https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/9539

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI COMMERCIAL COURTS** **COMMERCIAL & TAX DIVISION** **HCCOMM INSOLVENCY PETITION NO. E037 OF 2026** **IN THE MATTER OF AN APPLICATION UNDER SECTIONS 534, 565, 591 AND 595 OF THE INSOLVENCY ACT TO SET ASIDE AN OUT OF COURT APPOINTMENT OF JOINT ADMINISTRATORS** **BETWEEN** **AINU SHAMISI HAULIERS LIMITED ………..………. PETITIONER** **AND** **DIAMOND TRUST BANK KENYA LTD………..… 1ST RESPONDENT** **PONANGIPALLI VENKATA RAMANA RAO .... 2ND RESPONDENT** **SWAROOP RAO PONANGIPALLI ……………….. 3RD RESPONDENT** **RULING** 1. The Petitioner filed an application and petition dated 8th June, 2026, seeking, inter alia, an interim mandatory order directing the immediate unfreezing, reactivation and restoration to normal operations of the Petitioner’s bank accounts held at Kenya Commercial Bank (KCB) to avert complete financial collapse. The Petitioner also seeks an injunction restraining the Respondents from taking possession of, advertising for sale or otherwise interfering with the commercial vehicle fleet and transport yard located on LR 209/18644 Ramtons, Off Mombasa Road, Nairobi or any other property of the Petitioner subject to the dispute. 2. In response, the 1st Respondent filed a Notice of Preliminary Objection dated 11th June, 2026, seeking to have both the petition and the application struck out in limine on the ground that they are incompetent, incurably defective, and a nullity in law. The Preliminary Objection is premised on two principal grounds. First, the 1st Respondent contends that the Petition and the Application were instituted by persons lacking the legal capacity and authority to act on behalf of the Petitioner while it is under administration. It is argued that, by virtue of the administration, those who commenced the proceedings had no legal standing to institute them on behalf of the company, rendering both the Petition and the Application a nullity. 3. Secondly, the 1st Respondent asserts that the Petition and the Application contravene Section 581 of the Insolvency Act, 2015. It is contended that, upon the appointment of the 1st and 2nd Respondent as joint administrators, the management and control of the company’s affairs, business, and property vested exclusively in them. Consequently, any proceedings instituted in the name of the company required the authority or consent of the Joint Administrators. 4. The 1st Respondent further alleges that Mr. Abdifatah Muhumed Abdi, a director of the Petitioner, unlawfully instructed the firm of I.N. Nyaribo & Company Advocates to institute the proceedings without the consent of the Joint Administrators, thereby purporting to exercise management functions contrary to Section 581(1) of the Insolvency Act. 5. It is also contended that the institution of the Petition and Application constitutes interference with, and obstruction of, the statutory functions of the Joint Administrators. According to the 1st Respondent, the proceedings are intended to restrain or impede the administrators from exercising their statutory mandate over the assets and affairs of the company, thereby undermining the administration process. On these grounds, the 1st Respondent prays that the Petition and Application be struck out as incompetent and a nullity. 6. The 1st Respondent contends that the institution of the Petition and the Application constitutes interference with, and obstruction of, the statutory functions of the Joint Administrators. According to the 1st Respondent, the proceedings are intended to restrain or impede the Joint Administrators from exercising their statutory mandate over the assets, business and affairs of the company, thereby undermining the administration process established under the Insolvency Act. On these grounds, the 1st Respondent prays that the Petition and the Application be struck out as being incompetent and a nullity. 7. In opposition, the Petitioner filed grounds of opposition dated 12th June, 2026, contending that the 1st Respondent's Notice of Preliminary Objection is legally untenable and does not meet the threshold of a proper Preliminary Objection. it is argued that the objection does not raise a pure point of law, as its determination would require the Court to investigate contested factual issues including the validity of the out of court appointment of the joint administrators, the nature and validity of the security instruments and whether a valid declaration of default was made. The Petitioner, submits that such are evidentiary matters that cannot be determined at a preliminary stage. 8. The Petitioner further submits that, notwithstanding the appointment of the 2nd and 3rd Respondents as joint administrators, the Petitioner and its directors retain residual powers and locus standi to challenge the legality of that appointment. It is argued that Section 581 of the Insolvency Act does not extinguish the directors' inherent right to question whether the statutory conditions under Section 534 of the Act were satisfied prior to the out of court appointment was made. In the Petitioner's view, while section limits the directors' ability to manage the day to day affairs, it does not bar them from instituting court proceedings to challenge an allegedly unlawful appointment. 9. The Petitioners contend that the instruction of I.N. Nyaribo & Company Advocates to institute proceedings seeking to set aside the appointment of the Joint Administrators pursuant to Sections 534, 565, 591, and 595 of the Insolvency Act does not amount to the exercise of prohibited management functions. 10. The Petitioner argues that the Preliminary Objection creates an impermissible legal paradox. It submits that requiring the directors to obtain the consent or approval to the very administrators whose appointment is being challenged would be legally absurd, as it would effectively enable the administrators to veto any legal proceedings questioning the validity of their own appointment, thereby insulating their actions from judicial scrutiny. 11. The Petitioner further contends that the statutory protections afforded under Section 581 are only available where the appointment of administrators is itself valid. Since the Petition alleges that the appointment of the 2nd and 3rd Respondents was fundamentally flawed, invalid and void ab initio, the applicability of Section 581 can only after the issue of validity is determined by the Court. 12. The Petitioner contends that striking out the Petition at the preliminary stage pursuant to Section 581 of the Insolvency Act would violate its constitutional rights under Article 48, and 50(1) of the Constitution, which guarantees access to justice and the right to a fair and public hearing. It further argues that the existence of Insolvency Notices Nos. E097 and E098 of 2026 does not oust or diminish the jurisdiction of the High Court under Article 165 of the Constitution to hear and determine disputes relating to the interpretation and application of the Constitution and the law. The Petitioner relies on the Court’s prior intervention in Insolvency Notice No. 098 of 2026 where interim stay orders were granted as evidence that the court retains jurisdiction in such matters. 13. The Petitioner asserts that the Petition specifically challenges the legality of Insolvency Notice No. 097 of 2026, which the Petitioner asserts was issued based on a misinterpretation of a loan agreement by the Respondents. It urges the court, in the interest interests of justice, to suspend stay, and ultimately lift the said insolvency notice pending the determination of the Petition. 14. The Preliminary Objection was canvassed orally on 15th June, 2026. Counsel for the 1st Respondent, Mr. Makori, submitted that the Petitioner company is under administration, as evidenced by documents filed on 8th June, 2026. He argued that under Section 581 of the Insolvency Act, management and control of the company vest in the administrators (the 2nd and 3rd Respondents). Consequently, any legal action on behalf of the company requires the consent of the administrators. He maintained that, in the absence of evidence of misconduct by the administrators, who operate under court supervision, the Petition is incompetent and ought to be struck out with costs. Counsel for the 2nd and 3rd Respondent supported the Preliminary Objection and associated themselves with these submissions. 15. In response, counsel for the Petitioner, Mr. Opini, argued that the Preliminary Objection is improperly raised as it relies on contested facts, contrary to the established principle that a Preliminary Objection must be founded on a pure point of law. He submitted that whether the administrators have lawfully assumed control of the company is a matter requiring evidentiary proof, particularly as the Petitioner challenges compliance with Section 534 of the Insolvency Act regarding the appointment of administrators. 16. Counsel further contended that Section 591(1) of the Insolvency Act permits a creditor, such as the Petitioner, to approach the Court to challenge the appointment of an administrator without requiring consent. He distinguished between the administrators’ role in day-to-day management and the company’s residual right to access legal representation and challenge the legality of the administration process. In his view, the directors retain the inherent authority to contest whether statutory conditions for administration have been satisfied. 17. The Petitioner also invoked Articles 48, 51, and 159 of the Constitution, emphasizing the right of access to justice and the Court’s obligation to administer justice without undue technicalities. Counsel maintained that Section 581 presupposes a valid appointment of administrators, which is contested in the present case. He further submitted that the alleged debt remains disputed and has not been clearly established. 18. In support of these arguments, Counsel made reference to the case of ***IEBC versus Cheperenger & 2 others [2015] KESC 2 (KLR), the case of Kenya Hotel Properties Limited versus Willisden Investments Limited & 5 others eklr, the case of In Re Agro irrigation v Mitini Scapes Development limited [2025] KEHC 5491 (KLR) Insolvency Cause E107 of 2024 and the case of Trans Century PLC versus Equity Bank Limited 2023 & 2026******and******Athi River Steel Plant versus Poonangipalli Ramana Rao & 4 others (Civil Appeal 592 of 2019) 2024 KECA 585 (KLR)*** where courts granted injunctive relief or intervened in insolvency-related disputes . 19. In rejoinder, Mr. Makori maintained that the Preliminary Objection is based on uncontested facts, namely the filing of the notice of administration before the Court on 25th May, 2026, and its registration with the Business Registration Services on 29th May, 2026. He argued that the directors are obstructing a lawful administration process. He further submitted that Section 591 does not confer *locus standi* on the company itself, but rather on creditors or shareholders. Additionally, he cautioned against reliance on Article 159 to circumvent clear statutory provisions. Regarding the authorities cited by the Petitioner, counsel argued that interim relief granted in **TransCentury PLC v Equity Bank Ltd** was later set aside, and that the cited cases are distinguishable as the administrators in the present matter are duly licensed officers of the court acting within their statutory mandate. ***Analysis and Determination*** 1. Having considered the Notice of Preliminary Objection, the Grounds of Opposition and the rival oral submissions by counsels, the issues falling for determination are; 1. ***Whether the Notice of Preliminary Objection dated 11th June 2026 raises a pure point of law capable of determination as a Preliminary Objection.*** 2. ***whether the Petition and the Application dated 8th June 2026 are incompetent.*** **Whether the Notice of Preliminary Objection dated 11th June 2026 raises a pure point of law capable of determination as a Preliminary Objection.** 1. The law governing Preliminary Objections is now well settled. The locus classicus on the subject remains ***Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696*** where the Court held that: ***“….a Preliminary Objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court or a plea of limitation or a submission that the parties are bound by a contract giving rise to the suit to refer the dispute to arbitration.”*** 1. In the same case Sir Charles Newbold, P. stated: *“****A Preliminary Objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. The improper raising of Preliminary Objections does nothing but unnecessarily increase costs and on occasion, confuse the issue, and this improper practice should stop****”.* 1. The Supreme Court *in* ***Independent Electoral & Boundaries Commission v Jane Cheperenger & 2 others [2015] eKLR*** echoed this principle, stating that; *“****It is quite clear that a Preliminary Objection should be founded upon a settled and crisp point of law, to the intent that its application to undisputed facts, leads to but one conclusion: that the facts are incompatible with that point of law.”*** 1. The rationale underlying these principles is clear: a proper Preliminary Objection is intended to conserve judicial time by disposing of matters at the earliest opportunity where there exists a clear legal impediment. Conversely, where determination of the objection requires the Court to resolve contested facts, interpret disputed documents, or evaluate evidence, such an objection ceases to qualify as a true Preliminary Objection and ought to await full hearing on the merits. 2. In the present case, the 1st Respondent's Preliminary Objection is premised on the assertion that the Petitioner, being a company under administration, lacked the legal capacity to institute these proceedings without the consent or authority of the joint administrators pursuant to Section 581 of the Insolvency Act, 2015. It is further contended that the director who instructed counsel unlawfully exercised management powers that had, by operation of law, vested exclusively in the Joint Administrators. On that basis, the 1st Respondent urges the Court to strike out both the Petition and the Notice of Motion as nullities. 3. The Petitioner takes a diametrically opposed position. It contends that the Preliminary Objection is grounded on disputed factual matters incapable of determination without the benefit of evidence. Specifically, the Petitioner challenges the legality of the out of court appointment of the joint administrators, disputes the occurrence of any valid event of default, contests the validity of the security instruments relied upon by the 1st Respondent and questions the propriety of Insolvency Notice No. 097 of 2026. It further submits that these proceedings were instituted precisely to challenge the validity of the said appointment of the Joint Administrators. 4. Having carefully considered the rival submissions, this Court is not persuaded that the issues raised in the Preliminary Objection constitute pure points of law. The objection rests on the presumption that the appointment of the 2nd and 3rd Respondents as joint administrators was valid and effective. It is only upon such presumption that Section 581 of the Insolvency Act can be invoked to argue that the directors lacked authority to commence these proceedings. However, the validity of that very appointment lies at the heart of the Petition. 5. Indeed, the Petition and the accompanying application are expressly grounded on Sections 534, 565, 591, and 595 of the Insolvency Act, seeking, inter alia, to challenge the legality of the out-of-court appointment of the joint administrators and the validity of Insolvency Notice No. 097 of 2026. The Petitioner alleges that the statutory preconditions for such appointment were not satisfied and that the Respondents acted ultra vires the Act. These allegations are vigorously contested. 6. In order to uphold the Preliminary Objection, this Court would necessarily be required to determine several contested issues including; whether the appointment of the Joint Administrators was lawful; whether the statutory conditions under Section 534 of the Insolvency Act were satisfied; whether a valid event of default occurred; and whether Section 581 was properly invoked. These are not matters that can be resolved on the face of the pleadings. They demand consideration of evidence, including documents and affidavits, as well as an evaluation of the surrounding factual matrix. 7. This position is further reinforced by the submissions made by counsel. While counsel for the 1st Respondent referred the Court to various documents, including the notice of appointment, filings before the Business Registration Service, and proceedings in Insolvency Cause No. E096 of 2026, to demonstrate that the company is under administration, counsel for the Petitioner contested the legal validity and procedural propriety of those documents. The Court was also invited to consider whether Sections 591 and 595 confer upon a company the right to challenge an appointment notwithstanding Section 581. These competing arguments underscore the necessity of factual and evidentiary interrogation. 8. I am therefore persuaded that the objection is inextricably intertwined with the substantive issues raised in the Petition. Determining it at this stage would inevitably require the Court to make findings on matters that properly fall for determination upon a full hearing. 9. Accordingly, this Court finds that the Notice of Preliminary Objection dated 11th June, 2026, does not raise a pure point of law within the meaning of ***Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd (supra).*** Rather, it raises mixed questions of fact and law whose determination necessarily calls for the interrogation of disputed factual matters. It therefore fails to meet the threshold of a proper Preliminary Objection. 10. Having reached this conclusion, it is unnecessary for the Court to consider whether the Petition and the Application are incompetent, as that issue is subsumed within the broader factual and legal contest to be determined at the substantive hearing. 11. In the premises, I find that the Notice of Preliminary Objection is devoid of merit and it is hereby dismissed with costs. 12. Orders accordingly. ***Delivered, Dated and Signed virtually this 30th day of June, 2026*** **RHODA RUTTO** **JUDGE** **In the presence of;** **Court Assistant: Wabwire** **Mr. Nyaribo and Mr. Opini for Petitioner/Respondent** **Mr. Ondieki Lawson with Stephen Njeru for the 1st Respondent** **Hassan Nura with Faith Kiende for 1st & 2nd Respondent the joint administrators**