REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI CIVIL APPELLATE DIVISION
CIVIL APPEAL NO. E969 OF 2024
(Coram: Andayi W. F., J.)
TELEPOSTA SACCO SOCIETY LIMITED...........................................………APPELLANT
VERSUS
RICHARD W. THUKU…………………………………..……….…………………RESPONDENT
(Being an Appeal from the Judgment of the Co-operative Tribunal at Nairobi on 25 th July 2024 in Co-operative Tribunal Claim No. 360 of 2018)
JUDGMENT
1. The appellant herein, Teleposta Sacco Society Ltd, is dissatisfied with the judgment of the Co-operative Tribunal (CT) delivered on 25 th July 2024 and has appealed that decision to this court. The memorandum of appeal dated 16 th August 2024 lays out 11 grounds which however can be summarized into the following five grounds:
a. The Tribunal erred in law and in fact by finding that the respondent did not take out loans from the appellant against the weight of the evidence (Grounds 1, 2, 3 and 8).
b. The Tribunal erred in law and in fact by failing to appreciate that the respondent was the chairperson of the appellant at the material time and therefore had the opportunity and wherewithal to apprise and issue loans to himself without filing all the necessary documents. (Grounds 4 and 5).
c. The Tribunal erred in law and in fact by neglecting to assess the significance of dishonoured cheques issued by the respondent which acknowledged the debt thereby failing to apply relevant principles under the Bills of Exchange Act (Cap. 27) Laws of Kenya. (Grounds 6, 10 and 11).
d. The Tribunal erred in law and in fact by determining that the respondent’s indebtedness was limited to the acknowledged KShs 3,570,000/= disregarding evidence of other outstanding loans (Ground 7).
e. The Tribunal erred in law and in fact by ignoring the findings of the SASRA report which found the respondent together with other officials guilty of siphoning funds from the appellant by way of undocumented loans (Ground 9).
2. The appellant therefore prays that the appeal be allowed, the judgment of the Tribunal dated 25 th July 2024 be set aside and the appellant’s statement of claim dated 26 th July 2018 be allowed as prayed and this court makes any other orders that it deems fit and just in the circumstances of the case.
3. The appeal was disposed of on the written submissions of the parties.
4. An appeal from the Tribunal’s decision would be determined under section 81 of the Co-operative Societies Act which provides that:
S. 81(1) Any party to the proceedings before the Tribunal who is aggrieved by any order of the Tribunal may, within thirty days of such order, appeal against such order to the High Court:
Provided that the High Court may, where it is satisfied that there is sufficient reason for so doing, extend the said period of thirty days upon such conditions, if any, as it may think fit.
(2) Upon the hearing of an appeal under this section, the High Court may:—
(a) confirm, set aside or vary the order in question;
(b) remit the proceedings to the Tribunal with such instructions for further consideration, report, proceedings or evidence as the court may deem fit to give;
(c) exercise any of the powers which could have been exercised by the Tribunal in the proceedings in connection with which the appeal is brought; or
(d) make such other order as it may deem just, including an order as to costs of the appeal or of earlier proceedings in the matter before the Tribunal.
(3) The decision of the High court on any appeal shall be final.
5. Section 78(2) of the Civil Procedure Act (Cap. 21) Laws of Kenya provides that an appellate court shall have the same powers and shall perform as nearly as may be the same duties as are conferred and imposed by the Act on courts of original jurisdiction in respect of suits instituted therein. In so proceeding in a first appeal, the court considers issues of both law and fact.
6. Therefore, this being a first appeal, this court must consider the case before the Tribunal, re-evaluate and re-analyze it, keeping in mind that it did not observe the witnesses testifying and should therefore give due allowance for that. This is the position as held in Selle & another vs. Associated Motor Boat Co. Ltd & others [1968] E.A at page 126 on a first appeal from the High Court to the Court of Appeal that:
“An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular, this court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally (Abdul Hameed Saif v Ali Mohamed Sholan (1955), 22 E.A.C.A. 270)”.
7. The case before the Tribunal was presented by the appellant through the statement of claim dated 26 th July 2018, the witness statement dated 26 th July 2018 of Maryanne Ndekei, the Chief Executive Officer of the appellant and the testimony before court on 14 th November 2023 by Maryanne Wanjiru Gikenye, the appellant’s CEO (it is not clear whether the author of the witness statement and the witness is one and the same person but I will presume that she was). The appellant also filed and produced as exhibits some documents namely a letter dated 12 th April 2017, letter dated 8 th June 2017, account statement printed on 16 th March 2018 and a demand letter dated 29 th January 2018 from Kabugu & Co. Advocates.
8. The respondent’s case was presented through his response dated 9 th June 2022, the witness statement of the respondent Richard W. Thuku dated 14 th December 2022 and his testimony before the Tribunal on 14 th November 2023.
9. From the foregoing materials, it is common ground that the respondent was a member of the appellant and subsequently the chairman of its board of management between the years 2006 and 2016. The exact period when he was the chairman of the board is not clear as no documentary evidence was tendered to confirm the same and the appellant’s witness, PW 1 only mentioned the issue in passing.
10. The appellant’s case was that while he was the chairman of the board, the respondent took various loans and advances, out of which he repaid only KShs 200,000/= on 28 th February 2018 leaving a balance of KShs 14,883,296/= as evidenced by the statements of account. The loans were set out in the statement of claim as follows:
Loan Type
Outstanding amount (KShs)
Normal loan
4,795,890/=
Salary advance
7,990,000/=
Fosa overdraft
1,902,906/=
Unpaid interest
194,500/=
Total
14,885,296/=
11. Despite demands made by the appellant to the respondent to repay the monies, the respondent had failed to do so.
12. The respondent on his part stated in his response that during his tenure as chairman of the respondent he took a single loan of KShs 3,570,000/= on the agreement that the repayment amounts would be deducted from the allowances and bonuses paid to him as chairman of the Sacco. He denied that he took any additional loans nor that he paid KShs 200,000/= on or about 28 th February 2018 as alleged by the appellant.
13. The Tribunal considered the material before it and returned the verdict that the claim had not been proved on a balance of probability. The Tribunal’s findings were that the appellant had failed to prove that the respondent had been advanced the alleged loans by the appellant because the appellant had failed to produce as evidence primary documents such as loan application forms signed by the respondent, Credit Committee approvals and Board of Directors approvals. The Tribunal found that production of the member statement alone was not sufficient proof of advancement of the loans.
14. The Tribunal however went ahead to find that save for the Normal Loan amount of KShs 3,570,000/= which was admitted by the respondent that he had been advanced in 2011 and not in 2016, the other two loans namely Salary Advance and Fosa overdraft were not proved.
15. The next issue was to determine whether the respondent owed the appellant KShs 14,883,296/= as per the statement of claim. The Tribunal looked at the statements of account made available to it and found that under the Normal Loan account transactions the opening balance was KShs 2,795,890/=. There were three cheques each in the sum of KShs 700,000/= whose total amount added to the opening balance made the outstanding amount to be 4,895,890/= which was being claimed by the appellant. The Tribunal was left wondering whether the KShs 700,000/= indicated under each of the cheques was an additional loan or an advance.
16. The Tribunal found further that similar entries had been made under the Salary Advance account where the opening balance was shown as KShs 3,890,000/= and then a sum of KShs 4,200,000/= added representing six cheques each in the sum of KShs 700,000/= making a total of KShs 8,090,000/= and then a repayment of KShs 100,000/= made which brought down the total outstanding amount to KShs 7,990,000/=, the amount claimed by the appellant.
17. The Tribunal was at pains to determine how amounts represented by the alleged dishonoured cheques would end up forming part of the loan amount. It then found that each time the cheque was dishonoured, the amount thereof was added to the running balances as if they were new loans thereby increasing the claim.
18. The Tribunal further found that the appellant failed to produce copies of the dishonoured cheques or a bank statement for the transactions for the bounced cheques as proof of the claims.
19. With regard to the claim for interest of KShs 194,500/= the Tribunal found that it had no reason to analyze the same because it had not been provided with the by-laws or the loan application forms which showed the rate of interest charged and duration of the loans.
20. In his submissions before this court, learned counsel for the appellant maintains that the appellant had proved its claim against the respondent and the Tribunal was wrong in its determination. However, I find most of the submissions by learned counsel to be off-tangent because they purport to introduce issues that were not covered in the evidence of the witnesses, particularly the appellant’s witness.
21. For instance, the submission that the respondent as the chairman of the appellant’s board abused his position to obtain financial facilities without due process by disregarding lending protocols, including bypassing approval processes, failing to furnish security or documentation and personally disbursing loans to himself. The other submission is that the respondent acted in collusion with the then Chief Executive Officer to issue cheques which were never intended to be banked but that the respondent ensured that they were posted as payments to his loan account thereby artificially and fraudulently reducing his outstanding loan balances and that this manipulation facilitated by his undue influence and abuse of office led to the erroneous impression that repayments had been made. There was no such evidence tendered before the Tribunal in line of those submissions.
22. The submissions then go further to state that the Sacco Regulatory Authority (SASRA) uncovered that the cheques had, in fact, not been dishonoured but not banked at all pursuant to instructions from the respondent as chairman. That it was following the discovery of this deceitful scheme that the Regulator directed the appellant to reverse the falsely posted cheques as a corrective measure to restore accuracy to the loan account and cannot be treated as new disbursements, as erroneously concluded by the Tribunal. Here, learned counsel agrees with the Tribunal that the amounts represented in the cheques ought not ot have been added to the outstanding loan to increase it, yet at the same time faults the Tribunal for doing the correct thing.
23. Learned counsel for the respondent on his part submits that the Tribunal did not err in law and fact in its findings that the appellants failed to discharge the burden of proof on a balance of probability by failing to produce cogent evidence such as loan application forms, loan statements, board approvals and disbursements to support its claim. Learned counsel submits that the respondent was only aware of one loan of KShs 3,570,000/= he had with the Sacco and which he repaid in full. Learned counsel cited the case of Kyalo Elly Joy v Samuel Gitahi Kanyeri [2021] KEHC 9050 (KLR) where the case of Trust Bank Limited v Paramount Universal Bank Limited & 2 others [2009] KEHC 4030 (KLR) is cited for the holding that:
“...it is trite that where a party fails to call evidence in support of its case, that party’s pleadings remain mere statements of fact since in so doing the party fails to substantiate its pleadings.”
24. Learned counsel submits that even the allegation that the respondent had attempted to repay the amounts owing using cheques that never went through was not substantiated. Several other cases were cited to reinforce the submission that the appellant had failed to prove their claim as required under sections 107 and 109 of the Evidence Act (cap. 80) Laws of Kenya.
25. I have considered the grounds of appeal, the record of appeal and the submissions by learned counsels for the parties. Learned counsels for the parties have set out the issues for determination in this appeal.
26. However, for me, the starting point in consideration this appeal is the issue of the SASRA investigations into the claim.
27. Indeed, the failure of the Tribunal to consider the findings and conclusions of the SASRA report is one of the grounds of appeal herein. I have considered the evidence tendered before the Tribunal and I note that, the appellant’s witness statement did not mention SASRA or the report. The report was not part of the documents filed with the claim before the Tribunal. However, in her testimony in court during cross-examination, (not examination in chief), PW 1 mentioned SASRA investigations and findings in one line as follows:
“Reversal of cheques by CEO for the same day, they were postdated cheques (9) different dates, reversals were as per SASRA investigations – copy of findings.”
28. Other than the mention of the SASRA report in passing during cross-examination, nothing more was said of it beyond what is stated in the sentence above. Later in this appeal, the appellant sought to have it produced in this court as additional evidence but that application was dismissed by this court.
29. It is important at this stage to consider the issue of SASRA and its role in Cooperative Societies.
30. The Sacco Societies Regulatory Authority (SASRA) is created under section 4 of the Sacco Societies Act (Cap. 490B) Laws of Kenya. One of its functions under section 5(b) of the Act, is to regulate and supervise Sacco societies. That mandate is expounded under Part V of the Act on Regulation and Supervision of Sacco Societies. SASRA’s mandate under that part is wide and I will pick out the provisions that I find relevant to this case.
S. 48. (1) The Authority shall be responsible for the regulation and supervision of Sacco societies to which this Act applies.
(2) Without prejudice to the generality of subsection (1) , the Authority shall—
(a) ...
(b) undertake inspections or require a Sacco society to submit information and reports on its financial affairs of the deposit-taking business to enable the Authority to evaluate the society's financial condition;
31. Under section 49(1) of the Act, the Authority has the powers to cause an inspection of a Sacco society and of its books, accounts and records are set out. The section provides further as follows:
(1) The Authority may, at any time and from time to time, and shall, if so directed by the Cabinet Secretary, cause an inspection to be made by any person authorized by the Authority in writing of any Sacco society and of its books, accounts and records.
(2) The Authority shall assist any investigative authority regarding matters of suspected fraud or malpractice in Sacco societies either by identification of such matters for referral or at the request of such authority.
(3) ...
(5) The person making the inspection shall prepare and submit a report to the Authority, and the report shall state—
(a) any breach or contravention of any of provisions of this Act or any regulations made under this Act;
(b) any irregularity in the manner of conduct of the inspected society;
(c) any mismanagement of a Sacco society; and
(d) any other matter relating to a Sacco society not consistent with sound and prudent business practice.
(6) A copy of the report of the findings of an inspection under subsection (1) shall be submitted by the Authority to the Commissioner.
(7) A report of the findings of an inspection under subsection (1) shall, in addition to any action that may be taken under the Co-operative Societies Act (Cap. 490) be presented by the Authority to the board of directors of the Sacco society.
32. Section 50 of the Sacco Societies Act provides for the powers of the Authority to advise and direct. The relevant section provides as follows:
S. 50(1). If, at any time, the Authority has reason to believe that—
(a) the business of a Sacco society is being conducted in a manner contrary to or not in compliance with the requirements of this Act or of any regulations made thereunder or in any manner detrimental to or not in the best interest of its members or members of the public, or
(b) a Sacco society, any of its officers or any other person participating in the management of the society is engaged in any practice likely to occasion a contravention of any of the provisions of this Act or any regulations made thereunder, or any other Act, the Authority may—
(i)...
(iii) in any case to which paragraph (b) applies, issue directions to the Sacco society, officer or other person to cease such practice;
33. Section 51 of the Sacco Societies Act provides for the powers of the Authority to enforce its supervisory functions in various ways as follows:
S. 51. Where the Authority determines that a Sacco society conducts its business in a manner contrary to the provisions of this Act or of any regulations made thereunder or any other Act or in any manner detrimental to or not in the best interests of its members or members of the public, or a Sacco society is undercapitalized, the Authority shall—
(m) impose financial penalties on the society or any officer, director, committee member, employee or agent of the Society in such amounts as may be prescribed through regulations;
...
(p) institute legal proceedings against any officer, director, committee member, employee or agent of the society; or
...
34. It is apparent from the provisions of the Act that SASRA has advisory, directory and enforcement powers under the Act. Among its enforcement powers is to institute legal proceedings against any officer, director, committee member, employee or agent of the society that it finds from its inspection that was errant. The type of legal proceedings that may be instituted under section 51(p) of the Sacco Societies Act against a person found to be operating afoul of the Sacco business is not specified. However, it is a matter of general knowledge that legal proceedings could either be civil or criminal. It must be presumed that in the absence of specification, then the Authority has a mandate to institute either criminal or civil proceedings upon the defaulting person. For criminal proceedings, the same would have to go through the Director of Criminal Prosecutions as provided for under Article 157(6)(1) of the Constitution. Section 94(3) of the Cooperative Societies Act provides that:
S.94(3). The Director of Public Prosecutions may, pursuant to the provisions of the Criminal Procedure Code ( Cap. 75 ), appoint public prosecutors for cases arising under the provisions of this Act.
35. The relation between the Cooperative Societies Act and the Sacco Societies Act is provided for under section 67 of the Sacco Societies Act which provides that:
S. 67(1) For greater certainty, the provisions of the Co-operative Societies Act ( Cap. 490 ) shall apply to a Sacco society carrying out deposit-taking business under this Act with respect to any matter, to the extent that the matter in question is not dealt with in this Act.
(2) In the case of a conflict between the provisions of this Act and the provisions of the Co-operative Societies Act ( Cap. 490 ) with respect to Sacco societies to which this Act applies, the provisions of this Act shall take precedence.
(3) All disputes arising out of Sacco business under this Act shall be referred to the Tribunal.
36. Tribunal is defined under section 2 of the Sacco Societies Act to have the meaning assigned to it in the Co-operative Societies Act ( Cap. 490 ) which in turn defines Tribunal to mean the Co-operative Tribunal established under section 77 .
37. It is apparent from the foregoing provisions of the Sacco Societies Act that it has to be read together with the Cooperative Societies Act.
38. Section 73 of the Cooperative Societies Act provides for powers of the Commissioner of Cooperatives to intervene in the management affairs of a cooperative society as follows:
S. 73(1) Where it appears that any person who has taken part in the organization or management of a co-operative society, or any past or present officer or member of the society
(a) has misapplied or retained or become liable or accountable for any money or property of the society; or
(b) has been guilty of misfeasance or breach of trust in relation to the society,
the Commissioner may, on his own accord or on the application of the liquidator or of any creditor or member, inquire into the conduct of such person.
(2) Upon inquiry under subsection (1), the Commissioner may, if he considers it appropriate, make an order requiring the person to repay or restore the money or property or any part thereof to the co-operative society together with interest at such rate as the Commissioner thinks just or to contribute such sum to the assets of the society by way of compensation as the Commissioner deems just.
39. The enforcement mechanism for findings of mismanagement of the Sacco business under section 51 (m) and (p) of the Sacco Societies Act is by the SASRA imposing penalties or taking out legal proceedings against the defaulting society or any officer, director, committee member, employee or agent of the society.
40. On the other hand, the enforcement mechanism against mismanagement of the business of a Cooperative Society is provided for under sections 73, 74 and 75 of the Cooperative Society Act.
41. Section 73 of the Cooperative Act provides that the Commissioner may make an inquiry into the operations of a Cooperative society and if it is established that there is any impropriety by any person who has taken part in the organization or management of a co-operative society , or any past or present officer or member of the society the Commissioner is to make an order requiring the person to repay or restore the money or property or any part thereof to the co-operative society together with interest at such rate as the Commissioner thinks just or to contribute such sum to the assets of the society by way of compensation as the Commissioner deems just. This is commonly referred to as a surcharge by the Commissioner.
42. In my understanding, there is intertwining of the operations of these two statutes with respect to investigations into impropriety into the conduct of the business of the Sacco society. Once the SASRA has presented the report to the Commissioner of Cooperatives under section 49(6) of the Sacco Societies Act, and since section 49(7) of the Act provides that action may be taken on the report under the Cooperative Societies Act, the Commissioner, is by necessary implication mandated to implement the inspection findings of SASRA as provided under the Co-operative Societies Act. Therefore, upon the SARA report being presented to him and adopting the report, the Commissioner should proceed under section 73 of the Cooperative Societies Act to cause the person found culpable under the SASRA report to be surcharged for the default.
43. The offices of SASRA and Commissioner of Cooperatives under the two statutes are complimentary. They are not created under the respective Acts for cosmetic purposes. It is clear from the provisions of the respective statutes that they perform oversight functions over the operations of Saccos and other cooperative societies for their effective administration. Therefore, the decisions made by them are binding and should be followed with enforcement as provided for under the two statutes. To abandon that route and take up other proceedings by directly filing a claim before the Tribunal not only breaches the doctrine of exhaustion of remedies but also causes delay in the conclusion of the matters. I believe that creation of the offices of SASRA and the Commissioner of Cooperatives under the two statutes was meant to expedite the handling of any administration, management, or financial issues that arise in cooperative societies. Creation of those offices also underscores the necessity for alternative mechanisms within these statutes to address grievances and disputes within cooperative societies.
44. Sections 74 and 75 of the Act provide for appeals against the Commissioner’s orders and recovery of surcharge as follows:
S. 74(1) Any person aggrieved by an order of the Commissioner under section 73(1) may, within thirty days, appeal to the Tribunal.
(2) A party aggrieved by the decision of the Tribunal may within thirty days appeal to the High Court on matters of law.
S. 75(1) Subject to section 74, an order made pursuant to section 73 for any moneys to be repaid or contributed to a co-operative society shall be filed with the Tribunal and shall, without prejudice to any other mode of recovery, be a civil debt recoverable summarily.
(2) Without prejudice to the powers by the Committee of a society to take action for recovery of the sum surcharged under section 73, the Commissioner may, on behalf of the society, institute such action.
45. From the foregoing provisions, the Tribunal has appellate jurisdiction over the SASRA report presented through the Commissioner. Therefore, whereas there is no doubt that a committee of a cooperative society may take legal action on the SASRA report on its own as provided for under section 75(2) of the Cooperative Societies Act, I think it is desirable that the processes initiated by the SASRA and the Commissioner be undertaken to their logical conclusion as provided for under the Act.
46. In the present case, whereas the committee of the appellant society appears to have proceeded to take action as contemplated under section 75(2) of the Act, it is apparent that its action was based on the SASRA report and not of its own accord. Once the Tribunal became aware that this was the case, it ought to have directed that the matter be remitted to SASRA for enforcement of the report as provided for under the Sacco Societies Act and the Cooperative Societies Act. In that case, whether or not the alleged indebtedness of the respondent to the appellant was by way of loans properly advanced or not would not be for the Tribunal to delve into by way of primary documents as the same had already been considered by the SASRA.
47. In that case, depending on the outcome of its findings, SASRA ought to have taken the next step either to take legal action against the respondent, if at all he was found to have acted in breach of the law or in the alternative if the report had been forwarded to the Commissioner he could as well have proceeded to act on the recommendations of the SASRA report under the provisions of the Cooperative Societies Act on surcharge. That way, the matter would come to the Tribunal, if at all, by way of appeal and eventually to the High Court.
48. I wish to add that the exercise of jurisdiction of the Tribunal under Parts XII and XIII of the Cooperative Societies Act on Dissolution and Surcharge respectively is different from the exercise of its jurisdiction under Part XIV on Settlement of Disputes. The former is appellate whereas the latter is original. Therefore, the Tribunal has to take this distinction into account in the exercise of its jurisdiction and proceed appropriately under each of these parts because even the provisions for appeal of the Tribunal’s decision to the High Court under each of the parts is different.
49. Under Part XIII on Surcharge, this court exercises second appellate jurisdiction over the CT’s decision and is specific under section 74 of the Act, that the appeal is on points of law only while under Part XIV, this court’s jurisdiction over the CT’s decision is general, meaning it is on both points of law and fact, as provided for under section 81 of the Act and it is final.
50. In the final analysis, I find that the Tribunal had no jurisdiction to proceed with the claim by the appellant in the manner that it did, as if it was a dispute under the Part XIV of the Cooperative Societies Act, the same having been instituted as a result of the re
[...truncated]
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI CIVIL APPELLATE DIVISION
CIVIL APPEAL NO. E969 OF 2024
(Coram: Andayi W. F., J.)
TELEPOSTA SACCO SOCIETY LIMITED...........................................………APPELLANT
VERSUS
RICHARD W. THUKU…………………………………..……….…………………RESPONDENT
(Being an Appeal from the Judgment of the Co-operative Tribunal at Nairobi on 25 th July 2024 in Co-operative Tribunal Claim No. 360 of 2018)
JUDGMENT
1. The appellant herein, Teleposta Sacco Society Ltd, is dissatisfied with the judgment of the Co-operative Tribunal (CT) delivered on 25 th July 2024 and has appealed that decision to this court. The memorandum of appeal dated 16 th August 2024 lays out 11 grounds which however can be summarized into the following five grounds:
a. The Tribunal erred in law and in fact by finding that the respondent did not take out loans from the appellant against the weight of the evidence (Grounds 1, 2, 3 and 8).
b. The Tribunal erred in law and in fact by failing to appreciate that the respondent was the chairperson of the appellant at the material time and therefore had the opportunity and wherewithal to apprise and issue loans to himself without filing all the necessary documents. (Grounds 4 and 5).
c. The Tribunal erred in law and in fact by neglecting to assess the significance of dishonoured cheques issued by the respondent which acknowledged the debt thereby failing to apply relevant principles under the Bills of Exchange Act (Cap. 27) Laws of Kenya. (Grounds 6, 10 and 11).
d. The Tribunal erred in law and in fact by determining that the respondent’s indebtedness was limited to the acknowledged KShs 3,570,000/= disregarding evidence of other outstanding loans (Ground 7).
e. The Tribunal erred in law and in fact by ignoring the findings of the SASRA report which found the respondent together with other officials guilty of siphoning funds from the appellant by way of undocumented loans (Ground 9).
2. The appellant therefore prays that the appeal be allowed, the judgment of the Tribunal dated 25 th July 2024 be set aside and the appellant’s statement of claim dated 26 th July 2018 be allowed as prayed and this court makes any other orders that it deems fit and just in the circumstances of the case.
3. The appeal was disposed of on the written submissions of the parties.
4. An appeal from the Tribunal’s decision would be determined under section 81 of the Co-operative Societies Act which provides that:
S. 81(1) Any party to the proceedings before the Tribunal who is aggrieved by any order of the Tribunal may, within thirty days of such order, appeal against such order to the High Court:
Provided that the High Court may, where it is satisfied that there is sufficient reason for so doing, extend the said period of thirty days upon such conditions, if any, as it may think fit.
(2) Upon the hearing of an appeal under this section, the High Court may:—
(a) confirm, set aside or vary the order in question;
(b) remit the proceedings to the Tribunal with such instructions for further consideration, report, proceedings or evidence as the court may deem fit to give;
(c) exercise any of the powers which could have been exercised by the Tribunal in the proceedings in connection with which the appeal is brought; or
(d) make such other order as it may deem just, including an order as to costs of the appeal or of earlier proceedings in the matter before the Tribunal.
(3) The decision of the High court on any appeal shall be final.
5. Section 78(2) of the Civil Procedure Act (Cap. 21) Laws of Kenya provides that an appellate court shall have the same powers and shall perform as nearly as may be the same duties as are conferred and imposed by the Act on courts of original jurisdiction in respect of suits instituted therein. In so proceeding in a first appeal, the court considers issues of both law and fact.
6. Therefore, this being a first appeal, this court must consider the case before the Tribunal, re-evaluate and re-analyze it, keeping in mind that it did not observe the witnesses testifying and should therefore give due allowance for that. This is the position as held in Selle & another vs. Associated Motor Boat Co. Ltd & others [1968] E.A at page 126 on a first appeal from the High Court to the Court of Appeal that:
“An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular, this court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally (Abdul Hameed Saif v Ali Mohamed Sholan (1955), 22 E.A.C.A. 270)”.
7. The case before the Tribunal was presented by the appellant through the statement of claim dated 26 th July 2018, the witness statement dated 26 th July 2018 of Maryanne Ndekei, the Chief Executive Officer of the appellant and the testimony before court on 14 th November 2023 by Maryanne Wanjiru Gikenye, the appellant’s CEO (it is not clear whether the author of the witness statement and the witness is one and the same person but I will presume that she was). The appellant also filed and produced as exhibits some documents namely a letter dated 12 th April 2017, letter dated 8 th June 2017, account statement printed on 16 th March 2018 and a demand letter dated 29 th January 2018 from Kabugu & Co. Advocates.
8. The respondent’s case was presented through his response dated 9 th June 2022, the witness statement of the respondent Richard W. Thuku dated 14 th December 2022 and his testimony before the Tribunal on 14 th November 2023.
9. From the foregoing materials, it is common ground that the respondent was a member of the appellant and subsequently the chairman of its board of management between the years 2006 and 2016. The exact period when he was the chairman of the board is not clear as no documentary evidence was tendered to confirm the same and the appellant’s witness, PW 1 only mentioned the issue in passing.
10. The appellant’s case was that while he was the chairman of the board, the respondent took various loans and advances, out of which he repaid only KShs 200,000/= on 28 th February 2018 leaving a balance of KShs 14,883,296/= as evidenced by the statements of account. The loans were set out in the statement of claim as follows:
Loan Type
Outstanding amount (KShs)
Normal loan
4,795,890/=
Salary advance
7,990,000/=
Fosa overdraft
1,902,906/=
Unpaid interest
194,500/=
Total
14,885,296/=
11. Despite demands made by the appellant to the respondent to repay the monies, the respondent had failed to do so.
12. The respondent on his part stated in his response that during his tenure as chairman of the respondent he took a single loan of KShs 3,570,000/= on the agreement that the repayment amounts would be deducted from the allowances and bonuses paid to him as chairman of the Sacco. He denied that he took any additional loans nor that he paid KShs 200,000/= on or about 28 th February 2018 as alleged by the appellant.
13. The Tribunal considered the material before it and returned the verdict that the claim had not been proved on a balance of probability. The Tribunal’s findings were that the appellant had failed to prove that the respondent had been advanced the alleged loans by the appellant because the appellant had failed to produce as evidence primary documents such as loan application forms signed by the respondent, Credit Committee approvals and Board of Directors approvals. The Tribunal found that production of the member statement alone was not sufficient proof of advancement of the loans.
14. The Tribunal however went ahead to find that save for the Normal Loan amount of KShs 3,570,000/= which was admitted by the respondent that he had been advanced in 2011 and not in 2016, the other two loans namely Salary Advance and Fosa overdraft were not proved.
15. The next issue was to determine whether the respondent owed the appellant KShs 14,883,296/= as per the statement of claim. The Tribunal looked at the statements of account made available to it and found that under the Normal Loan account transactions the opening balance was KShs 2,795,890/=. There were three cheques each in the sum of KShs 700,000/= whose total amount added to the opening balance made the outstanding amount to be 4,895,890/= which was being claimed by the appellant. The Tribunal was left wondering whether the KShs 700,000/= indicated under each of the cheques was an additional loan or an advance.
16. The Tribunal found further that similar entries had been made under the Salary Advance account where the opening balance was shown as KShs 3,890,000/= and then a sum of KShs 4,200,000/= added representing six cheques each in the sum of KShs 700,000/= making a total of KShs 8,090,000/= and then a repayment of KShs 100,000/= made which brought down the total outstanding amount to KShs 7,990,000/=, the amount claimed by the appellant.
17. The Tribunal was at pains to determine how amounts represented by the alleged dishonoured cheques would end up forming part of the loan amount. It then found that each time the cheque was dishonoured, the amount thereof was added to the running balances as if they were new loans thereby increasing the claim.
18. The Tribunal further found that the appellant failed to produce copies of the dishonoured cheques or a bank statement for the transactions for the bounced cheques as proof of the claims.
19. With regard to the claim for interest of KShs 194,500/= the Tribunal found that it had no reason to analyze the same because it had not been provided with the by-laws or the loan application forms which showed the rate of interest charged and duration of the loans.
20. In his submissions before this court, learned counsel for the appellant maintains that the appellant had proved its claim against the respondent and the Tribunal was wrong in its determination. However, I find most of the submissions by learned counsel to be off-tangent because they purport to introduce issues that were not covered in the evidence of the witnesses, particularly the appellant’s witness.
21. For instance, the submission that the respondent as the chairman of the appellant’s board abused his position to obtain financial facilities without due process by disregarding lending protocols, including bypassing approval processes, failing to furnish security or documentation and personally disbursing loans to himself. The other submission is that the respondent acted in collusion with the then Chief Executive Officer to issue cheques which were never intended to be banked but that the respondent ensured that they were posted as payments to his loan account thereby artificially and fraudulently reducing his outstanding loan balances and that this manipulation facilitated by his undue influence and abuse of office led to the erroneous impression that repayments had been made. There was no such evidence tendered before the Tribunal in line of those submissions.
22. The submissions then go further to state that the Sacco Regulatory Authority (SASRA) uncovered that the cheques had, in fact, not been dishonoured but not banked at all pursuant to instructions from the respondent as chairman. That it was following the discovery of this deceitful scheme that the Regulator directed the appellant to reverse the falsely posted cheques as a corrective measure to restore accuracy to the loan account and cannot be treated as new disbursements, as erroneously concluded by the Tribunal. Here, learned counsel agrees with the Tribunal that the amounts represented in the cheques ought not ot have been added to the outstanding loan to increase it, yet at the same time faults the Tribunal for doing the correct thing.
23. Learned counsel for the respondent on his part submits that the Tribunal did not err in law and fact in its findings that the appellants failed to discharge the burden of proof on a balance of probability by failing to produce cogent evidence such as loan application forms, loan statements, board approvals and disbursements to support its claim. Learned counsel submits that the respondent was only aware of one loan of KShs 3,570,000/= he had with the Sacco and which he repaid in full. Learned counsel cited the case of Kyalo Elly Joy v Samuel Gitahi Kanyeri [2021] KEHC 9050 (KLR) where the case of Trust Bank Limited v Paramount Universal Bank Limited & 2 others [2009] KEHC 4030 (KLR) is cited for the holding that:
“...it is trite that where a party fails to call evidence in support of its case, that party’s pleadings remain mere statements of fact since in so doing the party fails to substantiate its pleadings.”
24. Learned counsel submits that even the allegation that the respondent had attempted to repay the amounts owing using cheques that never went through was not substantiated. Several other cases were cited to reinforce the submission that the appellant had failed to prove their claim as required under sections 107 and 109 of the Evidence Act (cap. 80) Laws of Kenya.
25. I have considered the grounds of appeal, the record of appeal and the submissions by learned counsels for the parties. Learned counsels for the parties have set out the issues for determination in this appeal.
26. However, for me, the starting point in consideration this appeal is the issue of the SASRA investigations into the claim.
27. Indeed, the failure of the Tribunal to consider the findings and conclusions of the SASRA report is one of the grounds of appeal herein. I have considered the evidence tendered before the Tribunal and I note that, the appellant’s witness statement did not mention SASRA or the report. The report was not part of the documents filed with the claim before the Tribunal. However, in her testimony in court during cross-examination, (not examination in chief), PW 1 mentioned SASRA investigations and findings in one line as follows:
“Reversal of cheques by CEO for the same day, they were postdated cheques (9) different dates, reversals were as per SASRA investigations – copy of findings.”
28. Other than the mention of the SASRA report in passing during cross-examination, nothing more was said of it beyond what is stated in the sentence above. Later in this appeal, the appellant sought to have it produced in this court as additional evidence but that application was dismissed by this court.
29. It is important at this stage to consider the issue of SASRA and its role in Cooperative Societies.
30. The Sacco Societies Regulatory Authority (SASRA) is created under section 4 of the Sacco Societies Act (Cap. 490B) Laws of Kenya. One of its functions under section 5(b) of the Act, is to regulate and supervise Sacco societies. That mandate is expounded under Part V of the Act on Regulation and Supervision of Sacco Societies. SASRA’s mandate under that part is wide and I will pick out the provisions that I find relevant to this case.
S. 48. (1) The Authority shall be responsible for the regulation and supervision of Sacco societies to which this Act applies.
(2) Without prejudice to the generality of subsection (1) , the Authority shall—
(a) ...
(b) undertake inspections or require a Sacco society to submit information and reports on its financial affairs of the deposit-taking business to enable the Authority to evaluate the society's financial condition;
31. Under section 49(1) of the Act, the Authority has the powers to cause an inspection of a Sacco society and of its books, accounts and records are set out. The section provides further as follows:
(1) The Authority may, at any time and from time to time, and shall, if so directed by the Cabinet Secretary, cause an inspection to be made by any person authorized by the Authority in writing of any Sacco society and of its books, accounts and records.
(2) The Authority shall assist any investigative authority regarding matters of suspected fraud or malpractice in Sacco societies either by identification of such matters for referral or at the request of such authority.
(3) ...
(5) The person making the inspection shall prepare and submit a report to the Authority, and the report shall state—
(a) any breach or contravention of any of provisions of this Act or any regulations made under this Act;
(b) any irregularity in the manner of conduct of the inspected society;
(c) any mismanagement of a Sacco society; and
(d) any other matter relating to a Sacco society not consistent with sound and prudent business practice.
(6) A copy of the report of the findings of an inspection under subsection (1) shall be submitted by the Authority to the Commissioner.
(7) A report of the findings of an inspection under subsection (1) shall, in addition to any action that may be taken under the Co-operative Societies Act (Cap. 490) be presented by the Authority to the board of directors of the Sacco society.
32. Section 50 of the Sacco Societies Act provides for the powers of the Authority to advise and direct. The relevant section provides as follows:
S. 50(1). If, at any time, the Authority has reason to believe that—
(a) the business of a Sacco society is being conducted in a manner contrary to or not in compliance with the requirements of this Act or of any regulations made thereunder or in any manner detrimental to or not in the best interest of its members or members of the public, or
(b) a Sacco society, any of its officers or any other person participating in the management of the society is engaged in any practice likely to occasion a contravention of any of the provisions of this Act or any regulations made thereunder, or any other Act, the Authority may—
(i)...
(iii) in any case to which paragraph (b) applies, issue directions to the Sacco society, officer or other person to cease such practice;
33. Section 51 of the Sacco Societies Act provides for the powers of the Authority to enforce its supervisory functions in various ways as follows:
S. 51. Where the Authority determines that a Sacco society conducts its business in a manner contrary to the provisions of this Act or of any regulations made thereunder or any other Act or in any manner detrimental to or not in the best interests of its members or members of the public, or a Sacco society is undercapitalized, the Authority shall—
(m) impose financial penalties on the society or any officer, director, committee member, employee or agent of the Society in such amounts as may be prescribed through regulations;
...
(p) institute legal proceedings against any officer, director, committee member, employee or agent of the society; or
...
34. It is apparent from the provisions of the Act that SASRA has advisory, directory and enforcement powers under the Act. Among its enforcement powers is to institute legal proceedings against any officer, director, committee member, employee or agent of the society that it finds from its inspection that was errant. The type of legal proceedings that may be instituted under section 51(p) of the Sacco Societies Act against a person found to be operating afoul of the Sacco business is not specified. However, it is a matter of general knowledge that legal proceedings could either be civil or criminal. It must be presumed that in the absence of specification, then the Authority has a mandate to institute either criminal or civil proceedings upon the defaulting person. For criminal proceedings, the same would have to go through the Director of Criminal Prosecutions as provided for under Article 157(6)(1) of the Constitution. Section 94(3) of the Cooperative Societies Act provides that:
S.94(3). The Director of Public Prosecutions may, pursuant to the provisions of the Criminal Procedure Code ( Cap. 75 ), appoint public prosecutors for cases arising under the provisions of this Act.
35. The relation between the Cooperative Societies Act and the Sacco Societies Act is provided for under section 67 of the Sacco Societies Act which provides that:
S. 67(1) For greater certainty, the provisions of the Co-operative Societies Act ( Cap. 490 ) shall apply to a Sacco society carrying out deposit-taking business under this Act with respect to any matter, to the extent that the matter in question is not dealt with in this Act.
(2) In the case of a conflict between the provisions of this Act and the provisions of the Co-operative Societies Act ( Cap. 490 ) with respect to Sacco societies to which this Act applies, the provisions of this Act shall take precedence.
(3) All disputes arising out of Sacco business under this Act shall be referred to the Tribunal.
36. Tribunal is defined under section 2 of the Sacco Societies Act to have the meaning assigned to it in the Co-operative Societies Act ( Cap. 490 ) which in turn defines Tribunal to mean the Co-operative Tribunal established under section 77 .
37. It is apparent from the foregoing provisions of the Sacco Societies Act that it has to be read together with the Cooperative Societies Act.
38. Section 73 of the Cooperative Societies Act provides for powers of the Commissioner of Cooperatives to intervene in the management affairs of a cooperative society as follows:
S. 73(1) Where it appears that any person who has taken part in the organization or management of a co-operative society, or any past or present officer or member of the society
(a) has misapplied or retained or become liable or accountable for any money or property of the society; or
(b) has been guilty of misfeasance or breach of trust in relation to the society,
the Commissioner may, on his own accord or on the application of the liquidator or of any creditor or member, inquire into the conduct of such person.
(2) Upon inquiry under subsection (1), the Commissioner may, if he considers it appropriate, make an order requiring the person to repay or restore the money or property or any part thereof to the co-operative society together with interest at such rate as the Commissioner thinks just or to contribute such sum to the assets of the society by way of compensation as the Commissioner deems just.
39. The enforcement mechanism for findings of mismanagement of the Sacco business under section 51 (m) and (p) of the Sacco Societies Act is by the SASRA imposing penalties or taking out legal proceedings against the defaulting society or any officer, director, committee member, employee or agent of the society.
40. On the other hand, the enforcement mechanism against mismanagement of the business of a Cooperative Society is provided for under sections 73, 74 and 75 of the Cooperative Society Act.
41. Section 73 of the Cooperative Act provides that the Commissioner may make an inquiry into the operations of a Cooperative society and if it is established that there is any impropriety by any person who has taken part in the organization or management of a co-operative society , or any past or present officer or member of the society the Commissioner is to make an order requiring the person to repay or restore the money or property or any part thereof to the co-operative society together with interest at such rate as the Commissioner thinks just or to contribute such sum to the assets of the society by way of compensation as the Commissioner deems just. This is commonly referred to as a surcharge by the Commissioner.
42. In my understanding, there is intertwining of the operations of these two statutes with respect to investigations into impropriety into the conduct of the business of the Sacco society. Once the SASRA has presented the report to the Commissioner of Cooperatives under section 49(6) of the Sacco Societies Act, and since section 49(7) of the Act provides that action may be taken on the report under the Cooperative Societies Act, the Commissioner, is by necessary implication mandated to implement the inspection findings of SASRA as provided under the Co-operative Societies Act. Therefore, upon the SARA report being presented to him and adopting the report, the Commissioner should proceed under section 73 of the Cooperative Societies Act to cause the person found culpable under the SASRA report to be surcharged for the default.
43. The offices of SASRA and Commissioner of Cooperatives under the two statutes are complimentary. They are not created under the respective Acts for cosmetic purposes. It is clear from the provisions of the respective statutes that they perform oversight functions over the operations of Saccos and other cooperative societies for their effective administration. Therefore, the decisions made by them are binding and should be followed with enforcement as provided for under the two statutes. To abandon that route and take up other proceedings by directly filing a claim before the Tribunal not only breaches the doctrine of exhaustion of remedies but also causes delay in the conclusion of the matters. I believe that creation of the offices of SASRA and the Commissioner of Cooperatives under the two statutes was meant to expedite the handling of any administration, management, or financial issues that arise in cooperative societies. Creation of those offices also underscores the necessity for alternative mechanisms within these statutes to address grievances and disputes within cooperative societies.
44. Sections 74 and 75 of the Act provide for appeals against the Commissioner’s orders and recovery of surcharge as follows:
S. 74(1) Any person aggrieved by an order of the Commissioner under section 73(1) may, within thirty days, appeal to the Tribunal.
(2) A party aggrieved by the decision of the Tribunal may within thirty days appeal to the High Court on matters of law.
S. 75(1) Subject to section 74, an order made pursuant to section 73 for any moneys to be repaid or contributed to a co-operative society shall be filed with the Tribunal and shall, without prejudice to any other mode of recovery, be a civil debt recoverable summarily.
(2) Without prejudice to the powers by the Committee of a society to take action for recovery of the sum surcharged under section 73, the Commissioner may, on behalf of the society, institute such action.
45. From the foregoing provisions, the Tribunal has appellate jurisdiction over the SASRA report presented through the Commissioner. Therefore, whereas there is no doubt that a committee of a cooperative society may take legal action on the SASRA report on its own as provided for under section 75(2) of the Cooperative Societies Act, I think it is desirable that the processes initiated by the SASRA and the Commissioner be undertaken to their logical conclusion as provided for under the Act.
46. In the present case, whereas the committee of the appellant society appears to have proceeded to take action as contemplated under section 75(2) of the Act, it is apparent that its action was based on the SASRA report and not of its own accord. Once the Tribunal became aware that this was the case, it ought to have directed that the matter be remitted to SASRA for enforcement of the report as provided for under the Sacco Societies Act and the Cooperative Societies Act. In that case, whether or not the alleged indebtedness of the respondent to the appellant was by way of loans properly advanced or not would not be for the Tribunal to delve into by way of primary documents as the same had already been considered by the SASRA.
47. In that case, depending on the outcome of its findings, SASRA ought to have taken the next step either to take legal action against the respondent, if at all he was found to have acted in breach of the law or in the alternative if the report had been forwarded to the Commissioner he could as well have proceeded to act on the recommendations of the SASRA report under the provisions of the Cooperative Societies Act on surcharge. That way, the matter would come to the Tribunal, if at all, by way of appeal and eventually to the High Court.
48. I wish to add that the exercise of jurisdiction of the Tribunal under Parts XII and XIII of the Cooperative Societies Act on Dissolution and Surcharge respectively is different from the exercise of its jurisdiction under Part XIV on Settlement of Disputes. The former is appellate whereas the latter is original. Therefore, the Tribunal has to take this distinction into account in the exercise of its jurisdiction and proceed appropriately under each of these parts because even the provisions for appeal of the Tribunal’s decision to the High Court under each of the parts is different.
49. Under Part XIII on Surcharge, this court exercises second appellate jurisdiction over the CT’s decision and is specific under section 74 of the Act, that the appeal is on points of law only while under Part XIV, this court’s jurisdiction over the CT’s decision is general, meaning it is on both points of law and fact, as provided for under section 81 of the Act and it is final.
50. In the final analysis, I find that the Tribunal had no jurisdiction to proceed with the claim by the appellant in the manner that it did, as if it was a dispute under the Part XIV of the Cooperative Societies Act, the same having been instituted as a result of the re
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