When Imperial Bank Limited collapsed amid one of Kenya’s most high-profile banking fraud scandals, two major depositors holding over US$8 million sought court intervention to protect their funds from what they feared would be a prolonged and uncertain liquidation process.
However, the Court of Appeal dismissed their bid, ruling that once a bank enters liquidation, depositors cannot secure special treatment through court orders, even where they allege regulatory negligence contributed to the collapse.
The judgment represents a significant win for the Central Bank of Kenya and the Kenya Deposit Insurance Corporation, reinforcing the statutory authority of regulators in managing failed banks and limiting judicial interference in liquidation processes.
At the centre of the case were businessmen Ashok Doshi and Amit Doshi, who held both dollar and shilling accounts with Imperial Bank Limited before its closure in 2015. The pair filed suit in 2016 against the bank and the Central Bank of Kenya, arguing that they deposited their funds under the assumption that the regulator was effectively supervising the institution, and accusing it of failing to detect or stop large-scale fraud by senior bank officials.
The collapse of Imperial Bank Limited remains one of the country’s most notorious banking failures. Regulators placed it under receivership in October 2015 after uncovering irregular transactions linked to insiders, later revealing a prolonged scheme involving concealed liabilities and unauthorised lending that crippled the lender.
The Court of Appeal held that granting special protection to the two depositors would unfairly elevate them above thousands of other creditors in the liquidation queue, undermining the principle of equal treatment under insolvency law.
Earlier in the litigation, the bank had given a court undertaking to honour any eventual award to the Doshis, subject to appeal. This agreement later formed the basis of their argument that their claim should be shielded from the liquidation process.
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The dispute intensified in 2021 when the Central Bank of Kenya approved the liquidation of Imperial Bank Limited after prolonged receivership failed to restore its financial stability. The Kenya Deposit Insurance Corporation was appointed liquidator, tasked with recovering assets and distributing proceeds to creditors.
The Doshis then returned to court seeking to secure their claim, arguing that once liquidation payments began, there was a risk that insufficient funds would remain to satisfy any future judgment in their favour. They sought orders requiring the bank and the Central Bank of Kenya to set aside over US$7.2 million or provide binding guarantees of payment.
While the High Court initially declined to ring-fence the funds, it ordered the bank and regulator to provide an undertaking guaranteeing payment should the claim succeed, citing continuity from the earlier 2016 consent order.
The Court of Appeal disagreed, stating that insolvency law is designed to ensure orderly and collective distribution of assets, and does not permit preferential treatment unless explicitly provided for by statute.
Judges further ruled that the Central Bank of Kenya had not assumed personal liability under the earlier undertaking and could not be held responsible simply by virtue of its supervisory role through the deposit insurance framework.
The court also reaffirmed the independence of the Kenya Deposit Insurance Corporation in managing liquidation processes, warning that judicially created preferences would undermine fairness and disrupt the orderly resolution of failed financial institutions.
The ruling leaves the Doshis to pursue their claims through the standard liquidation process alongside other creditors, while the broader legal dispute with Imperial Bank Limited and the Central Bank of Kenya remains ongoing.
