INTRODUCTION
In the case of Momentum Credit Limited v Kabuiya (Civil Appeal E035 of 2022) [2022] KEHC 13705 (KLR), the court held that the in duplum rule does not apply to microfinance institutions operating under Microfinance Act.
BRIEF FACTS
Momentum Credit Limited advanced Kabuiya a loan facility of Kshs. 1,300,000/= on November 11, 2020, on the strength of motor vehicle registration number KBP 252A (‘’the motor vehicle’’) as collateral. When the respondent defaulted on repayment of the loan, the appellant repossessed and sold the motor vehicle for Kshs. 1,500,000/= against an outstanding amount of Kshs. 2,050,328/= due and owing as at April 27, 2021. The appellant, therefore, claimed Kshs. 731,722/= made up of Kshs. 681,722/= being the principal sum with interest, penalties costs, and legal costs of Kshs. 50,000.00.
The respondent denied the claim and urged the court to dismiss the claim. The respondent indicated that the motor vehicle which was originally valued at Kshs. 2,800,000/= was undervalued at auction. The respondent contended that the appellant changed the terms of the loan facility from 14% per annum to 10 % per month without informing her and that the interest was extremely high, unconscionable, illegal and usurious, and contrary to the prevailing lending rates and standards set by the Central Bank of Kenya.
The Small Claims Court dismissed the appellant’s claim and the appellant filed the instant appeal. Momentum Credit Limite stated that as a microfinance institution it was not limited to the strictures of the in duplum rule (limited the amount a bank or financial institution could recover from a non-performing loan) under section 44 of the Banking Act.
COURT ORDERS
- Section 44 of the Banking Act incorporated the in duplumrule which limited the amount a bank or financial institution could recover from a non-performing loan. Section 2 of the Banking Act defined an institution to mean a bank or financial institution or mortgage finance company.
- For purposes of section 44, it had to be established that the appellant was a bank or financial institution. The appellant was neither a bank nor a mortgage finance company. In order to qualify as a financial institution, the appellant had to either be gazetted as such by the Minister or be one that carried on or proposed to carry on financial business as defined under the Banking Act. To qualify as a financial institution, it had to accept money on deposit from members of the public and employ that money or part of it for lending or investment as contemplated under the Act. The appellant was not a deposit-taking institution.
- The trial court failed to consider whether the appellant was subject to section 44 of the Banking Act. Section 44 of the Banking Act did not apply to the relationship between the appellant and the respondent. The rate of interest in the circumstances was governed by contractual provisions which were not disputed.
- A court of law could not rewrite a contract with regard to interest as the parties were bound by the terms of their contract. Nevertheless, courts could interfere with or refuse to enforce contracts that were unconscionable, unfair, or oppressive due to procedural abuse during its drafting jeopardizing another party in the agreement.
CONCLUSION
The Appeal was allowed and the appellant was awarded Kshs 731,722/= and costs to be borne by the Respondent.
