Court orders arbitration in Salima Sugar shareholding dispute

A dispute involving the ownership of Salima Sugar Company took a significant turn on Monday when High Court Judge Charlotte Mesikano ordered the involved parties to resolve the matter through arbitration. Sitting in the Commercial Division of the Lilongwe Registry, Judge Mesikano directed that the claimants, AUM Sugar and Allied Limited, and the defendants, Greenbelt […]

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A dispute involving the ownership of Salima Sugar Company took a significant turn on Monday when High Court Judge Charlotte Mesikano ordered the involved parties to resolve the matter through arbitration.

Sitting in the Commercial Division of the Lilongwe Registry, Judge Mesikano directed that the claimants, AUM Sugar and Allied Limited, and the defendants, Greenbelt Initiative Holdings Limited, Greenbelt Authority, Salima Sugar Company Limited, and the Attorney General, “should proceed with arbitration without delay.”

The conflict stems from a joint venture agreement between AUM Sugar and Allied Limited and Greenbelt Initiative Holdings Limited, Greenbelt Authority to establish Salima Sugar Company Limited. The Attorney General represents the government, which holds the majority shares in Greenbelt Initiative Holdings Limited and Greenbelt Authority.

The Greenbelt Authority (GBA) has terminated its shareholding deal with AUM Sugar and Allied Limited of India in Salima Sugar Company Limited due to breach of contract.

In a letter dated December 19, 2023 GBA chief executive officer Eric Dudley Chidzungu said the agreement had been breached as revealed by results of a recent forensic audit.

He said the termination, which is in accordance with Section 12(3) of the shareholders agreement, was decided at a meeting held on December 6 this year in Lilongwe.

Reads the letter in part: “The shareholding agreement has been breached as per results of the Forensic Audit Report which has revealed that despite not paying in time your equity contribution you have also been defrauding the company by raising equity using company resources.”

However, AUM Sugar and Allied Limited have always maintained that the termination and criminal proceedings were uncalled for and rushed.

As such, the company invoked the arbitration provisions outlined in the agreement. Consequently, they have applied for arbitration through the International Chamber of Commerce, and proceedings are currently underway.

At the ICC, AUM Sugar and Allied Limited sought the court’s intervention to halt the implementation of decisions made by Greenbelt Initiative Holdings Limited and Greenbelt Authority in the absence of AUM Sugar and Allied Limited as a business partner.

Judge Mesikano considered arguments from both sides, including the Attorney General’s plea to dismiss the application for stay based on the res judicata rule and to halt all arbitration proceedings pending criminal proceedings.

Mesikano emphasized that the dispute primarily revolves around disagreements between shareholders of Salima Sugar Company. She noted the dissolution of the Joint Venture Agreement during a board meeting in 2023, resulting in changes in the company’s board and ongoing efforts to replace AUM Sugar and Allied Limited as partners.

Regarding the validity of arbitration proceedings before the ICC, Mesikano affirmed their legitimacy and stressed that arbitrators are the appropriate forum for addressing urgent and interim issues raised by any party. She emphasized that the court should refrain from pre-empting arbitration outcomes, as stipulated in the agreement between the parties.

Mesikano highlighted the divergence between the parties’ focus on legal matters, emphasizing that the core dispute centres on the agreed mechanism for handling disputes.

She concluded that litigation cannot supersede arbitration unless there is a clear breach of contract, specifically concerning the abandonment of arbitration provisions in favour of alternative dispute resolution methods not outlined in the agreement.

In December, Attorney General Thabo Chakaka-Nyirenda announced that over $30 million (about K60 billion) has been misappropriated at Salima Sugar Company.

Chakaka said through an instituted inquiry into Salima Sugar Company it has been revealed that there has been rampant mismanagement and misuse of resources at the company.

“Malawi Government is currently repaying debts obtained by the company from various institutions without the board’s approval or government advisory,” said Chakaka-Nyirenda.

He added that the law would take its course on people involved as the inquiry has also exposed the involvement of some company officials, civil servants as well as other government officials.

“Audit consults who were appointed as forensic auditors found that Salima Sugar Company Limited was dealing businesswise with related and suspicious companies incorporated in foreign countries, in particular India, United Arab Emirates – Free Zone Area, Seychelles, and South Africa.

“Additionally, a senior officer incorporated Salima Sugar Company Limited in Dubai without the knowledge of the Malawi Government. A bank account in the name of Salima Sugar Company Limited was opened in Dubai,” he explained.

He indicated that government has not benefited from the forex revenue earned through the company’s exports which he described as a set back to the country’s economy.

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