Two former customers of the collapsed Chase Bank Limited have lost a bid to be paid millions of their deposits, after a judge ruled that the duo wanted to be accorded preferential treatment.
Justice Josephine Mong’are dismissed the petition by Rashik Kumar Punja Shah and Mittun Shah, saying they should follow the procedure set out in the Kenya Deposit Insurance Act and a notice placed by the Kenya Deposit Insurance Corporation (KDIC) on May 10, 2021, for applying for the payments.
The two former customers had faulted the KDIC for failing to recognise them as depositors but instead, classified them as secured creditors yet the Central Bank of Kenya (CBK) had not made any exceptions or classified depositors.
“Going through the aforementioned Gazette Notice, I am in agreement. Indeed, the bank was expressly directed, without exception, not to pay any deposits on any type of accounts (including fixed deposit accounts) until such a time when the moratorium was lifted,” said the judge.
The judge said there was no breach of contract, discrimination, or misrepresentation by KDIC when they failed to pay their deposits when the moratorium was still in effect.
Justice Mong’are said the two were seeking preferential treatment contrary to section 50(9) of the KDI Act., which ranks the liabilities of different entities.
The two depositors said they borrowed loans of $1.3 million and $1.05 million from HDFC Bank, Bahrain, which were secured by stand-by letters of credit issued by the Chase Bank.
Chase Bank was placed under receivership by CBK in April 2016 and appointed KDIC as the receiver manager, triggering a moratorium on payments and interest.
The court heard that on October 8, 2018, HDFC wrote to KDIC calling for payment of the then-outstanding loans.
The two customers said CBK had announced that depositors would be paid up to Sh1 million of their deposits and that 75 percent of the value of their deposits had been transferred to SBM Bank (Kenya) Ltd.
The customers said they were informed that they would be paid once their deposits were discharged from obligations under the stand-by letters of credit to HDFC.
To them, this was a breach of contract, discrimination, and breach of duty.
They wanted an order declaring them as depositors and not creditors and stopping any planned or pending settlement until they were paid their deposits.
Alternatively, the two sought an order preserving their deposits valued at Sh145.8 million and Sh122.8 million, respectively.
KDIC said it was under obligation to HDFC for the whole amount demanded and that their deposits were not assumed by SBM as the lender only acquired unencumbered deposits in the acquisition.
The receiver manager also disputed that the funds were placed under fixed deposit terms for 91 days with auto-roller but they were placed under fixed deposit terms upon express and written instructions of the two depositors.
KDIC said there was a moratorium on all payments while the bank was under receivership from April 7, 2016, and as secured creditors, they could only lodge a claim for payment with the liquidator like other creditors.
According to KDIC, the two were only entitled to interest of Sh4.9 million and Sh4.6 million, respectively.
The receiver manager said at the time the funds matured in June 2016, the bank was already under receivership and the funds could only be placed under fixed deposit terms on express written instructions of the depositors.
