Reprieve for Guardian Bank and Chandaria in lender buyout row

The Court of Appeal has handed businessman Maganlal Motichand Chandaria’s family a major reprieve after reducing a Sh2.5 billion award handed by the High Court in a long-standing row over Guilders International Bank ownership.

The family will now pay Sh750 million, which includes Sh196 million that was the principal amount for the purchase of Guilders.

Justices Daniel Musinga, Francis Tuiyott and George Odunga unanimously agreed that there was no evidence to show that Guardian Bank was obligated to pay for Guilders’ purchase.

Instead, the bench found that Chandaria’s estate and Kevis Investment Ltd were supposed to pay for the deal.

According to the three judges, Guardian was a soft target because it is a bank. “Ultimately, the appeal is partially successful. We hereby set aside the judgment of  February 17, 2023,” the bench headed by Justice Musinga ruled.

They found that High Court Judge Alfred Mabeya erred in finding that the agreement to buy Guilders was based on a memorandum of understanding, hence Guardian and Chandaria ought to pay 12 per cent interest.

The judges instead said the deal was based on a sale agreement, which was distinguishable and did not attract any interest.

“The arguments by the respondents are no doubt attractive, but crumble in the face of the express terms of the sale agreement. In recital F, it is provided that the obligors undertake to pay the purchase price on behalf of the purchaser. More decisive is clause 6, which contains provisions on payment of the consideration. Sub-clause 6.1 is unequivocal that “the obligors shall pay the total purchase price on behalf of the purchaser.”

 “It is not an obligation to be shared between them and the purchaser. Neither is it a secondary responsibility to simply guarantee payment of the purchase price; it is the primary obligation to pay. Indubitably, it cannot fall on the first appellant (Guardian) to pay as no such obligation was placed on it by the contract,” judges ruled.

They directed that Guardian should now release securities which were used to secure the deal, save for four. If it does not have the security, the court said that it should pay its value at the time they were deposited.

The appeal was filed by  Guardian, Amit Chandaria, Hetul Chandaria and  Bhavnish Chandaria (who are executors of Maganlal Motichand Chandaria) and Denish Chandaria, Mahesh Chandaria, Conifers Trading, Chandaria Holdings Ltd, Dima Ltd, Goldera Ltd and Kevis.

They sued Shivali Investments Ltd, Naval Holdings Ltd, Ketty Investments Ltd and Saaf Holdings Ltd, who are the former shareholders of Guilders. At the heart of the case was whether the Sh196 million, which was Guilders’ total value in 1999, was paid or not.

Recovery of loans

Guardian and Chandarias stated that the merger of the two banks was approved by the finance minister in 1999 through a gazette notice. They argued that Guilders shareholders did not give the true value of the bank, which made them incur expenses in recovery of loans.

They further argued that after the buyout, they discovered that several loans listed as performing were unrecoverable. The court heard that Guardian discovered that out of a recoverable and performing loan portfolio, which they were informed was Sh678.074 million, only Sh26.06 million was realised. In addition, in the process of recovering the loans, they incurred expenses of Sh7.32 million. There were also undisclosed liabilities of Sh10.62 million.

The Chandarias and Guardian argued that the sellers failed to provide warranties and tangible security worth Sh380 million, together with personal guarantees as agreed in the sale agreement. It was averred that the sellers transferred their shares in Guilders to Guardian, hence the four had no interest in the business of the former and no right to receive any money recovered from Guilders’ debtors.

Guardian said it paid the four shareholders Sh238 million after deducting liabilities and expenses incurred while recovering the loans.

In the case filed in 2005, Shivali, Naval, Ketty and SAAF Holdings said they sold 200,000 shares held at Guilders for Sh196 million.

According to them, the buyers were Maganlal, Nisha, Dinesh Maganlal, Mahesh, Guardian Bank, Conifers, Chandaria Holdings Ltd, Dima, Goldera and Kevis.

They stated that the agreement was that the payment was to be made in ten equal instalments, payable on the very last day of each successive year starting December 31, 2001.

The four companies led by Shivali argued that the two lenders further entered into another agreement dated December 31, 1999, whereby Guardian took over the assets and business of Guilders, including its premises.

Later on June 12, 2000, Guardian, the court heard, agreed to pay the sellers Sh180 million, but failed to honour the deal. Former shareholders of Guilders accused Guardian of failing to render the full accounts and disclose receipts and proceeds from the disposal of securities and debts recovered on their behalf.