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First Community Bank On The Spot For Breach Of Contract Charging Interest Against Islamic Banking Contract

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FCB Mihrab.

First Community Bank(FCB) has been put on spot by one of its client for breach of contract and charging interest against Islamic Financing Agreement,(Musharaka).

In regard to this, a Nairobi court has suspended its decision to sell the remaining 15 disputed apartments developed by Isaac’s Investment Company.

High court Judge Ngenye Macharia has referred the dispute between the company and the bank to an arbitrator.

“On account that the bank has already sold the greater chunk of the Investors’ property speaks volume that the bank may have substantively recovered its debt, the court should preserve the remaining property pending the resolution of the dispute by the tribunal, “ruled Lady Justice Ngenye.

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She added that the dispute revolves around the amount owed to the bank or whether the investor has overpaid. Ngenye ruled that if the court does not preserve the property, it implies that the bank will sell the remaining units at risk of recovering more than it is entitled.

“It is also notable that the bank failed from the outset to demonstrate what amount of debt is owed by the investor by way of bank statements, it is only fair to allow parties to solve the dispute in a manner agreed upon and in the meantime, the remaining units are preserved, “ruled Ngenye.

The matter was filed by Isaac’s Investment Company at Milimani Commercial and Tax Division on December 10,2020.

Through lawyer Benson Nzakyo, it was seeking orders stopping the bank from selling a security property located in Dagoretti/Riruta, Nairobi until further orders of an Arbitration tribunal or court.

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“My client is seeking direction that the arbitrator to be appointed by both parties which should be competent with sharia laws in view of the unique nature of the finance agreement signed between parties, “added Nzakyo in court document.

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The motion was supported by an affidavit from the director of the investment company Ali Isaac who is the owner of that property which is developed and containing 90 apartments.

Ali says that the main objective for which FCB bank is established is to carry out strict compliance with the principles of Islamic Sharia Laws and should not charge any interest on the principal amount lent, deposited or borrowed by customers.

“On November 7,2011, Ali and FCB signed a letter and he was advanced Sh 36 Million as finance to construct phase 1 of the project, “added Nzakyo.

The letter indicated that if any dispute would arise, it shall be referred to arbitration by a single arbitrator to be appointed mutually by both parties.

Ali says that by December 23,2012 the banking facilities granted to him were increased to Sh 210 Million and a further charge document dated January 28,2013 was executed between both parties.

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He added that later his shares were reduced from 20 percent to 14 percent.

The aggrieved businessman says that, the bank advertised the suit property for sale via public auction. Ali moved to court to stop the sale of the remaining 19 apartments within the security property and the suit was withdrawn on November 30,2021.

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Ali filed another suit after realizing that the bank was actively marketing the remaining 19 apartments

“My client stands to suffer substantial loss not only because the bank has contravened various provisions of the agreement but has also recovered Sh 380Million out of advancement of Sh245 Million and Ali believes that he has fully paid the advanced loan together with share profits that the bank was entitled to under Musharaka Finance Agreement, “added Nzakyo.

The bank in response through an affidavit filed by its lawyer Claris Ogombo said that an application by Ali is not based on facts and is an abuse of court process.

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“The applicant defaulted in its obligation prompting the bank to institute recovery proceedings through  a letter dated September 12,2017 where he committed to pay Sh 120 Million which was to be paid from yet another project of Sh 500 Million proposed for the construction of 560 units which was to be constructed on another land that he will purchase but the bank rejected that proposal, “she added.

She added that the bank sold 15 units and the application before court is improper because it has been dealt with to conclusion.

Ogombo wanted the court to dismiss Ali’s application saying that it was meant to delay the sale of the remaining units.

“The applicant was to avail 15 apartments but did not which means that the bank sold them without a consent of the two parties, it is therefore improper for the bank to impute terms that were never agreed upon in consent, this dispute remains unresolved as it was not addressed in consent, “ruled Ngenye.

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Ali says that the bank recovered in excess of what is under agreement. The bank does not dispute that it wants to recover its money without other reason than to say that it has statutory reasons to do so.

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He says he is concerned of how many Muslims fall victim to this so called Islamic Banking which is not anything but dangerous Shylock.


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