The Court of Appeal has set aside an undertaking directing Imperial Bank of Kenya (IBL) to pay Mombasa tycoons Ashok Doshi and Amit A. Doshi about Sh1 billion, as they seek to recover deposits from the collapsed lender.
A three-judge bench faulted the High Court judge for ruling that a consent recorded in July 2016 bound IBL and Central Bank of Kenya (CBK) to pay the depositors if they succeeded in their case.
The appellate court said that from the moment IBL was placed under receivership, a moratorium on all payments to, or preferential treatment of, depositors and other creditors outside the framework of the law took effect and remained in force.
‘It is also not lost on us that section 56(3) of the Act is emphatic that no attachment, garnishment, execution or other method of enforcement of a judgment or order against an institution placed under liquidation, or its assets, may take place or continue,’ the court stated.
The court emphasized that sections 33 and 57 of the Act clearly define the framework for payment of claims by the liquidation agent. The provisions do not classify debts owed to depositors who have filed claims in court, or those with secured judgments, as eligible for priority over other creditors.
‘Those principles apply in equal measure to the winding up and liquidation of banking institutions as was the case here. In our considered view, the learned Judge erred in granting the impugned orders with the aim of breathing new life into the terms of the consent agreement entered into when the 2nd appellant (IBL) was still in receivership,’ the court said.
The court added that any undertaking by IBL after being placed under liquidation would violate section 56(3) of the Act.
In November 2022, the High Court had allowed the Doshi brothers’ application that IBL should not be placed under liquidation until CBK and IBL deposited $7,277,314 in a joint interest-earning account in the names of their advocates as security.
Alternatively, the court ruled that CBK should undertake to pay the depositors if they won the case.
Mr Andrew Rutto, a liquidation agent at the Kenya Deposit Insurance Corporation (KDIC), stated in an affidavit that the High Court’s orders amounted to granting preferential treatment to Mr Doshi. He said depositors are required by law to lodge and prove their claims with the liquidator, as provided under section 33 of the KDIC Act.
Mr Doshi opposed this, arguing that CBK was avoiding giving the undertaking to allow IBL’s liquidation to proceed, leaving only a shell incapable of paying them if they prevailed.
‘In our considered view, the learned Judge erred in granting leave to the 1st and 2nd (Doshi) applicants to have subsequent applications and the main suit heard when Imperial Bank was still in liquidation,’ the appellate court said.