Kenya Akiba Micro Finance Limited v Chebii & 14 others (Civil Suit 644 of 2005) [2022] KEHC 202 (KLR) (11 March 2022) (Judgment)
Neutral citation:
[2022] KEHC 202 (KLR)
Republic of Kenya
Civil Suit 644 of 2005
MW Muigai, J
March 11, 2022
Between
Kenya Akiba Micro Finance Limited
Plaintiff
and
Ezekiel Chebii
1st Defendant
Moses Gituma
2nd Defendant
Joseph Yegon
3rd Defendant
Benard Barasa
4th Defendant
Charles Njogu
5th Defendant
Mathew Bett
6th Defendant
Duncan Macharia
7th Defendant
Grace Ndirangu
8th Defendant
Peter Ng’Ang’A
9th Defendant
John Mwangi
10th Defendant
David Yegon
11th Defendant
Felix Oduor
12th Defendant
Philemon Langat
13th Defendant
Central Bank of Kenya
14th Defendant
Investigation Department of Police
15th Defendant
Judgment
1.By Amended Plaint dated 5th April 2006 and filed on 7th of February 2006 prays for the following orders from this court;
Court Record
2.The 1st Defendant filed his statement of Defense on 5th of January 2006.
3.The 2nd Defendant filed his statement of Defense on 30th of June 2006.
4.The 14th Defendant filed a Defense on 6th of January 2006 and denied the allegations in the plaint and outing the Plaintiff to strict proof thereof. It justified its actions and averred that it was the lawful authority regulating the banking industry and had received numerous complaints about the Plaintiff.
5.The 15th Defendant filed his Defense dated 9th May 2006 on 10th May 2006 denying the contents of the plaint and asking the court to dismiss the suit against the 1st Defendant with costs.
6.Chamber summons dated 14th of November 2005 were filed by the Plaintiff were heard and allowed. The ruling delivered on 3rd of April 2006 by Justice Ochieng allowed the Plaintiff to enjoin 13 more defendants.
7.Subsequently, the Chamber Summons dated 14th November 2005 was abandoned in favor of a notice of motion Application dated 28th October 2011.
8.Parties attempted Court Annexed Mediation which was unsuccessful.
9.The 1st Defendant filed a statement of defense dated 5th January 2006 and filed it on the same day.
10.The 2nd Defendant filed his defense dated 26th January 2006 on 30th January 2006.
11.The Attorney General filed his defense dated 9th of May 2006 on 10th May 2006 in which he states that the Defendants were acting on complaints against the Plaintiff that they had received and that their actions were within the Law.
12.Application dated 27th March 2006 seeking leave to effect service via substituted service to the 3rd to 13th Defendants was heard and allowed by Justice Ochieng vide ruling of 23rd May 2006.
13.Chamber summons Application 10th of May 2007 seeking to have interested parties enjoined was found to be without merit and dismissed by Lady Justice Lessit .
14.The Notice of Motion dated 29th April 2010 was marked as withdrawn with no orders as to costs on 1st of July 2010
15.On 4th of May 2012, Justice Mabeya having heard the application by the Plaintiff dated 28th October 2011 issued the following orders,
16.An application for stay of execution was dismissed vide ruling delivered on 1st February 2013 by Justice Mabeya.
17.An interlocutory appeal was filed at the Court of Appeal and the Court set aside and dismissed Kenya Akiba Micro Finance Bank’s application dated 28th November 2011 and gave further orders the main suit be placed before any judge of the High Court except Justice Mabeya.
18.The 15th Defendant filed an Application dated 4th of April 2013 in which he sought for review of the judgment made in 4th of May 2012 which was dismissed on 24 of May 2013.
19.The matter proceeded to full hearing with the Plaintiff calling four witnesses while the 1st to 15th Defendant called two witnesses while the 14th Defendant called two witnesses.
Plaintiff’s Case
20.PW1 Gideon Mwiti Irea, the Director, General manager and majority shareholder of Plaintiff Company told the court that the Plaintiff was registered as a Company on 29th January 2004 and licensed to Conduct Hire Purchase Business on 19th February 2004.
21.In 2nd November 2005, some forty (40) officers and two (2) bank officials came into the Company Premises at 10am the Lornho House offices in town. They ordered the employees not to leave the premises, he sat with others as they put off computers and took inventories as well as customers’ title deeds and log books, company computers from the safe and collected files which they loaded in the parked 4 Land Rovers outside.
22.They also went to Kitengela and Ongata Rongai and seized and carried away various documents, files, tools of trade, electronics and other equipment before locking down the premises. During the incident, the Plaintiff’s bank accounts were frozen, four (4) of its Directors/ Shareholders arrested.
23.Mr Okonya, Mr Chebii and Mr Gituma all from (BFIU) came to his office and informed him that they were investigating the institution(s) that was /were conducting business as a bank.
24.At midnight PW1, Mr Kinoti Co Director, Mr Metiaki Manager -Kitengela Branch and Mr.Irungu of Ongata Rongai Branch and were taken to Marshall House and later taken to Kileleshwa Police Station. He said they were later charged in Court.
25.PW1 stated that the people who came talked to the Press and talked of a bogus bank. He referred to media reports at Pg 216-217. He identified 1st -13th Defendants as those who conducted the raid.
26.The Plaintiff contends that it is a limited liability company incorporated under the Companies Act, Cap 486 on 29th of January 2004, licensed on 19th February 2004 and is a member of the Association of Micro Finance Institution.
27.The Plaintiff was registered this way as at the time there was no Micro- Finance Act or a Regulatory body of Micro Finance except Association of Micro- Finance Institutions.
28.The Plaintiff states that on 31st October 2004, the 14th Defendant issued a public notice to the effect that;
29.On 7th November 2005 they were charged in CMCCR 2474 of 2005 with five (5) counts of using the word “finance” without approval of the Minister of Finance contrary to various sections of the Banking Act, Cap 488 of the Laws of Kenya. Further, that the Directors were charged with other criminal cases and attempt to stop the prosecution in Misc.Civil Application number 1594 of 2005, 446 of 2006 and Constitutional Petition 513 of 2006 were not successful.
30.PW1 referred to Inventories taken during the raid at Pg 77-166 of PBD and List of customers who had taken loans at Pg 167-173 of PBDlist of over 6000 customers.
31.The locking of premises which were opened in 2006 and the landlord took furniture and sold to recover arrears of rent, the seizure of documents and other items and the accounts in Kenya Commercial Bank, Housing Finance Moi Avenue, Equity Bank Mama Ngina, these accounts were frozen and could operate them.
32.Central Bank of Kenya put up a Notice as shown at Pg 76 of Daily Nation on 30/10/2005 and outlawed the use of Finance without authority of the Minister for Finance and anyone using Finance was to regularize the use within 90 days. The raid occurred on 2/11/2005, a day after the raid, other Micro Finances were not raided.
33.PW1 was not informed or given any notice that the raid would take place and he was not informed of any impropriety.
34.PW1 was not under supervision of CBK but by Registrar of Hire Purchase as per the license.
35.PW1 denied that the Plaintiff operated as a bank as unlike they did not issue or receive cheques and did not have or use the clearing house. He did not advertise that it operated as a bank but a Company offering loans by receiving deposits on the Plaintiff’s Account as deposits and the same was recorded in the pass books. He referred the Court to Paragragh9,15,16 & 17 of his statement in PBD and confirmed Loan Agreements Pg 40-41 Loan Appraisal & Evaluation Form and Down payments and Deposits at Pg 42-45 and there is a distinction between microfinance and banking.
36.PWI informed the Court that since the search and seizure referred herein as raid, the Plaintiff incurred huge financial loss arising from unrecoverable loans, frozen bank accounts and goods carted away, 3,000 logbooks, loan files rubber stamps, company seals cheque book receipt books computers and other equipment.
37.PW1 relied on Inventories filed Pg 77, 101, 100, 107, 108, 112,119 82 & 83 of PBD on quantification of the loss is by the Raid. He also relied on the Audit Report filed on 24/10/2013 and he claimed loose cash of Ksh 1.5 m that was in the offices at the time of the raid. PW1 sought damages of KSh 930,000,000/-
38.PW2 John Kinoti, PW 3 John Mukora Ngugi also reiterated and supported evidence of PW1 vide his witness statement of 14/6/2014 and relied on their statements filed on 16/6/2014 and 16th June 2014 respectively with regard to the business operations, the raid and subsequent arraignment in Court for Criminal proceedings.
39.PW4 George Munga Amollo relied on the statement of 20th May 2019, Practising Auditor while at Mussawa & Co in 2013 he received instructions from the Plaintiff to conduct a forensic audit of the Plaintiff after it was closed down by CBK of actual loss incurred by the Plaintiff between 2005-2013. He received documents as listed in his statement and Court record and undertook the exercise as per the documents filed by the Plaintiff as Supplementary List of documents on 25/10/2013 and produced as Exhibit 2.He tabulated the items at Page 23 of the Audit Report.
Case
40.DW1 Ezekiel Dave Chebii relied on his Written Statement of 17th March 2015 that he adopted as examination in chief and relied on the 14th Defendant’s List of Documents Defense Exhibit -1; Defendant’s Supplementary List of Documents of 17/3/2015 Defense Exhibit 2 & 14th Defendant’s Further Supplementary List of Documents of 4/2/2019 produced as Exhibit -3.
41.DW2 Joseph Onyango relied on witness statement filed on 17th March 2013 on Hire Purchase transactions registered at their office.
42.DW3 Bernard Baraza of BFIU relied on his statement of 11/3/2013on the investigations carried out that led to the search and seizure at the Plaintiff’s offices.
Pleadings
43.The 1st Defendant filed a statement of Defense dated 5th January 2006 and filed it on the same day denying the allegations of the Plaintiff.
44.The 2nd Defendant filed his Defense dated 26th January 2006 on 30th January 2006 also denying the allegations raised.
45.The Attorney General filed his Defense dated 9th of May 2006 on 10th May 2006 in which he states that the Defendants were acting on complaints against the Plaintiff that they had received and that their actions were within the Law.
46.The14th Defendant filed a Defense on 6th of January in which they denied any wrong doing and put the Plaintiff to strict proof thereof and opined that the investigations done by the police through the Banking Fraud Investigation Unit is what led to charges being preferred against the directors of the Plaintiff. Further, that the Plaintiff was involved in banking business and not just hire purchase business as alleged.
Plaintiff Submissions
47.The Plaintiff submitted on two major grounds, liability and quantum.
48.On the issue of liability on the question of who raided the Plaintiff Company, counsel submitted that the 1st and 2nd Defendant were attached to the 14th Defendant’s supervision department who oversaw the raid while the 3rd to 13th Defendants are police officers who were attached to the Banking Fraud Investigations Unit which is listed under the 14th Defendant in its organogram on page 248 of Plaintiff’s exhibit 1. Further, that the 14th Defendant’s witness admits that the officers were from the Banking Fraud Investigations Unit and the 14th Defendant and carried away computers, customer files, titled deeds, loan documents, receipt books and other office equipment and thus the blame shifting between the 14th and 15th Defendant did not hold water.
49.As regards whether the closure was justified in law, counsel submitted that the same was not justified as it was not carrying out a banking business within the meaning of Section 2(1) and 16 of the Banking Act. It never accepted deposits nor operated current accounts, savings account or their accounts that would constitute monies paid on terms. He contended that the 15th Defendant in its Defense and through DW2’s testimony admits that the Plaintiff is licensed to carry out Hire Purchase Business. He opined that no evidence was tabled to indicate that a complaint had been raised against the Plaintiff’s operations.
50.On the deposits, he opined that the deposits it held were those under Section 2 of the Hire Purchase Act and not under the Banking Act which are not related. Further, that it is answerable to the Licensing officer appointed under Section 19 of the Hire Purchase Act and not the Defendants. In addition, the association of Micro Finance Institutions had no issue with its operations.
51.Counsel submitted that the Defense had not proven its case beyond reasonable doubt in the lower court. Reliance was placed on Criminal Appeal 1 of 2017 Abdi Adan Mohamed vs Republic where the court discussed the issue of admissibility of judicial proceedings.
52.On Quantum, the Plaintiff while relying on a report by Murugu & Company Certified Public Accountants issued on 11th January 2012 and Massawa & Company certified public accountants in appendix 3 filed on 25th October 2013 submitted that both firms conducted forensic audits .The latter computed the loss incurred between 2nd November 2005 and 2nd November 2013 at Kshs 2,847,388,652 which report despite service remains uncontroverted. Reliance was placed on the case of HCOMM No. 731 of 2008 North End Trading Company Limited t/a Kenya Refuse handlers limited vs The City Council of Nairobi and Machakos Civil Appeal no. 113 of 2017 Beatrice Kanini Mutua vs Titus Mulinge Kativanga & Another
53.While making reference to the PKF report, he submitted that this report was only a critique of the Murugu Report and that the Plaintiff operated for over 20 months and not 6 months as averred by the defendants. That they filed a strategic report on 25th October 2013 detailing all their plans. Further, that they filed a loan agreement with Global Credit Limited for a sum of Kshs. 125,000,000/= as a credit facility to enhance its Hire purchase business. They also provided staff contracts as exhibit 9.
54.The Plaintiff alleged that he had justified the figures claimed in its bill of quantities. Further that he had proven its case and made reference to the Massawa Report that quoted the losses incurred at 2.7Billion.
1ST to 13TH and 15TH Defendants Submissions
55.The 1st to 13th and 15th Defendants represented by the Attorney General, filed submissions dated 29th March 2021 in which they submitted on three realms. Firstly, as to whether the Plaintiff was carrying out illegal business, counsel submitted while relying on the witness statements filed that the defendants had received complaints that the Plaintiff did not reveal any legitimate hire purchase business but that of banking which included taking deposits, having savings, passbook , giving loans and taking securities. In addition, that Joseph Onyango, the Registrar in charge of registration of Hire purchase was of the opinion that the Plaintiff’s business does not amount to the Hire Purchase business known in law and that he had no record of transactions of the Plaintiff.
56.Counsel submitted that the Plaintiff did not produce any Hire purchase agreement to show he was engaged in hire purchase business, there was no registration of any hire purchase agreements, credit facility documents received by the 1st to 13th and 15th Defendant. Further, that the Plaintiff was taking deposits without a valid license contrary to section 16 of the Banking Act, the Plaintiff is illegally using the word “finance” and the Plaintiff cannot rely on the notice dated 2nd November 2005 by the 14th Defendant which is non consequential. Reliance was placed on the case of Republic vs Kenya Revenue Authority ex parte Shake Distributors Limited [2012] EKlr and Muturi & Wamiti Advocates vs Edward Mwaniki Karanja & 2 others [2017] Eklr where estopell against statute was discussed. Counsel contended that due to the undertaking of illegal business by the Plaintiff, he was not entitled to compensation and relied on the case of Scott vs Brown & Others [1892] Q. B.D 724 at page 728
57.As regards whether the raid was justified, Counsel submitted in the affirmative. He opined that the alleged illegal activities of the Plaintiff were contrary to law and an affront to a proper functioning market based financial system and the objects of the 14th Defendant are to ensure a proper functioning market based system under section 4(2) of the Central Bank of Kenya Act. Further, that the notice was of no consequence as the 14th Defendant cannot make a promise which goes against the express letter of the law.
58.Counsel submitted that the Plaintiff is not entitled to damages and the court should not enforce an illegality. He submitted that the amount claimed in special damaged was based on assumption, speculation and is unjustified. He relied on the evidence of Peter Kahi, the certified public accountant of PKF who told the court that the sum of Kshs 1,536,335,537.00 was exorbitant, inappropriate and unsupported as the projections and assumptions were not backed by detailed strategies and a financial plan. That there was evidence of cash flow challenges as the Plaintiff issued bounced cheques as well as the income tax declaration of the plaintiff and accounts from 2004 that confirm that the Plaintiff was declaring losses.
59.Further, that the loss on fixed assets in the sum of Kshs 124,233,548.00 was a duplication as the assets used in the earnings claimed and the company loans to external clients of Kshs 194,202,234.00 was incorrect as the loans were fully secured by documents such as logbooks and title deeds and as such recoverable. In addition, that the company loans to employees in the sum of Kshs 4,941,740 was unsupported in that there were no employee contracts, loan agreements with clear offer letters, employee loan book and loan files and payroll evidencing recoveries therefore remains unproven.
60.Furthermore, that the Interest on loans from banks and other financial institutions in the sum of Kshs 221,831,308 is unsupported and unjustified in that no loan document was availed by the Plaintiff.
61.On lawsuit and litigation costs in the sum of Kshs. 6,721,728 he contended that no invoices nor receipts were produced.
62.As regards interest of Kshs 25,412,967.00 that was based on loss of Kshs 12,500,000,000 compounded at 12% annually, he opined that no cash certificate was presented to support any cash that may have been taken during the raid.Counsel while relying on the case of Kenya Breweries Limited vs Kiambu General Transport agency [2000] eklr that special damages must be proven.
14TH Defendants Submissions
63.The 14th Defendant filed submissions dated 31st May 2021 in which he alleged that it was evident that the Plaintiff engaged in banking and took deposits without a license and used the word “finance” without the authorization of the 14th Defendant. He contended that the operation by officers from the Banking Fraud Investigation Unit was lawful following what they termed legitimate public complaints and the presence of its employees was to establish the nature of the Plaintiff’s business from the records at its premises.
64.The 14th Defendant submitted that they returned the documents they seized in compliance with an order of this Hon. Court. Further, that the Banking Fraud Investigation Unit lawfully shut down the Plaintiff.
65.Counsel opined that Civil Appeal number 328 of 2012 Central Bank of Kenya vs Kenya Akiba Finance Limited & 14others was not relevant nor admissible to this proceedings as it only proves that there was an acquittal.
66.As to the nature of the Plaintiff’s activities, he submitted that the Plaintiffs business was more than that of hire purchase and referred to the objects in the Plaintiff’s Memorandum of Association, the promotional material plugging its business with the quote “loans available”, that a term loan of 12 months was given to Mr. Sumanbhai secured by a guarantee while that to Mrs Scholastica Ndaba was for a specific purpose (purchase of cows/ building of a cow shed) and was secured by a title and that the Plaintiff took deposits and operated savings accounts on which interest was to be paid. Reference was made to the Plaintiff’ brochure setting out savings account opening requirements, Mr Sitoti Kimerei Maika’s demand for refund of his deposit and Jedidah Wanyonyi’s letter on Kshs 215,000 upon which he derived Kshs 6,600 monthly income.
67.He contended that the Plaintiff used the word finance without the consent contrary to the Banking Act and despite correspondence in December 2004 and January 2005 did not regularize this position. That the notice issued on 31st October 2005 did not cure nor excuse violation of section 3(1) of the Banking Act. Furthermore, that the Plaintiff was undertaking financial activities thus in violation of section 2, 16 (1) (2) and (5) of the Banking Act. He submitted that through the Plaintiff’s advertisements and brochures, it invited members of the public for deposits contrary to section 51 (1) of the Banking Act.
68.According to the 14th Defendant, the Banking Act was applicable and the argument by the Plaintiff that it was inapplicable because it was a micro finance did not hold water.
69.The 14th Defendant submitted that the Plaintiff the police operation conducted on 2nd November 2005 was done under the directions of Mr. Okonga, an assistant commissioner of Police and not the 14th Defendant and it is the Banking Fraud Investigations Unit that secured the exhibits and preferred charges against the directors of the Plaintiff. That its only role was to establish the nature of the business in light of the complaints and reference was made to Ezekiel Chebii’s testimony. While citing the case of Lavington Security Limited vs Judiciary [2021] Eklr he submitted that a party cannot benefit from its own wrong.
70.As regards damages, Counsel submitted that since the Plaint had not been amended and the claim was for special damages, only Kshs 930,000,000 should be considered and the figure in the Massawa report disregarded as it has discrepancies.
Plaintiff’s Supplementary Submissions
71.The Plaintiff filed supplementary submissions in which he raises issues with the tone of the 14th Defendant and relies on the case of Mohamud Iltarakwa Kochale & 5 Others ( Suing on behalf of the residents of Laisamis Constituency and Larare Ward of Marsabit County vs Lake Turkana Wind Power Limited & 4 Others ; Aaron Iltele Leisantaam & 4 others [2019] eklr, George Gikubu Mbuthia vs Peter Njeru Mugo & 3 others [2006] Eklr on counsel conducting themselves with decorum when addressing the court.
72.Counsel reiterated the contents of its submissions and stated that no counterclaim had been raised by the Defendants, the raid was unlawful, he was acquitted and that the raid terminated its business which was a going concern. He maintained his claim at Kshs. 930,000,000
73.He submitted that the issue of the legality of the business was addressed in Nairobi Criminal Case Number 2474 of 2005, Republic Vs Akiba Micro Finance Limited where the Plaintiff and its directors were found not to be in breach of the Banking Act in its business.
74.While referring to the cases of Otieno Ragot & Co. Advocates vs National Bank of Kenya Limited [207] Eklr, Jonathan Junior Nyamasyo Katete vs Gideon Muange Muasa [2021] Eklr and Wangui Kathryn Kimani vs Disciplinary Tribunal of Law Society of Kenya & Another [2017] Eklr he submitted that courts cannot grant orders that have not been specifically sought.
75.The Plaintiff submitted that Nairobi Criminal Case Number 2474 of 2005, Republic Vs Akiba Micro Fnance Limited had already determined the question of carrying out a business contrary to the Banking Act and the same had been determined by the court through its judgment of 3rd September 2011 which decision has not been appealed not reviewed. Further, that Civil Appeal No 328 of 2012 Central Bank of Kenya vs Kenya Akiba Finance Limited & 14others is relevant, necessary and admissible to these proceedings. Reference was made to section 34 of the Evidence Act, Cap 80 of the Laws of Kenya.
76.While relying on the case of Accredo AG & 3 others vs Steffano Uccell & another [2019] Eklr, Kenya Commercial Bank Limited Vs Muiri Coffee Estate Limited & Another [201] eKLR he contended that previous court decisions have to be treated as resolving issues with finality.
77.He submitted that the defendants are jointly and severally liable for the raid of its business that was a going concern and is entitled to the orders sought.
78.According to the Plaintiff, the raid, seizure and retention of records, computers accessories and securities was illegal as not even search warrants were obtained as provided under Section 152 the Penal Code, Section 119 and 120 of the Criminal Procedure Code, Cap 75, Section 180 of the Evidence Act.
79.He opines that the Mussawa report should not be treated as a forensic report and relies on the cases of Wilfred Gisebe Gisebe & 2 Others Vs County Government of Kisii & 2 others [2017] Eklr and Standard Newpapers Limited & Another vs Attorney General & 4Others [2013] Eklr which among other issues also addresses the issue of infringement of the right to privacy and invasion of private property.
Analysis And Determination
80.I have considered the pleadings, the evidence adduced, the issues and the submissions made as well as the authorities relied upon by the parties herein and find the following to be the issued for determination:-
81.On the first issue of whether the Plaintiff contravened the Banking Act, we will begin by looking at the history of the dispute between the parties. In a letter dated 16th December 2004 from the General Manager Mr. Irea to the director of Bank Supervision, CBK, the Plaintiff stated that besides being registered by the Registrar of companies, he also had hire purchase licenses, KRA pin number and a city council license for operating a medium financial services company for which they paid Kshs 65,000. The attachments referred to in the letter are however not provided. He further gave the company profile including that of its managers and concluded by asking the 14the Respondent to be satisfied after perusal of its documents, that they were carryout out a legitimate business.
82.The 14th Defendant through the Senior Manager, Financial Institution Supervision responded vide a letter dated 29th of December 2004 acknowledging that the Plaintiff had been licensed to carry out hire purchase business under the Hire Purchase Act and reiterating the provisions of section 3 (c) of the Banking Act and concluded by telling the Plaintiff
83.On 6th of January 2005, the Plaintiff wrote back to the 14th Respondent’s agent indicating that they had sought consent from the Ministry of Finance on use of the word “finance” and he would revert back with the Minister’s decision.
84.From the record, the Permanent Secretary in the Ministry of Finance then, Joseph Kinyua wrote to the Governor Central Bank on 24th of October 2005 whose contents read:-
85.The 14th Defendant then issued a general notice on 31st October 2005 stating inter alia that;
86.Subsequently, a memo from the Director, Financial Institutions supervision to the Director Banking Fraud investigations dated 1st November 2005 indicates that the Plaintiff is in violation of section 3,16 and 51 of the Banking Act and asked that the matter be urgently investigated with a view to instituting legal action under section 3 (2) of the Banking Act.
87.The offices of the Plaintiff in Lonrho House in Nairobi, Kitengela and Ongata Rongai were raided on 2nd November 2005 by the 1st to 13th Defendants and some items were seized and taken away before locking down the premises and arresting down four directors/ shareholders of the Plaintiff. It is not denied that the 12th and 13th Defendant are employees of the 14th Defendant while the 1st to the 11th Defendants are police officers.
88.The directors of the Plaintiff were then charged and acquitted of five counts in Nairobi Chief Magistrate’s court criminal case number 2474 of 2005.
89.Section 109 of the Evidence Act, Cap 80 Laws of Kenya provides as follows:
90.In addition, Section 112 of the Evidence Act provides that;
91.The Court of Appeal case of Anne Wambui Ndiritu –vs- Joseph Kiprono Ropkoi & Another [2005] 1 EA 334 held that:
92.In the case of Kabogo Gitau vs. George Thuo & 2 Others [2010] 1 KLR 526 stated that:
93.This issue was also discussed by the House of Lords in the case of Miller –vs- Minister of Pensions [1947] 2 All ER 372 where Lord Denning stated that:
94.The Plaintiff alleges that the business it ran was that of Hire purchase in line with its Memorandum and Articles of Association and has produced various agreements between itself and third parties to show that it gave out loans. Letters approving different loan amounts were also produced. The Plaintiff stated that the deposits received were under Hire Purchase and not the Banking Act contrary to the Defendants allegation that the Plaintiff was engaged in banking business due to the fact that it operated a current account, received deposits, having savings, passbook, giving loans and taking securities and not hire purchase business as he claims.
95.Section 2 of the Banking Act defines a bank as;
96.R.P. Christen, T.R. Lyman and R. Rosenberg in the book Microfinance Consensus Guidelines; guiding principles on regulation and supervision of microfinance defines “microfinance” as;
97.On the other hand, a banking business in the same Act is defined as under section 2;
98.A current account is defined by the Banking Act as;
99.A hire purchase business is defined under Section 2 of the Hire Purchase Act as:-
100.It is also important to define a “financial business” as per section 2 of the Banking Act which provides that it is;
101.I note that this company was incorporated in 2004 and the Micro Finance Act was enacted in 2006,thus the Plaintiff was incorporated at the time when micro finance businesses were not regulated by its own Act. The Banking Act before 2005 did not have provisions regulating the micro finance institutions.
102.The Plaintiff has produced a copy of its incorporation certificate under the Companies Act, renewable licenses for the year 2004 and 2005 issued by the licensing officer Hire Purchase business and loan agreements between itself and various customers to indicate that it was indeed conducting a hire purchase business.
103.Further to this there are pass cards that have been produced that indicate the deposit was being done by various clients and interest would be received. There are complaint letters indicating that the monies paid as loan charges to secure different amounts of loans had been paid however the client had not received the loan. From the documents filed , it appears as if a Stephen Kimani Gitonga, he paid the loan charges in June 2005 and as at 7th November 2015 had not received the loan amount. Another alleged client by the name of Jedidah Wanyonyi Nyongesa in her letter dated 8th November 2005 she indicates that she was depositing money with the Plaintiff and she had a savings pass book. In addition, the credit facility dated 21st March 2005 indicates a loan agreement and other contracts.
104.The Plaintiff’s advertisements in the newspaper are titled “Loans Available” and further indicate that the Plaintiff:
105.From the brochure on page 45 of the 14th Defendant’s bundle, the Plaintiff has advertised for opening of a savings account.
106.There is also an advertisement for “Super Plus Plan” which is indicated as an investment plan with monthly earing depending on the saved amount.
107.However, there is a complaint letter from John Mwangi Mwaura wherein he indicates that he opened a savings account.
108.There is also a brochure calling upon members of the public to open “current accounts” with the Plaintiff company among other services that are indicated. However, the Plaintiff opines that the account it was operating was a current account under the Hire Purchase Act and not one under the Banking Act.
109.It is also important to note that this question was also discussed in the trial court case of Nairobi Criminal Case Number 2474 of 2005, Republic Vs Akiba Micro Finance Limited where the Plaintiff and its directors were found not to be in breach of the Banking Act in its business. This judgment still stands as no Appeal has been preferred.
110.The suit before us is a civil suit in which the Plaintiff seeks civil remedies and the suit. Bearing in mind that this Court’s standard of proof is on a balance of probability, I must address this issue independently as I exercise this court’s powers under the Constitution.
111.Was the Plaintiff accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice? There is indication of a few complaints of individuals who deposited money with the Plaintiff which monies would accrue interest that they would receive monthly payments or loans for purchase of vehicles.
112.Was the Plaintiff accepting from members of the public of money on current account and payment on and acceptance of cheques? This is true, there is evidence that among the items that were carted away during search and seizure were cheque books and receipt books.
113.Was the Plaintiff using the money held on deposit or on current account, or any part of the money, by lending, investment or in any other manner for the account and at the risk of the person so employing the money? There is evidence of advertisement to obtain loans, loan application forms, Loan Evaluation Forms.
114.This court thus partly agrees with the Plaintiff that it was operating a current account under the Hire Purchase Act as the nature of the transaction required the deposit of some monies. However, advertising to secure loans, in the form of a loan amount in an account held in the customer’s name that would be returned upon the expiry of a certain period or would be refunded in the form of the security that was deposited on top of the loan amount was not hire purchase. As far as receipt of deposits and then the Plaintiff charged interest is concerned, then the Plaintiff was also operating a current account under the Banking Act.
115.The Plaintiff did not present any Hire Purchase Agreements executed between the customers and the Plaintiff which is what it was licensed to do and ought to have been the Plaintiff’s core business.
116.From the Memorandum and Articles of Association of the Plaintiff, the company profile and the transactions it undertook, the Plaintiff was engaged in a financial business and included banking business as prescribed in the Banking Act.
117.I find on a balance of probability, the Plaintiff’s advertisements, transactions were contrary to the Hire Purchase License and the Plaintiff held out as a Finance institution operating banking services by use of the word Finance and was not licensed under the Banking Act.
118.As to whether the raid conducted on 2nd of November 2005 was legally justified.
119.A claim made whose foundation is that an illegality has been conducted against the Plaintiff/Applicant immediately call into issue the burden of proof. It follows that whoever claims that a Constitutional/ Statutory entity acted without jurisdiction or in excess of jurisdiction is within facts pleaded facts and proved before Court. As elucidated above by provisions of Evidence Act and caselaw he who alleges must prove the claim to obtain legal redress.
120.In the present case the Defendants are alleged to have unlawfully and illegally and without just cause raided the Plaintiff’s business premises and seized business equipment documents and ultimately shut the Plaintiff’s business.
121.The 1-15 Defendants received complaints from Government Agencies on complaints with regard to the Plaintiff’s conduct of business. There were complaints by the following on the Plaintiff’s operations to customers;
122.These Complaints brought into focus the Plaintiff’s conduct of business, that contrary to hire purchase business the plaintiff was taking deposits, paying interest and giving customers savings pass book.
123.Therefore, by Internal Memo from Financial Institutions Supervision CBK to Banking Fraud Investigations indicated that the Plaintiff was operating contrary to Sections 3(1) using the word finance without the Minister’s approval , Section 16 , by carrying on deposit taking business without holding a valid license Section 51 of Banking Act. The plaintiff was issuing Advertisements inviting general public to make deposits and falsely representing that they are authorized to accept deposits. The Permanent Secretary in the Ministry of Finance then, Joseph Kinyua wrote to the Governor Central Bank on 24th of October 2005 and sought investigations of Plaintiff’s business arising from complaints received.
124.The Plaintiff relied on proceedings and judgment of Nairobi Chief Magistrate’s court criminal case number 2474 of 2005 and asserted that all accused persons in the plaintiff’s management were acquitted of the charges that included the use of Finance without authority claim. The plaintiff urged that the issue of liability was thus conclusive the Plaintiff to prove damage loss and seek compensation.
125.This Court acknowledges the acquittal of Accused persons from criminal charges and the matter was on the basis of the standard of proof beyond reasonable doubt where as in civil proceedings the standard of proof is on a balance of probabilities.
126.The Court shall not comment on the judgment as there is no appeal in this Court but this Court is to determine the issues raised from the evidence adduced unless such evidence was tendered in another Court of competent jurisdiction and determined then the decision on the issue would be binding to this Court. The doctrine of res judicata applies as follows;
127.The test to determine whether a matter is res judicata was well laid in the case of DSV Silo –vs- The Owners of Sennar [1985] 2 All ER 104 and repeated in the Kenyan case of Bernard Mugo Ndegwa –v- James Nderitu Githae and 2 others [2010]eKLR. The applicant, alleging res judicata, must show that ;
128.The Plaintiff also relied on the letter by the Plaintiff dated 6/1/2005 to CBK 14th Defendant that the plaintiff wrote to Minister of Finance seeking consent to continue using the word Finance in respect of their Company and would revert in due course. By the time the search and seizure was conducted it was almost 10 months and the Plaintiff had not obtained the requisite consent.
129.The 14th Defendant released a general notice giving people who were in contravention of the Banking Act a grace period from 31st October 2005 to January 2006 to stop the use of the protected words and taking deposits from members of the public failure to which legal action would be taken. The complaints were to CBK who forwarded to BFIU the investigative arm.
130.The plaintiff complained that the search and seizure was conducted at the plaintiff’s premises a day or 2 later and he was not notified or given an opportunity to be heard. The plaintiff took the view that it was carrying out legitimate business and on 2/11/2005 without any special notice inquiry or consultation or any basic sense of decorum the Defendants invaded the Plaintiff’s premises.
131.The right to be heard was discussed in the case of Administrator, Transvaal and Others v Traub and Others 1989 (4) SA 731 (A) where the court observed that:
132.Halsbury’s Laws of England Judicial Review (Volume 61 (2010) 5th Edition) Para. 639 states as follows with respect to the right to notice and opportunity to be heard: -
133.The Notice published by 14th Defendant on 31st October 2005 was to general public and including the Plaintiff who was put on notice as early as 29/12/2004 by the 14th Defendant through a letter by Senior Manager Financial Institutions Supervision who had already written to the Plaintiff on contravention of Section 3 ( c ) of Banking Act and ended with that the Plaintiff was advised accordingly. The Plaintiff wrote to the Minister seeking consent but there was no response on the matter. The plaintiff cannot state that he was not informed of the anomaly.
134.The right to be heard and not to be condemned unheard is a cardinal rule of natural justice and is important to the legal process. However, the right must be balanced with and considered alongside the overriding public interest and cannot override that concern bequeathed to a regulator. A regulator has a duty to protect the innocent public from unregulated institutions, where intervention is in good faith then it is upheld. Herein, the Plaintiff was put on notice early on almost 10 months by the 14th defendant. The upsurge of complaints militated against engaging the Plaintiff before the search and seizure was conducted. This Court finds public interest demanded swift action and the Plaintiff had been made aware of the concerns the regulator had with its conduct of business.
135.The 14th Defendant by virtue of Section 4(2) of Central Bank Act one of its principal objects is ensure a proper functioning market based financial system. In the course of carrying out its mandate , it received complaints and since it was not supervising the Plaintiff at the time as it was licensed under Hire Purchase Act , the complaints were referred to BFIU under CID seconded to the 14th Defendant and whom the 14th Facilitated to carry out investigations including the search and seizure of 2/11/2005.
136.It was argued by the Plaintiff that the 14th Defendant and 1- 13th & 15th Defendants were under the 14th Defendant’s umbrella. The organogram at Pg 10 of 14th Defendant’s bundle of documents shows BFIU was under CID but affiliated to 14th Defendant for investigations.DW3 an officer under BFIU vide his statement deposed that as at 2005, BFIU was under Director CID who reported to Commissioner of Police vide Sections 14 (1) & 14 (A) of Police Act repealed.
137.In Tom Odhiambo SC vs Director of Public Prosecutions [2020] eKLR where the Court considered whether the investigations carried out by the Respondents were carried out in accordance with the law and due process and stated;
138.In this case, the letters of complaints laid a basis for investigations to be carried out by Law Enforcement Agency BFIU. The 14th and 15th Defendant are the custodians of the banking sector in terms of helping in regulating the banking industry and have a procedure by which they can check businesses in the event of any suspicion.
139.A perusal of the Banking Act under section 3 is a proviso that states;
140.Section 4 (1) of this Act provides that licenses are to be granted by Central Bank upon successful consideration of the Application by an institution intending to transact banking business, financial business or the business of a mortgage finance company in Kenya
141.The burden of proving that the search and seizure was justified is on the Defendants. The 14th Defendant took part in the raid by sending DW1 and another of its officers to accompany the BFIU who had specific mandate to conduct investigations but had comply with the law and due process and in this case since the search and seizure ought to have complied with Section 76(1) of Constitution of Kenya (repealed) and Section 118 of Criminal Procedure Code as was held in the case of Standard Newspapers Limited & Anor vs Attorney General & 4 others [2013]eKLR where the Court LJ Mumbi Ngugi (as she then was) considered;
142.Section 19 of Police Act (Repealed), which spells out the discharge of Police functions conducted lawfully by applying for summons warrant, search warrants or such other legal process to be issued against the other persons before Courts of Law.
143.Section 20 of Police Act (Repealed) which spells out instances where the Police may pursue investigations without a warrant where the Officer has reasonable grounds to believe something necessary for the purposes of such investigation is likely to be found in any place and that the delay occasioned by obtaining a search warrant under Section 118 will in his opinion substantially prejudice such investigation, the Officer shall record in writing the grounds for such belief, produce certificate of appointment and items seized shall be placed before a Court of Law and dealt with according to the law.
144.In this case, there were complaints on the Plaintiff’s conduct of business that necessitated investigations that were conducted by BFIU personnel accompanied by CBK Officers and whatever was taken was recorded in Inventories that were duly signed by parties and the Officers was subjected of Criminal proceedings.
145.The procedure for inspection of institutions is provided under Section 32 (2) of the Banking Act. The Banking Act is an Act of Parliament to amend and consolidate the Law regulating the business of banking in Kenya and for connected purposes and the Central bank of Kenya is the Regulator with supervisory role in the Banking Sector. The inspection envisaged in this Section is with regard to banking institutions and the Plaintiff was not one of them at the time, it was registered under Hire Purchase Act.
146.The 1st to 13th and 15th Defendants contend that the alleged crime committed was a cognizable offence that did not require a warrant. Searches such as this one are provided for under Section 180 of the Evidence Act and Section 118 and 121 Criminal Procedure Code.
147.Section 180 of the Evidence Act provides for the initial procedure to facilitate investigation into a bank account and reads as follows:
148.Section 118 of the Criminal Procedure Code provides:
149.Section 121 (1) of the Criminal Procedure Code provides that;
150.In Criminal Application No. 9 of 2003 Erastus Kibiti Stephen vs. Euro Bank Ltd. and the Commissioner of Police, the court observed that:
151.The Court of Appeal in the case of Samuel Watatua & Another v Republic, Court of Appeal, Nairobi, Criminal Appeal No. 2 of 2013 (unreported), stated that;-
152.The 1st to 13th and 15th Defendants have produced warrants to investigate account issued on 8th November 2005 in Chief Magistrate case number 681,680,679,677,676, 675,674, all of 2005 to Inspector William Nyakundi. However, we note that these warrants were issued five (5) days after the raid was conducted and related to investing the Plaintiff’s bank Accounts. Section 20 of the Police Act now repealed was applicable in 2005 and allowed for instances of search and seizure without a warrant subject to conditions.
153.As to the question of whether the Defendant should be ordered to return the Plaintiff’s items particularized files, computers and computer accessories.
154.Section 121 (1) of the Criminal Procedure Code provides that:
155.Section 121(3) further directs that:
156.From the record, the Chief Magistrate court in Criminal Case number 2474 of 2005 issued as part of its final directions an order to the effect that the seized items should be returned to the Plaintiff and the said order has never been complied with.
157.I also notice from the record that both parties had come to a consensus on the return of the seized goods to the parties.
158.During the hearing of the notice of motion application dated 11th of May 2012 at the Court of Appeal, Mr. Simani learned counsel indicated that his client had partly complied with the order by returning most of the confiscated items. Further, vide letter dated 14th May 2012 informs the 15th Respondent that it is not in possession of the confiscated items and asks the 15th Respondent to comply with the order.
159.A document dated 4th of June 2012 with a stamp of the 15th Defendant indicates that the following items were collected by Mr. Gideon Mwiti and it is signed by CI Mwahiko, IP Lekariap, CPL Wakp, Mr. Mwiti, Mr. Mwangagi and Mr. Mulwa. The items include;
160.It has been over 15 years since this order was issued. One wonders why the same has not been fully complied with.
161.Court orders are supposed to be fully complied with. I therefore direct that the Defendants fully comply with the order of the Court within 21 days from this judgment failure to which the Plaintiff may pursue legal redress.
162.As to whether a mandatory injunction should be issued against the 1st, 2nd and 14th Defendants to return and restitute to the Plaintiff the items seized and removed during the raid, the same is also granted.
163.As regards whether the freeze/embargo placed upon the Plaintiff’s bank accounts by the 14th Defendant , this Court takes the view that during the hearing of the case, the Court obtained constructive knowledge from the warrants obtained from Court to investigate the Plaintiff’s Accounts in various banks there are funds that belong to the Company and 3rd parties depositors. These funds are commingled and would require tracing of funds for the Plaintiff released to the Plaintiff and those of depositors’ innocent 3rd Parties. Of importance the evidence on record confirms funds in the following banks;
164.There is also List of Depositors pg 5-11 of depositors and amounts of deposits. The stated accounts have funds of 3rd Parties who have not been notified and/or heard and it would be a violation of 3rd Parties’ rights without their knowledge approval consent that all funds in all accounts in all banks are released to the Plaintiff Company without reference to depositors who have waited over the years. Therefore, at this stage this court in the absence of hearing the 3rd Parties depositors cannot release and/or freeze these accounts and release funds. The parties shall institute proceedings as arising out of this matter for determination of ownership of funds within the Commercial & Tax Division and may consider the same suit to avoid limitation of actions may not be successfully invoked. At this stage for reasons advanced the prayer is not granted.
165.It is trite law that special damages must not only be pleaded but must also be strictly proved. The Court of Appeal in Capital Fish Limited Vs The Kenya Power and Lighting company Limited (2016) eKLR opined while relying on the case of Provincial Insurance Company East Africa Limited vs Mordekai Mwanga Nandwa, KSM CACA 179 of 1995 (ur)that;
166.Furthermore, In the case of David Bagine v Martin Bundi [1997] eKLR, the Court of Appeal, referred to the judgment by Lord Goddard CJ in Bonhan Carter v Hyde Park Hotel Limited [1948] 64 TLR 177), and again observed that:
167.PW2 stated that the company had a client base of over 6000 customers and over 300 employees and in the course of the raid the Defendants carried away the customers records and the companies tools of trade thus paralyzing operations.
168.The Plaintiff also filed strategic plan for the period from 2005 to 2013. The Plaintiff produced cash certificate as exhibit 8 to prove loss of cash
169.The Plaintiff abandoned the initial report by Murungu in his submissions, one that all the defendants challenge and relied on a forensic audit report on claims based on losses incurred between 2nd November 2005 and 2nd November 2013 hereinafter referred to as the “Massawa Report” and pegs the loss at Kshs.2,847,388,652 broken down as follows;
170.I note that the total in the report is not the same as that claimed in the Plaint however the Plaintiff has reiterated even in his submissions that he is only claiming Kshs 930,000,000.
171.The 14th Defendant produced the PKF report disputing the claimed amount on the basis that the sum of Kshs 1,536,335,537.00 was exorbitant, inappropriate and unsupported as the projections and assumptions were not backed by detailed strategies and a financial plan. That there was evidence of cash flow challenges as the Plaintiff issued bounced cheques as well as the income tax declaration of the plaintiff and accounts from 2004 that confirm that the Plaintiff was declaring losses.
172.The Plaintiff operated for slightly over 20 months from February 2004 to November 2005. They filed a strategic report on 25th October 2013 detailing all their plans. Further, that they filed a loan agreement with Global Credit Limited for a sum of Kshs. 125,000,000/= as a credit facility to enhance its Hire purchase business. They also provided staff contracts as exhibit 9.
173.The Plaintiff alleged that he had justified the figures claimed in its bill of quantities. Further that he had proven its case and made reference to the Massawa Report that quoted the losses incurred at 2.7Billion.
174.As regards Law Suits and Litigation costs, the Plaintiff will be entitled to party and party costs in the event that he is awarded costs. Nonetheless, the Plaintiff has only attached invoices and not receipts to prove payment.
175.From the above outline, the Plaintiff has not proved special damages as required, the figures are different from the pleadings, the forensic report is not based on actual audit. The Plaintiff would have availed certified audited accounts of the previous year to inform the special damages sought if the Court found the search & seizure or called raid were illegal.
DispositionDELIVERED SIGNED & DATED IN OPEN COURT ON 11TH MARCH 2022 (VIRTUAL CONFERENCE)M.W. MUIGAIJUDGE