The High Court has dealt a blow to aggressive debt recovery methods used by the Kenya Revenue Authority (KRA), blocking the agency from directly raiding a taxpayer’s bank accounts to recover dues, citing due process violations.

The court nullified agency notices issued to NCBA Bank Kenya Limited and Stanbic Bank Kenya Limited, which had been directed to remit funds held in accounts belonging to Katahira & Engineers International Limited.

An agency notice is a directive issued by the taxman under Section 42 of the Tax Procedures Act, compelling a third party, such as a bank or employer, to recover unpaid taxes from a defaulter’s account and remit them to KRA.

The notices, issued on December 15, 2025, demanded Sh139.4 million from the firm’s accounts under powers granted by the Tax Procedures Act, triggering a freeze that disrupted its operations.

The company sued, arguing that the enforcement action ignored a binding decision by the Tax Appeals Tribunal that had already nullified the underlying tax assessment.

It said the move crippled its operations and disrupted contractual obligations after its bankers were directed to remit funds to the tax authority.

In its filings, the firm said the agency notices were issued “in blatant disregard of a valid, final and binding judgment” that had set aside the tax claims.

It argued that the tax authority had become functus officio and could not lawfully pursue recovery on a matter already determined. Functus officio is a legal term indicating that a party has exhausted its authority after issuing a final decision.

Katahira & Engineers International Limited added that the notices caused “grave financial and operational prejudice,” including disruption of banking and contractual obligations following the freezing of its accounts.

KRA defence

KRA defended its actions, saying the notices were based on fresh assessments and were lawfully issued after the company failed to settle outstanding taxes.

It also argued that the taxpayer had not followed proper dispute resolution channels before moving to court.

However, the court found no evidence that new assessments had been issued or that proper demand notices had been served on the company.

The court held that enforcement through banks is an extreme measure that can only be invoked after a clear assessment and demand process.

“There was no demonstration of any assessment or demand for payment,” the court found, noting that the authority “jumped the gun” by moving directly to recover funds from the company’s bankers.

The court said tax enforcement must comply with constitutional guarantees on fair administrative action, including transparency, lawfulness and procedural fairness.

Under the Tax Procedures Act, such notices allow KRA to appoint banks as agents to recover unpaid taxes from customer accounts.

However, the court emphasised that this power can only be exercised after a lawful assessment and demand, and upon failure by the taxpayer to settle.

Read: Tribunal upholds KRA’s Sh346m tax claim against IT firm

The company had argued that the notices were “illegal, irrational and procedurally unfair,” adding that they amounted to harassment and abuse of statutory power.

The court agreed, finding that the enforcement breached the firm’s rights to fair administrative action and property.

The court quashed the agency notices, effectively lifting the freeze on the company’s accounts.

An order of prohibition was also issued, barring the authority from enforcing or reissuing similar notices based on the same tax demand that had already been set aside.

The court further directed KRA to withdraw the notices issued to the banks.

However, it declined to award punitive damages, noting that the dispute arose from procedural illegality rather than malicious conduct.

jwangui@ke.nationmedia.com