Order against Ugandan firm in Mumias takeover suspended

Court has suspended an April 14 order in which Sarrai Group, a Ugandan company had been stopped from taking possession of a 20-year lease to manage the assets of Mumias Sugar Company.

The order was suspended by Justice Dorah Chepkwony after Sarrai successfully argued that it had not been given a fair hearing.

Sarrai further argued that Justice Alfred Mabeya, who cancelled the lease and ordered the firm to leave Mumias Sugar premises immediately, had granted an order that was never sought.

Justice Mabeya had also last week revoked the KCB appointed receiver-manager PVR Rao as the administrator of Mumias Sugar. 

“That pending the hearing and determination of this application inter-partes, a stay of execution and enforcement of the order… revoking, cancelling and nullifying the lease issued to the applicant and directing the applicant to forthwith vacate the premises of Mumias be and is hereby granted,” Justice Chepkwony ruled. 

The lease had been cancelled after lawyer Jackline Kimeto, who is demanding Shs2.3b from Mumias, argued that Mr Rao had not acted in the best interest of the company.

Mr Wesley Gichaba, the Sarrai Group lawyer, said they had sought the suspension of the ruling because Sarrai intends to file an appeal, which would be rendered useless unless the order is suspended. “The court subsequently issued the order revoking, cancelling and nullifying the lease granted to the applicant, condemning it unheard and thus sealing its fate contrary to the rules of natural justice and fair hearing,” he said.

In an affidavit, Mr Rakesh Kumar, a manager at Sarrai, had indicated that unless court urgently intervenes, they stand to suffer substantial loss of investments of close to Shs171.9b.

On April 14, the High Court had cancelled Sarrai Group’s lease on grounds it would only benefit KCB and ignore the interest of Mumias shareholders and other lenders.

Justice Mabeya had ruled that there was no evidence that the KCB appointed receiver manager PVR Rao had sought the advice of the Competition Authority of Kenya when he awarded the lease to Sarrai Group last December.

He further said Mr Rao did not explain how Mumias would repay KCB’s debt and those of other lenders, including Dubai-based company Vartox, farmers, workers and suppliers.

Vartox is claiming Shs184.2b billion from Mumias Sugar, which it inherited from Victoria Commercial Bank. Victoria Bank on its part took over the debts from Eco Bank and French Development Agency Proparco.

The loans were secured through Mumias Sugar’s energy generation and ethanol plants.

The Judge also faulted Mr Rao for failing to conduct a feasibility study, which would have informed a reserve price.

“His actions was only meant to protect the interest of KCB and if the lease is upheld, it would be tantamount to blessing KCB with an asset known as Mumias,” said the judge.

Secured lease      

Sarrai Group, which operates Kinyara, Hoima and Kiryandongo sugar factories, with installed capacity of 19,000 TCD (tonnes crushed per day), secured a lease in December, prompting opposition from other bidders including businessman Julius Mwale of Tumaz & Tumaz and West Kenya.

KCB placed Mumias under receivership in September 2019 over an unpaid loan of Sh545 million and later appointed Mr Rao as the receiver-manager, who was later made the administrator by Justice Mabeya, who gave him the nod to complete the leasing process and report progress to the creditors.

Mr Rao awarded the 20-year lease to Sarrai Group on December 24 but the leasing process was put on hold after it was challenged in court.