Relief for SBM Bank as court suspends Sh1bn payout to rival
An SBM Bank on Mama Ngina Street in Nairobi.
A Sh1 billion investment dispute between two Mauritius-based financial lenders, SBM Bank (Kenya) and AfrAsia Bank, over liabilities of the collapsed Chase Bank has escalated to the Court of Appeal amid questions on the whereabouts of the money.
SBM Bank (Kenya) wants the Appellate court to set aside the decision of the High Court to order it to pay AfrAsia Bank US Dollars 7.5 million (Sh996 million).
The money had been deposited by AfrAsia in the collapsed Chase Bank in March 2016. Chase Bank, which collapsed the following month, was later acquired by SBM Bank.
In documents filed at the Court of Appeal Nairobi, SBM says the amount of money being claimed by AfriAsia was not part of the assets or liabilities transferred to it by Chase Bank in August 2018. Accordingly, SBM says the amount was not assumed by it when it took over the fallen lender.
Pending the determination of the appeal, the appellate judges have suspended the payout saying SBM Bank has an arguable case against the High Court’s order.
A three-judge bench composed of Justices Daniel Musinga, Hellen Omondi, and Imana Laibuta also cast doubt on the liquidity and ability of AfraAsia Bank to refund the decretal amount, if paid, and the SBM’s appeal succeeds.
SBM told judges that recovery of such a colossal amount would occasion considerable difficulty because AfrAsia is a foreign bank.
The court also heard that AfrAsia’s financial position has adversely been affected by the amount deposited to Chase Bank, which has in turn affected its operations.
The court ordered that there be a stay of execution of the judgment and decree of the High Court dated July 21, 2022, pending a hearing and determination of SBM’s appeal.
According to the judges, the grounds of appeal raised by SBM are neither idle nor frivolous.
AfrAsia deposited the amount in the collapsed Chase Bank in March 2016 at an interest rate of 2.35 percent per annum for one month only, that is; maturing and payable on April 18, 2016.
However, on April 7, 2016, Chase Bank was placed under receivership by the Central Bank of Kenya and thus, temporarily ceased trading for 20 days until April 27 when it reopened for business under the management of Kenya Commercial Bank.
According to court papers, SBM Bank (Kenya) acquired the assets and liabilities of Chase Bank, and the acquisition and transfer took effect in August 2018.
AfrAsia sued to claim the $7.5 million together with interest from SBM Bank on the basis that SBM did not publish the mandatory Notice, under Section 3 of the Transfer of Business Act.
Justice Wilfrida Okwany ruled that SBM was culpable for all liabilities of Chase Bank including the monies deposited by Afrasia Bank.
The judge, in a judgment delivered on July 21, 2022, said the Transfer of Business Act was applicable in the deal and since SBM did not publish the mandatory notice under the law, it is liable for all Chase Bank dues.
She ruled that the depositors were entitled to be made aware of the transfer of assets and liabilities under the applicable laws
The judge further held that the applicability of the law was to protect the general public by preventing fraudulent transfers of business.
She stated that the fact that AfrAsia deposited the money at Chase Bank was uncontested and quite straightforward.
It was also uncontested that Chase Bank was subsequently placed under receivership after which its assets and liabilities were acquired by SBM upon sale by the Central Bank of Kenya through its appointed Receiver the Kenya Deposit Insurance Corporation.
“Needless to repeat, the SBM Bank did not publish the mandatory Notice under the Transfer of Business Act. I, therefore, find that SBM is liable for all the liabilities of Chase Bank Kenya Limited including the AfrAsia’s claim,” said Justice Okwany.
