Court Intervenes After Sh7 Million Loan Between Friends Escalates to Sh69 Billion

The Court of Appeal has stepped in to resolve a staggering financial dispute between two former friends, where a loan of Sh7 million ballooned to an astonishing Sh69 billion due to exorbitant interest rates and penalties. The case, which has drawn widespread attention, highlights the dangers of predatory lending practices and sets a significant precedent for fair financial agreements in Kenya.

The dispute originated on December 17, 1996, when businessman Kanwal Sarjit Singh Dhiman borrowed Sh7 million from his friend Kenshavji Jivraj Shah. Initially, the agreement was for a Sh13 million loan to be disbursed in three installments: Sh2.5 million on the deal date, another Sh2.5 million by the end of January 1997, and Sh8 million on April 2, 1997. However, only Sh7 million was ultimately advanced. The loan carried an interest rate of 36 percent per annum, significantly higher than the Central Bank of Kenya’s reported average lending rate of 28.5 percent at the time. The agreement also included two promissory notes of Sh2.5 million each, due by March 31, 1997, and a Memorandum of Charge by Deposit of Documents of Title over a parcel of land in Lavington as collateral.

Dhiman managed to repay Sh3 million, leaving a balance of Sh4 million. However, after defaulting on further payments, the loan began accumulating steep penalties and interest, eventually escalating to a staggering Sh69 billion. This prompted Shah to claim ownership of the Lavington property, sparking a prolonged legal battle. The High Court initially ruled in Shah’s favor, stating that Dhiman was fully aware of the terms when he signed the agreement and was not coerced. The court argued that it was not its role to rewrite contracts for those who enter unfavorable deals.

Dhiman appealed, arguing that the High Court’s decision overlooked the exploitative nature of the loan terms. On July 11, 2025, the Court of Appeal, presided over by Justices Joel Ngugi, Weldon Korir, and Patrick Omwenga Kiage, delivered a unanimous ruling that overturned the High Court’s decision. The judges described the Sh69 billion claim as not only commercially unreasonable but also oppressive and unconscionable in the eyes of equity and good conscience. They emphasized that the astronomical escalation from a Sh4 million outstanding balance to Sh69 billion violated principles of fairness, good faith, and proportionality.

The court voided the original contract terms, citing their unconscionable nature, and ordered Dhiman to repay the remaining Sh4 million at a reduced court rate of 12 percent, calculated from the High Court’s judgment on September 19, 2019. This adjustment significantly lowered the repayment amount to approximately Sh6.88 million, a far cry from the Sh69 billion previously demanded. The court further directed Shah to return the Lavington property to Dhiman, provided the revised loan amount is cleared. Failure to repay would result in the property being sold at public auction to recover the outstanding debt.

This ruling marks a significant victory for consumer protection against predatory lending in Kenya. The Court of Appeal’s decision underscores the judiciary’s role in safeguarding individuals from exploitative financial agreements, particularly when high interest rates and penalties disproportionately burden borrowers. The judges noted that while private lending between individuals is permissible, contracts that exploit one party’s vulnerability or lack of bargaining power are unacceptable under the law.

The case has sparked broader discussions about the regulation of private lending and the need to protect borrowers from usurious practices. Legal experts suggest that this precedent could deter predatory lenders, including informal moneylenders, who often seize valuable assets like land over small debts inflated by exorbitant rates. The ruling also highlights the importance of judicial oversight in ensuring that financial agreements adhere to principles of fairness and equity, particularly in disputes involving significant power imbalances.

As Kenya continues to address issues of financial fairness, this case serves as a reminder of the judiciary’s critical role in balancing contractual freedom with protections against exploitation. For Dhiman and Shah, the resolution brings an end to a decades-long dispute that transformed a friendly loan into a cautionary tale of unchecked financial agreements.