Appeal Court rejects tycoon's bid for priority refund in Imperial Bank case

The Court of Appeal in Mombasa has said that tycoon Ashok Doshi and his wife Amit Doshi are not at the top of the priority list of those to be paid despite Imperial Bank sinking with their more than Sh1 billion.

The couple had deposited Sh1,182,113,359 in Imperial Bank which was due to mature in December 2015 when the bank went into receivership and eventually liquidated, compelling Doshi to sue Central Bank of Kenya (CBK) and Imperial Bank.

Imperial Bank was liquidated because of its weak financial position following a report from Kenya Deposit Insurance Corporation (KDIC) dated December 7, 2021.

Justices Francis Tuiyott, Kibaya Laibuta and Ngenye Macharia cited sections 33 and 57 of the Liquidation Act, which states, ‘those who have filed claims in court and obtained judgment are not among those prioritised by the liquidation agent.’

“To our mind, sections 33 and 57 of the Act clearly set out the framework for payment of claims by the liquidation agent. Those provisions do not classify debts due to depositors who have filed claims against the institution in court, or depositors who have secured a judgment, as being among the debts that may be given priority to all other debts,” said Justice Tuiyott.

The judges said that from the moment Imperial Bank was placed in receivership, the moratorium on all payments to or preferential treatment of depositors and other creditors other than in accordance with the Act, took effect and remained in force.

The judges further stated that section 56(3) of the Act is emphatic that no attachment, garnishment, execution or other method of enforcement of a judgment or order against an institution placed under liquidation, or its assets, may take place or continue.

The appellate judges noted that according to receivership powers under section 50(2) of the act, the payment by the receiver to its depositors and other creditors and the declaration of the moratorium shall apply equally and without discrimination to all classes of creditors.

Further the Act stipulates that the Corporation may offset the deposits or other liabilities owed by the institution to any depositor or other creditor against any loans or other debts owed by that depositor or creditor to the institution.

In their judgement, the judges further set aside Justice Njoki Mwangi’s orders that allowed Doshi’s subsequent applications and the main suit heard when Imperial Bank was still in liquidation.

In his suit, Doshi accused CBK of abdicating and breaching their duty for over 13 years thereby permitting a sustained and large-scale fraud by Imperial Bank senior management, which only came to light following the death of the Managing Director and subsequent disclosures by a newly constituted board.

Doshi’s lawyer Willis Oluga argued that,

CBK and Imperial Bank are not acting in good faith or in the interest of justice and the public when they resist the attempt by the two depositors to recover their money.

Oluga also challenged the legality of CBK’s decision to place Imperial Bank under receivership, yet the bank was not insolvent at the material time.

He said CBK acted unlawfully, recklessly and in excess of its statutory mandate, without the requisite approvals and contrary to the statutory framework governing statutory management and receivership.

Oluga said the receivership process was opaque and conflicted and CBK unlawfully dealt with depositors’ funds through third-party banks without their consent.

He said that CBK concealed material information, including the forensic report by FTI Consulting LLP as well as the findings of its own investigations, while selectively shielding its own officials from accountability.

CBK said that Doshi and his wife, like all other depositors, are entitled to a refund of their deposits once the liquidation process is finalised and all assets realised.

CBK General Counsel Kennedy Abuga said the refund must conform to the provisions of the receivership Act and that there can be no preferential treatment to any depositor or creditor as sought by Doshi and his wife.

He said that Doshi admitted they were not challenging the Imperial Bank liquidation.

On December 22 2021, Justice Onyiego issued ex parte orders temporarily stopping CBK from appointing KCID as Imperial Bank’s liquidator and paying out deposits in execution and implementation of the CBK decision pending the hearing and determination of Doshi’s motion.

However, the appellate court dismissed the orders and allowed for KDIC to proceed with appointing a liquidation agent for Imperial Bank.

Abuga said that the revocation of Imperial Bank’s license and the appointment of KDIC as its liquidator were lawfully gazetted on December 8 2021 and the decision could not be suspended, reversed or reverted to receivership.

He said that the ex- parte interim orders improperly restrained CBK from exercising its statutory mandate and had the effect of halting the liquidation process and creating legal uncertainty.

He said that, once liquidation commenced, the legal regime under section 56 of the Act applied, thereby barring continuation of all proceedings, injunctive relief or enforcement actions against the institution or its assets without leave of the court.

Abuga said that Doshi and the wife had neither sought nor obtained the ex parte orders and they had not demonstrated the legal nexus between CBK and their claim.

He said that in any event, Doshi and his wife’s deposits could not take priority over the other deposits in view of the fact that section 50(2) (b) of the Act provides a moratorium on payment of deposits to be applied equally and without discrimination of any depositors.

Liquidation agent Andrew Rutto submitted that the liquidation process was a collective and statutory process intended to protect all depositors and creditors in equal measure, and that it could not be halted or restructured to secure claims by individual litigants.

He said that the consent recorded on July 15, 2016, did not confer upon Doshi and the wife any preferential rights over other subjects to the applicable statutory framework, but did not amount to a guarantee of payment outside or in priority to the liquidation process.

Rutto said the orders sought would unlawfully elevate Doshi above other depositors and creditors and disrupt the orderly liquidation process.

“All depositors’ claims were subject to a statutory moratorium and ranking provisions, and any payments could only be made by the liquidator in accordance with the law and on an equal, non- discriminatory basis. The sum claimed by Doshi and the wife formed part of the general pool of depositor liabilities and could not be ring-fenced through interlocutory court orders,” said Rutto.