Firm alleges conspiracy to keep Mumias Sugar in debt

Mumias Sugar Company’s Receiver Manager Ponangipalli Ramana Rao is in the eye of a storm after Dubai-based Vartox Resources Inc claimed that he is colluding with KCB Bank to keep the collapsed miller in debt.

Mr Rao’s decision to award Uganda’s Sarrai Group the leasing deal – it has since been suspended by the High Court – has attracted protests and legal action.

Vartox claims that if Sarrai Group’s Sh6.2 billion lease is upheld, only Mr Rao and KCB will benefit from the deal.

Kristian Khachatourian, the firm’s director, has asked the High Court to terminate Mr Rao’s appointment for alleged underhand dealings at the expense of creditors. He wants Harveen Gadhoke of Adili Associates LLP or Anthony Muthusi and Julius Ngonga (of Ernst & Young) to replace Mr Rao.

The Dubai firm argues that receivership charges will burden Mumias Sugar as interest on KCB’s Sh545 million loan increases over the lease period.

Vartox has sought to join insolvency proceedings filed by Kimetto & Company Advocates in 2019 seeking liquidation of Mumias Sugar over a Sh76 million legal bill.

Mumias Sugar owes creditors Sh29 billion, nearly half of which is claimed by banks and other lenders like Vartox. Farmers, workers and suppliers make up the other half of the miller’s debts. Vartox is claiming Sh6 billion from Mumias Sugar. It inherited the debt from Victoria Commercial Bank.

KCB placed Mumias Sugar under receivership in 2019 over an unpaid loan, and placed the miller in Mr Rao’s hands.

The move sparked a court battle with other lenders and creditors, accusing KCB and its receiver manager of excluding them from the miller’s affairs.

Justice Alfred Mabeya last year ended the war by ordering KCB to appraise other creditors of Mumias Sugar’s state of affairs.

Vartox has faulted Mr Rao for ignoring the highest bidder, West Kenya Sugar, and instead awarding the deal to the third-lowest bidder.

The Dubai firm further claims that KCB and Mr Rao have refused to acknowledge its stake in Mumias Sugar’s ethanol and power generation plants.

Neither Mr Rao, KCB nor West Kenya Sugar has replied to the application filed by Vartox.

“Mr Rao and KCB have, through palpable collusion, extraneous and ulterior motives which border on questionable conduct, conspired to defeat the interests of the entire body of creditors ... by leasing out the sugar factory and other assets of Mumias at a pittance ...” Vartox lawyer Abbas Esmail says in court papers.