REPUBLIC OF KENYA IN THE SMALL CLAIMS COURT AT CHUKA SCCCOMM E037 OF 2024 FAULU MICROFINANCE BANK LIMITED………..………………..…………..CLAIMANT VERSUS KENNETH MUTEGI KILONZO………………..…………………….……….RESPONDENT JUDGMENT Background of the case The Claimant filed this instant claim dated 12/07/2024 seeking relief as against the Respondent for breach of contract for money held and received. Its position is that the Respondent approached it as a licensed financial institution on 17/08/2019 and was lent a total of Kshs.569,000/- which was to be repaid subject to an interest rate of 20.53% pa with monthly installments of Kshs.13,052.73/-.It is the Claimant’s position that the Respondent began to default in April 2022 and that as at January 2024, the outstanding amount is Kshs.621,209/which the Claimant now seeks as well as interest and costs of the suit. The matter proceeded for formal proof hearing on 09/09/2024 and the Court directed that the Claimant files submissions which the court has considered in the determination of this matter. Issues for determination 2.Whether the Claimant is entitled to the reliefs sought 2. Costs Issue 1 Whether the Claimant is entitled to the reliefs sought The Court has carefully gone through the terms of the contract and notes that the Respondent defaulted in 2022 for a loan that was to be repaid in 84 months which translates to 8 years from August 2019 when the loan amount was disbursed. While Court has held that there was sufficient proof of disbursement of the loan at Kshs.569,000/, the Court notes that as at January 2024, the total amount that the Respondent had
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paid when the loan became non-performing due to his default in repayment was Kshs.425,210/which includes the principal paid at Kshs.11,346.80/- a month, the interest on the principal paid at Kshs.269,481.20/- as well as the charges paid. That the Claimant now seeks relief in the sum of Kshs.621,209.04/- Furthermore, the amount overdue as to the Principal sum was Kshs.145,523.97/- with an interest of Kshs.152,389.99/- Section 44A of the Banking Act in 2007, the Court of Appeal stated in Kenya Hotels Ltd v Oriental Commercial Bank Ltd (Formerly known as Delphis Bank Limited) [2019] eKLR that: “In duplum" is a Latin phrase derived from the word “in duplo” which loosely translates to “in double”. Simply stated, the rule is to the effect that interest ceases to accumulate upon any amount of loan owing once the accrued interest equals the amount of loan advanced. Since the introduction of this principle on 1st May, 2007 it has been applied by the courts with reasonable degree of consistency. See Lee G. Muthoga V. Habib Zurich Finance (K) Limited & another [2016] eKLR, Mwambeja Ranching Company Limited & another V. Kenya National Capital Corporation [2019] eKLR, along a host of many others where it has been invoked. The rationale for this rule was elucidated in the latter decision by this Court in the following passage. “The In duplum rule is concerned with public interest and its key aim was to protect borrowers from exploitation by lenders who permit interest to accumulate to astronomical figures. It was also meant to safeguard the equity of redemption and safeguard against banks making it impossible to redeem a charged property. In essence, a clear understanding and appreciation of the in duplum rule is meant to protect both sides”. The rule was recently reiterated by the Court of Appeal in Housing Finance Company of Kenya Limited v Scholarstica Nyaguthii Muturi & Another [2020] eKLR as in the following terms: “As we have shown section 44A of the Banking Act came into force on the 1st May, 2007. That provision of law sets up the maximum amount of money a banking institution that grants a loan to a borrower may recover on the original loan. The banking institution is limited in what it may
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recover from a debtor with respect to a non performing loan and the maximum recoverable amount is defined as follows in section 44A(2): “The maximum amount referred in subsection (1) is the sum of the following – a) The principal owing when the loan becomes non -performing; b) Interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non- performing; and c) Expenses incurred in the recovery of any amounts owed by the debtor.” The rationale for the “in duplum” rule was explained by this Court in the recent case of Mwambeja Ranching Company Limited and Another v Kenya National Capital Corporation [2019] eKLR as follows: “The in duplum rule is concerned with public interest and its key aim was to protect borrowers from exploitation by lenders who permit interest to accumulate to astronomical figures. It was also meant to safeguard the equity of redemption and safeguard against banks making it impossible to redeem a charged property. In essence, a clear understanding and appreciation of the in duplum rule is meant to protect both sides.” The Claimant is not exempt from the provisions of Section 44A of the Banking Act. This court associates itself with the emerging jurisprudence on the application of the In duplum rule and in accordance to Section 44a of the Banking Act, the Court noting the sum of Kshs.145,523.97/- was overdue as per the statement provided by the Claimant as the principal sum. The Court will award the Claimant the said sum. Moreover, the Court notes that the Claimant failed to provide the Court with the amount of interest owing as at the time the loan became non-performing way back in 2022 and provided a record as at January 2024 and the Court declines to award the same. Notably, the sum as at January 2024 in interest exceeds the Principal sum owing as at the time of non-performance and is contrary to the provision in Section 44A(1b) of the Banking Act. The Court on this basis declines to award the same noting the Respondent had already paid a total of Kshs.269,481.20/- in interest as at January 2024. Conclusion
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Therefore, the Court enters judgment in favour of the Claimant as against the Respondent in the following terms:a) A sum of Kshs.145,523.97/- on breach of contract; b) Interest at court rates from the date of default in April 2022 until payment is made in full; c) Costs assessed at Kshs.15,000/It is so ordered. Dated and delivered virtually at Chuka Small Claims Court by Hon. Tracy Wanjiku Wachira (RM/ADJ) this 17th day of September 2024. In the presence of :Counsel for the Claimant Lindah Makena-Court Assistant
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