High Court Judge Cancels Muimias Sugar Lease

A picture of Workers carrying packets of sugar at the Mumias Sugar factory in Western Kenya/ The standard

NAIROBI, Kenya Apr 18- Ugandan-based Sarrai Group Limited has suffered a significant setback after the High Court in Nairobi canceled its lease to operate Mumias Sugar Company. 

The presiding Judge at the Milimani Commercial Court, Justice Alfred Mabeya also ordered Sarrai Group to leave the premises and removed Ponangipali Venkata Ramana Rao as the sugar miller’s administrator. 

“This court has considered the allegations made against the leasing process. Rao awarded the lease to the lowest bidder while there were higher bidders, without giving any justifiable explanation. He explained that his rejection for the bid of Sh36 billion was to avoid monopoly, and that bidder (West Kenya Sugar) was a competitor of Mumias Sugar Company, had no financial capability to execute the lease and that it was a spoiler bid,” the judge ruled.

Mabeya further appointed Kereto Marima as the new administrator of Mumias Sugar Company and ordered Rao to hand over the company to Marima.

“The new administrator should call for and ascertain the claims of all unsecured creditors within 60 days and the amounts outstanding,” said the judge.

This means that the new administrator will have to kick start the lease process afresh, in consultation with all the secured and unsecured creditors.

Justice Mabeya said public interest demands that receivership that has yielded zero results takes a back seat and a professional administration of Mumias is given a chance.

He added that the court expected Rao to act as a professional insolvency practitioner who would undertake his duties strictly in accordance with statutory provisions of administration and the competition Act, it did not expect him to undertake the duties of the Competition Authority of Kenya, and there is no evidence to show he sought advice on the same before he made the decision.

The judge also noted that Rao failed to give an explanation as to why all the other bids that were higher than that of Sarrai Group (Sh5.8 billion) were disqualified from the bidding process. 

“It would have been essential to even have a pre-evaluation of Mumias which would have informed a result price that would have achieved the purpose of paying off Mumias debts and release it from receivership and administration. The manner in which Rao handled the leasing process did not tally with what was expected of him as an administrator. His actions were meant to protect the interests of KCB and if the lease is upheld, the same would be tantamount to blessing KCB with an extra asset known as Mumias for the next 20 years, and of course, would be the greatest miscarriage of justice,” the judge noted. 

He ruled that the lease was not in line with the company’s best interest adding that Rao failed to produce the lease in court and enable it to determine whether it was in the best interest of Mumias as a going concern.

“A simple calculation would show leasing Mumias at Ksh 5.8billion for 20 years Mumias would perpetually remain under receivership and administration. It would permanently remain an asset under KCB and maybe a retirement home for Rao,” Justice Mabeya said.

The court noted that the leasing only favors KCB and does not favour the other creditors. At best, it is an undervalue entered into without evaluation or expert consultation and under no circumstances can the lease be in the best interest of Mumias as a going concern. 

This means that the lease would only bind Mumias in a never-ending receivership and administration which in the end would not have paid off Mumias debts.

“Simply put, the lease does not promote the purpose of Mumias’ administration. In the circumstances, the court will interfere with Rao’s administration and cancel the lease,” Justice Mabeya ruled.

The judge said Rao was unable to juggle as both the administrator and the receiver-manager.

“The only irresistible conclusion that can be drawn from his move was that Rao was an unwilling suitor. He was aggrieved by the appointment as the administrator yet he was already a receiver-manager,”  Justice Mabeya said. 

The judge also directed Harveen Kumar Manoharlal Gadhoke, who was appointed by Victoria Commercial Bank to take care of the ethanol and power plant, to stop interfering with the work of the new administrator.

West Kenya through senior counsel Paul Muite had faulted Rao’s decision to award the lease to Sarrai, saying he did not have the legal mandate or the expertise to make any findings on competition issues in Kenya or make any assessments on market share in any sector in Kenya.

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Nasra Nanda

Nasra Nanda

Nasra Nanda is a Senior Associate in Dentons Hamilton Harrison and Matthews, a leading law firm in Kenya.

Gregor Pannike

Gregor Pannike

Gregor Pannike is the founder and managing director of Agema Analysts.

Liz Lenjo

Liz Lenjo

Liz Lenjo is the Founder and Managing Consultant of MyIP Legal Studio.

Angela Kioi

Angela Kioi

Angela Kioi is a legal compliance expert, negotiator and ADR practitioner.



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