A. THE PLAINTIFF’S NOTICE OF MOTION.
1. The Plaintiff’s notice of motion application dated 1st July, 2024 seeks the following orders:
a. [Spent].
b. The Defendant, its employees, servants and or agents be restrained by an order of injunction from advertising for sale, from selling by public auction or by private treaty, from taking possession of and from interfering with in any manner howsoever all the properties known as Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181 pending the haring and determination of this suit.
c. Cost of the application be provided for.
2. The grounds upon which the application is premised are that the Plaintiff contends that the Defendant’s intended exercise of its statutory power of sale over the suit properties is tainted by fraud and illegality.
3. It is alleged that the Defendant has unlawfully inflated the redemption amount by including sums allegedly prohibited under Section 44A of the Banking Act (the in duplum rule) and by charging interest at increased rates without the requisite approval of the Minister for Finance.
4. The Plaintiff further alleges that the Defendant, through its appointed auctioneer, issued redemption notices and notifications of sale containing false, exaggerated and unlawful redemption figures, thereby undermining and frustrating the Plaintiff’s equity of redemption. It is also contended that the notices are defective and incapable of sustaining a lawful exercise of the statutory power of sale.
5. The Plaintiff additionally asserts that the Defendant deliberately procured valuations that grossly undervalue the charged properties, namely Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181, with the intention of disposing of them at throw-away prices. According to the Plaintiff, the valuations do not reflect the prevailing market values and are intended to justify artificially low forced sale values, contrary to the Defendant’s statutory duty under Section 97 of the Land Act.
6. The Plaintiff therefore maintains that, by relying on allegedly unlawful redemption figures and grossly undervalued valuations, the Defendant’s intended realization of the securities is contrary to the law and amounts to an illegal exercise of its statutory power of sale.
7. The Plaintiff further avers that unless the application is heard and determined on an urgent basis, the Defendant, through its auctioneer, will proceed with the scheduled public auction upon the expiry of the redemption notices, thereby disposing of the suit properties through a process alleged to be fraudulent, irregular and unlawful. It is contended that such a sale would defeat the Plaintiff’s right of redemption and occasion substantial and irreparable loss.
B. THE PLAINTIFF’S SUPPORTING AFFIDAVIT.
8. The application is supported by the Plaintiff’s affidavit sworn on 1st June, 2024, in which, in precis, he deposes that he is a joint registered proprietor, together with his late brother, of the charged properties known as Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181. He states that the properties were charged to the Defendant as security for loan facilities aggregating Ksh.135,000,000/- advanced to Caneland Limited.
9. He deposes that he is aware that the loan facilities fell into arrears, following which the Defendant issued a statutory notice dated 26th October, 2012 demanding payment of Ksh.28,256,869.46/-. He avers, however, that efforts have continued to settle the outstanding indebtedness.
10. The Plaintiff further states that on 20th May, 2024 he was served with redemption notices and notifications of sale issued by Saddabri Auctioneers on behalf of the Defendant. Upon obtaining legal advice, he was informed that the notices were irregular and unlawful as they demanded a redemption sum of Ksh.230,169,711.75/-, which was grossly in excess of the amount demanded in the earlier statutory notice and allegedly included sums prohibited under Section 44A of the Banking Act as well as interest charged without the requisite approval of the Minister for Finance.
11. He further deposes that he was advised that the redemption notices contravened Rule 15(d) of the Auctioneers Rules, 1997, by failing to state the actual redemption amount and that they were not served upon all the registered proprietors of the charged properties as required by law.
12. He also contends that the notifications of sale contained forced sale values that were unsupported by current professional valuation reports and reflected a deliberate undervaluation of the properties. He further complains that the notifications included unspecified legal costs described as “Ksh. TBA”, thereby rendering the redemption figures inconsistent and uncertain.
13. The Plaintiff maintains that the Defendant’s intended realization of the securities is tainted by fraud and illegality. According to him, the Defendant seeks to recover sums that are legally irrecoverable while simultaneously undervaluing the charged properties in order to dispose of them at throw-away prices, thereby defeating his equity of redemption.
14. He finally deposes that unless the court intervenes by granting the orders sought, the Defendant will proceed with the intended auction, exposing him to the loss of valuable immovable property through an unlawful process and causing him substantial prejudice, while enabling the Defendant to benefit from the alleged fraud and illegality
C. THE DEFENDAT’S REPLYING AFFIDAVIT.
15. The application is opposed and to that end the Defendant filed a replying affidavit sworn on (date not clear) by Kajuju Marete, the Defendant’s Legal Manager. The said deponent contends that the Plaintiff’s allegations of fraud, illegality, breach of Section 44A of the Banking Act, unlawful variation of interest rates, inflation of the redemption amount and undervaluation of the charged properties are unfounded. According to her, the Defendant has at all material times acted lawfully in the exercise of its statutory power of sale.
16. The deponent further avers that the dispute over the charged properties has been the subject of several previous proceedings before the courts. She states that the Plaintiff and his co-director previously instituted suits and applications seeking substantially similar injunctive relief, which were dismissed, and that subsequent appeals were either dismissed, withdrawn or abandoned.
17. She adds that a later suit filed before the Environment and Land Court was also dismissed after the Plaintiff failed to prosecute it. It is therefore contended that the present suit and application are barred by the doctrine of res judicata under Section 7 of the Civil Procedure Act.
18. The deponent denies that the redemption notices and notifications of sale are illegal or that the redemption amount claimed offends Section 44A of the Banking Act. She maintains that the sums demanded are lawful, properly computed and consistent with the applicable banking laws and the Central Bank of Kenya Prudential Guidelines. She further contends that the Plaintiff has placed no credible evidence before the court to substantiate the allegations of unlawful interest charges or other irregularities.
19. The deponent also disputes the allegation that the charged properties were undervalued, asserting that the Defendant instructed qualified valuers, M/S Acumen Valuers Limited, to undertake professional valuations in compliance with Section 97 of the Land Act. According to the deponent, the Plaintiff has not demonstrated any impropriety in the valuation process or established any basis for impugning the valuation reports.
20. The deponent further maintains that the Defendant has never sought to deprive the Plaintiff of his equity of redemption and that the Plaintiff remains at liberty to redeem the properties by settling the outstanding indebtedness. She also points out that the Plaintiff’s complaint regarding non-service of the redemption notices is contradicted by his own affidavit, in which he expressly acknowledges receipt of the notices.
21. The deponent finally contends that the Plaintiff has failed to establish a prima facie case with a probability of success or to demonstrate that he would suffer irreparable harm incapable of compensation by an award of damages.
22. She states that the dispute arises from a purely commercial transaction, that the Defendant is merely enforcing its contractual and statutory rights following the Plaintiff’s persistent default, and that the balance of convenience favours the Defendant, whose ability to recover depositors’ funds continues to be prejudiced by the Plaintiff’s prolonged failure to discharge the debt.
23. Accordingly, she urges the court to dismiss the application with costs.
D. THE PLAINTIFF’S FURTHER AFFIDAVIT.
24. The Plaintiff filed a further affidavit sworn on 20th August, 2024 by Wilfred A. Onono, in which he deposes that he is the Managing Consultant of the Interest Rates Advisory Centre (IRAC) and is duly authorised to swear the affidavit on behalf of the Plaintiff.
25. The deponent avers that the Plaintiff engaged IRAC to undertake a recalculation of the loan accounts covering the period between 5th May, 2003 and 30th April, 2015. Following the exercise, IRAC prepared a report which, applying the in duplum rule, concluded that the amount recoverable by the Defendant stood at Ksh.53,483,814.64/-. He states that the recalculation was undertaken in accordance with the Central Bank of Kenya Prudential Guidelines, 2013 and Sections 44 and 44A of the Banking Act.
26. He further deposes that IRAC determined the date on which the loan accounts became non-performing by reference to the bank statements supplied by the Defendant and the Prudential Guidelines, and disputes the Defendant’s contention that the methodology adopted in the recalculation was erroneous.
27. He adds that legal fees and recovery expenses referred to by the Defendant had not been debited to the loan accounts at the time of the recalculation and were therefore not factored into the computation.
28. The deponent further states that IRAC did not take into account any variable interest rates allegedly applied by the Defendant because no evidence was furnished to show that the Plaintiff had been notified of, or had consented to, any variation of the contractual interest rates. He maintains that interest constitutes a material contractual term and that any variation thereof required prior notice to the borrower and compliance with the applicable provisions of the Banking Act. Consequently, IRAC relied on the interest rates stipulated in the facility letters when undertaking its computations.
29. He also deposes that, in the absence of evidence demonstrating lawful approval for the variation of interest rates, the Defendant is precluded from recovering interest and charges beyond those permitted by law. According to the deponent, the applicable statutory provisions and banking guidelines limit the amount lawfully recoverable by the Defendant.
30. Finally, the deponent states that following a payment of Ksh.20,000,000/- made by the Plaintiff on 20th April, 2017, the amount recoverable by the Defendant reduced to Ksh.33,483,814.84/-. He expresses the view that, as a banking institution, the Defendant ought to act fairly and in good faith in the enforcement of its securities.
E. THE PLAINTIFF’S SUBMISSIONS.
31. The Plaintiff submits that the application dated 1st July, 2024 seeks an order restraining the Defendant, its servants, agents and employees from advertising for sale, selling by public auction or private treaty, taking possession of, or otherwise interfering with the properties known as Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181 pending the hearing and determination of the suit.
32. He submits that the application is premised on the contention that the Defendant’s intended exercise of its statutory power of sale is tainted with fraud and illegality. It is argued that the Defendant, through its agents Saddabri Auctioneers, issued redemption notices and notifications of sale demanding Ksh.230,169,711.75/-, which amount was unlawfully inflated by including sums prohibited under Section 44A of the Banking Act and interest allegedly charged at rates not approved by the Minister responsible for Finance.
33. The Plaintiff submits that the Defendant’s actions further violated Section 97 of the Land Act by relying on grossly undervalued forced sale values of the charged properties, with the intention of disposing of the properties at throw-away prices. It is contended that the Defendant’s conduct was calculated to defeat the Plaintiff’s statutory right of redemption.
34. The Plaintiff submits that he is the registered owner of the suit properties jointly with his late brother and that the properties were charged to the Defendant as security for loan facilities amounting to Ksh.135,000,000/- advanced to Caneland Limited, a company in which he is a director. It is acknowledged that the loan facilities fell into default, but the Plaintiff submits that substantial payments had been made towards settlement of the indebtedness.
35. The Plaintiff submits that as at 26th October, 2012, the Defendant’s statutory notice indicated that there was an outstanding amount of Ksh.28,256,869.46/-. However, upon issuing redemption notices dated 20th May, 2024, the Defendant demanded Ksh.230,169,711.75/-. The Plaintiff argues that the unexplained disparity between the amounts demanded demonstrates an unlawful inflation of the redemption debt and a violation of his equity of redemption.
36. The Plaintiff submits that the Interest Rates Advisory Centre (IRAC), through the further affidavit of Wilfred A. Onono, undertook a recalculation of the loan account for the period between 5th May, 2003 and 30th April, 2015. According to the Plaintiff, the recalculation, undertaken in accordance with Section 44A of the Banking Act and the Central Bank of Kenya Prudential Guidelines established that the amount lawfully recoverable by the Defendant under the in duplum rule was Ksh.53,483,814.64/-.
37. The Plaintiff submits that after taking into account a payment of Ksh.20,000,000/- made on 20th April, 2017, the recoverable amount stood at Ksh.33,483,814.64/-. It is therefore argued that the Defendant’s demand for Ksh.230,169,711.75/- was excessive and unlawful.
38. On the principles governing temporary injunctions, the Plaintiff relies on Giella v Cassman Brown & Co. Ltd [1973] EA 358, where the East African Court of Appeal held that an applicant seeking a temporary injunction must demonstrate a prima facie case with a probability of success, establish that he will suffer irreparable injury which cannot adequately be compensated by damages, and where the court is in doubt, determine the application on a balance of convenience.
39. The Plaintiff further relies on Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR, Civil Appeal No. 77 of 2012 (Court of Appeal), where the Court of Appeal affirmed that the three conditions for granting an interlocutory injunction are separate, distinct and sequential hurdles. The Court held that an applicant must first establish a prima facie case, then demonstrate irreparable injury and finally, if necessary, show that the balance of convenience favours the grant of the injunction.
40. On the question whether a prima facie case has been established, the Plaintiff relies on Mrao Ltd v First American Bank of Kenya Ltd & 2 Others [2003] eKLR, Civil Appeal No. 39 of 2002 (Court of Appeal), where the Court of Appeal defined a prima facie case as:
“a case in which, on the material presented to the court, a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.”
41. The Plaintiff submits that he has established a prima facie case by demonstrating that the Defendant is seeking to recover sums that are prohibited by Section 44A of the Banking Act. It is submitted that the Defendant’s demand includes interest and charges which exceed the statutory limits imposed by the in duplum rule.
42. The Plaintiff submits that Section 44A of the Banking Act limits the amount recoverable by a financial institution from a borrower in respect of a non-performing loan to the principal owing when the loan became non-performing, contractual interest not exceeding the principal and expenses incurred in recovery of the debt.
43. The Plaintiff submits that by issuing redemption notices demanding Ksh.230,169,711.75/-, the Defendant violated the statutory limitation imposed by Section 44A of the Banking Act, thereby rendering the intended exercise of the statutory power of sale unlawful.
44. The Plaintiff further relies on the decision of the Supreme Court in Stanbic Bank Kenya Limited v Santowels Limited & Another [2024] KESC 11 (KLR), Petition No. E005 of 2023, where the Supreme Court held that interest rates charged by banks and financial institutions are subject to the regulatory framework under Section 44 of the Banking Act. The Court declared that financial institutions are required to obtain approval from the Cabinet Secretary responsible for Finance before increasing interest rates on loans and facilities advanced to borrowers.
45. The Plaintiff submits that the Defendant has not demonstrated that it obtained the requisite approval before varying interest rates and is therefore prohibited from recovering interest charged pursuant to unlawful variations.
46. On irreparable injury, the Plaintiff relies on Pius Kipchirchir Kogo v Frank Kimeli Tenai [2018] eKLR, where the court held that irreparable injury means an injury that cannot adequately be compensated by an award of damages and that the mere existence of a prima facie case does not automatically justify the grant of an injunction unless the applicant demonstrates the likelihood of suffering such injury.
47. The Plaintiff submits that he will suffer irreparable loss if the Defendant proceeds with the auction because the suit properties are commercial properties and constitute his source of income. It is argued that the sale of the properties through an allegedly unlawful process would deprive him of his proprietary rights and defeat his right of redemption.
48. The Plaintiff further submits that the Defendant intends to dispose of the properties at undervalued forced sale prices without reference to proper current valuations. It is argued that once the properties are sold, the Plaintiff may not be adequately compensated by damages, particularly where the sale would have occurred through an unlawful process.
49. The Plaintiff submits that it would be contrary to public policy to permit a financial institution to proceed with the exercise of statutory power of sale while disregarding mandatory provisions of the Banking Act, the Land Act and the Auctioneers Rules, 1997.
50. On the balance of convenience, the Plaintiff relies on Paul Gitonga Wanjau v Gathuthi Tea Factory Company Ltd & 2 Others [2016] eKLR, where the court held that where doubt exists as to the applicant’s right, or where violation of a right is disputed, the court must consider the comparative prejudice likely to be suffered by each party and determine which party would suffer greater harm depending on whether the injunction is granted or refused. The court further held that maintaining the status quo may be appropriate where the balance of convenience favours preservation pending determination of the dispute.
51. The Plaintiff submits that the balance of convenience favours preservation of the suit properties because the Defendant can continue to hold the securities pending determination of the legality of the intended sale, whereas the Plaintiff risks losing valuable properties through a process alleged to be unlawful.
52. On the issue of res judicata, the Plaintiff submits that the present application is not barred by Section 7 of the Civil Procedure Act. It is argued that although the Defendant relies on previous proceedings, including Kisumu HCCC No. 124 of 2013, Caneland Limited v African Banking Corporation, and Kisumu ELC Case No. 140 of 2017, the issues presently before the court have not previously been determined.
53. The Plaintiff submits that the doctrine of res judicata requires that the matter directly and substantially in issue must have been previously determined between the same parties, or parties claiming under them, litigating under the same title, by a court of competent jurisdiction.
54. The Plaintiff relies on the definition of res judicata in Black’s Law Dictionary, 10th Edition, which defines the doctrine as an issue that has been definitely settled by judicial decision and identifies the essential elements as an earlier decision on the issue, a final judgement on the merits, and involvement of the same parties or parties in privity with the original parties.
55. The Plaintiff submits that the previous proceedings relied upon by the Defendant involved different parties and different capacities. In particular, Kisumu HCCC No. 124 of 2013 involved Caneland Limited as the borrower, whereas the present suit is instituted by the Plaintiff in his personal capacity as chargor and proprietor of the suit properties.
56. The Plaintiff relies on Gladys Nduki Nthuki v Letshego Kenya Limited [2022] eKLR, Machakos High Court Civil Case No. 7 of 2021, where the court held that the doctrine of res judicata could not apply where the parties were not the same or litigating under the same title, particularly where one party was the principal borrower and the other was a guarantor.
57. The Plaintiff submits that Kisumu ELC Case No. 140 of 2017 was a land matter and did not determine the legality of the redemption notices and notifications of sale issued in 2024. It is argued that the present dispute concerns the legality of fresh notices and the manner in which the Defendant seeks to exercise its statutory power of sale.
58. Finally, on costs, the Plaintiff relies on Section 27 of the Civil Procedure Act and submits that costs ordinarily follow the event unless the court, for good reason, orders otherwise. The Plaintiff therefore prays that the application be allowed with costs.
59. In conclusion, the Plaintiff submits that he has satisfied the three requirements for grant of a temporary injunction and urges the court to restrain the Defendant from proceeding with the intended sale of the suit properties pending hearing and determination of the suit.
F. THE DEFENDANT’S SUBMISSIONS.
60. On its part, the Defendant submits that the Plaintiff’s application dated 1st July, 2024 is premised on the allegations that the Defendant’s intended exercise of its statutory power of sale is unlawful and irregular on account of alleged inflation of the redemption debt, failure to comply with Section 44A of the Banking Act, non-service of redemption notices and undervaluation of the charged properties. It is the Defendant’s submission that these allegations are unsupported and do not disclose any basis for injunctive relief.
61. The Defendant submits that the application is opposed on the basis that the Plaintiff has failed to establish any prima facie case, failed to demonstrate irreparable loss and failed to show that the balance of convenience favours the grant of an injunction.
62. It is further submitted that the suit is barred by the doctrine of res judicata under Section 7 of the Civil Procedure Act.
63. On whether the conditions for grant of an injunction have been met, the Defendant submits that the principles governing the grant of interlocutory injunctions are settled in Giella v Cassman Brown & Co. Ltd (supra).
64. The Defendant further relies on Nguruman Limited v Jan Bonde Nielsen & 2 Others (supra), where the Court of Appeal restated the principles applicable to interlocutory injunctions and held that the three requirements are separate, distinct and sequential hurdles which an applicant must satisfy. The Court held that the existence of a prima facie case alone is insufficient and that an applicant cannot “leap-frog” over the requirements of irreparable injury and balance of convenience.
65. The Defendant also relies on Kenya Commercial Finance Co. Ltd v Afraha Education Society [2001] 1 EA 86, where the Court of Appeal held that the three conditions for the grant of an interlocutory injunction are sequential and that where a prima facie case has not been established, the court need not consider the other two requirements.
66. The Defendant submits that the Plaintiff has failed to establish a prima facie case because he admits that the borrower, Caneland Limited, obtained loan facilities amounting to Ksh.135,000,000/- from the Defendant, which remain unpaid. It is submitted that the Plaintiff has also admitted, through the IRAC report relied upon in his further affidavit, that at least Ksh.53,483,814.64/- is owing to the Defendant.
67. The Defendant submits that the only issue raised by the Plaintiff is the computation of the outstanding debt, which does not, without more, establish fraud or illegality sufficient to restrain a chargee from exercising its statutory power of sale. It is argued that the Plaintiff has failed to demonstrate any unlawful conduct on the part of the Defendant.
68. The Defendant submits that the Plaintiff has not demonstrated that the redemption amount of Ksh.230,169,711.75/- is unlawful. It is argued that the amount demanded reflects the outstanding loan obligations, accrued interest and other lawful charges, and that the Plaintiff has failed to produce credible evidence to demonstrate that the Defendant acted in breach of Section 44A of the Banking Act.
69. The Defendant further submits that the Plaintiff’s reliance on the in duplum rule is misplaced because the IRAC report relied upon by the Plaintiff was not an admission by the Defendant of the amount owing, but merely a report commissioned by the Plaintiff. The Defendant maintains that the Plaintiff remains indebted and has not discharged the debt.
70. On the allegation of unlawful variation of interest rates, the Defendant submits that the Plaintiff has not provided evidence demonstrating that the Defendant charged unlawful interest or that any approval required under Section 44 of the Banking Act was absent. It is therefore submitted that the allegations remain mere assertions unsupported by evidence.
71. The Defendant submits that the Plaintiff has also failed to prove fraud or illegality. Reliance is placed on Central Bank of Kenya Ltd v Trust Bank Ltd & 4 Others [1996] eKLR, where the court held that allegations of fraud and conspiracy to defraud are serious allegations requiring a higher degree of proof than ordinary allegations in civil proceedings. The Defendant argues that the Plaintiff has made only vague allegations without providing cogent evidence.
72. On whether irreparable loss has been demonstrated the Defendant submits that the Plaintiff has failed to demonstrate that he will suffer such loss if the injunction is not granted. It is argued that the Plaintiff’s alleged injury is purely economic and capable of being compensated by damages.
73. The Defendant again relies on Nguruman Limited v Jan Bonde Nielsen & 2 Others (supra), where the court held that the burden lies on the applicant to demonstrate the nature and extent of the injury likely to be suffered and that speculative injury or mere apprehension is insufficient. The court stated that irreparable injury must be actual, substantial and demonstrable, and incapable of adequate compensation by damages.
74. The Defendant submits that the Plaintiff has merely made generalized assertions that he will suffer irreparable loss but has not demonstrated the nature of that loss. It is argued that the suit properties are commercial properties offered as security for a loan and that any loss arising from their sale is quantifiable.
75. The Defendant relies on Kihara v Barclays Bank (K) Ltd [2001] 2 EA 421, where Ringera J (as he then was) held that a person who offers property as security for a loan does so knowing that, in the event of default, the property may be sold. The court held that once property is pledged as security, it becomes a commodity for sale and its loss is compensable by damages.
76. On balance of convenience the Defendant submits that the same favours the Defendant because the dispute arises from a commercial lending transaction and the Plaintiff does not deny that the borrower remains indebted.
77. The Defendant submits that despite admitting indebtedness, the Plaintiff has not presented any repayment proposal or demonstrated willingness to settle the outstanding amount. It is argued that the Plaintiff cannot retain the benefit of the loan facility while simultaneously restraining the Defendant from realizing its security.
78. The Defendant relies on Andrew Muriuki Wanjohi v Equity Building Society Limited & 2 Others [2006] eKLR, where the court held that restraining a chargee from exercising its power of sale where the borrower had failed to repay the loan exposed the lender to the risk that the debt would continue increasing and eventually exceed the value of the security.
79. The Defendant submits that the Central Bank of Kenya Prudential Guidelines require banks to make provisions for non-performing loans, which adversely affects the Defendant’s resources and exposes it to the risk of the debt becoming irrecoverable. It is therefore argued that the balance of convenience favours allowing the Defendant to exercise its statutory rights.
80. On whether the statutory power of sale had accrued, the Defendant submits that the same had accrued because the b
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1. The Plaintiff’s notice of motion application dated 1st July, 2024 seeks the following orders:
a. [Spent].
b. The Defendant, its employees, servants and or agents be restrained by an order of injunction from advertising for sale, from selling by public auction or by private treaty, from taking possession of and from interfering with in any manner howsoever all the properties known as Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181 pending the haring and determination of this suit.
c. Cost of the application be provided for.
2. The grounds upon which the application is premised are that the Plaintiff contends that the Defendant’s intended exercise of its statutory power of sale over the suit properties is tainted by fraud and illegality.
3. It is alleged that the Defendant has unlawfully inflated the redemption amount by including sums allegedly prohibited under Section 44A of the Banking Act (the in duplum rule) and by charging interest at increased rates without the requisite approval of the Minister for Finance.
4. The Plaintiff further alleges that the Defendant, through its appointed auctioneer, issued redemption notices and notifications of sale containing false, exaggerated and unlawful redemption figures, thereby undermining and frustrating the Plaintiff’s equity of redemption. It is also contended that the notices are defective and incapable of sustaining a lawful exercise of the statutory power of sale.
5. The Plaintiff additionally asserts that the Defendant deliberately procured valuations that grossly undervalue the charged properties, namely Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181, with the intention of disposing of them at throw-away prices. According to the Plaintiff, the valuations do not reflect the prevailing market values and are intended to justify artificially low forced sale values, contrary to the Defendant’s statutory duty under Section 97 of the Land Act.
6. The Plaintiff therefore maintains that, by relying on allegedly unlawful redemption figures and grossly undervalued valuations, the Defendant’s intended realization of the securities is contrary to the law and amounts to an illegal exercise of its statutory power of sale.
7. The Plaintiff further avers that unless the application is heard and determined on an urgent basis, the Defendant, through its auctioneer, will proceed with the scheduled public auction upon the expiry of the redemption notices, thereby disposing of the suit properties through a process alleged to be fraudulent, irregular and unlawful. It is contended that such a sale would defeat the Plaintiff’s right of redemption and occasion substantial and irreparable loss.
B. THE PLAINTIFF’S SUPPORTING AFFIDAVIT.
8. The application is supported by the Plaintiff’s affidavit sworn on 1st June, 2024, in which, in precis, he deposes that he is a joint registered proprietor, together with his late brother, of the charged properties known as Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181. He states that the properties were charged to the Defendant as security for loan facilities aggregating Ksh.135,000,000/- advanced to Caneland Limited.
9. He deposes that he is aware that the loan facilities fell into arrears, following which the Defendant issued a statutory notice dated 26th October, 2012 demanding payment of Ksh.28,256,869.46/-. He avers, however, that efforts have continued to settle the outstanding indebtedness.
10. The Plaintiff further states that on 20th May, 2024 he was served with redemption notices and notifications of sale issued by Saddabri Auctioneers on behalf of the Defendant. Upon obtaining legal advice, he was informed that the notices were irregular and unlawful as they demanded a redemption sum of Ksh.230,169,711.75/-, which was grossly in excess of the amount demanded in the earlier statutory notice and allegedly included sums prohibited under Section 44A of the Banking Act as well as interest charged without the requisite approval of the Minister for Finance.
11. He further deposes that he was advised that the redemption notices contravened Rule 15(d) of the Auctioneers Rules, 1997, by failing to state the actual redemption amount and that they were not served upon all the registered proprietors of the charged properties as required by law.
12. He also contends that the notifications of sale contained forced sale values that were unsupported by current professional valuation reports and reflected a deliberate undervaluation of the properties. He further complains that the notifications included unspecified legal costs described as “Ksh. TBA”, thereby rendering the redemption figures inconsistent and uncertain.
13. The Plaintiff maintains that the Defendant’s intended realization of the securities is tainted by fraud and illegality. According to him, the Defendant seeks to recover sums that are legally irrecoverable while simultaneously undervaluing the charged properties in order to dispose of them at throw-away prices, thereby defeating his equity of redemption.
14. He finally deposes that unless the court intervenes by granting the orders sought, the Defendant will proceed with the intended auction, exposing him to the loss of valuable immovable property through an unlawful process and causing him substantial prejudice, while enabling the Defendant to benefit from the alleged fraud and illegality
C. THE DEFENDAT’S REPLYING AFFIDAVIT.
15. The application is opposed and to that end the Defendant filed a replying affidavit sworn on (date not clear) by Kajuju Marete, the Defendant’s Legal Manager. The said deponent contends that the Plaintiff’s allegations of fraud, illegality, breach of Section 44A of the Banking Act, unlawful variation of interest rates, inflation of the redemption amount and undervaluation of the charged properties are unfounded. According to her, the Defendant has at all material times acted lawfully in the exercise of its statutory power of sale.
16. The deponent further avers that the dispute over the charged properties has been the subject of several previous proceedings before the courts. She states that the Plaintiff and his co-director previously instituted suits and applications seeking substantially similar injunctive relief, which were dismissed, and that subsequent appeals were either dismissed, withdrawn or abandoned.
17. She adds that a later suit filed before the Environment and Land Court was also dismissed after the Plaintiff failed to prosecute it. It is therefore contended that the present suit and application are barred by the doctrine of res judicata under Section 7 of the Civil Procedure Act.
18. The deponent denies that the redemption notices and notifications of sale are illegal or that the redemption amount claimed offends Section 44A of the Banking Act. She maintains that the sums demanded are lawful, properly computed and consistent with the applicable banking laws and the Central Bank of Kenya Prudential Guidelines. She further contends that the Plaintiff has placed no credible evidence before the court to substantiate the allegations of unlawful interest charges or other irregularities.
19. The deponent also disputes the allegation that the charged properties were undervalued, asserting that the Defendant instructed qualified valuers, M/S Acumen Valuers Limited, to undertake professional valuations in compliance with Section 97 of the Land Act. According to the deponent, the Plaintiff has not demonstrated any impropriety in the valuation process or established any basis for impugning the valuation reports.
20. The deponent further maintains that the Defendant has never sought to deprive the Plaintiff of his equity of redemption and that the Plaintiff remains at liberty to redeem the properties by settling the outstanding indebtedness. She also points out that the Plaintiff’s complaint regarding non-service of the redemption notices is contradicted by his own affidavit, in which he expressly acknowledges receipt of the notices.
21. The deponent finally contends that the Plaintiff has failed to establish a prima facie case with a probability of success or to demonstrate that he would suffer irreparable harm incapable of compensation by an award of damages.
22. She states that the dispute arises from a purely commercial transaction, that the Defendant is merely enforcing its contractual and statutory rights following the Plaintiff’s persistent default, and that the balance of convenience favours the Defendant, whose ability to recover depositors’ funds continues to be prejudiced by the Plaintiff’s prolonged failure to discharge the debt.
23. Accordingly, she urges the court to dismiss the application with costs.
D. THE PLAINTIFF’S FURTHER AFFIDAVIT.
24. The Plaintiff filed a further affidavit sworn on 20th August, 2024 by Wilfred A. Onono, in which he deposes that he is the Managing Consultant of the Interest Rates Advisory Centre (IRAC) and is duly authorised to swear the affidavit on behalf of the Plaintiff.
25. The deponent avers that the Plaintiff engaged IRAC to undertake a recalculation of the loan accounts covering the period between 5th May, 2003 and 30th April, 2015. Following the exercise, IRAC prepared a report which, applying the in duplum rule, concluded that the amount recoverable by the Defendant stood at Ksh.53,483,814.64/-. He states that the recalculation was undertaken in accordance with the Central Bank of Kenya Prudential Guidelines, 2013 and Sections 44 and 44A of the Banking Act.
26. He further deposes that IRAC determined the date on which the loan accounts became non-performing by reference to the bank statements supplied by the Defendant and the Prudential Guidelines, and disputes the Defendant’s contention that the methodology adopted in the recalculation was erroneous.
27. He adds that legal fees and recovery expenses referred to by the Defendant had not been debited to the loan accounts at the time of the recalculation and were therefore not factored into the computation.
28. The deponent further states that IRAC did not take into account any variable interest rates allegedly applied by the Defendant because no evidence was furnished to show that the Plaintiff had been notified of, or had consented to, any variation of the contractual interest rates. He maintains that interest constitutes a material contractual term and that any variation thereof required prior notice to the borrower and compliance with the applicable provisions of the Banking Act. Consequently, IRAC relied on the interest rates stipulated in the facility letters when undertaking its computations.
29. He also deposes that, in the absence of evidence demonstrating lawful approval for the variation of interest rates, the Defendant is precluded from recovering interest and charges beyond those permitted by law. According to the deponent, the applicable statutory provisions and banking guidelines limit the amount lawfully recoverable by the Defendant.
30. Finally, the deponent states that following a payment of Ksh.20,000,000/- made by the Plaintiff on 20th April, 2017, the amount recoverable by the Defendant reduced to Ksh.33,483,814.84/-. He expresses the view that, as a banking institution, the Defendant ought to act fairly and in good faith in the enforcement of its securities.
E. THE PLAINTIFF’S SUBMISSIONS.
31. The Plaintiff submits that the application dated 1st July, 2024 seeks an order restraining the Defendant, its servants, agents and employees from advertising for sale, selling by public auction or private treaty, taking possession of, or otherwise interfering with the properties known as Kisumu Municipality/Block 7/171 and Kisumu Municipality/Block 7/181 pending the hearing and determination of the suit.
32. He submits that the application is premised on the contention that the Defendant’s intended exercise of its statutory power of sale is tainted with fraud and illegality. It is argued that the Defendant, through its agents Saddabri Auctioneers, issued redemption notices and notifications of sale demanding Ksh.230,169,711.75/-, which amount was unlawfully inflated by including sums prohibited under Section 44A of the Banking Act and interest allegedly charged at rates not approved by the Minister responsible for Finance.
33. The Plaintiff submits that the Defendant’s actions further violated Section 97 of the Land Act by relying on grossly undervalued forced sale values of the charged properties, with the intention of disposing of the properties at throw-away prices. It is contended that the Defendant’s conduct was calculated to defeat the Plaintiff’s statutory right of redemption.
34. The Plaintiff submits that he is the registered owner of the suit properties jointly with his late brother and that the properties were charged to the Defendant as security for loan facilities amounting to Ksh.135,000,000/- advanced to Caneland Limited, a company in which he is a director. It is acknowledged that the loan facilities fell into default, but the Plaintiff submits that substantial payments had been made towards settlement of the indebtedness.
35. The Plaintiff submits that as at 26th October, 2012, the Defendant’s statutory notice indicated that there was an outstanding amount of Ksh.28,256,869.46/-. However, upon issuing redemption notices dated 20th May, 2024, the Defendant demanded Ksh.230,169,711.75/-. The Plaintiff argues that the unexplained disparity between the amounts demanded demonstrates an unlawful inflation of the redemption debt and a violation of his equity of redemption.
36. The Plaintiff submits that the Interest Rates Advisory Centre (IRAC), through the further affidavit of Wilfred A. Onono, undertook a recalculation of the loan account for the period between 5th May, 2003 and 30th April, 2015. According to the Plaintiff, the recalculation, undertaken in accordance with Section 44A of the Banking Act and the Central Bank of Kenya Prudential Guidelines established that the amount lawfully recoverable by the Defendant under the in duplum rule was Ksh.53,483,814.64/-.
37. The Plaintiff submits that after taking into account a payment of Ksh.20,000,000/- made on 20th April, 2017, the recoverable amount stood at Ksh.33,483,814.64/-. It is therefore argued that the Defendant’s demand for Ksh.230,169,711.75/- was excessive and unlawful.
38. On the principles governing temporary injunctions, the Plaintiff relies on Giella v Cassman Brown & Co. Ltd [1973] EA 358, where the East African Court of Appeal held that an applicant seeking a temporary injunction must demonstrate a prima facie case with a probability of success, establish that he will suffer irreparable injury which cannot adequately be compensated by damages, and where the court is in doubt, determine the application on a balance of convenience.
39. The Plaintiff further relies on Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR, Civil Appeal No. 77 of 2012 (Court of Appeal), where the Court of Appeal affirmed that the three conditions for granting an interlocutory injunction are separate, distinct and sequential hurdles. The Court held that an applicant must first establish a prima facie case, then demonstrate irreparable injury and finally, if necessary, show that the balance of convenience favours the grant of the injunction.
40. On the question whether a prima facie case has been established, the Plaintiff relies on Mrao Ltd v First American Bank of Kenya Ltd & 2 Others [2003] eKLR, Civil Appeal No. 39 of 2002 (Court of Appeal), where the Court of Appeal defined a prima facie case as:
“a case in which, on the material presented to the court, a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.”
41. The Plaintiff submits that he has established a prima facie case by demonstrating that the Defendant is seeking to recover sums that are prohibited by Section 44A of the Banking Act. It is submitted that the Defendant’s demand includes interest and charges which exceed the statutory limits imposed by the in duplum rule.
42. The Plaintiff submits that Section 44A of the Banking Act limits the amount recoverable by a financial institution from a borrower in respect of a non-performing loan to the principal owing when the loan became non-performing, contractual interest not exceeding the principal and expenses incurred in recovery of the debt.
43. The Plaintiff submits that by issuing redemption notices demanding Ksh.230,169,711.75/-, the Defendant violated the statutory limitation imposed by Section 44A of the Banking Act, thereby rendering the intended exercise of the statutory power of sale unlawful.
44. The Plaintiff further relies on the decision of the Supreme Court in Stanbic Bank Kenya Limited v Santowels Limited & Another [2024] KESC 11 (KLR), Petition No. E005 of 2023, where the Supreme Court held that interest rates charged by banks and financial institutions are subject to the regulatory framework under Section 44 of the Banking Act. The Court declared that financial institutions are required to obtain approval from the Cabinet Secretary responsible for Finance before increasing interest rates on loans and facilities advanced to borrowers.
45. The Plaintiff submits that the Defendant has not demonstrated that it obtained the requisite approval before varying interest rates and is therefore prohibited from recovering interest charged pursuant to unlawful variations.
46. On irreparable injury, the Plaintiff relies on Pius Kipchirchir Kogo v Frank Kimeli Tenai [2018] eKLR, where the court held that irreparable injury means an injury that cannot adequately be compensated by an award of damages and that the mere existence of a prima facie case does not automatically justify the grant of an injunction unless the applicant demonstrates the likelihood of suffering such injury.
47. The Plaintiff submits that he will suffer irreparable loss if the Defendant proceeds with the auction because the suit properties are commercial properties and constitute his source of income. It is argued that the sale of the properties through an allegedly unlawful process would deprive him of his proprietary rights and defeat his right of redemption.
48. The Plaintiff further submits that the Defendant intends to dispose of the properties at undervalued forced sale prices without reference to proper current valuations. It is argued that once the properties are sold, the Plaintiff may not be adequately compensated by damages, particularly where the sale would have occurred through an unlawful process.
49. The Plaintiff submits that it would be contrary to public policy to permit a financial institution to proceed with the exercise of statutory power of sale while disregarding mandatory provisions of the Banking Act, the Land Act and the Auctioneers Rules, 1997.
50. On the balance of convenience, the Plaintiff relies on Paul Gitonga Wanjau v Gathuthi Tea Factory Company Ltd & 2 Others [2016] eKLR, where the court held that where doubt exists as to the applicant’s right, or where violation of a right is disputed, the court must consider the comparative prejudice likely to be suffered by each party and determine which party would suffer greater harm depending on whether the injunction is granted or refused. The court further held that maintaining the status quo may be appropriate where the balance of convenience favours preservation pending determination of the dispute.
51. The Plaintiff submits that the balance of convenience favours preservation of the suit properties because the Defendant can continue to hold the securities pending determination of the legality of the intended sale, whereas the Plaintiff risks losing valuable properties through a process alleged to be unlawful.
52. On the issue of res judicata, the Plaintiff submits that the present application is not barred by Section 7 of the Civil Procedure Act. It is argued that although the Defendant relies on previous proceedings, including Kisumu HCCC No. 124 of 2013, Caneland Limited v African Banking Corporation, and Kisumu ELC Case No. 140 of 2017, the issues presently before the court have not previously been determined.
53. The Plaintiff submits that the doctrine of res judicata requires that the matter directly and substantially in issue must have been previously determined between the same parties, or parties claiming under them, litigating under the same title, by a court of competent jurisdiction.
54. The Plaintiff relies on the definition of res judicata in Black’s Law Dictionary, 10th Edition, which defines the doctrine as an issue that has been definitely settled by judicial decision and identifies the essential elements as an earlier decision on the issue, a final judgement on the merits, and involvement of the same parties or parties in privity with the original parties.
55. The Plaintiff submits that the previous proceedings relied upon by the Defendant involved different parties and different capacities. In particular, Kisumu HCCC No. 124 of 2013 involved Caneland Limited as the borrower, whereas the present suit is instituted by the Plaintiff in his personal capacity as chargor and proprietor of the suit properties.
56. The Plaintiff relies on Gladys Nduki Nthuki v Letshego Kenya Limited [2022] eKLR, Machakos High Court Civil Case No. 7 of 2021, where the court held that the doctrine of res judicata could not apply where the parties were not the same or litigating under the same title, particularly where one party was the principal borrower and the other was a guarantor.
57. The Plaintiff submits that Kisumu ELC Case No. 140 of 2017 was a land matter and did not determine the legality of the redemption notices and notifications of sale issued in 2024. It is argued that the present dispute concerns the legality of fresh notices and the manner in which the Defendant seeks to exercise its statutory power of sale.
58. Finally, on costs, the Plaintiff relies on Section 27 of the Civil Procedure Act and submits that costs ordinarily follow the event unless the court, for good reason, orders otherwise. The Plaintiff therefore prays that the application be allowed with costs.
59. In conclusion, the Plaintiff submits that he has satisfied the three requirements for grant of a temporary injunction and urges the court to restrain the Defendant from proceeding with the intended sale of the suit properties pending hearing and determination of the suit.
F. THE DEFENDANT’S SUBMISSIONS.
60. On its part, the Defendant submits that the Plaintiff’s application dated 1st July, 2024 is premised on the allegations that the Defendant’s intended exercise of its statutory power of sale is unlawful and irregular on account of alleged inflation of the redemption debt, failure to comply with Section 44A of the Banking Act, non-service of redemption notices and undervaluation of the charged properties. It is the Defendant’s submission that these allegations are unsupported and do not disclose any basis for injunctive relief.
61. The Defendant submits that the application is opposed on the basis that the Plaintiff has failed to establish any prima facie case, failed to demonstrate irreparable loss and failed to show that the balance of convenience favours the grant of an injunction.
62. It is further submitted that the suit is barred by the doctrine of res judicata under Section 7 of the Civil Procedure Act.
63. On whether the conditions for grant of an injunction have been met, the Defendant submits that the principles governing the grant of interlocutory injunctions are settled in Giella v Cassman Brown & Co. Ltd (supra).
64. The Defendant further relies on Nguruman Limited v Jan Bonde Nielsen & 2 Others (supra), where the Court of Appeal restated the principles applicable to interlocutory injunctions and held that the three requirements are separate, distinct and sequential hurdles which an applicant must satisfy. The Court held that the existence of a prima facie case alone is insufficient and that an applicant cannot “leap-frog” over the requirements of irreparable injury and balance of convenience.
65. The Defendant also relies on Kenya Commercial Finance Co. Ltd v Afraha Education Society [2001] 1 EA 86, where the Court of Appeal held that the three conditions for the grant of an interlocutory injunction are sequential and that where a prima facie case has not been established, the court need not consider the other two requirements.
66. The Defendant submits that the Plaintiff has failed to establish a prima facie case because he admits that the borrower, Caneland Limited, obtained loan facilities amounting to Ksh.135,000,000/- from the Defendant, which remain unpaid. It is submitted that the Plaintiff has also admitted, through the IRAC report relied upon in his further affidavit, that at least Ksh.53,483,814.64/- is owing to the Defendant.
67. The Defendant submits that the only issue raised by the Plaintiff is the computation of the outstanding debt, which does not, without more, establish fraud or illegality sufficient to restrain a chargee from exercising its statutory power of sale. It is argued that the Plaintiff has failed to demonstrate any unlawful conduct on the part of the Defendant.
68. The Defendant submits that the Plaintiff has not demonstrated that the redemption amount of Ksh.230,169,711.75/- is unlawful. It is argued that the amount demanded reflects the outstanding loan obligations, accrued interest and other lawful charges, and that the Plaintiff has failed to produce credible evidence to demonstrate that the Defendant acted in breach of Section 44A of the Banking Act.
69. The Defendant further submits that the Plaintiff’s reliance on the in duplum rule is misplaced because the IRAC report relied upon by the Plaintiff was not an admission by the Defendant of the amount owing, but merely a report commissioned by the Plaintiff. The Defendant maintains that the Plaintiff remains indebted and has not discharged the debt.
70. On the allegation of unlawful variation of interest rates, the Defendant submits that the Plaintiff has not provided evidence demonstrating that the Defendant charged unlawful interest or that any approval required under Section 44 of the Banking Act was absent. It is therefore submitted that the allegations remain mere assertions unsupported by evidence.
71. The Defendant submits that the Plaintiff has also failed to prove fraud or illegality. Reliance is placed on Central Bank of Kenya Ltd v Trust Bank Ltd & 4 Others [1996] eKLR, where the court held that allegations of fraud and conspiracy to defraud are serious allegations requiring a higher degree of proof than ordinary allegations in civil proceedings. The Defendant argues that the Plaintiff has made only vague allegations without providing cogent evidence.
72. On whether irreparable loss has been demonstrated the Defendant submits that the Plaintiff has failed to demonstrate that he will suffer such loss if the injunction is not granted. It is argued that the Plaintiff’s alleged injury is purely economic and capable of being compensated by damages.
73. The Defendant again relies on Nguruman Limited v Jan Bonde Nielsen & 2 Others (supra), where the court held that the burden lies on the applicant to demonstrate the nature and extent of the injury likely to be suffered and that speculative injury or mere apprehension is insufficient. The court stated that irreparable injury must be actual, substantial and demonstrable, and incapable of adequate compensation by damages.
74. The Defendant submits that the Plaintiff has merely made generalized assertions that he will suffer irreparable loss but has not demonstrated the nature of that loss. It is argued that the suit properties are commercial properties offered as security for a loan and that any loss arising from their sale is quantifiable.
75. The Defendant relies on Kihara v Barclays Bank (K) Ltd [2001] 2 EA 421, where Ringera J (as he then was) held that a person who offers property as security for a loan does so knowing that, in the event of default, the property may be sold. The court held that once property is pledged as security, it becomes a commodity for sale and its loss is compensable by damages.
76. On balance of convenience the Defendant submits that the same favours the Defendant because the dispute arises from a commercial lending transaction and the Plaintiff does not deny that the borrower remains indebted.
77. The Defendant submits that despite admitting indebtedness, the Plaintiff has not presented any repayment proposal or demonstrated willingness to settle the outstanding amount. It is argued that the Plaintiff cannot retain the benefit of the loan facility while simultaneously restraining the Defendant from realizing its security.
78. The Defendant relies on Andrew Muriuki Wanjohi v Equity Building Society Limited & 2 Others [2006] eKLR, where the court held that restraining a chargee from exercising its power of sale where the borrower had failed to repay the loan exposed the lender to the risk that the debt would continue increasing and eventually exceed the value of the security.
79. The Defendant submits that the Central Bank of Kenya Prudential Guidelines require banks to make provisions for non-performing loans, which adversely affects the Defendant’s resources and exposes it to the risk of the debt becoming irrecoverable. It is therefore argued that the balance of convenience favours allowing the Defendant to exercise its statutory rights.
80. On whether the statutory power of sale had accrued, the Defendant submits that the same had accrued because the b
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