Top managers of Uganda-based Sarrai Group got a major reprieve after a court suspended orders that would have seen them jailed following a contempt of court case over Mumias Sugar Company lease.
Sarbit Singh Rai, Rakesh Kumar and Stephen Kihumba are facing contempt of court charges for continuing with their operations of Mumias Sugar Company even after High Court judge Dorah Chepkwony, in April last year, ordered them to stop.
While delivering the ruling, Justice Chepkwony ordered the accused to pay Sh100,000 or serve six months in jail.
“Sarbjit Singh Rai, Rakesh Kumar and Stephen Kihumba must appear before the presiding judge on 18th May 2023 to show cause why they should not be committed to civil jail for six (6) months,” the judge ruled.
Aggrieved by Justice Chepkwony's decision, the trio filed an appeal.
And on Friday, Court of Appeal judges Mohammed Warsame, Kathurima M’Inoti, and Imaana Laibuta unanimously agreed that Sarrai's top managers had made a case to warrant the court's intervention and suspend the orders that would have seen them jailed.
The three judges said the trio had convinced the court that they were likely to suffer if sent to jail owing to contradictory orders from the commercial court.
The three judges also threw out an application to have Justice Warsame withdraw from the case owing to him sitting in JSC.
They observed that it would be almost impossible for courts to work if judges entertained such applications. They noted that the applications were dismissed with costs to Sarrai, KCB and Rao.
“With all due respect, the application for recusal before us was as fanciful as they come, and that is why we dismissed the same with costs. If judges in a collegiate court were to recuse themselves simply on account of the person who empanelled the bench, such courts would never work. A judge would be wrong to recuse himself or herself on spurious grounds, just as he or she would be wrong to refuse to recuse in the face of real likelihood of bias that has been proved to the required threshold,” they ruled.
The Court of Appeal also froze the case before the commercial court until the appeals filed by Sarrai and Kenya Commercial Bank (KCB) were heard and determined.
“There will be a stay of execution of the ruling and order of the High Court dated 27th April 2023, as well as a stay of further proceedings, pending the hearing and determination of the applicant’s appeal,” the bench headed by Justice Warsame ruled.
The orders by the Court of Appeal now paves the way for the Ugandan-based firm to continue with its plans to revive Mumia Sugar Company.
Sarrai started running the miller last year. The company had collapsed seven years earlier.
From 2022, the miller started crashing 1,000 tons of cane per day. It is expected that Mumias to return to its full crashing capacity once its machines are either repaired or replaced.
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Sarrai's troubles started after lawyer Jackline Kimeto moved to court arguing that the Ugandan firm was disobeying court orders. So far, West Kenya and its director Jaswant Rai, have withdrawn from the case challenging Mumias' takeover by Sarrai. Dubai-based firm Vertox has also withdrawn from the case. West Kenya is Sarrai’s main competitor in the sugar sector.
Meanwhile, Kimeto withdrew her case but later wrote to the court claiming she was forced to do so.
The orders of the court came as the government announced its decision to write off Sh117 billion owed to it by sugar companies.
Sarrai took over Mumias after the Court of Appeal suspended Commercial Court orders that had blocked it from running the firm.
In the case, the National Treasury backed the receiver manager Ramano Rao’s decision to hand the miller to Sarrai Group.
Former Treasury PS Julius Muia, in his affidavit, argued that it would be of no help to hand Mumias to a competitor or a company with milling machines within the same area.
The PS took a cue from Mr Rao who claimed he dropped off West Kenya Sugar Company from the bid race due to a conflict of interest. This is despite the company offering the highest financial bid.
According to Rao, West Kenya has a factory that is 36 kilometres east of Mumias and was harvesting 50 per cent of the sugarcane within MSCL’s territory.
Rao also claimed West Kenya did not produce its financial statements as was required in the bid documents.
Dr Muia, in his argument before Commercial Court judge Alfred Mabeya, stated that in order for the leasing process to be successful, the best bidder should be able to turn the miller into profitability.
He was of the view that although all creditors want to be paid through leasing of all Mumias assets, this may not be achievable within the 20 years of the lease given to Sarrai Group.
Muia said the most important issue at hand is balancing the lease rent and ensuring Mumias has funds for sustainable operations.
“I verily believe that the direct competitor of MSCL, especially one that has mills within the same vicinity as MSCL and competes with MSCL with resources including raw materials for sugar production is unlikely to have the best interest of MSCL due to conflict of interest,” the PS.
Muia told the court that he wanted to clarify his earlier affidavit which appeared to suggest he had faulted Rao for picking Sarrai Group as the most preferred bidder.
“I found it necessary to make this supplementary affidavit upon realizing my statements in the affidavit of February 15, 2022, may be taken out of context to suggest I was faulting the first defendant’s (Rao) evaluation of the bids that were presented to him. I verily believe that it is in the interest of justice, of all the parties herein and of the public that I provide the context in which I made the statements,” he stated.
Mumias was incorporated on June 29, 1971. It was then privatized through listing at the Nairobi Stock Exchange in 2001.
According to court papers, the National Treasury owns 20 per cent of Mumias while other government institutions have 4.57 per cent shareholding. Individuals own 75.43 per cent of the ailing miller.
The miller’s financial troubles started in 2012. According to Treasury’s documents, by the end of 2017-2018, it registered a Sh39.44 billion loss after tax. In that year alone (2017-2018), the company posted a net after-tax loss of Sh15. 14 billion.
The shareholding equity had eroded to negative Sh14.63 billion, thereby exceeding its Sh628. 24 million assets. It had also accumulated huge debts.