Last week, the High Court in Kisumu ruled that an elaborate property transaction involving Victoria Commercial Bank CEO Yogesh Pattni, DTB Bank Kenya, a lawyer named Mohammed Madhani and at least three companies, was “misrepresentation and illegality.”
- •In 2017, Yogesh and his wife Azmina Pattni, backed by Victoria Commercial Bank (VCB), agreed to buy and develop prime Kisumu plots owned by Intcon Africa Ltd., a firm already in debt to Diamond Trust Bank (DTB), at a total cost of KSh 128 million.
- •The Pattnis paid KSh85 million in two tranches, KSh 30 million in June 2017 and KSh 55 million in May 2018, and also issued guarantees of KSh43 million through VCB to cover the balance.
- •Yogesh, Azmina and VCB then sued Mohammed Madhani’s law firm, DTB Bank Kenya and its Group CEO Nasim Devji, and three companies: Intcon Africa, Flynn Ltd, and Swan Carriers Limited, after discovering the title deeds to the land were not clean.
Justice Alfred Mabeya has now ordered the refund of the KSh85 million to the Pattnis, plus commercial interest backdated to 2017, describing the deal as “a calculated move to circumvent the law and extend to the plaintiffs the short end of the stick.”
The deal, which was not backed by a sale agreement, came crashing down when the buyers discovered the Kisumu property had a restriction from a previous transaction and an encroachment, and a second property in Kajiado had a criminal angle to it.
The lawyer, Mohammed Madhani, had acted as the middleman, structuring the deal so that the properties were transferred to a shell special-purpose vehicle (SPV) called Flynn Ltd, through which the Pattnis would own the land. The structure was meant to avoid paying stamp duty, a mandatory tax on property transfers.
“It was designed to appear as a corporate reorganization,” Justice Mabeya observed, “but in substance, it was a sale and purchase transaction meant to evade taxes.”
Each party pointed fingers to a different party: the lawyer blamed the bank, the bank blamed the developers, and the developers claimed the buyers knew what they were getting into.
But Justice Mabeya cut through the noise, ruling that the entire arrangement violated Section 3(3) of the Law of Contract Act, which requires all property transactions to be in writing, and condemned the effort to disguise a sale as a company transfer to dodge taxes.
“The court cannot be made an instrument for enforcing an illegality,” he wrote in his judgement, while also dismissing the developer’s counterclaim as time-barred.
The case, Yogesh & Azmina Pattni v Mohammed Madhani & Others (E166 of 2019), has dragged through the High Court for nearly six years.
