[2017] KEHC 4380 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

MISC. CIVIL APPLICATION NO. 156 OF 2015

1. MOHAMED BASHEIKH ALI

2. YUSUF M. ABOUBAKAR…………………APPLICANTS

VERSUS

1. PETER NDINGILA

2. REGISTRAR OF COMPANIES

3. TRANSNATIONAL BANK LIMITED……RESPONDENTS

R U L I N G

1. There is before court for determination an originating summons dated 19/6/2015 and amended on the 9/10/2015.

It prays for Orders that:-

i. This Honourable Court to direct the 2nd Respondent, The Registrar of Companies to rectify the registered members of Denvi Fuel Services Limited and restore the following as bonafide members:-

Peter Ndingila

Rosemary Iminza Mwandi (Deceased)

Mohamed Basheikh Ali

Yusuf M. Aboubakar

ii. This Honorable Court to appoint inspector to investigate the circumstances that led to the change of names of the members of Denvi Fuel Services Limited without calling a general meeting of the registered members as is required by law.

iii. Costs of these proceedings be paid by the Respondents.

iv. Any other relief that this court may deem fit to grant.

2. The originating summons is supported by the affidavit of MOHAMED BASHEIKH ALI and YUSUF M. ABOUBAKAR. The gist of the grounds, the affidavit and exhibits annexed thereto are that at all material times the two plaintiffs were directors and shareholders of the 3rd Defendant holding therein 1 share each of the 4 issued shares with a par value of Kshs.100 each. That is the information given by the Registration of Companies in his letter of 3/2/2011 and addressed to the company. That position prevailed till the 15/6/2015 when the plaintiff were informed by the Bank Manager, Transnational Bank Ltd, Mombasa, that their names had been removed as directors of the company and therefore they had no powers to transaction with the bank on behalf of the company. Both plaintiffs took a common stand that their names could only be recovered as shareholders at a fully and duly convened meeting of the members and not otherwise.

3. On 21/7/2015, the plaintiffs filed a further affidavit sworn by the 1st plaintiff. In that affidavit endeavors were made to controvert the Replying affidavit of the 1st defendant and to give history how the two plaintiffs became directors and shareholders of the company and what they had done as such directors and shareholders.

4. It is also evidently sworn to deny that any shares of the company could have been issued to third parties, other than the then existing four directors/shareholders outside the dictates of the Company’s Articles of Association.

5. The summons was opposed by the 1st defendant who filed a Replying affidavit sworn before S.R. Shikely on the 16/7/2015. In that affidavit, the 1st defendant takes issues with the assertion that the plaintiffs are directors of the company and maintained that the two had been removed as such directors by a resolution of the company passed at a meeting of directors held on the 2/12/2012. The deponent then contended that after the said resolution the plaintiff ceased to be directors and shareholders of the company and therefore had no mandate to relate with or transact businesses of the company as they purported to do on the 6/6/2015. The plaintiffs are equally faulted for having withdrawn from the accounts of the company, pursuant to the resolution of 6/6/2017 the sum of Kshs.1,700,000/=.

6. On the resolution for removal as directors and shareholders the deponent took the position that the plaintiff were admitted as directors and shareholders of the company on the understanding that each pays the sum of Kshs.1,000,000 which none of the plaintiffs ever paid hence the company had no otherwise but to remove them.

7. Having not been sued initially, the 4th defendant did on the 9/9/2015 file an application to be joined to the suit. The application was opposed by the plaintiff, but by its ruling of 6/10/2016, the court acceded to it and joined the 4th defendant who then filed a Replying affidavit and Grounds of opposition on 30/11/2015. In those responses the 4th defendant took the view and stand that the application could only be valid had it been brought by the Registrar of Companies under section 165 & 166 of the Act and not by the plaintiff and that the plaintiffs were validly removed as directors and shareholders of the company by effluxion of time and by a deed of dated 13/4/2015 following a discovery that they had defrauded the company in the sum of Kshs.560,000/=.

8. The 4th defendant then delved into technical issues of the proprietory of the originating summons alleging among other matters that the summons offended order 37; that the company had not made a resolution to be investigated, that the plaintiffs have rushed to court before exhausting their right to dispute resolution under the Articles of Association of the company; that the admission of the applicants into the company was contrary to sections 118(3), 121(2), 166, 182, 183 and 185 of the Companies Act and lastly that the mandatory security of Kshs.10,000 under section 121(2) of the Act having not been given the application did not lie.

9. Having filled papers as aforesaid parties did attend court and highlighted their filed submissions. For the plaintiffs, Mr. Aboubakar, advocate who is also the 2nd plaintiff sought to show the discrepancies in the defendants documents and positions taken in the affidavits filed. He pointed out in particular the critical question of the allowed share capital of the company and the allegation that it was allowed to be increased. He ask the court to consider that the letter by the registrar of companies dated 29. 5.2015 revealed the allowed share capital as Kshs.100000 divided into 1,000 shares of Kshs 100 each. He wondered why that resolution made in February 2012 has never been notified to the registrar and changes effected on the company registers. He ask the court to consider the said minutes as non-genuine and of no effect.

10. Mr. Aboubakar equally pointed out that there was an apparent discrepancy on the standing of the plaintiffs as directors and shareholders as painted by the defendants in that a bank cheque annexed as MBA3 dated 8/7/2014, more than two years after the plaintiff had allegedly been removed, and the cheque is signed by the plaintiffs and the 1st defendant.

11. On the allegations that the plaintiffs had been refunded their shares on loans and paid interest therein at 50,000 per month, Mr Aboubakar submitted that there was no evidence to that effect.

12. On the defect of the originating summons the advocate said it was not mandatory under the law to have an affidavit attached to an amended originating summons. About the position and standing of the 4th defendant, the plaintiff doubted his appointment but added that even if duly appointed, the appointment ended with the death of the appointing director.

13. For the 1st defendant Mr. Mwawasi wholly relied on the submissions filed and opted to say nothing more. For the 3rd defendant, Mr. Adala took the position that the company remained non-partisan in the dispute and prayed that for that reason it be not burdened with costs. Even the 4th defendant relied wholy on the submissions filed and added that the director who appointed him as an alternate died on 10/12/2014.

14. When all the pleadings, affidavits and submissions filed and tendered are taken into account the only issue that isolates itself for determination so as to answer the questions in the originating summons is whether or not the removal of the plaintiffs as director and shareholders of the company as shown to have been effected on the 2/12/2012 was lawful or not.

Analysis and determination

15. The consideration and resolution of that issue cannot be undertaken outside the law. There is evidence that the company allocated one (1) share each to the plaintiffs. Once that allotment took place and returns made, there was vested upon the plaintiff’s proprietory interests in the shares of the company with the attendant legal and constitutional safeguards. There accrued in their favour title to the shares that is protected as a property and cannot be dealt with in a manner that would be seen to be arbitrary. There were indeed lawful ways that the plaintiffs could loose or forefeit the shares. The ways are either by voluntary transfer or pursuant to a court order nullifying the allotment for whatever impropriety the company and its directors could establish in a suit property instituted. The other option was to make a call on shares upon the plaintiffs to make any payment if indeed any money remained unpaid after the appointed time then the provisions of First Schedule, Table A, would apply as are applicable to the company.

16. It is apparent that the company, through the 1st defendant and his deceased wife and co-director opted not to go the legal and constitutional way to divest the plaintiffs of their property in the shares. They opted to take a short cut by a resolution at a meeting the plaintiff did not participate in and without evidence that they were ever invited or notified of the meeting and its agenda items.

17. It must be pointed out here that once the shares were allotted, they ceased to belong to the company but moved into the hands of the plaintiffs, and were therefore not available to be dealt with as if they formed part of the company property which the shareholders and directors could deal with at the alleged directors meeting.

18. I have come to the conclusion that by their shareholding rights the plaintiff acquired proprietory rights that could not be arbitrarily deprived or taken away without the due process or consideration. In terms of the company’s own articles of Association, at Article 1, it was preserved upon the existing members the preferential rights any unissued or further authorized shares unless they declined to take the offers.

19. This being a private company under the repealed Companies Act, under which this dispute arose, it was not open to the 1st Defendant and another in absence of the two plaintiffs to sit and issue or alot any additional shares of the company in the absence of duly called, convened and notified members’ meeting. There is no evidence that any meeting was duly convenience nor notice of the business to be transacted thereon given in terms of Articles 28 of the Company’s Articles of Association.

20. That being the case I find and hold that the actions and events that led to the exclusion or removal of the names of the plaintiffs as shareholders and direction was wholly unlawful and incapable of being sustained.

21. I direct that the Registrar of Company’s forthwith and within 30 days after service of this order to restore the particulars of directors as the same stood on the 3/2/2011.

22. Under section 118 (33) the court has wide powers to decide any question relating to title of any person who is a party to the application prescribed before court.

23. I will employee the provision to determine the title of the 4th defendant as a director of the company. He is said to hold have been appointed as an alternate director to the late ROSEMARY IMINZA MWODI by a letter dated 15/12/2013. To this court that appointment on its own terms was for a previous of 3 years with effect from the said date and ended on the 14/11/2016 everything being constant.

24. However, it is said the appointing shareholder died sometimes on 10. 12. 2014. In law, such appointment lapsed upon the death of the deceased and nobody could purport to act for and on behalf of the deceased until representation is raised to the estate of the deceased. For that reason I do find that the 4th defendant has no right to continue acting and passing off as a director of the company. His name must therefore be removed from the register of directors of the company forthwith.

25. Having so said and decided that the removal of the plaintiffs’ names was illegal and unlawful, I do not see the necessity or efficacy of making an order for Investigations. If however the actions have led to any injury to any party such a party need to take legal advice and move as appropriate but not in this file. Equally the technical issues raised by the 4th defendant do not merit my consideration having found that the actions complained about by the plaintiffs amounted to deprivation of property.

26. It is however sufficient to say that the contention by the 4thdefendant on sections 165 and 166 of the Companies Act, were utterly misconcerned. It is not only a resolution by the company that allows a court to appoint an investigator. There are other avenues open. SeeBrans Pharmaceuticalls Ltd vs Salome Wachira Mwangi [2017] eKLR. On the same footing I find that section 121, 182 & 183 of the Companies Act, were cited out of context and wholly irrelevant for this determination. However, section 185 could be relevant if there was evidence that a special notice had been issued and served on the plaintiff. In this case none ever issued.

27. I award the costs of this originating summons to the plaintiff.

Dated and delivered at Mombasa on this 12th day of July 2017.

P.J.O. OTIENO

JUDGE