Guardian Bank faces auction over Sh2.5 bn share buyout row

Guardian Bank has been served with an auction notice after former shareholders of the defunct Guilders Bank obtained approval to attach the lender's assets in a bid to recover a Sh2.5 billion payouts they were awarded by court last month.

Trophy Auctioneers yesterday served Guardian Bank with a seven-day notice to pay the amount to four shareholders; Shivali Investments Limited, Naval Holdings Limited, Ketty Investments Limited and Saaf Holdings Limited or have its assets put on sale.

According to court documents, the warrant of attachment was issued on March 16, 2023 and the auctioneer was instructed to attach the movable assets after 15 days.

The auctioneer is required to return the warrant on April 16, 2023 with an endorsement certifying the manner it was executed or reasons why it has not been executed.

The warrants for attachment came as enforcement of a judgment issued by High Court Judge Alfred Mabeya on February 17, 2023 directing Guardian Bank to pay the shareholders of four companies who sold their 200,000 shares when the financial lender took over Guilders in 1999.

12 per cent interest

According to the judgment, the amount will be paid with a 12 per cent interest backdated to 2001. The net worth of the bank is Sh196 million as of December 31, 1998.

The judgment debtors, whose movable assets are targeted by the auctioneer, are listed as Maganlal Motichand Chandaria, Nisha Dinesh Chandaria (sued as the personal representative of the estate of the late Dinesh Maganlal Chandaria), Mahesh Maganlal Chandaria, Conifers Trading Limited, Chandaria Holding Limited, Dima Limited, Goldera Limited, Kevis Investments Limited and Guardian Bank Limited. The court's decree is dated March 1, 2023.

Guilders Bank and Guardian Bank merged after approval from the Finance minister through a gazette notice in 1999, but the former shareholders of Guilders sued claiming the buyers never paid a shilling even after the takeover.

The intended attachment comes pending an intended appeal by one of the Guardian Bank’s administrators Amit Chandaria, who filed a notice to appeal against Justice Mabeya's judgement.

In the judgment, Justice Mabeya also directed Guardian Bank to release the securities belonging to Guilders.

“I find that the plaintiffs have proved their case to the required standards against the defendants, jointly and severally for Sh196 million being the consideration price for the sale of 200,000 shares in Guilders International Bank as per the memorandum of understanding,” he said.

Rajendra Sanghani, a director of Guilders sued Guardian through Shivali Investments, Naval Holdings, Ketty Investments, and Saaf Holdings, as CEO of the four companies, which he claimed were instrumental in the sale.

The two institutions entered a deal where Guardian took over the assets and business of Guilders including its premises.

But Guardian breached the deal and failed to make the payments as agreed and refused to table full accounts and disclose receipts and proceeds from the disposal of securities and debts recovered on their behalf, Mr Shanghani testified.

Mr Vimlesh Kumar Shuklah, a former employee at Guardian Bank and the Chandaria Group of Companies, testified that he participated in the drafting of the MOU and that the defendants were allowed to carry out due diligence and examine the books.

It was contended that the plaintiffs entered into a Memorandum of Understanding (MOU) with the nine defendants, subject to a contract, for the sale of 200,000 ordinary shares held by them in Guilders International Bank for Sh196 million.

The MOU became a binding and completed contract between the parties, which in any event resulted in an agreement incorporating all the essentials.

The court heard that the plaintiffs fulfilled their contractual obligation and transferred their shares in the bank but the defendants breached the contract between them.

Sh332 million

It was further said that in consideration of the takeover of Guilders by the shareholders of Guardian, the shareholders of Guilders agreed to allow Guardian to collect all dues from the debtors of Guilders.

However, the plaintiffs said they were unaware of the amounts collected by Guardian on their behalf.

That the defendants and Guardian disposed of some of the securities taken by them and did not account for the said securities amounting to Sh332 million.

The plaintiffs said that it was only fair that the defendants account for and restore the said amounts to the plaintiffs with interest as agreed.

In defence, the defendants denied that there was any sum due to any of the plaintiffs.

It was contended that the plaintiffs’ claim for breach of contract was filed outside the six-year period and was therefore statute barred.

The defendants filed a counterclaim seeking to be paid Sh799 million.

They asserted that they discovered that the plaintiffs had misrepresented facts in the agreement which the plaintiffs relied upon to sign the same.

They alleged that the plaintiffs misrepresented the true value of Guilders as at December 31, 1998 and the true value of the total loan portfolio that was recoverable and performing.

Narayanamurthy Sabesan, the Chief Executive Officer of Guardian, testified that the plaintiffs warranted the loan portfolio to the extent of Sh678 million as recoverable and performing.

He admitted that no money had been paid to the plaintiffs in accordance with the MOU.

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