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Popat & 7 others v Capital Markets Authority (Appeal 1 of 2021) [2025] KECMT 2 (KLR) (23 January 2025) (Judgment)

Popat & 7 others v Capital Markets Authority (Appeal 1 of 2021) [2025] KECMT 2 (KLR) (23 January 2025) (Judgment)
Citation
Popat & 7 others v Capital Markets Authority [2025] KECMT 2 (KLR)
Media Neutral Citation
[2025] KECMT 2 (KLR)
Court
Capital Markets Tribunal
Outcome
Allowed in part
Case number
Appeal 1 of 2021
Judges
P Lilan, G Wangong’u, C Gikonyo, J Eboko
Judgment date
23 January 2025
Language
English
Type
Judgment
Original source file
Download DOCX (88.8 KB)
Collections
Date published
08 April 2025
Case action
Judgment
Filing county
Nairobi
Order
i. The Appeal was partially allowed. ii. The Terms of Reference of the Ad-Hoc Committee issued on 9th February 2021 were in breach of the Supreme Court Judgment, other relevant case law, and the applicable law, and as such, were declared unlawful and set aside. iii. The directions of the Respondent issued on 9th February 2021 were set aside in their entirety. The Respondent would institute fresh enforcement proceedings against the Appellants. iv. Each party to bear its own costs of the Appeal.
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A. Background
1.It seems the dispute at hand has taken quite the scenic route through the corridors of justice, now landing before this Tribunal after gracing the apex court of the land. Like a seasoned traveler with no intention of resting, the case once again seeks its final destination, following an appeal from the decision of the respondent. With the legal odyssey continuing, we now turn to the facts that have brought this matter back before us, seeking resolution after its journey through the courts and the respondent’s decision.
2.The appellants were non-executive directors of Imperial Bank Limited (currently in liquidation and hereinafter, “the Bank”), while the respondent, the Capital Markets Authority (CMA), is a statutory regulatory authority established under section 5 of the Capital Markets Act. The respondent's mandate includes promoting, regulating, and facilitating the development of orderly, fair, and efficient capital markets in Kenya.
3.In April, 2015, the Bank submitted to the respondent an application for approval of an undertaking of Kshs 2 billion corporate bond issue to the public (hereinafter, “the Bond Issue”) pursuant to Part IV A of the Capital Markets Acts (hereinafter, “the Capital Markets Act”). On August 12, 2015, the respondent approved the Bank’s application to issue a corporate bond worth Kshs 2 billion to the general public. Notably, only the Bank’s then-Managing Director, Mr Abdulmalek Janmohamed, and the Chief Finance Officer, Mr James Kaburu, were involved in the bond application process, with external transaction advisors handling correspondence regarding the bond.
4.On September 15, 2015, Mr Janmohamed passed away. Following his death, Mr Naeem Shah, formerly the Head of Credit, and Mr Kaburu were appointed Acting Managing Director and Deputy Managing Director, respectively. Shortly after, the two informed Mr Alnashir Popat, the non- executive Chairman of the Bank’s Board of Directors, of longstanding illegal disbursements authorized by the late Managing Director, concealed from the respondent, the Central Bank of Kenya (hereinafter, “CBK”), and the Board of the Bank (hereinafter, “the Board”).
5.Unable to verify the allegations internally, on October 7, 2015, Popat recommended the appointment of FTI Consulting Group of London to conduct a forensic audit. The Board also suspended the bond issue pending the audit's findings.
6.On October 12, 2015, FTI Consulting's preliminary report confirmed a fraudulent scheme run by the late Managing Director, leading the Board to report the matter to the CBK. On October 13, 2015, based on these findings, the CBK placed the Bank under receivership and appointed the Kenya Deposit Insurance Corporation (hereinafter, “KDIC”) as the Receiver/Manager. The receivership was extended on multiple occasions culminating to a liquidation. Consequently, a moratorium was also declared, and the respondent instructed the Nairobi Stock Exchange to suspend the listing of the bond.
7.As part of its regulatory duties, the respondent initiated an inquiry into the conduct of the Bank’s directors during the bond application period. The respondent through a letter dated 24th December 2015 invited the appellants for an inquisitorial/investigative hearing on the circumstances prevailing at the Bank for the period between when the Application for the respondent’s approval was sought and the closure of the Bond Offer period. On January 12, 2016, the appellant wrote to the respondent outlining the prevailing circumstances at the time at the Bank.
8.The hearing was conducted on January 13, 2016and fast forward on May 6, 2016, the respondent issued Notices to Show Cause (hereinafter, “NTSC”) to the appellants, alleging negligence in their duties as directors. The appellants were summoned to a hearing on 24th May 2016. However, there was correspondences exchanged between the appellants’ Advocates and the respondent with the appellants challenging the unlawful manner in which the respondent was conducting the enforcement proceedings with the appellants raising preliminary objections based on various grounds.
9.In lieu of the aforementioned battle between the appellant and respondent, the dispute was referred to the High Court through Constitutional Petition No. 425 of 2016; Alnashir Popat and 8 others vsthe Capital Markets Authority. The constitutional petition challenged the inquiry’s propriety. The appellants argued that respondent’s role in approving the bond and subsequently adjudicating the matter created a conflict of interest, violating their rights to fair administrative action and a fair hearing under articles 47 and 50 of the Constitution. They sought to quash the notices to show cause and requested a conservatory order to halt the proceedings until certain documents were furnished. The respondent opposed the petition, deeming it frivolous and premature.
10.The High Court found that the overlapping roles of the respondent raised a possibility of bias and quashed the notices to show cause. The court also noted that the respondent could delegate its functions to an independent body under section 11A of the Capital Markets Act.
11.An appeal ensued, where the Court of Appeal ruled that the Capital Markets Act expressly authorized overlapping inquisitorial and enforcement functions. It held that the respondent was expected to make unbiased judgments despite its dual roles. The appeal was allowed, and the appellant’ cross-appeal was dismissed.
12.The matter escalated to the Supreme Court, with the central issue being whether the overlapping roles granted to respondent under the Capital Markets Act violated the petitioners' constitutional rights. The Court also considered whether sections 11(3)(cc) and (h) of the Capital Markets Act, which authorize the dual roles, should be declared unconstitutional, and whether the enforcement proceedings were likely to be biased.
13.By judgement dated 11th December 2020, the apex court directed on how enforcement proceedings by the respondent against the appellants ought to be conducted.
14.Pursuant to the Orders of the Supreme Court, the respondent wrote to the appellants on 29th December, 2020 notifying them of its intention to schedule a Notice to Show Cause hearing before an Ad-hoc Committee. The appellants’ counsel on record responded vide a letter dated 4th January, 2021 seeking for documents referred to in their submissions dated 6th June, 2016 to which the respondent responded vide a letter dated 8th February 2020 (sic) and 9th February 2021 informing them that the High Court dismissed the issue of documents and also informed them of the scheduled hearing on 15th March, 2021 and 16th March, 2021 and attached thereto the Ad hoc Committee’s mandate, its Terms of Reference (hereinafter, “ToR”) and the applicable procedure.
15.The appellant, aggrieved by the manner in which the respondent reinstituted the enforcement proceedings, instituted this appeal through a Memorandum of Appeal dated February 23, 2021, a Statement of Facts dated 23rd February 2021, and a bundle of documents challenging the decision of the respondent.
B. The Appeal
16.The crux of the appellants’ case is that the respondent's directives, communicated on February 8, 2021(sic) and February 9, 2021, requiring the appellants to appear for a notice to show cause hearing on alleged contraventions concerning the Kshs 2 billion Bank Bond Program, were not in compliance with the judgment of the Supreme Court delivered on 11th December 2020 in Petition No 29 of 2019; Alnashir Popat & 7 others v The Capital Markets Authority (hereinafter, the "SCORK Judgment").
17.The appellant contends that the SCORK Judgment, particularly at paragraphs 65, 66, 67, 68, 70, 71, and J(a), clearly set out the framework which the respondent is mandatorily required to adhere to when instituting any investigative, inquisitorial, adjudicative, or enforcement proceedings against the appellants.
18.The appellants oppose the proceedings on several grounds, summarized as follows:a.Non-compliance with the Supreme Court Judgment: The enforcement proceedings were not initiated in accordance with the delegation of authority mandated by the Supreme Court.b.Improper composition of the Ad-hoc Committee: The Ad-hoc Committee includes members of the respondent's Board, which violates the Supreme Court judgment and applicable case law, particularly Miscellaneous Civil Application No 220 of 2019; Aly Khan Satchu v Capital Markets Authority [2019] eKLR.c.Conflict of Interest: The Chair of the Ad-hoc Committee, being the respondent’s Chairman, along with other members of the Committee, have conflicts of interest due to their ties to entities regulated by the respondent, contrary to the Supreme Court directives.d.Denial of Right to Cross-Examine Witnesses: The appellants have been denied the opportunity to cross-examine witnesses, contravening the Fair Administrative Action Act.e.Limitation on Legal Representation: The ToR restrict legal counsel's participation to points of law, infringing upon the appellants’ constitutional rights to fair administrative action and a fair hearing.f.Biased Admissibility Rules: The rules on the admissibility of evidence are skewed in favor of the respondent, allowing selective reliance on unchallenged documents from other proceedings.g.Failure to Address Preliminary Objections: The Ad-hoc Committee failed to address the appellants' objections regarding selective documentation and the lack of access to critical records.
19.The appellant seeks the following orders from the Tribunal:a.That the Appeal be allowed.b.A declaration that the respondent, in instituting any investigative, inquisitorial, adjudicative, or enforcement proceedings, is bound to strictly observe and comply with the SCORK Judgment, applicable case law, and relevant legislation.c.A declaration that the Impugned Proceedings are unlawful, having been initiated in violation of the SCORK Judgment, applicable case law, and relevant legislation.d.A declaration that the ToR of the Ad-hoc Committee are in breach of the SCORK Judgment, applicable case law, and relevant legislation, and thus are unlawful and should be set aside.e.That the Impugned Directions and the Impugned Proceedings be set aside in their entirety.f.That the respondent be restrained from continuing with any hearing pursuant to the Impugned Directions or the Impugned Proceedings.g.Any other order the Honourable Tribunal deems appropriate and expedient in the circumstances.h.That the costs of this Appeal be borne by the respondent on a full indemnity basis, with interest at court rates from the date of judgment until payment in full.
20.The respondent filed a Statement of Defence, a Statement of Facts signed by Abubakar Hassan Abubakar (Director of Market Operations), and a bundle of documents dated 23rd April 2021.
21.The respondent argues that the Appeal is incompetent, and the Tribunal lacks jurisdiction at this stage to intervene in the Ad-hoc Committee proceedings. The respondent contends that no directive has been issued which falls within those listed under section 35(1) of the Capital Markets Act. As such, the jurisdiction of the Tribunal has been improperly invoked.
22.Additionally, the respondent asserts that the matter regarding the legality and constitutionality of the respondent’s proceedings had already been litigated before the High Court, Court of Appeal, and Supreme Court. The High Court partially allowed the appellant’s case on grounds of potential bias but dismissed the issue regarding access to documents, rendering that issue res judicata.
23.The respondent further contends that the Supreme Court, particularly at paragraph 54 of the SCORK Judgment, emphasized the importance of efficiency in the operations of the capital markets and ruled that the functions under section 11(3)(cc)(h) of the Capital Markets Act must be performed by a unified body, not separate entities, to ensure the efficiency intended by the Capital Markets Act.
24.The appellants' contention that the involvement of Ad-hoc Committee members in approving the Bank’s corporate bond program creates a risk of bias is unfounded, as the respondent’s Board members are non-executive and independent.
25.Furthermore, the respondent refutes the appellant’s reliance on the Aly Khan Satchu decision, arguing that the High Court in that case did not expressly rule against committees comprised of Board members. Instead, it held that a committee predominantly made up of the respondent’s members would not pass the constitutional test for bias.
26.The respondent asserts that the allegations regarding an unfair hearing are without merit, underscoring the independence of the Committee members. It further notes that the Chairman, Mr Ndegwa James, has since recused himself, and the ToR have been revised accordingly.
27.The respondent prays that the Appeal be struck out with costs or, in the alternative, dismissed for lack of merit, and that the appellant be directed to appear before the Ad-hoc Committee to proceed with the enforcement proceedings.
C. appellant's Submissions
28.The appellant’s submissions, dated August 3, 2023, raise the following issues for determination:a.Whether this Honourable Tribunal has the requisite jurisdiction to hear and determine the Appeal.b.Whether, in conducting the enforcement proceedings that are the subject of this Appeal, the respondent has complied with the SCORK Judgment delivered on December 11, 2020, as well as the applicable laws and relevant judicial decisions.c.Whether the appeal is meritorious.d.What orders the Tribunal should issue.
29.The appellant contends that the Tribunal’s jurisdiction is conferred by statute, specifically under sections 35(1) and 35A of the Capital Markets Act, and that the previous decision of this Tribunal in Oriental Commercial Bank Limited v Capital Markets Authority, Appeal No 1 of 2005, expounded on the meaning of the term "direction" under section 35(1) of the Capital Markets Act.
30.On the second issue, the appellant submits that the respondent has failed to comply with the SCORK Judgment. They dispute the appointment of Mr James Ndegwa (Chairman of the respondent's Board of Directors), Dr James McFie, and Ms Erickson to the Ad-hoc Committee on the grounds that their inclusion creates a clear perception of bias, which could lead any 6 reasonable person to conclude that the tenets of a fair, impartial, and independent hearing have been compromised. Furthermore, the appellants asserts that the purported revision of the ToR has not been served on them, leaving them unaware of its contents.
31.The appellants argue that any prior enforcement proceedings should not apply, and that the respondent must commence new proceedings afresh. Moreover, the appellants maintains that the members of the Ad-hoc Committee must be fully independent, with no affiliations to the respondent, to safeguard their right to a fair hearing and administrative action.
32.The appellant further argue that the ToR and the respondent's conduct contravene the provisions of the Constitution of Kenya, 2010 (hereinafter, “the Constitution”), and the Fair Administrative Action Act, No 4 of 2015(hereinafter, “Fair Administrative Action Act”), in the following ways:a.ToR under Para 8.8: It limits the appellants’ right to legal representation in quasi-judicial proceedings, contrary to section 4(5) of the Fair Administration Action Act.b.ToR under Para 8.10: It threatens the appellants’ right to a fair hearing by relying on selective affidavits from Nairobi High Court Civil Case No 523 of 2015, to which the appellants was not a party.c.Cross-examination: The ToR violates the appellants’ right to cross-examine members of the respondent's management who provide adverse evidence against the appellants, contrary to section 4(4)(c) of the Fair Administration Action Act.d.Access to documents: The respondent did not provide the appellants with adequate time or access to relevant documents that would be used in the enforcement proceedings.e.Failure to obtain key documents: The respondent failed to procure documents from relevant parties that would ensure a fair and effective investigation of the Bond issue.f.Formation of Ad-hoc Committee: The respondent hurriedly constituted the Ad-hoc Committee, resuming skewed enforcement proceedings in blatant disregard of the SCORK Judgment.g.Procedural fairness: The current constitution of the Ad-hoc Cbommittee fails to meet the standards of procedural fairness envisaged by Article 47 of the Constitution, and the Fair Administration Action Act.
33.The appellants cite several cases to support their arguments regarding procedural fairness, potential bias, and violations of the ToR, including:a.Olooloo Game Ranch Limited v National Land Commission and 2 Others; Chief Land Registrar and 2 Interested Parties [2020] Eklr;b.Michael Obare Tago v Fredrick Ambrose Otieno [2020] eKLR;c.Aly Khan Satchu v Capital Markets Authority [2019] eKLR;d.Benson Wachira v Nairobi City County Public Service Board & Another [2015] eKLR;e.Alnashir Popat & 7 Others v Capital Markets Authority [2019] eKLR; andf.Chadwick Okumu v Capital Markets Authority [2018] eKLR.
34.In their supplementary submissions, dated October 12, 2023, the appellants counter the respondent's argument on jurisdiction, reiterating their earlier position. They assert that the Appeal is not an exercise in futility, nor is it premature or academic, as it raises significant issues stemming from the SCORK Judgment, which the respondent has allegedly contravened or ignored. Citing Anthony Miano & Others v Attorney General & others [2021] eKLR, the appellants maintain that the respondent was obligated to conduct fresh proceedings through a properly constituted delegated authority.
35.On the issue of bias, the appellants submit that courts assess whether reasonable grounds exist for assuming the possibility of bias and whether such grounds would create reasonable doubt in the mind of a well-informed, right-thinking member of the public regarding the fairness of the proceedings.
D. Respondent's Submissions
36.In their submissions dated September 11, 2023, the respondent argues that there is no ripe dispute for determination by the Tribunal. They contend that the appellants’ case is based on procedural concerns that could have been clarified before the Ad-hoc Committee proceedings commenced and have since been overtaken by events. To support this argument, the respondent cites several cases, including:a.Wanjiru Gikonyo & 2 others v National Assembly of Kenya & 4 others Nairobi Constitutional Petition No 453 of 2015 [2016] eKLR;b.Justus Kariuki Mate & Another v Martin Nyaga Wambora & another [2017] eKLR; andc.Pavans East Africa Limited & Another v Chairman, Betting Control and Licensing Board & Others Civil Appeal No 11 of 2018.
37.The respondent relies on these authorities to argue that the appeal was prematurely instituted and that the Tribunal should exercise judicial restraint. They assert that the Ad-hoc Committee should be allowed to address the issues that the appellants intend to raise during its proceedings.
38.Regarding compliance with the SCORK Judgment, the respondent submits that the appellants have failed to demonstrate how an objective, reasonable, and informed person would apprehend bias from the members of the Ad-hoc Committee. They argue that no evidence has been presented to the Tribunal to suggest that the members would fail to approach the adjudication impartially.
39.Further, the respondent disputes the appellants' claim that their right to a fair hearing has been violated. They argue that the ToR do not deprive the appellants of their right to be heard, to have legal representation, or to cross-examine witnesses.
40.Lastly, the respondent emphasizes that the High Court has already ruled on the issue of access to documents, confirming that the respondent had shared the necessary documents with the appellants. Therefore, the issue of document access has been resolved.
E. Analysis
41.After carefully considering all of the opposing arguments presented by the parties, we are convinced that the following questions need to be addressed:a.Does this Honourable Tribunal have jurisdiction to entertain this Appeal at this stage?b.Has the respondent complied with the directions of the Supreme Court in its enforcement proceedings against the appellants?
I. Whether this Honourable Tribunal has jurisdiction to entertain this Appeal at this stage?
42.The crux of the contention between the parties is whether the appellants prematurely approached this Tribunal. The respondent, in its Statement of Defence (Paragraphs 14 to 17), argues that the appeal is premature and the Tribunal lacks jurisdiction as no final decision has been made. The respondent further contends that the appellants, instead of raising their preliminary issues with the Ad-hoc Committee as initially indicated, rushed to file an appeal before the Tribunal, thus preventing the Committee from addressing these concerns.
43.In its submissions, the respondent emphasized that the Tribunal should exercise judicial restraint and allow the Ad-hoc Committee to fulfill its mandate in accordance with the Supreme Court's directions. The respondent further relied on Wanjiru Gikonyo & 2 Others v National Assembly of Kenya & 4 others, Nairobi Constitutional Petition No 453 of 2015 [2016] eKLR, to assert that judicial bodies should refrain from intervening in matters within the jurisdiction of other quasi- judicial bodies unless there is a clear contravention of the law. Thus, they argue that the Tribunal should dismiss the appeal as it was filed prematurely.
44.We concur with the respondent that jurisdiction is fundamental in judicial proceedings, and this is a well-settled principle in law. A court or tribunal, such as this one, acting without jurisdiction, acts in vain. Its decisions and actions would be null and void. Nyarangi, JA, in Owners of Motor Vessel ‘Lillian S’ v Caltex Oil (Kenya) Limited [1989] KLR 1, expressed this principle as follows on the issue of jurisdiction:“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for continuation of proceedings…”
45.Indeed, the issue of jurisdiction is so pivotal that it can be raised at any stage of the proceedings. The Court of Appeal in Jamal Salim v Yusuf Abdulahi Abdi & another Civil Appeal No 103 of 2016 [2018] eKLR stated as follows:_"Jurisdiction either exists or it does not. Neither can it be acquiesced or granted by consent of the parties. This much was appreciated by this Court in Adero & Another vs. Ulinzi Sacco Society Limited [2002] 1 KLR 577, as follows:Jurisdiction either exists or does not ab initio...Jurisdiction cannot be conferred by the consent of the parties or be assumed on the grounds that parties have acquiesced in actions which presume the existence of such jurisdiction.Jurisdiction is so important that it can be raised at any stage of the proceedings, even on appeal."_
46.On the source of a court’s jurisdiction, the Supreme Court of Kenya in Samuel Kamau Macharia & Another v Kenya Commercial Bank Limited & others (2012) eKLR stated:“A Court’s jurisdiction flows from either the Constitution or legislation, or both. Thus, a court of law can only exercise jurisdiction as conferred by the Constitution or other written law. It cannot arrogate to itself jurisdiction exceeding that which is conferred upon it by law...where the Constitution exhaustively provides for the jurisdiction of a court of law, the court must operate within the constitutional limits. It cannot expand its jurisdiction through judicial craft or innovation."
47.The appellants assert at Paragraph 4.3 of their submissions that the Appeal is premised on section 35(1) and section 35(A)(4) of the Capital Markets Act, the relevant provisions of which we reproduce below:“
35(1)Any person aggrieved by any direction given by the Authority to such person or by a decision of the Authority or by the Investor Compensation Fund Board...may appeal to the Capital Markets Tribunal against such directions, refusal, limitations or restrictions, cancellations, suspension or removal, as the case may be, within fifteen days from the date on which the decision was communicated to such person."
35(A)(4) The Tribunal shall, upon an appeal made to it in writing by an aggrieved party following a determination by the Authority on any matter relating to this Act, inquire into the matter and make an award thereon, and every award made shall be notified by the Tribunal to the parties concerned and the Authority, as the case may be.”
48.We agree with Counsel for the appellants that this Honourable Tribunal, in Oriental Commercial Bank Limited v Capital Markets Authority, Appeal No 1 of 2005, expounded on the word “direction” as used in section 35(1) of the Capital Markets Act as follows:“The word used in the section is 'direction' and not 'decision.' Section 35A (4) ...allows an appeal or reference on any matter relating to this Act. Our reading of both sections leads to the conclusion that the matter appealed against need not be a decision, it could be a direction or a matter."
49.We note that the directions in dispute relate to the letters by the respondent dated February 8, 2020and February 9, 2021(See pages 194-212 of the appellants’ documents). In the letters, the respondent’s Board invited the appellants to make oral submissions and provide additional information for the consideration of the Ad-hoc Committee. The Tribunal takes special note of the following paragraph from the letter, which is reproduced as follows:“The mandate of the Ad Hoc Board Committee, in conducting the hearing, its Terms of Reference (ToRs) and the applicable procedure are attached herewith for your noting. Should you wish, you may be accompanied by legal representation, but such representation does not absolve your personal attendance."
50.We also note that the above paragraph is preceded by two letters from both parties. Vide the letter dated December 20, 2020, the respondent notified the appellants of its intention to schedule a hearing on the Notices to Show Cause dated May 16, 2016, wherein they would be required to appear before the Committee for the purposes of a hearing. The appellants, through their Advocate, responded to the respondent vide their letter dated 4th January, 2021, requesting the forwarding of the documents referred to in their submissions filed under protest on June 6, 2016.
51.In our view, the letters of February 8, 2020(sic) and February 9, 2021indicate that the respondent had considered the appellants’ contentions raised in the letter dated January 4, 2021, as well as the High Court Judgment, the Court of Appeal Judgment, and the SCORK Judgment. The respondent then formed an opinion to proceed with the enforcement proceedings and formulated a ToR. In doing so, the respondent made several decisions through the letter and the ToR, inter alia:a.The decision to proceed with the hearing pursuant to the SCORK decision by requiring the appellants to appear before the Ad hoc Committee;b.The decision not to commence the investigation or enforcement proceedings afresh;c.The decision not to provide additional documents to the appellants;d.The decision regarding the procedure for the enforcement proceedings; ande.The decision concerning the scope of the Ad hoc Committee’s responsibilities.
52.Thus, there is a decision, direction, or matter upon which the appellants can mount an appeal. Indeed, Counsel for the respondent, at paragraph 24 of their Written Submissions, acknowledges that section 35 of the Capital Markets Act confers jurisdiction upon this Tribunal in respect of matters arising from the directions or decisions of the respondent.
53.The pertinent question posed by Counsel is whether the present appeal is ripe for determination by this Tribunal. The Tribunal notes that, while there is an intrinsic interconnectedness between the principles of non-justiciability and jurisdiction, these are distinct doctrines and should be understood independently. In Anthony Miano & others v Attorney General & others [2021] eKLR, the High Court opined as follows:“
29.Before I deal with the above provisions, I, will generally and for completeness of a jurisprudential discussion, look at the concept of non-justiciability. The concept of non- justiciability of disputes before Courts is a sound one in law. It has its basis in article 159 of the Constitution which routes for alternative dispute resolution mechanisms. The concept of non-justiciability is comprised of three doctrines: Firstly, the Political Question Doctrine; secondly, the Constitutional-Avoidance Doctrine; and, thirdly, the Ripeness Doctrine. The doctrines are crosscutting and closely intertwined.........
32.While speaking to Ripeness doctrine the Learned Judges stated as follows: -107.The doctrine focuses on the time when a dispute is presented for adjudication. The Black’s Law Dictionary 10th Edition, [supra] at page 1524 defines ripeness as: The state of a dispute that has reached, but has not passed, the point when the facts have developed sufficiently to permit an intelligent and useful decision to be made108.Courts should therefore frown upon disputes that are hypothetical, premature or academic which have not fully matured into justiciable controversies.109.The Court of Appeal in National Assembly of Kenya & another v Institute for Social Accountability & 6 others Nairobi Civil Appeal 92 of 2015 [2017] eKLR, faulted the Constitutional Court for adjudicating upon hypothetical matters. The court held:(72)The broad questions which were raised in the consolidated petitions, namely, – division of functions, powers and authority; the equitable sharing of revenue of national government, whether the Amendment Bill concerned county government and the role of the Senate in the legislative process, are questions which relate to inter-governmental relations and which should have been raised by either government in the appropriate forum and in case of a dispute such a dispute should have been resolved by the designated institutions through the prescribed mechanism. This is one peculiar case where the Constitution stipulates that a dispute should be in essence be resolved by other institutions through a prescribed mechanism before the jurisdiction of the High Court can be invoked.(74)Furthermore, questions such as division of functions, division of revenue, legislative process and budget process are essentially political questions which fall within the political question doctrine; and which the Constitution has assigned to other political institutions for resolution and created institutions and mechanisms for such resolution.107.In National Assembly of Kenya & Another v The Institute for Social Accountability & 6 others [supra] the Court of Appeal held:(73)Since there was no actual live dispute between the national and county governments about CDF and if any, the mechanisms for resolving such disputes was not employed, the questions which were brought to High Court for determination had not reached constitutional ripeness for adjudication by the court. In reality, TISA and CEDGG invented a hypothetical dispute which was brought to court in the guise of unconstitutionality of CDFA.107.In Wanjiru Gikonyo & 2 others v National Assembly of Kenya & 4 others Nairobi Constitutional Petition No. 453 of 2015 [2016] eKLR, Onguto J stated:(27)Effectively, the justiciability dogma prohibits the court from entertaining hypothetical or academic interest cases……. The court is prevented from determining an issue when it is too early or is simply out of apprehension, hence the principle of ripeness. An issue before court must be ripe, through a factual matrix for determination.”
54.We concur with the respondent that there have been substantial developments in this matter since the appeal was instituted. For instance, the Chairman of the respondent (Mr James Ndegwa) recused himself from the proceedings vide his letter dated 11th March 2021. Furthermore, two members—Dr. Thomas Kibua and Mr John Birech—were introduced to the Committee, as indicated in the same letter. The respondent also made it clear, at paragraph 20 of its submissions, that Mr Ndegwa’s term as Chairman had since expired and that he would no longer serve on the Committee.
55.The respondent intimated that the hearing of the Ad hoc Committee could only proceed upon its reconstitution. While we agree with the respondent’s assertion at paragraph 22 of its submissions that the appellants could have raised some of these issues with the respondent and/ or the Ad-hoc Committee, we also note that, despite the appellants’ letter dated January 4, 2021, the respondent had already scheduled the hearing for May 16, 2021, complete with the ToR.
56.To any reasonable person, it is evident that the respondent had already determined the manner in which the proceedings would be conducted. All that remained for the appellants was to appear and make their case. As such, we find the respondent’s contention that the option to raise 13 preliminary issues was available to the appellants to be untenable under the circumstances. Moreover, there was no mechanism for the appellants to petition the Ad hoc Committee for reconstitution, as it lacked the statutory authority to do so. Both the Ad hoc Committee and the appellants were bound to follow the ToR, which the appellants believed infringed upon their rights to cross-examine and access documents essential for mounting a defense.
57.Finally, it is clear from the submissions of both parties that there is a substantive difference in the interpretation of the SCORK judgment, particularly regarding the delegation of authority by the respondent and how such delegation ought to be exercised. Based on the foregoing, we find that the appeal is ripe for adjudication, and any determination by this Tribunal will not be moot.
II. Whether the respondent has complied with the directions of the Supreme Court in its enforcement proceedings against the appellants?
58.In answering this question, we pose the following queries: i) whether the respondent was required to initiate fresh proceedings, ii) What is the scope of delegated authority under section 11A of the Capital Markets Act, iii) whether the Ad Hoc Committee is properly constituted, iv) whether the ToR violate or limit the right to cross-examination and representation by counsel, andv)whether the ToR violates or limits the right to access information. We address these issues seriatim: –i.Whether the respondent was required to initiate the enforcement proceedings afresh?
59.The appellants, in their submissions, contend that the respondent acted in contempt of the Supreme Court’s rulings by issuing notices on February 8, 2020and February 9, 2021, summoning them to appear before an Ad Hoc Committee regarding alleged violations linked to a Kshs 2 billion bond program by the Bank. The appellants assert that the Ad-hoc Committee was hastily constituted and adopted a flawed process, directly disregarding the Supreme Court’s directives. They argue that the investigation was biased and violated their right to a fair hearing, and that any evidence obtained through such a process should be excluded as it constitutes procedural impropriety.
60.In support of their argument, they reference Justice Mativo’s decision in Chadwick Okumu v Capital Markets Authority(supra), which emphasized that bias, procedural impropriety, or any abuse of power is sufficient to invalidate an administrative decision under the Fair Administrative Action Act. The appellants contend that the respondent should restart the enforcement proceedings with a new, independent Ad Hoc Committee to ensure fairness.
61.The appellants, in their Memorandum of Appeal, assert that the proceedings stem from allegations that were neither investigated nor initiated under the respondent’s delegated authority 14 as mandated by the Supreme Court in paragraphs 65, 70, and J(a) of the SCORK Judgment. We reproduce the pertinent paragraphs as follows:“
65... In Cojuangco v PCGG, 190 SCRA, the Supreme Court of the Philippines, while prohibiting a law enforcer from investigating their own complaint, held that a preliminary investigation, though not a trial, amounted to a judicial proceeding on account of the nature of the function. In that characterization, it said, ‘An act becomes judicial when there is opportunity to be heard and for the production and weighing of evidence, and a decision is rendered.’”
“70.Furthermore, from the evidence provided regarding the processes leading to the issuance of the Notices to Show Cause, the respondent’s Board that appraised and approved Imperial Bank’s Bond Issue application, is the same Board that initiated and conducted preliminary investigations into the petitioners’ conduct in relation to the Bond Issue application and, upon satisfying itself that the petitioners may have violated the relevant provisions of the Act and the Regulations made thereunder, made a decision to charge the petitioners and went ahead to formulate the requisite charges. It is this same Board that purported to preside over the hearing of the petitioners’ cases. This would obviously lead to an inescapable appearance of partiality on the respondent’s part.”“J(a) The petitioners’ appeal is allowed to the extent that the respondent may proceed with its enforcement proceedings against the petitioners through its delegated authority under section 11A (1) and/or section 14(1) of the CMA Act;”
62.The contentious phrase in the decision is the Supreme Court’s use of the word “proceed,” which the respondent interprets to mean continuing with the existing proceedings, while the appellants believe that Paragraphs 65 and 70 highlight the procedural flaws, rendering any decision emanating from such a process unsustainable. The appellants contend that the respondent should initiate the enforcement proceedings afresh, constitute a new Ad Hoc Committee, and conduct independent investigations for a fair process. Otherwise, a biased investigation process can only produce skewed evidence.
63.We refer to the Oxford Dictionary for the definition of the word “proceed,” which is defined as: “Proceed’ (with something): to continue doing something that has already been started; to continue being done.”
64.On the other hand, Black’s Law Dictionary does not define “proceed” but provides context through the definition of the word “proceeding” as: “The steps or measures taken in the course of an action, including all that are taken.”
65.It is therefore our understanding that the intended step to be taken ought to be in the course of action. Essentially, to proceed means to continue from where one had left off. However, from our reading of the SCORK Judgment, it is unclear from which point the Supreme Court intended the continuation. We note that the crux of the Petition before the Supreme Court was the bias created by the constitution of the Board, which had both approved the Bond Issue and subsequently conducted the investigation and adjudication. Therefore, determining when and where to resume the proceedings was not a primary concern raised. That is why discretion was left to the respondent through the use of the word “may” in the orders under Paragraph J(a).
66.We revert to paragraphs 65 and 70 of the SCORK decision and the High Court judgment (having been upheld by the Supreme Court) for context on whether the respondent should have initiated fresh proceedings. In paragraph 65, the Supreme Court cites Cojuangco v. PCGG, 190 SCRA, to the effect that a preliminary investigation, though not a trial, amounts to a judicial proceeding due to its nature. In paragraph 70, the Supreme Court notes that the respondent, having approved the Bond Issue, could not subsequently undertake the roles of investigation, prosecution, and adjudication, as this would create an inescapable appearance of partiality.
67.It is our view that by asserting that the preliminary investigation was judicial in nature and required independence, the Supreme Court invalidated all actions taken by the respondent, including the Board’s attempt to preside over the Petitioners’ hearing. This position is further reinforced by the High Court judgment in Alnashir Popat & 8 others v Capital Markets Authority [2016] eKLR, where Justice Onguto stated:“
134.It is abundantly clear that the petition partly succeeds and partly fails. I have found that the respondent cannot undertake impartial proceedings regarding the bond issue as it was involved in the process of issuing and approving the bond. Additionally, the unique circumstances of this case dictate that the respondent should not get involved in any investigatory and enforcement proceedings.”
68.We therefore agree with the appellants that both Superior Courts were aware that the manner in which the investigation was conducted infringed the appellants’ rights to a fair hearing and natural justice. It is thus only just that the enforcement proceedings be initiated afresh, with no reference to the respondent’s previous notices to show cause or inquiries.
What is the scope of Delegated Authority under section 11A of the Capital Markets Act
69.Section 11(A) of the Capital Markets Act provides as follows:“11A. Delegation of FunctionsThe Authority may delegate any of its functions under this Act to— a) a committee of the Board;b.a recognized self-regulatory organization; orc.an authorized person.The Authority may, at any time, revoke a delegation made under this section.A delegation made under this section shall not preclude the Authority from performing the delegated function.”
70.Section 14 of the Capital Markets Act further provides as follows: “14. CommitteesThe Authority may appoint committees, whether composed 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.Without prejudice to the generality of subsection (1), the Authority shall establish—a committee to hear and determine complaints from 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 actions to be taken, in accordance with rules established by the Authority for that purpose; anda 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.”
71.The appellant’s argument rests on these provisions, contending that Parliament, in its wisdom, included mechanisms allowing the respondent to delegate certain functions where appropriate. They further argue that the respondent’s Board should recuse itself and allow an entirely neutral and independent body to handle the matter at hand.
72.On the other hand, the respondent, at Paragraphs 31 to 38 of its Statement of Facts, asserts that the SCORK Judgment, particularly at Paragraph 54, clarified that for the purposes of efficiency and the expeditious resolution of disputes in the operation of capital markets, the functions enumerated under section 11(3)(cc)(h) cannot be performed by separate bodies. Furthermore, the respondent remains accountable for the outcome, notwithstanding any delegation under sections 11A and 14 of the Capital Markets Act. The respondent, therefore, contends that there is nothing unlawful about appointing certain members of its Board to a delegated committee, provided such members were not actively involved in the bond approval process.
73.We reproduce Paragraph 54 of the SCORK decision as follows:“We endorse this view. Administrative tribunals are not required to operate like courts of law. That is why they are allowed to be masters of their own procedure, although they must act fairly. (See Lord Denning’s dictum in Selvara Jan v. Race Relations Board [1976] 1 ALL ER12). Moreover, for the sake of efficiency and in furtherance of the objectives of the CMA Act, particularly the expeditious disposal of disputes arising within capital markets, the functions set out in section 11(3)(cc)(h) cannot be fragmented across multiple bodies. To do so would likely result in prolonged disputes, thus frustrating one of the core objectives of the CMA Act: efficiency. Accordingly, these functions must, of necessity, be discharged by a singular entity, justifying the overlap in the respondent’s mandate."
74.It is our interpretation that the Supreme Court was merely justifying the duality of the respondent’s powers, rather than casting those powers in stone as non-delegable. Even where delegation occurs, the respondent would remain in supervisory control of the process but would not possess the power to influence the decision of the Ad Hoc Committee. The Supreme Court affirmed this in Paragraph 67:“In this case, we find and hold that in discharging its mandate under the CMA Act, the respondent must first determine whether its act or decision is judicial or quasi-judicial and whether it is likely to adversely affect the rights of persons or entities under investigation. If so, it must comply with the requirements of impartiality and independence under articles 50(1) and 47 of the Constitution. This can easily be achieved, as sections 11A (1) and 14(1) of the CMA Act empower the respondent to delegate its functions and powers to other bodies or persons. Consequently, the objectives of the CMA Act will still be realized."
75.Moreover, Paragraph 70, which we have referenced elsewhere, discusses the respondent’s Board without any reference to whether the impugned individuals participated in the Bond Issue approval. We take judicial notice that the Ad Hoc Committee’s proceedings were stayed, some members recused themselves, and the committee requires reconstitution, rendering the current issue moot. Nonetheless, we urge the respondent to reconstitute an Ad Hoc Committee completely independent of itself (if it intends to proceed with enforcement proceedings against the appellants), with the respondent providing procedural guidance and secretarial support as previously indicated.
76.We are keenly aware that perceptions of independence and bias are paramount in the administration of justice. Prudence dictates that when one views the Ad-hoc Committee, it should not overwhelming bear the image of the Capital Markets Authority (CMA); rather, it ought to reflect an impartial body, untainted by any influence from the respondent, tasked with adjudicating matters solely on their merit. In our considered view, the members of the Ad-hoc Committee who were involved in the Bond Issue should not be part of the adjudicating body, as this would compromise the appearance of independence..
77.To better understand the nature of Ad-hoc Committees, we refer to the Cambridge Dictionary, which defines them as entities formed "for a particular purpose or need, not planned before..."18By their very nature, Ad-hoc Committees are transient, constituted to address specific matters within limited timelines. They are, in essence, single-purpose vehicles designed to resolve particular issues, and are not intended to serve as permanent fixtures of the respondent.
78.The Tribunal firmly holds that, irrespective of its Board's changing composition, the respondent endures as a legal institution whose decisions carry an institutional imprimatur. Decisions issued by the respondent are not to be seen as fleeting edicts of individual Board members but rather as the enduring voice of the institution itself. Institutional continuity dictates that the respondent’s determinations hold their integrity even as leadership evolves. As the saying goes, "institutions protect themselves," standing as sentinels to their own precedents and authority.
79.To us, subjecting the appellants to an Ad-hoc Committee that includes members of the very Board whose actions they challenge is akin to the respondent beckoning the appellants to “look the other way and start afresh.” It is a scenario where the respondent seemingly changes guises, presenting itself under new shades while still steering the enforcement proceedings. This manoeuvre does not escape scrutiny; it raises a shadow of partiality that the respondent’s assertion of Board independence does little to dispel. Instead, it reinforces the appearance of an institution speaking through different faces but retaining the same voice—one that, without doubt, undermines the core principles of impartial adjudication.
80.Notwithstanding the foregoing, this Tribunal observes that it should exercise caution to avoid overly aggressive measures that would result in the wholesale exclusion of every person to join the Ad- hoc Committee, as such an approach may create administrative challenges for the respondent. To ensure justice, impartiality, and independence, we find that current Board members who were not part of the previous Ad-hoc Committee may participate in the reconstituted Committee. However, the majority of the Committee members must not have any administrative affiliation with the respondent or its Board.
Whether the Ad-Hoc Committee is Properly Constituted
81.The respondent constituted an Ad-Hoc Board Committee consisting of seven members, including:a.the Chairman of the respondent's Board of Directors,b.two undisclosed members of the respondent's Board,c.retired Chief Justice Willy Mutunga,d.FCPA James McFie, who served on the respondent's Board between 1993 and 2002,e.Ms. Patricia Kiwanuka,f.Ms. Anne Erickson.
82.It is the appellants’ contention that the respondent initially appointed Mr James Ndegwa, Chairman of its Board, to lead the Ad-Hoc Committee. However, he later recused himself in March 2022. The current Chair, Mr Nicholas Nesbit, appointed via a Gazette Notice on 4th October 2021, has not recused himself. The revised ToRs have not been communicated to the appellants, thereby leaving them unaware of the specific scope and mandate of the Committee.
83.Moreover, the inclusion of Dr James McFie and Ms Erickson in the Ad-Hoc Committee raises concerns of bias, given their previous affiliations with the respondent. The appellants argue that this creates an appearance of partiality, which undermines the fairness, impartiality, and independence of the proceedings, as both members are perceived to have conflicts of interest owing to their ties with the respondent.
84.The respondent, in response, clarified that the former Chairman, Mr James Ndegwa, recused himself on March 11, 2021, allowing the Committee to appoint its own Chair. The appellants’ assertion that the current Chair has failed to recuse himself is speculative, particularly since no proceedings have occurred after the stay of the hearing.
85.With respect to Dr James McFie, the respondent stated that his tenure on the Board ended over two decades ago, and no tangible evidence has been provided to demonstrate bias on his part. The appellants’ claim that he serves as Chief Judge of an award linked to the respondent is misleading, as the award is jointly administered by multiple partners, not solely by the respondent.
86.Similarly, the claim of bias regarding Ms Anne Erickson, who serves as a director on several boards, including KCB Bank, is unsupported. The respondent pointed out that there is no substantiated evidence showing how this affiliation could lead to bias, and a cursory search does not reveal that Ms Erickson currently holds a directorship at KCB Bank.
87.The respondent relied on the case of Aly Khan Sachu v Capital Markets Authority (supra),which sets a precedent for evaluating bias. The relevant portions are reproduced below:“
172.Whether the allegation relates to actual or apprehended bias, it is a serious matter, which strikes at the validity and acceptability of a decision. Actual bias has been applied in the following two fact situations: (a) where a decision maker has been influenced by partiality or prejudice in reaching a decision; and (b) where it has been demonstrated that a decision maker is actually prejudiced in favor of or against a party...
.174.The current double reasonableness test, which commenced its journey in the Supreme Court of Canada and then traveled through the High Court of Australia, is so called because it translates into a two-stage requirement of reasonableness. There must be an apprehension of bias that is reasonably entertained. That is the first stage. In the second stage, the apprehension must be one held by a reasonable person, someone who need not have any interest in the outcome of the matter, other than the general interest shared by the public in the fair administration of justice.”
88.The respondent further contended that the current members of the Ad-Hoc Committee are independent, have not participated in previous stages of the dispute, and possess the requisite expertise in capital markets regulation. The respondent also emphasized that the composition of the Board has since changed, and the appeal has been overtaken by events.
89.Moreover, the respondent maintained that the constitution of the Ad-Hoc Committee was in full compliance with the Supreme Court’s judgment and the Capital Markets Act. The appellants’ claims were characterized as an attempt to delay and frustrate the proceedings.
90.The Tribunal does not wish to belabor the decision of the Superior Court in Aly Khan Sachu v Capital Markets Authority (Supra), but concurs with the respondent that the issue of Mr James Ndegwa’s appointment is now moot due to his recusal and retirement. Further, as the Committee has not held any sittings, there is no valid basis for the recusal of Mr Nicholas Nesbit. The Tribunal finds that the appellants have failed to provide any credible evidence of bias in relation to the inclusion of Ms Erickson and Dr James Mcfie. On the contrast, the Tribunal believes that their prior engagements as director and former board member of the respondent make them viable Committee members due to her knowledge in the field.
91.In light of the need to reconstitute the Ad-Hoc Committee, such reconstitution should be carried out in accordance with the guidelines articulated in paragraph 69 to 80 of this Judgment, and the revised ToRs must be shared with the appellants. The Tribunal also guides the respondent as follows:a.The Ad-hoc Committee, being a temporary, single-purpose mechanism, should be constituted exclusively to address the specific issues in a given enforcement proceeding and must not become a permanent fixture within the respondent's institutional framework.b.In enforcement proceedings where the respondent has been involved in prior approvals of security instruments and related documentation, it is essential for the respondent to recuse itself entirely to uphold the principles of natural justice and impartiality. Failing this, the respondent must remain wholly independent of the constituted Ad-hoc Committee to preserve the appearance and reality of impartial adjudication.c.The respondent should appoint individuals of substantial expertise in relevant fields—such as seasoned advocates with experience equivalent of a judge, finance experts and experts in the capital markets who are not current licensees of the respondent —to the Ad-hoc Committee to ensure informed, fair deliberation.d.To address administrative challenges, including financial constraints, the respondent may appoint its current or former Board members to the Ad-hoc Committee, subject to specific limitations. Where the respondent participated in approving securities, as in the present case, Board members involved in such approval shall be disqualified from serving on the Committee. Additionally, current and former Board members shall not constitute more than one-third of the Committee in matters concerning the approval of securities which give rise to a dispute and not more than two-thirds in matters of general enforcement. In all circumstances, the Chairperson of the Ad-hoc Committee should be independent and unaffiliated with the respondent. Where the chairperson of the respondent’s Board is appointed to the Ad-hoc Committee, he/she shall not wear the cloak of the chair in the Committee.e.The Tribunal notes a recurring concern regarding perceived bias within the Ad-hoc Committees and/or the respondent in enforcement matters. To address this, the respondent may consider establishing a robust code governing the conduct of enforcement proceedings. A formal, enforceable code—beyond the suggestive nature of Terms of Reference or general guidelines— will be critical in resolving these recurring issues of impartiality.
92.Lastly, we find that the appellants have not demonstrated any basis for the disqualification of former members of the Board, save for those who were involved in the approval of the Bond Issue. The Tribunal advises the respondent to appoint individuals at its discretion, pursuant to its powers and in compliance with the guidelines above, excluding current or immediate past Board members involved in the Bond Issue approval. While it is beyond the jurisdiction of this Tribunal, or indeed the appellants, to prescribe the composition of the Committee, this Tribunal equally cannot endorse any action that would infringe upon the principles of natural justice.
Whether the ToR violate or limit the right to cross-examination and representation by counsel?
93.Article 47 of the Constitution provides as follows: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.
94.The principle that no person shall be condemned unheard (audi alteram partem) is enshrined under article 50(1) of the Constitution. It states as follows:“Every person has the right to have any dispute that can be resolved by the application of law decided in a fair and public hearing before a court or, if appropriate, another independent and impartial tribunal or body.”
95.Section 2 of the Fair Administration Action Act defines administrative action to include “any act, omission, or decision of any person, body, or authority that affects the legal rights or interests of any person to whom such action relates.”
96.Moreover, section 4 of the said Act underscores that every person is entitled to administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair. The section provides, in part, as follows:“
4.Administrative action to be taken expeditiously, efficiently, lawfully, etc.1.Every person has the right to administrative action which is expeditious, efficient, lawful, reasonable, and procedurally fair.2.Every person has the right to be given written reasons for any administrative action taken against them.3.Where administrative action is likely to adversely affect the rights or fundamental freedoms of any person, the administrator shall give the person affected: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, where applicable; andg.Information, materials, and evidence to be relied upon in making the decision or taking the administrative action.”
97.The appellants argue that paragraph 8.8 of the ToRs unduly restricts their right to legal representation in quasi-judicial proceedings, contravening section 4(5) of the Fair Administrative Actions Act. Furthermore, paragraph 8.10 undermines their right to a fair hearing by allowing the respondent to selectively rely on evidence from affidavits filed in a separate High Court case (Nairobi High Court Civil Case No 523 of 2015), a matter in which the appellants were not party to, thus denying them an opportunity to contest the claims.
98.The appellants further contend that the ToRs infringe upon their right to cross-examine members of the respondent's management who present adverse evidence, in violation of section 4(4)(c) of the Fair Administration Action Act. This, they claim, reinforces their concern that the respondent is using the enforcement proceedings to deflect liability for approving the Bond Issue by shifting blame exclusively onto the appellants, despite their claimed innocence.
99.We reproduce the impugned provisions of the ToRs concerning procedure as follows:1.“The proceedings are of an administrative and regulatory nature and constitute quasi-judicial proceedings.2.The proceedings of the Ad hoc Committee Hearings shall be private and inquisitorial in nature.3.The proceedings of the Ad hoc Committee Hearings shall either be physical or virtual.4.The Chairman of the Ad hoc Committee shall open the hearings, and the Management of CMA will present the allegations and the supporting evidence. CMA Management may also pose questions to the NTSC recipients.5.The NTSC recipients will be allowed to make opening statements, highlight their written submissions, and answer any questions posed by CMA Management.6.Oral submissions by the NTSC recipients shall be given under oath.7.The NTSC recipients shall be entitled to present any additional information and evidence under oath.8.The NTSC recipients shall be entitled to be accompanied by legal counsel, who will be allowed to object or comment only on points of law and not facts.9.The Ad hoc Committee shall be at liberty to pose any questions to the NTSC recipients and CMA Management.10.The test of admissibility of any information or evidence shall be whether it is relevant to the material issue and whether its probative value outweighs any attendant danger of prejudice.11.This procedure supersedes all other procedures that may have been adopted by the Board in governing hearings.”
100.The respondent submits that there is no provision in paragraph 8 of the ToRs that precludes the cross-examination of any adverse party. They point out that paragraph 8.5 and 8.9 clearly outline how the CMA Management and the Ad hoc Committee shall pose questions to the NTSC recipients. However, similar rights have not been extended to the NTSC recipients. A reasonable and objective interpretation suggests that the respondent, by omitting explicit provisions on cross-examination, did not intend to accord this opportunity to the appellants. We cannot proceed on the assumption that the appellant will be accorded the right to be heard in full.
101.Is the right to cross-examination absolute in administrative proceedings? In the absence of binding jurisprudence, guidance may be drawn from the U.S. Supreme Court's decision in Mathews v. Eldridge, 424 U.S. 319 (1976), where the Court held as follows: -“[D]ue process is flexible and calls for such procedural protections as the particular situation demands," Morrissey v Brewer, 408 US 471, 408 US 481. Resolution of the issue here involving the constitutional sufficiency of administrative procedures prior to the initial termination of benefits and pending review, requires consideration of three factors: (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation of such interest through the procedures used, and probable value, if any, of additional procedural safeguards; and (3) the Government's interest, including the fiscal and administrative burdens that the additional or substitute procedures would entail.” Pp 424 US 332-335.
102.The Court established a three-part balancing test to determine the procedural safeguards required by due process:a.Private Interest: The significance of the individual's interest affected by the official action.b.Risk of Erroneous Deprivation: The risk of an incorrect decision under current procedures and the value of additional safeguards.c.Government Interest: The government's interest in administrative efficiency and the avoidance of burdensome procedures.
103.Further, in the case of County of Strathcona vs Mackab Enterprises Ltd, (1971), 20 DLR (3d) 200, the court gave instructive remarks on cross examination as follows:“It does not follow that refusal or placing of limitations upon the right of cross examination will always require the court to quash an order made in proceedings which these restrictions are enforced. If he is afforded an equally effective method of answering the case made against him, in other words is given ‘a fair opportunity to correct or controvert any relevant statement brought forward to his prejudice’ the requirements of natural justice will be met. The importance of cross examination will vary with the nature of the case being heard.”
104.From the foregoing, the Tribunal notes that cross-examination is not an absolute right. While a fair hearing in courts involve the right to challenge the opposing party’s case by cross - examination, the absence of cross-examination or restriction or limitation thereof in administrative processes does not of itself lead to the quashing of a decision of such administrative body. Instead, the decision will be upheld if it otherwise meets the following threshold: - ie if a party is afforded an equally effective method of answering the case made against him, in other words, a fair opportunity to correct or controvert any relevant statement brought forward to his prejudice, the requirements of natural justice will be met.
105.Notwithstanding the foregoing, we note that the Capital Markets Act prescribes punitive sanctions for various violations. Furthermore, the respondent was directly involved in the approval of the Bond Issue and seeks to rely on affidavits from a case to which the appellants were not parties. In such circumstances, the government's interest in administrative efficiency cannot override the appellants' private interest or the risk of erroneous deprivation. Accordingly, we find that the respondent is obligated to provide the appellants with a fair opportunity to challenge any relevant statement made to their detriment. In any event, the Ad hoc Committee may only act pursuant to and within the scope of its delegated authority. It is therefore in the interest of justice that the Ad hoc Committee be properly empowered through enabling provisions in the ToR to determine when cross-examination or any other appropriate method of response is necessary.
106.On the issue of the selective use of affidavits from the High Court case (Nairobi High Court Civil Case No 523 of 2015), this appears to be an issue arising from the investigation, and it can be appropriately challenged during the Ad hoc Committee hearing. Also, the documents in question were not produced before the Tribunal. Therefore, it is beyond our mandate to determine the admissibility of such information before the hearing takes place. That function rests squarely with the Ad hoc Committee, and any premature decision by us would encroach upon the Committee’s independence, which we are keen to safeguard. However, we note that should the production of such information be done as prescribed in the ToR (without being cross examined), it will be an afront to fairness, rendering the proceedings a mistrial ab initio.
107.Regarding the issue of legal representation, we find that both the Constitution and the Fair Administrative Actions Act have enshrined this right as a fundamental cornerstone of a fair hearing. Any attempt to repudiate this right constitutes an affront to justice. Consequently, we hold that the appellants’ counsel should not only be allowed to cross-examine adverse witnesses but also to raise points of fact. The respondent has not satisfactorily demonstrated why such restrictions are warranted.
Whether the ToR violates/limits the right to access information
108.Article 35 of the Constitution provides as follows:35(1)Every citizen has the right of access to:a.Information held by the state; andb.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 correction or deletion of untrue or misleading information that affects the person.3.The state shall publish and publicize any important information affecting the nation.
109.The appellants contend that, despite their requests, the respondent has failed to procure from the relevant parties the documents necessary to ensure an objective and effective investigation. Further, the respondent has neglected to invoke its powers under section 13B (2) of the Capital Markets Act. Conversely, the respondent argues that it had duly informed the appellants that they would only rely on the documents previously availed to them. Moreover, the respondent asserts that, in High Court Petition No. 245 of 2016, Alnashir Popat & 8 others v Capital Markets Authority, the court had already pronounced itself on this issue and confirmed that the Authority had shared the necessary documents. We reproduce the relevant paragraphs of the judgment as follows:“
131.In the instant case, and from the evidence availed to me and on record, the Petitioners admittedly requested information. The respondent provided the Petitioners with a complete list of documents that it would rely on at the hearing and provided copies thereof vide its letter of 23rd May 2016. In the circumstances, I find that the Petitioners were provided with all the essential documents necessary to enable them to attend the show cause hearing.
132.In any event, the respondent has admitted that some of the documents requested are not in its possession but are in the control of the CBK and KIDC. While I agree with the petitioners that the respondent has powers to summon the production of those documents, I do not think that it can demand that of the Petitioners at this juncture. The hearing is yet to commence. It is thus my finding that the respondent has not unduly hindered the Petitioners in preparing their defence in the intended hearing by failing to provide crucial information."
110.Furthermore, we note that JL Onguto expressed himself as follows at paragraph 129:“
129.Access to information is therefore fundamental to the realization of the rights guaranteed in the Bill of Rights. Access to information is crucial to the right to freedom of expression, which includes the freedom to receive or impart information or ideas. For a person to enforce the right of access to information, they must establish that they have sought the information and access to such information has been denied."
111.It is our understanding that, despite the learned judge underscoring the fundamental nature of access to information in realizing the rights guaranteed in the Bill of Rights, he acknowledged that the party seeking to enforce this right must demonstrate that they have requested the information and that access has been denied. In our view, the learned judge was cognizant of the fact that the hearing had not commenced, and thus, any claim of denial of access to information was premature at that stage. However, this does not preclude the appellants from seeking such information at a later stage if necessary for their defence.
112.We are also mindful of our previous conclusion that the hearing is set to begin afresh and that the respondent's prior conduct was not aligned with the SCORK Judgment. In light of this, it is only prudent to conclude that there has been a material change in circumstances since the High Court's judgment, as the case has traversed through the Supreme Court and returned to this Tribunal.
113.In any event, this Tribunal has previously expressed itself on this issue in Appeal No 4 of 2018; George Weke Jaba v Capital Markets Authority, where the Tribunal held as follows:“From the preceding discussion, it is evident that no limitation on the right to access information can be imposed unless the entity denying access can prove that the restriction is legally mandated and necessary in a democratic society. Is the restriction in the current case justified in an open and democratic society? The answer is no. Firstly, the respondent should have recognized the need, as per aticle 24 of the 2010 Constitution, to ensure that NBK's exercise of its rights and fundamental freedoms does not infringe upon the rights and freedoms of the appellant. Secondly, the burden of proving that the denial of access to information is justified rests on the respondent or NBK. This burden, in the view of this Tribunal, was not discharged concerning the appellant. The respondent failed to provide sufficient evidence for the Tribunal to determine that, more likely than not, the withheld information fell under the claimed exemptions. Instead, the respondent simply asserted that all five documents requested by the appellant were confidential. The statutory reasons cited were the Banking Act, section 31(2), and the Central Bank of Kenya ActPrudential Guidelines (Guideline 4.2.5), as grounds for refusal to avail the documents to the appellant. However, no consideration was given to the conundrum this presented to the hearing before the Ad Hoc Committee."
114.We are well aware that the Bank is under receivership and that the information requested is in the custody of the CBK and KIDC. However, we are drawn to the letter of the appellants dated January 4, 2021in response to the respondent’s notification of the NTSC hearing letter dated December 20, 2020. We find that in the said letter, the respondent was informed of the challenges the appellants would encounter during the hearing to mount a defense. It is our view that such a position was never addressed in JL Onguto’s judgment. In any case, the respondent did not take any necessary steps to ensure that the information requested was made available to the appellants. Instead, the respondent requested that the appellants solicit the information themselves, fully aware that permission would not be granted due to the circumstances of the case. This leads us to interrogate the scope of the respondent’s investigatory powers under section 13B of the Capital Markets Act.
115.The issue was well settled by this Tribunal in Appeal No. 4 of 2018; George Weke Jaba v Capital Markets Authority, as follows:“
113.We are further guided by the decision in Aly Khan Satchu v Capital Markets Authority [2019] eKLR, where the court reviewed the statutory powers of the CMA, noting its broad mandate to regulate, promote, and facilitate the development of an orderly and efficient capital market. It recognized that the Act provides for both civil and criminal consequences for breaches, and that the CMA's imposition of administrative penalties does not transform the nature of the proceedings into criminal ones. The court emphasized that the administrative proceedings conducted by the CMA are primarily regulatory and disciplinary, not criminal, despite the overlap in the underlying facts that could give rise to criminal charges. We reproduce the same as hereunder:
126.In addition to the fact that the Act recognizes both civil and criminal liability, the following are important pointers against the applicant. First, the Act explicitly distinguishes between civil, criminal, administrative, or disciplinary proceedings under the Act. It prescribes the penalties the CMA may impose for breaches of the Act. Second, sections 13A and 13B confer upon the CMA powers to search and investigate. Third, section 22B of the Act grants the CMA the power to intervene in the operations of securities and futures exchanges where—(a) there is in place an act of government affecting securities or commodities; (b) there is a major market disturbance that prevents the market from accurately reflecting the forces of supply and demand for such securities or commodities; (c) there is a threatened or actual manipulation of the market; (d) the Authority considers it necessary or expedient in the interest of the public or for the protection of the interests of investors.
127.Fourth, there is a clear distinction between a penalty imposed by the CMA in the exercise of its regulatory mandate and criminal proceedings. These regulatory provisions are collateral to the other provisions of the Act, and whilst some have a punitive aspect, they are not criminal or quasi-criminal in nature. (.)
116.Considering the above discussion, the Tribunal holds that the respondent did not exercise its discretion appropriately in including the statement in the letter to NBK: “The requested information under Clauses 1, 2, 3, 6, and 7 of your response do not form part of the allegations that have been brought against you and hence cannot be provided by the Authority. However, that said documentation can be obtained from the Bank." This statement may have influenced NBK's decision not to provide the requested documents, in addition to the application of the Banking Actand Prudential Guidelines. This statement was presumptive regarding the probative value and exculpatory nature of the evidence. We reproduce the Supreme Court decision in Popat & 7 others v Capital Markets Authority (Petition 29 of 2019) [2020] KESC 3 (KLR) (11 December 2020) (Judgment) as follows:67.In this case, we find and hold that in the discharge of its mandate under the CMA Act, the respondent must always first determine whether its act or decision is judicial or quasi- judicial and whether it is likely to adversely affect the rights of the persons or bodies under investigation. If it is either of the two or both, it must comply with the requirements of impartiality and independence under Articles 50(1) and 47 of the Constitution. It has no difficulty in doing so, as sections 11A(1) and 14(1) of the CMA Act empower the respondent to delegate its functions and powers to other bodies or persons. As such, the objectives of the CMA Act will still be realized.67.Therefore, the respondent's mere reference to the enforcement proceeding in this matter, euphemistically, as “administrative,” does not change its intrinsic character. We are in no doubt that the nature of the enforcement proceedings sought to be undertaken by the respondent against the Petitioners bespeaks a quasi-judicial process, because, based on the material evidence placed before it, the respondent would have had to determine the culpability or otherwise of the Petitioners. If found culpable, pursuant to section 11(3)(cc) of the CMA Act, the respondent would impose sanctions, including financial penalties, against the Petitioners.
117.Therefore, the respondent ought to ensure that the administrative process is handled carefully, as there are punitive consequences arising from the exercise of its quasi-judicial powers.......
119.We also note that the respondent has the right to enter NBK's premises to seize or obtain information and remove from its custody all documents and electronic devices, including but not limited to mobile phones and laptops and any components thereof, and retain the same for a period of three days. Section 13A(a)(b)(c) of the Act grants it powers to seek court orders to this effect.
120.Looking at the transcript of the proceedings as reproduced in paragraph 103 and the previous request made by the appellant, there is consistency that the appellant required the documents to defend himself (captured in paragraph 9). As part of achieving fair administrative action, the CMA itself wrote to the NBK regarding the documents, and the bank responded, citing the fact that these were confidential documents not to be accessed by the appellant because he was no longer an employee of the Bank. The appellant also notified the CMA of NBK’s failure to provide the documents and mentioned court orders prohibiting disclosure [see paragraph 11].
121.Fundamentally, what was being investigated by the CMA as per the NTSC? Were the documents listed in paragraph 10 crucial to that process? Considering the issues under investigation by the CMA, these documents appear to be highly relevant.
122.It is also clear that the appellant and NBK were engaged in court proceedings over his summary dismissal that took place on April 13, 2016. As a former employee who was involved in a legal action challenging his dismissal by the Bank, the appellant’s predicament regarding the documents cannot be disregarded. Not much assistance was expected from NBK concerning the documents, and they soundly declined, citing confidentiality, prudential guidelines, and the ongoing court case.
123.On account of the reasons stated and the fact that NBK is not a party to the matter, the Tribunal cannot fault the Bank. However, as a statutory regulator, the CMA could have accessed the documents from the Bank if it had been diligent in pursuing that avenue. The wide powers granted under sections 13, 13A, and 13B of the Capital Markets Act should be invoked, even if it meant obtaining a court order. The drafters of the Act were cognizant of the bank confidentiality that features in this case. Under section 13A of the Act, it is provided that, in the interest of bank confidentiality, the powers of an officer (of the CMA) shall be limited to making copies or extracts therefrom.
116.We reaffirm our earlier decision and observe that, in situations such as the present, appellants are frequently limited in the scope of their responses. Furthermore, it is not within the respondent's prerogative to unilaterally dictate the manner and selection of documents to be relied upon, particularly where such restrictions undermine the principles of natural justice and the fundamental right of access to justice.
117.It can never be gainsaid that the Ad-hoc Committee is not an execution chamber; rather, it serves as a forum for truth and a source of hope for the NTSC recipients, ensuring they receive a fair, impartial, and independent hearing. While financial penalties may hit the wallet, the real sting comes when NTSC recipients find their names tarnished in the unforgiving arena of financial circles—where reputations can be as fragile as a house of cards. Thus, prudence must reign supreme to safeguard the constitutional rights of these recipients in the respondent's quest to protect investors. This, to us, embodies the true interpretation of the Constitution, the Fair Administration Action Act, the High Court Judgment, and the SCORK Judgment, which form the bedrock of the present Appeal.
F. Findings
118.Section 35A of the Capital Markets Act states:“Upon any appeal, the Tribunal may—(a confirm, set aside, or vary the order or decision in question}}; (emphasis ours)(b)exercise any of the powers which could have been exercised by the Authority or any of its committees in the proceedings in connection with which the appeal is brought; or(c)make such other order, including an order for costs, as it may deem just."
119.Therefore, we find that:a.The Tribunal is conferred jurisdiction by sections 35 and 35A of the Capital Markets Act, and several issues raised by the appellants, as discussed above, were ripe for determination by this Tribunal.b.The correct interpretation of the SCORK Judgment mandates that the respondent commence the enforcement proceedings afresh, as the SCORK found probable partiality on the part of the respondent.c.The interpretation of the SCORK Judgment further requires the respondent to constitute an Ad Hoc Committee independent of itself (See paragraph 81-92).d.The appeal regarding the constitution of the Ad Hoc Committee led by Mr James Ndegwa is rendered moot, as it has been overtaken by events. Additionally, the appellants have not sufficiently demonstrated how the inclusion of Ms. Erickson and Mr Mcfie leads to a reasonable apprehension of bias, nor how their affiliations with the respondent would jeopardize their independence. Ultimately, it is the respondent's prerogative to appoint individuals as deemed fit, provided there is no imminent threat to a fair hearing.e.The reconstituted Ad Hoc Committee will possess the authority to determine the admissibility of documents, thus it is inappropriate for this Tribunal to make such determinations.f.The current ToR will likely restrict the appellants’ right to cross-examine adverse witnesses or to be adequately represented by counsel, due to the limitations imposed on raising points of law only.g.The High Court Judgment by JL Onguto J does not preclude the respondent from facilitating access to information for the appellants. The learned judge merely observed that such a request at that time was premature and could not be demanded of the respondent. This observation does not imply a perpetual bar against the appellants' requests.
G. Disposition
120.The appellants have made the following prayers:a.An order that this Appeal be allowed.b.A declaration that, in instituting any investigative, inquisitorial, adjudicative, and/or enforcement proceedings against the appellants, the respondent is bound to observe and comply strictly with the Supreme Court Judgment, other relevant case law, and the applicable law.c.A declaration that the Impugned Proceedings are unlawful, having been instituted in violation of the Supreme Court Judgment, other relevant case law, and the applicable law.d.A declaration that the Terms of Reference of the Ad-Hoc Committee are in breach of the Supreme Court Judgment, other relevant case law, and the applicable law, and as such, are unlawful and set aside.e.An order that the Impugned Directions and the Impugned Proceedings be set aside in their entirety.f.An order that, consequently, the respondent be restrained from purporting to continue with any hearing pursuant to the Impugned Directions or the Impugned Proceedings.g.Any other order that the Honourable Tribunal may deem appropriate and expedient in the circumstances of this Appeal be granted.h.An order that the costs of this Appeal be borne by the respondent on a full indemnity basis, with interest thereon at court rates from the date of judgment until payment in full.
121.The Tribunal issues the following orders: -a.The Appeal is hereby partially allowed.b.The Terms of Reference of the Ad-Hoc Committee issued on 9th February 2021 are in breach of the Supreme Court Judgment, other relevant case law, and the applicable law, and as such, are declared unlawful and set aside.c.The directions of the respondent issued on 9th February 2021 are set aside in their entirety. The respondent may institute fresh enforcement proceedings against the appellants.d.Each party shall bear its own costs of this Appeal.
DATED AND DELIVERED THIS 23RD DAY OF JANUARY 2025.HON. PAUL LILAN H O N . G O D W I N WANGONG’UHON. CONSTANCE GIKONYO HON. JOSEPHINE EBOKO
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Cited documents 18

Judgment 15
1. Owners of the Motor Vessel “Lillian S" v Caltex Oil (Kenya) Ltd (Civil Appeal 50 of 1989) [1989] KECA 48 (KLR) (17 November 1989) (Judgment) Followed 674 citations
2. Macharia & another v Kenya Commercial Bank Ltd & 2 others (Application 2 of 2011) [2012] KESC 8 (KLR) (23 October 2012) (Ruling) Explained 386 citations
3. Jamal Salim v Yusuf Abdulahi Abdi & another [2018] KECA 14 (KLR) Explained 54 citations
4. Mate & another v Wambora & another (Petition 32 of 2014) [2017] KESC 1 (KLR) (15 December 2017) (Judgment) Mentioned 54 citations
5. Wanjiru Gikonyo & 2 others v National Assembly of Kenya & 4 others [2016] KEHC 5536 (KLR) Explained 24 citations
6. Popat & 7 others v Capital Markets Authority (Petition 29 of 2019) [2020] KESC 3 (KLR) (11 December 2020) (Judgment) Mentioned 17 citations
7. Anthony Miano & others v Attorney General & others [2021] KEHC 12687 (KLR) Explained 10 citations
8. Alnashir Popat & 8 others v Captial Markets Authority [2016] KEHC 8398 (KLR) Explained 6 citations
9. Chadwick Okumu v Capital Markets Authority [2018] KEHC 7281 (KLR) Mentioned 5 citations
10. Satchu v Capital Markets Authority (Miscellaneous Civil Application 220 of 2019) [2019] KEHC 12135 (KLR) (Judicial Review) (3 December 2019) (Judgment) Mentioned 4 citations
Act 3
1. Constitution of Kenya Interpreted 40262 citations
2. Fair Administrative Action Act Interpreted 2866 citations
3. Capital Markets Act Interpreted 106 citations

Documents citing this one 1

Judgment 1
1. Ernst & Young LLP v Capital Markets Authority & another (Petition 385 of 2016) [2017] KEHC 8510 (KLR) (Constitutional and Human Rights) (7 March 2017) (Judgment) Mentioned 7 citations