Bank of Baroda to pay Sh80 million for undervaluing property during auction

NAIROBI: Bank of Baroda has been ordered to pay a private firm close to Sh80 million for undervaluing a property sold for allegedly defaulting to pay a bank loan.

High Court Judge Luka Kimaru ordered the bank to pay Komassai Plantations Limited Sh24.5 million, together with 22.75 per cent interest from October 2006 to the day it will be paid in full. “In the premises therefore, this court holds that the plaintiff did establish that the defendant breached its duty of care by selling the property at a value that was grossly undervalued. It was clear to this court that the defendant did not act in good faith to secure the best possible forced sale value of the suit property,” Justice Kimaru ruled.

The judge also found that the valuation commissioned by the bank prior to the sale of the property did not reflect the true market value.

Justice Kimaru said the contested property, situated at Industrial Area, Nairobi, was sold half the amount its worth. He noted that the financial institution sold it at Sh37.5 million, instead of Sh62 million, which was the true value.

Bank of Baroda had valued the piece of land at Sh32 million thus sparking the case before the High Court. The judge held that the land was worth Sh4.5 million less the valuation submitted by a government agency. The court had sought for independent valuation from the government valuer who quoted the suit property at Sh66,500,000.

“The plaintiff (Komassai) shall therefore be paid the sum of Sh24,500,000 plus interest at the rate of 22.75 percent from October 23, 2006 until payment in full. The plaintiff shall be paid the costs of the suit,” the judge ordered. Komassai had taken up Sh15 million loan from Bank of Baroda’s predecessor Ken- Baroda Finance Limited between 1993 and 1998. The first loan worth Sh7.5 million was advanced to Komassai’s sister company Popatlal Padamshi in 1993.

Later on, in 1996, after Ken-Baroda shifted its assets and liabilities to Bank of Baroda, a further Sh7.5 million was advanced to the same company.

The firm, according to the bank, never honored its end of bargain, thus prompting it to sell off the property in order to recover the debt.

Bank Of Baroda sold the land at a public auction on January 5, 2006, but Komassai challenged the sale claiming that the financial institution had acted in negligence by selling it at an undervalue. The bank, on the other hand, defended itself saying the monies advanced to the firm, which was to attract a 29 percent interest per year was not paid. The court heard the financial lender acted in good faith as it had allegedly carried its own valuation before the sale.

The land in question had eight go-downs, seven of which were allegedly been rent out at a Sh250,000 a month.

STATUTORY POWER

“This court has carefully considered the evidence adduced in this case and the applicable law. It was a conceded fact that the defendant, as the mortgagee, had the legal right to realise the security once the plaintiff defaulted in repaying the loan that was advanced to it. It was clear that at the time the defendant exercised its statutory power of sale that right had accrued. The plaintiff had fallen in serious arrears in repaying the said loan that was advanced to it,” the judge noted.

However, he said it was not the issue that Komassai was contesting, but the value of the land. The judge found that the bank had failed.

“It was clear to this court that the defendant (Bank of Baroda) did not act in good faith to secure the best possible forced sale value of the suit property. The valuation commissioned by the defendant prior to the sale was not reflective of the true market value. It did not reflect the forced sale value of the property,” justice Kimaru ruled.