Defunct Fidelity Commercial Bank (FCB) shareholders have won the first round in a battle against SBM Bank owners and the Central Bank of Kenya (CBK).
Commercial Court Judge Wilfred Mabeya has agreed with FCB shareholders led by Sultan Khimji that the court needs to hear the case in full on whether there were any irregularities in selling the defunct lender at Sh100.
SBM had asked the court to order arbitration.
However, Justice Mabeya stated that FCB shareholders’ claims that they had been forced by CBK to sell the bank at a throw-away price cannot be swept under the carpet.
“In the view of this court, the matters pleaded by the plaintiff (FCB) cannot be said to be flimsy, there are serious triable issues which require interrogation at a trial.”
“Whether or not the contract was entered into willfully or by misapprehensions, duress, and or coercion is a matter to be decided at the hearing of the suit. There is evidence that the asset base of FCB was at least substantial as of December 2016. For the same to be sold as a short period later at a sum of $1 is curious,” said Justice Mabeya.
He said that there was no evidence to show that disposal accounts and impaired loans yielded anything that would benefit Khimji and other FCB shareholders.
In the case, FCB shareholders urged the court to block SBM bank owners, Mauritius-based SMB Africa Holding Limited, from leaving the Kenyan market.
In reply, SBM’s lawyers Zillah Moka and Elly Obegi said there is a binding agreement that any dispute between the buyer and the sellers should be settled within 30 days after which it should be put before an arbitrator.
“The reliefs sought by the respondent in the plaint against the applicant arise out of or are in connection with the agreement (including as to the interpretation, validity, termination or enforceability of this agreement). Therefore, the dispute between the respondent and the applicant is expressly subject to the arbitration clause,” Moka and Obegi argued.
The FCB shareholders’ lawyer Charles Kanjama in his application filed before the commercial court asked the court to order SBM Bank Holdings Limited not to leave Kenya in fear that their case against the Mauritian bank group SBM Holdings purchased FCB in 2017.
Khimji stated that the Mauritius-based lender was on the verge of selling its stake at the mid-tier bank in a bid to leave the Kenyan banking industry.
“The plaintiff has received credible information that the first defendant which is the holding company of SBM Kenya Limited intends to sell the bank and exit. If the intended sale is allowed, there is imminent danger that the plaintiffs will suffer for the actions of the first defendant,” argued Kanjama.
Khimji said in 2016, Fidelity Bank was facing a liquidity crisis which led the lender to approach the Central Bank of Kenya (CBK) to seek a bailout as it had been affected by the closure of two mid-sized banks.
In his court documents, Khimji claimed that CBK instead instructed FBC to contact an accounting officer who was a representative of the State Bank of Mauritius who then assisted them in getting in touch with SBM Bank Holdings Limited. After discussions, the merger commenced.
“The defendant’s governor thereafter contacted the governor of Central Bank of Mauritius and offered to sell the bank for only one US dollar in an effort to bring back the first defendant bank to the table,” claimed Khimji.
In this case, Khimji is seeking compensation from both SBM and CBK. He argued that FCB shareholders ought to have been paid the full value of the bank as of December 2016.