A dispute pitting sons of the late billionaire industrialist, Tarlochan Singh Rai, over control and access of bank accounts of a family’s investment company has taken a twist following a court endorsed changes that locked one of the heirs out.
The dispute involves the bank account of Rai Investments Limited, a company incorporated by the late billionaire nearly 50 years ago. The account is held at Absa Bank Kenya Plc.
The row is between Iqbal Singh Rai against his brothers Sarbjit Singh Rai, Jaswant Singh Rai and Jasbir Singh Rai. Their father Tarlochan Singh Rai, who died in December 2010, was one of the signatories of the account while the others included the family members.
Iqbal Rai sued the bank in July 2023 for refusing to give him the account statements. This was after his brothers kicked him out as a signatory of the account without informing him.
He learnt about his removal in February 2023 after asking the bank to furnish him with the statements, but the financial institution declined and informed him that he was no longer on the company’s bank account mandate.
A search at the Companies Registry confirmed his director/shareholder status was intact. He alleged that the removal was unprocedural and without a resolution of a directors’ meeting, which he maintained had never occurred.
Mr Iqbal accused the bank of allowing payments to be made from the account on the strength of a single signature.
He was a director and shareholder of the company since 1978 alongside his brothers, Sarbjit and Jaswant while Jasbir was a shareholder. They are key figures in the East and Southern Africa region’s industrial sector.
Mr Jaswant is the chairman of Rai Group with investments in cement, edible oils, sugar processing and soap, sawmilling, wheat farming, horticulture and real estate.
Mr Sarbjit is associated with the foundation of Sarrai Group, one of Uganda’s leading industrialists, with key operations in sugar, cement and wood processing in East and southern Africa.
In the fight for control of Rai Investment Limited, Mr Iqbal pleaded with court to declare that his removal was invalid since no lawful resolution had been passed to authorise it and an order compelling the bank to provide him with bank statements from March 2023.
Also sought was a mandatory order to reinstate him as a signatory to the account mandate and damages for expenses incurred in following up on his reinstatement with interest at 14 percent per annum.
However, he lost the fight after Justice Alfred Mabeya dismissed the claim stating that Mr Iqbal Rai was lawfully removed and that the change of bank account mandate was in accordance with the company’s resolution. The judge said there was no basis to hold the bank liable for any alleged wrongdoing.
This is because Mr Iqbal Rai was director and shareholder of the bank's customer and had no independent rights and cause of action against the bank away from the company.
"Mr Iqbal Rai did not demonstrate that the bank acted outside the instructions of its customer, the Rai Investments Limited. A bank’s duty is to follow the mandate given to it by its customer and, in the absence of proof that the mandate was altered unlawfully or without proper authorisation, the court finds no fault on the part of the bank," said the judge.
And since a bank is required to exercise reasonable care and skill when executing its customer’s instructions, the court said Absa acted in accordance with a resolution provided to it by Rai Investments Limited. According to the court, no evidence was tendered to suggest that it failed to meet the requisite standard of care.
"The court is of the view that Mr Iqbal Rai, in his capacity as a director, cannot assert an individual claim against the bank for actions taken based on the company’s instructions. Any challenge regarding the validity of the resolution altering the mandate should have been pursued internally within the company and among its directors," stated Justice Mabeya.
"The proper recourse for him, therefore, would be to address the matter within Rai Investments Limited framework and not seek to pursue the bank independently as he sought to do".
The court noted that the documents on record, the change of mandate dated April 26, 2008 emanated from the company and did not have Mr Iqbal Rai's name.
A bank's witness, Joseph Kanyua, told court that at the inception of the account, the company had designated five directors as signatories. He testified that in 1992 the company had five signatories to the account including Mr Iqbal Rai.
He testified on April 26, 2008 the company applied for a change of mandate, nominating Tarlochan Singh Rai and Sarbjit Sing Rai as authorised signatories. This mandate directed the bank to honor instructions from any of the two authorized directors of the company.
The court heard that the bank by itself could not remove or add signatories in an account as it is just a banker performing customer’s instructions.
Mr Iqbal Rai informed the court that, as a director, he had not participated in any board meeting where his removal from the mandate was discussed. The minutes and resolutions from the company secretaries demonstrated that no such decision was made.
Additionally, he pointed out that the bank had gone ahead to process payments based on a single signature, which was contrary to the agreed mandate.
