Regulator faces barrage of suits over fallen banks

The Central Bank of Kenya (CBK) has faced a litany of litigation in the past nine months as the new Governor, Dr Patrick Njoroge, comes down heavily on irregular activities in banks.

The CBK has been involved in over six separate suits concerning various actions it has taken against failed banks.

Last week, Mombasa-based billionaire Ashok Doshi and his wife Amit sued the CBK, Kenya Commercial Bank (KCB) and Diamond Trust Bank (DTB), seeking to have them deposit Sh1 billion the couple held in Imperial Bank Ltd into an escrow account held by their advocates.

Mr Ashok obtained an injunction stopping KCB and DTB from making further payments to depositors of the bank that is under statutory management.

This came just a week after the bank’s seven shareholders — including Imaran Ltd, Reynolds & Company Ltd, East Africa Motors Industries Ltd, Momentum Holdings Ltd, Rex Motors Ltd, Kenblest Ltd, and Abdumal Investments — lost a bid to be enjoined in suits targeting the beneficiaries of Sh38 billion siphoned from the bank.

Last year, the banking regulator instituted two recovery suits against the family of the late Abdulmalek Janmohammed and a network of companies believed to have helped him loot depositors’ funds at Imperial Bank.

In the first application, the regulator wants a freeze on the accounts and assets of 12 companies and eight people believed to have colluded with former managing director Janmohamed and senior officials to defraud the bank.

The CBK wants the assets and bank accounts of W.E. Tilley, Primecatch, Mara Fish Packers, J Fish Kenya, Victorian Delight, Ruby Red, Value Pak Foods, From Eden, Aqualite, Marmo E Granito Mines (T), Marmo Marble (U) and Fishways Uganda frozen.

They also want transactions with the property of Zulfikar Haiderali Jessa, Nasir Haiderali Jessa, Nargis Jessa, Nadir Azizali Jessa, Firoz Jessa, Salim Jessa, Irfan Shamshadin Jessa and Nashiv Haiderali Jessa suspended.

Also, the CBK wants the High Court to freeze the accounts of 11 people, including the family of Mr Janmohamed — whose death led to revelations of massive irregularities at the bank — in a separate application.

The shareholders rushed to court seeking to be enjoined on grounds that CBK officers were party to the looting and had deliberately left two other suspects, Jade Petroleum and Arda International, off the hook.

But Judge Fred Ochieng ruled that the shareholders could not be enjoined because they had a conflict with CBK.

“If parties who were on one side of a case had competing interests, they were unlikely to work in tandem. Indeed, parties who apportion blame to each other are more likely to hinder rather than enhance the efficiency with which their case should be prosecuted,” Judge Ochieng ruled. Fidelity Bank had also filed to be enjoined in a suit to freeze W.E. Tilley (Muthaiga) and Value Pak Foods assets, saying they used the land to secure loans of up to Sh332 million.

Fidelity Bank later backed down from the case to minimise damages of associating itself with the failed bank.

The banking regulator has been building the Imperial Bank case for the past six months and the governor requested three more months to unravel the fraud.

The forensic audit had identified 700 accounts it considers being of interest that require more time to be audited. The regulator is also unravelling intricate connections between the accounts that had been used to siphon money from the bank.

Dr Njoroge had earlier this year told the National Assembly’s Finance Committee that the Imperial Bank scheme had footprints all over the banking sector, but stated that it would be difficult to track all the players in the scandal.

“This matter has shown that it is an intricate web that we have out there. You pull on one element and several other elements come along and this is why it is better to be sure where everything is.

To understand exactly much more clearly how the scheme was being done, or the schemes, this wasn’t one scheme, there were many going on,” the CBK boss said.

In a separate suit, the shareholders, like Mr Ashok, are challenging CBK’s move to pay off depositors through KCB and DTB.

They filed a case seeking to stop CBK from taking any steps towards dissolution of Imperial Bank until their revival plan had been considered.

Shareholders of the troubled bank had asked the High Court to stop the CBK and the Kenya Deposit Insurance Corporation (KDIC) from liquidating the lender or transferring its assets.

The Central Bank is also confronted by a ruling by High Court Judge Eric Ogola that directed the regulator to consider a proposal to save Dubai Bank from liquidation.

The CBK appealed the High Court decision in December but the Court of Appeal stopped it from liquidating Dubai Bank for 60 days.

The CBK placed Dubai Bank under receivership last year and appointed the Kenya Deposit Insurance Corporation (KDIC) as the receiver for 12 months, for violating banking laws and failing to maintain adequate capital, among other reasons.

The KDIC in August recommended that the bank’s problems could not be resolved using any other method but liquidation.

One of Dubai Bank’s top depositors, Richardson & David, argued that the decision to liquidate the lender was rushed and that CBK had not carried out sufficient investigations to establish whether it was possible to turn around the bank.

The regulator is fighting to have its way, given that overturning the decision would “have far-reaching and irreparable consequences on the mandate to regulate the banking industry and protect depositors, and could set a precedence for even more litigation.