Court Strikes Down Shylock’s Predatory Loan Deal That Turned Sh7m Friendly Loan Into Sh69bn Claim

The Court of Appeal has delivered a major blow to predatory private lending after voiding a loan agreement that ballooned a Sh7 million advance into a staggering Sh69 billion claim and cost a borrower his family home.

In a decision that has jolted the unregulated lending scene, the court ruled that the terms imposed on businessman Kanwal Sarjit Singh Dhiman by lender Kenshavji Jivraj Shah were so harsh and exploitative that they were “oppressive and unconscionable.”

The judgment in Kanwal Sarjit Singh Dhiman v Kenshavji Jivraj Shah [2025] KECA 1264 (KLR) found the deal void from the outset.

The dispute traces back to late 1996, when Dhiman, under financial strain, sought a loan from Shah.

Shah agreed to advance Sh13 million in three tranches, secured against Dhiman’s property in Nairobi. Only Sh7 million was ever released.

Dhiman repaid Sh3 million, leaving a balance of Sh4 million. But a punitive 36 percent annual interest rate, compounded quarterly, turned the arrangement into a debt trap.

By 1999, Shah had obtained an ex-parte judgment for Sh17 million. Dhiman’s property was auctioned and transferred to Shah, who became the legal owner.

After years of litigation, the Court of Appeal set aside the ex-parte judgment in 2015, paving the way for a retrial. The High Court, however, ruled in Shah’s favour in 2019, ordering Dhiman’s eviction.

When the matter returned to the Court of Appeal in 2025, a bench of Justices Patrick Kiage, William Ouko and Joel Ngugi noted that the 36 percent compound interest had, over 26 years, pushed the Sh4 million balance into a figure “slightly over Sh69 billion.”

The court described the escalation as “a disproportionate increase” that equity could not enforce.

Citing established principles of unconscionability, the judges held that both the circumstances under which Dhiman entered the agreement and the substance of its terms justified intervention.

They drew from precedents including Ajay Indravadan Shah v Guilders International Bank Ltd and National Bank of Kenya v Pipeplastic Samkolit (K) Ltd, emphasising that courts will not enforce contracts that offend public policy or exploit vulnerable parties.

The Court of Appeal restored Dhiman’s title and revoked Shah’s ownership.

It also nullified all orders flowing from the 1999 judgment.

However, Dhiman must still repay the Sh4 million principal plus 12 percent interest from the date of the 2019 High Court ruling. Should he default, the property may be sold through a fair process to recover only that amount.

Each side will bear its own costs.

The judgment has ignited public debate, with many describing it as a watershed moment for private lending.

Lawyers and financial analysts say the ruling signals a tougher stance against exorbitant interest rates and could reshape the informal credit sector.

For Dhiman, the ruling marks the end of a decades-long battle to reclaim his family home. For lenders, it is a reminder that freedom of contract has limits—and that oppressive terms will not survive judicial scrutiny.