KCB Group could pay over Kshs 5.2 billion to banking software vendor Nagalakshi Solutions

Kenya Commercial Bank (KCB) has been ordered by a Nairobi Court to stop using a banking system provided by Indian-based IT firm Nagalakshi Solutions Limited (NLS).

The court order, issued in the last week of March, bars KCB, Kenya’s largest bank in terms of assets, from using the NLS banking software to provide banking services, including cash withdrawals and deposits, as the contract between the two institutions expired in November last year.

High Court Judge Fred Ochieng ordered the bank to uninstall the software immediately until the case is heard, a move which could essentially cripple the bank from offering various services to its account holders.

“Pending the hearing and determination of this suit the defendant (KCB Bank) by themselves or their agents or servants or otherwise be restrained from using the plaintiff’s (Nagalakshmi Solutions Ltd) computer software…KCB Bank provides a systems audit report from an independent and credible systems auditor confirming that all of Nagalakshmi Solutions Ltd software applications and developments have been stripped out of the bank’s servers. Central processing and data recovery sites,” Justice Ochieng ordered in his ruling, according to media reports.

NLS through its lawyers Lumumba and Lumumba Advocates has put an injunction on KCB stopping the bank from what it terms “further fraudulent use of its banking software” after they terminated the deal in November 2016.

NLS argues that it has incurred huge financial losses due to KCB’s continued use of its software and now claims Kshs 2 million per day or Kshs 244 million for the 122 days the lender has used the software since the contract expired in late 2016.

“The notice of termination lapsed on November 27, however the plaintiff has continued to use the software in breach of the agreement of March 2011 and plaintiff’s intellectual property rights,” says NLS in the court documents.

NLS further accuses KCB of giving out negative testimonials and references to potential customers regarding the quality and efficiency of the solution, even though it’s the same system apparently being used by the Central Bank of Kenya (CBK). For this, the firm is demanding a Kshs 5.2 billion (or US $51.6 million) in lost business as KCB was its first major client then went ahead to offer negative testimonials to potential clients leading to loss of business.

To reach an amicable settlement between the parties, KCB has now filed a petition seeking to have the matter resolved through an arbitrator according to Business Daily.

In a further twist to the saga, there are reports to the effect that KCB Group had proposed to acquire the banking software vendor, a move that made sense to the banks major shareholders as almost 90 percent of the bank’s businesses are processed through the NLS system. The acquisitions talks however fell through.

NLS won the KCB Group contract on May 18, 2011, and has been the group’s core banking system provider until the deal was terminated on November, 27, 2016.

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