Imperial Bank depositors’ pay blocked

Imperial Bank depositors protest after the bank was put under receivership. The depositors will now have to wait longer for their payment after a Mombasa tycoon, Ashok Doshi, obtained orders blocking any payments pending the determination of his petition. FILE PHOTO | NMG

Depositors of collapsed Imperial Bank Ltd (IBL) will have to wait longer for their payment after a Mombasa tycoon obtained orders blocking any payments pending the determination of his petition.

The High Court suspended the payments last week but the Kenya Deposit Insurance Corporation challenged the petition accusing Mr Ashok Doshi of using the judicial process to frustrate the liquidation process for the last seven years.

Mr Doshi, who is seeking over Sh1 billion from the collapsed lender, obtained the orders blocking the KDIC from paying the protected depositors up to Sh500,000 arguing that the process is illegal.

“The plaintiff avers that the payment or intended payment of protected deposits as commenced and is being undertaken by the defendant is illegal, unlawful and unprocedural,” he said.

Doshi says the payment of protected deposits can only be made upon the conclusion of the liquidation. He added that under section 60(1) of the KDIC Act, liquidation is not completed until the corporation publishes in the gazette the final statement of account in respect of the institution.

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“No such statement of account has been published and the liquidation process has not been concluded and in fact, has not even begun,” he said.

In April, KDIC put out notices on the payment of protected deposits as it undertakes validation of the claims.

“The corporation is currently undertaking validation of claims to ascertain the actual total amount owed to depositors upon lodging their claims of protected deposits. Imperial Bank Limited depositors will be the third beneficiaries of the enhanced coverage limit of Sh500,000 [per customer],” the corporation said.

Mr Doshi challenged the payments arguing that instead of starting the liquidation, KDIC invited depositors through a newspaper advertisement to lodge their claims, with a view to paying protected depositors.

He says KDIC has imposed an illegal condition in the claim forms requiring depositors with more than Sh500,000 not to pursue future claims.

The corporation has challenged the case stating that the tycoon failed to disclose to the court that the issues he has raised are similar to the ones pending before Mombasa courts.

KDIC further said the application filed by Mr Doshi is an abuse of the court process because Mr Doshi has frustrated the liquidation process of the Bank by filing different suits currently pending before the High Court and the Court of Appeal in Mombasa.

Mr David Irungu, a director in charge of bank resolution at KDIC said the numerous court cases filed by the tycoon have a cost implication on the liquidation process of the bank, which costs are borne by the depositors.

“The corporation and the bank will suffer immensely due to the costs incurred in defending suits filed by this specific depositor and also in the application of notices to depositors which are continuously halted by the plaintiff,” he said.

KDIC further says it would be contrary to public policy to hold the protected deposit of innocent depositors for so many years that the liquidation disputes remain in courts.

“For instance, banks placed into liquidation in the 1990s are still pending in liquidation and some of the depositors have no means to sustain themselves while others have long died due to unending litigation against the institutions and the low rate of recovery occasioned by unforeseen circumstances in the realisation of assets of the institution,” Mr Irungu said.

The corporation said payment of protected deposits is not an illegality as alleged as Section 28(2) of the KDI Act cannot be read in isolation of Section 60(1) of the Act.

“The Act has to be read as a whole and the attempt by the Plaintiff to mislead the Honourable Court through cherry-picking sections in isolation distorts the correct position of the law.

The corporation said payment of protected deposits does not compromise the payment of the depositor’s monies over and above the protected deposits.

“Section 57 of the KDI Act allows residual payment to the depositors of the Bank with payments above the protected deposit upon realization of the assets of the institution during the liquidation process,” the corporation said.

According to KDIC, the orders sought affect a larger class of depositors of the Bank who hope to be paid their deposits and grating the orders would amount to favouring the Plaintiff at the expense of other creditors of the Bank.

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“The application herein has a greater implication on the financial stability. The depositors of Imperial Bank (IL) cannot be held hostage without their deposits on mere apprehension of the Plaintiff that the Defendant is likely to commit an illegality,” Mr Irungu said.

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