US lender sues local coffee factory over Sh30m loan

An American company wants the High Court to freeze the accounts of a coffee factory it has accused of defaulting on a Sh30 million loan.

Root Capital Incorporated wants the court to order closure of two bank accounts owned by Tekangu Farmers Co-operative over alleged failure to repay a loan.

Yesterday, lawyer Bernard Otieno, representing Root Capital Incorporated, told Justice Jairus Ngaah that his client lent the money for construction of a coffee processing plant.

He told court the co-operative approached the lender for the loan in April 2013 to construct Mutathi-ini plant. Part of the cash was used to purchase equipment. However, the factory has failed to pay back the loan as had been agreement.

"Despite enjoying a healthy cash flow, Tekangu is in flagrant and deliberate breach of the repayment plan and has expressed no intentions of paying back," Otieno said in court.

He urged the court to freeze its bank accounts until the suit was determined.

But Tekangu, through lawyer Wahome Gikonyo, said the lender did not credit the money into his client's bank account.

He argued the alleged contract was entered into in breach of the Co-operatives Act and that farmers did not pass any resolution to take the loan. Thus, Gikonyo said the contract was illegal.

He urged the court to dismiss the suit arguing Root Capital had not furnished it with its certificate of incorporation to prove it has powers to sue.

An affidavit sworn by Eliud Gatimu, Secretary General of Tekangu Coffee Society, opposed the application arguing the loan was procured in violation of public procurement laws.

"There was no tender advertising for bids to offer financial services or an expression of interest before getting the loan," he said.