Friend’s Sh4M Soft Loan Turns To Sh69M ‘Highway Robbery’ Demand

A seemingly simple loan between friends turned into a legal saga after the Court of Appeal stepped in and halted a claim where a Sh7 million debt allegedly ballooned to a staggering Sh69 billion over nearly three decades.

The dispute arose from what was initially framed as a friendly loan advanced in 1994.

The case involved Bharat Dhiman, the lender, and Praful Shah, the borrower—two individuals with a longstanding relationship.

According to the evidence presented in court, Dhiman had loaned Shah a total of Sh7 million, of which Sh3 million was paid back. The remaining Sh4 million, however, became the subject of a fierce legal contest.

The agreement, made in 1994, was not formalised through a detailed contract. The balance was, however, secured by a property whose title Shah had surrendered to Dhiman at the time of the loan agreement.

Yet, it allegedly included a clause that allowed for interest at 36% per annum, compounded quarterly.

For decades, Shah did not repay the balance, and Dhiman did not pursue repayment through formal channels—until nearly three decades later.

In 2023, Dhiman resurfaced and moved to court; the outstanding Sh4 million had now grown, under the interest formula, to more than Sh69 billion.

“The facts show that the appellant was loaned Sh7 million and repaid Sh3 million, leaving a balance of Sh4 million unpaid. If we, for the sake of argument, used this figure to calculate the amount payable as at today under the terms of the parties’ agreement, the amount would be slightly over Sh69 billion!” the judges explained.

Dhiman sought to enforce the claim in court, insisting that Shah was legally bound to settle the astronomical amount.

The High Court initially ruled in favor of Dhiman, prompting Shah to challenge the decision at the Court of Appeal.

It was at this stage that the judges took a deeper look into the background of the transaction, the nature of the relationship, and the financial implications of enforcing such a contract.

The appellate bench—comprising Justices Kiage, Korir, and Joel Ngugi—questioned not just the interest rate but the long silence on both sides.

The judges noted that while the agreement may have allowed for interest to accrue, it defied logic and fairness for such a colossal figure to arise without any attempt at enforcement or repayment discussions for nearly 30 years.

The court underscored that the enforcement of such a claim, under the pretext of contract law, would amount to judicial endorsement of unjust enrichment.

“To allow the appellant to retain that amount and still get his house back would amount to unjust enrichment – a situation abhorred by equity as much as unconscionability in contractual terms,” the judges argued.

In its analysis, the appellate court made it clear that private agreements, particularly between individuals, are not immune from the boundaries of public policy.

While the law respects freedom of contract, it also holds that such freedom must not result in absurd or oppressive consequences.

Ultimately, the appellate court determined that while Dhiman was entitled to seek legal remedy for any outstanding sum, the figure he claimed had grown into something untenable.

The court concluded that enforcing the claim as presented would not only violate public policy but also offend principles of proportionality and reasonableness.

As a result, the Court of Appeal set aside the High Court’s ruling and dismissed Dhiman’s claim for Sh69 billion, declaring that it could not stand in law or equity.

“The appellant shall pay to the respondent Sh4,000,000 with interest at court rates calculated from  September 19, 2019 and that the appellant shall be liable to pay the amount owed to the respondent and interest thereof as shall be calculated, failure to which the suit property shall be subjected to sale by public auction as it was secured for purposes of enabling the respondent to recover the loan amounts advanced to the appellant,” the judges ruled.