Kenya Deposit Insurance Corporation (KDIC), sued as official receiver for Chase Bank (K) Ltd, got a reprieve after a court struck out a case by two companies challenging the sale of parcels of land used as security in relation to loans granted.
The Environment and Land Court (ELC) upheld a notice of preliminary objection by KDIC challenging its (court) jurisdiction to hear the case by Kwale Cement Factory Ltd and Rising Star Commodities Ltd saying it does not have requisite jurisdiction to hear and determine it.
“The dispute herein being one arising from the enforcement of charges securing commercial credit facilities falls within the province of the unlimited original civil jurisdiction of the High Court under the constitution” ruled Justice Lucas Naikuni sitting in Kwale.
Through lawyer Cecil Miller, KDIC had argued in its objection that the ELC lacked jurisdiction to hear the case as hearing it would be in contravention of the constitution.
Mr Miller argued that the case was premised on the use of land as collateral and contracts associated with that use thus falls under the jurisdiction of the High Court.
In his ruling, Justice Naikuni observed that the relationship between the parties was a banker-customer relationship under which Chase Bank (Kenya) Ltd extended credit facilities to the companies.
The judge also noted that the suit properties (parcels of land) were offered as collateral to secure the repayment of the facilities (loans) by way of registered charges.
The ELC noted that the plaintiffs (companies) pleaded no environmental harm, boundary dispute, controversy over the tenure or title of the properties as between themselves and the defendant and no question of the use or occupation of land.
It further ruled that the dominant question which was the substratum of the case was the validity, scope and enforcement of banking securities and the exercise by the defendant, as receiver, of the statutory power of sale.
“The land offered as collateral is merely the mechanism by which the bank secured its commercial exposure and its existence does not transform a banking dispute into a land dispute,” ruled Justice Naikuni.
The judge declined a request by the plaintiffs to have the case transferred to the High Court rather than strike it out.
“The parties are hereby granted liberty to institute their respective claims afresh before the High Court, being the court seized with the requisite jurisdiction, subject to the applicable law,” the court ruled.
KDIC also argued that the ELC cannot assume jurisdiction over commercial disputes about mortgages, charges or any contract that is not incidental to the ‘use’ of land.
“Disputes arising from the use of land as security for a borrowing contract or commercial charge are within the exclusive jurisdiction of the High Court (Commercial Division) and not the ELC,”part of the notice of preliminary objection by KDIC stated.
KDIC also argued that the case by Kwale Cement Factory Ltd and Rising Star Commodities Ltd was misconceived, bad in law and incurably defective.
In their case, Kwale Cement Factory Ltd and Rising Star Commodities Ltd sought a declaration that the purported public auction sale by KDIC of the parcels of land (belonging to Kwale Cement Factory Ltd) is illegal, null and void unless KDIC complies with the law.
They also wanted a permanent injunction restraining KDIC from selling the parcels of land in pursuance of the purported statutory power of sale.
The companies argued that pursuant to a sale agreement dated April 2, 2014, the defendant advanced various credit facilities to Rising Star Commodities Ltd for purposes of financing the purchase of bags of rice and sugar.
The court heard that Kwale Cement Factory Ltd offered the parcels of land to the bank to act as securities for the loans granted to Rising Star Commodities Ltd for which a charge was registered in favour of the bank.
Rising Star Commodities Ltd claimed that it had been making payments towards repayment of the loan facility but due to financial constraints it had delayed making payments to the bank.
The court also heard that by notification of sale dated May 26, 2016, the defendant instructed auctioneers to sell the bags of rice and sugar belonging to Rising Star Commodities Ltd.
It also heard that by notification of sale dated May 2, 2017, the defendant instructed an auctioneer to sell the parcels of land by public auction.
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