Commercial banks will be forced to
pursue principal borrowers, who have defaulted on loans, before moving
to recover any debts from the sale of guarantors’ properties if
Parliament passes proposed amendments to the banking law.
The
National Assembly’s Finance, Planning and Trade committee is seeking
the change of law through proposed amendments to the Law of Contract
Act, to provide that in the event the principal borrower defaults, the
creditor must first realise the assets of the principal borrower before
proceeding to attach the assets of the guarantor.
“There
is currently no provision that guides the hierarchy to be followed
whenever the debtor wants to realise his money from the borrower and the
guarantor,” the committee says in a proposal it submitted to the House
last week.
“This has left the banks to go for the most
liquid security regardless of whether it is from the principal borrower
or his guarantor,” Benjamin Lang’at, chairman of the committee, says in
the proposed Bill.
The MPs want the National
Assembly to amend Section 3 of the Law of Contract Act to provide that
in the event of default, a creditor shall first realise the property of
the principal borrower before proceeding to the guarantor.
The
Bill has been developed pursuant a public petition by President Uhuru
Kenyatta’s cousin Ngengi Muigai, who had asked Parliament to establish
why Kenya Commercial Bank (KCB)
sold the 443 acre
Muiri Coffee Estate Limited for Sh760 million without the consent of the
owner and before realising the securities offered by Benjoh Amalgamated
Limited in parcel numbers LR 12411/1 (Kiambu) and 12411/2 (Nyandarua).
Mr Muigai and his brother, Captain (Rtd) Kung’u Muigai,
are the directors of Muiru Coffee Estate and Benjoh Amalgamated
Limited.
Through Gatanga MP Humphrey Kimani, the
owners of Muiri Coffee Estate Limited had asked Parliament to recommend
that necessary action be taken against KCB if found culpable over the
sale and transfer of Muiri Coffee Estate without following the due
process.
The MPs, however, failed to make any orders
against KCB after they concluded that “due process was followed in the
sale of the said property.”
The committee found that
the 25- year- old dispute is between private citizens that have been
heard and determined by courts of competent jurisdiction.
“In
light of this, Parliament cannot make a determination on the aforesaid
matters as they are matters of law and fact nor vary any judgment made,”
the committee says in the report.
The MPs said that
in view of the independence of the Judiciary, which is guaranteed by
Article 160 (1) of the Constitution of Kenya, Parliament is prohibited
from scrutinising or amending the content of any decision made by a
court of law.
“Judges are independent in their
decisions, and subject only to the law. Consequently, judicial decisions
can only be quashed or modified by other competent courts, and only in
accordance with the due processes laid down by law,” the MPs said.
The
committee noted that though not obligated, KCB should have auctioned
the securities belonging to the principal borrower before proceeding to
auction the guarantor’s property. It said KCB’s action contravened the
rules of natural justice.
Mr Muigai had alleged that
KCB irregularly transferred Muiri Coffee Estate Limited after it
defaulted in repaying a Sh11.5 million loan it took in 1988 from the
bank.
KCB granted Benjoh Amalgamated Limited an
overdraft of Sh1, 800,000 and a loan of Sh16,875, 000, through a letter
dated April 12, 1989. Muiri Coffee Estate guaranteed the loan.
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