Shareholders of Fidelity Commercial Bank Ltd (FCBL), which was acquired by Mauritius-based banking group SBM Holdings in 2017 have jumped the first hurdle after a judge declined to stop a case they have filed before the High Court seeking a Sh2.5 billion compensation.
Justice Alfred Mabeya rejected the application by SBM Bank Holdings to suspend the case filed by Sultan Khimji, Fidelity's largest shareholder, to stop the petition in favour of arbitration.
The Indian Ocean Island-based lender wanted the matter referred to arbitration arguing that a share purchase agreement dated March 28, 2017, stipulated that disputes should first be settled via consultation and if it fails, it must be referred to arbitration.
Justice Mabeya ruled that the submissions by Mr Khimji reveal a real dispute between the parties, especially on claims of deliberate misrepresentations and coercion into the deal.
“The nature of the allegations vis a vis the prayers made oust the jurisdiction of arbitration as the alleged fraud is complex and serious,” the judge said.
Mr Khimji says in the petition that the Central Bank of Kenya (CBK) forced its directors to dispose of the bank for a song, under threats of criminal charges, regulatory sanctions and closure.
He alleges that they were forced to accept a negative valuation of Fidelity Bank, alleging that SBM inflated operational costs and provisions for bad loans.
SBM said the deal was valued at $1 (Sh142 at current exchange rates) and indicated it would inject Sh1.45 billion to turn around Fidelity Bank, which risked being the fourth lender to collapse in a span of months.
“From the foregoing, it is clear that it has been demonstrated that there is a close fit between the allegations made and the prayers sought in the plaint,” the judge said.
He dismissed a bid by CBK to be removed from the case, saying the accusations were serious and must be proved or disproved through the presentation of evidence during the trial.
The apex bank argued that its role in the deal was purely as the regulator and the claims against it had no basis as it was not party to the agreement.
“Though the 2nd defendant was not a party to the SPA, it has been accused of influencing the final terms therein and abusing its statutory mandate in the process of the 1st defendant’s acquisition of the FCBL,” the judge said.
In the main case, shareholders of FCBL want the sale declared null and they be compensated for the full value of the lender as of December 2016.
They are also seeking compensation by way of restitution for the full market value for Fidelity Community Bank as at December 2016 at Sh2.5 billion, as well as full profits arising from the sale of the bank to the Mauritius lender and damages compounded at an annual interest of 12 percent from January 2017.
Justice Mabeya also granted orders stopping selling shares or ownership of SBM Bank Kenya, pending the determination of the case.
