The High Court in Nairobi has cleared the way for Equity Bank to auction dozens of properties tied to a Sh1.37 billion loan advanced to four companies, including a government contractor, dismissing claims that the debt had been inflated through excessive interest charges.
The companies blamed their financial difficulties on unpaid government debts, but the court ruled that disputes over loan balances and property valuations could not stop the bank’s recovery process.
The court rejected an application by Njuca Consolidated Company, Wakuga Holdings, Cochem Services and Paric Hardware Products seeking to stop the lender from selling a large portfolio of charged properties in Nairobi and Mombasa.
The properties comprise at least 65 parcels, including two located in Mombasa’s Mainland North area.
The ruling removes a key legal hurdle that had delayed Equity Bank’s efforts to recover the debt and reinforces the long-standing judicial position that disagreements over loan computations do not automatically prevent a lender from exercising its statutory power of sale.
Loan dispute
Court records show that the four companies obtained a Sh1.37 billion loan facility from Equity Bank in August 2021, repayable over 164 months.
The companies moved to court in August 2024 after Equity Bank initiated auction proceedings following an alleged default.
The bank claimed arrears of Sh101 million and a total loan balance of Sh1.6 billion, which the borrowers argued was overstated.
The companies said they had already paid more than Sh204.9 million towards the facility but challenged the amount claimed by the bank, arguing that interest and penalties had inflated the debt.
They said an analysis by financial consultants had revealed excessive and unlawful interest charges, which they argued breached banking laws and made the loan difficult to service. They also alleged that the charged properties had been undervalued.
The companies further argued that economic challenges and unpaid debts owed by government agencies had weakened their cash flow, affecting their ability to meet repayment obligations.
In an affidavit filed in court, the borrowers’ director, Muthoni Njoroge, said they remained willing to continue servicing the loan and hoped to restructure repayments while preserving their relationship with the bank.
Recovery push
Equity Bank opposed the application, saying the borrowers had fallen into arrears and that all statutory notices required before the sale of charged property had been properly served.
The lender argued that the companies had repeatedly sought court protection while failing to regularise the debt.
The bank further told the court that disputes over interest calculations did not extinguish its right to recover the loan through the charged securities.
According to court filings, Equity said the debt had risen to nearly Sh2 billion while the value of the securities stood at about Sh1 billion.
The borrowers disputed that assessment, arguing that the properties had been grossly undervalued and that the security portfolio was worth more than Sh5 billion.
Court ruling
In its ruling, the court rejected the argument that competing valuation reports justified stopping the auction process.
“The existence of competing valuation reports, without proof of fraud, collusion or bad faith, does not automatically entitle an applicant to an order of injunctive relief,” the judge said.
The court also found that the companies had acknowledged owing money to the bank and were mainly contesting the amount claimed.
“It is now well settled that such a dispute, in and of itself, does not prima facie invalidate the statutory notices issued or defeat the defendant’s right to exercise its statutory power of sale,” the court said.
The court further found that Equity had demonstrated service of statutory and redemption notices through registered post and email, and that the borrowers had failed to provide sufficient evidence to rebut that claim.
The court also noted that the companies had previously obtained conditional injunctive relief but had not shown compliance with a requirement to deposit Sh30 million into their loan account.
In dismissing the application, the court said any losses arising from the sale of the properties could be compensated through damages if the borrowers ultimately succeeded at trial.
