Woes of Moi-era contractor who got minister Kamau in trouble

Mid-tier lender Bank of Africa (BOA) has put the construction firm that is linked to suspended Transport minister Michael Kamau’s troubles under receivership, opening a legal battle that is offering rare insights into the world of big tenders.

Kundan Singh Construction International Limited, a firm that grew and thrived in the Moi era, went into receivership months after the Ethics and Anti-Corruption Commission (EACC) accused it of colluding with Mr Kamau to alter designs for the Sh2.6 billion Kaptana-Kapsokwony-Sirisia Road with the aim of stealing project funds.

The bank wants to recover Sh476 million it lent Kundan Singh, which controlled multi-billion shilling construction contracts during former president Daniel arap Moi’s regime.

Details of Kundan Singh’s big-ticket public contracts and its financial troubles have been laid bare in a suit in which the construction firm is challenging BOA’s decision to place it under receivership, arguing that the bank had reneged on an earlier debt clearing deal.

The contractor also argues that the bank did not notify it of the intended takeover, which risks stalling the Sh17 billion deals it has with Kenya, Tanzania and Zambia governments.

“In view of the negotiations that have been taking place regarding liquidation of the outstanding debt, and in light of the payments made so far, BOA’s actions are tainted with ill motives as opposed to debt recovery,” Kundan Singh argues in a petition it has filed in court.

BOA has appointed Kolluri Venkata Kamasatry as receiver manager for the construction firm. Mr Kamasatry is also a joint receiver manager at Karuturi, the troubled flower firm that India’s ICICI Bank placed under receivership.

Mr Kamau on Thursday appeared before a Nairobi magistrate to plead to abuse of office charges and was released on bail pending the beginning of his trial.

The minister appeared in court a day after the High Court declined to issue temporary orders stopping BOA’s takeover until the suit is determined but set conditions for the lender’s management of the construction firm.

READ: Transport CS Kamau pleads not guilty, released on Sh1mn bail

Justice Eric Ogola ruled that it would be unfair to stop the receivership on account of Kundan Singh’s claims that the firm would be run down before giving the new managers time to recover the debt.

Kundan Singh had not proven any claims of oppression by BOA, the judge ruled, even as he stopped the bank from terminating any of Kudan Singh’s ongoing contracts, sack any employees or dispose of the firm’s assets.

Kundan Singh last week filed an application claiming it had secured a buyer for assets worth Sh520 million owned by its sister company Vista Windows and promised to use part of the proceeds to offset BOA’s debt.

The construction firm’s directors also argued in court that they had collected Sh150 million to pay part of the debt, even as they pleaded for removal of the company from receivership. 

The bank has opposed the application, arguing that it is a mere trick by Kundan Singh to appeal Justice Ogola’s ruling and should be dismissed. BOA says Kudan Singh could not sell Vista Windows’ property which is charged to Kenya Commercial Bank.

“There is no mention of money BOA will get out of the alleged offer. The application is a trojan horse, as it is couched as an application for review but is actually an appeal of the judge’s ruling. Kundan Singh has further conveniently ignored addressing payment of the balance it owes the bank,” BOA said.

Kundan Singh and BOA had in March struck a deal to withdraw the suits, but the deal has since collapsed forcing the contractor to open the battle to lift the receivership.

The suit has roped in KCB and I&M Banks, who hold Kundan Singh’s property worth Sh5.7 billion and Sh1 billion respectively.

Kundan Singh borrowed the colossal sums to secure funding for the multi-billion-shilling construction projects it had won, including the Bura Irrigation Scheme (Sh7.3 billion), the Voi-Mwatate Road (Sh2.2 billion) and the New Songwe International Airport in Mbeya, Tanzania (Sh1.8 billion).

Kundan Singh had said in its application that it was yet to receive any payment for completed contracts since it was placed under receivership and that some agencies that contracted it were about to terminate the contracts.

“The Kenya National Highways Authority has served the plaintiff (Kundan Singh) with a notice of termination for the Voi-Mwatate Road, valued at Sh2.2 billion. It also stands to lose a contract with the Zambian Roads Development Agency for rehabilitation of the Lusaka-Chirundu Road,” the firm adds.

Kudan Singh had in 2010 survived Tanzanian government’s bid to auction its assets to recover a Sh1.2 billion claim arising from a road contract dispute.

Tanzania had procured Kundan Singh’s services for the construction of a 36km road in Mabea  at a cost of Sh500 million.

The Tanzanian government pulled out after Kundan Singh requested more time and funds to complete the project.

The Court of Appeal, sitting in Mombasa, last November ruled in favour of the contractor, bringing the dispute to an end. The judges argued that the Tanzanian government was wrong in pulling out of the multi-million-shilling deal.