Exemptions Must Serve Public Interest: High Court Invalidates Cba-nic Merger Stamp Duty Waiver

Okoiti v Cabinet Secretary, National Treasury & 5 others (Petition 337 of 2019) [2025] KEHC 4444 (KLR) (Constitutional and Human Rights) (4 April 2025).

The Court declares Legal Notice No. 112 of June 2019 Unconstitutional, ruling that the stamp duty exemption granted for the CBA–NIC merger failed to meet the public interest test. In a strongly worded judgment, the Court held that “a matter will not be in the public or general interest of the people if, behind the beautiful veil of public interest, lies a privately vested interest.”

Facts of the Case:

The petition challenged the stamp duty exemption granted in relation to the merger between Commercial Bank of Africa (CBA) and NIC Group PLC. On 26th June 2019, following a recommendation by the Cabinet Secretary for Lands and Physical Planning, the Cabinet Secretary, National Treasury published a Gazette Notice exempting registrable instruments related to the merger from stamp duty. As a result, assets and stocks involved in the merger valued at over KES 7 billion were exempted from stamp duty.

The petitioner argued that the exemption violated several constitutional provisions, asserting that it lacked a proper legal basis and failed the test of transparency. The respondents, however, contended that the exemption was lawful and in the public interest, as provided under Section 106 of the Stamp Duty Act.

The Law

Section 106 of the Stamp Duty Act under the sub title “Power to exempt instruments” provides as follows:

(1) The Minister may on the recommendation of the Minister for the time being responsible for matters relating to land, by notice in the Gazette, direct that any instrument or any class of instruments shall be exempted from the provisions of this Act if he is satisfied that it is in the public interest so to do.

Petitioner’s Submissions:

The petitioner contended that the exemption violated the constitutional principles of transparency, accountability, and public participation.

The Petitioner also argued that the Cabinet Secretary had failed to demonstrate the basis for the exemption and did not provide a justification grounded in law or public interest. Additionally, the petitioner pointed out that there was no valid Act of Parliament authorizing such an exemption as

required by Article 210 of the Constitution, nor was there compliance with the Public Finance Management (PFM) Act.

Respondent’s Submissions:

The respondents defended the exemption as lawful, citing Section 106 of the Stamp Duty Act, which empowers the Cabinet Secretary to exempt certain instruments from stamp duty if it is considered to be in the public interest.

They maintained that the exemption was granted based on recommendations from the relevant authorities, with the stated reasons including the promotion of public interest through facilitating the merger, fostering economic growth, and enhancing financial stability.

The respondents also argued that public participation was not necessary for such exemptions and that the Cabinet Secretary maintained transparency through annual reports to the Auditor General.

The Court’s Analysis and Determination

Upon considering the petition, responses and arguments by parties, the Court narrowed down the issue for determination to whether exemption of stamp duty on instruments for the merger was unconstitutional and whether section 106 is constitutionally invalid.

The Court recognized that Section 106(1) of the Stamp Duty Act grants the Cabinet Secretary, National Treasury discretionary power to exempt any instrument from the provisions of the Act. However, this discretion must be exercised on grounds of public interest, as stipulated by the Act. While the Act does not define “public interest” the Court interpreted it to mean the general welfare of the people, for whose benefit a public officer exercises their powers and performs their duties.

The Court emphasized that any exemption under section 106 of the Stamp Duty Act must satisfy the public interest test. The court noted that, while the respondents argued that the exemption would benefit the public by encouraging mergers and reducing costs, the primary beneficiaries of the exemption were the merging entities, CBA and NIC Group PLC, rather than the general public. The reasons given for the exemption, such as cost-saving and positioning the merged entity for expansion, were deemed to primarily serve private commercial interests.

The Court held that it was unclear how the public would benefit if the merged companies expanded their operations beyond Kenya and the region, or if the cost of the merger were significantly reduced. The Court further maintained that, in reality, the country would have lost revenue. The Court emphasized that a matter cannot be deemed to be in the public or general interest if, behind the veil of public interest, there lies a privately vested interest.

The Court did not mince its words when it stated that;

“… it is clear to this court, that the exemption did not only fail the public interest test, it also failed the constitutional principle on sharing of tax burdens since the element of public interest was absent when the exemption was granted. The exemption violated both the Constitution and the law as it was to serve a private interest of the merging entities and was not for the public interest.”

On the issue of the constitutionality of Section 106 of the Stamp Duty Act, the Court found that, according to established legal principles, such an issue can only be raised through pleadings and not otherwise. The Court referenced Raila Odinga & Another v Independent Electoral and Boundaries Commission & 2 Others (Petition No. 1 of 2017) eKLR, where the Supreme Court affirmed this legal position. The Court determined that the constitutionality of Section 106 had not been pleaded in the petition and, as a result, declined to consider whether the section was constitutional.

Conclusion and Orders

The Court concluded that the exemption of stamp duty on the instruments executed in respect of the merger between CBA and NIC Group PLC violated section 106(1) of the Stamp Duty Act and Article 201 of the Constitution. The exemption was deemed unconstitutional and invalid for failing to meet the public interest requirement and the constitutional principles of financial accountability.

The Court issued the following orders:

i. The exemption granted through Legal Notice No. 112 dated 26th June 2019, exempting payment of stamp duty on the merger instruments, was unconstitutional and invalid.

ii. An order was issued quashing Legal Notice No. 112 of 26th June 2019.

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