South Sudan’s banking regulator has threatened to suspend Stanbic Bank’s licence within 14 days in an escalation of a Sh722 million dispute pitting the lender and an airline.
In his letter to the lender, Bank of South Sudan (BOSS) Governor John Ohisa directed Stanbic Bank South Sudan to immediately cooperate with the country’s investigative bodies concerning the dispute between it and Air Afrik.
He also directed Stanbic to re-register its subsidiary as a stand-alone unit in compliance with the country’s laws and discussions.
The governor said BOSS would crack the whip if the lender did not heed the directives.
“As the regulator, we hereby direct Stanbic Bank South Sudan to immediately co-operate with the Financial Intelligence Unit (FIU), the Anti-Corruption Security Division, and all relevant investigative and legal authorities by ensuring full disclosure and documentation relating to the allegations and recording of statements by required personnel from your bank,” said Ohisa.
“Failure to comply with these directives will result in immediate and decisive action within two weeks of receipt of this letter, including the suspension of Stanbic Bank South Sudan’s banking licence.”
The lender in its reply said it is complying fully with the security agencies. However, the bank’s head of Brand and Marketing Lilian Onyach said the dispute between it and Air Afrik was a civil one and ought not to be criminalised.
“It is our view that the matter is civil and should be treated as such in any jurisdiction which calls for the requisite judicial process aligned to a civil dispute. Stanbic Bank is committed to complying with South Sudan laws, regulations and guidelines of BOSS and looks forward to the amicable conclusion of our discussions,” said Onyach.
On re-registering the subsidiary as a stand-alone entity, Onyach said they were in discussions with BOSS to resolve the issue. Nevertheless, she maintained that the bank is vouching for the maintenance of the current arrangement.
“Regarding the conversion of the branch into a subsidiary, we confirm we are engaging with the regulator with a view of eliciting an amicable resolution,” she noted.
While we have expressed our preference to maintain our current branch structure, we are committed to a mutually beneficial agreement on the matter. We have committed to provide a comprehensive update to the Bank of South Sudan by January 31, 2025.”
The dispute revolves around BOSS, Air Afrik and Stanbic. It has resulted in multiple cases, with the lender’s chief executive Joshua Oigara obtaining orders barring Kenyan authorities from either questioning or arresting him over the dispute.
High Court
There is also a separate battle between Stanbic and Air Afrik at the Court of Appeal.
Stanbic moved to the Court of Appeal, arguing that a High Court ruling had made it impossible for it to tell its side of the story.
According to the lender’s lawyer Kamau Karori, the orders by Justice Nixon Sifuna meant that it had to get the approval of Air Afrik to file its witness statement. According to him, this was unheard of. Air Afrik argued that the bank intended to delay the case by filing an appeal. According to the firm, the High Court had already heard at least five witnesses. Air Afrik alleged that Stanbic had not adduced evidence to show that it would be prejudiced by the orders issued in the lower court.
In the case, Afrik said it offers airline carriage and chartered flight services in South Sudan and the East African region. Its main route is Nairobi Juba.
It claimed that in 2014, the South Sudan government inked a deal to lease several aircraft for a year but with a likelihood of being extended for five years. According to the firm, the total cost for the deal was around Sh2 billion.
The court heard that the agreement was renewed and the South Sudan government committed to pay a 35 per cent deposit for the same. That was at least Sh722 million.
The firm said it maintained its account with Stanbic Bank in Juba and the Salva Kiir government wired the money on February 8, 2016.
Afrik said the lender reversed the money on May 27, 2016, on a claim that the money had been paid in error.
The South Sudan firm stated that Stanbic first wired back Sh600 million and then debited close to Sh100 million from its account stating that he had mistakenly withdrawn the money.
Afrik in its case said it lost money plus the business. Meanwhile, Stanbic decried harassment by South Sudan authorities over the dispute. The bank said it had received a summons from the South Sudan prosecution attorney, which it claimed was a similar intimidatory tactic employed by the Kenyan counterparts.
The lawyer said the investigative body is probing a false complaint which had already been previously investigated and the bank cleared. He asserted that Air Afrik had filed a complaint with the Central Bank of Kenya over the same issue.
Still, he said, the regulator threw it out after finding that the bank had done nothing wrong by debiting amounts it had erroneously wired to the firm.
At the same time, he argued that Air Afrik filed a separate case before the commercial court and was handled by Prof Sifuna. Kamau said Oigara he wasn’t working with Stanbic at the time the transaction is alleged to have happened.
According to Stanbic’s legal officer Janet Wanjohi, the row stemmed from a transaction in 2016.
Wanjohi explained that Air Afrik was Stanbic’s customer and it operated a business account in Juba, South Sudan in its South Sudan branch.
She narrated that on February 5, 2016, Stanbic received a credit advice note from South Sudan’s banking regulator advising it that its clearing and settlement account had been credited with $7.2 million (Sh770 million) for Air Afrik.
The officer said that three days later, Stanbic credited the aviation company’s account with the money after deducting its commission.
Subsequently, Wanjohi said, Air Afrik withdrew at least Sh101 million from the account.
However, she explained that Stanbic realised that BOSS had not remitted the money it had instructed it to wire Air Afrik.
The court heard that the lender opted to freeze any further withdrawals and it notified the aviation company that the money in the account would be reversed.
The Banking Fraud Investigations Unit has been blocked from questioning Stanbic chief executive officer Joshua Oigara or any of the lender’s employees, over millions of shillings deposited into an airline’s account and later reversed, pending the determination of a petition by the bank.
High Court judge Bahati Mwamuye also restrined the Director of Public Prosecutions (DPP) Renson Ingonga from instituting criminal charges against Mr Oigara or any directors, staff or employees of Stanbic, pending the hearing of the case.
The lender moved to court last month to stop the banking fraud unit (BFIU) at the Directorate of Criminal Investigations (DCI) and Mr Ingonga from instituting charges against Mr Oigara, its directors or staff in a dispute with Air Afrik Aviation Ltd.
The bank argued that the DCI was seeking to investigate a matter that is pending before the High Court.
The lender’s lawyer, Hiram Nyabui, informed the court that police officers had camped at the bank’s offices seeking to arrest the officials, a move that would render the petition useless.
The judge said the DPP can make an application for the discharge of the orders.
“That this honourable court be pleased to issue conservatory order staying the execution or implementation or the requisition to compel attendance addressed to the 2nd petitioner (Mr Oigara) by the Banking Fraud Investigations Unit of the 1st respondent (DCI), pending the inter-partes hearing and determination of this application,” the lender said.
The bank said BFIU issued the summons for Mr Oigara to appear for questioning and statement taking on October 17.
However, the lender said it found the timing suspicious, coming a week after Stanbic opened its defence in the matter pending before the High Court.
Further, the lender said that the matter had been investigated by the Central Bank of Kenya in 2016 following a complaint by the airline and the parties were allegedly advised to resolve the matter amicably or pursue a civil case.
He said Mr Oigara failed to appear as directed by the DCI and the police issued a fresh summons.
“The subject matter of the requisition pertains to the very matters that were the subject of the investigations that were concluded on December 6, 2016, more than eight years ago as well as the civil suit that is currently part-heard before the High Court,” the bank said.
The lender said the purported statement taking is intended to harass and intimidate Stanbic and interfere with its ability to defend the proceedings pending before court.
Further, that is also intended for ulterior purposes of embarrassing the bank and coerce it to abandon the defence of the civil suit or settle the matter, the lender added.
“The intended parallel criminal proceedings are calculated to embarrass, humiliate, vex and eventually force the petitioners to concede to the interested party’s claims in the civil suit,” Janet Wanjohi, the bank’s head of legal said in an affidavit filed in court.
Ms Wanjohi added that the move amounts to impunity on the part of the police and prosecution.
The managing director of Air Afrik, Eric Lugalia, said in response to the petition that the police should be allowed to do their job.
“That it is only in the interest of justice that if the petitioners/applicants do not have anything to hide, let them answer the issued summons thereof,” said Mr Lugalia.
The airline was a customer of the bank and operated an account at its branch in Juba, South Sudan.
On February 5, 2016, the bank received a credit note from Bank of South Sudan (BoSS), advising it that the airline’s clearing and settlement account at BoSS had been credited with $7.22 million (about Sh931 million).
The lender then credited Air Afrik’s bank account with the amount.
Stanbic said the airline allegedly carried out large value transactions on its account and withdrew a total of $1.1 million (Sh141 million).
The lender said it later realised that no actual funds had been remitted by BoSS as alleged and reversed the funds to prevent further withdrawals as the funds ‘were paid in error”.
The airline sought damages for losses it suffered after a plane leasing contract of $20 million with South Sudan government was terminated after the funds were withheld.
The parties then tried unsuccessfully to resolve the dispute before Air Afrik lodged the complaint with the CBK.
Justice Mwamuye directed the matter to be mentioned on December 10, for further directions.
Homabay MP Peter Kaluma and a leading anti-LGBTQ campaigner in parliament has questioned the sexual orientation of media personality Maina Kageni and Stanbic Bank CEO Joshua Oigara.
Kaluma was reacting to a suggestive photo that Maina had posted posing with Joshua who had gifted him the bank’s hamper.
“Sometimes it’s the unexpected acts of kindness that touch us the most. I’m blown away by the beautiful gifts and heartfelt thanks I received from Mr. Joshua Oigara and the team at Stanbic Bank. I’m humbled by your generosity and friendship. Thank you from the bottom of my heart!” Maina wrote.
This appears to be part of a Stanbic Bank’s marketing campaign. However, the MP could appear unconvinced, “are you guys homosexuals?” He posed.
But it was not just the MP who had a similar reaction. Curious comments came under Maina’s post on X.
The photo.
“This is the most awkward gifting posture I have ever seen.” Josh Tety commented.
“Remember both of them are not married ? This is a clear sign.” wrote Kibet.
“Y’all look amazing together❤” Josh reacted.
“Haiya…what is this now…that pose yawa.” Pius Kinuthia reacted.
The new bill proposed a ban on homosexuality, same-sex marriages and any hint of LGBTQ behaviour in the country. It also prohibits the promotion of LGBTQ in the country by clumping down on its promoters and funding by various groups.
The bill if passed will uphold the prior rights of parents and guardians to their children’s education.
It will reassert the rights of parents to be informed and to consent to sexuality education, and abortion procedures involving their children.
Homa Bay MP Peter Kaluma.
According to Kaluma, the bill defines sex as the biological state of being male or female observed and assigned at birth.
The MP also wants the state to limit rights to assembly, demonstration, association, expression, belief, privacy, and employment in childcare institutions in respect of homosexual convicts.
The bill further prohibits adoption by homosexuals and proscribes sex acts on animals.
The legislator said the bill if passed will have the penalty imposed under the proposed Act ranges from the imprisonment of at least 10 years to death.
Kaluma has since maintained that homosexuals should be punished because it is illegal in Kenya.
A secured creditor wants KCB appointed receiver manager Ramana Rao summoned over a report concerning the accounts of Mumias Sugar company, which he filed in court in January.
Vartox Resources Inc, one of the creditors of the ailing miller says Rao should appear in court and explain the books of accounts of the miller for the last two years.
In an application supported by rival West Kenya sugar company, Vartox also wants KCB group chief executive officer Joshua Oigara to appear in court for cross-examination.
Through lawyer Ismael Abbas, Vartox also claimed that Rao has failed to produce a detailed valuation report as ordered by the court.
Abbas submitted that it has become necessary for Rao to be cross-examined on the inconsistencies, falsehood and coverup that he has engaged in during his time as receiver manager of Mumias Sugar.
He said Rao’s recent actions to lease the assets of Mumias Sugar to Sarrai Group Limited is littered with inconstancies.
“As the applicant’s application dated January 28, 2022 is under insolvency Act 2015, there is no provision for a viva voce hearing unlike in civil cases and the applicant does not have ant way to question Rao on the many inconsistencies to bring him to account for his law as administrator and receiver of Mumias,” said Abbas.
He further submitted that Rao has conducted himself in a manner meant to disenfranchise other creditors and stakeholders of Mumias Sugar, who have a debt portfolio exceeding Sh30 billion.
Abbas said the affairs of Mumias are of significant public interest as held by the court in a ruling on 19 November 2021.
Senior Counsel Paul Muite, who represents West Sugar supported the application saying Rao and KCB should come and explain the inconsistencies.
West Sugar has challenged the lease to Sarrai Group wondering how as the highest bidder, the miller missed out on the 20-year lease.
“He should not only be removed as an administrator, his conduct makes him unsuitable for a receiver or administrator,” Muite submitted.
Muite questioned what Rao is hiding since he has not availed the lease documents as requested
He urged the court to direct Rao to produce all documents supporting every entry that appears in his “abstract” filed with the court on January 18, 2022.
Muite said other than cross-examination, the two should also produce all documents including e-mails, letters and all correspondence exchanged with Rao, all board resolutions and approvals given to the administrator in relation to the leasing of Mumias’ assets to Sarrai Group.
Rao was given the nod to lease Mumias Sugar after receiving bids from several entities.
“Rao has leased the Company’s sugar factory and related assets to the lowest bidder in circumstances that point towards fraud since the 20-year lease executed will expire with Mumias continuing to be mired in debt with its assets potentially wasted and the only financial beneficiaries of the 20-year lease are the lowest bidder and the 1st Respondent. None of Mumias’ historical debts will ever get repaid in those 20 years,” added lawyer Abbas.
Rao allegedly discarded the highest bidder’s bid on the basis that it would not achieve the goals of the lease which was to turn around the Company to profitability.
Rao proceeded to award the bid to the lowest bidder after carrying out a technical evaluation but which losing bidders say was marred by opacity and serious anomalies.
The lawyer said Rao has not explained to Vartox or any of the other creditor how a bid of Sh6 billion over a period of 20 years will revive Mumias whose debts are in excess of Sh30 billion.
“In attempting to justify his flouting of the court orders, the 1st Respondent has relied on provisions of the repealed Companies Act that no longer exist in law. He has attempted to justify filing an abstract because Section 351 of the repealed Companies Act provided for the filing of abstracts,” lawyer Abbas added.
He added that Rao needs to be cross-examined on the basis for his reliance on repealed statutes which impact on his competency to act as a receiver considering he is unable to follow simple court directions and is relying on repealed statutes to carry out his duties.
He pointed out that Rao spent more than Sh 71 million paying lawyers and unnamed consultants and has also procured valuation reports after paying Sh21.9 million.
“Despite requests to him to supply details of these payments and the valuation reports, Rao has ignored these requests”.
Rao, he said, operated Mumias’ assets as though Mumias is his personal property.
“Apart from operating the Ethanol plant when he had no mandate to because KCB’s security did not extend to the Ethanol plant, he has refused to account for any of the proceeds from the operation of the Ethanol plant,” he said.
“Furthermore, he has borrowed money through an overdraft from KCB to the tune of Sh216 million in unclear circumstances, thereby further compounding Mumias’ woes and increasing its debt portfolioand the interest alone on the KCB overdraft amounts to Sh. 23 million, a figure that is more than 1 months’ lease rental that is being paid by the lowest bidder.
He said Rao should be crossexamined so that he can explain in detail the borrowings, what he has used the money for and how it impacted Mumias’ balance sheet as well as when the applicant’s outstanding debt will be cleared based on the current lease to the lowest bidder”, he added.
No cross-examination
Last momth, PVR Rao opposed calls by creditors of the miller to be cross-examined over its accounts for the last two years.
Two creditors- a lawyer who previously acted for the company and who is owed Sh96 million and a supplier, sought to cross-examine Mr Rao over the accounts he filed in court last month.
Lawyer Jackline Kimeto wanted Mr Rao to answer questions surrounding professional and legal fees, which run into millions of shillings, donations, public relations expenses, security costs amounting to more than Sh150 million, repairs and maintenance of the distillery and the factory, among others.
It is also her view that the money the receiver generated in the last two years should have paid KCB’s debt.
Another law firm, Wekesa and Simiyu Advocates also wants Mr Rao to demonstrate the time frame that the highly contested lease will take to repay KCB’s debt.
Also sought is a copy of the evaluation criteria prepared at the time of making the invitations for bids to lease the assets of the company and Mr Rao’s charges per year, since his appointment as the receiver up to December 31, last year.
“Please furnish copies of the consents procured by yourself and the successful bidder from the Competition Authority and the Capital Markets Authority and any other statutory bodies as condition precedents prior to entering any lease and handing over the company assets to Sarrai Group,” the letter adds.
Mr Rao awarded the 20-year lease to Sarrai Group in December but several bidders have challenged it in court.
Wekesa and Simiyu advocates wrote a letter to Ramana Rao demanding the manager to demonstrate the time frame in months and years that the highly contested lease will take to “extinguish the lawful indebtedness of Mumias Sugar Co.Legal battle over the Mumias Sugar Company lease award continues to rage on,with Wekesa & Simiyu Advocates law firm now demanding a copy of the lease agreement entered between the receiver-manager Ponangipalli Venkata Ramana Rao & Sarrai Group in December, 2021.
Mr PVR Rao, the administrator of Mumias Sugar, told the High Court that it is not correct to assume that the highest financial bid should have won the 20-year lease, but he had to consider the technical aspects, besides the financial proposal.
His lawyer, Senior Counsel Kimani Kiragu, said it was his considered opinion that West Kenya, which bid Sh36 billion for Mumias, was not interested in the revival of the miller but intended to stall the operations to ensure it continues to enjoy the monopoly in the sugar industry.
“I clearly indicated that the bids I received would go through both technical evaluation and financial evaluation. It is not correct to proceed, as West Kenya and Tumaz & Tumaz have done, on the basis that the highest financial bid alone would be the winner,” Mr Rao said in an affidavit.
Mr Kiragu further said West Kenya failed to demonstrate how it would pay Sh150 million per month, and Sh1.8 billion per annum, for the lease as captured in its financial bid.
In the affidavit, Mr Rao said he was aware that the Rai Group, which is linked to West Kenya, took over Pan Paper Mills Limited in Webuye in 2016, but the paper-making company has not been in operation for more than 11 years.
The court heard that the bid was for the leasing of assets for 20 years, and not for a sale, as mistaken by farmers and suppliers who filed the case challenging the lease to Sarrai Group.
Mr Kiragu said the Mumias Sugar assets are mainly industrial and are prone to degradation due to corrosion if they are left non-operational for a long time.
He disputed claims that he rushed the process but took about a month to finalise the evaluation and award the lease to the Sarrai Group.
He said Tumaz & Tumaz a company associated with businessman Julius Mwale was trying to fill the gaps in its bid by submitting a fresh one through the court case, and that the company was trying all means to scuttle the process by filing the court cases.
Jaswant Rai of West Kenya has faulted the lease saying the bidding process was shrouded in secrecy and lacked accountability and transparency.
Pulling back revival of Mumias Sugar
When lawyer Jackline Kimeto filed an insolvency petition against Mumias in April, 2019, she was hopeful that her move would pressure the miller into paying her Sh76 million debt.
The miller’s shame
Ms Kimeto had defended Mumias in a suit filed by Kenya Power in 2015, seeking Sh1.1 billion in unpaid electricity bills. She also handled other cases for the company.
But her petition pulled a thread that would eventually undo the seams holding together what was left of Mumias’ clothing, exposing the miller’s shame: It was flat broke and headed down the murky waters of bankruptcy.
More than 80 creditors joined the insolvency suit. Five months later, KCB placed Mumias under receivership. The lender appointed Ponangipalli Venkata Ramana Rao as receiver manager.
On September 25, 2019, the NSE suspended trading of Mumias’ shares on account of the receivership. Mr Rao’s first move was to fire all 900 workers as he started reviewing the miller’s books and operations. The number of staff was a pale shadow of Mumias’ heyday, when more than 9,000 people were on its payroll.
Unhappy with KCB’s move, Ms Kimeto filed an application challenging the manner in which the lender placed Mumias under receivership. She filed a second application seeking to have an administrator appointed to take over the miller’s management.
High Court judge Mary Kasango issued orders temporarily barring Mr Rao and KCB from selling or transferring Mumias’ assets, pending determination of Ms Kimeto’s application.
As the lawyer’s application was still lingering in legal red tape, a section of creditors was growing disgruntled with Mr Rao and KCB. They felt that the receiver manager was biased towards KCB at the expense of other creditors.
Creditors resolved in an October 16, 2019 meeting to have an administrator who would be answerable to anyone owed money by the collapsed miller.
Barely three weeks later, Mumias lenders met with representatives of the Kakamega County government and resolved to form a steering committee that would oversee the revival of the miller.
The committee was to have Ashitiva Mandale, George Kashindi, Lynette Okiro and Ms Kimeto. The final slot was reserved for a representative of the National Treasury. The group would work with Mr Rao.
When Mr Rao took control, the firm had not produced sugar for more than a year. More than 25,000 farmers dumped Mumias over non-payment of their dues. Strangely, ethanol had become the biggest and only reliable source of income for the miller.
Blessing in disguise
The receiver manager halted the remaining operations, pending a restructuring process that would be guided by a detailed review of issues affecting the company.
On March 15, 2020, President Kenyatta announced a partial economic shutdown after Kenya reported her second and third Covid-19 cases. It was doom for most companies.
But for companies like Mumias, it was a blessing in disguise because ethanol suddenly became the most sought after raw material because there was not enough hand sanitiser to satisfy the local demand.
Even the police were surrendering ethanol confiscated from illicit brewers to make more sanitiser. Mumias had resumed ethanol production one month before the partial economic shutdown. At some point, the miller was producing 150,000 litres of ethanol a day.
There was, however, a pause between December 2020 and February 2021 following a molasses shortage. Mr Rao eventually sourced for molasses from rival millers and resumed the ethanol production.
Mumias also received a huge boost from the Kenya Revenue Authority (KRA), which opted to waive a Sh11 billion tax bill, a huge chunk of the miller’s debts. In April last year, Mr Rao said he intended to lease out Mumias’ assets for a 20-year period that would ensure the miller’s survival and repayment of debts.
Tycoon Narendra Raval emerged as the most interested candidate through his Devki Group of Companies. Court proceedings would later reveal that the Devki Group had placed a Sh60 billion bid for the 20-year lease. But Mr Raval’s firm did not want the public scrutiny that stakeholders were demanding and withdrew the bid on June 4.
Mr Rao was then summoned by the Senate to explain the leasing plans. He revealed that he had sourced for potential strategic investors.
The companies he had approached were the Devki Group, Catalysis Group (Russia), Sarrai Group (Uganda), Kruman Associates (France), Kibos Sugar, Third Gate Capital Management, Godavari Enterprises and Premier JV (India).
On June 18, activist Okiya Omtatah filed a suit at the High Court’s Constitutional and Human Rights Division in Nairobi seeking to have Mr Rao removed, and the National Treasury compelled to revive Mumias.
Conflict of interest
He argued that Mr Rao had acted unprofessionally by failing to explain the formula used to settle on the eight bidders. He also raised a potential conflict of interest on the receiver’s past dealings with the Devki Group.
Mr Rao had sold scrap metal to Devki Group while managing affairs of Kwale Sugar during a past receivership spell. Mr Omtatah also argued that Mr Rao had failed to issue any specific details to the public on Mumias’ state of affairs since taking over as receiver manager.
Devki Group Chairman Dr. Narendra Raval.
After Mr Rao conducted a fresh tendering for leasing, Mr Omtatah successfully sought orders compelling him to file financial statements and bids placed by the bidding companies. The documents would reveal that Mr Rao settled for the third lowest bid price of Sh6.2 billion, floated by Uganda’s Sarrai Group.
One of Mumias’ key suppliers, Gakwamba Farmers Cooperative Society, would join Mr Omtatah in protesting the manner in which Mr Rao was handling the deal.
Gakwamba filed a suit in the Commercial & Admiralty Division of the High Court in Nairobi on August 2 last year, faulting Mr Rao for entering negotiations with Devki Group and sought orders barring any deal.
“Mr Rao and KCB have not carried out an objective cost-benefit analysis to determine whether the so-called strategic investor is the most effective way of reviving MSCL and ending the suffering of its sugar farmers and other stakeholders,” the society argued.
Gakwamba owns 1,000 ordinary Mumias shares. Farmers under the group are also owed over Sh25 million for cane supplied. The group argues that Mr Rao should not be allowed to lease out Mumias assets through private treaty, and only a process accessible to the public should be implemented.
Justice Wilfrida Okwany agreed with the farmers. On September 23, the judge ordered that Mr Rao open bids in the presence of all bidders. Interestingly, the bids remained a closely guarded secret before Mr Omtatah later secured orders compelling Mr Rao to file the information in court.
Three days after the farmers filed their case, Mr Rao advertised a fresh procurement process for the leasing deal. Not all were happy with the move. Lawyer John Khaminwa had at this point joined the insolvency petition against Mumias. He is owed money by the miller, but wanted to support its revival rather than liquidation.
On September 16, Mr Khaminwa filed an application in the insolvency suit seeking to have Mr Rao cited for contempt of court. The lawyer argued that the court orders stopping sale and transfer of the company’s assets also covered leasing deals, hence Mr Rao was in violation.
Insolvency suit
Mr Rao and KCB opposed the application, holding that during the lease period all assets would still be owned by Mumias. A week later, KCB and Mr Rao filed an application in the insolvency suit, seeking to stop the Senate from further summoning them or interfering with the Mumias receivership.
The two argued that the Senate was interfering with their rights by giving instructions on how to handle the collapsed miller’s affairs. The Senate had on September 29 – a day before Mr Rao and KCB filed their application – requested the receiver manager to comply with the court orders.
Justice Alfred Mabeya had taken over the insolvency suit, and delivered one ruling to handle four applications – Ms Kimeto’s seeking to stop selling of Mumias assets, her request for appointment of an administrator, Mr Khaminwa’s contempt of court allegations and Mr Rao’s bid to stop Senate summons and directions.
In his November 19, Justice Mabeya agreed with Ms Kimeto on the need for an administrator. He, however, appointed Mr Rao the administrator while upholding his role as receiver manager.
The judge held that the Senate had not done anything to indicate interference, as it had only sought clarity from Mr Rao and requested that he comply with court orders. But the judge issued orders barring the Senate from directing Mr Rao on how to conduct business in his receiver manager capacity.
Mr Khaminwa’s contempt of court application was also dismissed, as Justice Mabeya ruled that the leasing would not lead to a sale or transfer of Mumias assets. “Mr Rao is at liberty to proceed with the process of leasing the Company’s assets subject to strict observance of the Competition Act, 2010 Laws of Kenya,” the judge said.
The fresh bidding round attracted six companies. The Jaswant Rai family’s West Kenya Sugar proposed Sh36 billion and became the highest bidder following the Devki Group’s exit.
Tumaz and Tumaz Enterprises, owned by Butere-based businessman Julius Mwale, was the second highest bidder with Sh27.6 billion. A group of French and Turkish investors, through Kruman Finances Limited, bid Sh19.7 billion.
The Sarrai Group, owned by Jaswant Rai’s brother Sarbi, bid Sh6.2 billion. Only Kibos Sugar and Pandhal Industries had lower bids than Sarrai’s as they each wanted to pay Sh5.9 billion. The Sarrai Group got an early, but short-lived Christmas gift as Mr Rao declared the Ugandan firm the best bidder on December 22.
The firm was to take over Mumias operations, excluding ethanol production. Rumours of disgruntled bidders threatening court action started flying almost immediately. Tumaz and Tumaz Enterprises was the most vocal, stating that it was one of the highest bidders.
Kakamega County filed a suit at the Vihiga High Court seeking to stop Mr Mwale’s firm from interfering with Mr Rao’s decision.
Highest bidder
Mr Rao filed a similar suit in Nairobi, arguing that Mr Mwale was planning to disrupt his plans to rescue Mumias through the leasing deal. On January 14 this year, five farmers challenged Mr Rao’s decision to pick Sarrai, arguing that the receiver manager conducted an opaque process.
Lambert Lwanga Ogochi, Augustino Ochacha Saba, Prisca Ochacha, Robert Mudinyu and Wycliffe Barasa Ngong filed yet another suit. Justice Wilfrida Okwany issued orders barring Sarrai Group from starting operations.
West Kenya, Tumaz and Tumaz Enterprises, Gakwamba Farmers Cooperative Society and Mumias Outgrowers Company have since been enjoined in the suit. West Kenya maintains that it was the highest bidder but was unfairly locked out.
In response, Mr Rao argues that in overlooking West Kenya, he was following Justice Mabeya’s orders to comply with competition laws. He argued that if West Kenya would have acquired the lease, the Rai family-owned firm would have become a monopoly in the sugar industry.
The receiver manager adds that West Kenya had several cases against former workers and competitors, and that the Rai family firm did not submit a detailed investment plan in the bid.
Gakwamba Farmers claim that the five farmers who obtained orders stopping Sarrai from proceeding with the leasing deal are strangers sponsored by West Kenya.
In the insolvency petition, Dubai-based Vartox Resources Inc and Ms Kimeto have also challenged Sarrai’s leasing deal, arguing that the process was opaque and intended to benefit only KCB and Mr Rao.
The two argue that Sarrai’s Sh6.2 billion bid was not sufficient to pay Mumias’ debts, yet other firms would have cleared the miller’s liabilities in less than 10 years.
Vartox says that Mumias owes it Sh6 billion, which was secured with the miller’s ethanol plant. The Dubai firm holds that Mr Rao has refused to acknowledge its rights to the plant despite several notifications.
The plant is also collateral for loans that Ecobank and France’s Proparco issued to Mumias. Ecobank, Proparco and Vartox appointed Harveen Gadhoke as the plant’s receiver manager.
All focus is now on the case filed by the five farmers. Justice Okwany will hear the parties on March 14. Orders seeking to stop the Sarrai Group from taking over Mumias operations will lapse on the same day.
