REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

 JUDICIAL REVIEW APPLICATION NO. 269 OF 2018

IN THE MATTER OF ARTICLES 10, 47 & 50 OF THE CONSTITUTION OF KENYA 2010

AND

IN THE MATTER OF SECTIONS 4, 6, 7, 9, 11, & 12 OF THE FAIR ADMINISTRATIVE ACTION ACT

AND

IN THE MATTER OF ORDER 53 OF THE CIVIL PROCEDURE RULES, 2010

AND

IN THE MATTER OF SECTIONS 8 & 9 OF THE LAW REFORM ACT

AND

IN THE MATTER OF AN APPLICATION FOR JUDICIAL REVIEW PROCEEDINGS

BETWEEN

MUNIR SHEIKH AHMED.............................................APPLICANT

VERSUS

CAPITAL MARKETS AUTHORITY.......................RESPONDENT

JUDGEMENT

The Application

1. The Applicant, Munir Sheikh Ahmed, is a former Managing Director of the National Bank of Kenya, (hereinafter referred to as “the Bank”). He has brought the instant judicial review proceedings against the Capital Markets Authority (hereinafter “the Respondent”), with respect to a Notice of Enforcement Action by the said Respondent dated 3^rd April 2018. The Respondent is a statutory body created under the Capital Markets Act to regulate and develop the capital markets in Kenya, including facilitating the existence of a nationwide system of securities, commodities market, derivatives market and brokerage services. The said Respondent is also given powers to inquire into the affairs of any of its licencees  or public listed companies whose securities are traded on an approved securities exchange. The Bank is one such public listed company.

2.  The Respondent in the said Notice of Enforcement Action dated 3^rd April 2018 imposed the following sanctions against the Applicant for alleged misrepresentation of financial statements and embezzlement of funds of the Bank:

a)   A financial penalty of Kshs. 5,000,000/-.

b) Disqualification of the Applicant from holding office as a key officer of a public listed company and/or issuer, licensee or any approved institution of the Capital Markets Authority for a period of 3 years from the date of the Notification Action;

3.  The Applicant consequently moved this Court, upon being granted leave,  through a Notice of Motion dated 4^th July 2018 seeking the following orders:

a)  An Order of Certiorari to remove and bring into this Court for purposes of quashing the following decisions by the Respondent in the notification of Enforcement Action issued by the Capital Markets Authority, the Respondent herein, on 3^rd April 2018;

i. That in contravention of responsibility to ensure that the Board was provided with accurate information, the Applicant presented Quarterly Unaudited Financial Statements for the periods ended 30^th June 2015 and 30^th September 2015 to the NBK Board which erroneously indicated that the Bank had earned income amounting to Kshs. 847,920,000.00 from the sale of assets and understated the loan provisions.

ii. That the Applicant acted in contravention of regulation B.06 of the 5^th Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosure) Regulations 2002 by failing to ensure preparation of the interim accounts for the period ended 30^th September 2015 and quarterly accounts for the period ended 30^th September 2015 in accordance with the International Financial Reporting Standards (IFRS) which accounts were subsequently published and relied upon by the investing public.

iii. That the Applicant acted in contravention of Article 2.1.3 of the Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002, by failing to supply the Board with relevant accurate and timely information to enable the Board to discharge its duties.

iv.  That the Applicant contravened the provisions of Article 3.1.1 of the Capital Markets Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002 by failing to assume a primary responsibility of fostering the long-term business of the corporation consistent with his fiduciary responsibility to the shareholders.

b) An Order of Certiorari to remove and bring to this Court for purposes of quashing the decision in the Notification of Enforcement Action issued by the Capital Markets Authority , the Respondent herein, on 3^rd April 2018 to inter alia disqualify the Applicant from holding Office as a key officer of a public listed company for a period of three(3) years and imposing a financial penalty of Kenya Shillings Five Million (Kshs. 5,000,000.00) against the Applicant;

c)  An Order of Prohibition directed against the Capital Markets Authority prohibiting the Respondent from implementing the decision in the Notification of Enforcement Action against issued by the Capital Markets Authority on 3^rd April 2018 disqualifying the Applicant from holding office as a key officer of a public listed company or licensed institution and from imposing any other financial or administrative penalties against the Applicant premised on the impugned investigations and proceedings against the Applicant;

d) An Order of Prohibition directed against the Capital Markets Authority prohibiting the Respondent from undertaking any further proceedings against the Applicant with the Respondent as the complainant, investigator, prosecutor and adjudicator contrary to the provisions of Articles 47 and 50 of the Constitution.

4.  The Applicant outlined his case in a statutory statement and verifying affidavit filed on 3^rd July 2018. The Applicant also filed a further affidavit and supplementary further affidavit on 30^th July 2018 and 24^th September 2018 respectively. Legal arguments were also made by the Applicant’s advocates on record, Issa & Company Advocates, in written submissions dated 1^st October 2018 and supplementary submissions dated 28^th January 2019.

5.  The Respondent’s response is contained in two Replying Affidavits sworn on 13^th July 2018 and 26^th July 2018 by Abubakar Hassan Abubakar, the Respondent’s Head of Investigations and Enforcement. The said deponent also filed a supplementary affidavit on 27^th August 2018 which, upon an application made by the Applicant’s Advocate on account of redactions made therein, was expunged from the record by this Court in a ruling delivered on 13^th December 2018. The Court found that the expunged supplementary affidavit was incomplete in material respects as regards the minutes of the relevant Respondent’s Board’s meetings.

6.  The Respondent was directed to file a fresh supplementary affidavit annexing inter alia the accurate and complete minutes of all its meetings and discussions leading to the decision to issue the impugned Notice of Enforcement Action dated 3^rd April 2018, which it did  on 17^th December 2018, and on which this Court made a further ruling on the minutes that could be redacted and those to be disclosed. Meanwhile, on 30^th November 2018, the Advocate for the Respondent, Githendu Eric Timothy, filed written submissions dated 30^th November 2018 on its behalf. A summary of the Applicant’s and Respondents respective cases as outlined in the said pleadings and submissions now follows.

The Applicant’s Case

7. It is the Applicant’s case that the Respondent served them with a Notice to Show Cause Letter dated 22^nd August 2017 which contained the following allegations:

a) Misrepresentation of financial statements for periods ended 30^th June 2015 and 30^th September 2015 with the allegation of overseeing and authorizing the inclusion of Kshs. 847,920,000.00 in the interim second quarter and third reports of the Bank of 2017, which the Respondent alleges to have been prematurely recognized and overstated;

b) Embezzlement of funds where the Respondent alleged that the National Bank of Kenya Limited’s management appeared to have devised a scheme where monies were fraudulently siphoned out of the bank for services not rendered in the guise of deposit mobilization.

8. The Applicant contends that he responded to the Notice to Show Cause by way of written submissions dated 28^th August 2017, wherein he requested the Respondent to avail crucial information and documentation from the Bank regarding the allegations made against him. Further, that the Respondent issued him with summons dated 2^nd January 2018 to appear before its Board, and that by a letter dated 9^th January 2018, his advocates on record once again requested the Respondent to furnish him with information and documentation relating to the allegations in the Notice to Show Cause. The Applicant gave the particulars of the information he sought from the Respondent, and stated that his advocates also sought clarifications about the complainant, of any additional evidence to be relied upon, and of additional allegations that were likely to be made by the Respondent. He annexed copies of the Notice to Show Cause, his response to the Notice to Show Cause, and of the letters dated 2^nd and 9^th January 2018.

9. According to the Applicant, the Respondent thereupon responded by way of a letter dated 17^th January 2018, and informed him that as regards the complainant, it has powers on its own motion to conduct investigations and inquiries into the affairs of inter alia public companies whose securities are publicly offered or traded. That the Respondent further informed the Applicant it did not have any further supporting evidence to provide to him, and that he had comprehensively responded to the Notice to Show Cause dated 22^nd August 2017.

10.  However, that despite the position advanced in the letter dated 17^th January 2018, the Respondent disclosed for the first time in its Statement of Facts filed with the Capital Markets Tribunal dated 10^th May 2018, that it had received a whistleblower’s tip off dated 1^st November 2015 on various issues concerning the Bank, which precipitated its inquiry into the Bank’s affairs. Therefore, that the Respondent suppressed this crucial information and failed to make a frank and full disclosure to the Applicant in its letter date 17^th January 2018.

11. It is therefore the Applicant’s claim that there was procedural impropriety, in that the Respondent failed in its cardinal duty to afford the Applicant a fair process while conducting its investigations and at the hearing by failing to furnish and disclose all the documentary evidence and exhibits in its possession to enable him prepare adequately to defend himself  Further, that the Respondent failed to conduct the inquiry, and hearing and determination of the Notice to Show Cause expeditiously, efficiently, lawfully, reasonably or in a procedurally fair process.

12.  Further, that that there has been denial of access to information, arising from his request for any additional evidence to be relied upon by the Respondent, crucial exculpatory information from the Bank and information on the complainant which the Respondent did not provide, and which was a clear demonstration that the Respondent was acting with an ulterior motive to justify an adverse finding against the Applicant. It is also deponed that the Respondent failed to fully disclose that it had received a whistle-blower’s tip-off which precipitated its inquiry into the Bank’s affairs.

13. In addition, the Applicant averred that at the hearing of the Notice to Show Cause held on 19^th January 2018, the Respondent failed to disclose and furnish the affidavits that had been sworn by witnesses which were in its possession, despite a request for the same by the Applicant and his advocate. That the Respondent subsequently filed two affidavits in its response to the appeal filed by the Applicant in the Capital Markets Tribunal, which affidavits were sworn by Kanini Kioko and Nelson Zavai Kiziri Onzere in October 2017 which were all along in its custody. That the Applicant was however not accorded an opportunity to cross examine the deponents or respond to the prejudicial deposition in the two affidavits.

14. The Applicant also contended that the Respondent was biased, and that there was a reasonable suspicion of bias in the Respondent’s composition, arising from an inherent conflict in its membership as follows:

a) The Respondent is an institution under the National Treasury and has a representative from the Treasury a member of its board; while the Cabinet Secretary Treasury is also a Board member at the Bank which was the subject matter of the investigations. Therefore, that this apparent conflict of interest contributed to and resulted in the Respondent disregarding the minutes of the Bank’s Board of Directors and its resolutions that were cited by the Applicant to rebut the allegations leveled against him, and instead opted to shift all the alleged governance and financial improprieties to the Applicant and absolve the said Board of Directors from any of the alleged failures and responsibilities to the Applicant’s prejudice. Further, that the allegation of bias is buttressed by the impugned decision that placed all governance responsibilities solely on the Applicant, and disregarded the role of the said Board of Directors under the Guidelines on Corporate Governance by Public Listed Companies. Regarding the minutes attached to the Respondent’s supplementary affidavit, the Applicant averred that the same do not negate the conflict of interest and bias for reasons that the absence of the representatives of the National Treasury from some of the meetings does not establish the impartiality of the Respondent, as the conflict of interest and bias is on the composition of the Board of Directors of the  Bank and the Board of Directors of the Respondent.

b) The Respondent also has a representative from the Central Bank of Kenya which regulates the Bank, and which had already pronounced itself on the alleged breaches that had purportedly taken place at the Bank earlier in 2016. Therefore, that the said representative was not capable of affording the Applicant an objective and impartial determination. The Applicant in his supplementary further affidavit highlighted the contents of a press statement by the Inspector General of Police following announcements by the Governor of the Central Bank of Kenya regarding unethical conduct by certain directors and managers of the Bank.

15.   The Applicant further averred that the Respondent should not act as the complainant, investigator, prosecutor and adjudicator in its own cause, and has misread the Capital Markets Act. That the Act allows the Respondent to assign these various roles to separate and independent parties to ensure a fair and lawful administrative process as provided under the Kenyan Constitution. It was the Applicant’s suggestion that in view of the apparent conflict of interest among the members of the Respondent’s Board, and the apparent and real bias, the Respondent ought to have referred the allegations against him in the Notice to Show Cause to the Capital Markets Tribunal in order to accord the Applicant his constitutional right to a fair and lawful administrative process.

16.  Related to the allegations of bias, the Applicant also alleged that there was a pre-determined decision by the Respondent, and that at the hearing of the Notice to Show Cause, members of the Respondent’s Board panel were clear that an adverse and prejudicial determination on culpability for the alleged embezzlement of funds had already been made based on information not disclosed to the Applicant despite several requests, which confirmed that the administrative hearing was a mere formality to sanitize a biased and pre-determined outcome. It is further averred that the Respondent ignored evidence, and did not understand the process by which the Bank’s departments contract and incur expenditure through the Financial Controls Policy.

17.  The impugned decision of 3^rd April 2018 was also faulted by the Applicant on the grounds that it was unreasonable and irrational, and failed to take into account relevant considerations. It is his averment that the decision was unreasonable for the reasons that the  Respondent wrongly imputed responsibility and culpability on him for alleged financial improprieties in the preparation and presentation of financial statements, an obligation within the statutory mandate of the Chief Financial Officer and not the Chief Executive Officer as provided for in the Bank’s Policies, the Banking Act, the Central Bank of Kenya Prudential Guidelines and Capital Markets Authority Guidelines and Regulations for listed companies. It was also averred that the Respondent failed to obtain and/or disregarded documentary proof supplied that shows the responsibility for the preparation and presentation of financial statements in the bank was vested in the Chief Financial Officer. Further, that the Respondent should have been aware that the Chief Credit Risk Officer is responsible for loan provisions.

18. The Applicant also took issue with the Respondent’s finding that he was responsible for producing quarterly financial statements as well as ensuring their accuracy and compliance with the International Financial Reporting Standards (IFRS) for the Board members’ reliance in execution of their duties. He termed this finding as irrational and unreasonable as the Guidelines do not require quarterly financial reports to be in accordance with the IFRS. That, in any event, the finding was contrary to the evidence tendered to the effect that this was not part of his job description or responsibilities from his letter of appointment. It is also averred that the Chief Financial Officer is vested with the primary responsibility for preparation and presentation of financial statements to the Board; not the Chief Executive Officer, as per the Respondent’s regulations.

19.  The Applicant avers that the Respondent disregarded the evidence he tendered clarifying the roles of and responsibilities of different offices within the bank structure.  Further, the Respondent did not consider in totality the evidence produced by the Applicant during the hearing  in arriving at the decision that he had failed to establish a strong controlled environment that would have prevented the alleged failures of misreporting, misrepresentation and alleged embezzlement of funds at the Bank. The Applicant also termed as false the allegations that there were no controls established over the payments of deposit mobilization commissions when he had provided documentary evidence of the specific controls established to manage, control and account for this expenditure.

20. It is his averment that contrary to the Respondent’s allegation, the decision on deposit mobilization was made by the authorized members of the Bank, with the full knowledge and reporting to its Board of Directors, and valid contracts were entered into by the relevant departments of the Bank after due process of contracting. He added that the operational aspects of the service delivery and payments of commissions were handled within the framework of expenditure and cost centre controls, including confirmation of service by Treasury Department independent confirmation of deposits on the books and the duration of these by Finance Controls and Operations section, approval per the Delegated Authority Guide of the  Bank either by the Chief Financial Officer and in few cases where amounts were higher than his limit, by the Applicant. That, payments were finally processed by yet another independent function to the Agents through their bank accounts in other banks.

21. The Applicant further stated that he reviewed and queried all invoices and supporting documents that were brought to him; hence it was erroneous for the Respondent to argue that he did not have controls over the expenditure he approved.  It is further averred that the Respondent falsely assumes that the government agents were delivering to the Bank deposits without any marketing effort. The Applicant averred that the Respondent deliberately failed to confirm the position from the Bank’s records, by checking the deposits raised from the named customers by reviewing the before and after engagements of the agents. That, the deposits in question were placed with the Bank after the engagement of the mobilization agents and were not with the bank prior to mobilization. Further, that had the Respondent conducted proper investigated, it would have established that the Bank had no preferential rights to these deposits and had to compete for them like every other bank does. Therefore, that the Respondent unreasonably and contrary to the evidence tendered held him liable for alleged misconduct on the deposit mobilization.

22.  The Applicant also deponed that the Respondent should have been aware that the Board and its Committees approve and exercise control over both the Chief Financial Officer and Chief Credit Risk Officer, therefore the Respondent’s wrongful attribution of this responsibility and the willful disregard of material facts was irrational. Furthermore, that clause 3.1.1 of the Guidelines on Corporate Practices by Public Listed Companies in Kenya 2002 provides that the responsibility to establish systems, processes and provide resources to ensure accurate, relevant and timely information is on the Board of Directors and not on delegated to the Managing Director. It was thus the Applicant’s case that the Respondent failed to take into consideration that the duties of a Managing Director/ Chief Executive Officer should be performed under the direction of the Chairman of the Board as provided in clause 3.2 of the said Guidelines.

23. In addition, that the Respondent found the Applicant responsible for failing to assume “the primary responsibility of fostering the long-term business of the corporation”, which is an obligation bestowed upon the Board of Directors as a body under clause 3.1.1 of the Guidelines, and not solely that of the Managing Director/ Chief Executive Officer. responsibility to review, ensure accuracy of, approval and presentation of financial statements and approval of credit provisions is reserved solely in the Board of Directors of the Bank as confirmed by the said Board’s Charter relied upon by the Respondent. He averred that the Credit Risk Management Policy provides that the Board Credit Committee is responsible for credit approvals and credit provisions.

24. It is thus the Applicant’s case that the Respondent made an irrational and unreasonable finding in holding that he was solely responsible for providing relevant, accurate and timely information for the Board members to rely on when executing their duties, contrary to the evidence tendered that this was not part of his job description and neither was it listed as part of the Applicant’s responsibilities in his letter of appointment. Furthermore, the Respondent misdirected itself by considering the general corporate governance responsibilities in its Guidelines to try and assign responsibility to the Applicant in his individual role without considering the Bank’s organization structure, policies, job assignments and framework of distributing the work to various roles in discharging the corporate governance guideline requirements.

25. Additionally, that the allegations in the Notice to Show Cause are incongruent to Notice of Enforcement. In this respect, the Applicant averred that the decision and findings by the Respondent are incongruent with the evidence tendered and the express provisions in the Guidelines. According to the Applicant, there was no nexus between the allegations raised against him in the Notice to Show Cause letter dated 22^nd August 2017, the evidence tendered and considered, and the determination by the Respondent. In the circumstances, it is the Applicant’s case that the decision and findings in the Notice of Enforcement was arrived at with an ulterior motive or purpose calculated to prejudice his legal rights.

26.  On the allegation that the Respondent failed to take into account relevant considerations, it was the Applicant’s averment that the Respondent failed to consider the detailed information on the Bank’s business and financial performance; risks, operations and business growth; and strategic transformation that the management under his guidance provided every month to the Board and the Board Committees. Further, that the Board was provided with regular, detailed and timely reports covering all aspects of the Banks operations in numerous meetings, and that he was not aware of any complaint ever made by the Board about inadequacy or accuracy of the reports it had been receiving.

27. The Applicant averred that the determination by the Respondent that the Board of Directors of the Bank did not receive requisite information and reports to execute its mandate is not only false but cannot be reconciled with the evidence tendered, and the inordinate number of Board and Board Committee meetings held every month where comprehensive, detailed, relevant, accurate and timely reports were submitted and discussed. Further, that through the said reports, the Board of Directors managed, controlled and directed the running of the company, and the Bank’s Board of Directors did not at any point raise such a concern, hence it is in bad faith for the Respondent to make a complaint on behalf of the said Board to achieve its own end.

28. The Applicant further averred that notwithstanding that he was not responsible for the preparation of financial statements, the Respondent nevertheless based its finding of errors in unaudited accounts, and that there were some corrections and adjustments that were made to these unaudited accounts by the auditors, which is routine outcome of all audits of account. However, that to equate the adjustments by auditors to a breach of the Respondent’s reporting rules of listed companies is patently wrong and without any foundation. It is the Applicant’s case that the Respondent exceeded the scope of its jurisdiction by investigating and determining unaudited quarterly financial reports, which are prepared in compliance with Prudential regulatory requirements of Central Bank of Kenya, and not under the reporting obligations of listed entities under the regulations of the Respondent. Therefore, that the Respondent lacked jurisdiction to act on the unaudited quarterly reports..

29. Furthermore,  that the allegation that the Applicant had failed to establish a strong controlled environment  that would have prevented the alleged failures of misreporting, misrepresentation and alleged embezzlement of funds at the Bank was not in the Notice to Show Cause and was not addressed in the Applicant’s response; hence there was no opportunity for him to tender all relevant evidence to this effect .The Applicant also averred that the  Respondent’s decision was illegal, for reasons that the Respondent acted without jurisdiction by departing from the allegations in Notice to Show Cause, and making a determination on an allegation that he had not been given an opportunity to respond to. It is contended that the Respondent unjustifiably sanctioned the Applicant for failing to prevent breach of the law by other parties found culpable by the Respondent. Specifically, the Respondent had arrived at the determination that a former Director of the Bank, the former Treasurer, former CFO, and other people external to the Bank were culpable of embezzlement.

30. According to the Applicant, the sanction of disqualifying him from holding office in any key position in a listed company or approved institution was also made in excess of the Respondent’s jurisdiction and in violation of the Applicant’s constitutional rights. The Applicant termed the penalties and sanctions issued by the Respondent as oppressive, excessive and disproportionate in comparison to the sanctions imposed on the Board of Directors of the Bank who actually bear all the responsibility for the matters determined by the Respondent. The Applicant also faulted the Respondent for failure to provide reasons for the harsh sanctions imposed on the Applicant. Further, the Respondent did not give reasons for delaying in giving the impugned decision more than sixty (60) days after the hearing, whereas the Terms of Reference provided that the Respondent’s decision would be made and communicated within thirty (30) days after the hearing.

31. The Applicant also made the case that contrary to his legitimate expectation, the Respondent did not conduct the investigation and the Notice to Show Cause hearing procedurally and fairly to arrive at a rational, reasonable, fair and just determination. That, contrary to his legitimate expectation, the Respondent acted as a regulator, investigator, prosecutor and adjudicator in its own cause. Hence, the basic tenets of a fair hearing were compromised in the process.

32. In this regard, the Applicant avers that the investigations conducted by the Banking Fraud Investigation Department and the statutory and internal audits conducted by Deloitte & Touche did not link him to any of the alleged embezzlement. He further states that in response to a letter dated 31^st October 2017 written on his behalf by his advocate,  the Director Banking Fraud Investigations Department wrote a letter dated 1^st December 2017; which letter confirmed that at the conclusion of the investigations, the files had been forwarded to the Director of Public Prosecutions, who in turn had cleared the Applicant of all charges and allegations by the Central Bank of Kenya and the Bank, which letter the Applicant annexed. That, in spite of the clearance by the investigative agency, the Respondent still purported to find him culpable of the same complaints and allegations.

33. Lastly, the Applicant explained that the Respondent by a letter dated 19^th April 2018 also furnished him with an enforcement report detailing how it arrived at its decision. The Applicant explained that he thereafter lodged an appeal with the Capital Markets Tribunal on 19^th April 2018, to which the Respondent filed a statement of defence and statement of facts on 10^th May 2018. Further, that by a letter dated 25^th May 2018, the Applicant’s Advocates on record requested the Capital Markets Tribunal to allocate an early mention date for directions or a hearing date, and that by a letter dated 31^st May 2018, the Capital Markets Tribunal informed the Applicant that the Tribunal lacked the requisite quorum to hold hearings as the term of office for some of the Tribunal members had expired. The Applicant has therefore properly invoked the jurisdiction of this Court as the appellate procedure provided for under the Capital Markets Act is not feasible or available to the Applicant.

The Respondent’s Case

34.   The Respondent described its principal objectives, legal mandate and powers  as provided under section 11 of the Capital Markets Act, which include the protection of investor interests. It was averred in this regard that the Respondent has been granted wide ranging powers and charged with the responsibility of ensuring that listed companies comply with the regulatory obligations which govern corporate governance. It was thus the Respondent’s case that the Applicant was the Chief Executive Officer of the Bank, which is a bank listed under the Nairobi Stock Exchange. That following a whistle blower’s tip on various issues at the Bank in 2015, and negative media reports that pointed to the possibility of breach of the Capital Markets regulatory obligations applicable to the Bank as a public listed entity, the Respondent lodged an independent inquiry into the Bank’s affairs.

35.  Consequently, that the Respondent  noted as follows:

a) that during the period 2014/2015, some members of the Bank’s management appeared to have devised a scheme where monies were fraudulently siphoned out of the Bank for services not rendered under the guise of payment of commissions for a deposit mobilization exercise; and

b) that there was potential misrepresentation and reporting of financial statements through premature recognition of sale of assets and under provisioning of non-performing loans for the period ended June 2015 and September 2015 leading to overstatement of profits;

c) that there was non-disclosure of conflict of interest by the  Applicant to the Board of the Bank with respect to companies related to the Applicant’s sister and brother who were doing business with the bank with preferential treatment.

36.  The Respondent gave the details of its findings from the inquiry, and referred to various financial documents and minutes of the Bank in this regard. Its  key findings were firstly, that the Bank had prematurely reported a gain on disposal of assets of Kshs. 847, 920,000/- in the published accounts for the two quarters ended 30^th June 2015 and 30^th September 2015 respectively. It was also discovered that the gain on the disposal of assets was reduced to Kshs. 111,335,000/- as at 31 December 2015 after adjustments were done based on the external auditor’s recommendation;  and that the agreements on the sale of the properties were entered into after the financial periods ended on 30^th June 2015. Further, it was found that the recognized gain on the disposal of assets in the financial statement for the quarters ended 30^th June and 30 September 2015 had been recorded as other income. That this had the effect of overstating the profit by Kshs. 847, 920,000/- in the course of 2015, hence the reported profits in the published accounts for the two quarters ended 30^th June and September 2015 were materially misleading to the public.

37. Secondly, the Respondent contended that the Bank made inadequate provisions for non-performing loans amounting to Kshs. 2,595,303,848/= in the December 2015 financial year. The provisions were based on non-performing loans which had been improperly graded as performing under the Central Bank of Kenya Prudential Guidelines in the course of 2015 and accrued interest amounting to Kshs. 680 million reported as earned in periods ended 30^th June and September 2015. That this had the impact of overstating profit in terms of accrued interest from the loans in the published management accounts for the quarters ending 30^th June and 30^th September 2015.  Further, that the restructuring and rebooking of loan facilities was authorized by the Chief Credit Officer under the supervision of the Applicant without the approval of the Board.

38.  Thirdly, that there was potential embezzlement of funds from the Bank under the deposit mobilization scheme which involved the procurement of at least two deposit mobilization agents, namely Edge Capital Consultancy and Advest Company Limited, which were procured in 2014 to render deposit mobilization services. According to the Respondent, it was established that the Applicant was involved in the procuring of the mobilization agents, and that the contract agreement sign off forms for Advest Company limited were signed by the Applicant, Finance Manager and former Chief Finance Officer and former Head of Treasury of the Bank. Furthermore, that the sign off forms of the Edge Capital Consultants was signed on 5^th May 2014 whereas the firm was registered on the 1^st September 2014.

39. That the inquiry further established that a total of Kshs. 991’592.296.42 was paid to the deposit mobilization agency firms through fictitious invoices as commissions, notwithstanding  the absence of evidence that the procured firms had provided deposit mobilization services. It was averred that the alleged mobilized funds related to deposits made by various government agencies in the Bank in the normal course of business, which agencies confirmed they were not approached by the deposit mobilization agents, hence the Applicant should have proactively queried and/or ascertained whether the Government agencies were required to be persuaded by the agents to make deposits in the bank. The Respondent alleged that the Applicant participated in the approval of questionable invoices of Kshs 5 million and above.

40. The Respondent also averred that the review of the commission paid to the agents could not be reconciled to verifiable deposits or depositors, as the invoices raised did not give particulars of the depositors nor the amounts deposited in consideration of the commissions being paid. Therefore, that whereas the deposit mobilization scheme was meant to appear as a legitimate measure to address the liquidity challenges facing the Bank, its implementation led to payment of invoices where no deposits had been legitimately mobilized, and commissions paid were further being withdrawn by the agents and paid directly or indirectly to senior officers of the Bank the Bank.

41. Fourthly, it was the Respondent’s assertion that there was a manifestation of conflict of interest, as Fozi Investments Limited allegedly owned by the Applicant’s brother, not only obtained a facility from the Bank, but also received preferential treatment; and that Sheikh and Company Advocates allegedly owned by the Applicant’s sister, provided legal services and received preferential treatment from the Bank  without adequate conflict of interest disclosures.

42.  The Respondent contended that having established the possibility of misrepresentation of financial statements, potential embezzlement of funds and non-disclosure of conflict of interest, it issued a Notice to Show Cause to the Applicant setting out the facts upon which the allegations against him were based. It is contended that the Notice to Show Cause was unequivocal that the Respondent was according the Applicant an opportunity to make representations about the issues raised in the Notice to Show Cause pending a determination. According to the Respondent, the Applicant furnished his response to the Notice to show cause, appeared before the Respondent and made his representations. These were considered by the Respondent which came to the conclusion that the evidence presented by the Applicant was not sufficient to support the allegation of non-disclosure of conflict of interest, but was sufficient to support the allegations of misrepresentation of financial statements and allegations of embezzlement of funds. The Respondent terms the process undertaken as fair and argues that the decision was not predetermined.

43. The Respondent refutes the allegations made by the Applicant that it selectively supplied the Applicant with evidence, and stated that all relevant information was shared with the Applicant. That, where the documents  were deemed confidential, the Bank made arrangements for the Applicant to access the same for purposes of his Notice to Show Cause. In this regard, the Respondent cited bad faith on the Applicant’s part as he had supplied the Capital Markets Tribunal with some of the documents he had requested for in their letter dated 9^th January 2018. Examples were given in this regard of  the Operational Risk Management Policy and the Minutes of the Bank’s Board Credit Committee Meetings.

44. The Respondent also refuted the allegations of and averred that the Applicant has not demonstrated that the Central Bank of Kenya has made any adverse pronouncements, and therefore bias cannot be imputed on the Respondent for the mere reason that a representative of Central Bank of Kenya is a member of the Respondent. According to the Respondent, the representative of the National Treasury in the Board of the Respondent is a different appointee from the one representing the National Treasury in the Bank,  and the two representatives perform different roles and carry different responsibilities for the National Treasury. Further, that  the composition of the Respondent did not prevent it from conducting an objective inquiry which was  evidenced by the fact that the Respondent not only took enforcement action against the senior management of the Bank, including the Applicant, but also against the Board of the Bank, which included the representative of the National Treasury in the Board.

45. The Respondent further addressed the allegations of unfairness, unreasonableness, irrationality and failure by it to take into account relevant considerations. It is averred that the Applicant was appointed as Chief Executive Officer, Managing Director, and Executive Member of the Board of the Bank, and annexed a copy of the of the Applicant’s letter of appointment. That therefore, as the Chief Executive Officer and Board member, the Applicant is not exempt under the Guidelines on Cooperate Governance by Public Listed Companies from discharging his responsibility of executing long-term business of the corporation. Further, that the Applicant together with the management team which he headed, was responsible for ensuring that the Board of the Bank was supplied with accurate and timely information to enable the Board discharge its duties. Consequently, that he was not exempt from taking responsibility for the financial statements, and actually assumed responsibility for them considering that he was the nexus between the management and the Board, particularly being a Board member himself.

46. In the circumstances, the Respondent averred that it made a proper finding to hold the Applicant culpable, as he had failed to observe and comply with obligations and responsibilities relating to companies listed on the Nairobi Stock Exchange, and neither did it absolve the Board from its responsibility. The Respondent in this respect admitted that there was a typographical error in the Notice to Show Cause where reference was made to Regulation F.06, which is unrelated to the facts in issue, instead of Regulation B.06 of the 5^th Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosure) Regulations 2002 , which requires that all interim reports be prepared in accordance with relevant provisions of the International Financial Reporting Standards. It however contended that this contradiction was not raised by the Applicant in any of his submissions to the Respondent, and that his response to the Notice to Show Cause addressed the correct Regulation B.06 and cited various provisions of the International Financial Reporting Standards.

47. Regarding the allegations on legitimate expectation of the Applicant and overlapping functions of the Respondent, it is averred that all established Government agencies in discharging their statutory mandates are empowered to take administrative action, in line with the Fair Administrative Action Act. That, the Act requires that investigation be carried out and the culpable parties be given an opportunity to be heard. However, that the Applicant misunderstood the administrative process undertaken by the Respondent, as its role is protective, which the legislature deemed would only be realized if it’s conferred with multiple functions and powers that overlap. Further, that the Applicant misinterpreted the Respondent’s duties and powers under the Act, and has attached the wrong premise to the administrative process by the Respondent by equating it to either a judicial or quasi-judicial body. To this end, the Respondent contended that failure to meet legitimate expectation cannot arise where an administrative body like itself discharges overlapping functions.

48.   On the lawfulness of the enforcement action against the Applicant, the Respondent averred that the said enforcement action was lawful, within the Respondent’s bounds and that it did not violate the constitutional rights of the Applicant. Further that it properly exercised its discretion and jurisdiction and the penalty imposed on the Applicant was proportionate to the seriousness and severity of the breach. The Respondent also addressed the contention on the sufficiency of the reasons given by the Respondent for the severity of punishment, and averred that it exercised its jurisdiction when taking enforcement action, and furnished the considerations for the same in the Notification of Enforcement Report. Further, that the considerations revolved around the Applicant’s role as the principal nexus between the management and the Board of the Bank. The Respondent in addition attributed the delay in rendering its decision to its considered need to meticulously consider all submissions before it with regard to the Notice to Show Cause in order to have a holistic understanding of the issues with regard to the Bank.

49. Lastly, with regard to the Applicants contention that the Tribunal does not have a Chairperson and quorum, it is averred that the Applicant had the recourse of filing for a writ of mandamus to compel the appointment of members, by the appointing authority. It is the Respondent’s case that the Applicant is forum shopping. According to the Respondent, the Applicant has violated section 9 of the Fair Administrative Act which required the applicant to pursue the alternative remedy of the Tribunal provided for the Act and that the applicant invoked the jurisdiction of the court prematurely and inappropriately.

The Determination

50. I have considered the arguments made by the Applicant and Respondent in their pleadings and submissions, and find the  issues for determination to be as follows:

a)  Whether the Respondent failed to avail the Applicant information in its possession when making the Enforcement Action dated 3rd April 2018.

b)  Whether there was bias on the part of the Respondent when making the Enforcement Action dated 3rd April 2018.

c)  Whether the procedure adopted by the Respondent in making the Enforcement Action of 3^rd April 2018 was fair.

d)  Whether the Enforcement Action taken by the Respondent on 3^rd April 2018 was unreasonable and irrational.

e)   Whether the Enforcement Action dated 3^rd April 2018 taken by the Respondent against the Applicant was ultra vires.

f)  Whether the Applicant merits the relief sought.

51. In addressing the said issues, it is necessary to first lay out the legal provisions relied on by the Respondent in making the Enforcement of Action against the Applicant dated 3^rd April 2018, and the parameters of judicial review in this regard. The Respondent is established under section 5 of the Capital Markets Act, and section 11(1) of the said Act details the objectives and purposes for which it is established as follows:

“(1) The principal objectives of the Authority shall be—

(a)  the development of all aspects of the capital markets with particular emphasis on the removal of impediments to, and the creation of incentives for longer term investments in, productive enterprises;

(b) to facilitate the existence of a nationwide system of securities commodities market and derivatives market and brokerage services so as to enable wider participation of the general public in the securities commodities market and derivatives market;

(c)  the creation, maintenance and regulation of a market in which securities can be issued and traded in an orderly, fair and efficient manner, through the implementation of a system in which the market participants are self-regulatory to the maximum practicable extent;

(d)  the protection of investor interests;

(e)  the facilitation of a compensation fund to protect investors from financial loss arising from the failure of a licensed broker or dealer to meet his contractual obligations; and

(f)  the development of a framework to facilitate the use of electronic commerce for the development of capital markets in Kenya.”

52. The Capital Markets Act also bestows the Respondent with various powers and duties to facilitate the achievement of the above stated objectives. Under section 11(3)  of the Act, numerous and wide powers, duties and functions are granted to the Respondent to enable it carry out the objectives as follows:

“(a)  advise the Minister on all aspects of the development and operation of capital markets;

(b)  implement policies and programmes of the Government with respect to the capital markets;

(c)  employ such officers and servants as may be necessary for the proper discharge of the functions of the Authority;

(cc) impose sanctions for breach of the provisions of this Act or the regulations made thereunder, or for non-compliance with the Authority’s requirements or directions, and such sanctions may include—

(i)   levying of financial penalties, proportional to the gravity or severity of the breach, as may be prescribed;

(ii)  ordering a person to remedy or mitigate the effect of the breach, make restitution or pay compensation to any person aggrieved by the breach;

(iii)  publishing findings of malfeasance by any person;

(iv) suspending or cancelling the listing of any securities or exchange-traded derivatives contracts, or the trading of any securities or exchange-traded derivatives contracts, for the protection of investors;

(d)  to issue guidelines and notices on all matters within the jurisdiction of the Authority under this Act;

(e) to grant a licence to any person to operate as a stockbroker, derivatives broker, dealer or investment adviser, fund manager, investment bank, central depository or authorised securities dealer, and ensure the proper conduct of that business;

(f)  to grant approval to any person to operate as a securities exchange, commodity exchange, derivatives exchange, credit rating agency, registered venture capital company or to operate in any other capacity which directly contributes to the attainment of the objectives of this Act and to ensure the proper conduct of that business;

(fa)  regulate spot commodity markets;

(ff) recognize any person duly licensed by a prescribed foreign authority carry on any licensed activity in Kenya which requires a license or an approval under this Act;

(g)  register, approve and regulate collective investment schemes;

(h)  inquire, either on its own motion or at the request of any other person, into the affairs of any person which the Authority has approved or to which it has granted a licence and any public company the securities of which are publicly offered or traded on an approved securities exchange or on an over the counter market;

(i)  give directions to any person which the Authority has approved or to which it has granted a licence and any public company the securities of which are publicly offered or traded on an approved securities exchange or on an over the counter market;

(j)   conduct inspection of the activities, books and records of any persons approved or licensed by the Authority;

(k)  deleted by Act No. 9 of 2007, s. 46(b);

(l)   deleted by Act No. 9 of 2007, s. 46(b);

(m)  appoint an auditor to carry out a specific audit of the financial operations of any collective investment scheme or public company the securities of which are publicly offered or traded on an approved securities exchange or on an over the counter market, if such action is deemed to be in the interest of the investors, at the expense of such collective investment scheme or company;

(n)  grant compensation to any investor who suffers pecuniary loss resulting from the failure of a licensed broker or dealer to meet his contractual obligations;

(o)  have recourse against any person whose act or omission has resulted in a payment from the Compensation Fund;

(p) act as an appellate body in respect of appeals against any self regulatory organization securities or exchange-traded derivatives contracts exchange, derivatives exchange or central depository in actions by parties aggrieved thereby;

(q) co-operate or enter into agreements for mutual co-operation with other regulatory authorities for the development and regulation of cross-border activities in capital markets;

(r)  regulate and oversee the issue and subsequent trading, both in primary and secondary markets, of capital market instruments;

(s) regulate the use of electronic commerce for dealing in securities or offer services ordinarily carried out by a licensed person;

(t) trace any assets, including bank accounts, of any person who, upon investigation by the Authority, is found to have engaged in any fraudulent dealings in securities or insider trading;

(u)  in writing, order caveats to be placed against the title to such assets or prohibit any such person from operating any such bank accounts as may be directed by the Authority, pending determination of any charges instituted against that person;

(v) prescribe notices or guidelines on corporate governance of a company whose securities have been issued to the public or a section of the public;

(w) do all such other acts as may be incidental or conducive to the attainment of the objectives of the Authority or the exercise of its powers under the Act.”

53. The Respondent is also granted powers to issue rules and regulations, and guidelines and notices in exercise of its regulatory powers under section 12 and 12A respectively of the Act. In addition, under section 13, the Respondent or any person it officially authorizes has power to require upon notice, any person to provide it with information or returns, and can  inquire into the affairs of any person, including powers of entry, search and seizure upon application to, and grant of a warrant by a magistrate. The Respondent has investigatory powers under section 13B of the Act in the circumstances stated therein as follows:

“1)   Where the Authority has reasonable cause to believe, either on its own motion or as a result of a complaint received from any person, that—

(a)  an offence has been committed under this Act; or

(b) licensed or approved person may have engaged in embezzlement, fraud, misfeasance or other misconduct in connection with its regulated activity; or

(c) the manner in which a licensed or approved person has engaged or is engaging in the regulated activity is not in the interest of the person's clients or in the public interest, the Authority may in writing depute a suitably qualified person to conduct investigations into the matter on behalf of the Authority.”

54. As regards the manner it may conduct its functions, section 11A of the Act provides that the Respondent may either perform the functions itself, or delegate the functions to a Committee of the Board, a  self regulatory organization, or an authorized person. In addition, under section 12, the Respondent has powers to  appoint committees, whether of its own members or otherwise, to carry out such general or special functions as it may specify, and may delegate to any such committee such of its powers as it may deem appropriate . Lastly, under section 25A the Respondent may impose specified sanctions or levy financial penalties for the breach of any provisions of the Act, the regulations, rules, guidelines, notices or directions it may issue. Under section 26 it can also suspend or revoke a license, for such period or until the occurrence of such event as it may specify, if a licensed person.

55.  It is necessary to state at the outset that the applicability of the above cited provisions or the powers granted thereby to the Respondent is not in dispute. What is in dispute is the manner of the exercise of the said powers, and of the application of the provisions by the Respondent. There are various norms and laws which regulate the manner in which the Respondent is required to performs its powers and functions, particularly those introduced by  the Constitution of 2010, which was promulgated after the enactment of the Capital Markets Act. The Capital Markets Act must now be read and interpreted in a manner that is consistent with the Constitution. A number of values, principles, rights and duties in the Constitution directly impact on the Respondent, including the values and principles in Article 10 of the Constitution, the right to access to information under Article 35 of the Constitution, and the right to fair administrative action in Article 47.

56.  Relevant laws that have since been enacted to regulate the content and application of these rights are the Access to Information Act and the  Fair Administrative Action Act. It is also notable in this respect that the values and principles in Article 10 apply to all State organs and any person when interpreting or applying the Constitution or any law, or when making or implementing any policy. Likewise, under Article 20 of the Constitution. the rights and corresponding duties in the Bill of Rights binds all state organs and persons.  A person is defined under Article 260 of the Constitution to include a company, association or other body of persons whether unincorporated or incorporated. The Respondent is specifically established as a body corporate under section 5 of the Capital Markets Act.

57.  The role of judicial review in regulating the exercise of powers by public authorities was stated in the case of Pastoli vs Kabale District Local Government Council & Others [2008] 2 EA 300 at pages 303 to 304 thus:

“In order to succeed in an application for Judicial Review, the applicant has to show that the decision or act complained of is tainted with illegality, irrationality and procedural impropriety: See Council of Civil Service Union v Minister for the Civil Service [1985] AC 2; and also Francis Bahikirwe Muntu and others v Kyambogo University, High Court, Kampala, miscellaneous application number 643 of 2005 (UR).

Illegality is when the decision making authority commits an error of law in the process of taking the decision or making the act, the subject of the complaint.  Acting without Jurisdiction or ultra vires, or contrary to the provisions of a law or its principles are instances of illegality….. 

Irrationality is when there is such gross unreasonableness in the decision taken or act done, that no reasonable authority, addressing itself to the facts and the law before it, would have made such a decision.  Such a decision is usually in defiance of logic and acceptable moral standards:  Re An Application by Bukoba Gymkhana Club [1963] EA 478 at page 479 paragraph “E”.

Procedural impropriety is when there is failure to act fairly on the part of the decision making authority in the process of taking a decision.  The unfairness may be in non-observance of the Rules of Natural Justice or to act with procedural fairness towards one to be affected by the decision.  It may also involve failure to adhere and observe procedural rules expressly laid down in a statute or legislative Instrument by which such authority exercises jurisdiction to make a decision. (Al-Mehdawi v Secretary of State for the Home Department [1990] AC 876).”

58.  In addition, the parameters of judicial review were addressed  by the Court of Appeal in the case of Municipal Council of Mombasa vs Republic & Umoja Consultants Limited, Nairobi Civil Appeal No. 185 of 2001, [2002] eKLR as follows:

“The court would only be concerned with the process leading to the making of the decision. How was the decision arrived at? Did those who made the decision have the power, i.e. the jurisdiction to make it? Were the persons affected by the decision heard before it was made? In making the decision, did the decision - maker take into account relevant matters or did he take into account irrelevant matters? These are the kind of questions a court hearing a matter by way of judicial review is concerned with, and such court is not entitled to act as a court of appeal over the decider; acting as an appeal court over the decider would involve going into the merits of the decision itself-such as whether there was or there was not sufficient evidence to support the decision – and that, as we have said, is not the province of judicial review.”  

59.  It was also emphasized by the Court of Appeal  in Suchan Investment Limited vs. Ministry of National Heritage & Culture & 3 others, (2016) KLR that while Article  47 of  the  Constitution  as  read  with  the  grounds for review provided by section 7 of the  Fair Administrative Action Act reveals an implicit shift of judicial review to include aspects of merit review of administrative action, reviewing court has no mandate to substitute its own decision for that of the administrator. The court can only remit the matter to the administrator and or make orders stipulated in Section 11 of the Act.

60. This Court will therefore proceed with an analysis of the issues raised by the parties herein in the light of the aforementioned constitutional and legal framework, and judicial review principles.

On whether the Respondent denied the Applicant access to information

61. It is the Applicant’s submission that he sought information from the Respondent vide a letter dated 9^th January 2018, yet the information was not supplied to him even though the Respondent was in possession of the same. It was also submitted that despite the Applicant adhering with the procedure set out in section 8 of the Access to Information Act in requesting for the information, the Respondent still denied access to the same. Therefore, that the Respondent failed to fulfill its constitutional obligation to provide information to the Applicant, and violated Article 35(1) of the Constitution. The Applicant cited Alnashir Popat & 8 Others v Capital Markets Authority (2016) e KLR and Nairobi Law Monthly Company Limited vs Kenya Electricity Generating Company & 2others, (2013)e KLR  for the submission that the right to access to information is recognized in the Constitution, and that it had met the requirements  of seeking for information by its letter dated 9^th January 2018.

62. The Respondent on its part submitted that it supplied all relevant information and/or material documents, as seen from the Catalogue of Evidence forwarded to the Applicant alongside the Notice to Show Cause dated 22^nd August 2017. Further, that the evidence supplied to the Applicant related to the substratum of the Notice to Show Cause, hence the Respondent discharged its duty under Section 4(3)(g) of the Fair Administrative Action Act.  Regarding the affidavits sworn by Mr. Onzere and Ms. Kanini, it is submitted that the Applicant, accompanied by his legal representative forsook his chance to cross examine the deponents of the affidavits, or at least make an application for them to be summoned for cross examination, and cannot lay blame on the Respondent. The Respondent cited the case of Republic v Vice Chancellor Moi University & 3 others Ex Parte Benjamin J. Gikenyi Magare [2018] eKLR.

63. The Respondent further submitted that the issue of whether or not it disclosed that it had a whistle-blower’s report is moot and a non-issue, since the Applicant has not demonstrated how he may have been prejudiced by the failure to disclose the same.  Secondly, that the failure to disclose the same in the letter dated 12^th January 2018 does not negate the Respondent’s powers to conduct investigations. Thirdly, the information from the whistle-blower’s report was raw information that had to be subjected to investigation by the Respondent. It was also the Respondent’s submission that the Applicant had the earliest opportunity to request for additional documents, through his letter dated 28^th August 2017, yet he elected to wait for almost 5 months to do so,  just before the hearing was to take place . It is submitted that the request(s) ought to be done in reasonable time otherwise administrative processes may be crippled where there are infinite timelines to request for information.

64. Lastly, the Respondent submitted that the Applicant’s request for additional documents through the letter dated 9^th January 2017 included documents which the Respondent could not share with him, as they were only applicable in respect of Notices to Show Cause issued to other parties other than him. It is the Respondent’s submission that it did contact the Bank to provide the information not in its possession to the Applicant, but the Bank declined citing confidential reasons. That, the Bank allowed the Respondent to review the said documents in its premises, and the Respondent upon review of the same established there was no additional information that would serve to contradict or impugn the allegations in the Notice to Show Cause.

65.  In considering the arguments made by the parties on this issue, this Court is guided by Article 35 of the Constitution which provides as follows as regards access to information:

“(1) Every citizen has the right of access to—

(a) information held by the State; and

(b) information held by another person and required for the exercise or protection of any right or fundamental freedom.

(2) Every person has the right to the correction or deletion of untrue or misleading information that affects the person.

(3) The State shall publish and publicise any important information affecting the nation.”

66.  Citizens therefore have a right to information that in the possession of the state that may have an impact on them for protection of their other interests, and also for accountability reasons. Decisions should also be informed by rational considerations that are explicable to those affected by them. Therefore there was a Constitutional obligation on the part of the Respondent, to provide any information that was likely to impact on the Applicant during the enforcement proceedings, and also for purposes of  fostering the principles of transparency and accountability in the enforcement proceedings.

67.  The Access to Information Act reiterates this right and obligation in section 4 thereof, and in addition provides for three principles that are key in interpretation of the Act, namely:

(a) That every citizen's right to access information is not affected by any reason the person gives for seeking access; or the public entity's belief as to what are the person's reasons for seeking access.

(b) Access to information held by a public entity or a private body shall be provided expeditiously at a reasonable cost.

(c) The Act shall be interpreted and applied on the basis of a duty to disclose and non-disclosure shall be permitted only in circumstances exempted under section 6.

68.  Therefore, a purposive interpretation of the Act leads to the conclusion that disclosure of information is the normal course of action so as to give effect to the constitutional right of access to information, and that the withholding of information is the exception, and is only permitted in on the grounds set out in the Act and where it is justified. Lastly, the burden of persuasion rests on the party resisting disclosure, since such a refusal amounts to a limitation of a constitutional right, and the Constitution places the burden of proof on the person seeking to limit the right under Article 24(3).

69.  In terms of the content of the right to information, information is defined under the Act to include all records held by a public entity or a private body, regardless of the form in which the information is stored, its source or the date of production. A public entity is defined as (a) any public office, as defined in Article 260 of the Constitution; or (b) any entity performing a function within a commission, office, agency or other body established under the Constitution. A private body is defined as any private entity or non-state actor that—

(a) receives public resources and benefits, utilizes public funds, engages in public functions, provides public services, has exclusive contracts to exploit natural resources (with regard to said funds, functions, services or resources); or

(b) is in possession of information which is of significant public interest due to its relation to the protection of human rights, the environment or public health and safety, or to exposure of corruption or illegal actions or where the release of the information may assist in exercising or prtecting any right.

70.  The procedures for accessing information are set out in section 8 to 11 of the Access to Information Act, which includes an application for access to information by an  applicant shall provide details and sufficient particulars for the public officer or any other official to understand what information is being requested.; the processing of the application by the requested officials with set timelines, the transfer of the application or any part of it, to another public entity or private body, if the information requested is held by that other public entity or private body, and the manner of accessing the information.

71. Lastly, section 4(3)(g) of the Fair Administrative Action Act also provides that where an administrative action is likely to adversely affect the rights or fundamental freedoms of any person, the administrator shall give the person affected by the decision  the information, materials and evidence to be relied upon in making the decision or taking the administrative action.

72.  In the present application, the letter dated 9^th January 2018 by the Applicant requesting for certain information was as follows:

“Tuesday, January 09, 2018

Chief Executive Officer,

Capital Markers Authority,

Embankment Plaza, 3^rd Floor,

Longonot Road, Upper Hill,

P.O. Box 74800-00200

NAIROBI.

Dear Sir,

RE:  SUMMONS TO APPEAR BEFORE THE AUTHORITY – NATIONAL BANK OF KENYA (NBK)

-------------------------------------------------------------------------------------------------------

We have been retained by Mr. Munir Ahmed Sheikh to address you in respect of the Summons to Appear before the Authority dated 2^nd January 2018 and deliver at our offices today morning.

 We write to seek a number of clarifications regarding the hearing scheduled for Thursday 19th January, 2018 and the Terms of reference TOR attached to the summons;

1.  The TOR’s  state that a recipient  of Notice To Show Cause is given an opportunity to provide clarification or mitigation information in respect of the allegations of breaches of Capital Market Laws.  Kindly confirm whether as an Authority you have finalized with the Preliminary Investigations and whether there is a presumption of misconduct.  Our client does not have to provide the evidence to exonerate himself from ‘allegations’.  The onus is on the Authority to investigate and furnish sufficient evidence that the alleged breach has occurred.  The opportunity given for ‘mitigation’ presumes an adverse finding has been made.

2.  Under the TORs resources available include “supporting evidence submitted by parties to the proceedings”.  Kindly clarify.

a.  Who are the parties to the proceedings?

b.  Who is the Complainant?

c.  Apart from the information shared in the Notice to Show Cause, please confirm whether there is any other material and documentary evidence that we should be aware of before the hearing date on 19^th January 2018.  

3.  In our client’s written response he has requested the CMA to avail from NBK some crucial information and documentation touching on the allegations.  Kindly confirm you obtained and please let us have copies of the following;

a.  The Operational Risk Management Framework Policy of the Bank.  This document establishes conclusive the responsibilities for managing and governing the risks in the Bank including, Operational Credit, Marketing, Strategic, Liquidity and Capital Risks;

b.  Clarification and explanations from CFO on the matter of how the sale of premises was accounted;

c.   The Authority to seek from NBK the files detailing the Customer Accounts where the alleged rebooking of non-performing loans happened.  Further, any link showing our client’s involvement in these alleged rebookings;

d.  The Chief Credit Risk Officers response to the Management Letter of 2015 and the allegations on credit;

e.  All the Board Credit Committee Minutes for 2015 to ascertain if the allegations of rebooking without Board Authority is true or not.

f.   Any evidence to substantiate the alleged embezzlement of funds from the bank from the commissions paid to the agents. 

g.  Any evidence that out client was involved in the approval process of the loan to Fozi Investments and/or that he did not declare conflict of interest;

h.  The approval to empanel Sheikh & Co. Advocates maintained or kept in the records of procurement department;

4.  To enable us prepare for the hearing we require:-

i.   Transcripts of the last meeting held on 2^nd March 2017;

ii.  Any additional allegations or claims that we are required to respond to

5.  We also require the following additional information;

a.  the NBK Board (Nominations, Remuneration HR) Committee minutes for:

i.   Multiple meetings held in October and November 2014;

ii.  Multiple meetings held in April, May and June 2015 multiple

b.  The Minutes of the meetings of the Board of Directors of NBK for January to April 2016

We would be grateful to receive your response by close of business on 15^th January 2018 to enable our client prepare for the hearing scheduled for 19^th January, 2018.

Yours faithfully

ISSA & COMPANY ADVOCATES

MANSUR M. ISSA

cc.client”

73.  It is thus evident that there was a request for information made by the Applicant with the necessary particulars detailed in the letter from his Advocates dated 9^th January 2018. Further, the letter stated that the information was required for purposes of preparing for a hearing in response to summons sent to the Applicant appear before the Respondent in relation to a Notice to Show Cause on alleged breaches Capital Market Laws. The   Applicant’s right to a fair hearing was therefore at stake, in addition to other rights that were likely to be affected by any findings made on the Notice to Show Cause.

74.  The Respondent’s response thereto was in a letter dated 17^th January 2018 as follows:

“January 17, 2018

Issa & Co Advocates

5^th floor, City House

Wabera Street

P.O. Box 24210-00100

NAIROBI.

Email:  issa@issaadvocates.co.ke

Attn:  Mr Mansur M. Issa

Dear Mr. Issa 

We refer to your letter dated 9^th January 2018 and received on 10^th January 2018 regarding the Summons to appear before the Authority issued to Mr. Munir Sheikh  and wish to respond as follows:-

1.  With regard to your query on the complainant in this matter, kindly, stand advised that the Authority has powers at its own motion to conduct investigations and inquiries into the affairs of licensed or approved persons and public companies the securities of such are publicly offered or traded at an approved securities exchange.

2.  The findings of the inquiry and the allegations arising therefrom were detailed in the Notice to Show Cause dated August 22, 2017 that was issued to your client.

3.The Authority also provided your client with supporting evidence which it considered and relied upon in the matter for his consideration and for purposes of assisting him to respond to the allegations set out against him.  Indeed, your client responded comprehensively to the Notice to Show Cause vide a letter dated August 28, 2017;

4.  In addition to the written response, your client is being granted an opportunity to provide oral clarifications and elaborations to his written responses regarding the allegations leveled against him.

5.  In connection with the Authority’s responsibilities to maintain the confidentiality of information that it received in the course of its regulatory mandate, we are not in a position to share with your client any written responses received in respect of Notices to show cause issued to other parties.

6.  Contrary to your interpretation that a determination and/or presumption of misconduct has already been arrived at by the Authority as against your client, we wish to confirm that the Authority has made no determination thus far.  Determination will be made only after the hearing of your client.  In this context, the Authority welcomes the submission of any additional information that your client believes would inform such determination or that may serve in mitigation of any adverse findings that may otherwise be reached by the Authority.

7.  Please note that the information requested is not in the possession of the Authority.  During the hearing, your client will nonetheless be given an opportunity to detail or demonstrate what aspects of the documentation requested would be expected to serve to rebut the allegations and/or contradict the evidence provided as per the Notice to Show Cause and Summons to Appear in order to inform any further inquiries by the Authority.     

Please note that this response does not vary the hearing scheduled for 19^th January 2018 during which your client is expected to attend in default of which the Authority proceed to consider the matter and make an appropriate determination, his absence notwithstanding.

Yours sincerely

Paul M. Muthaura

CHIEF EXECUTIVE”

75.  The Respondent’s response to the Applicant’s request for information was three-fold. First, that it had already provided the Applicant with the information to be relied upon, which in its submissions it stated was in the Catalogue of Evidence that was annexed to the Notice to Show Cause dated 22^nd August 2017. The Applicant disputes this response on two fronts. The first is that the Respondent suppressed crucial information and failed to make disclosure to the Applicant in its letter date 17^th January 2018 that it had received a whistleblower’s tip off dated 1^st November 2015 on various issues concerning the Bank, which precipitated its inquiry into the Bank’s affairs. The Respondent claims that the whistleblower’s tip off is a non-issue as the Applicant has not demonstrated how he may have been prejudiced by the failure to disclose the same, and was also subject to verification by further investigation.

76.   The relevance of the whistleblower’s report in my view is relevant for purposes of disclosure for two reasons. Firstly, it points to material non-disclosure by the Respondent upon the Applicant’s request for information about the complainant, to which the Respondent  responded that it had instituted the investigations on the Applicant suo moto, when from its own pleadings it evidently did so upon receiving a whistleblower’s report. Secondly, it is also in breach of the provisions of the Constitution and the Access to Information Act which requires the Respondent to disclose any material information that was in its possession and custody at the time of the request, including the existence of a whistleblower’s report, irrespective of its belief or opinions as to the Applicant’s reasons for seeking access, or the utility of that information to the Applicant.

77.  The Applicant also disputes the response by the Respondent on provision of all information on the ground that the Respondent failed to disclose and furnish two affidavits sworn in October 2017 by one Kanini Kioko and one Nelson Zavai Kiziri Onzere which were in its custody. The Respondent did not dispute that the two affidavits were in its possession, and that the same were not disclosed to the Applicant, and averred that it did not disclose the affidavits as it did not rely on the them. This position however contradicts two averments by the Respondent in its own pleadings. Firstly, the Respondent stated that it provided the Applicant with the evidence it relied upon, as shown the Catalogue of Evidence that accompanied the Notice to Show Cause dated 22^nd August 2018, and which was annexed as its “Annexure AHA 15” to the its replying affidavit sworn on 26^th July 2018. Item 16 of the said Catalogue of Evidence were copies of affidavits by Kanini Kioko and Nelson Zavai Onzere. The said affidavits were therefore clearly part of the Respondent’s evidence, but were not supplied to the Applicant, despite being relevant to his case.

78.  Secondly, in paragraph 29 of the said replying affidavit, the deponent thereof stated as follows as regards the findings from its inquiry that led to the issue of the Notice to Show Cause e against the Applicant:

“The Respondent found that although the deposit mobilization scheme was made to appear as a legitimate measure to address liquidity challenges facing the Bank, the implementation of the deposit mobilization scheme led to payment for invoices where no deposits had been legitimately mobilized in favour of the Bank and commissions paid were further being withdrawn by the deposit mobilization agents and paid directly or indirectly to senior officers of the Bank.

Annexed hereto and marked AHA 14 are the sworn statements of the proprietor of Edge Capital Consultancy and the director of Advest Company Limited”

79.  The said “Annexure AHA 14” are the affidavits sworn by Kanini Kioko, who described herself as the sole proprietor of Edge Capital, and by Nelson Zavai Kiziri Onzere who described himself as a director of Advest company Limited. The said affidavits were thus clearly relied upon by the Respondent and material to the case made against the Applicant, and ought to have been disclosed to the Applicant.

80.  The Respondent also sought to lay the blame on the Applicant for failing to request to cross- examine the deponents of the affidavits during the hearing. It is however inexplicable how the Applicant would have cross-examined the deponents if they were not aware of the affidavits in the first place. There was clearly a breach of the Applicant’s right to information and fair hearing in this regard.

81.  The second response by the Respondent was that there was information that was requested that was confidential as it was received in the course of its regulatory mandate, and it could therefore not share any written responses received in respect of Notices to Show Cause issued to other third parties. The limitations to access to information are provided by Article 24 of the Constitution where the said limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, and section 6 of the Access to Information Act. Section 6 in this regard states as follows:

“(1)  Pursuant to Article 24 of the Constitution, the right of access to information under Article 35 of the Constitution shall be limited in respect of information whose disclosure is likely to—

(a) undermine the national security of Kenya;

b) impede the due process of law;

(c) endanger the safety, health or life of any person;

(d) involve the unwarranted invasion of the privacy of an individual, other than the applicant or the person on whose behalf an application has, with proper authority, been made;

(e) substantially prejudice the commercial interests, including intellectual property rights, of that entity or third party from whom information was obtained;

(f) cause substantial harm to the ability of the Government to manage the economy of Kenya;

 (g) significantly undermine a public or private entity's ability to give adequate and judicious consideration to a matter concerning which no final decision has been taken and which remains the subject of active consideration;

(h) damage a public entity's position in any actual or contemplated legal proceedings; or (i) infringe professional confidentiality as recognized in law or by the rules of a registered association of a profession.”

82.  This position taken  by the Respondent therefore needed to be anchored in any of those limitations, and  it is notable that the burden of proof in this regard was on the Respondent by virtue of Article 24(3) of the Constitution, which provides  that the State or a person seeking to justify a particular limitation of a right shall demonstrate to the court, tribunal or other authority that the requirements of Article 24 have been satisfied. It is therefore not enough to rely on the fact that the limitation to disclosure on the ground of that confidentiality or public interest is provided by the Constitution or Access to Information Act. It must also be shown that disclosure of information would have an adverse effect on that confidentiality or public interest, by way of an identifiable harm or negative impact. The Respondent did not bring any evidence in this regard, and specifically the harm that would result from the disclosure of responses received in respect of Notices to Show Cause issued to other third parties.

83.  It is also notable that the information sought was relevant to the extent that the allegations against the Applicant were that inter alia, he oversaw and authorised the preparation of misleading financial statements and irregular restructuring and rebooking of the loans of the Bank, and that together with other members of the Bank’s management, he devised and operated a fraudulent scheme under the guise of a deposit mobilization exercise.  The responses of any of the other Bank members or employees in this regard would have been relevant to the Applicant, especially if it implicated him in any manner. To this extent the Respondent did not meet the legal and constitutional threshold required to bring it within the scope of the limitations to the right to access to information that are set in the Constitution and in the Access to Information Act. 

84. The last and third response by the Respondent was that there was information requested that was not in its possession. The Respondent in this respect has specific powers under section 13 of the Capital Markets Act  and section 10 of the Access to information Act to require any person to furnish information to it for purposes of  performing its duties, or to transfer a request for information to another public or private body if such information is not in its possession.

85.  It was therefore within the Respondent’s powers to seek and obtain the information requested by the Applicant, and it did not bring any evidence of any such requests made to the Bank or any other person with respect to the information is stated was not in its possession. It is also instructive that the Respondent did admit in its submissions that the Bank allowed it access to review the requested documents in its premises, and that upon review of the same it “established there was no additional information that would serve to contradict or impugn the allegations in the Notice to Show Cause”. Therefore, the Respondent in effect and contrary to Article 35 of the Constitution and section 4(2) of the Access to Information Act, abrogated upon itself the responsibility of deciding whether the said information that was requested was relevant or in the Applicant’s interest, and went ahead to expressly deny the Applicant access to the said information.

86. On the whole this Court finds that the Respondent did breach the Applicant’s right to access information in the manner it conducted itself in issuing the Notice to Show Cause dated 22^nd August 2017 and the hearing of the same, as it proceeded with providing the Applicant with information in an opaque and unsatisfactory manner, and which therefore impacted on the fairness and  legality of its decision.

87. This conclusion has been reached bearing in mind the provisions of section 4(3)(g) of the Fair Administrative Action Act which make it an express statutory requirement for the decision maker to make pre-hearing discovery orders; the common law right to disclosure found in the rules on natural justice, which require disclosure of material in the hands of the decision maker, and the  express powers given to the Respondent under the Capital Markets Act and the Access to information Act to order production of evidence during an administrative hearing.

On Whether there was Bias on the part of the Respondent

88.  On this issue, it was submitted by the Applicant that the Respondent was biased with no possibility of a fair outcome due to the inherent conflict in its membership. That this obvious and apparent conflict of interest contributed to and resulted in a pre-determined outcome as the Respondent disregarded evidence brought by the Applicant, and sought to sanitize the Bank’s Board of Directors by shifting all the alleged governance and financial improprieties to the Applicant. That, not only was there reasonable suspicion of bias, but actual bias confirmed by the irrational attempt by the Respondent to attribute the duties of the Board of the Bank to the Applicant.

89.  Further, that the Central Bank of Kenya’s representative also seats on the Board of the Respondent, and the Central Bank of Kenya and National Bank of Kenya had lodged a complaint against the Applicant with the Banking Fraud in 2016 on the same issues, and that the Central Bank of Kenya had already made an adverse finding against the Applicant as confirmed by a Press Release dated 8^th April 2016. Therefore, that the said representative could not be objective and impartial in the determination of the allegations in the Notice to Show Cause.  In support of these arguments, the Applicant cited the cases of Committee for Justice and Liberty v National l’arret Committee for Justice and Liberty c. Office Energy Board(1978)S.C.R 369; Ernst &Young LLP v Capital Markets Authority & Another [2017]e KLR; Alnashir Popat & 8 Others v Capital Markets Authority[2016] e KLR; and Jasbir Singh Rai & 3 Others v Tarlochan Singh Rai & 4 Others[2013]e KLR

90. On the claim that the Respondent had a pre-determined decision, the Applicant submitted that the members of the Respondent’s Board had already made an adverse and prejudicial determination on culpability, which confirmed that the administrative hearing was a mere formality to sanitize a biased and pre-determined outcome. The Applicant pointed to proceedings of the hearing of the Notice to Show Cause held on 19^th January 2018, and comments made by members of the Respondent including that it was clear that “everything was wrong with the scheme’. During his oral submissions, Mr. Issa also referred the Court to  minutes of a Special Meeting of the Respondent’s Board held on 29^th November 2017 which is reproduced hereinbefore, as evidence of such predetermination. The Applicant cited the case of R (Lewis) v Redcar and Cleveland BC, (2008) EWCA Civ 746 on the test to be applied when determining if a decision maker had a predetermined decision.

91. The Respondent on its part submitted that there was neither actual bias nor a reasonable apprehension of bias that would have arisen from the composition of the Respondent. Regarding the dual membership of the Cabinet Secretary to the National Treasury in the Bank’s and the Respondent’s Boards, it is submitted that it is a statutory or legal requirement that Boards of Government entities have one of its members from the parent ministries, and in the case of the Respondent, this is required by section 3(c) of the Capital Markets Act. That, at all material times, the representative of the National Treasury in the Respondent’s Board is a different appointee from the one representing the National Treasury in the Bank.

92.  On the pronouncements by the Governor of the Central Bank of Kenya, it is submitted that the same should not be imputed upon the collective reasoning of the Board of the Respondent, merely because the Governor has an alternate who sits in the Respondent. It is submitted that the Applicant has not demonstrated that the representative of the Central Bank of Kenya was heavily influenced by the remarks of the Governor, or that the said representative used the remarks of the Governor to influence the thinking of the members of the Respondent’s Board. That, an informed person, viewing the matter through would conclude that the alternate to the Governor of the Central Bank discharged his duty notwithstanding the remarks of the Governor of the Central Bank of Kenya, in the manner stated in Australian Securities and Investments Commission v Healey (2011) FCA 717 and implied in Republic v Capital Markets Authority Ex Parte Joyce Ogundo (2018) e KLR.

93. On whether the Respondent had a pre-determined decision, it was submitted that the Applicant misinterpreted the remarks of one Mr. Lawrence Mumina, and that the words “everything was wrong” with regards to how the deposit mobilization scheme had been run neither had an explicit nor implied reference to the culpability of the Applicant. Further, that the remark only refers to the Bank staff without mentioning the Applicant. Lastly, that the comments by Mr. Mumina were not the Board’s sentiments as he is not a member of the Board.

94. This Court notes that it is an established principle of natural justice and fairness that a decision maker must not be influenced by partiality or prejudice in reaching his or her decision. When such influence is demonstrated then actual bias exists. In the present application the closest allegation of actual bias made by the Applicant was with respect to the Central Bank of Kenya representative on the Respondent’s Board, arising from a previous decision alleged to have been made by the Central Bank of Kenya as regards the Applicant. The Applicant however did not annex a copy of the said pronouncement, and this Court as such is not in a position to verify the maker and contents of the pronouncement, and whether it had any relation to the hearing of the Notice to Show Cause against the Applicant. Other than this pronouncement no other allegation of actual bias was brought as against the Central Bank of Kenya representative or the Respondent.

95.  The other allegations of bias were on two grounds- firstly, that that there was apparent bias as a result of the perceived conflict of interest on the part of the Treasury representative in the Respondent’s Board, arising from the fact that the Treasury is also represented in the Bank’s Board, and that there was thus the likelihood that the said representative was biased against the Applicant and in favour of the Bank’s Board members.  Secondly that there was a predetermination by the Respondent, which had already made up its mind on the Applicant’s culpability in advance before the hearing of the Notice to Show Cause.

96.  Apparent bias arises where a decision maker acts in such a way that would lead a fair-minded and informed observer to conclude that there was a real possibility that he or she was biased. The test for apparent bias was stated in Beatrice Wanjiru Kimani vs. Evanson Kimani Njoroge,[1995-1998] 1 EA 134  by Lakha, JA as follows: -

"In considering whether there was a real likelihood of bias, the Court does not look at the mind of the justice himself or at the mind of the chairman of the Tribunal, or whoever it may be, who sits in a judicial capacity. It does not look to see if there was a real likelihood that he would or did in fact favour one side at the expense of the other. The Court looks at the impression which would be given to other people. Even if he was as impartial as could possibly be, nevertheless if right minded persons would think that, in the circumstances there was a real likelihood of bias on his part he should not sit…There must be circumstances from which a reasonable man would think it likely or probable that the justice, or chairman, as the case may be, would, or did, favour one side unfairly at the expense of the other. The Court will not enquire whether he did, in fact, favour one side unfairly. Suffice it that reasonable people might think he did. The reason is plain enough. Justice must be rooted in confidence; and confidence is destroyed when right-minded people go away thinking; “The judge was biased.”

97.  The test for apprehension of partiality or bias for decision makers was also set out in  Jasbir Singh Rai & 3 Others v Tarlochan Singh Rai & 4 Others [2013] eKLR where the Supreme Court stated that disqualification of a decision maker was imperative even in the absence of a real likelihood of bias or actual bias, if a reasonable man would reasonably suspect bias. M.K.Ibrahim JSC expressed himself as follows;

“The court has to address its mind to the question is whether a reasonable and fair minded man sitting in court and knowing all the relevant facts would have a reasonable suspicion that a fair trial for the applicant was not possible”

98. The applicable test therefore, is whether a fair minded person, who was informed of the circumstances in which the decision against the Applicant was made, and having considered the facts, would conclude that there was a possibility that the Treasury representative was biased. I find the answer to be in the negative for two reasons. Firstly, other than membership of the Respondent Board, the Applicant did not bring any evidence of any other action or conduct on the part of the said representative of Treasury, or of his association with the Bank’s Board that would have raised an apprehension of bias. It is also not alleged by the Applicant that the same Treasury representative sits on the Respondent’s Board and the Bank’s Board.

99. Secondly, the requirement of the said Treasury representative membership in the Respondent’s Board is set by law, and is as such compulsory, and the representative cannot be said to be advancing their own personal interests in both Boards. I thus find that there was no evidence of apparent bias on the part of the Respondent’s Board.

100. Coming to the allegations of predetermination and the appearance of predetermination, the decision in  R (Lewis) v Redcar and Cleveland BC, (2008) EWCA Civ 746 sets out the test to be applied when determining if a decision maker had a predetermined decision in the context of administrative decision makers. This test is whether a fair-minded and informed observer, knowing the facts, would think that there was a real possibility that the decision-maker had pre-determined the matter to be decided.  However, it was noted in the said decision that administrative decision makers are generally permitted to express strong views about matters that they decide, and what they are not permitted to do, is to predetermine or appear to predetermine the matter to be decided.

101. In the present case, the remarks made by the Respondent’s official at the hearing of the Notice to Show Cause that “everything was wrong with the scheme’ will have to be examined with this distinguishing factor in mind. An ordinary meaning to that phrase shows that the maker was not stating a predisposition towards a certain position, but making a clear conclusion and finding of culpability. Of more concern however, are the proceedings at the Respondent’s Board special meeting held on 29^th November 2019 as reported in the minutes annexed as “Annexure AHA 1” to the Respondents Supplementary Affidavit sworn on “16^th December 2018 as follows:

“After discussions the Members NOTED that in the banking industry the CEO chairs all the key operational committees at the subject establishment, consequently, Mr. Munir cannot claim ignorance of the happening at the NBK during the period under investigation.  It was further NOTED that a board can be misled by management but the CEO, a member of the Board, cannot purport to have been equality misled by management as he is charged with reviewing all management information to be presented to the board and satisfying himself  as to its completeness and reliability. Given the CEO’s core mandate is the day to day running of an organization he is deemed to be aware of all material goings on the particularly or al matters that require to be reported to the Board.

It was observed that even if a CEO is not a qualified accountant, his understanding of the business should place him in a position to raise appropriate queries on the content and completeness of the financial statements.  Failing such proactive review and engagement, an allegation that he was equally disconnected from the operations of the business as a non-executive board member would suggest that he/she is not fit to hold that position on grounds of dereliction of his duties as the sole executive members of the Board.  Even where the CEO is not an accountant, he is deemed to be the primary preparer of financial statements to be considered and adopted by the Board and cannot transfer liability to the other members of management unless he can show reasonable efforts to review, query and verify.  

In order to reduce instances of different members of management seeking to re-direct blame to other parties, it was agreed it would be important to secure copies of the then applicable internal procedures to identify where responsibility lay for each type of disputed activity.

Members NOTED the response from Mr. Munir and RESOLVED that Management should pursue him on the offence of facilitating financial statement fraud.  It was further agreed that he should be put to task to dispute the suggestions that he was fully involved in the embezzlement scheme with a view to establishing if he will give pointers and leads to the other culprits to mitigate his own liability. “

102. It is evident that the minutes were reporting observations as well as conclusions made by the Respondent’s Board, that there were offences committed and culpability on the part of the Applicant for the embezzlement scheme for which he was to be put on his defence,  and be given an opportunity to mitigate his own liability. It is notable that the meeting was held and these conclusions were made before the hearing of the Notice to Show Cause held on 19^th January 2019, and before the impugned enforcement action of 3^rd April 2019, and clearly created an appearance of predetermination and bias on the part of the Respondent Board. This outcome was also inevitable given the procedure that was followed by the Respondent in hearing the Notice to Show Cause, which is the next issue that will be considered.

On Whether the Procedure adopted by the Respondent was Fair.

103. The Applicant submitted that there was procedural impropriety on the part of the Respondent, who it submitted acted as complainant, investigator, prosecutor and adjudicator in the administrative process. It is submitted that by its letter dated 17^th January 2017, the Respondent denied having any further documents to provide to the Applicant, and failed to disclose and provide affidavits sworn by witnesses in the matter which were in its possession sworn by Nelson Zavai Kiziri Onzere  and Kanini Kioko which it relied on during its inquiry.

104. Therefore, that the Applicant had no opportunity to examine the deponents or respond to the prejudicial depositions in the affidavits, contrary to Section 4(4)(c) of the Fair Administrative Action Act. In addition, that  in its Statement of Defence filed before the Tribunal, the Respondent disclosed it had received a whistle blower’s tip off which led to the investigation, which it also failed to provide to the Applicant.

105.   It was also submitted that during the hearing of the Notice to Show Cause, the Respondent’s legal manager alluded to and confirmed that there were sworn affidavits in the Respondent’s possession.  Further, that the Respondent’s Mr. Lawrence Mumina also confirmed that there were statements on record by agents regarding the allegations in the Notice to Show Cause, which the Respondent’s denied when the Applicant’s Advocate sought clarification on the same. Therefore, by failing to make full disclosure and denying the Applicant the right to cross-examine witnesses, the Respondent was in breach of Articles 47 and 50(1) of the Constitution, and section 4(4)(d) and 4(3)(g)of the Fair Administrative Action Act.

106. The Applicant further submitted that the Terms of Reference for the hearing indicated that the Respondent’s proceedings were of an “administrative and regulatory nature”, hence the Respondent could only issue recommendations and not sanctions as it purported to so, as though it were carrying out a quasi-judicial or judicial function. The Applicant submits that his right to representation by counsel was irrationally and unlawfully limited by the Respondent in its Terms of Reference, contrary to Article 50 of the Constitution and section 4(3)(e) of the Fair Administrative Action Act.

107.  Further, that the Applicant’s legitimate expectation was violated as the Respondent did not conduct the investigations and notice to show cause hearing fairly to arrive at a just outcome, and the Respondent purported to act as a regulator, investigator and adjudicator. That it was the Applicant’s legitimate expectation that owing to the evident conflict of interest between the Respondent and Bank, the Respondent’s Board would have delegated the roles of investigations and prosecuting as provided under section 11(A) of the Capital Markets Act.

108. Lastly, the Applicant submitted that he suffered double jeopardy because the Respondent subjected him to administrative action whereas the Banking Fraud Investigations Department (BFID) had issued a supposed vindictive statement in respect of the Applicant and also because audits conducted by Deloitte and Touche did not link him to any alleged embezzlement. Further, that the Director of Public Prosecutions had cleared him of all charges.  The Applicant cited the cases of Chadwick Okumu v Capital Markets , (2018) e KLR; Bukenya and others v Uganda, (1972) EA 549; Republic v Speaker of the National Assembly & 4 others Ex Parte Edward R.O Ouko, (2017) eKLR; Geothermal Development Company Limited v Attorney General & 3 Others (2013) eKLR; Alnashir Popat & 8 others v Capital Markets Authority, (2016) eKLR; and  Republic v Kenyatta University ex Parte Njoroge Humphrey Mbuthi (2015) eKLR  in support of his arguments.

109. In  response to the Applicant’s submissions, the Respondent submits that the Applicant’s legitimate expectation was met by the Respondent as the Applicant was supplied with all the relevant information/material, and it issued the Applicant with a notice of the right to representation; hence it discharged its duty under Section 4(3) (e) of the Fair Administrative Action Act. Further, that the hearing of the Notice to Show Cause was an administrative hearing under Article 47 of the Constitution and the Fair Administrative Action Act, and while citing the case of Republic v University of Nairobi Ex Parte Lazarus Wakoli Kunani & 2 Others, (2017) e KLR the Respondent submits that it was fair enough by fashioning its hearing to accommodate legal representation, albeit on points of law only.

110.  While finding fault with the Applicant’s argument that the Respondent acted as the “regulator, prosecutor and adjudicator in its own cause”, it was the Respondent’s submission that the it is a statutory body created to execute specified functions in the public interest, and is vested with diverse powers and functions, which the Courts have taken cognizance of. The Respondent cited the decisions in  Capital Markets Authority v Jeremiah Gitau Kiereini & Another (2014) eKLR and Brosseau vs Alberta Securities Commission (1989) 1 RSC 301 for the proposition that there is an exception to the principle that no one should be a judge in his own action when an overlap of functions is authorized by statute. The Respondent submits that it is conferred with various functions to enable it fulfil its protective function which incorporates three aspects; investigation, hearing of notices to show cause and imposition of sanctions on regulatory violators. That, the Act empowers the Respondent to execute those functions under Section 13B, 11(3) (h), 26(8), 25(A) as read with Section 11(3)(c).

111.  To the extent that these overlapping functions are authorized, the Respondent submitted that it acts within the powers conferred on it by Parliament, and in any case the dual mandate does not necessarily mean the Respondent will be biased. Further, that contrary to the Applicant’s argument, the provisions of section 13B(1) are to the effect that the appointment of an investigator is discretionary and not mandatory, and that in any case the delegation of the investigative function would not necessarily cure the apprehension of bias, since it is no guarantee that the delegates would be independent form the Respondent’s control.

112. In considering the issue as to whether the Respondent acted fairly, two key legal principles apply. Firstly, the requirements of natural justice that guide all administrative decisions are that a person must be allowed an adequate opportunity to present their case where his or her interests and rights may be adversely affected by a decision-maker. Secondly, that no one ought to be judge in his or her case, which is the requirement that the deciding authority must be unbiased when according the hearing or making the decision. The Court of Appeal in this regard observed as follows in the case of David Oloo Onyango v Attorney-General [1987] eKLR:

“There is a presumption in the interpretation of statutes that rules of natural justice will apply and therefore that in applying the material sub-section the Commissioner is required to act fairly and so to apply the principle of natural justice.”

113.  In addition, Article 47 of the Constitution, and the provisions of the Fair Administrative Act import and imply a duty to act fairly by a decision maker in any administrative action. Article 47 of the Constitution provides  as follows in this regard:

(1) Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.

(2) If a right or fundamental freedom of a person has been or is likely to be adversely affected by administrative action, the person has the right to be given written reasons for the action.

114. Section 4 (3) and (4) of the Fair Administrative Action Act lays down the procedure to be adopted  by decision makers  in administrative actions as follows:

“(3) Where an administrative action is likely to adversely affect the rights or fundamental freedoms of any person, the administrator shall give the person affected by the decision-

(a) prior and adequate notice of the nature and reasons for the proposed administrative action;

(b) an opportunity to be heard and to make representations in that regard;

(c) notice of a right to a review or internal appeal against an administrative decision, where applicable;

(d) a statement of reasons pursuant to section 6;

(e) notice of the right to legal representation, where applicable;

(f) notice of the right to cross-examine or where applicable; or

(g) information, materials and evidence to be relied upon in making the decision or taking the administrative action.

(4) The administrator shall accord the person against whom administrative action is taken an opportunity to-

(a) attend proceedings, in person or in the company of an expert of his choice;

(b) be heard;

(c) cross-examine persons who give adverse evidence against him; and

(d) request for an adjournment of the proceedings, where necessary to ensure a fair hearing.”

115.  Procedural fairness means acting fairly in administrative decision making. It relates to the fairness of the procedure by which a decision is made, and not the fairness in a substantive sense of that decision. There is no fixed content to the duty to afford procedural fairness. The fairness of the procedure depends on the nature of the matters in issue, and what would be a reasonable opportunity for parties to present their cases in the relevant circumstances.

116. The Court (Onguto J.) summarized the requirement of fair procedure in Alnashir Popat & 8 others v Capital Markets Authority [supra]  as follows:

 “104. Procedural fairness is an aspect of both Article 47 and Article 50 of the Constitution, and I will now consider it in light of the right to fair administrative action.

105. I start by stating that the importance of a decision to an individual affected or to be affected by a decision, constitutes a significant factor affecting the content of the duty of procedural fairness. The more important the decision is to the lives of those affected and the greater its impact on that person or those persons, the more stringent the procedural protections that will be invited and imposed.

106. As Sedley J. (as he then was) stated in R. v. Higher Education Funding Council, ex parte Institute of Dental Surgery, [1994] 1 All E.R. 651 (Q.B.), at p. 667:

In the modern state the decisions of administrative bodies can have a more immediate and profound impact on people’s lives than the decisions of courts, and public law has since Ridge v. Baldwin[1963] 2 All E.R. 66, [1964] A.C.40 been alive to that fact. While the judicial character of a function may elevate the practical requirements of fairness above what they would otherwise be, for example by requiring contentious evidence to be given and tested orally, what makes it “judicial” in this sense is principally the nature of the issue it has to determine, not the formal status of the deciding body.

107. Procedural fairness has embedded in it the age old natural justice requirements that no man is to be a a judge in his own cause, no man should be condemned unheard and that justice should not only be done but seen as done: see Kanda vs.  Government of  Malay [1962] AC 322,337 (per Denning LJ). Effectively, procedural fairness requires that decisions be made free from a reasonable apprehension of bias by an impartial decision-maker.”

117. At the core of the duty to act fairly and the requirement of fairness is the need to ensure that a person affected by a decision has an effective opportunity to make representations before it is taken, so that he or she has the chance to influence it.  This requirement is what informs the key procedural steps set down by the law of giving of notice of an administrative action, and provision of the evidence that will be relied upon during that administrative action. The question of whether failure to observe any of these steps renders the decision making by an administrator unfair, will depend on how it effects a party’s ability to make representations.

118. In the present case, the Applicant has alleged, and it has already been found that the Respondent failed to avail to him two affidavits that were sworn  by Kanaini Kioko and Nelson Zavai Onzere, and which the Respondent relied upon in its findings that he had been involved in embezzlement of funds leading to the issue of the Notice to Show Cause. The Respondent did not dispute that it also failed to avail the Applicant the whistle blowers report that initiated the inquiry against the Applicant or the statements of agents as alleged by the Applicant. The Respondent was required to provide the Applicant with sufficient information about the issues that were to be considered during the hearing of the Notice to Show Cause to enable him make meaningful representations. The information in the affidavits and agents statements were in this regard key evidence of the allegations made against the Applicant, and identified as such by Respondent itself as it included them in its Catalogue of Evidence that accompanied the Notice to Show Cause.

119.  While the obligation and extent of a decision maker’s duty to provide the individual affected by a decision the evidence relied upon will vary with the context of a hearing,  in cases where there are allegations of wrong doing or disciplinary actions, such as in the proceedings  against the Applicant, which may and indeed did result in the imposition of sanctions and penalties, the individual must be given sufficient information and notice of all allegations that will be considered. This will also include any anonymous allegations or evidence such as the whistleblowers report, as it is evident that it influenced the Respondent’s decision to inquire into the Applicant’s conduct, so as to give the Applicant an opportunity to challenge the same. The failure by the Respondent to provide this evidence to the Applicant clearly breached his right to a fair hearing, especially  in light of the reliance on these evidence by the Respondent in its enforcement action against the Applicant.

120.  The procedure adopted by the Respondent as being investigator, jury and judge has also been faulted by the Applicant. The Applicants arguments are based on the holding of Mativo J. in Chadwick Okumu v Capital Markets , (supra) where the learned Judge held as follows:

“42. Also important while interpreting statutory provisions is to bear in mind what I would call the legislative intent. The provisions of the statute in question  must be read in the context of not one but three different imperatives. The first is to enable CMA to effectively to carry out its specially identified statutory mandate. The Constitution and the act clearly envisages an important and active decisional role for the  CMA to resolve disputes through the application of the law.  At the same time, however, the Constitution declares that everyone is entitled to a Fair Administrative Action.  In as much as the decisions of the CMA  affects the Petitioner, CMA is  obliged not to act unfairly. The act must accordingly be construed so as to promote respect  the Bill of Rights. A third dimension must also be borne in mind. The Constitution envisages the  right to be resolved by the application of the law in a fair and public hearing, before a court or if appropriate another independent and impartial tribunal or body.[31]  Put differently, it could not have been the intention of the legislature to contemplate a situation whereby CMA would act as an investigator, prosecutor, jury and the hangman. “

121.  The judge went on to find as follows after considering similar arguments made by the Respondent that the law permits it to all carry out all the roles of investigator, prosecutor, judge and executor:

“ 73. This is a case where CMA performed the three roles contrary to the rules of natural justice. To me, it was ill advised for CMA to investigate, prosecute, sit as the jury and convict. This was a proper case for CMA to invoke Section 11A cited above and  delegate its functions  to an independent body. CMA ought to have delegated some of the functions which is clearly permitted under the law as earlier discussed. I find that the Petitioner has established reasonable apprehension of bias which is a violation of Section 7 (2) of the Fair Administrative Action Act[61] which  provides for grounds of review which include bias, procedural impropriety, ulterior motive, failure to take into account relevant matters, abuse or discretion, unreasonableness, violation of legitimate expectation or abuse of power.”

122.  It was observed by the Judge in that case that there are alternatives available to the Respondent within its overlapping powers, whereby it can adopt a procedure that does not violate the requirements of natural justice, particularly the rule against bias. This position was also alluded to by the Court of Appeal in Capital Markets Authority v Jeremiah Gitau Kiereini & Another (supra) as follows:

“64.There   is  no  controversy  regarding  the   vital role   played by  CMA  in attempting to  achieve the  aspirations of the  Capital Markets Act  of ‘promoting, regulating and facilitating the  development of an orderly,fair  and  efficient capital   market’ in  this  country.   It is  only   through effective corporate management and  regulation that a robust capital market which safeguards the  interests of both  local  and  international investors can  be assured. That is why  CMA is given fairly wide  powers and  functions under the  statute. It is the  manner of exercise of those powers that  is  in  question, and  it  becomes necessary therefore to examine the  relevant legislative provisions and  the  evidence relating to the  exercise of the  powers.

65. Under  Section 11(3) of the  Act,  no less than  29 wide  ‘powers, duties and functions’ of the  Authority (also  referred to as “the Board”) established under Section 5 of the  Act  are  listed. Section 11(3) (w) makes such  powers unlimited as the  Board  may  “do  all other  acts  as may  be incidental or conducive to the  attainment of the  objectives of the  Authority or the  exercise  of its powers  under  this  Act”. Very  wide powers indeed and  therefore the  reason for caution in  the  manner of exercising them to avoid  abuse.  There  may  be some  truth in the  adage that ‘power  corrupts and absolute  power corrupts absolutely’.

66. The  Act  in  Section  11A   further gives   the   Board   the   discretion to delegate its  functions to,  inter  alia,  a “Committee of the  Board”. Such delegation may  be  revoked at any  time and  the  delegation does  not prevent the  Board  from performing the  delegated function. In  other words,  the   Board   and  its  own   committee may   carry out   the   same function simultaneously. There  is further general discretion under Section 14(1) of the  Act  to  appoint “Committees, whether of its own members or otherwise, to carry  out  such general  or special  functions as may be specified by the Authority and may delegate to any such committee such of its powers as the Authority may deem appropriate.” Sub-section (2) however, makes it mandatory for the  Authority to establish:

(a) committee to  hear  and  determine complaints of shareholders  of  any   public   company  listed   on  an authorized  securities exchange,  relating  to  the professional  conduct   or  activities of  such  securities exchange  or  such  public   company,  or   any   other person   under   the   jurisdiction  of  the   Authority  and recommend  actins  to  be  taken,   in  accordance  with rules established by the  authority for  that purpose; and

(b) a committee to  make recommendations with  respect to  assessing   and awarding  compensation     in respect  of  any application made in accordance with  rules established  by the Authority for that purpose.(emphasis  added)

It is evident from the  diverse provisions in  those  sections of the  Act that  the   Board   must  make   a  choice  of  the   form  and   nature  of delegation of its  powers and  functions. The trial court found and  held that CMA  was  within its  powers  to  appoint the   ad  hoc  committee under  Sections 11A  and  14  of the  Act.  With   respect, that is not entirely correct. It is only so in so far as the general power exists. The Board   must go further and   specify which provision of the   Act   is invoked...”

123. It is evident in the present case that the Respondent did not heed the advice given in the cited cases, and did not thereby observe the constitutional and legal requirements as to a fair hearing and fair administrative action. From the evidence provided of the processes leading to the issuing of the Notice to Show Cause and of the hearing of the same, it is evident that the same members and officials of the Respondent who participated in the investigations also participated in the hearing as prosecutors, and advised and influenced the decision making by the Respondent on the Notice to Show Cause. This leads to an inescapable appearance of a predetermined decision, and a clear appearance of impartiality on the Respondent’s part.

124. While in an enforcement action is brought by way of an administrative hearing, the Respondent must of necessity in its regulatory role participates as a party and must prove the case, it must also ensure that it observes the key tenets of a fair hearing. The constitutional requirements of fair action in this respect dictate that there is a separation of the Respondent’s functions and functionaries in the processes of investigation, prosecution and decision making during an enforcement action, to ensure independence of mind and action, and therefore impartiality in all the stages of the enforcement process.

125. In addition to the adoption of a procedure that facilitates a fair hearing within the exercise of its wide powers, the Respondent needs to elect at the commencement of enforcement proceedings, whether, depending on the circumstances of a case, an administrative hearing would be the most appropriate enforcement procedure in securing the constitutional rights of a fair hearing of a party that is subject to enforcement proceedings before it. In certain circumstances where there are allegations of serious misconduct bordering on criminal offences and which may lead to criminal culpability and punitive action or imposition of criminal sanctions, it may be constitutionally prudent that the matter proceeds before another regulator such as the Director of Public Prosecutions. This ensures that the allegations are canvassed in the context of the criminal process rather than in an administrative hearing, and guarantees the rights of a fair trial that are provided in Article 50 of the Constitution.

126. In the present application, allegations of embezzlement of funds and fraudulent siphoning of monies out of the Bank in the guise of deposit mobilization were made against the Applicant in the Notice to Show Cause. These allegations were of a criminal nature, and ought to have been pursued through the criminal process where the constitutional and legal thresholds for finding culpability are different, and not an administrative hearing. To this extent the Applicant’s rights to a fair trial under Article 50 of the Constitution were also compromised by the Respondent, as the inappropriate legal procedure was thereby followed in determining the Applicant’s culpability.

On Whether the  Respondent’s Actions were Unreasonable and Irrational.

127. The Applicant submitted that the Respondent acted unfairly, unreasonably and irrationally when it made the decision in the Notification of Enforcement Action dated 3^rd April 2018. It is submitted that the Respondent wrongly imputed responsibility and culpability on the Applicant for alleged financial improprieties for the preparation and presentation of financial statements, an obligation within the statutory mandate of the Chief Financial Officer, and not the Chief Executive Officer as provided for in the Bank’s Policies, the Banking Act, the Central Bank of Kenya Prudential Guidelines and Capital Markets Authority Guidelines regulations for listed companies.

128. The Applicant cited Section 3.1.1(ii) of the Guidelines on Corporate Government Practices by Public Listed Companies in Kenya in this regard. The Applicant also submitted that the Respondent failed to disclose with particularity the alleged obligations that the Applicant had breached and found the Applicant responsible for failing to assume “the primary responsibility of fostering the long-term business of the corporation” It is submitted that “the primary responsibility of fostering the long-term business of the corporation” is bestowed upon the Board of Directors and not the Applicant as Chief Executive Officer as he then was. The Applicant also highlighted the provisions of Clause 14 of the National Bank of Kenya Board Charter which lists matters reserved for the Board .

129. The Applicant therefore contended that the Respondent conflated the responsibilities of the Board of Directors with those of the Chief Executive Officer, hence the adverse decision against the Applicant was made without any factual or legal basis. It was also submitted that the Respondent failed to consider in totality the evidence produced and tendered by the Applicant during the hearing therefore arriving at an irrational and unreasonable finding in the following instances:

(a) in determining that the Applicant had failed to establish a strong controlled environment that would have prevented the alleged failures of misreporting, misrepresentation and alleged embezzlement of funds at the Bank;

(b) In determining that the Applicant was responsible for producing financial statements and ensuring their accuracy, and that they were in accord with  the International Financial Reporting Standards (IFRS) for the Board members to rely on when executing their duties, contrary to the evidence tendered that this was not part of his job description and neither was it listed as part of his responsibilities in his letter of appointment;.

(c) In determining that the Applicant was responsible for the erroneous entries in the books of account and individual accounting transactions that were summarized in the financial statements.

(d)  In failing to consider that the primary responsibility for preparation and presentation of Financial Statements to the Board is vested in the Chief Financial Officer by the Finance Control Policy Report dated 23^rd July 2015.

130. Further, that the Chief Executive Officer does not have the necessary qualification required under Capital Markets Regulation regulations to undertake this role, and the Financial reports are presented by the Chief Financial Officer in every meeting of the Board. That, the quarterly financial reports, including both the June 2015 and September 2015 reports in question were presented in the Board meetings for the Board to review, interrogate and approve. It was further submitted that in disregard to the Applicant’s response and submissions, the Respondent failed to consider that as provided in the Finance Control Policy Report, the Chief Financial Officer has the overall responsibility to maintain strong and robust ledger controls and reconciliation environment.

131. The Applicant contended  that unlike the Chief Financial  Officer, he is neither qualified nor licensed to practice accounting, and that his was merely an oversight role to ensure financial statements were prepared on time and submitted to the Board. It is submitted that the Respondent deliberately misinterpreted clause 2.3 of the Finance Control Policy Report, clause 2.5.2 of the Guidelines on Corporate Practices by Public Listed Companies in Kenya, 2002 and Sections 635-638 of the Companies Act.

132.  Lastly, the Applicant submitted that there was no nexus established between the allegations in the Notice to Show Cause dated 22^nd August 2017 and the evidence tendered and considered by the Respondent. It is submitted that the Respondent deliberately misinterpreted the Capital Markets Regulations and the Guidelines on Corporate Governance in its determination and made a perverse decision. This, it is submitted was done to prejudice the Applicant’s legal rights contrary to section 7(2) (e) of the Fair Administrative Action Act.

133.  The Respondent submitted on this issue as follows: That the Applicant is deflecting responsibility to other parties including the Board of the Bank and former senior management team members like the Chief Financial Officer and the Credit and Risk Officer. Further, that its actions and decisions took into account relevant considerations and ensured fairness, reasonableness and rationality. The Respondent submits that it considered the responsibilities of the Applicant as the Managing Director/ Chief Executive Officer and his oversight role under his employment contract. In addition, that  one of the codes relating to Banks is the Prudential Guidelines of the Central Bank of Kenya (Prudential Guidelines), which in clause 3.7.7 provides for various responsibilities of the Managing Director/ Chief Executive Officer, and that clause 10 of the National Bank of Kenya Limited Board Charter  provides for the role of the Managing Director.

134.  Therefore, that the foregoing provisions demonstrate the Applicant is responsible for management actions. It was in this regard submitted that the Applicant was responsible for furnishing the requisite information to the Board as the Managing Director/ Chief Executive Officer,, pursuant to Article 2.1.3 of the Guidelines on Corporate Governance by Public Listed Companies in Kenya, 2002. That, the Applicant supervised/ played an oversight role on the bank’s management with regard to this responsibility. Further, that pursuant to Article 3.2 (vi) of the Guidelines, the Applicant was obliged as the head of management to ensure a clear flow of information between management and the Board of the Bank. And, that pursuant to Article 3.2(viii) of the Guidelines, the Chief Executive Officer,  is required to provide necessary information to the Board of the Bank. That, it is best practice in Corporate Governance for the Chief Executive Officer,  to present board papers; any other employee (including the Chief Financial Officer) does so by invitation of the Chief Executive Officer.

135.  The Respondent further submitted that it considered the judicial interpretation of the responsibilities of directors and senior officers of companies. Firstly, that the Applicant was a director/ executive director of the Bank; secondly, that the Applicant was a principal nexus between the Board and the management of the Bank. The Respondent submitted that the Applicant had a higher degree of duty of care than that of other directors because he had a daily presence in the Bank and would have at any time accessed any records, documents and/or information in order to ensure the material financial statements were accurate.  The Respondent in this regard cited the cases of Australian Securities and Investments Commission v Healey and Others (supra); Bates v Dresser ,251 U.S. 524 (1919); and Maina Mukoma v Cannon Assurance Ltd Cause No. 1428 of 2013.

136.  On the misrepresentation of financial statements for the periods ended 30^th June 2015 and 30^th September 2015, it was submitted that the responsibility assumed by the Applicant as well as other directors was that the financial statements were reasonably accurate and that they had been prepared according to the International Financial Reporting Standards (IFRS). However, that germane financial statements were grossly inaccurate and not prepared according to the IFRS, and the Applicant was hence capable of asking some relevant questions especially where there was material and significant reporting of improvement in the Bank’s performance. Further, that the Applicant admitted at the hearing of the Notice to Show Cause on 19^th January 2018 that he was competent at handling financial statements, and actively participated in presenting the germane financial statements to the Bank’s Board, showing he had prior interaction with them as a member of senior management as well as at the Board level.

137. Lastly, the Respondent submits that the Applicant was head of various crucial committees including a) Executive Management Committee; b) Executive Credit Committee; c) Assets and Liability Committee and d) Executive Operations Risk Committee. The Respondent therefore reiterates that it was rightly guided by the relevant consideration that as head of management according to the provisions of the Board Charter and Prudential Guidelines, the Applicant was supposed to oversee and authorize the preparation and preparation of accurate financial statements.

138.  This court has power to set aside a decision on the ground that the decision is irrational in its defiance of logic or of accepted standards, and that no sensible person who had applied his mind to the question to be decided could have arrived at it. This principle was settled by the decisions in Associated Provincial Picture Houses vs Wednesbury Corporation (1948) 1 KB 223 and Council of Civil Service Unions vs The Minister for the Civil Service (1985) 1 AC 374. This ground was also explained in Pastoli vs Kabale District Local Government Council & Others, (supra).

139. In the present application I find that the Respondent has acquitted itself as regards the reasons for its decision in the Notice of Enforcement Action as regards the financial responsibility of the Applicant. It is important in this respect to clarify that it is not the role of this Court as a judicial review Court to find whether the said reasons were correct or right. So long as the decision was anchored on reasons that appear to be reasonable and based on the available evidence and applicable law, the limits of this Court’s merit review on the grounds of unreasonableness and irrationality will be exhausted. This Court cannot proceed with an examination of the facts and the law and whether the reasons and findings are supported by the said facts and law. This lies in the province of an appeal, and not judicial review.

140. In this respect the Respondent pointed to various guidelines and policies that apply to the Applicant regarding his financial responsibility as detailed out in the foregoing. It also relied on financial reports tabled by the Banks’s management before the Banks Board. It is also notable in this respect that the role of the Applicant in the said guidelines and policies, as well as in the Bank’s management is disputed by the Applicant. However, as indicated before, the proper forum  to resolve this dispute, and particularly as to whether the Respondent erred in its findings as regards the Applicant’s financial responsibility and roles, is on appeal and not in judicial review.

141.  Lastly on the lack of nexus between the allegations in the Notice to Show Cause and the findings by the Respondent in the enforcement action, this Court notes that the Respondent did indicate what its findings were and the reasons thereof in relation of the two main allegations made against the Respondent of potential misrepresentation of financial statements and embezzlement of funds. As indicated earlier, so long as the Respondent gave reasons for the findings and the evidence it relied upon, its decision is not unreasonable or irrational merely because the findings do not exactly correspond with the allegations made against the Applicant in the Notice to Show Cause.

142. It cannot also be reasonably be expected that if the evidence discloses a different wrongdoing or misconduct from that alleged in a Notice to Show Cause, a regulator should not pronounce itself on the disclosed wrongdoing. Such a finding would be contrary to the purpose and objectives of the Capital Markets Act. These findings notwithstanding, this Court has already observed that the Respondent needs to identify at the commencement of enforcement proceedings the actions that are suitable for administrative hearings, and those that are better left to the criminal process, to avoid situations where it is not able to follow through with an allegation made due to the high probative thresholds and requirements.

On whether the Enforcement Action was Ultra Vires.

143. It was submitted  by the Applicant that the Respondent acted without jurisdiction by departing from the allegations in the Notice to Show Cause, and making a determination on an allegation that the Applicant had not been given an opportunity to respond to. That, the Respondent unreasonably and contrary to the evidence tendered held the Applicant liable for alleged misconduct on the deposit mobilization.

144. The Applicant also submitted that the Respondent was acting outside the scope of its jurisdiction by investigating and determining compliance with International Financial Reporting Standards (IFRS) on unaudited quarterly financial reports contrary to the reporting obligations of listed entities under the regulations of the Respondent. The Applicant highlighted the provisions of The Capital Markets (Securities) (Public offers,) in this regard.

145. On the severity of punishment meted on the Applicant, it is submitted that the Respondent acted in excess of it jurisdiction in giving a sanction of disqualifying the Applicant from holding any key position in a public listed company. That, the same violated the Applicant’s constitutional rights as he had no opportunity to mitigate or make representations before the sanctions were imposed. The Applicant submits that the penalties and sanctions imposes are therefore oppressive, excessive and disproportionate, considering that no sanctions were imposed on the BOD of the Bank which have a bigger responsibility for the matters determined by the Respondent. The Applicant relied on the case of Capital Markets Authority v Jeremiah Gitau Kiereini & Another [2014] e KLR

146.  Lastly, on the failure to give reasons, the Applicant  submitted that the Respondent violated the Terms of Reference for the hearing dated 2^nd January 2018, which provided that the Respondent’s decision would be made and communicated to the Applicant within 30 days after the hearing. Instead, the decision was delivered more than sixty (60) day after the hearing without any reason or explanation. Further, that the Respondent, contrary to its constitutional, statutory and common law duty, failed to give reasons for imposing the maximum penalty against the Applicant.

147. The Respondent on its part submitted that the sanctions imposed on the Applicant are lawful because: a) both financial penalties and disqualifications are provided for under section 25A of the Act; b) the financial penalty of Kshs. 5,000,000 is the maximum fine imposable but is still within the statutory limit; and c) The disqualification of the Applicant for three years meets the statutory requirement of being “for a specified period”; the disqualification would be unlawful if it was for an infinite period.  It is submitted that the sanctions imposed were lawful because they were based on material findings by the Respondent, which it made with adherence to the principles and procedures in the Constitution, the Fair Administrative Action Act, rules of natural justice and the Capital Markets Act.

148. It is also submitted that the Respondent gave sufficient reasons for the sanctions imposed, which reasons are contained in the Notice of Enforcement of Action and the Enforcement Report which the Respondent gave the Applicant. It is however submitted that neither the Constitution nor statutory provisions required the Respondent to give reasons for the seriousness or leniency of the sanctions imposed. The Respondent submitted that contrary to the Applicant’s assertions, the Respondent had taken enforcement action against the Board of the Bank by issuing a regulatory caution. That, it also took action against members of the senior management including the Chief Financial Officer, Chief Credit Officer and Head of Treasury.

149.  In determining whether or not the  Respondent acted illegally or in error of law, regard is made to the description of illegality by Lord Diplock in  Council of Civil Service Union v Minister for the Civil Service [1985] AC 374 at 410 as a failure by a public body to  understand correctly the law that regulates its decision making power, or a failure to give effect to that law.  In addition, this Court is also guided by the expose on when errors of law will arise  in decisions made by a public body, as expounded in Halsbury’s Laws of England, 4^th Edition at paragraph 77 as follows:

“A public body will err in law if it acts in breach of fundamental human rights; misinterprets a statute, or any other legal document, or a rule of common law, takes a decision on the basis of secondary legislation, or any other act or order, which is itself ultra vires; takes legally irrelevant consideration into account, or fails to take relevant considerations into account, admits inadmissible evidence, rejects admissible and relevant evidence, or takes a decision on no evidence, misdirects itself as to the burden of proof, fails to follow the proper procedure required by law; fails to fulfil an express or implied duty to give reasons or otherwise abuses its power.”

150. It is therefore necessary when deciding whether a statutory power or duty has been lawfully exercised or performed, to identify the scope of that power and duty, and which involves construing the legislation that confers the power and duty. In the present application, this Court detailed out the the wide powers that the Respondent is bestowed with under the Capital Markets Act, and under which it to made the Enforcement Action. It also has powers to enforce the sanctions upon the Applicant in the manner it did under section 25A of the Act.

151. It cannot therefore prima facie be said that the Respondent acted ultra vires or exceeded its jurisdiction to the extent that it carried out enforcement proceedings and imposed sanctions on the Applicant. It is also empowered to apply the laws rules and guidelines that apply to the capital markets, which it did.  As indicated earlier on in this judgment, the contestation is around the manner of the exercise of these powers, and not whether or not the Respondent had the powers to act as it did.

152. The findings on this issue are therefore subject to the earlier findings made herein that the Respondent acted unlawfully in certain material respects, particularly as regards various aspects of the procedure it employed in hearing the Applicant’s Notice to Show Cause as found in the foregoing.

Whether the Applicant Merits the Relief Sought

153. The Applicant has sought orders of certiorari and prohibition. The holding in Kenya National Examinations Council vs. Republic Ex parte Geoffrey Gathenji Njoroge (1997) e KLR as regards the nature of these judicial review orders is as follows:

 “Prohibition looks to the future so that if a tribunal were to announce in advance that it would consider itself not bound by the rules of natural justice the High Court would be obliged to prohibit it from acting contrary to the rules of natural justice. However, where a decision has been made, whether in excess or lack of jurisdiction or whether in violation of the rules of natural justice, an order of prohibition would not be efficacious against the decision so made. Prohibition cannot quash a decision which has already been made; it can only prevent the making of a contemplated decision…Prohibition is an order from the High Court directed to an inferior tribunal or body which forbids that tribunal or body to continue proceedings therein in excess of its jurisdiction or in contravention of the laws of the land. It lies, not only for excess of jurisdiction or absence of it but also for a departure from the rules of natural justice. It does not, however, lie to correct the course, practice or procedure of an inferior tribunal, or a wrong decision on the merits of the proceedings…Only an order of certiorari can quash a decision already made and an order of certiorari will issue if the decision is without jurisdiction or in excess of jurisdiction, or where the rules of natural justice are not complied with or for such like reasons. In the present appeal the respondents did not apply for an order of certiorari and that is all the court wants to say on that aspect of the matter.”

154. The Respondent has  been found to have acted unfairly, impartially and in violation of the Applicant’s right to access information, and the impugned decision in the Notification of Enforcement Action dated 3^rd April 2018 cannot therefore stand, and the Applicant is entitled to the order sought of certiorari. This Court will exercise its discretion in favour of the Applicant in this regard, irrespective of the facts that the Respondent was acting pursuant to powers granted to it under the Capital Markets Act, and gave reasons for its decision. This is for the reasons that the decision was materially flawed, illegitimate and unjust, arising from the procedure employed by the Respondent in hearing the Notice to Show Cause against the Applicant, rendering the said decision untenable.

155. The orders sought of prohibition cannot however be granted, for the reasons that the Applicant did not show or demonstrate that it was illegal for the Respondent to undertake the enforcement actions. In any event the orders sought of prohibition are superfluous given that the decision whose implementations is sought to be prohibited will be quashed. In addition, this Court cannot prohibit the Respondent from legally carrying out enforcement proceedings in exercise of its statutory mandate against the Applicant in the future, should  the eventuality arise.

156. In the premises this Court finds that the Applicant’s Notice of Motion dated 4^th July 2018 is partially merited to the extent of the following orders:

I. An Order of Certiorari be and is hereby issued to bring into this Court for the purposes of quashing, the following decisions by the Respondent in the notification of Enforcement Action issued by the Capital Markets Authority, the Respondent herein, on 3^rd April 2018;

a) That in contravention of responsibility to ensure that the Board was provided with accurate information, the Applicant presented Quarterly Unaudited Financial Statements for the periods ended 30^th June 2015 and 30^th September 2015 to the NBK Board which erroneously indicated that the Bank had earned income amounting to Kshs. 847,920,000.00 from the sale of assets and understated the loan provisions.

b) That the Applicant acted in contravention of regulation B.06 of the 5^th Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosure) Regulations 2002 by failing to ensure preparation of the interim accounts for the period ended 30^th September 2015 and quarterly accounts for the period ended 30^th September 2015 in accordance with the International Financial Reporting Standards (IFRS) which accounts were subsequently published and relied upon by the investing public.

c) That the Applicant acted in contravention of Article 2.1.3 of the Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002, by failing to supply the Board with relevant accurate and timely information to enable the Board to discharge its duties.

d) That the Applicant contravened the provisions of Article 3.1.1 of the Capital Markets Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002 by failing to assume a primary responsibility of fostering the long-term business of the corporation consistent with his fiduciary responsibility to the shareholders.

II.  An Order of Certiorari to remove and bring to this Court for purposes of quashing the decision in the Notification of Enforcement Action issued by the Capital Markets Authority, the Respondent herein, on 3^rd April 2018 to disqualify the Applicant from holding Office as a key officer of a public listed company for a period of three(3) years and imposing a financial penalty of Kenya Shillings Five Million (Kshs. 5,000,000.00) against the Applicant.

III. The Respondent shall meet the Applicant’s costs of the Notice of Motion dated 4^th July 2018.

157. Orders accordingly.

DATED AND SIGNED AT NAIROBI THIS  22^ND DAY OF  JULY  2019

P. NYAMWEYA

JUDGE