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Kenya: Developer Fights Bank Over Sh246m Loan Issued Under Islamic Banking Laws

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4 years ago

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First Community Bank has been stopped from auctioning 19 apartments owned by one of its clients, who has accused the lender of violating Islamic banking laws by allegedly recovering more profit from a Sh246 million business venture at the heart of the dispute.

High Court Judge Ngenye Macharia stopped the sale of the apartments belonging to Isaac’s Investments Company Ltd (IICL) until the two parties resolve their dispute through arbitration.

The loan agreement called for arbitration in the event of a dispute.

IICL sued First Community Bank in December 2020 claiming the lender was looking to get more than it deserved from the financing deal.

The developer held that First Community Bank had already recovered Sh380 million.

Under the loan agreement, the lender agreed to take home 80 per cent of any profit or loss from the sale of the apartments in Nairobi’s Dagoretti area.

Under Musharakah, the parties agree on a percentage of profit or loss that each party will bear.

If the business collapses, each party endures the percentage of loss assigned at the time of signing the loan contract.

First Community Bank did not specify how much it is claiming from IICL in the court papers.

The lender, in its response, says IICL failed to inform the court that the two parties had tussled in court in the past over a planned auctioning of the same property.

IICL sued the lender in 2018 to stop a planned auction. One year later, the two parties reached an out-of-court deal that was to stop further attempts to auction the property.

First Community Bank adds that when it first tried to auction the apartments in 2018, IICL promised to use money from another loan to pay a Sh120 million instalment to offset the debt.

The Sh120 million was part of a separate Sh500 million loan IICL planned to use to build 560 apartments in Nairobi.

The lender argued that the fresh suit by IICL is bad in law because it involves a dispute that was determined in a past court case.

Justice Macharia allowed the plea by lawyer Benson Nzakyo that the parties agree on an arbitrator “knowledgeable and competent with Sharia Law in view of the unique nature of the Finance Agreement signed between both parties within 60 days”.

The judge also held that the case could not be deemed to be bad in law because the previous case filed by IICL was withdrawn on account of an out-of-court deal.