Table of Contents
Key points:
- Absa Bank Kenya, associated with tycoon Baloobhai Patel, seeks a $1.5-million (Sh215 million) refund from KDIC for alleged premium overpayments.
- High Court Judge Nixon Sifuna ruled in favor of Absa, citing KDIC’s failure to file a timely defense.
- KDIC’s appeal claims the ruling may create a precedent reducing statutory deposit contributions and threaten the deposit insurance scheme.
The Kenya Deposit Insurance Corporation (KDIC) has intensified its dispute with Absa Bank Kenya regarding a $1.5-million (Sh215 million) refund claim, alleging the bank overpaid premiums to the statutory deposit protection fund. This issue has gained significant attention due to Absa’s association with renowned Kenyan tycoon Baloobhai Patel.
Legal proceedings and court ruling
Absa Bank, listed on the Nairobi Securities Exchange (NSE), initiated legal proceedings against KDIC on Oct. 14, 2023. The bank is seeking a refund of $1.5 million (Sh215,346,841), claiming the amount was mistakenly overpaid. Additionally, Absa is demanding interest on the disputed sum at a commercial rate of 14 percent, calculated from the date of each premium payment until full reimbursement.
According to Absa, the annual premium payments are typically a percentage (0.15 percent) of the bank’s annual total deposits. The bank contends that it discovered an overpayment of $1.5 million (Sh215,346,841) due to an “innocent mistake,” which, if not refunded, would result in KDIC’s unjust enrichment.
Absa’s lawsuit included an alternative request: should a refund not be feasible, the overpaid amount, with accrued interest, should be credited towards future annual contributions from the judgment date until full reconciliation.
On March 15, 2024, High Court Judge Nixon Sifuna ruled in favor of Absa Bank, noting that KDIC had failed to file a defense within the required timeframe. Consequently, judgment was entered for Absa under Order 10 Rule 10 of the Civil Procedure Rules.
“The defendant (KDIC) having inordinately failed to file a defense within the stipulated time, judgment in default of defense is hereby entered for the Plaintiff (Absa Bank) against the defendant,” Judge Sifuna stated. The final judgment awarded Absa $1.5 million (Sh215,346,841) plus interest at 14 percent per annum from the filing date to the judgment date. Additionally, the sum was to be applied towards Absa’s future annual contributions until full reconciliation. Each party was ordered to bear its own legal costs.
KDIC’s appeal and arguments
KDIC, however, appealed the ruling and sought a stay of execution pending the hearing and determination of their application and intended appeal. Represented by Waweru Gatonye & Company Advocates, KDIC argued that the ruling could set a precedent allowing other member institutions to reduce their contributions to the statutory deposit protection fund. KDIC warned this could undermine the deposit insurance scheme and jeopardize customers and depositors of financial institutions.
“Nullifying Section 21 of the Government Proceedings Act now exposes national and county government departments to the risk of execution proceedings, detrimentally impacting the larger public,” KDIC asserted in court documents.
Absa Bank, through Mohammed Muigai LLP Advocates, countered that the Superior Court denied KDIC’s request for an extension to file a defense due to KDIC’s repeated failure to comply with court directions. Absa argued that KDIC had not presented any draft defense raising bona fide triable issues.
Absa maintains that the claimed amounts were overpayments, resulting in a surplus in its account with the KDIC. Therefore, Absa argues, KDIC will suffer no harm if Absa adjusts its contributions to recover the overpaid claims.
Formerly Barclays Bank Kenya Limited, Absa Bank Kenya plays a key role in the Kenyan banking sector, offering retail, corporate, treasury, and card services. It also fosters local enterprises and SMEs through strategic partnerships.
Baloobhai Patel, a prominent Kenyan businessman, holds a 1.03 percent stake in Absa Kenya with 55.86 million shares. His strategic investments in blue-chip stocks have solidified his position as one of Kenya’s wealthiest individuals.
