A road construction firm has won the first round of Sh727 million legal battle with Diamond Trust Bank over a Sh465 million overdraft advanced in December last year.
Tanraaj Singh Dhanjal, a director in the Mombasa-based firm, Dhanjal Brothers Ltd, has stopped Kenya's seventh largest lender from auctioning his assets to recover the amount in dispute.
The company says DTB has not complied with the Banking (Amendment) Act 2016, effected on September 14, in charging the credit facility.
In court documents filed in the High Court in Mombasa, through his lawyer Francis Kadina, Dhanjal argues the bank issued a notice and an advertisement on August 3 to sell by public auction his assets, including parcels of land in Mombasa and Kwale counties.
This arose after a dispute between the firm and the bank over an overdraft facility of Sh465million it took in December 28, 2015, to finance its projects.
"The defendant agreed to discount invoices up to 70 per cent whereby it could issue bank guarantees to projects tendered and granted in favour of the plaintiff," Dhanjal says.
Justice Peter Otieno was on Friday informed that the bank had instructed auctioneers to put on sale the real estate properties offered as interim security.
Kadina argued the bank should rectify the loan account to reflect the true amount owed, and a permanent injunction issued restraining the bank from further levying interest.
"It is unfortunate that the bank plans to auction my client's assets at a time when he has been hospitalised at a London facility," Kadima said.
The judge certified the matter as urgent and set an interparties hearing date for October 27 this year.
The firm had signed a contract with the Kenya National Highways Authority for roadworks valued at Sh564,381,531. The amount is yet to be paid due to what was the firm calls "government bureaucracy".
Dhanjal said the firm had made payments totalling Sh293,832,299, but when the bank tendered its accounts, it reflected the debt had increased to Sh727, 421, 000 instead of reducing.
"The bank, without reasonable cause and with disregard to the Banking Act as amended in 2016, is charging interest at 28 per cent , which is all-time high contrary to the law. It has unlawfully dented the plaintiff's accounts and credited itself on monthly basis the high interest, whereas the cost of the overdraft facility was settled according to the terms of the letter of offer," the document reads.
The businessman says the balance to be paid is Sh171,167,701, but the amount continues to increase since the bank is levying unauthorised charges as penalties, increasing the costs of the loan.