Airline accuses Stanbic Bank of collapsing its business

Stanbic Bank branch on Kimathi Street Nairobi.

Photo credit: File | Nation Media Group

An aviation firm has said its business operations were totally crippled eight years ago after Stanbic Bank froze and reversed $7.2 million (Sh9.2 billion) that had been credited to its bank account.

Mr Eric Lugalia, Air Afrik Aviation managing director, took to the witness box on Monday narrating how the freezing of the money and reversing led to the termination of a plane leasing agreement with the government of South Sudan.

Mr Lugalia said in a statement filed before the High Court that the aviation firm failed to execute its obligations under the leasing agreement dated September 4, 2014, which was eventually terminated.

“I am further aware that the plaintiff (Air Afrik) spent substantial time and resources and also incurred substantial loss and damages in pursuit of the illegal freezing of its account but the 1st defendant (Stanbic) adamantly refused to unfreeze or allow the plaintiff to access the said credit balance,” Mr Lugalia said in the sworn statement.

Stanbic has denied the claims and reversal stating that the transaction was reversed after realising that the credit note from the South Sudan government did not have funds and the lender could not use its own money.

The lender says the actual transfer of $7.2 million was never made into its Nostro account as alleged by the Bank of South Sudan (the central bank) and all that was done was a paper entry, which should have been followed by an actual transfer of funds.

The bank maintained it was forced to reverse the entry that it had made to the customer’s account since it was made in error and not backed by the actual transfer of funds.

“The 1st defendant (Stanbic) avers that due to the erroneous credit of USD 7,224,000 of the 1st defendant’s money into the plaintiff’s (Air Afrik) account, the 1st defendant was entitled to reverse the said entries and also stop further withdrawals by the plaintiff or other dealings based on the erroneous entry in the plaintiff’s account,” the lender said in reply.

The bank said there is no obligation, contractual or otherwise, requiring it to pay its own funds to settle a debt owed to the airline by a third party.

The carrier sued Stanbic in 2018 over the alleged breach of banking regulations after crediting $7.2 million into its accounts before freezing and reversing the money without a valid court order or a directive from the Central Bank of Kenya.

The airline sought to be paid damages for losses suffered after a plane leasing contract of $20 million with the South Sudan government was terminated after the funds were withheld.

The airline says the money had been deposited for a plane-leasing contract it signed with the Ministry of Defence and Veteran Affairs of South Sudan in September 2014.

Under the agreement, Juba was required to pay Air Afrik a deposit of 35 percent ($7.2 million) of the value of the total contract sum estimated at $20.64 million.

The lender says that on February 5, 2016, it received a Credit Advice Note from the Bank of South Sudan advising that its account at the central bank had been credited on account of Air Afrik for payment from the Ministry of Finance and Economic Planning, for the contract.

On February 8, 2016, Stanbic said it credited the airline’s account with the same amount and debited it with the applicable commissions. It froze the money and reversed it a few days later.

The hearing continues before Justice Nixon Sifuna on Tuesday.

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