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The Nairobian

Court told aviation firm was crippled after freezing of Sh9.2 billion

Nairobi

By Collins Kweyu | Jul 01, 2024

**Air Afrik Aviation managing director Eric Lugalia.** [Collins Kweyu, Standard]

An aviation firm has claimed in court that its business operations were crippled after a bank froze and reversed USD7.2 million (Sh9.2 billion) that had been credited to its bank account in February 2016.

Air Afrik Aviation managing director Eric Lugalia told Justice Nixon Sifuna at Milimani court that Stanbic Bank froze and later reversed the funds which led to the termination of a plane leasing agreement with the government of South Sudan, worth millions of shillings.

Lugalia told the court during the hearing of the case that following the reversal, the airline was unable to execute its obligations under the leasing agreement dated September 4, 2014.

He said that the contract was eventually terminated.

“I am further aware that the airline spent substantial time, and resources and also incurred substantial loss and damages in pursuit of the illegal freezing of its account but the bank adamantly refused to unfreeze or allow us to access the said credit balance,” Lugalia stated.

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Air Afrik sued Stanbic in 2018 over an alleged breach of banking regulations after crediting USD 7.2 million into its accounts before the funds were frozen and later reversed, without a valid court order or a directive from the Central Bank of Kenya.

The airline is seeking to be paid damages for losses suffered after a plane leasing contract of USD20 million (Sh2.6 trillion) with the South Sudan government was terminated after the funds were withheld.

According to the airline, the money had been deposited for a plane-leasing contract it signed with the Ministry of Defense and Veteran Affairs of South Sudan in September 2014.

Under the agreement, Juba was required to pay Air Afrik a deposit of 35 per cent (USD7.2 million) of the value of the total contract sum.

Stanbic, in their response through court papers, denied the claims and reversed, 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 bank maintained that it was forced to reverse the entry it had made to the customer’s account since it was made in error and not backed by the actual transfer of funds.

Stanbic said there was no contractual or otherwise obligation requiring it to pay its funds to settle a debt owed to the airline by a third party.

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 BSS 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, the bank 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.

Air Afrik is seeking Sh80million compensation as damages.

The hearing continues on October 7.