DusitD2 Sh10b loan row with lender opens interest caps' Pandora's box

DusitD2 hotel staff members receive dignitaries during the reopening ceremony of the DusitD2 hotel on July 31, 2019. [AFP]

A legal showdown is brewing between I&M Bank and Synergy Industrial Credit, adding a fresh twist to a longstanding Sh10 billion dispute with 14 Riverside Complex owner Cape Holding Ltd (CPL).

The separate landmark cases now  before two courts put to the test the legality of interest that accrues from court judgments; the rights of a secured creditor if other persons or entities come into the picture to recover money or a debt; and if directors of a company are separate beings from it. 

As Synergy instituted a fresh battle against I&M before the Commercial Division of the High Court, Cape Holding, Vinau Bipinchandra and Bipinchandra Bhaichand moved to the Constitutional Division of the High Court, seeking interpretation of a landmark issue: whether court awards can exceed the initial amount in dispute or, simply, if the duplum rule applies to court awards.

Cape Holding, Bipinchandra, and Bhaichand argued that the amount demanded was eight times the amount Synergy had claimed.

At the same time, they further stated that the Sh10 billion demand was a breach of the right to equality, freedom from discrimination, and right to property.

The trio, through lawyers Paul Muite and Kioko Kilukumi, had sued Synergy and the Attorney General. They also cited Jaysukhlal Bhaichan as an interested party, arguing that Synergy had no right to go after them or Jaysukhlal, as he was not a party to the Cape Holding ownership, nor was he a debtor.

At the same time, they argued that although they were the firm’s directors and shareholders, they did not shoulder personal liability for its debts or obligations.

"The Interested Party (Jaysukhlal) is not a judgement debtor, director or shareholder of the first petitioner. While the second petitioner and I are directors of the first petitioner, we have a separate and distinct corporate personality from the first petitioner, and we do not attract any personal liability for the first petitioner's debts and legal obligations,” argued Bipinchandra in his supporting affidavit.

At the same time, he said, it would amount to unjust enrichment for Synergy to compound the amount demanded for the period between March 11, 2016 and November 6, 2020, as the High Court had already set aside the arbitration award in favour of Synergy.

"The petition seeks to vindicate the petitioner’s rights to a proportionate limitation of their rights, uphold their right to equal enjoyment, and protection of the law, dignity, and property, all of which have been grossly violated in the way the decreetal sum has been computed and is being allowed to grow disproportionately and against all notions of equity, fairness and good conscience,” argued Muite.

He said with each day passing, the amount was accruing 18 percent interest, adding that the case before court would settle the question on whether court judgments ought to have a ceiling on how much one ought to pay, just as bank loans do.

“The enforcement pressure created by the decretal aum has also extended beyond the first petitioner's property. The first respondent (Synergy) has obtained prohibitory orders over personal property jointly owned by and belonging to the 2nd Petitioner, the 3rd Petitioner and the Interested Party, namely Title No. Nairobi/Block 92/259, situated on Bendera Lane, Spring Valley, Nairobi.”

“As such, the decretal sum as it stands has continued to lock out the 2nd and 3rd petitioners together with the interested parties from their property and amounts to treating them as mere instruments towards an end rather than human beings endowed with the right to acquire and enjoy their property without unjustified intrusion, thereby causing them great indignity and significant prejudice,” argued Muite.

On the other hand, Synergy filed a fresh case, claiming that the I&M had allegedly frustrated its bid to recover the money.

It is relying on an American-borrowed legal backing known as the Marex tort claim to demand that the bank and its director, Sarit Suresh Raja Shah, should pay Sh5.7 billion for allegedly frustrating its efforts to sell off the complex where Dusit D2 sits.

At the heart of the case is whether the lender has a right, above Synergy, as a secure creditor. At the same time, the court will determine if the lender’s director can be sued in person or if one director can be singled out, while leaving the others.

I&M has been holding the same property as security for a loan which Cape Holding has been repaying since 2010. It was not party to the original court battle between Synergy and CPL but came into the picture in 2021 when the latter roped it in as a creditor.

The bank had, on October 12, 2023, appointed an administrator to manage Cape for 12 months. When the period lapsed, she then sought an extension, arguing that the lender’s right to hold the charged property was at stake owing to the battle between its debtor and Synergy. It emerged that CPL had a $25 million loan with the lender.

In the case, the administrator accused Synergy of failing to show up for creditors’ meetings. The firm, on the other hand, argued that there was no evidence to show that it could not service the bank’s loan to be placed under an administrator.

Synergy also accused the lender of frustrating the recovery process.

However, the bank insisted it had a right under clauses 12 and 13 of the debenture to apply for the placement of the company under administration. It also stated it was not aware of any orders impeding the issuance of securities by Cape Holdings and denied wilfully obstructing the litigation.

I&M also urged that the court should balance the interests of one creditor against the interests of the other creditors as a whole. That in doing so, it argued, the court ought to be concerned about the financial position of CPL, the administrator’s proposed strategy for administration and the period the administrative order has been in force.

It asserted that upon being served with the orders to seize CPL’s money owing to the debt, the debenture crystallised and the bank was at liberty to appoint an administrator under clause 14 of the debenture over all the property of CPL

Justice Alfred Mabeya declined in 2023 to extend the administrator’s tenure, a decision which has now brought a new twist to the battle.

The two cases will have a ripple effect, particularly on the banking sector, owing to the securities held and subject to litigation.