Court of Appeal Sounds Warning to Kenyan Banks Over Title Deed Forgery Syndicate


The Commercial Bank of Africa Ltd (CBA) has obtained a conservatory order at the Court of Appeal in Nairobi (the Court) restraining the Cooperative Bank of Kenya Ltd (Co-op Bank), Equity Bank Ltd (Equity), the Chief Land Registrar and other named Respondents from disposing or dealing in any way with a property in Riruta (the Property) pending the hearing and final determination of an intended appeal from the decision of the Environment & Land Court allowing Co-op bank to exercise its statutory power of sale as a first chargee of the Property.

In a ruling delivered by the Court of Appeal at Nairobi on 28thJune 2018, the Judges posit that the three banks appear to have been caught up in an intricate web of a fraudulent syndicate hatched by their mutual customers. In the process, the banks are staring at a possibility of losing hundreds of millions of shillings of customer funds. The Court also notes that the syndicate has also hit other banks in the country but to their bewilderment, none of the perpetrators has been subjected to the criminal process perhaps pointing to the soaring rank of the country in the corruption index.

The three banks are tussling over the Property which was used to secure over KES 450 million worth of loans that were advanced, on the security of the Property, to people [and third parties] who knew each other or were related and were working together in pursuit of the said loans. It is clear that the transactions on the Property could not have happened without the complicity of the office of the Chief Land Registrar.

The circumstances surrounding the dispute between the three banks appear to be fraught with fraud which neither of the banks may be strictly responsible for. They all believed they held first Charges on the Property and retained the original title for the Property. There is no clarity on how the three original titles were obtained or how consents were obtained from the local Land Control Board (LCB) for validation of the Charges.

It clear from the circumstances set out in this case that banks need to be extra vigilante in the securitization process – searches at the Ministry of Lands appear not to be sufficient/reliable in and of themselves and perhaps for high value lending, banks ought to share information regarding securities prior to draw-down. There may also be need to reform the record keeping at the Ministry of Lands and the recent use of technology may be a step in the right direction towards this goal.

In allowing the conservatory order, the Court declares the issues raised in the matter as touching on the general public interest as it involves huge amounts of money given out in loans by the banks, which money ultimately does not belong to the banks but to their customers (large bank customer base). The court also raises the possibility of a re-think on the legal concept of ‘first in time’ in terms of registration of an encumbrance.

The conservatory order granted to CBA is limited to three [3] months within which the intended appeal shall be filed, heard and determined and may only be revived thereafter by an order of the Court and for sufficient reason being shown.
 


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