A creditor battling for ownership of Dusit complex, 14 Riverside, has scored yet another win after the Court of Appeal rejected an application to block its takeover of the property.
A three-judge bench of the appellate court ruled in favour of Synergy Industrial Credit Ltd, saying the company should be left to enjoy the fruits of a judgment it obtained in November 2020.
Judges Patrick Kiage, Jamila Mohamed and Weldon Korir dismissed the petition by Cape Holdings to stop the takeover, saying two previous court rulings were in favour of Synergy Credit and the creditor took over the property by way of attachment on January 14, 2022 when a prohibition order was registered against the title to the property.
“Therefore, the prohibitory order having been registered on 5th January 2022, the attachment of the said property was complete, and so was the execution,” said the judges.
The judges also rejected an application by I&M Bank to reinstate two administrators over the property, saying that since Synergy had actualised its right over the property, they did not think that the bank’s apprehension was alive at the moment.
“It cannot be apprehensive of what may happen to a property that has already left its hands and has been executed against,” said the judges.
How the dispute began
The dispute began in 2009 when Cape Holdings Limited decided to develop the complex near the University of Nairobi’s Chiromo campus.
Cape Holdings invited Synergy Industrial Credit Ltd to buy blocks of the property earmarked for the development and the latter paid Sh750 million for two blocks, comprising 14 units and parking lots.
Trouble started when the project was completed and Cape Holdings allegedly refused to transfer the property to Synergy Industrial Credit as agreed.
A legal battle ensued, starting with an arbitrator and escalating to the Supreme Court before returning to the High Court, where Justice Josephine Mong’are sanctioned the sale last year.
Cape Holdings and I&M Bank then moved to the Court of Appeal seeking various orders, including one restraining Synergy from auctioning the property to recover its debt, which now stands at Sh9 billion.
But Synergy argued that Cape Holdings was abusing the court process by filing endless applications.
The appellants also pleaded with the court to appoint Knight Frank Valuers Limited to value the property before the sale.
The parties had proposed that the property be sold by open advertisement or by private treaty within 90 days of the court order, with liberty to extend the time until a buyer is found.
The proceeds would then be deposited in an interest-earning escrow account held by the administrators, pending the taking of accounts of the amounts due to Synergy, I&M Bank and other creditors.
For its part, the bank sought the reinstatement of Ponangipalli Venkata Ramana Rao and Swaroop Rao Ponangipalli as joint administrators of Cape Holdings Limited, pending the hearing of the application and appeal.
Cape Holdings argued that the intended appeal was crucial to the entire banking sector as the High Court decision allegedly fundamentally contradicted established statutory and common law principles, which recognise that registered debentures take precedence over unsecured creditors.
I&M argued that the orders restraining it from exercising its rights under the debenture had far-reaching consequences beyond the relationship between the parties and set a dangerous precedent in the banking sector.
The bank also argued that, as a money-lending institution, it stood to lose billions advanced and secured by the debenture as Cape Holdings remained indebted to it.
Synergy Industrial Credit opposed the petition, arguing that the case had already been determined by other judges and that the joint administrators could not be reinstated as their term had expired.
In its ruling, the three-judge bench said the bank still had an opportunity to enforce its claim against Cape Holdings.
“In conclusion, we find that whereas the applicants have established that their appeals are arguable, they have fallen short of establishing that the appeals will be rendered nugatory should the orders sought be declined,” said the judges.
On the issue of administrators, the judges noted that their term ended on February 26, 2025 and reinstating them would amount to usurping the powers of the High Court by extending the tenure of administrators.
“Secondly, the provisions of sections 593 and 594 of the Insolvency Act do not grant the Court power to reinstate an administrator in the manner requested of us in this application. Therefore, we decline to issue an order reinstating the administrators,” the judges said.
