Fresh evidence implicates ex-bank officer in auction fraud

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Damning evidence touching on allegations of fraud and conspiracy to defraud against a dead Housing Finance bank manager will be produced in court in a long-standing dispute involving questionable auction of property owned by a loan defaulter.

This follows the Court of Appeal’s decision to allow an application by the aggrieved loan defaulter, Mr Joseph Kingsley Karuri Maina, to table the fresh evidence on how his land was irregularly sold by the bank in a public auction in April 1997.

The residential property was sold to the daughter of one of the bank’s officials in what is turning out to be a clear case of conflict of interest.

In his application in court, Mr Maina averred the new evidence concerns fraud instigated and carried out by the bank, and it incriminates the lender’s former manager named Thomas Munguti Nzengu, now deceased.

Details emerged later that Nzengu, who died in June 2009, had a conflict of interest in the auction of the property.


The evidence was not available at the time of the trial at the high court, where Mr Maina lost the battle in a judgment delivered by Justice Joseph Sergon on February 21, 2014.

In 1988, Mr Maina pledged his land in Nyeri,, to the financial institution as a collateral to secure a loan facility of Sh300,000.

He was to repay the loan up to 1992 as per the terms of the charge agreement.

But his former employer, Mt Kenya Bottlers, failed to remit his monthly payments to the bank, leading to the ultimate auction of the land in 1997.

He told Justices William Ouko, Roselyne Nambuye and Mohammed Warsame that the land was sold to Ms Gertrude Kamanthe Munguti, the deceased’s daughter.

Mr Maina annexed a certificate of confirmation of grant dated October 6, 2010 evidencing the relationship of father and daughter.

It also emerged that the highest bidder in the auction, Mr Richard Gikuhi, was intentionally frustrated from buying the property.

Mr Gikuhi, in support of Mr Maina’s application, said he found out about the auction of the property from an advertisement in the newspapers placed by the auctioneers.

He was the highest bidder at Sh805,000 but his attempts to pay the deposit of 25 per cent of the purchase price were frustrated.

Ms Munguti had sent one Justin Nzaneke to bid on her behalf. She was the second highest bidder at Sh804,000.

She paid Sh201,000 as 25 per cent of the purchase price as the initial deposit and the remaining balance was financed by a loan from the bank (Housing Finance) after which the property was transferred to her.

Mr Gikuhi was later informed that the property had been sold to Ms Munguti.

He was not aware of the case filed by Mr Maina disputing the auction until October 2014, when Mr Maina tracked him down for purposes of supporting the appeal.

On allegations of fraud, Mr Maina said the auctioneers who conducted the sale were not duly registered.

At the High Court, Mr Maina wanted the sale of the suit property by the bank to Ms Munguti to be set aside on grounds that the lender had failed to act in good faith.

He also accused the lender of selling the property at an undervalue, arguing that the property was worth Sh4 million.

But in its decision, the superior court held that the appellant had failed to prove fraud on the part of the bank and stated that once a statutory power of sale has been exercised, the mere irregularity in the exercise of that power does not in itself result in invalidation of a sale.

Further, Justice Sergon held while dismissing Mr Maina’s case, that the remedy for the aggrieved party (loan defaulter) is a claim in damages.

“The evidence tendered by Ms Kamanthe shows that at the conclusion of the sale by public auction, conducted on April 15, 1997, she executed an agreement for the purchase of; the same was transferred to her and title issued on May 14, 1997,” stated Justice Sergon.

The three-judge bench also said they have a duty to uphold the rights of parties in commercial transactions.

“Banks operate in an environment in which utmost trust and good faith are crucial. The relationship between bankers and their customers is premised on a high degree of honesty and integrity and courts must uphold those principles,” they ruled.

They also directed that the fresh evidence on the irregular auction should be taken before any other judge other than Justice Sergon.

The appellate judges said the father/daughter relationship between the then manager of the Bank and Ms Kamanthe is a pertinent matter to be investigated and determined.

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