Imperial Bank depositors protest outside the lender's headquarters on Westlands Road, Nairobi. PHOTO | FILE
The High Court
has stopped Capital Markets Authority (CMA) from taking enforcement
action against directors of collapsed Imperial Bank over a Sh2 billion
bond the collapsed lender issued prior to its failure.
Justice
Louis Onguto yesterday ruled that the involvement of some CMA officers
in allowing the fraudulent bond issue to pass may make it difficult for
the regulator to remain unbiased in the hearings.
The
CMA had issued notice to show cause letters to Imperial Bank’s directors
and was set to start hearings for alleged negligence in allowing the
collapsed lender to publish an information memorandum that falsely
painted a rosy picture of financial stability.
Trading
of the bond on the Nairobi Securities Exchange was cancelled following
the unravelling of a 13-year scam allegedly orchestrated by the late
Imperial Bank managing director Abdulmalek Janmohammed that exposed
depositors to a Sh44.9 billion loss.
The CMA claims
that Imperial Bank directors should have detected that the lender was on
the verge of collapse and stopped the issuance of the information
memorandum.
Justice
Onguto, however, held that evidence presented before him shows that the
CMA is unlikely to be impartial in the hearings, as the regulator has
steered clear of its own officers who scrutinised Imperial Bank’s
planned bond issue.
“In the instant case, the CMA as
the regulator was involved in the bond transaction. It is the body that
approved the issuance of the bond. It is now conducting enforcement
procedures against the petitioners. In my view, a well informed and fair
minded observer would conclude that there exists a possibility of bias
in the circumstances of the instant case.”
“There shall
issue an order to remove into this court and quash the notice to show
cause letters issued by the CMA to the petitioners on May 6, 2016,” he
ruled.
Justice Onguto added that the CMA should have
allowed Imperial Bank directors an opportunity to give their side of the
story before issuing them with a notice to show cause.
The
ruling in effect bars the CMA from carrying out any investigations or
taking any enforcement action against the besieged Imperial Bank
directors.
He, however, said the regulator is free to delegate the duties to the Capital Markets Tribunal.
“The CMA may file a reference to the Capital Markets Tribunal on any matter relating to the capital markets,” the judge added.
“The CMA may file a reference to the Capital Markets Tribunal on any matter relating to the capital markets,” the judge added.
The
collapsed Imperial Bank’s directors are Alnashir Popat, Omurembe Iyadi,
Jinit Shah, Anwar Hajee, Hanit Somji, Vishnu Dhutia, Eric Bengi,
Christopher Diaz, and Mukesh Patel.
The late
Janmohammed and former chief finance officer James Kaburu handled all
the meetings and correspondence between members of the Transaction
Advisory Team (comprising Dyer & Blair, Hamilton Harrison &
Mathews and PKF Kenya) with the relevant authorities being Central Bank
of Kenya, CMA, and Nairobi Securities Exchange, according to the
Imperial Bank directors.
They argued that the CMA had
already found them guilty and was only conducting the enforcement
hearings to sanitise its pre-determined position.
Imperial
Bank directors have heaped blame on deceased managing director
Janmohammed and Mr Kaburu, arguing that they represented the collapsed
lender in preparation of the information memorandum.
Justice
Onguto, however, dismissed an argument by the directors that the CMA
had denied them documents crucial to defending the notices to show
cause.
bwasuna@ke.nationmedia.com
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