Court intervenes after Sh7 million loan from a friend grows to Sh69 billion

Imagine this: you borrow a loan from a friend and agree on a repayment plan and interest. After paying close to half of the loan, you face difficulties in the repayment and go into default. The loan starts attracting huge penalties and interests that escalate it from a few millions to billions.

This is the situation involving two former friends that the Court of Appeal in Nairobi has intervened on. According to court proceedings, a businessman who was identified as Kanwal Sarjit Singh Dhiman borrowed Sh13 million from his friend Kenshavji Jivraj Shah on December 17, 1996. The two friends agreed that the loan would be repaid at an interest rate of 36 percent per annum.

Court proceedings showed that the agreement between the two friends also provided that the first two installments were to be secured by two promissory notes each for Sh2.5 million that were to be payable on March 31, 1997 and also by a Memorandum of Charge by Deposit of Documents of Title in favour of the lender over the parcel of land known as L.R. No. 209/8192/8 located in Lavington estate. This parcel was owned by Dhiman.

On the same day, Dhiman received Sh2.5 million. He then received another Sh2.5 million on January 31, 1997. He however did not receive Sh8 million on April 2, 1997 as had been agreed, but later received an additional Sh2 million on August 5, 1997 for a total loan of Sh7 million.

However, after repaying Sh3 million of the Sh7 million that he had received, Dhiman defaulted on his obligation, and the loan grew to an astonishing Sh69 billion.

This prompted a legal battle at the High Court between the two former friends over the amount payable and over the parcel of land in Lavington that Mr. Shah had taken over after Dhiman’s default. Initially, Mr. Shah won the first rounds at the High Court which determined that Dhiman had not been blind when he entered into the loan agreement.

However, the Court of Appeal has overturned this ruling, and determined that it went against natural justice, consciousness and fairness.

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In its ruling, the Court of Appeal ordered that Dhiman will clear the remaining Sh4 million loan at a court rate of 12 percent which will be calculated at a rate of 12 percent applicable since the High Court judgment of September 19, 2019. With this formula, Dhiman will pay Sh6.88 million.

“It is not in question that this astronomical figure exceeding Sh69 billion on a principal sum of Sh4 million is a disproportionate escalation. It is is not merely commercially unreasonable; it is in the eyes of equity and good conscience, oppressive and unconscionable,” the Court of Appeal ruled in the judgment that was delivered on July 11, 2025.

“[Dhiman] shall be liable to pay the amount owed to Shah 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 [Mr. Shah] to recover the loan amounts advanced to [Dhiman]. This judgment was issued by Court of Appeal judges Joel Ngugi, Weldon Korir, and Patrick Omwenga Kiage.