Rai firm hit with Sh980m fine in milling licence fight

Sugar and cement mogul Jaswant Rai before the joint Agriculture and Trade Committees at Parliament Buildings, Nairobi, 2018. [Boniface Okendo, Standard]

The Commercial Court in Nairobi has dealt Jaswant Rai a major blow in his battle with Butali Sugar over a milling license battle that started in 2007.

Justice Alfred Mabeya Friday awarded Butali Sh590 million, with 12 per cent interest from 2007. 

The judge’s verdict means that Jaswant Rai's West Kenya Sugar Company and Kenya Sugar Board will pay Butali Sh1.4 billion.

From the judgment, West Kenya will foot the lion's share of the amount, Sh980 million, while the board will pay Sh420 million for the losses incurred by Butali when the board cancelled its license in a zoning battle.

This comes as the main party in the Mumias Sugar lease battle, Jackline Kimeto, withdrew her case. At the same time, Mumias Sugar's receiver manager explained that the cases filed before the court delayed the revival of Mumias.

In the Butali case, Justice Mabeya found that the miller had proved its case that it had lost Sh590 million following Kenya Sugar Board's cancellation of its license in a dispute with West Kenya over a 24 kilometre radius zoning rule.

"Accordingly, on the totality of the evidence on record, the plaintiff has proved its case on a balance of probability. Judgment is entered for the plaintiff against the first defendant (West Kenya) for Sh507,799,612.

"The first defendant is entitled to indemnity against the second respondent (Sugar Board) to the tune of 30 per cent on the damages,” said Justice Mabeya.

Butali was registered on April 13, 2005. However, West Kenya was unhappy and complained that the sugar industry regulator had given an assurance that it had created an exclusive zone for Rai’s firm to do its business as per Crop Production and Livestock (Sugar Factory) rules.

West Kenya got a license in 1979. The rules required the board to only allow licenses to firms that are at least 25 kilometres from the location of the existing sugar factory.

The agreement, according to West Kenya, was to keep others 24 kilometres away from its business.

Rai’s firm argument was that it had already invested capital in excess of Sh 3.5 billion in the establishment, development, and expansion of its company.

At the same time, it claimed that the board had already advanced a loan to it in excess of Sh 423 million to finance the development of 670 Hectares of Sugarcane belonging to out growers.

In his affidavit, Rai stated that West Kenya had 57,346 cane farming contracts with farmers for the supply of sugarcane to satisfy its milling capacity. 

West Kenya argued that since Butali had no valid license, they could not then seek compensation for the loss incurred.

West Kenya produced a letter a letter dated October 11, 2000, from the Ministry of Agriculture that demarcated its sugar zone which included parts of Malava Division, Kakamega District.  

Rai’s firm further averred that by a letter dated  July 7, 2004,  the board reaffirmed its sugar zone and by a letter dated September 23, 2004, authorised it to proceed with the expansion of its factory to increase milling capacity on the assurance that no other white sugar mill would be allowed to be installed in the designated WKSC sugar zone.

Butali however argued that it was unfair and illegal to zone sugar companies. In the end, Court of Appeal Judges Erastus Githinji, Sankale ole Kantai, and Onyango Otieno ordered in 2014 that the board issue Butali with a license. 

They noted that despite the dispute being straightforward, the Ministry of Agriculture and the Sugar Arbitration Tribunal would have resolved the issue. However, it was allowed to blossom into a court battle of big magnitude.

Butali went back to the Commercial Court to seek its pound of flesh. It argued that owing to the license denial, it had suffered losses.

In the meantime, the main party in the Mumias Sugar Company lease battle has withdrawn from the case.

Jackline Kimeto, who is owed at least Sh 80 million by Mumias filed her notice of withdrawal before the Commercial Court in Nairobi.

Her exit, alongside Dubai-based firm Vartox, West Kenya Limited, and Jaswant Rai marks the end of a sour battle over the lease issued to Ugandan-based sugar company, Sarrai.

Meanwhile, Ramana Rao defended his decision to have a bidding process in order lease the miller instead of selling its properties and machinery in order to recoup the debt owed to creditors.

Rao argued that reviving Mumias was riddled with court cases, which in turn affected efforts to have the miller roaring back to life. He said Judges were issuing orders that in effect crippled his bid to have Mumias running and paying its debts. Rao said that the bidding process followed the law and was transparent for all who were involved.

According to him, he considered Sarrai Group as the successful bidder as it had proved during the evaluation that it would quickly revive Mumias to provide immediate employment opportunities and early commencement of operations.

“The entire process of leasing the assets of the Company was done in accordance with the law, including the various court orders and best practices such as the best-evaluated bid as opposed to highest financial bid which is otherwise not in conformity with the bid requirements,” Rao said.