Background and introduction
1. This Ruling determines the application dated 24th December 2024, brought under Order 40 Rules 1, 2, 3 and 4; Order 51 Rule 1 of the Civil Procedure Rule and Section 3 and 3A of the Civil Procedure Act, amongst others. It is supported by the affidavit, supplementary and further supplementary affidavit of Rev. Dr. Robert Waihenya Ngugi sworn on 24th December 2024, 5th February and 6th February 2025 respectively.
2. The applicant (hereinafter the Foundation), seeks orders suspending the appointment of the interested party as the receiver and manager of the Foundation. Additionally, it seeks to have the respondent (the Bank), compelled to provide certified loan statements, facilitate an audit and reconciliation of accounts and deposit of any outstanding loan balance or surplus funds into an escrow account pending the hearing and determination of the suit. The application is opposed by the Bank as well as the receiver and manager (hereinafter the receiver).
Analysis and determination
3. I have carefully considered the application, the responses submitted and the written submissions as filed, following the directions of this court. I have also heard the parties on their oral submissions.
4. The Bank and the receiver have raised a preliminary point which is that the court did not admit the application for hearing during the vacation. I do however note that the application was brought under the vacation rules, a fact that was acknowledged by the court when issuing directions. By dealing with the application the court had in effect admitted it and is therefore not a nullity as submitted.
5. The Bank also raises the fact that the current suit is res judicata. I do concur with this submission, going by the evidence on record. The issues of the Foundation’s indebtedness and realization of the Bank’s securities were the same issues that were in dispute in Mombasa HCCC No. 17 of 2015. I concur that these issues were conclusively determined by the consent of the parties, dated 11th December 2015 (page 161 of the Bank’s documents).
6. The said consent reads in part;
“The Bank agrees to give the (Foundation) one final extension until 18th December 2015 to make good its settlement proposal and in default, the Bank shall be at liberty to proceed with the realization of its security subject to any other indulgence…”
The Foundation has not provided any evidence that the said consent judgment was complied with. A consent judgment has the same legal force as a judgment delivered after a full hearing. It conclusively determines the rights of the parties, making it enforceable like any other court decision. The issues in dispute were therefore conclusively determined.
7. That said, for the sake of finality and just in case I am wrong on this, I will proceed to determine the substantive issues at hand.
8. It is undisputed that the Bank extended various loan facilities to the Foundation for the construction of luxury apartments for sale. It is also agreed that these loans were secured by debentures covering an aggregate principal amount of Kshs. 811,000,000/=. Both parties have included copies of these debentures in their documents. However, the Foundation asserts that it has diligently repaid the loan for 14 years, averaging Kshs. 14,000,000/= per month, and has, to date, paid over Kshs. 2,300,000,000/=. On this basis, the Foundation argues that it has fully settled its debt and that there is no justification for the appointment of a receiver over its property.
9. The Bank disputes the Foundation’s claim through its replying affidavit sworn by Morris S. Tiema on 13th January 2025. The Bank asserts that shortly after disbursement of the loans, the Foundation’s loan account fell into arrears which stood at Kshs. 902,145,434.47 as of 30th December 2024 and had increased to Kshs. 909,754,175.37 by 10th January 2025. According to the Bank, this amount continues to accrue interest at the rate of 17.8% p.a.
10. To support its claim, the Bank has annexed statements of account (pages 113 to 128). Regarding the admissibility of statements produced by the Bank, Section 176 of the Evidence Act provides that;
“Subject to the provisions of this Chapter of this Act, a copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence of such entry, and of the matters, transaction and accounts therein recorded”.
11. The Foundation has not challenged the authenticity of these statements which relate to the period from when the loan was restructured. Therefore, in accordance with Section 176 of the Evidence Act, and from the said bank statements, there is prima facie evidence that the Foundation remains indebted to the Bank in the amount of Kshs. 909,754,175.37 as at 10th January 2025. The Bank’s production of these statements of account effectively renders the Foundation’s prayer for the disclosure of statements of accounts moot. I have equally reviewed the schedules provided in the further supplementary affidavit filed by the Foundation. The figures therein are not supported by any statement of accounts.
12. Even if the Foundation were to raise concerns about account reconciliation as it has, (or the in duplum rule which I note is not part of the prayers in the plaint), it is well established in judicial precedent that a dispute over loan balances does not entitle a borrower to halt a bank’s realization of its securities. I align with the Court’s holding in Scholastica Nyaguthii Muturi Vs. Housing Finance Co. of Kenya Ltd. The Court stated: -
"The mortgagee will not be restrained from exercising his power of sale because the amount is in dispute or because the mortgagor has begun a redemption action or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount into court...”
13. I am equally not convinced by the assertion made by the Foundation that only a sum of Kshs. 615,421,813/= was disbursed by the Bank. I say so noting that the letter of offer dated 20th August 2022 and executed by both parties was for the restructure of the loan amount which then stood at Kshs. 789,934,778/=, way higher than the Kshs. 615,421,813/= alleged to have been disbursed. The facility of Kshs. 811,000,000/= is equally admitted by the Foundation at paragraph 6 of the plaint, in its oral submissions before the court and by a letter dated 15th August 2022. The letter reads in part; ‘[the loan of Kshs. 811,000,000/=] was extended to us for the purpose of constructing the block of apartments on the aforesaid properties.’
14. This letter confirms the restructure of the facility and continues….’Following challenges faced with the implementation of the project we made an application to restructure, which was approved and a letter of offer issued on 18th October 2019 for a term of 8 years’. The Foundation also acknowledges the moratoriums extended by the Bank to the Foundation.
15. I am therefore convinced that the prayer by the Foundation for an order mandating account reconciliation is an afterthought, brought in bad faith. The truth is that the Foundation has always been aware of its financial position with the Bank, as evidenced by correspondence on record.
16. A letter dating back to 3rd November 2015 (page 144 of the Bank’s documents), from P.M. Kaamara & Associates Advocates confirms that there were ongoing negotiations between the Foundation and Presbyterian Investment Limited to purchase the suit property. The letter confirms in part that the deposit would be paid directly to the Bank to reduce the current liabilities which we understand are currently at Kshs. 694,214,865.32. in which it expressly admitted and undertook to repay the arrears then totaling Kshs. 694,214,865.32.
17. Further, a letter dated 15th August 2022 (pages 207-209) reinforces the Foundation’s acknowledgment of its default. There is also documented evidence that the Foundation sought to sell the charged property to settle the debt. Additionally, numerous correspondences on record demonstrate that the Bank accommodated the Foundation’s requests for loan restructuring, late payments, and various other proposals for settling the arrears.
18. Following the Foundation’s default and the issuance of notices by the Bank, the Bank became entitled to appoint a receiver over the charged property. Clause 17 of the Debentures, which are executed by both parties states in part as follows;
“At any time after the principal monies hereby secured become payable either as a result of lawful demand being made by the lender or under the provisions of Clause 13 hereof, the lender or any officer of the lender duly authorized may appoint in writing any person or persons, whether an officer or officers of the lender or not, to be a receiver or receiver and manager or receivers or receivers and managers…of the property and assets hereby charged…”
19. The above clause negates the assertion by the Foundation that the receivership is uncertain as to what assets the receiver was to manage. The debentures are contractual documents that were entered into between the parties and which this court has no authority to rewrite. In response to the application, the receiver filed a replying affidavit sworn on 14th January 2025. He asserts that his appointment was carried out in full compliance with the law and the terms of the Debentures executed by the Foundation in favor of the Bank.
20. The receiver and the Bank attached to their documents the Notice of Appointment of the receiver issued to the Registrar of Companies on 16th December 2024, an advertisement in the Daily Nation on 19th December 2024 and evidence of publication in the Kenya Gazette showing payment on 20th December 2024.
21. The allegation that the receiver was appointed in bad faith and in violation of the law is therefore unsubstantiated. I also find that the allegation of wasteful spending by the receiver has also not been substantiated. The Foundation has not presented any evidence to challenge the receiver’s execution of duties or to justify suspending the receiver pending the hearing and determination of the suit.
22. It is common knowledge that under a Debenture, the role of a receiver is to take control of the charged assets, manage them, and, where necessary, realize them to recover the outstanding debt owed to the lender. A receiver acts as an agent of the borrower but primarily serves the interests of the secured creditor, so as to ensure that the lender’s rights are protected in cases of default. In this case, I reiterate that the receiver’s appointment was made pursuant to the terms of the Debentures.
23. At this point, I believe it is now obvious that the Foundation has not made out a prima facie case with a probability of success. The inquiry on whether they are entitled to an injunction ends at this point in line with the dicta in Nguruman Limited v Jan Bonde Nielsen& 2 others [2013] KECA 347 (KLR)). In any event, I find that any loss that may be suffered by the Foundation can be ameliorated by an award of damages. I have not been shown or told that the Bank is not capable of paying these damages should it be found that the Foundation was justified in its claim.
24. The balance of convenience also tilts in favour of the Bank realizing their security as early as possible so as to avoid the ballooning debt escalating even further. This would be beneficial to both the Bank and the Foundation in the long run. I also take the view that even if any such reconciliation of accounts was necessary, there is no prejudice to the Foundation in having the receiver reinstated as the receiver is mandated to prepare reports over the receivership.
Disposition
25. Accordingly, the application dated 24th December 2024 is hereby dismissed with costs. For the avoidance of doubt, Kamal Anantroy Bhatt, the receiver and manager appointed by the Bank on 16th December 2024 is hereby reinstated as the receiver and manager of the Presbyterian Foundation, with full control of the affairs and operations of the plaintiff’s business at Milele Beach Hotel and in accordance with the powers otherwise granted under the Debentures.