Lodhi 5 Properties Investments CC and Others v Firstrand Bank Limited

Firstrand Bank advanced an interest-free loan of R9.6 million to Lodhi 5 Properties Investments CC under an Islamic finance (Shari’ah-compliant) structure for the purchase of immovable property. The transaction involved a loan agreement and an associated agency and administration services agreement, with Lodhi 4 Properties Investments (Pty) Ltd and Mr Muhammad Islam Lodhi bound as sureties and co-principal debtors. Lodhi 5 defaulted on payments after 2009, save for a R5 million insurance payout credited to the loan. The bank issued statutory demands under the Close Corporations Act and Companies Act. When no payment followed, the bank applied for the final winding-up of Lodhi 5 and Lodhi 4 and judgment against Mr Lodhi. The appellants disputed that the agreements were valid and enforceable, denied that the debt was due and payable, and contended that interest could not be claimed due to Shari’ah law. The High Court granted winding-up orders and judgment against Mr Lodhi. The appellants appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, save that the order against Mr Muhammad Islam Lodhi was amended. He was ordered to pay Firstrand Bank R2 642 006.98 together with interest at 15.5% per annum from 15 June 2012 to date of payment. The final winding-up orders against Lodhi 5 and Lodhi 4 were confirmed.

The case clarifies that even in Shari’ah-compliant, interest-free loan arrangements, a creditor may recover mora interest as damages for delay in payment. It confirms that restitution is available where loan agreements lapse after performance, and that sureties may be held liable for restitutionary claims depending on the wording of the suretyship. The judgment also reinforces the principles governing statutory demands and commercial insolvency in winding-up proceedings.