The High Court has blocked a proposal by CIB Kenya to change the terms of a KSh 180 million facility given to Azofco General Merchants Ltd. – attaching a second parcel of land as security after the company defaulted.
- •The lender told the court that the firm defaulted and owed KSh 167.2 million, secured with land and a fixed deposit as collateral, by April last year.
- •However, in an attempt to sell the land the lender realized that the property was under a legitimacy tussle.
- •The bank wanted the court to grant it ‘informal charge’ over another piece of land belonging to Azofco.
In its ruling, the court said that CIB Kenya had not provided any evidence and sufficient reason as to why it was unable to sell the land charged under the defaulted loan.
“It is not discernible from the evidence presented how [CIB Kenya] came to be in possession of the title for the second property,” Justice Helene Namisi said in her ruling, “It is not clear whether the second property was offered as security for the same loan or a different loan.”
Azofco opposed the bank’s move on the grounds that an informal charge on the second piece of land would be a violation of the loan contract and would amount to a “rewrite [of] the terms of contract.” It also said that it had been servicing the loan, although the court determined that the lender had provided proof that it was in default.
The dispute goes back to a US$1.4mn loan granted to Azofco in May 2021 for the purchase of goods. The loan was secured with property in Ruai, which the lender could not sell due to unclear “challenges on the legitimacy” of the title.
The judgement determined that an informal charge on the second property would only suffice on the basis of a written contract between both parties until a debt is repaid. Under this charge, the lender can only sell the land after a court order.