Court ruling could expose Central Bank to multi-billion shilling suits

By: ABIUD OCHIENG

Last week’s decision by the High Court on closure of Dubai Bank Kenya Ltd could leave the Central Bank of Kenya exposed to billions of shillings in claims by depositors.

In his ruling stopping liquidation of the lender, High Court Judge Eric Ogola said the speed at which the regulator resolved to liquidate the lender after putting it under receivership showed “that CBK had all the time known that Dubai Bank had serious problems but chose to cover them and instead continue to pamper the bank when the regulator had serious responsibility to the depositors and the public at large”.

The ruling was made last week, in relation to an application filed by a depositor, Richardson and David Ltd, who claimed that the CBK had failed it by imprudent or non-exercise of its supervisory powers.

The firm reportedly had deposits amounting to over Sh142 million.

The CBK did little to challenge the application and instead, chose to attack either Dubai Bank or its shareholders, including Mr Hassan Zubedi, who is the bank’s founder and chairman.

“The applicant, as a depositor, was entitled to benefit from CBK’s supervisory powers, and it has been let down by CBK,” said Judge Ogola.

REVIVING DUBAI BANK

The judge stopped the liquidation process for a period of 60 months and stated that the CBK should, within that period, consider the proposal by the said strategic partner, together with that of the depositor or other interested parties, and report to court on the viability of these proposals in an effort to revive Dubai Bank.

Imperial Bank customers will be keenly following the final ruling to see how they can benefit.

“CBK cannot purport to say that the ills and problems bedevilling Dubai Bank, as massive as they are alleged, came to them by surprise. If CBK had done due diligence on Dubai Bank, the present case would never have been necessary, as an emergency whistle would have been raised,” said the judge.

LIQUIDATE BANK

The CBK placed Dubai bank under receivership on August 14, 2015 and appointed the Kenya Deposit Insurance Corporation (KDIC), as its receiver.

A week later, it advised CBK to liquidate the bank. The process of liquidation started on August 24.

“A bank is a very important financial institution, and decisions concerning its operations should not appear to be made whimsically. Those decisions must be seen to be based on some policy principles, which can be stated and depended upon,” the judge said.

“More so, the CBK and the ailing financial institution are deemed to be in a mutual, and beneficial communication relationship. Under these kind of arrangements, the ailing financial institution is able to recommend to the CBK, or the CBK may also make recommendations for voluntarily liquidation.

“These supervisory powers are not merely meant for the good of the ailing financial institution. They are also meant to safeguard the interests of the depositors, the general banking public, and the country’s economy,” said Justice Ogola in his ruling.

SOURCE: DAILY NATION