The East African Development Bank (EADB) has faced a significant setback after a Machakos constitutional court ruled that the EADB Act, as amended by Parliament in 2014, is unconstitutional due to a lack of proper public participation in its formulation.
In a landmark decision, Justice Rayella Ollel declared that Sections 2(1) and 2(2) of the EADB Act, which allow the Cabinet Secretary for Finance to withdraw funds from the consolidated fund without parliamentary oversight, are illegal as they operate without checks and balances.
The court stated, “Based on the reasons provided, I find this petition partially successful and declare that, to the extent that there are no checks and balance mechanisms under Sections 2(1) and (2) of the EADB Act regarding how the third respondent accesses the consolidated fund to fulfill EADB’s obligations, this violates the principles enshrined in the constitution, as the funding process lacks transparency, good governance, and accountability.”
The ruling followed a petition filed by Paul Lihanda, represented by lawyer Gregory Ndege, in May 2023. Lihanda sought conservatory orders to stop further disbursements of funds by Finance CS John Mbadi to EADB.
The petition named the Central Bank of Kenya, the Auditor General, the Attorney General, and the Finance CS as respondents.
The court also issued an order requiring the Auditor General to conduct a thorough audit of the funds withdrawn from the consolidated fund for the EADB since 2014 and submit the findings to Parliament within 60 days.
The court further ordered the Finance CS to produce records of all payments made from the Consolidated Fund to the EADB from 2014 to date and provide them to Parliament within 60 days.
The petition also requested the Auditor General to disclose the status of accounts, debts, and liabilities related to the funds disbursed to EADB.
Lihanda argued that the Finance CS had breached the law by unilaterally withdrawing money from the consolidated fund without Senate or parliamentary approval, a process that lacked transparency and accountability.
The court ruled that Lihanda’s rights had been infringed upon by the actions of the respondents named in the petition.
In a separate legal matter, EADB is embroiled in a legal battle with former CS and Rarieda MP Raphael Tuju over a failed loan deal. Tuju is attempting to prevent receiver managers from taking control of his Dari Coffee Garden and Restaurant, which took out a loan, while also fighting a bankruptcy suit brought against him and his children. He claims that EADB failed to honor an agreement to provide Sh1.19 billion, only disbursing about Sh800 million for the purchase of a 20-acre property to expand his hospitality business in Karen.
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