- Justice Alfred Mabeya froze the Sarrai Group deal on grounds it would benefit KCB Group and ignore the interest of Mumias shareholders and other lenders.
- The judge said there was no evidence KCB-appointed receiver-manager PVR Rao 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.
The High Court on Thursday canceled a 20-year-lease awarded to Uganda-based Sarrai Group to manage Mumias Sugar Company #ticker: MSC, delaying plans to revive the ailing miller that was placed under administration.
Justice Alfred Mabeya froze the Sarrai Group deal on grounds it would benefit KCB Group #ticker: KCB and ignore the interest of Mumias shareholders and other lenders.
The judge said there was no evidence KCB-appointed receiver-manager PVR Rao 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 Sh6 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 were 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.
Sarrai Group secured a lease in December, prompting opposition from other bidders including businessman Julius Mwale of Tumaz & Tumaz and West Kenya.
The court fight underlines the family fight between the billionaire Rai brothers after Jaswant Singh Rai, chairman of Rai Group, opposed the lucrative leasing contract from his younger sibling – Sarbi Singh Rai.
KCB Group placed the miller under receivership in September 2019 over an unpaid loan of Sh545 million. The lender 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.
Justice Mabeya on Thursday directed Mr Rao to step aside as the administrator and in his place, appointed Kereto Marima.
He said Mr Rao should “formally and in an orderly manner hand over unrestricted access of Mumias” to Mr Marima.
“The new administrator should call for and confirm 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.
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, ”said Justice Mabeya.
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 .