Former Taita Taveta MP Basil Criticos
The High Court has granted former MP Basil Criticos the right to seize cash and government bonds belonging to the National Bank of Kenya (NBK) at the Central Bank of Kenya (CBK) over unpaid compensation totalling Sh2.57 billion.
The court granted the seizure order after the politician convinced the court that the lender had refused to pay the compensation in breach of the judges’ orders.
This ruling will allow the former lawmaker to access the NBK’s Sh4.2 billion held at the CBK as of September, along with Sh46.6 billion worth of Treasury bills and bonds.
NBK was ordered to pay Criticos the money as compensation for auctioning his sisal farm 15 years ago.
Attempts by NBK to appeal the decision at the Supreme Court were dismissed in December.
The judges found that the 2007 auction of 15,994.5 acres of land in Taita Taveta belonging to Criticos was undervalued.
The forced sale failed to recognize buildings, sisal, quarry, and road network on the land.
The lender unsuccessfully sought to overturn the Sh2.57 billion award, arguing that the compensation risked pushing the bank into losses and derailing its lending obligations.
The award is more than three times the bank’s net profit of Sh807 million recorded in the nine months that ended September.
This underlines the impact of the judgment on the bank’s financials.
Criticos sought a garnishee order over NBK deposits at the CBK through his lawyer Allen Wamae.
A garnishee order is a common form of enforcing a judgment debt against a creditor to recover money.
The court directs a third party, in this case, the CBK, that owes money to the debtor to instead pay the creditor.
Notably, this ruling comes after NBK was acquired by KCB Group, which has pumped billions of shillings to recapitalize and turn around the medium-sized lender.
The land was sold to the Settlement Fund Trustees (SFT) to recover a loan of Sh20 million advanced to a company in which Criticos was a director and a shareholder.
The former Taveta MP acted as a guarantor and the bank sold the land after he defaulted on repayment.
In addition to the Sh2.28 billion compensation that excluded interest, the court directed NBK to refund Criticos Sh35 million, which was a surplus from the sale.
The judges also faulted the bank for charging Criticos what they termed excessive interest rates. The bank declined his offers to redeem the debt and then proceeded to sell the property at less than the amount he offered.
The judges stated that “it was a plain breach of a bank’s duty to act with care and in good faith”.
Criticos told the court that the loan was advanced to his company, Agro Development Company, in 1991.
He charged the property to Kenya National Capital Corporation, a subsidiary of NBK. In April 1997, the bank wrote to him demanding about Sh66.5 million from the company, plus interest of 35% per month.
He was given three months to repay the amount, but his efforts to sell the land and offset the loan were frustrated by several court cases.
The bank then sold the land to SFT for Sh55 million through a private treaty, while the case was pending in court. The bank also demanded a further Sh106 million from Criticos.
The businessman had initially lost the case before the High Court but successfully appealed.
The court ruled that it was morally wrong for the bank to raise the interest rate from 19% per annum to 35% per month, amounting to 420% per annum.
“The dispute between the parties was a commercial loan between a lender, borrower and guarantor. The applicant has not shown how a private commercial agreement between the parties and failure to repay a loan is a matter of general public importance,” the Court of Appeal judges said.
The lender went back to the Court of Appeal seeking the suspension of the decision and permission to move to the apex court, which while acknowledging the awards as hefty dismissed the suit.
The judges ruled that the dispute failed to meet the threshold of public interest for the Supreme Court’s hearing.
The bank told the court that the judgment will directly affect all players in the banking industry including depositors and borrowers, who place heavy faith in personal guarantees as security for loans.
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