Mauritius Commercial Bank (MCB) paid Jade Petroleum’s lender USD6.5 million (Ksh 872 million) after Jade defaulted. The High Court has now ordered Jade to repay that money but cleared three guarantors.
A nearly 20-year-old fuel financing deal has ended with Jade Petroleum facing a USD6.5 judgement.
The amount translates to roughly KSh842 million before interest and costs.
But the judgement did not make everyone named in the lawsuit pay.
Justice Aleem Visram ordered Jade Petroleum Limited to repay Mauritius Commercial Bank.
However, the judge dismissed MCB’s claim against three men who guaranteed Jade’s borrowing.
They were Pankaj Vrajlal Vallabh Somaia, Amar Mahendra Chandra Pandya and Raj Harikrishna Mohanlal Devani.
The case began with a loan, moved through three banks, and ended in court.
Understanding those relationships explains why the judgement produced such a split outcome.
Who Borrowed?
The main borrower was Jade Petroleum Limited, a Kenyan petroleum company.
Jade obtained financing from FirstRand Bank Limited of South Africa, trading through Rand Merchant Bank.
The facility was signed on June 26, 2007, initially providing USD10 million (Ksh 1.3 billion).
The facility was later increased to USD14 million (KSh 1.8 billion) as Jade’s financing needs expanded.
Three men stood behind Jade’s obligations under a Guarantee and Indemnity.
They were Pankaj Somaia, Amar Pandya and Raj Devani, who became defendants alongside Jade.
Older reporting identified the three as Jade’s owners, directors or shareholders.
Business Daily reported in 2017 that Jade was associated with the Somaia and Devani families.
The financing, however, involved another important player: Imperial Bank Limited.
Imperial Bank was Jade’s banker and acted as the intermediary through which the arrangement operated.
But RMB wanted additional security before continuing to finance Jade.
That is where Mauritius Commercial Bank, or MCB, entered the picture.
Where MCB Entered
RMB required standby letters of credit from a tier-one bank to secure Jade’s obligations.
At Imperial Bank’s request, MCB issued five standby letters of credit.
Together, those SBLCs were worth USD6.5 million (KSh 872 million).
Think of the arrangement simply: RMB lent Jade money, while MCB promised RMB payment if Jade defaulted.
The SBLCs therefore protected RMB against part of Jade’s borrowing risk.
The arrangement continued until Imperial Bank was placed under receivership in October 2015.
That development created a serious problem for Jade’s financing arrangements.
On November 5, 2015, RMB warned Jade that the SBLCs were approaching expiry.
RMB demanded their extension or repayment of the outstanding USD7.5 million (KSh 971 million).
Jade responded the following day, asking RMB for more time to pay.
Importantly, Jade did not deny owing RMB the outstanding money.
Instead, the company explained that Imperial Bank’s receivership had disrupted its ability to repay.
Jade said it was experiencing a liquidity constraint because Imperial Bank remained closed.
RMB was not persuaded by the request for additional time.
On November 18, 2015, it declared Jade in default and demanded immediate repayment.
Jade did not pay.
RMB then turned to MCB and called the standby letters of credit.
MCB paid RMB USD6.5 million between December 4 and December 31, 2015.
That payment changed MCB’s position dramatically.
It had initially been providing security for Jade’s borrowing.
After paying RMB, it became the bank seeking reimbursement.
Why Jade Had To Pay
The next question was straightforward but legally important.
Why should Jade repay MCB when Jade had borrowed from RMB?
MCB’s answer was subrogation.
After paying RMB, MCB argued that it had acquired RMB’s rights concerning the amount it had paid.
RMB formally reinforced that position on February 23, 2016.
It signed a Subrogation and Transfer Agreement transferring relevant rights and securities to MCB.
Jade challenged that arrangement because MCB had never signed its original financing agreement.
The High Court rejected that defence.
Justice Visram said equitable subrogation could arise through operation of law following payment.
MCB therefore did not need Jade’s permission before acquiring that equitable right.
The judge effectively found that MCB had stepped into RMB’s shoes after paying the USD6.5 million.
Jade had received the benefit because its debt to RMB had been reduced.
It would therefore be unjust for Jade to retain that benefit without reimbursing MCB.
The evidence also supported the amount claimed by MCB.
Jade’s November letter acknowledged that money remained outstanding to RMB.
MCB produced the standby letters and SWIFT confirmations proving its payments.
The defendants failed to produce evidence showing that MCB’s USD6.5 million had been repaid.
The court consequently found Jade liable for the entire amount.
Why Guarantors Escaped
This is where the case took an unexpected turn.
MCB also wanted Somaia, Pandya and Devani held personally liable.
The three men had signed the Guarantee and Indemnity securing Jade’s obligations.
They argued that changes made to the financing arrangement in 2010 had discharged them.
The court rejected that argument.
The 2010 amendment increased Jade’s utilisation security from 20 percent to 100 percent.
But Jade continued using the facility for several years after that change.
The court found that the amendment did not create a fundamentally different lending arrangement.
The guarantees therefore remained valid and legally subsisting.
That should have cleared the way for MCB to pursue the guarantors.
Instead, the bank stumbled over a crucial procedural requirement.
The Guarantee required MCB to make a formal demand before guarantor liability arose.
MCB produced demand letters dated April 21, 2016.
But it could not prove those letters had actually been dispatched.
Its witness admitted there was no certificate of posting or other proof of service.
The court therefore could not establish that the contractual demand had occurred.
Without that demand, the guarantors’ liability had not crystallised.
Subrogation could not rescue MCB at that stage.
The bank inherited RMB’s rights but also inherited their contractual limitations.
It could not acquire stronger rights than RMB possessed.
The court consequently dismissed the claim against Somaia, Pandya and Devani.
The Final Position
The judgement leaves Jade Petroleum Limited carrying the USD6.5 million debt.
MCB will receive interest at LIBOR plus 3.5 per cent from February 23, 2016.
After filing, interest runs at the commercial court rate of 14 per cent annually.
Jade must also pay MCB’s legal costs.
Somaia, Pandya and Devani face no personal judgement under the guarantee.
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Each side will bear its own costs concerning those three defendants.
The court also rejected Jade’s argument that Imperial Bank’s collapse had frustrated repayment.
Imperial Bank’s receivership disrupted the financing mechanism but did not erase Jade’s debt.
Indeed, Jade’s own request for more time to repay weakened her frustration argument.
The court also rejected claims that the 2010 amendment was imposed through legally recognised duress.
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