of like character and quality.
28. I am well guided by the Court of Appeal's observation in Cedarwood Hotels & Resorts Investment Company Ltd v Garam Investments Auctioneers & Kenya Commercial Bank Ltd [2024] KECA 1067 (KLR), in which the court cited with approval from Olkasasi Limited V Equity Bank Limited, [2015] eKLR, that the mere fact that a chargor's valuation is significantly higher than the chargee's valuation does not, without more, establish undervaluation. The party impugning a valuation report must dislodge it by evidence and legal parameters acceptable in the practice and profession of valuers.
29. This was reiterated in ABSA Bank Kenya PLC V Owuor, [2025] KEHC 4692 (KLR), where the Court held that a party alleging undervaluation must satisfactorily demonstrate why the valuation relied upon does not reflect the best price obtainable, and that cogent evidence, not a mere counter-valuation, is required.
30. Four (4) valuation reports of the suit property were placed before the Court:
a) a report dated 8th October 2012 by Chrisca Real Estates Valuers, returning an open market value of Kshs. 85,000,000/-;
b) a report dated 27th June 2017 by Kiragu Mwangi Limited, expressed as an update of the Chrisca report, returning a market value of Kshs. 90,000,000/- and a forced sale value of Kshs. 67,500,000/-;
c) a report dated 21st December 2018 by Highland Valuers Limited, returning a market value of Kshs. 92,000,000/- and a forced sale value of Kshs. 69,000,000/-; and
d) a report dated 21st March 2019 by Knight Frank Limited, returning a market value of Kshs. 100,000,000/-.
31. Against this ascending sequence of value stands the valuation that was ultimately relied upon by the Bank, which was prepared by Real Appraisal Limited on 1st April 2019. The impugned report placed the open market value of the suit property at Kshs. 85,000,000/- and the forced sale value at Kshs. 63,750,000/-.
32. I accept the Bank’s submission that the benchmark for a sale by public auction is the forced sale value, not the open market value, and that the Plaintiffs' persistent conflation of the two figures reflects a misapprehension of the statutory scheme. I equally accept that a valuation is not an exact science, and that a mere disparity between two valuers' opinions does not, without more, establish negligence or impropriety on the part of either.
33. That said, what gives me a pause is not the existence of a disparity between valuers, but the trajectory disclosed by the Bank’s own evidence. It was DW1 who confirmed that the first three valuations by Chrisca, Kiragu Mwangi and Highland, were all procured by the Bank itself, from valuers drawn from its own panel. These are not, therefore, valuations tendered by an interested party seeking to inflate the property's worth. They are the Bank’s own record of the property's value over a period of some six (6) years, which reflect an upward trajectory of the value of the suit property, from Kshs. 85,000,000/- in 2012 to Kshs. 92,000,000/- in December 2018.
34. It is against this consistent and self-generated trend that the sudden reduction to Kshs. 85,000,000/- in the Real Appraisal Report of April 2019, a fall of Kshs. 7,000,000/- within approximately three months of the Highland valuation, falls to be assessed. I have scrutinized with some care the explanation offered by the Bank, through DW1, for this reversal. Two things stand out from the record.
35. First, on cross-examination, DW1 made a series of candid concessions including the fact that the remarks contained in the Real Appraisal Report mirrored those in the earlier valuations, that there had been no material changes on the ground between December 2018 and April 2019, that market prices in the area were, generally, on an upward trajectory and, significantly, that the property's incline had never previously affected its value and had, in fact, already been addressed in the earlier reports.
36. Second, in re-examination, DW1 sought to explain the Kshs. 7,000,000/- reduction by reference to precisely that same incline, testifying that the property's steep northward slope towards the Thigiri River was a material factor bearing on its marketability, and that comparatively level parcels were attracting higher prices.
37. I am unable to reconcile these two positions. A physical characteristic that DW1 himself conceded, on cross-examination, had never previously affected value and had been addressed in earlier reports cannot, in the same breath, be advanced in re-examination as the operative explanation for a sudden and material depreciation arising three months later. The topography of the suit property did not change between December 2018 and April 2019 and DW1's own evidence establishes that much. If the slope had already been factored into, and had not depressed the Highland valuation of Kshs. 92,000,000/-, it cannot credibly be resurrected as the cause of a Kshs. 7,000,000/- fall in the very next valuation exercise, absent some change in circumstance that was neither pleaded nor put in evidence.
38. I have also considered the Bank’s detailed criticism of the Knight Frank Report including its limited inspection and what DW1 termed to be an estimate value, the absence of disclosed qualifications for its author, and the fact that it was procured unilaterally by PW1 and never furnished to the Bank prior to the sale. I note, however, that the Plaintiffs' case does not in fact depend on the Knight Frank Report being accepted. Even if I were to disregard it entirely, there are still three remaining valuations, all commissioned by the Bank, which independently establish an unbroken appreciating trend from 2012 to December 2018.
39. While I accept that the proper reference point for a sale by public auction is the forced sale value, and not the open market value, it would reasonably follow that if the open market value was on a consistent appreciating trend, some explanation ought to have been offered as to why the corresponding forced sale value should nonetheless depreciate. None has been, and what has been proffered is, I must say, unpersuasive.
40. I have not overlooked the Bank’s submission that the Plaintiffs are estopped from asserting that the suit property was sold at an undervalue, given PW1's admission that he was personally involved in negotiating a redemption figure of Kshs. 65,000,000/-, with Spire Bank expected to finance Kshs. 45,000,000/- of that sum. In my view, as much as this may be so, this evidence does not still answer to the more fundamental question of whether the Bank discharged its duty under Section 97(1). The duty imposed upon a chargee under that provision cannot be displaced by whatever figure the parties may, in the course of settlement discussions, have informally floated between themselves.
41. The duty to obtain the best price reasonably obtainable at the time of sale is a statutory duty, framed in mandatory terms. It exists independently of the parties' negotiating positions, precisely because the Land Act recognizes that a chargor under financial pressure, as the Plaintiffs plainly were here, is not always well placed to protect their own interests in the value of the charged property. To allow a redemption figure floated in negotiation to operate as a ceiling on the Bank's own statutory obligation would be to permit the chargee to import, through the back door of estoppel, a standard lower than the one the statute itself prescribes.
42. I note, finally, that the sale price of Kshs. 64,000,000/- against the open market value of Kshs. 85,000,000/- adopted by Real Appraisal Limited represents approximately 75.3% of that figure and would be narrowly above the threshold in Section 97(3) at which the rebuttable presumption of breach would arise. However, given my findings above as to the unreliability of the Real Appraisal open market value itself, I am satisfied that had the open market value been properly assessed consistently with the trend of the other valuation reports, the resulting percentage would have fallen at or below the statutory threshold provided for in Section 97(3).
43. Applying the principles in Palmy, Cedarwood Hotels, and ABSA Bank Kenya PLC v Owuor, [supra], I am satisfied that the Plaintiffs have demonstrated a material and unexplained departure from an established valuation trend which the Bank has not sufficiently answered to. The evidence and the testimonies presented before me are sufficient, in my view, to dislodge the Real Appraisal valuation and to establish, on a balance of probabilities, that the suit property was sold at an undervalue, in breach of the duty imposed upon the Bank under Section 97(1) of the Land Act.
44. Having found the Real Appraisal valuation of April 2019 unreliable, and being satisfied that the suit property was sold at an undervalue, I consider it necessary, and indeed possible on the record before me, to determine what the forced sale value ought properly to have been at the material time. I do not consider the Highland valuation of December 2018 an appropriate figure to adopt for this purpose, notwithstanding that it forms part of the established trend I have already discussed. It was, after all, the very valuation the Plaintiffs impugned in HCCC No. 25 of 2018, and it was precisely to resolve that impasse that the parties recorded a consent for a fresh valuation to be undertaken. To now treat the Highland figures as the final word on value would be to resurrect, through the back door, a valuation the parties themselves agreed required revisiting.
45. I turn, instead, to the Knight Frank Report of March 2019, which, while criticized by the Bank on grounds I have already considered, has the advantage of being the valuation most contemporaneous with the date of sale, and whose open market value of Kshs. 100,000,000/- is consistent with and indeed represents the logical continuation of, the unbroken appreciating trend independently established by the Bank's own three antecedent valuations. I note, however, that the Knight Frank Report furnishes no corresponding forced sale value, and is limited to an assessment of open market value alone.
46. This does not, in my view, present an insurmountable difficulty. The Bank's own panel valuers, in both the Kiragu Mwangi Report of 2017 and the Highland Report of December 2018, applied a consistent and unvarying discount of twenty-five per centum in arriving at forced sale value from open market value; Kshs. 67,500,000/- against Kshs. 90,000,000/- and Kshs. 69,000,000/- against Kshs. 92,000,000/-, respectively. There is no evidence before me of any change in market conditions or in the character of the property that would justify departing from that consistently applied ratio as at the date of sale.
47. Applying the same 75% ratio to the Knight Frank open market value of Kshs. 100,000,000/- yields a forced sale value of Kshs. 75,000,000/- as at the material time. Measured against this figure, the sum of Kshs. 64,000,000/- actually realized on sale falls short by Kshs. 11,000,000/-. I accordingly find that the forced sale value of the suit property as at 28th May 2019 was Kshs. 75,000,000/-.
iii. Whether the Bank fettered the Plaintiff’s equitable right of redemption:
48. I turn now to the third issue for determination which is whether the Bank, in the period preceding the auction of 28th May 2019, unlawfully fettered the Plaintiffs' equitable and statutory right to redeem the suit property, whether by the conditions attached to the issuance of the Letter of no Objection in favour of Spire Bank Limited, or by the debits posted to the loan account on 30th April 2019.
49. Section 89(1) of the Land Act, 2012 guarantees a chargor the right to redeem charged land at any time before the charged interest is sold. It is trite that this right must not be rendered illusory by the charge and a chargee who exercises its powers so as to make redemption practically impossible may be found to have improperly fettered that equity. Equally well established, however, is the countervailing principle that a chargee retains the right to protect its security and is not obliged to release it save upon terms that adequately safeguard its interests.
50. As was held by the Court of Appeal in Barclays Bank of Kenya Ltd v Kepha Nyabera & 191 Others, [2013] eKLR and applied in Peter Munga V African Seed Investment Fund LLC, [2017] eKLR, a secured creditor has a free hand as to when to act, and on what terms, without direction from the debtor, save where the parties have expressly agreed otherwise.
51. I have considered the rival evidence on this issue. I will deal first with the Letter of no Objection. The true complaint by the Plaintiffs, as I understand it, is not that the Letter of no Objection was refused outright by the Bank, but that unreasonable conditions were attached to its issuance. Both PW1 and PW2 conceded, on cross-examination, that the Bank did not at any time undertake to issue the Letter of no Objection unconditionally and that it was within its rights to give conditions before issuance of the letter.
52. Considering the evidence placed before me, a chargee who even takes time to engage with a redemption proposal but attaches its own conditions so as to secure its position cannot be said to have fettered the chargor’s equity of redemption. Such a charge would be exercising a right that both parties' witnesses accepted the Bank was entitled to. I am therefore not persuaded that by imposing a requirement for an undertaking from Spire Bank Limited to remit the balance of the facility directly to the Bank together with a requirement for a deposit to demonstrate the Plaintiffs' seriousness was inherently onerous. The Bank’s submission that this is a conventional feature of bank to bank refinancing arrangements remains uncontroverted. There is nothing on the face of it that offends commercial reasonableness.
53. I am fortified in this view by the context in which the condition was imposed. It is not disputed that the Plaintiffs and the underlying borrower had, by this stage, already defaulted on the credit facilities, failed to honour the Consent recorded in HCCC No. 25 of 2018, and mounted more than one unsuccessful application to restrain the sale. This is corroborated by the testimony of DW 1.
54. I likewise bear in mind the observation of the Court of Appeal in Mwambeja Ranching Company Ltd & Another V Kenya National Capital Corporation, [2019] KECA 436 (KLR), that funds advanced by a chargee are not the chargee's own but those of its depositors and shareholders, who are equally entitled to protection. A chargee that insists on adequate assurance before parting with its security is not thereby acting oppressively, but prudently.
55. In fact, the Plaintiffs' own letter of 17th May 2019 sent from their advocates, K. Mberia & Partners, acknowledged that they were aware of the Bank’s reservations about unconditionally releasing the property to Spire Bank, given the Plaintiffs' prior conduct. PW1 admitted, on cross-examination, that as at 15th May 2019 there was no offer letter from Spire Bank or any prove that Spire Bank had committed to refinance the Plaintiffs. PW2 further admitted that the money that the Bank required to be deposited was with him but the family did not wish to deposit it as it would get swallowed up in interest. For all these reasons, this limb of the issue is answered against the Plaintiffs and in favor of the Bank.
56. The second limb of the issue is the Plaintiffs' contention that the Bank, on 30th April 2019, unilaterally loaded Loan Account No. *****1201 with 82 separate debits totaling Kshs. 12,529,212.58, all posted within a single day, at the height of the redemption negotiations, and that this had the effect of inflating the redemption figure and rendering it a moving and opaque target.
57. I note, with some concern, that this contention has not been substantively responded to by the Bank save to state that the entries were made after the Bank had migrated to a new system and represented the amounts in debit as at that time. No documentary or other evidence was offered to prove this fact neither did DW1 explain why the debits bore no narration or itemization despite conceding that the Court could not, without more, be in a position to interpret the meaning of the entries.
58. It is the chargee, as custodian of the loan account, who is best placed to explain debits posted to that account, particularly where they are substantial in number and value and considering the timing of the debits. Where such debits go unexplained, I am entitled to draw an adverse inference against the reliability of the redemption figure that was commu
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