A Sh826 million loan dispute between NCBA bank and a government road contractor has taken a twist after a court ordered a fresh independent valuation of the borrower’s property.
Justice Benjamin Njoroge also ordered the bank to provide the borrower, Westbuild General Contractors Limited, and the loan guarantor, Njowambu (K) Limited, with a detailed statement of account in respect of each loan facility extended by the lender.
The judge declined to stop the intended auction, stating that a borrower who has received funds from a lender is under an obligation to repay by agreed terms.
He ordered an independent valuation following discrepancies on the true value of the assets, including two land parcels in Kilimambogo, Thika East, and a commercial building in Thika town, which were used to secure the loan.
A valuer appointed by the bank had found that the properties were valued at Sh670 million, while another one hired by the contractor returned a value of Sh485 million.
The court said the bank was at liberty to proceed with the intended sale strictly by the law, which includes obtaining a current joint valuation of the property at the time of sale and issuing all requisite statutory notices as prescribed.
“Accordingly, this court is not persuaded that the Plaintiffs are entitled to a permanent injunction and declines to restrain the Defendant from exercising its statutory power of sale over the charged suit properties, being evident that a portion of the loan remains outstanding and unpaid,” said the judge.
The order requiring the bank to provide the borrower and the guarantor with a detailed statement of account in respect of each loan facility stemmed from the contractor’s contention that NCBA had claimed an outstanding loan of Sh826.7 million as at April 2024.
In its own calculation, the company argued that it’s indebtedness was Sh167 million, comprising an overdraft and one active guarantee. It said this created a material dispute as to the amount owed.
“It is imperative that an audit be conducted to ascertain the true extent of the outstanding debt. Such an audit must take into account the charge instruments and the respective letters of offer governing the facilities, in order to arrive at accurate calculations, particularly in relation to the applicable contractual interest and default interest provisions,” said Justice Njoroge.
The court found notable anomalies in the total sums claimed by the bank.
The contractor’s financial problems started in January 2021 when the Principal Secretary, Ministry of Transport and Infrastructure, terminated the company’s construction contracts and recalled the guarantees. Among the construction works it was undertaking was the Chiakariga–Marimanti road project in Meru.
Court papers show that at the time, the company was servicing a Sh889.8 million commercial loan granted by NCBA bank between August 2015 and August 2019.
The loan was in various facilities, including overdrafts, invoice discounting, performance and advance payment guarantees, and hire purchase arrangements.
These amounts were secured by several instruments, including debentures over the contractor’s assets, corporate and personal guarantees from Njowambu (K) Limited and its directors, legal charges over land, and assignment of rental income.
NCBA’s Senior Legal Counsel Ms Christine Wahome told the court that the legal dispute initiated by the borrower and the guarantor was an abuse of the court process intended to delay enforcement.
She argued that the bank had complied fully with statutory requirements under the Land Act and that the borrower had failed to justify the grant of equitable relief.
The officer said that despite the financial arrangements, the borrower allegedly defaulted on their repayment obligations, prompting the Bank to issue and serve all the requisite statutory notices.
The dispute escalated in June 2024 after the bank, through an auctioneer, advertised for sale the properties of Westbuild General Contractors and Njowambu situated in Thika.
This prompted them to seek judicial intervention to ascertain the true debt position. Westbuild also faulted the Bank for acting against Njowambu (the guarantor) before exhausting remedies against Westbuild (the principal debtor), despite holding extensive securities over its assets.
The managing director of both companies, John Mburu Mwaura, also asked the court to intervene on the grounds that the properties had been undervalued.
This was because the valuation by the Bank’s appointed valuer, Centenary Valuers, placed the combined value of the properties at Sh485 million, while their valuer, GIMCO Limited, placed a significantly higher value of Sh670 million.
Cumulatively, these variances amount to a total difference of Sh185 million, which the companies argued constituted a gross undervaluation.
They called for a court-ordered joint valuation.
Justice Njoroge ordered the parties to agree on the appointment of an independent and qualified valuer to undertake the valuation exercise to establish the proper market value of the properties before the bank may proceed with any sale.
The judge found that there was no evidence before the court that the entire loan amount, inclusive of contractual and default interest, had been cleared.
“The dispute appears to center on the quantum rather than the existence of the debt. It is trite that a borrower who has received funds is under an obligation to repay in accordance with agreed terms,” said the judge.
He stated that, though the court could not bar such remedies to shield a borrower who has failed to meet their obligations, lenders are expected to comply strictly with the legal requirements governing recovery, including the procedure for exercising the statutory power of sale.
