The owners of Nairobi's 14 Riverside complex, through Cape Holdings Limited, have petitioned the High Court to examine the constitutionality of a provision in the Banking Act. This provision, Section 44A (4), allows interest on court-awarded debts to accumulate beyond the original principal amount. The petitioners argue that this can expose borrowers to financial claims far greater than the original debt, contravening the in duplum principle. This principle generally prevents interest recoverable on a debt from exceeding the outstanding principal.
The in duplum principle is a legal concept that prevents excessive interest accumulation on debts. Cape Holdings wants the court to determine whether it is constitutional to allow interest on a debt already determined by a court to continue accumulating beyond the principal amount. The company argues that the provision can lead to financial claims that far exceed the original debt. This challenge has raised a wider question over whether the protection against excessive interest should extend beyond non-performing bank loans to other forms of debt determined through court proceedings.
The National Assembly has defended the law, arguing that determining the extent of a statutory limit on interest is a matter reserved for the legislature under the Constitution. Parliament's position is that Section 44A was not enacted to provide a blanket rule for every type of debt, court enforcement process, or interest arising from a decree. The Assembly points to other laws that deal with these matters, including the Civil Procedure Act, Civil Procedure Rules, Arbitration Act, and Auctioneers Act and Rules.
The National Assembly Deputy Clerk, Jeremiah Ndombi, stated in an affidavit that Section 44A makes a valid distinction between interest charged under a contractual relationship between a bank and a borrower and interest that becomes payable after a court has issued an order or decree. Ndombi argued that the in duplum rule was introduced to address cases where licensed financial institutions could continue accumulating unrestrained contractual interest against borrowers.
Parliament has argued that the protections offered by Section 44A (1) and (2) were specifically designed for non-performing loans held by licensed financial institutions and were not intended to apply automatically to debts that have already been converted into court decrees. However, Cape Holdings is seeking a judicial determination on the effect of the exclusion on debtors. The petition has raised questions about the legal scope of Section 44A (4) and whether the distinction between non-performing bank loans and court-awarded debts is constitutionally valid.
The High Court will be called upon to consider the constitutionality of Section 44A (4) of the Banking Act. The court will examine whether the exclusion of judgment debts and court decrees from the statutory interest limit is constitutional. The National Assembly maintains that expanding the reach of the interest cap would involve a policy choice for Parliament, while Cape Holdings is seeking a judicial determination on the matter.
The challenge by Cape Holdings Limited, the owner of 14 Riverside, has significant implications for borrowers and lenders in Kenya. The court's decision will provide clarity on the application of the in duplum principle to court-awarded debts. The case will also determine whether the current law provides adequate protection against excessive interest accumulation on debts.
Key points
- The owners of 14 Riverside complex challenge a Banking Act provision allowing interest on court-awarded debts to exceed the original principal.
- The National Assembly defends the law, arguing that determining the extent of a statutory limit on interest is a matter reserved for the legislature.
- The High Court will examine the constitutionality of Section 44A (4) of the Banking Act and its implications for borrowers and lenders in Kenya.
