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Acon Systems Limited & another v Bank of Baroda (Kenya) Limited & another (Civil Case E021 of 2021) [2022] KEHC 10610 (KLR) (5 May 2022) (Ruling)
Neutral citation:
[2022] KEHC 10610 (KLR)
Republic of Kenya
Civil Case E021 of 2021
SN Mutuku, J
May 5, 2022
Between
Acon Systems Limited
1st Plaintiff
Clement Mulwa Masai
2nd Plaintiff
and
Bank of Baroda (Kenya) Limited
1st Respondent
SRC Risk Consulting Agencies
2nd Respondent
Ruling
Introduction
1.The 1st Plaintiff/Applicant entered into various agreements for overdraft loan facilities with the 1st Defendant/Respondent. This fact is not in dispute. Those loan facilities were secured by legal charges over the following properties owned the 2nd Plaintiff/Applicant:(i)Land Reference No. 913/38 (IR 162882) Makindu Township, Makueni County.(ii)Ngong/Ngong/10038 located in Ongata Rongai, Kajiado County.(iii)Kwale/Diani Complex/1609, Jasmine Villas located in Kwale County.
2.The Plaintiffs/Applicants (Applicants) defaulted in repayments setting in motion a series of events culminating in this Notice of Motion (Application) dated 28th September, 2021 under determination in this Ruling. The Notice of Motion is pegged on various provisions of the law including Articles 40 of the Constitution of Kenya, sections 90,96(2) and 97(2) of the Land Act No.6 of 2012, Order 40 Rule 1 and 2 of the Civil Procedure Rules, 2010, Sections 1A and 3A of the Civil procedure Act, and Rule 15 of the Auctioneers Rules 1997. It seeks the following orders:(i)That this application be certified urgent and service be dispensed with and the same be heard ex-parte at first instance.(ii)That the Defendants/Respondents be restrained by way of temporary injunction either by themselves, their employees, agents, servants, assignees or any person working under their express/and or implied instructions or authority from selling by public auction or private treaty alienating, disposing, entering, leasing, appointing a receiver, trespassing, wasting or in any other way dealing with those parcels of land known as Land Reference No. 913/38 – Shushan Hotel located in Makindu Township, Makueni county; Ngong/Ngong/10038 located in Ongata Rongai, Kajiado County and Kwale/Diani complex/1609, jasmine villas located in Kwale county pending the hearing and determination of this application..(iii)That the Defendants/Respondents be restrained by way of temporary injunction either by themselves, their employees, agents, servants, assignees or any person working under their express/and or implied instructions or authority from selling by public auction or private treaty alienating, disposing, entering, leasing, appointing a receiver, trespassing, wasting or in any other way dealing with those parcels of land known as Land Reference No. 913/38 – Shushan Hotel located in Makindu Township, Makueni county; Ngong/Ngong/10038 located in Ongata Rongai, Kajiado County and Kwale/Diani complex/1609, jasmine villas located in Kwale county pending the hearing and determination of the main suit.(iv)That the Honourable court grants any other relief that may be deemed appropriate in the interest of justice and fairness.(v)That cost of this application be provided for.
3.The Application is supported by an Affidavit sworn by Clement Mulwa Masai on 28th September, 2021 whose contents I have read and understood. In that Affidavit he explains about the agreement the Applicants entered into with the 1st Respondent and the circumstances giving rise to the suit herein and this Application.
4.It is the case for the Applicants that the Respondents failed to serve the Applicants with the requisite statutory notices under Sections 90, 96, 97 of the Land Act and Section 15 of the Auctioneers Act hence the injunctive orders they are seeking against the Respondents.
5.By a Replying Affidavit dated 15th October, 2021 sworn by Martin Karuna the legal manager of the 1st Respondent, the Respondents have denied breaching the law. It is the case for the Respondents that the Plaintiffs have defaulted in servicing the loan facilities setting in motion the actions by the Respondents to recover the money.
Submissions
6.The Application was canvasses by way of written submissions.
7.The Plaintiffs’ submissions are dated 30th November, 2021. Two issues have been identified for determination; namely:(i)Whether the Application for grant of temporary injunction is merited.(ii)Whether Mr. Martin Karanu can swear an affidavit on behalf of the 2nd Defendant/Respondent without authorization.
8.While citing various decisions including Giella v Casman Brown (1973) EA 358; Esso Kenya Limited v Mark Makwata Okiya Civil Appeal No. 69 of 1991 and Mrao Limited v First American Bank of Kenya Limited & 2 others, Civil Appeal No. 39 of 2002 (2003) eKLR, the Applicants submitted that they have established a prima facie case by arguing that the email extract dated 8th September, 2021, is aimed at unlawfully and illegally auctioning the 2nd Applicant’s properties. It is their case that the 1st Respondent has failed and/or neglected to issue the mandatory 90 days statutory notice as dictated by the law under section 90 (1) and (2) of the Land Act, 2012. They submitted that the 1st Respondent’s actions through their agents SRC Risk Consulting Agencies to issue the demand letters dated 25th May, 2021 and 19th August, 2021 having not served them with the 90 days statutory notice denies them the legal duration provided for under sections 90(1) and 96(2) of the Land Act and that the Defendants/Respondents have not shown any proof of service of the statutory notices.
9.They submitted that they were never served with mandatory notice of sale under section 96(2) of the Land Act; that the Respondents failed to undertake mandatory forced valuation as envisioned under section 97(2) of the Land Act and that the Respondents’ breach of the mandatory provisions of the law must be condemned.
10.It was further submitted that the 2nd Respondent, a risk consulting agency/debt collector, did demand payment of monies owed to the 1st Defendant through letters dated 25th May, 2021 and 19th August, 2021 but the Respondents failed to serve the Notification of Sale by Auction as required under Section 15 of the Auctioneer Rules 1997.
11.They submitted that the Applicants stand to suffer irreparable damage which cannot be compensated by an award of damages if the orders sought are not granted; that the properties are prime properties of which the Respondents have not carried out any valuation to ascertain the current value and the same may be sold at throw away price; that they will suffer irreparable damage if the property is sold without any regard to due procedure; that the properties belong to the 2nd Plaintiff and he has not failed, refused or neglected to pay the loan amount and that his efforts to do so are being frustrated by the Defendant. Further that one of the properties is his matrimonial home.
12.On whether the balance of convenience tilts in favour of the applicant that the balance of convenience tilts in preservation of status quo until both parties are heard on the merits of the instant application and the main suit; that they have demonstrated the standard required for a temporary injunction and that the Plaintiff is willing to service the loan in full.
13.On their second issue, whether Mr. Martin Karanu can swear an affidavit on behalf of the 2nd Defendant without authorization, it was their submissions that the law under Order 1 Rule 13 and 4 Rule 2 of the Civil Procedure Rules require written authorization to swear an affidavit by one party on behalf of the other party where there are more than one parties to a suit. They also cited the case of Abdulla Abshir & 38 others v Yasmin Farah Mohammed (2015) eKLR. H.C at Nairobi Civil Suit No. 165 of 2015 to support that point.
14.The Respondents’ submissions are dated 14th December, 2021. It is their argument that what the Applicants are challenging is not that the 1st Respondent has the power of selling the charged properties but that the procedure to sell the properties does not follow the law for reasons that a valuation of the properties has not been done or statutory notices issued.
15.It is their argument that they issued the requisite statutory notices under section 90(1), (2), (3) (e) of the Land Act 2012 dated 7th November 2018 and 27th September 2018; that they also issued Chargee’s notice to sell dated 17th February, 2021 and that these notices were served on the Applicants. They attached both notices as “MK1” and “MK2” accompanied with certificates of postage. It is their contention that service of the notices formed the basis of various discussions between the 1st Respondent and the Applicants as to the settlement of the outstanding loan amounts. They submitted that it is therefore a misrepresentation/concealment of material facts for the Applicants to allege that they were not served with the notices.
16.It is their case that following the issuance of statutory Notices and Chargee’s notice to sell and failure by the chargor to exercise his equitable right of redemption, then the 1st Respondent is at liberty to conduct a valuation of charged properties and thereafter instruct an auctioneer to undertake the sale of the said property.
17.The Respondents argued further that the Applicants’ breach of the terms of the various facilities is prejudicial to the 1st Respondent as it has continued to cause financial distress and its effect is jeopardizing of bank customer’s funds and that as a result of this the Applicants are underserving of equitable reliefs that they seek from this court.
18.It is the argument of the Respondents that the Applicants have not reached the threshold for issuing temporary injunctions as warranted by the case of Giella v Cassman Brown.
19.On the issue of Martin Karanu’s Replying Affidavit it was argued that Affidavits in their nature are evidence and that a person who testifies is a witness. Therefore, no special leave or permission is required for one to be a witness and that all that is required is that the witness is conversant with the issue in question. It is their contention that there is a huge difference between verifying affidavit where authority to act/swear is required and Replying Affidavit where the same is not required. They cited various decisions on this including the case of Peter Onyango Onyiego v Kenya Ports Authority [2004] eKLR.
Determination
20.From the outset it is clear to me that the circumstances of this suit have changed as shown by the Certificate of Urgency dated 23rd February, 2022. That Certificate is supported by an Affidavit sworn by Silas Ombati Ombogi, advocate for the Applicants. The facts, as stipulated on the face of the said affidavit, show that pending the filing of submissions in this matter and determination of the pending application, the 1st Respondent has issued instructions to Keysian Auctioneers, who vide a letter dated 15th February, 2022, have issued a 45 days’ Notice, together with Notification of sale of immovable property dated 16th February, 2022. The intended sale is of L.R No. 913/38 Shushan Hotel Makindu Township, Makueni County, and that the said sale is scheduled for the Friday 6th May, 2022. In that Affidavit the Applicants’ main concern is to have this Honourable court intervene and suspend the forty–five (45) days Notification of Sale scheduled for 6th May, 2022.
21.From my understanding of the issues raised in this application, it is clear to me that the central issue to be determined is whether the 1st Respondent has acted within the law in its bid to sell the Applicants’ property. That there is an existing contract in respect of several overdraft facilities between the 1st Respondent and the Applicants is not in dispute. Likewise, it is not disputed that the Applicants have defaulted in servicing the said facilities.
22.It is that sale that the Applicants are trying to stop through the injunctive orders they are seeking from this court. The gist of their application dated 28th September 2021 is to seek temporary injunction to stop the sale. The requirements to satisfy issuance of a temporary injunction are well settled in the case of Giella v Cassman Brown and Company Limited (1973) E.A 385. These are as follows:
23.The Applicants argue that they have satisfied the threshold demanded in the Giella v Cassman Brown case above. The Respondents argue to the contrary that the application by the Applicants is not merited for failure to meet the threshold in the Giella case.
24.What amounts to a prima facie case was addressed by the court in the case of Mrao Limited v First American Bank of Kenya and 2 Others (2003) KLR 125 where the Court of Appeal stated that:
25.Whether the Applicants have met the conditions set in this case is what is pending determination by this court among other issues.
26.Turning to the law, Section 90 (1), (2) and (3) (e) obligates the chargee to issue 90 days’ notice in writing to the chargor in case of default of any obligation under the charge or where the chargor fails to pay any periodic payments, which notice should adequately inform the chargor of, inter alia, the nature and extent of the default, the amount that must be paid to rectify the default and time of the notice by the end of which the default must have been completed (if default consists of non-payment of any money due under the charge) and the consequences of failure to rectify the default within the time given. One of the consequences of failure to comply with the notice within the time given is to sell the charged property by the chargee.
27.Failure to comply with the notice under section 90 automatically brings into operation the provisions of section 96 (1) and (2) of the Land Act which allows a chargee to exercise the power of sale of the charged property after serving on the chargor “a notice to sell in the prescribed form and shall not proceed to complete any contract for the sale of the charged land until at least forty days have elapsed from the date of the service of that notice to sell.
28.The law goes on under section 97 (1) and (2) of the Land Act to provide as follows:1.A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of a court, owes a duty of car to the charger, any guarantor of the whole or any part of the sums advanced to the chargor, any chargee under a subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale.2.A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.”
29.This is not all. Rule 15 of the Auctioneers Rules also comes into play. It commands the auctioneer, upon receipt of a court warrant or letter of instruction, in the case of immovable property to record the court warrant or letter of instruction in the register; prepare a notification of sale in the form prescribed in Sale Form 4 set out in the Second Schedule indicating the value of each property to be sold, locate the property and serve the notification of sale of the property on the registered owner or an adult member of his family residing or working with him or where a person refuses to sign such notification, the auctioneer shall sign a certificate to that effect and give in writing to the owner of the property a notice of not less than 45 days within which the owner may redeem the property by payment of the amount set forth in the court warrant or letter of instruction. After the expiry of 45 days without payment, the auctioneer is at liberty to arrange for the sale of the property not earlier than 14 days after the first newspaper advertisement.
30.It is clear from these provisions that the procedure to sell charged property upon default of the chargor is elaborate. This lengthy procedure is aimed at ensuring that a defaulting chargor is not deprived of his property without due process being followed to the letter.
31.It is clear from the court record that while this matter was pending in court, the chargee instructed Keysian Auctioneers to sell by public auction the property known as L.R No. 913/38 Shushan Hotel, Makindu Township, in Makueni County on 6th May 2022 from 11.00am. The said auctioneers have issued the Applicants with 45 days’ notice to redeem the property by payment of Kshs 115,306,944.00 failure to which the property shall be sold as notified. This Notice was issued on 15th February 2022.
32.In paragraph 23 of the submissions by the Respondents, it is clear that they appreciate the fact that due process had not been followed as at the time of making those submissions. In that paragraph, the 1st Respondent, in a way, undertakes to follow the required legal processes including undertaking a valuation and appointing an auctioneer who would thereafter issue the relevant statutory notices.
33.It is also admitted in paragraph 24 of the Respondents’ submissions that an auctioneer had not been appointed as at the time of submitting. In paragraph 25 of the same submissions, it is admitted that the issue of conducting a forced sale valuation and issuing a 45-day notification of sale prior to the auction process did not apply as at the time of canvassing this application and filing submissions.
34.What is worrying is that as at the time this court mentioned this matter with a view to confirming whether the submissions had been filed and giving directions as to when ruling will be delivered, there was no evidence that a forced sale valuation having been done. There was filed in court, documents from the Keysian Auctioneers showing that a 45-day notice had been issued to the Applicants and notification for sale of the property shown above given. It is clear to me that this information came from the Applicants through their Certificate of Urgency and a Supporting Affidavit filed in court on 8th March 2022.
35.I agree with the Respondents that he who asserts must prove as the law commands in sections 107, 108 and 109 of the Evidence Act as well as the authorities they have cited on this issue. I also agree with the Respondents in their submissions that the Applicants are in default and that on that point alone, the Applicants have not established a prima facie case and that in line with the decisions in Celine Wambui Kigwe v National Bank of Kenya & 2 others [2020] eKLR and Francis J. K. Ichatha v Housing Finance Company of Kenya (2005) eKLR, the Applicants cannot default and seek protection from the court but this court will be missing the point if it were to ignore the law in determining issues like the ones before this court.
36.I have given this application careful consideration. What is disturbing me is the manner the whole process is being undertaken. It is true that there are two statutory notices under section 90 (1) (2) (3) (e) of the Land Act purportedly served on the Applicants. These are dated 27th September 2018 and 7th November 2018 in respect of the property known as L.R. No Kwale/Diani Complex/1609 situated in Diani South Coast and L.R 913/38 respectively. There is also Chargees Notice of Sale under Section 96 (2) of the Land Act dated 17th February 2021 in respect of L. R No. 913/38 and another Notice of Sale of the same date in respect of L.R No. Kwale/Diani Complex/1609.
37.It is the case for the Respondents that these notices have been properly served on the Applicants. To emphasize that point they have attached a certificate of postage issued by the Postal Corporation of Kenya as proof of serviced. I must admit that the said annexure is illegible due to the poor quality of photocopying. It is not possible for this court to determine if indeed the said notices were served by looking at this annexure. The fact of service is denied by the Applicants.
38.But even if this court were to believe that the statutory notices have been properly served, there are other issues to consider in this matter. It is true that the 1st Respondent is allowed to take legal steps to recover its money which in essence belongs to its customers. But due process must be followed. It is also true that a defaulting borrower should not run to court seeking protection of the law. In my view both parties must act within the law for each to claim protection under the law.
39.The law commands that certain things be done within it in order for the parties coming to seek its protection can benefit from that protection. The command of the law is as given in the provisions I have cited above. The law, under the provisions I have cited above, tells a financial institution seeking to recover its money from a defaulting borrower “give the defaulter a written notice running for 90 days to make good his default. If he fails to make good his default, give him another written notice that after 40 days you will sell the charged property. After expiry of 40 days and no action by the defaulter, carry out a forced sale valuation on the charged property before proceeding to instruct auctioneers to sell the property.”
40.The auctioneer is also commanded by the law, after receiving instructions to sell the charged property, to give the owner of the property a notice in writing of not less than 45 days within which the owner may redeem the property by payment of the amount set forth in the letter of instruction.
41.What is making me uncomfortable in this matter is the manner in which the whole process is proceeding. It is admitted that no forced sale valuation has been carried out by a valuer. Yet the auctioneer has been instructed to recover Kshs 115, 306,944.00. It is therefore clear to me that the basis of this figure has not been laid down. At least there is no evidence before me by the 1st Respondent how this figure was arrived at. Secondly this information is coming from the Applicants and not the 1st Respondent.
42.The provisions of sections 90, 96 and 97 of the Land Act are couched in mandatory terms. Failure to comply with these provisions is detrimental to the party claiming to have complied with them and seeking protection of the law. Section 97 commands a chargee to exercise a duty of care. In Koileken Ole Kipolonka Orumoi v Mellech Engineering & Construction Limited & 2 others [2015] eKLR, the court had this to say on the provisions of section 97 of the Land Act:
43.I agree with the above reasoning. Without the forced sale valuation of the property, how will the chargor or even this court be able to determine if the price at which the charged land is sold is 25% or below the market value or that the chargee is in breach of the duty of care imposed by subsection 97 (1) of the Land Act. How did the chargee come up with the figure of Kshs 115, 306, 944.00 in order to instruct the auctioneer to recover the same without the forced sale valuation to know the current market value of the property in question? An answer to this question is not provided.
44.I think I have said enough to demonstrate that even though the chargor is in default and that he does not seem to be doing anything to make good the default, the chargee has its fair share of blunders. The legal process initiated by the chargee to recover the loan facility from the chargor is not neat. It is a flawed process. It is admitted that certain things, in the process of recovering the money from the defaulting Applicants, are yet to be done, yet the auctioneers have been instructed to sale by public auction on Friday, the 6th May 2022, the property L.R No. 913.38 situated at Makindu in Makueni County, being one of the charged properties in this case.
45.This court appreciates the duty to protect from defaulting borrowers, customer’s funds deposited with the chargee. However, this process of recovering this money must be done within the confines of the law. This is what the law commands and there is no shortcut to this process.
46.While this court takes exception in the manner the chargor is handling this matter and the lack of seriousness in his attempt, if at all, to repay the borrowed funds, I agree with him to some little degree that he has made out a prima facie case in so far as failure by the chargee to comply with the law in its attempt to recover the funds borrowed by the chargor is concerned.
47.The auction slotted for Friday 6th May 2022 at Makindu Township in Makueni County cannot proceed as scheduled. It would be a miscarriage of justice if this court were to allow such an auction to take place before the law guiding the process leading to this sale is complied with.
48.For this reason, and having given the issues raised by both parties careful consideration, it is my finding that the Applicant’s Application dated 28th September 2021 is hereby allowed in the following terms that:a.The Notification of Sale of Immovable Property of L.R. No. 913/38 Shushan Hotel, Makindu Township, Makueni County, scheduled for the Friday 6th May, 2022 by Keysian Auctioneers is hereby suspended.b.The Defendants/Respondents are hereby restrained by way of temporary injunction either by themselves, their employees, agents, servants, assignees or any person working under their express/and or implied instructions or authority from selling by public auction or private treaty alienating, disposing, entering, leasing, appointing a receiver, trespassing, wasting or in any other way dealing with those parcels of land known as Land Reference No. 913/38 – Shushan Hotel located in Makindu Township, Makueni county; Ngong/Ngong/10038 located in Ongata Rongai, Kajiado County and Kwale/Diani complex/1609, jasmine villas located in Kwale county pending the hearing and determination of the main suit.c.Due to the nature of this application, I order each party to take care of its own costs of this application.
49.I hasten to make it clear that this order is not meant to give the chargor justification in his default to repay the loan. He is not so justified and he should take good counsel and take advantage of this temporary relief to find means to quickly put in place methods of making good his default.
50.Orders shall issue accordingly.
DATED, SIGNED AND DELIVERED THIS 5TH DAY OF MAY 2022.S. N. MUTUKUJUDGE
