Justice Linus Kassan reduced a Ksh1.82 million award after reviewing proof of lending, repayments and interest in a private loan dispute.
The in duplum rule limits interest on unpaid loans, offering borrowers protection against unchecked debt growth. In a private lending dispute, the High Court at Milimani reduced a Ksh1.82 million award to Ksh251,395 after reviewing the loan evidence and repayments.
Justice Linus Kassan also capped the total recoverable principal and interest at Ksh408,454. However, he noted that High Court decisions differ on whether the statutory rule automatically applies to private, non-bank lenders.
How the in duplum rule limits interest
Section 44A of the Banking Act limits what banks and financial institutions can recover on non-performing loans. It allows recovery of the outstanding principal, interest equal to that principal, and reasonable loan recovery expenses.
Under the rule, interest arrears stop accumulating once they reach the outstanding principal. The provision therefore places a ceiling on interest rather than cancelling the borrower’s obligation to repay.
However, private lending raises a separate legal question. Justice Kassan noted differing High Court positions on whether the Banking Act provision applies directly to non-bank lenders. In this dispute, the court applied the rule and set an interest ceiling of Ksh204,227, matching the outstanding principal.
Why the court reduced the loan award
The dispute began after a woman sought repayment of Ksh700,000 she said she lent a man in 2019. She claimed they had agreed on annual interest of 15 per cent, bringing the unpaid debt to Ksh1.82 million.
A magistrate awarded her the full claim, costs and further interest, subject to the rule. However, the borrower appealed, arguing that the evidence did not support the entire amount.
Justice Kassan upheld a valid agreement for Ksh400,000. He found the borrower’s signature sufficient because the lender accepted the terms by advancing the money.
However, the lender did not prove an additional Ksh300,000 allegedly advanced through a cheque from a separate company. Other bank deposit records also failed to establish that the borrower received the money.
The court recognised repayments totalling Ksh220,000 and deducted them from the debt instead of treating them entirely as interest. After recalculating at 15 per cent simple annual interest, it set the amount payable at Ksh251,395 as of July 8, 2021. That was the date the lender filed suit.
