Monthly Archives: March 2026

Tax compliance in Kenya operates within a self-assessment system. This means that responsibility is placed upon the taxpayer to accurately declare and remit taxes that are due.

Most recently, the Kenya Revenue Authority has intensified its efforts in collecting revenue, and in its routine audits and assessments, disputes are bound to arise with the taxpayers. Such disputes pose significant issues to business and individuals. That is why the Tax Procedures Act provides for a framework within which such disputes are resolved. In this Article, we unpack the tax dispute resolution process in Kenya and the avenues available to resolve tax-related disputes.

Understanding Tax Disputes Under Kenyan Law

A tax dispute generally arises when a taxpayer disagrees with a tax decision issued by the Commissioner of the KRA. Such disputes often arise from issues such as additional assessment of the taxes due, denial of deductions or exemptions, imposition of penalties and interests, refusal to grant a tax refund, or a difference in the interpretation of tax laws.

Under the Tax Procedures Act, the Commissioner is not bound by the information provided by a taxpayer and may instead assess the tax payable using information available to him. This is a broad statutory power which, while on one end is necessary for efficient revenue collection, it is often a trigger to tax disputes, particularly when a taxpayer views the assessment by the Commissioner as excessive or arbitrary.

Due to such disputes, there are certain dispute resolution systems put in place to ensure tax disputes are handled internally before the matter escalates to other litigation forums at the Tribunal or the Courts.

Commencing a Tax Dispute: The Objection Process

The first and most critical step in resolving a tax dispute in Kenya is the lodging of an objection against the Commissioner’s decision.

A taxpayer who is dissatisfied with a tax decision must submit a Notice of Objection within 30 days of being notified of the decision. This objection must be precise, comprehensive, and supported by relevant documentation. The law requires the taxpayer to clearly outline the grounds of objection, the amendments sought, and the reasons supporting those amendments.

In cases involving tax assessments, the taxpayer must also pay the undisputed portion of the tax or apply for an extension of time to do so. Failure to meet these statutory requirements may result in the objection being deemed invalid, effectively closing the door to further dispute resolution avenues.

Once a valid objection is lodged, the Commissioner is required to issue an objection decision within 60 days. If the commissioner does not issue a decision within the 60 days, the objection is deemed to be allowed. This is done so as to prevent any delays which would otherwise greatly prejudice a taxpayer.

Alternative Dispute Resolution

Prior to 2015, most tax disputes ended up in litigation. However, since then, Alternative Dispute Resolution has been incorporated in tax disputes, which has significantly reduced the backlog and strain on resources for both the taxpayer and KRA.

Just like ADR in other forums, ADR under the KRA framework is a voluntary, facilitated mediation process that allows taxpayers and the Commissioner to resolve disputes outside the Tax Appeals Tribunal or courts. It is a seamless avenue through which parties can achieve a mutually acceptable outcome without the fuss and adversarial nature of litigation.

ADR may be initiated at various stages of the dispute, including:

• Before an objection decision is issued
• During proceedings before the Tax Appeals Tribunal
• While a matter is pending before the courts (with leave)

However, ADR is not suited for all kinds of disputes. For instance, matters involving constitutional issues or serious questions of law, or a matter that requires judicial interpretation, cannot be subject to ADR.

Appeals Before the Tax Appeals Tribunal

When objections and ADR do not resolve the dispute, the next battleground is the Tax Appeals Tribunal (TAT).

An appeal to the Tribunal must be filed within 30 days of receiving the objection decision from the Commissioner. In lodging the Appeal, a dissatisfied taxpayer is required to file a Notice of Appeal, followed by a Memorandum of Appeal, a Statement of Facts, and the Commissioner’s decision within 14 days after filing of the Notice of Appeal.

It is also important to note that a Notice of Appeal to the Tribunal relating to an assessment is only valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice. The taxpayer is also expected to pay a refundable fee of 20,000 shillings for lodging the Appeal.

The Notice of Appeal should be served to the Commissioner within two days, and the Tribunal is mandated to hear and determine appeals within 90 days of filing. Proceedings before the Tribunal are less formal than court litigation, but they remain evidence-based. The Tribunal’s decision is binding and enforceable as a court judgment, subject to appeal on points of law.

Litigation Before the High Court and Court of Appeal

A party dissatisfied with the Tribunal’s decision may appeal to the High Court, strictly on questions of law. Such appeals must be lodged within 30 days, although the Court may extend this period in appropriate circumstances.

Further appeals lie to the Court of Appeal, again limited to legal issues and questions on points of law.

Who bears the burden of proof?

In Kenyan tax disputes, the burden of proof rests on the taxpayer. The taxpayer must demonstrate that the Commissioner’s decision is incorrect. This is now well settled by the courts in various decisions.

In Commissioner of Domestic Taxes v Metoxide Africa Limited (Tax Appeal E121 of 2021) [2022] KEHC 14613 (KLR), Justice Majanja aptly explained the nature of the burden of proof in tax disputes as follows;

“The question before the court that was also before the Tribunal was whether the Respondent discharged its burden of proof by demonstrating that the Commissioner was incorrect in its decision. It should not be lost that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer. The uniqueness of our tax system in placing the evidential burden of proof on the tax payer is neither a mistake nor is it unconstitutional. In Republic v Kenya Revenue Authority; Proto Energy Limited (Exparte) (Judicial Review Application E023 of 2021) [2022] KEHC 5 (KLR) (24 January 2022) (Judgment) the court stated that:

(48)

The most significant justification for placing the burden of proof on the tax payer is the practical consideration that the Commissioner cannot sustain the burden because he does not possess the needed evidence. Under the system of self-reporting tax liability, the taxpayer possesses the evidence relevant to the determination of tax liability. It is simply fair to place the burden of persuasion on the taxpayer, given that he knows the facts relating to his liability, because the commissioner must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer’s records. The taxpayer must present a minimum amount of information necessary to support his position. This safety valve seems to place the burden of production on the taxpayer without relieving the Commissioner of the overall burden of proof. The tax payers’ evidence must meet this minimum threshold.

(49) A presumption of correctness arises from the Commissioner’s determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented.

As such, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner.

Conclusion

The Tax Procedures Act, 2015, provides a structured and comprehensive framework for resolving tax disputes in Kenya within which taxpayers have different avenues to address tax disputes. However, the effectiveness of these mechanisms largely depends on an informed strategy. Tax disputes can be complex, but if handled correctly, a tax dispute can be resolved efficiently and on favourable terms.

Speak to Our Tax Dispute Resolution Team at ESK Advocates LLP

If you are facing a tax assessment, audit, penalty, or enforcement action by the Kenya Revenue Authority, early intervention is critical.

At ESK Advocates LLP, we advise and represent taxpayers across the various tax dispute issues from objections and Alternative Dispute Resolution to Tribunal proceedings and complex tax litigation. Our approach is strategic and commercially focused to ensure the most favourable outcome.

Contact us today to discuss your tax dispute and explore the most effective path to resolution.

Introduction

The statutory power of sale is one of the most potent remedies available to a chargee under Kenyan banking and finance law. It allows a lender, upon default by a borrower, to sell charged property without recourse to court, provided strict statutory requirements are complied with. Because the remedy directly interferes with proprietary rights, Kenyan courts have consistently held that the power must be exercised strictly in accordance with the law. Any deviation renders the sale vulnerable to challenge.

This article sets out the process and pre-requisites of the statutory power of sale in Kenya, guided primarily by the Land Act, 2012, the Auctioneers Act and Rules, and established judicial principles.

Definitions

For purposes of this article, and as used under the Land Act, 2012:

“Chargee” refers to a lender or creditor in whose favour a charge or mortgage is created as security for the repayment of a loan or performance of an obligation. The chargee holds a proprietary interest in the charged land and is entitled, upon default and subject to statutory compliance, to exercise the statutory power of sale.

“Chargor” refers to the borrower or owner of land who creates a charge or mortgage over property in favour of a chargee as security for a debt or obligation. The chargor retains ownership of the property subject to the charge and enjoys statutory protections governing enforcement.

1. FOUNDATIONAL PREREQUISITES
2. Existence of a Valid Charge or Mortgage

The statutory power of sale can only arise where there exists a valid and enforceable charge or mortgage. The charge must be properly executed and registered against the title. It must secure a lawful debt, and the chargor must have had legal capacity at the time of execution.

Although most charge instruments expressly provide for the power of sale, the power is in any event implied by statute, and its absence in the charge does not defeat the chargee’s right once default occurs.

2. Default by the Chargor

The power of sale only crystallises upon default. Default commonly arises from non-payment of principal, interest, or breach of other contractual obligations under the charge. Crucially, the default must be continuing and unremedied at the time statutory notices are issued. Where default has been cured, the power does not arise.

3. Debt Must Be Due and Ascertainable

The outstanding debt must be clearly quantified. The lender must be able to demonstrate the exact amount owing, including principal, interest, and penalties, calculated strictly in accordance with the charge instrument. Courts have frowned upon vague or exaggerated demands.

1A. INFORMAL CHARGES

In addition to formal registered charges, Kenyan law recognises informal charges under Section 79(6) of the Land Act. An informal charge may arise where land is offered as security through a written agreement, deposit of title documents, or other arrangement evidencing an intention to charge land, even where a formal charge has not been registered.

While an informal charge does not immediately confer the statutory power of sale, the chargee may apply to court for an order to enforce the informal charge, including by sale. The court may direct that the informal charge be perfected into a formal charge or grant leave to realise the security in a manner it considers just.

Importantly, the statutory power of sale does not arise automatically in respect of an informal charge. Judicial intervention is mandatory before enforcement, and lenders seeking to rely on informal security must strictly comply with court directions and statutory safeguards.

1. STATUTORY NOTICES: MANDATORY AND SEQUENTIAL
2. Statutory Notice under Section 90 of the Land Act

Section 90 of the Land Act is the foundation of the statutory power of sale. The notice must be issued after default and must run for a minimum of ninety (90) days. It must be in writing and must clearly specify:

• The nature and extent of the default;
• The amount required to rectify the default;
• The ninety-day period within which to comply;
• The chargor’s right to apply to court for relief; and
• The consequences of failure to comply, including sale, appointment of a receiver, or taking possession.

Proper service of the notice is mandatory. It must be served on the chargor, and where applicable, the spouse (if the property is matrimonial property) and any guarantor.

Kenyan courts are unequivocal that a defective Section 90 notice invalidates the entire sale process, regardless of subsequent compliance.

5. Notice to Sell under Section 96(2) of the Land Act

Upon expiry of the Section 90 notice without remedy of default, the chargee must issue a Notice to Sell under Section 96(2). This notice must give a minimum of forty (40) days and must clearly communicate the intention to sell the charged property.

The notice must be served on:

• The chargor;
• The chargor’s spouse;
• Any lessees or tenants; and
• Any guarantors.

The Section 96 notice cannot be issued prematurely and must strictly follow the lapse of the Section 90 notice.

1. VALUATION REQUIREMENTS
2. Forced Sale Valuation under Section 97 of the Land Act

Before exercising the power of sale, the chargee must obtain a current forced sale valuation conducted by a qualified and independent valuer. The valuation must reflect both the market value and the forced sale value of the property.

Section 97 imposes a statutory duty of care on the lender to obtain the best price reasonably obtainable at the time of sale. Failure to conduct a valuation, reliance on an outdated valuation, or sale at a gross undervalue exposes the lender to liability for breach of statutory duty.

1. MODE OF SALE
2. Choice of Sale Method

The chargee may sell the property by public auction or private treaty. While public auction is the preferred and most common method, private treaty is permissible provided it is demonstrably aimed at achieving the best price obtainable. Courts scrutinise private sales more closely due to the risk of undervaluation or collusion.

8. Auctioneer’s Statutory Notices

Where sale is by auction, compliance with the Auctioneers Act and Rules is mandatory.

(a) Redemption Notice

Under Rule 15 of the Auctioneers Rules, the auctioneer must issue a forty-five (45) day redemption notice, served personally. The notice must state the amount due and inform the chargor of the right of redemption.

(b) Notification of Sale

After lapse of the redemption notice, the auctioneer must issue a Notification of Sale, specifying the date, venue, and reserve price of the auction.

1. ADVERTISEMENT REQUIREMENTS
2. Advertisement of Sale

The sale must be advertised in a newspaper of nationwide circulation at least fourteen (14) days before the auction. The advertisement must accurately describe the property and should not be misleading. Defective or misleading advertisements may invalidate the sale.

1. CONDUCT OF SALE

On the sale date, the auction must be conducted transparently and in accordance with the advertised terms. The highest bidder at or above the reserve price is declared the purchaser.

1. POST-SALE OBLIGATIONS
2. Application of Sale Proceeds

Under Section 97(3) of the Land Act, sale proceeds must be applied in the following order:

1. Costs and expenses of sale and auction;
2. Interest due;
3. Principal debt; and
4. Any surplus to the chargor.

The chargee must render proper accounts to the chargor.

Transfer and Discharge

Upon completion, the chargee executes the transfer in favour of the purchaser, discharges the charge upon full settlement, and facilitates registration of the transfer.

CHARGOR’S REMEDIES

A chargor retains the right to redeem the property before the fall of the hammer. The chargor may also challenge defective notices, undervaluation, or bad faith. Post-sale, remedies are generally limited to damages, rather than reversal of the sale.

CONCLUSION

The statutory power of sale is not merely a contractual right but a heavily regulated statutory process. Compliance with timelines, notices, valuation, and sale procedures is not optional. For lenders, strict adherence safeguards recovery; for borrowers, it provides critical protection against arbitrary deprivation of property. Ultimately, the statutory power of sale succeeds or fails on procedural precision.

Introduction

Banking and finance law in Kenya provides the legal framework that governs the relationship between financial institutions, their customers, and the regulatory environment within which banks operate. At the centre of this framework are due diligence obligations, prudential compliance, and institutional accountability in the banker–customer relationship. While banking relationships are fundamentally contractual, Kenyan courts have consistently affirmed that banks owe elevated duties of care arising from the trust reposed in them and their control over financial systems. Recent judicial decisions have underscored that failures in internal controls, mandate verification, or transaction monitoring may expose banks to liability, even where fraud is sophisticated or concealed. This article examines the legal foundations of banking and finance law in Kenya, with a focus on due diligence, bank liability, and emerging judicial guidance on how risk is allocated between banks and customers.

The Legal Foundations of Banking and Finance Law

The regulatory framework governing banks in Kenya includes the Banking Act, the Central Bank of Kenya Act, the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA), and the CBK Prudential Guidelines. Together, these instruments impose obligations relating to licensing, capital adequacy, risk management, internal controls, and consumer protection.

Beyond statute, banking law is shaped by common law principles, particularly in relation to contract, tort, agency, and restitution. Courts have consistently held that banks are expected to act with a high degree of professionalism due to the nature of their business and the public trust reposed in them.

Duties of Banks in the Banker Customer Relationship

While the banker-customer relationship is fundamentally contractual, courts have recognized that banks owe customers additional duties arising from the nature of their operations. These duties include:

• Duty to exercise reasonable care and skill in executing customer instructions;
• Duty to act in good faith, honestly, and without conflict of interest;
• Duty to safeguard customer funds against unauthorized access or misuse;
• Duty to comply with regulatory and prudential standards; and
• Duty to maintain effective internal controls to prevent fraud and error.

Importantly, banks are not expected to act as insurers against all loss. However, where loss arises from procedural failures, internal collusion, or negligent execution of mandates, liability may attach notwithstanding the existence of contractual disclaimers.

Due Diligence as a Core Banking Obligation

Due diligence is a foundational pillar of modern banking practice. It is not confined to customer onboarding but extends throughout the lifecycle of the banking relationship. For financial institutions, due diligence operates at several levels:

1. Customer Due Diligence (CDD)

Banks are required to verify customer identity, beneficial ownership, source of funds, and risk profile. This obligation is reinforced by AML/CFT laws and is critical in preventing fraud, money laundering, and terrorist financing.

1. Transactional Due Diligence

Banks must monitor transactions for consistency with account mandates and customer profiles. High-value or unusual transactions demand enhanced scrutiny, including call-backs, dual authorization, and escalation where necessary.

1. Institutional Due Diligence

Banks must implement robust internal governance structures, including segregation of duties, audit trails, staff supervision, and compliance monitoring. Weaknesses at this level expose institutions to operational and reputational risk.

Courts have increasingly treated failure of due diligence not as a mere regulatory lapse but as a legal breach capable of grounding liability. Justice A. Mabeya in Lim & another v Diamond Trust Bank Kenya Limited & 7 others [2025] KEHC illustrated the consequences of deficient due diligence. In that case, the bank processed premature liquidation of fixed deposits and transfererd to third parties without proper authority. Evidence revealed failures in mandate verification, call-back procedures, and internal oversight, coupled with collusion by bank staff.

The court held that the bank breached both its contractual and fiduciary like duties to the customer. Significantly, it rejected the argument that reliance on apparently regular instructions absolved the bank from liability. Instead, the court emphasized that due diligence requires active verification and vigilance, especially where large sums and fixed deposit instruments are involved. The judgment confirms that banks bear primary responsibility for losses arising from internal breakdowns, even where fraud is sophisticated or concealed.

A key contribution of the Lim decision is its clarification of risk allocation. The court affirmed that customers are entitled to assume that banks will adhere to their own safeguards and industry standards. Once a customer demonstrates lack of authority and resultant loss, the burden shifts to the bank to justify the impugned transactions.

This approach reflects a broader policy objective: placing risk on the party best positioned to prevent harm. In banking transactions, that party is ordinarily the bank, given its control over systems, staff, and compliance mechanisms.

The court also applied restitutionary principles to order recovery of funds from third parties who could not demonstrate bona fide receipt for value. While this offers banks a secondary avenue of recovery, it does not dilute the bank’s primary obligation to restore the customer’s funds.

The decision thus reinforces the principle that unjust enrichment has no place in banking transactions tainted by fraud or procedural failure.

Implications for Financial Institutions

The Lim case underscores the need for financial institutions to treat due diligence as a substantive legal obligation rather than a box-ticking exercise. Banks must continuously review and strengthen internal controls, staff accountability, and transaction monitoring systems.

For legal practitioners and compliance officers, the case provides authoritative support for claims grounded in breach of duty, negligence, and restitution, and signals heightened judicial scrutiny of banking practices.

Conclusion

Banking and finance law in Kenya continues to evolve in response to increasing commercial complexity, technological change, and heightened regulatory scrutiny. The courts have made it clear that the duties owed by banks extend beyond the mechanical execution of customer instructions to encompass due diligence, vigilance, and institutional responsibility. For regulators, these decisions reinforce the importance of robust compliance and internal governance. For banks, they underscore the legal and financial consequences of procedural lapses and system failures. For customers and businesses, they affirm the right to rely on the integrity of banking systems and the availability of effective legal remedies where that trust is breached. As Kenyan jurisprudence continues to develop, a proactive approach to compliance, risk management, and dispute resolution remains essential to maintaining confidence in the banking system.

ESK Advocates LLP advises banks, financial institutions, and businesses on all aspects of banking and finance law in Kenya, with particular focus on due diligence, regulatory compliance, and banking disputes. Whether addressing potential liability exposure, responding to suspected fraud, or enforcing customer rights, ESK Advocates LLP delivers strategic legal advice grounded in Kenyan law, regulatory expectations, and emerging judicial trends.