A judge has turned down the Central Bank of Kenya's (CBK) request to orally interrogate the directors of Mobile Pay in court, handing a reprieve to the payment services provider whose permit was suspended by the apex bank for alleged non-compliance with set rules.
The business licence of the firm, which operates under brand name Tangaza, was revoked in October 2021 following allegations of continued violation of the national payment system laws and regulations such as failure to submit compliance reports including audited financial statements.
CBK had sought permission to cross-examine the company bosses on their claims that the financial regulator infringed the firm's rights through the cancellation of its operational license. CBK lawyers argued that this deserved oral evidence to be adduced.
But the presiding judge Dora Chepkwony ruled that granting the request would amount to lifting the corporate veil of the company without a specific and justified basis demonstrated by the financial sector regulator.
"No clear or compelling basis has been demonstrated to justify and warrant the lifting of the Petitioner’s corporate veil so as to enable cross-examination of its directors, officials, or representatives. In fact, the CBK’s counsel has not pointed out any instance of fraud, bad faith, concealment, and or abuse of the corporate firm that would warrant such an exceptional step to be taken," said Justice Chepkwony.
She stated that a dissatisfaction with the contents of an affidavit or a desire to test the deponent's credibility does not by itself, justify oral interrogation of the deponent in Constitutional petitions.
Since the CBK lawyers failed to demonstrate with specificity the issues they wished to test through cross-examination, the judge stated that cross-examination is not an automatic right in Constitutional petitions such as the one filed by Tangaza.
It must be sought with precision and adequately justified, she ruled.
In the petition, Tangaza is seeking the reinstatement of its authorisation to trade as a Payment Service Provider. Its license was cancelled through a Gazette Notice dated October 26, 2021.
Through its director Oscar Wambugu Ikunu, Tangaza said CBK took over the company's business premises located in Upper Hill, Nairobi, along with its operational systems including physical files.
Mr Ikunu said CBK's actions amounted to a violation of the company’s property rights under the Constitution. He stated that the company subsequently applied for renewal of the authorisation to conduct payment service business, but no action has been taken despite numerous follow-up letters.
According to him, failure to respond to the application and the letters is a violation of the right to fair administrative action as enshrined in the Constitution and the principles of Public Service.
Due to these violations, Mr Ikunu said Tangaza was unable to carry on its business and was exposed to the risk of being sued by its customers and creditors.
However, CBK representative Walter Onyino told the court that Tangaza's licence was revoked due to persistent violations of the National Payment System Act, 2011 particularly regulation 23 (prohibiting outsourcing of the Applicant's services).
He said Tangaza also violated regulation 29(3) requiring the submission of audited financial statements and a system security audit. In addition, regulation 10 (mandating that the payment service provider hold core capital managed in accordance with the trust deed).
The company was licensed in 2010 to launch a product known as Tangaza e-Commerce and Money Transfer Services.
Last year on July 24, the court dismissed CBK's bid to strike out the case on grounds that Tangaza had not exhausted the internal dispute resolution mechanism before suing.
CBK had contended that the Act recommends any dispute with Central Bank Settlement System Participant to be subjected to internal resolution, then mediation, and finally arbitration.
Mr Onyino said Tangaza should have exhausted these mechanisms before filing the court case.
However, the court ruled that Tangaza was not a Central Bank Settlement System Participant but operated as a Payment Service Provider.
"Based on the definitions in the Act, on a "Central Bank of Kenya Settlement System Participant" and a "Payment Service Provider", this court is persuaded that a Payment Service Provider is distinct from a Central Bank System Participant and, therefore, not subject to the mechanisms provided for under section 21 of the Act," the court ruled.
The case is slated for mention on May 7, 2025, to confirm if the parties have complied with the court's directions on filing and exchanging their written arguments.
