HOUSING FINANCE BANK

Bank to pay woman Sh52m for illegal penalties on Sh3m loan

Supreme Court rules there was no constitutional question to consider in appeal

In Summary

• The aex court judges ruled that there was no constitutional question to consider in the banks' appeal against rulings in favour of Scholastica Nyaguthii.

• Nyaguthii took the Sh3 million loan from Housing Finance in 1998. 

Housing Finance offices at Rehani House in Nairobi
Housing Finance offices at Rehani House in Nairobi
Image: FILE

The Supreme Court has cleared the way for a woman to be paid Sh52.7 million by Housing Finance Corporation for irregular charges and penalties on a Sh3 million loan she took 22 years ago. 

The apex court judges ruled that there was no constitutional question to be considered in the banks' appeal against rulings in favour of Scholastica Nyaguthii.

Nyaguthii took the Sh3 million loan from Housing Finance in 1998. She charged her two properties, one of which was at Muthithi Gardens in Kiambu. 

Two years later, she was retrenched. Unable to meet her obligations on the loan repayment, she asked the bank to sell one of her houses.

The bank sold it for Sh3.5 million and took the money as part of her repayment for the loan. When she still couldn't service the loan, the bank sold the house at Muthithi Gardens for Sh16 million to recover the remainder of the loan. 

She moved to the High Court, saying the house was undervalued by half its actual worth of Sh32 million. Nyaguthii also argued that the bank had imposed high interest rates on the loan that made it difficult for her to repay. 

She said that even after she moved to the US, her family was harassed by the officers of the bank, who placed the house for sale, yet she had already overpaid her loan. 

Nyaguthii told the court that by 2010, she had paid Sh8.4 million, but Housing Finance was still demanding an additional Sh7.3 million from her.

The High Court ruled in her favour saying there was no justification in any society that one borrows Sh3 million and pays Sh18 million.”

Justice Eric Ogola ruled that HF levied irregular charges on the loan and that it was only legally allowed to demand a maximum of Sh6 million going by the in duplum rule.

 “It is clear that HFCK had treated her as a cash cow, which it milked to the extent of even denying the calf milk.” Justice Ogola ruled in February 2017.

Ogolla ruled that the auction of the Muthithi Gardens house was irregular. He awarded Nyaguthii Sh16 million and 25 per cent annual interest from 2011, when the house was sold. 

HFCK appealed against the decision. But the Court of Appeal also faulted HF for not keeping proper records of her loan but using guesswork to calculate the amount she owed them. 

Court of Appeal judges Asike Makhandia, Patrick Kiage and Sankale ole Kantai ruled that once her loan became non-performing, the bank should have complied with the provision of the Banking Act. The bench upheld the High Court ruling. 

The bank then took the matter to the Supreme Court. But Chief Justice David Maraga, his deputy Philomena Mwilu, justices Mohammed Ibrahim, Smokin Wanjala and Njoki Ndung’u unanimously agreed that they had no jurisdiction to deal with the case because it did not delve into constitution matters.

“Upon our perusal of the record, it is not evident that the matter took a constitutional trajectory to warrant our jurisdiction,” the court ruled.

According to the judges, the central issues for determination were repayment of the debt by Nyaguthii, the validity of a statutory notice before the sale of her house, valuation of the property, collusion and conspiracy between the parties and whether the house was sold by private auction or private treaty.

“At no point did any of the courts below us delve into matters of interpretation or application of the Constitution,” the judges noted.

 

(edited by o. owino)