Kenyan commercial banks have opposed a petition that seeks to compel them to obtain mandatory court orders before selling off any property charged as security for loans taken in the event of a default, in a case that promises a major relief for consumers should it succeed.
The Kenya Bankers Association (KBA), the industry lobby, argued before a bench of three High Court judges in Mombasa that the relationship between a lender and borrower is contractual in which each party understands its responsibilities and the consequences for default.
“There is no obligation on the borrower to take a facility (loan) and also the lender to give it,” Senior Counsel John Ohaga, acting for KBA, told Justices Olga Sewe, Gregory Mutai, and Kizito Magare.
In his petition, Andrew Kandie argued that it would be unjust and unfair to allow borrowers to suffer in the hands of lenders who arbitrarily sell their properties even when the amount due is questionable and has not been dealt with by the court.
Through his lawyer Gikandi Ngibuini, Mr Kandie argued that the only process that would pass the constitutional test to have his property alienated is if the bank has a decree.
He wants an order declaring null and void all provisions that grant lenders the statutory power of sale without validation of a court of law.
However, according to the KBA, once a party enters into the contractual relationship, statutes are in place to put some safeguards among them a requirement that the borrower must take independent legal advice.
“From the onset, the borrower knows the consequences of default, even on default, statutes give borrowers an opportunity to redeem themselves,” said Mr Ohaga.
He further argued that there is a responsibility for the borrower to repay the money and that requiring the money to be paid is not discriminatory. KBA further argued that not every borrower who is in default would want his issue to be settled in court.
“To compel parties to come to court will be interfering with the freedom of choice,” said Mr Ohaga.
On his part, Mr Ngibuini further argued that the law provides that the right to ownership of property is fundamental and cannot be taken away without invocation of the law.
He told the court to make it clear that when disputes arise between a borrower and a lender they will be heard by court.
“The power that gives banks the authority to decide on the amount of money to be paid makes them (banks) judges in their own court, they deny the borrower the right to be heard,” argued Mr Ngibuini.
The petitioner has sued the Attorney-General, Cooperative Bank of Kenya, and KBA.
“By allowing banking institutions to determine the quantum of the law (despite the objection of the borrower) and also the value of the subject matter (without the participation of the borrower), Articles 48, 49 and 50 (of the Constitution) are contravened as banks act as if they are a super court,” the petition states.
Mr Kandie also wants a declaration that any lender will be obliged by law to file a case in court to obtain a decree before the commencement of the process of sale of security, whether movable or immovable.
The petitioner argues that disputes relating to legal actions are to be resolved by courts and other tribunals established by law and that they include those affecting banks and their customers which were never meant to be resolved in banking halls.
“The petition is intended to give the constitutional aspect of the supreme law so that banks stop pretending to be courts of law yet none of them (banks) have ever been appointed either as court of law or judicial tribunal through any known instrument in law,” the petitioner argues.
Cooperative Bank of Kenya, through lawyer Billy Kongere, also opposed the petition, saying the reliefs sought ought not to be granted on the basis of generalities and suggestions.
Mr Kongere told the court that the petitioner does not say in what manner the violations have been done and that access to justice for the borrower is donated by statute, the Land Act.
Judgment in the case is to be delivered on May 2.
By PHILIP MUYANGA