1.The applicants KCB Bank Limited (the Bank) and Kamal Anantroy Bhatt (Receiver) are aggrieved by a Ruling delivered by the High Court at Nairobi (Chepkwony, J), on 12th July 2022 dismissing their notice of motion dated 9th June 2022, filed in HCCC No. E201 of 2022 in which they had sought orders to set aside and/or vacate the ex-parte orders issued by the High Court on 7th June 2022. They have moved this Court through a notice of motion dated 22nd July 2022, brought under inter alia under Rule 5(2)(b) of the Court of Appeal Rules, for orders of stay of execution in regard to the Ruling and Orders of 12th July 2022 and stay of further proceedings in HCCC No. E201 of 2022.
2.The dispute leading to the Bank’s motion stems from an agreement for financial facilities issued by the Bank to Pearl Beach Hotel Limited (the respondent). The facilities were secured through Debentures dated 1st March 2011, 26th December 2012 and 30th April 2014. On 31st May 2022, the Bank appointed the Receiver as Receiver Manager under the Debentures, of all the respondent’s assets, maintaining that the respondent was in default and there was an amount of Kshs. 518,861,672,350.35 owing
3.The respondent filed a suit in the High Court challenging the appointment of the Receiver Manager, and also filed contemporaneously, an interlocutory application dated 6th June 2022. On 7th June 2022 the learned Judge heard the respondents exparte and issued two sets of exparte interim orders.
4.The first set of exparte orders issued on 7th June 2022 at 1.17 pm were in the following terms:
5.The second set of exparte orders issued on the same day at 4.30. pm were varying the earlier order as follows:
6.The interim orders issued on 7th June 2022 were the subject of the applicants’ motion dated 9th June 2022 in which the applicants sought the setting aside of the interim orders. Having heard the application inter partes the learned Judge (Chepkwony, J) delivered a Ruling on 12th July 2022, in which she issued orders as follows:
7.The Bank is aggrieved by the Ruling and orders of 12th July 2022, contending that the learned Judge ought to have allowed their application and set aside the orders of 7th June as they wereobtained through misrepresentation and non-disclosure of material facts. The Bank and the Receiver have filed a notice of appeal against the Ruling together with the motion for stay of execution and stay of proceeding under Rule 5(2)(b) as afore stated.
8.Osca Ombuna, the Head of the Bank’s Head of Credit Support Unit has sworn an affidavit in support of the motion. The applicants have also filed written submissions. In brief in the applicants relying on the background that we have already highlighted, urge that they have an arguable appeal with good chances of success.
9.The applicants have identified 6 grounds upon which they intend to challenge the ruling of the High Court. These include the learned Judge: applying wrong principles due to non-disclosure and misrepresentation of material facts; declining to consider any of the grounds that the applicants had advanced in support of the applications to set aside ex parte orders; failing to make a determination whether the ex parte orders obtained by the respondent were procured through misrepresentation and non- disclosure of material facts; purporting to undertake a merit review of the issues in dispute between the parties, when this was not required; failing to appreciate that the ex parte orders were irregular, illegal and fraudulent as they purported to prevent actions that had already taken place; and failing to appreciate that by conceding that the Receiver’s appointment ought to remain in place and varying her orders to this effect, there was no basis for her to restrain the Receiver from carrying out his receivership functions.
10.As regards the appeal being rendered nugatory, the applicants argued that the value of the security held by the bank is being diminished by factors such as: the respondent’s failure to pay the principal amounts due to the Bank, while interest then standing at an astronomical amount of Kshs. 5.2 billion continue to accrue; extortionist legal charges from the firm representing the respondent in which a director in the respondent’s firm has a direct interest; conflict between the directors of the respondent; and the respondent’s possession of two pent houses within the secured premises, thereby denying the Bank income.
11.The applicants argue that the respondent is intent on abusing and circumventing the consent orders which have been confirmed in the varied orders, by using them as a means to siphon and divert funds from the respondent's Bank accounts for the primary benefit of a director of the respondent who is presently in conflict with other shareholders, rather than utilize the funds for the agreed purpose of funding the operations and normal course of business of the respondent.
12.The Bank further urges that the balance of convenience falls in its favour because the debt is growing and the security is being depleted, and if the appeal is successful, the respondent will not be able to compensate the Bank for the shortfall.
13.In response to the applicants’ motion the respondent relies on a replying affidavit sworn by Nazir Jinnah, a Director of the respondent, and written submissions which have been duly filed.
14.The respondent opposed the motion on several grounds including: the orders made by the learned Judge on 12th June, 2022 being proper as the Judge balanced the interest of the parties by merging the orders issued on 7th June 2022, with the terms of a consent order adopted by the court on 14th June, 2022, pending the hearing of the application dated 6th June, 2022; the applicants not having satisfied the threshold for setting aside the consent order; the orders issued by the learned Judge being properly designed to protect the interest of both parties; the applicants have acted in bad faith by illegally denying the respondent the equitable right of redemption and freezing the respondent’s accounts contrary to court orders; and the applicants seeking an equitable relief but coming to the Court with unclean hands.
15.The respondent argued that the learned Judge had unfettered discretion and dealt satisfactorily with the applicant’s motion; that the Bank has security in the form of a Debenture and has control of the respondent’s Bank account and has oversight over all the respondent’s transactions; that the applicant has misconstrued and misrepresented the terms of the orders issued by the High Court; that the parties entered into the terms of the consent order by mutual consent; that the applicants’ averments are intended to mislead the Court; that the applicants have not established that the execution of the orders will irreparably affect the Bank or negate the very core of the appeal as the Bank has security in the form of a Debenture on the respondent’s.
16.In its written submissions, the respondent contended that the appeal is not arguable as the learned Judge exercised her inherent powers and her discretion judiciously and correctly; and that if the Court issues the orders sought, the substratum of the substantive suit that is still pending in the High Court, will be prematurely determined, and this will deny the parties an opportunity of a fair hearing.
17.On the nugatory aspect, the respondent argued that the applicants’ motion does not meet the threshold required under Rule 5(2)(b) of the Court Rules, as the applicants have not demonstrated that the appeal will be rendered nugatory if the respondent is permitted to access the limited funds held by the Bank, for purposes of financing its core business. In addition, the value of the respondent is approximately 12 billion against a disputed loan amount of 5.6 billion and the Bank has not produced any valuation report or document to substantiate their allegation that the Debenture and the personal guarantee if realized, will not be sufficient to settle the loan facilities. Finally, the respondent urged that the balance of convenience does not tilt in the applicants’ favour.
18.We have carefully considered the motion before us, the affidavit in support and in reply, the contending submissions, and the authorities cited. The motion being one under Rule 5(2)(b) of the Court Rules, the issue is whether the applicant has met the threshold provided under that Rule. Rule 5(2)(b) states:
19.The Rule gives the Court discretion to grant orders of stay of execution, injunction or further proceedings. The threshold to be met before an order can be granted under this Rule, has been laid down in several decisions of this Court the sum total of which is, that an applicant must establish the twin principle of arguability and the nugatory aspect, by demonstrating that he has an arguable appeal, and that if the orders sought are not granted, the appeal/intended appeal will be rendered worthless. (see Ruben & 9 Others vs. Nderito & Another,  KLR 459; Kenya Tea Growers Association & another v Kenya Plantation and Agricultural Workers Union  eKLR; and Stanley Kangethe Kinyanjui V Tony Ketter & 5 others  eKLR).
20.It is not disputed that the Bank granted the respondent financial facilities which were secured by Debentures. The dispute arose from the appointment of the Receiver ostensibly under the terms of the Debenture. This is what gave rise to the respondent’s application in the High Court, pursuant to which he obtained the ex parte orders dated 7th June 2022, ostensibly restraining the Bank from appointing a Receiver Manager and restoring the status quo prior to the appointment of the Receiver.
21.The Bank being aggrieved by the interim order of 7th June, 2022, sought to have the same set aside maintaining that the orders were obtained irregularly through false and misleading information; that the Debentures were not registered and that the Bank’s right to appoint a Receiver Manager had not crystallized. It was also the Bank’s contention that the conduct of the respondent was demonstrable of bad faith, and unclean hands, as despite the appointment of the Receiver Manager, the respondent has blocked the Bank from accessing certain funds held by it at Diamond Trust Bank. Thus the applicants urge that there is sufficient reason for the orders of 7th June to be stayed.
22.In her Ruling the learned Judge found that there was conflicting interests between the parties, and that it was the duty of the court to ensure a balance is reached and justice obtained for both parties. In arriving at that balance the learned Judge found that there was a dispute concerning the appointment of the Receiver Manager, the validity and terms of the Debenture, and amounts owed thereunder. The learned judge found no mistake or error in the orders issued on 7th June 2022, and ruled that the applicant will not suffer unnecessary hardship or prejudice if the orders of 7th June, 2022 are not set aside, and that it was in the interest of justice to merge the orders of 7th June 2022, with the terms of the consent order adopted on 14th June 2022. It was on that basis that she dismissed the applicant’s motion.
23.We have deliberately set out the background to the applicants’ motion as it brings to perspective several issues that call for further interrogation. For instance, whether the learned judge properly exercised her discretion in issuing the impugned orders, whether the ex parte orders issued by the learned Judge on 7th June 2022, and varied on 12th July 2022, were obtained through misrepresentation and material non-disclosure, and whether the learned judge properly exercised her discretion in refusing to set aside the orders of 7th June 2022 are issues that will be pertinent in the appeal lodged by the applicant. Needless to state that the applicant has an arguable appeal and has satisfied the first limb of arguability.
24.As regards the nugatory aspect, the financial facility granted by the Bank involved a substantial amount of money and interest continue to accrue at a substantial rate. The respondent maintains that it is worth 12 billion but this is a bare assertion that has not been substantiated as no documents have been exhibited in support of that contention. We have weighed the competing rights of the parties, and do find that if the orders of stay are not issued, the Bank is likely to suffer monumental losses that may adversely affect its business. On the other hand, the respondent, will not suffer prejudice be of that magnitude.
25.It is for the above reasons that on 4th October 2022, we found that the applicants had satisfied the requirement of Rule 5(2)(b) of the Court of Appeal Rules, and issued the orders of stay of execution and orders of stay of proceedings as prayed in the applicants’ motion. We affirm these orders. Costs shall be in the appeal.It is so ordered.