[2024] KECMT 778 (KLR)

Arnold v Capital Markets Authority (Appeal 4 of 2021) [2024] KECMT 778 (KLR) (5 June 2024) (Judgment)

Neutral citation: [2024] KECMT 778 (KLR)

Republic of Kenya

In the Capital Markets Tribunal

Appeal 4 of 2021

Paul Lilan, Chair, Constance Gikonyo & P.Wanga, Members

June 5, 2024

Between

Arthur Arnold

Appellant

and

Capital Markets Authority

Respondent

Judgment

A. Introduction 1. Real People Kenya Limited (RPKL) is a private company that was incorporated in Kenya on 12th July 2000 initially under the name African Provident Limited. It Later changed its business name to Real People Limited and eventually to Real People Kenya Limited on the 15th August, 2015. It was converted into a public company on the 8th April, 2015 focusing on offering business to small enterprises and business entrepreneurs.

2. Arthur Arnold, the Appellant before this Tribunal was a Board Chairman of RPKL from March 2015 to December 2015. He was also a Board Member of Real People Investment Holdings, RSA (hereinafter “RPIHL”) for some time up to, 30th June,2015. For purposes of this appeal, it is relevant to clarify that RPIHL, a South African registered company was the ultimate holding company for the Kenyan-based RPKL as well as other subsidiaries, namely; Real People (Pty) Limited (South Africa), Real People Financial Services Limited(Uganda) and Real People Tanzania Limited.

3. Through this appeal, the Appellant seeks orders of this Tribunal to set aside the decision and sanctions against him made by the Capital Markets Authority (the Respondent) as communicated to him in a letter dated 31st March,2021.

B. Inquiry & enforcement proceedings conducted by the respondent 4. On or about June 2015, RPKL made an application to the Respondent seeking approval to float Medium Term Notes (MTN) in the Nairobi Exchange (NSE). The application was made to the respondent in pursuant to its statutory powers and mandate as provided under section 11 of the Capital Markets Act, Cap 485A laws of Kenya (the Act). RPKL had intended to issue MTNs in the sum of Kshs. 5 billion comprising a three-year notes and five-year notes to be issued in two separate tranches of Kshs.2. 5 billion each. RPKL submitted an Information Memorandum (IM) for approval by the Respondent on inter alia, the following terms:a.The directors of RPKL, among them the Appellant herein accepted responsibility for the IM and assured investors that they had taken all reasonable care to ensure that the information in the IM did not omit anything likely to affect the import of such information.b.The proceeds of the MTN were supposed to be used for onward lending to clients.c.Directors of MTN were to provide governance and stewardship of the RPKL and were under duty to exercise business judgment in the best interest of the company.d.RPKL was dependent on continued support of related parties and that it had received confirmation that the holding company, RPIHL will continue to avail financial assistance.

5. In exercise of its statutory mandate under the Act, the Respondent approved the IM sometimes on 25th June, 2015 after considering the terms stipulated therein and in particular the use of the proceeds as well as the liabilities and obligations of the directors mentioned therein.

6. The Respondent noted that RPKL was unable to meet its MTN obligations leading to extension of redemption dates beyond the initial maturity dates of 6th August 2018 and 3rd August 2020, for the 3 year and 5-year Notes respectively. This triggered an inquiry into the matter that began on the 18th October 2018.

7. According to the inquiry, it was noted that there appeared to have been a plan orchestrated by RPKL and RPIHL- South Africa, even before the application, approval and issue of the MTN, whereby funds from the MTN proceeds would be repatriated to RPIHL, South Africa in settlement of an inter- company loan.

8. According to the inquiry, the MTN proceeds were received by RPKL on August 12, 2015. Soon thereafter a process was put in motion to transfer the money out of RPKL to pay an inter-company loan owed to Real People International Finance Limited and provide liquidity support to the RPIHL subsidiaries in Uganda and Tanzania. The inquiry further noted that KES 1,341,320,028 was transferred from RPKL's bank account(s) to Real People (Pty) Limited, South Africa and RPIHL subsidiaries (Real People Financial Services Limited Uganda & Real People Tanzania Limited) domiciled outside Kenya from 28th August 2015 to 8th December 2016. It was noted that the amounts transferred represented 82% of the total amount of MTN proceeds raised by RPKL. The beneficiaries of the KES 1,341,320,028 transfers were as follows:a.Real People (Pty) Limited, South Africa, received the equivalent of KES 1,281,320,028 through Standard Chartered Bank (SCB) South Africa A/C No. 081040075;b.Real People Financial Services Ltd, Uganda, received the equivalent of KES 34,000,000 through SCB Uganda A/C No. 0102014144000; andc.Real People Tanzania Limited, Tanzania, received the equivalent of KES 26,000,000 through SCB Tanzania A/C No. 0108060351400.

9. The Respondent also noted that the transfers were made at a time when both the RPIHL board, RPKL board and management were aware that RPKL was in financial distress. The statements of profit or loss and other comprehensive incomes between 2015 and 2017 indicated that the company's profit decreased from KES 146,566,000 in the year ended 31st March 2015 to a loss of KES 93,722,000 in the year ended 31st March 2016 and a further loss of KES 591,703,000 in the year ended 31st March 2017. However, the respondent noted that despite the company's poor financial position, RPKL kept transferring millions of shillings to South Africa and other countries, while the money was needed to support the core business activities of RPKL in Kenya.

10. Further, it was noted that the RPKL loan book did not increase as expected after the MTN issue. The expectation of the investors who invested in the MTN was that the proceeds were to originate new loans to SMEs, which would have led to a growth in the loan book and the revenue made by the company.

11. By a letter dated 5th February 2020, the Respondent wrote to the Appellant and sought information pursuant to the provisions of Section 13(1) and 13(2) (a) and (b) of the Act and further invited the Appellant together with the entire Board of directors of RPKL for a meeting to discuss the issues.

12. The Appellant responded to the letter of 5th February,2020 vide his letter/statement dated 16th February 2021 clarifying that he was almost 74 years then, a non-executive board member of Real People Investment Holdings Ltd, RSA(RPIH) till June 2015 and further that:When I indicated to RPIH that I wanted to step down from the board, I was asked to stay on till June,2015 in order to guide the RPIH through the closing of accounts of the financial year at March,2015 while with external auditors, KPMG in his capacity as Chairman of the Audit Committee, which I had also done in the previous years. I agreed to do so. I cannot remember that there was a problem for KPMG to provide again an unqualified opinion on the consolidated accounts as per the end of the financial year, ending March,2015 for RPIH (so including Real People Kenya Ltd.). 2. Real people Kenya Ltd(RPKL) asked me to become a Board member of RPKL(Chairman) as from early March,2015, on a temporary basis, to help them out (RPKL needed urgently a new Chairman), until they would have found qualified Kenyan(s) to replace me. I accepted on condition that a.s.a.p. Kenyan member(s) would be found, as I considered my contribution to the board Independent, Non-Executive Chairman as limited, not being a Kenyan, and to have to work out The Hague, the Netherlands. By the end of November,2015 a qualified Kenyan was found, and appointed as per 31st December,2015, so I was able to step down as per that date.

3. Frequently RPKL Board meetings: as far as I can remember, between March and December 2015, the number of RPKL Board meetings were 2 or 3 all by conference call with short agendas and limited supporting documentation. RPKL was at the time a very small company, with limited resources.

B. In the above mentioned CMA letter, reference is made to “RPKL’s external auditors, BDO East Africa not being able to issue an audit opinion on the company’s financial statements as per 31{{^}} March,2018, just like prior years.” I refer to what I stated under A.1, that KPMG at the time, as per 31st March 2015 gave a clean opinion for RPIH, which must have including RPKL. What happened in the following years, I don’t know as I left RPIH as per the end of June, and RPKL as the end of December,2015. I also cannot remember that RPKL external auditors or any external internal auditor reported to RPKL Board doubts about the company’s ability to continue operations as a going concern, or any wrong doings(collusions) by its Executives or its staff between March and December 2015 when I was serving as its Independent, Non-Executive Chairman. Again what happened after December 2015, I cannot judge, I was no longer there.C.As for CMA’s inquiry into the allegations for which CMA received the indications as mentioned on page 2 of the aforesaid CMA letter I state as follows:I.RPKL needed to grow the volume its business in order to stand on its own feet, and become independent from RPIH continued support in the prior years. As far as I am concerned, there is nothing wrong with that as a business strategy. As for the execution I refer to the Executive(s)’s role and responsibility (See under A). For the issuance of non-secured 3 years and 5 years’ senior notes to fund the expansion, I refer to D.II. All items listed are Executive(s) role and responsibility (see under A.)D. The issuance of NON-SECURED 3 years and 5 years’ senior notes: I assume that for the issuance of the above notes as from August,2015 RPKL Board resolution was required, although I cannot remember having seen it, or having seen a prospectus, or having been informed by whom as placement agent(RPKL) certainly at the time did not have the capacity to structure and place the notes themselves and with whom as investors these NON-SECURED notes were placed.In general, any investor who invests in non-secured senior notes knows that he/she runs the risk of non-payment in future. In order to assess that risk he/she should do its homework/due diligence properly.Investors often are attracted by the higher returns from NON_SECURED notes from other investment instruments in the market, without realizing the much higher risk they are running. There is a reason why NON-SECURED notes issuers have to pay a higher return (interest rates). In the end it is the investors own responsibility to make its investment decision.During the CMA interview mentioned above, CMA mentioned that there was actually an equity conversion option when non-payment would occur (I was not aware of it). However, it re-enforces the fact making clearer the high risk character of NON-SECURED notes. If the investor(s) don’t like becoming shareholders in RPKL after non-payment, then that’s bad lack for them. They should have realized that it could happen when they invested in the NON-SECURED notes.E. Finally, I want to explain that as part of Good Governance, I have learned over the years whenever I step down from a board position because of the end of my term or for other reasons, I destroy all information and documentation regarding the time e I served on the company’s Board. So, that’s what I did at the end of June,2015 for RPIH and at the end of December for RPKL.That’s also the reason that I cannot be more helpful with more specific information for your inquiry. My memory is fading, which happens often with people my age, and not having any information or documentation to help my memory, I can be of limited help with CMA’s inquiry.C. Notice to Show Cause(ntsc) & Findings of the respondent’s Ad Hoc Committee

13. As a result of the inquiry and the additional information obtained from the board members, some irregularities and illegalities were identified on the application of the MTN proceeds. The Respondent acting pursuant to section 26(8) of the Act as well as Section 4 of the Fair Administrative Actions Act(FAA),2015, issued Notices to Show Cause (NTSC) to a number of board members and management of RPKL and RPIHL.

14. Relevant to this appeal, on the 19th October 2020, the Respondent issued a NTSC to the Appellant, who during the material period was a board member at (RPIHL), South Africa (up to June 2015) and chairman of the board of RPKL (from March to December 2015), member of Audit & Risk Committee and member of the Nominations Committee of RPKL.

15. We have seen from the documents presented to the tribunal that the allegations were made by the Respondent against Appellant in the NTSC in his capacity as the Board chair and director of RPKL. The Respondent alleged that he failed to lead the board in the oversight of management of RPKL leading to the misapplication of MTN proceeds contrary to the intended purposes as disclosed in the IM. He was also accused as a director of making false and misleading or deceptive statements in the IM and made material omissions on the use of MTN proceeds at the time of issuing the IM, he made.

16. In response to the NTSC, the Appellant wrote a letter dated 23rd October 2020 and reiterated his position as captured in the previous letter dated 16th February,2020.

17. The Respondent appointed the Ad Hoc Committee (the Committee) on 28th January 2021 to hear and determine the allegations raised in the NTSC. Pursuant to a hearing notice issued by the Authority, Mr. Arthur Arnold appeared virtually before the Committee (via Zoom) on 9th March 2021.

18. The Committee through a decision communicated to the Appellant on the 31st March,2021, made a finding that the Appellant as the Chairman of the Board of RPKL failed to guide the Board in oversight of management of RPKL in the application of the MTN proceeds. The Respondent also established that the Appellant in his capacity as a director he is liable for making false and misleading/deceptive statements in the RPKL Information Memorandum on the use of the MTN proceeds.

19. On account of the findings, the Respondent made a decision that the Appellant be disqualified from being a board member or key personnel of any issuer, licensed or approved person in the capital market in Kenya pursuant to Section 25A (1) (c) (i) as read together with Section 11(3)(cc) of the Capital Markets Act; and that the disqualification will only be lifted once the bond holders recover their money in full (KES. 1,303,000,000/=) together with outstanding interest. The Authority also imposed on the Appellant a financial penalty of Kshs. 5,000,000/=.

D. The Appeal and the Response 20. Dissatisfied with the Respondent’s decision, the Appellant through a Memorandum of Appeal dated 15th April,2021 together with a Statement of Facts and Supporting Documents lodged the present appeal against the whole decision of the Respondent’s Ad Hoc Committee and the enforcement action thereto.

21. In the Memorandum of Appeal, Appellant relies on 11 grounds to challenge the said decision. He averred that the Respondent erred in law and fact by purporting to find that he was part of the conspiracy or plot to use funds raised from unsecured MTN for repayment of inter-company loans whilst failing to produce any factual evidence of such collusion or action on the part of the appellant. As such, he avers further, the action of the Respondent to impute a criminal conspiracy, is unlawful, prejudicial and completely against the principles of fair administrative action as well as constitutional safeguards set out in the Constitution of Kenya.

22. The Appellant also challenges the decision on the ground that it unlawfully imposed duties and standards contained in a legal instrument that was not in force at the time of his chairmanship of RPKL. Specifically, he pleaded that the Code of Corporate Governance Practices for issuers of Securities to the Public ,2015, relied on by the Appellant only came into force on the 4th March,2016, well after the resignation of the Appellant.

23. The Appellant pleaded that the Respondent erred in wrongfully and unreasonably exercising its discretion and applying wrong principles and taking irrelevant factors into account and omitting relevant factors by proceeding to issue monetary sanctions against him as well as barring him from acting as a director of any regulated entity within Kenya.

E. The Response to the Appeal 24. In response, the Respondent filed Statement of Defence accompanied with a Statement of Facts as well as Respondent’s List and Bundle of Documents all dated 24th June,2021.

25. The Respondent avers that whereas the IM disclosed that the proceeds from the MTN were to be used for onward lending to clients, RPKL during the tenure of the Appellant as the Chairman of its Board utilized the proceeds in settling inter-company loan.

26. That the Appellant resigned as the Chairman of the Board of RPKL sometimes on December 2015 well after the proceeds of the MTN had been misapplied in settling the inter-company loan. He was also a director of RPHIL up to June 2015.

27. The Respondent averred that the evidence relied upon, in particular the IM, expressly indicated that the proceeds of MTN were to be used for onward lending to clients. The information was misleading since the proceeds of MTN were ultimately used to settle inter-company loans.

28. According to the Respondent, providing misleading information and or omitting information in the IM amount to violation of the capital markets regulatory framework including the Act as well as the Code of Corporate Governance Practices for issuers of Securities to the Public, 2015.

29. That pursuant to sections 11(3)(h) and 13 of the Act, the Respondent has powers to investigate allegations or suspicions of infractions to the capital markets regulatory framework; and pursuant to section 25(A) as read with section 11(3)(cc) of the Act, the Respondent has the authority to impose the sanctions and penalties for breach of any provisions of the Act, rules and procedures.

30. The Respondent further pleaded that the Appellant as the Chairman of the Board, was under obligation to ensure compliance with the purpose of the MTN, breach of which attracted personal sanctions and penalties. In any event, the Respondent has investigated and; penalized all parties that were involved in the misapplication of the funds.

31. It was the Respondent’s case that the Appellant stood in a fiduciary relationship as any other director to RPKL and was under a duty to undertake careful review of the IM and the MTN in order to ensure that the proceeds thereof are utilized specifically for lending to clients. These duties were imposed by Statutes including the Act and Regulations under the Capital Markets Regulatory Framework and not by the Respondent contrary to the Appellant’s allegations.

32. That upon considering the findings of the inquiries and the submissions of the Appellant it found that the Appellant was in breach of the Act, hence pursuant to section 11(3)(cc) as read with section 25A of the Act, it imposed appropriate financial sanctions within the pecuniary limits of Section 25A (1) of the Act.

F. Submissions filed by the parties 33. Both the Appellant and the Respondent agreed to prosecute this appeal by way of written submissions. The Appellant filed its Submissions dated 11th October,2023 and the Respondent’s Submissions are dated 23rd January,2023. The Appellant also filed Further Written Submissions dated 7th March,2023.

34. On the 14th March,2024 the parties through their counsel adopted their respective submissions and also made oral highlights. Mr. Anthony Njogu appeared for the Appellant while Mr. Paul Kamara was present for the Respondent.

G. The Appellant’s Submissions 35. It is submitted by the Appellant that the Authority has erred in law and fact in finding that the Appellant was responsible for making false and misleading or deceptive statements in the IM and made material omissions on the use of the intended proceeds. Appellant submits that the Authority erred in law and in fact in finding that the Appellant was responsible for making false and misleading or deceptive statements in the Information Memorandum actions were in violation of Sections 30D, 3OE, and 34(b) of the Capital Markets Act. According to their submission, the onus of proving that the Appellant was liable for publishing of such information rests on the Authority.

36. The Appellant submits further that The Authority failed to present any evidential support indicating that the Appellant, with knowledge, understood that the content in the information memorandum was untrue, incorrect, or misleading due to material omissions.

37. The Appellant relied on Regulation 17 of the Capital Markets (Securities) (Public Offers, Listing, and Disclosures) Regulations, 2002 which provide that the director would not be held liable if the information was published without his knowledge or consent. To buttress this, the appellant relied on the case of Satvinder Jeet Singh Sodhi and Anor vs The State of Maharashtra (Criminal Application No.74 of 2021,High Court of the Judicature at Bombay,India) in which the court held that a non-executive director not being a promoter of or a key managerial person shall be held liable, only in respect of such acts or omission or commission by a company which had occurred with his knowledge through board processes and his consent or connivance or where he had not acted diligently.

38. According to the Appellant, the allegations of a quasi-criminal nature such as fraudulent misrepresentation have a higher standard of proof right above that of the normal civil claim of balance of probability and should be proved on the criminal standard of beyond reasonable doubt. The appellant has relied on the case of Kihuria Kamuri & Jane Waturi Mwaura V. Jackson Maina Mwangi (2013) JELR 99842 (CA) wherein the court cited the case of Joseph Karisa Mutsonga Vs Johnson NyatI [1984] eKLR where it was held that,Allegations of fraud must be strictly proved and although the standard of proof may not be so heavy as to require proof beyond reasonable doubt, a high degree of probability is required, which is something more than a mere Balance of probabilities, and it is a question for the trial judge to answer.

39. The Appellant also submitted that it was erroneous both in law and fact for the respondent to make a finding that the Appellant failed to guide the Board in the oversight of the management of RPKL in the application of the MTN proceeds. On this issue he submitted that the Authority relied on and found that the Appellant Violated Articles 2. 3.1 and 2. 3.2 of the Corporate Governance Practices for Issuers of Securities to the Public, 2015 which came into force on 15th December 2016 yet he, the Appellant the Appellant assumed the position of Chairman of the Board of Directors of RPKL on March 2015 and stepped down in December 2015.

40. The Appellant submitted that contrary to the law, this was a retrospective application of the code, in qualifying the retroactivity of the said law, the respondent relied on Samuel Kamau Macharia & another v Kenya Commercial Bank Limited & 2 others [2012] eKLR and Keroche Industries Limited V Kenya Revenue Authority & 5 Others [2007] eKLR wherein the court held that:“As for non-criminal legislation, the general rule is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or evidence are prima facie prospective, and retrospective effect is not to be given to them unless, by express words or necessary implication, it appears that this was the intention of the legislature.”

41. Further, the Appellant submitted that the role of a non-executive director does not entail the day to day running of the affairs of the company. The appellant relied on Section 140 (3) and (4) of the Companies Act, 2015 and the case of Chintalapati Srinivasa Raju vs Securities and Exchange Board of India which held that “Non-executive directors are, therefore, persons who are not involved in the day- to-day affairs of the running of the company and are not in charge and are not responsible for the conduct of the business of the company.”

42. The Appellant concluded stating that according to common law principles, a non-executive director can only be held accountable for actions or oversights if they were aware of them, sanctioned them through Board processes, consented to them, or were complicit, or if they failed to act diligently, which conditions were not proved in the present appeal. According to the appellant, he had no power to direct the company staff to make certain payments as he was neither a signatory nor did the managers report directly to him as far handling the company funds are concerned.

43. The Appellant reiterated that he did not endorse any RPKL board resolutions or related documentation concerning the issuance of MTN in August 2015 and that he did not execute any resolutions pertaining to the repatriation off MTN bond funds to the RPIHL aiming to settle an intercompany loan that had been extended before the finalization of the MTN issuance.

44. Additionally, the Appellant asserted that there was no conspiracy between him and the fellow directors or any other individual to raise funds with the specific intention of utilizing the proceeds to settle inter-company loans. On this he submitted that given the quasi-criminal nature of conspiracy, the standard of proof must unequivocally meet the beyond reasonable doubt threshold which had not been proved by the respondent. On this the Appellant on Section 93 of the Penal Code and the case of Christopher Wafula Makohga -v- Republic (2014) eKLR where it was held that, “… conspiracy cannot exist without the agreement, consent or combination of two or more persons. so long as a design rests in intention only, it is not indictable; there must be agreement... Proof of the existence of a conspiracy is generally a matter of inference deduced from certain criminal acts of the parties accused, done in pursuance of an apparent criminal purpose in common between them.”

45. The Appellant also submitted that the Respondent made its decision without providing any substantiated evidence demonstrating that the appellant purposefully disseminated inaccurate or erroneous information, possessed direct knowledge and intention to do so, or conspired with directors to mishandle the funds. The appellant went further to submit that there has been no presentation of documents, such as resolutions or records of transfer, or any other substantiating information, implicating the appellant in these regards. He therefore averred that the decision violated his right to a fair administrative action under Article 47 of the Constitution of Kenya.

46. The Appellant asserted that the evidence presented by the Respondent had not been considered and that the Respondent had not tendered the evidence which it relied on in making its decision to the required standard. Consequently, the appeal to be allowed and the decision and the orders therefrom be vacated.

47. To buttress the arguments on this point, the appellant cited the case of Republic v Law Society of Kenya & another Ex Parte Neddie Eve Akello; Marianne Jebet Kitany (Interested Party) [2020] eKLR where the court held that,At the core of the duty to act fairly and the requirement of fairness is the need to ensure that a person affected by a decision has an effective opportunity to make representations before it is taken so that he or she has the chance to influence it. This requirement is what informs the key procedural steps set down by the law of giving of notice of an administrative action, and provision of evidence that will be relied upon during that administrative action. The question of whether failure to observe any of these steps renders the decision of an administrator unfair, will depend on how it effects a party’s ability to make representations.

H. The Respondent’s Submissions 48. The Respondent opened up its submissions on a preliminary issue of law that this tribunal lacks jurisdiction to hear and determine the appeal. This assertion is based on Section 35A (17) of the Act which provides that, “The tribunal shall hear and determine an appeal within ninety days from the day of filing of the appeal.”

49. According to the respondent, the instant Appeal was filed on 15th April 2021 and as at the date of these submissions (over two and half years) it is yet to be determined. It was their submission that in view of Section 35A (17) of the Act, this Honourable Tribunal only had jurisdiction up until 14th July 2021. Consequently, the jurisdiction of the tribunal cease by effluxion of time. To buttress this position, the Respondent cited the case of Kartar Singh Dhupar & Company Ltd vs ARM Cement PLC (In Liquidation) (Civil Appeal No 129 of 2023) [2023] KEHC 2417 [KLR] where the court held that a judgment made after the ceasing of jurisdiction by effluxion of time is a nullity and is bereft of any force an effect in law.

50. Additionally, the Respondent cited the case of Gichuhi & 2 others v Data Protection Commissioner; Mathenge & another (Interested Parties) (Judicial Review E028 of 2023) [2023] KEHC 17321 (KLR) (Judicial Review) (12 May 2023) (Judgment) where the court held that, “The moment the 90 days ended, the Respondents jurisdiction also lapsed. The finding that was rendered outside time was without jurisdiction and therefore a nullity, bereft of any force of law ...the Respondent admits that its finding was rendered out of time. He however proceeds to blames the Applicant for the delay in keeping time.”

51. The Respondent submitted that the tribunal is bound by the doctrine of stare decisis and cannot contradict the said decisions irrespective of the circumstances that may exist and might have been beyond the control of the Tribunal or parties concerned.

52. Secondly, the Respondent submitted that the Appellant was a director of RPKL at the material time of MTN hence responsible for the information issued in the IM and responsible for misapplication of funds.

53. On this issue the Respondents submitted that it was absurd for the Appellant to purport that sanctions can be imposed against a former director. The Respondent cited the case of Republic v Capital Markets Authority Ex parte: James R. Murigu and Barth Ragalo [2018] eKLR where the it was held that, “In my view to subject section 11(3)(cc)(i) to section 25A would have the effect of negating the objective of the Act and render it a dead letter of the law since directors would simply evade the penal sanctions by simply stepping aside as it were when faced with imminent action. I therefore do not subscribe to the views that sanctions cannot be imposed against former directors. In mv view former directors are culpable if what is complained of occurred under their watch” Accordingly, the appellant fell within the definition of a former director.

54. The Respondent submitted that while it indeed approved the IM Submitted to it, when it came to its attention that the trading conditions at the RPKL had deteriorated in the market it discovered irregularities and took regulatory action. That upon conducting an inquiry it discovered that although the proceeds of the MTN were to be used for onward lending to clients, there was already in place a plan to repatriate the proceeds of the impending MTN programme. Further, to the foregoing the RPKL's Auditors, Grant Thornton in auditing RPKL's financial statements for the period ended 31st March 2016 (barely three months after the Appellant resigned as Chairman of the Board of RPKL) was concerned about the source of funds used in settling related companies' loans with the effect that RPKL experience a tax loss of Kshs. 131,426,645. According to the said Auditor, an argument that the proceeds of the MTN Programme were applied towards settling intercompany loans was convincing.

55. Consequently, the Respondent found that the Appellant as the non-executive director, Chairman of the Board of Directors of RPKL and a member of the Audit & Risk Committee of RPKL, had the responsibility to ensure adequate disclosure as the said position required high level of responsibility, oversight, and leadership. The Respondent contended that this fact had been proved.

56. Citing the case of, Aly Khan Satchu v Capital Markets Authority [2019] eKLR, the Respondent submitted that, “These regulatory provisions (under the Act) are collateral to other provisions of the Act and whilst some have a punitive aspect, they are not criminal or quasi criminal in nature . . . criminal proceedings, according to Lord Bingham of Cornhill CJ. involve a formal accusation made on behalf of the state by a private prosecutor has instituted proceedings which may culminate in the conviction and condemnation of the defendant.” As such, the respondent stated that the proceedings were administrative in nature and not criminal as alleged.

57. The Respondent rebutted the assertion that the Appellant was not aware of such acts as use of proceeds from the MTN to settle inter-company loan by relying on the case of, Re Peppermint Park Ltd [1998] where the court held that a non­executive director who permitted other directors to unlawfully manage the affairs of the company can still be held liable for wrong decisions that the board of directors makes. The Court was emphatic that lack of awareness of the company's affairs does not excuse the non-executive director from being responsible.

58. On the issue of retroactive application of the Articles 2. 3.1 and 2. 3.2 of the Code Corporate Governance Practices for Issuers of Securities to the Public, 2015, a corporate governance code which came into force on 15th December 2016, the respondent submitted that this issue was neither raised by the appellant in his statement I response to the NTSC nor during the committee hearing of 10th march,2021. As such, the Tribunal cannot make a finding on an issue that is being raised for the first time in the Memorandum of Appeal. On this the Respond relied on the case of Republic v Chairman Public Procurement Administrative Review Board & Another Ex-parte Zapkass Consulting & Training Limited & Another [2014] eKLR.

59. In any event, the Respondent submitted that the NTSC shows that the appellant faced inter alia allegations of violation of Sections 30D, 30E, and 34(b) of the Capital Markets Act which prohibits the making of misleading statement. Further, the respondent submitted that nowhere in the Ad Hoc Committee’s report dis the Authority make a finding on or impose duties and standards under the Code Corporate Governance Practices for Issuers of Securities to the Public, 2015.

60. The Respondent also submitted that contrary to the assertions by the appellant, he was under obligation to ensure compliance with the purpose of the MTN breach of which attracted personal sanctions and penalties.

61. The Respondent submits that Instead of contending that other persons were involved, the Appellant ought to prove to the Tribunal that he took reasonable steps towards preventing the misapplication of the fund as was held in Republic v Capital Markets Authority Ex parte: James R.Murigu And Barth Ragalo [2018] eKLR that:They however claim that other persons were also involved in the said management hence they ought not to have been selectively charged. It was upon the applicants to show that through no act or omission on their part, they were not aware that the offence were being or were intended or about to be committed, or that they took all reasonable steps to prevent their commission at the time they were called upon to show cause... Unless the Respondent's decision was shown to violate the provisions of the Constitution in the manner in which persons were being selected to face charges, the Respondent's decision cannot be faulted merely on the basis that some Directors were allegedly left off the hook.

62. Further, the Respondent submits that the Appellant has not particularized the said wrong principles applied or the irrelevant factors taken into account, as to empower this Tribunal to consider this ground of appeal.

63. The Respondent cited sections 11(3)(cc) and 25(A) of the Act, wherein the Respondent is empowered to impose sanctions and penalties for any breach of any provisions of the Act, regulations, rules, guidelines, notices or directions of the Authority, including but not limited to levying financial penalties and/or disqualifying a person from appointment as a director.

64. The respondent finally submitted that the respondent was accorded a fair hearing as he was invited to tender evidence which was considered by the tribunal.

I. Issues arising in this appeal and the tribunal’s determination 65. Having considered the case presented by the parties based on the pleadings, the evidence on record as well as the submissions, the Tribunal is of the view that the following are the issues for determination in this appeal.a.Whether this Tribunal has jurisdiction to hear and determine the Appealb.Whether the Respondent violated the Appellant’s right to a Fair administrative action under Article 47 of the Constitutionc.Whether the Authority erred in law and in finding that the appellant failed to guide the Board in the oversight of management of RPKL in the application of MTN proceedsd.Whether the Respondent erred in law and fact in finding that the Appellant was responsible for making false and misleading or deceptive statements in the IM and made material omission on the use of the intended proceeds.Issue No.1: Whether this Tribunal has jurisdiction to hear and determine the Appeal

66. According to the Respondent, this Appeal was filed on 15th April 2021 and in view of Section 35A (17) of the Act, this Honourable Tribunal only had jurisdiction up until 14th July 2021. Consequently, the jurisdiction of the tribunal cease by effluxion of time. To buttress this position, the Respondent cited the case of Kartar Singh Dhupar & Company Ltd vs ARM Cement PLC (In Liquidation) (Civil Appeal No 129 of 2023) [2023] KEHC 2417 [KLR] where the court held that a judgment made after the ceasing of jurisdiction by effluxion of time is a nullity and is bereft of any force and effect in law.

67. The Appellant in response, submitted that at the time of filing the appeal, the provision of the law relied on by the respondent had not been enacted. Accordingly, the rules of natural justice state that laws shall apply prospectively unless a subject legislation expressly provides that the newly enacted laws shall operate retrospectively.

68. Under section 54 of The Finance Act (No.8 of 2021), section 35A of the Capital markets Act was amended by deleting the previous subsection 17 and substituting the new subsection as follows:“(17)the Tribunal shall hear and determine an appeal within ninety days from the date of filing of the appeal.”

69. It is that provision that the respondent now relies on to challenge the jurisdiction of the Tribunal. However, the enactment came into operation on the 1st July,2021 after the appeal had been filed.

70. We have not seen anywhere in the record a Notice of Preliminary Objection lodged by the Respondent on this jurisdictional question. Yet again we have also noted that Respondent’s Statement of Defence dated 24th June,2021 and lodged at the Tribunal on the 29th July,2021 does not mention this objection anywhere.

71. The Membership of this Tribunal as currently constituted were appointed through Gazette Notices Number 6781 (dated 22nd May,2023) and 7488 (dated 7th June,2023). Although parties did not bring to the attention of the Tribunal, the delayed progress of the appeal from the time it was filed to the time that the current tribunal started handling it, we noted that when the appeal first came for directions before us on the 13th July,2023 both the Appellant and the Respondent agreed to proceed with the Appeal. On the 7th September,2023, Mr Rabut, learned counsel who appeared as holding brief for Mr. Oraro SC for the Respondent. Told the tribunal that parties were in agreement to dispose of the appeal by way of written submissions. The Tribunal directed the appellant to file and serve its submissions within 15 days and upon service the Respondent was also to file and serve its submissions within 15 days.

72. However, on the 12th October,2023 when parties appeared for a mention to confirm compliance, the appellant through Mr. Paul Kamara, counsel for the respondent requested for an additional 21days to comply with order on submissions. On the 22nd November,2023, the respondent had not complied and counsel requested for an additional 14 days. In the end, the respondent filed its submission so the 23rd January,2024.

73. We decipher from our record that by conduct of the parties, they agreed to prosecute and have the tribunal’s determination despite the delay. The Respondent and the appellant accommodated each other to extend the timelines on the filings and hearing of the appeal. Accordingly, the objection belatedly raised by the respondent in its submissions is an afterthought and does not sit well with history of how the parties handled this appeal.

74. When counsel appeared to highlight their written submissions, we also noted that the Respondent counsel did not make any oral highlights on this jurisdictional issue raised on behalf of his client in the written submissions.

75. More important, we also agree with the submissions of the appellant legislations should be interpreted and applied prospectively unless it is expressly stated in a subject legislation that the newly enacted law shall, apply retrospectively. We also rely on the decision in Republic –vs-Registrar of Companies & 2 Others; Ex Parte Schindler Limited [2020] eKLR.

76. At the time of filing its appeal, the then section 35A (17) of the Act provided that, “Upon any appeal to the Tribunal under this section the status quo of any matter or activity, which is the subject of the appeal, shall be maintained until the appeal is determined.”

77. The appellant having filed its appeal on the 15th April,2021, long before the amendment of that section became operational, it had a legitimate expectation that the appeal would be heard and determined as per the law then. The conduct of the parties also affirmed this during the directions on the filing of submissions. We therefore find no merit in the objection on tribunal’s jurisdiction, we dismiss it and affirm that the Tribunal has jurisdiction to hear and determine this appeal on its merits.Issue No. 2. : Whether the Respondent violated the Appellant’s right to a fair administrative action under Article 47 of the Constitution

78. The Appellant submitted that the decision of the Committee violated his right to a fair administrative action under article 47 of the Constitution of Kenya. The Appellant asserted that the evidence presented by the Respondent had not been considered by the Respondent and that the Respondent had not tendered the evidence which it relied on in making its decision to the required standard.

79. The Appellant also submitted that the Respondent made its decision without providing any substantiated evidence demonstrating that the appellant purposefully disseminated inaccurate or erroneous information, possessed direct knowledge and intention to do so, or conspired with directors to mishandle the funds. The Appellant further to submit that there has been no presentation of documents, such as resolutions or records of transfer, or any other substantiating information, implicating the Appellant in these regards.

80. The place of fair administrative action in our day-to-day interaction with administrative bodies is no longer a question for debate. Article 47 of the Constitution which has since been elaborated by the Fair Administrative Action Act, 2015 is clear that a person who is subjected to administrative action is entitled to a process that is expeditious, efficient, lawful, reasonable and procedurally fair. Where the right or fundamental freedom of a person is likely to be adversely affected by administrative action, the person has the right to be given written reasons for the action.

81. As pointed out in tribunal’s past determination in CMT Appeal No. 2 of 2022: Anthony Gross vs Capital Markets Authority, when making a determination on allegations of infringement of this right, it is important to point out that the right must be determined according to the statutory scheme which sets out the duties of the statutory corporation and the rights of the subject. Fairness in light of Article 47 therefore must be taken in the context of the case which include a determination of the nature of the proceedings and the statutory regime or architecture.

82. The foregoing position was also well laid out in the High Court case of Dry Associates Limited V Capital Markets Authority & Another Interested Party Crown Berger (K) LTD [2012] eKLR where the High Court (Hon. Justice D.S. Majanja) held that there is an implicit flexibility in Article 47 where the primary consideration is whether the procedure adopted is fair and that administrative or executive efficiency and economy should not be too easily sacrificed.

83. The event leading to this appeal chronologically show that:a.The Respondent noted that RPKL was unable to meet its MTN obligations leading to extension of redemption dates beyond the initial maturity dates of 6th August 2018 and 3rd August 2020, for the 3 year and 5-year Notes respectively. This triggered an inquiry into the matter that began on 18th October 2018;b.By a letter dated 5th February 2020, the Respondent wrote to the Appellant and sought information pursuant to the provisions of Section 13(1) and 13(2) (a) and (b) of the Act and further invited the Appellant together with the entire Board of directors of RPKL for a meeting to discuss the issues;c.The Appellant responded to the letter of 5th February,2020 vide his letter/statement dated 16th February 2021 denying culpability and clarifying that he was a non-executive board member of Real People Investment Holdings Ltd, RSA(RPIH) till June 2015;d.Following the Authority's inquiry into the application of the MTN proceeds, some irregularities and illegalities were identified. As a result, the Respondent acting pursuant to section 26(8) of the Capital Markets Act and Section 4 of the Fair Administrative Actions Act issued Notices to Show Cause (NTSC) to a number of board members and management of RPKL and RPIHL;e.Relevant to thus appeal, on the 19 October 2020, the Respondent issued a NTSC to the Appellant, who during the material period was a board member at (RPIHL), South Africa (up to June 2015) and chairman of the board of RPKL (from March to December 2015), member of Audit & Risk Committee and member of the Nominations Committee of RPKL;f.In response to the NTSC, the Appellant wrote a letter dated 23rd October 2020 and reiterated his position as captured in the previous letter dated 16th February,2020;g.The Respondent appointed the Ad Hoc Committee (the Committee) on 28th January 2021 to hear and determine the allegations raised in the NTSC. Pursuant to a hearing notice issued by the Authority, Mr. Arnold appeared virtually before the Committee (via Zoom) on 9th March 2021;h.The Committee through a decision communicated to the Appellant on the 31st March,2021, made a finding that the Appellant as the Chairman of the Board of RPKL failed to guide the Board in oversight of management of RPKL in the application of the MTN proceeds. The Respondent also established that the Appellant in that capacity is liable for making false and misleading /deceptive statements in the RPKL Information Memorandum on the use of the MTN proceeds.

84. The Tribunal noted that apart from the NTSC dated 19th October 2020, the Appellant was also furnished with a bundle of evidence through an e-mail of 22nd October 2020 sent to him by Mr. John Chemng’as who advised that a hard copy could also be delivered. The Appellant acknowledged receipt of the email and the bundle and stated that a hard copy should not be sent because “it’s a waste of money and bad for the environment”.

85. Although the Appellant asserted that the evidence presented by the Respondent had not been considered by the Committee and that no evidence was tendered which the Committee relied on in making its decision to the required standard, we have not seen any previous formal communication by Appellant where he requested for some specific documents that could have been crucial in his response to the allegations before the Committee.

86. The Tribunal also take cognizance of the fact that RPKL was and is operating normally and despite having destroyed his own copies of documents as he wrote, the Appellant could have sought additional information from the company. He has tendered no evidence before the Tribunal on that account. We have also reviewed the decision of the Committee in light of this appeal and did not see any reference to a specific document that the Appellant may have sought and was unreasonably denied access to.

87. Looking at the circumstances of this appeal, the Tribunal is persuaded that the Respondent as a statutory regulator acted fairly to the Appellant. It notified the Appellant of the allegations to answer, the Appellant was afforded an opportunity to answer the same both in writing and orally before the Ad Hoc Committee. The Appellant was also furnished in advanced with evidence that the Respondent intended to rely on during the hearing.

88. The Appellant also submitted that the allegations he was facing were quasi-criminal in nature with higher standards of proof above the normal civil claim standard of a balance of probability. The Tribunal clarifies that under the Act, there is a clear distinction between proceedings exercised by the Capital Markets Authority pursuant to its regulatory mandate and criminal proceedings. The regulatory provisions are collateral to other provisions of the Act and whilst some have a punitive aspect, they are not criminal or quasi-criminal in nature. The High Court decision in Aly Khan Satchu v Capital Markets Authority [2019] eKLR clarified this position.

89. We are therefore persuaded with the arguments of the Respondent that disciplinary proceedings, like the instant are proved on balance of probability unlike criminal proceedings which are proved beyond reasonable doubt.

90. Overall, it is our considered view that in the circumstances of this appeal, the Appellant was accorded a fair hearing as the inquiry was based on the NTSC and supporting evidence supplied by the Respondent. His allegations that the Respondent’s decision violated his right to a fair administrative action under article 47 of the Constitution are hereby dismissed for lack of merit.Issue No. 3: Whether the Authority erred in law and in finding that the appellant failed to guide the Board in the oversight of management of RPKL in the application of MTN proceeds

91. The Appellant submitted that it was erroneous both in law and fact for the Respondent to make a finding that he failed to guide the Board in the oversight of the management of RPKL in the application of the MTN proceeds. He submitted that the Authority relied on and found that the Appellant Violated Articles 2. 3.1 and 2. 3.2 of the Corporate Governance Practices for Issuers of Securities to the Public, 2015 yet the Code came into force on 15th December 2016. He clarified he assumed the position of Chairman of the Board of Directors of RPKL on March 2015 and stepped down in December 2015.

92. The Tribunal notes that the NTSC dated 19th October 2020 specifically made two allegations against the Appellant. Relevant to the determination of this issue is the first charge that the Appellant, in his capacity as the board Chair RPKL, failed to oversight the management leading to misapplication of the MTN proceeds contrary to the purpose disclosed in the IM. According to the Respondent, that failure was done in violation of the Articles 2. 3.1 and 2. 3.2 of the Corporate Governance Practices for Issuers of Securities to the Public, 2015.

93. It is not disputed that the Appellant stepped down from the directorship of RPKL on the 31st December 2015. However, in response to this issue, the Respondent submitted that this issue was never raised by the Appellant in his statement in response to the NTSC nor during the hearing before the Committee.

94. The Code in question is a legal instrument published in a Kenya Gazette, a document that this Tribunal has taken judicial notice of pursuant to section 60 of the Evidence Act. Additionally, Section 35A (7) of the Capital Markets Act empowers this Tribunal to take into consideration any evidence that the Tribunal considers relevant to the subject of an appeal, notwithstanding that such evidence would not otherwise be admissible under the law relating to evidence.

95. We also rely on judgment of the Supreme Court of Kenya in GS Kenya Limited v Energy Regulatory Commission & 2 others (Petition 2 of 2019) [2020] KESC 64 (KLR) where the apex court discouraged a strict application of standard rules of procedure or evidence in proceedings before statutory tribunals. The court held such an approach may negate the fundamental policy-object of such bodies. Instead, the court held that cases before tribunals should be determined on a case to case basis depending on special circumstances. In the words of the Supreme Court it was stated that:In principle, matters on the agenda of an administrative tribunal will merit determination on the basis of the claims of each case, and will depend on the special factual dynamics. The relevant factors of materiality, and of urgency, will require individualised response in many cases: and in these circumstances, a strict application of standard rules of procedure or evidence may negate the fundamental policy-object. On this account, the specialized tribunal should have the capacity to identify relevant factors of merit; be able to apply pertinent skills; and have the liberty to prescribe solutions, depending on the facts of each case. Such a tribunal should fully take into account any factors of change, in relation to different cases occurring at different times: without being bound by some particular determination of the past. [underlining added]

96. The said Code is issued by the Respondent pursuant to its powers conferred by section 11(3)(v) of the Act for application by both listed and unlisted companies. We have noted that the Code was published through a Gazette Notice 1420 dated 15th December 2015. In terms of implementation, Article 1. 1.3 thereof provides that:Issuers are encouraged to implement this Code immediately but not later than one year after its publication in the Gazette.Where an issuer does not implement this Code one year after it has been published, the issuer shall disclose to the Capital Markets Authority the reasons for non –compliance, and clearly indicate the time frame required and the strategies to be put in place towards full application.…

97. From a plain reading of the foregoing provisions, it is clear to us that issuers like RPKL, were encouraged to immediately upon the publication, start implementing the Code. We do not agree with the submissions of the Appellant that the Code came into force on the 15th December,2016. On the contrary, the Code’s implementation was immediate upon publication but issuers had a leeway to implement it within one year. In case of non-compliance within that period, the issuer was to render an explanation to the CMA, the statutory regulator and to indicate the strategies it had put in place to achieve full compliance.

98. Publication of the Code took place barely two weeks before the Appellant stepped down from the board of RPKL. That was evidently a short period and it is the Tribunal’s finding that it was erroneous for the Respondent to accuse him of violating specific provisions of the Code. The irregularities in question began way back in August 2015 before the implementation date of the Code. In our view, even after the expiry of one year, the board of RPKL which the Appellant was part of, could still go to the CMA and explain that, “Our Board is yet to fully implement the Code because of the following reasons… However, as part of the implementation, we have so far done the following…We request for an additional period to do so.”

99. Again, in our perusal of the Code we did not see any provision therein on retrospective application. As for non-criminal legislation, the general rule is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or evidence, are prima facie prospective, and retrospective effect is not to be given to them unless, by express words or necessary implication, it appears that this was the intention of the Legislature. See the case of Samuel Kamau Macharia & Anor vs. Kenya Commercail Bank Ltd. & 2 Others [2012] eKLR.

100. In light of the foregoing, the Tribunal therefore agrees with the Appellant that it was erroneous both in law and fact for the Respondent to make a finding that the appellant failed to guide the Board in the oversight of management of RPKL in the application of MTN proceeds violation of the Articles 2. 3.1 and 2. 3.2 of the Corporate Governance Practices for Issuers of Securities to the Public, 2015. Consequently, that aspect of the decision is hereby set aside.Issue No. 4: Whether the Respondent erred in law and fact in finding that the Appellant was responsible for making false and misleading or deceptive statements in the IM and made material omission on the use of the intended proceeds.

101. The alternative charge that the Respondent made against the Appellant in the NTSC was that in his capacity as a Board Member of RPKL at the time of issuing the IM, he made false and misleading or deceptive statement in the IM and made material omission on the use of the proceeds. Thus the Authority stated was in violation of Section 30D,30E and section 34(b) of the Capital Markets Act.

102. It is not disputed that the IM was prepared and furnished to the Respondent on the 25th June 2015 just about three months into the Appellant’s directorship in RPKL. The Board of RPKL represented to the CMA that the information presented was true and accurate in all material aspects. According to the IM presented to the CMA, the proceeds of the MTN were to be used for onward lending to clients, that small and medium enterprises in Kenya.

103. The directors also indicated that RPKL was dependent on continued support of related parties and that it had received confirmation from holding company in South Africa RPIHL would continue to avail financial assistance as and when needed.

104. However, when the CMA noticed that there was a problem and that there were allegations of financial impropriety of investor funds received under the MTN, it commenced its own investigations pursuant to section 11(1)(c) and (d) and 11(3)(h) of the Act on the affairs of RPKL. The CMA discovered that between 12th August 2015 to 8th February,2016, RPKL transferred proceeds of the MTN programme from the designated account at NIC Bank Account No. 1002900269 to Standard Bank Account No. 0102006022000. During the same period RPKL transferred the said funds from its Standard Chartered account in the name of related companies in Tanzania, South Africa and Uganda in settlement of intercompany loans.

105. A number of the transfers were evidently done during the tenure of the Appellant as a director and Chairman of RPKL. From the accounts statements, we have seen that the transfers involved colossal amounts of money that should have been done with the approval of the board.

106. RPKL’s auditors, Grant Thornton in auditing the Financial Statement for the period ended 31st March,2016, barely three months after the appellant’s exit was concerned about the source of funds used in settling intercompany loans with the effect that RPKL experienced a tax loss of Kshs. 131,426,645. The auditors recommended a halt into any further settlement of the related party debts.

107. When he was faced with the allegations which resulted to the NTSC, we did not see the Appellant in his response denying that these irregularities took place. Instead the appellant denied responsibility. According to him, non-executive directors can only be held accountable for actions or oversights if they were aware of them, sanctioned them through Board processes, consented to them, or were complicit, or if they failed to act diligently, which conditions were not proved in the present appeal. According to the appellant, despite being a director and Chairman of RPKL, he had no power to direct the company staff to make certain payments as he was neither a signatory nor did the managers report directly to him as far handling the company funds are concerned.

108. The Appellant reiterated that he did not endorse any RPKL board resolutions or related documentation concerning the issuance of MTN in August 2015 and that he did not execute any resolutions pertaining to the repatriation off MTN bond funds to the RPIHL aiming to settle an intercompany loan that had been extended before the finalization of the MTN issuance.

109. It is not disputed that the Appellant was not only the Chairman but he also chaired key board committees including Audit and Risk Committee and the Nomination Committee. These positions required high level of responsibility and oversight.

110. The tribunal has noted that the Appellant Chaired the RPKL Board meetings on the 25th August 2015 and 2nd December 2015, when the bond issue was provided (Minute 11/2015) and the Capital Raise and Financial Outlook noted that a 2nd tranche of the bond was scheduled to be issued in 2016. During the board meeting of 2nd December 2015, RPKL’s capital raise/strategic partner search was considered (Minute 16/2015). This extent of detail as held by the Committee is contrary to the response given by the Appellant that the board papers were never too detailed.

111. Further, according to the Board Charter, Clause 7. 6.4 thereof, the board had full responsibility for considering and approving major transactions. It was expected that the payments involving the substantial amounts would have been considered and approved by the board including the appellant.

112. The committee also noted that the Appellant did not produce any evidence to confirm that RPKL put in place effective internal control measures to safeguard the application of the MTN proceeds. While the appellant indicated that he had no responsibility as regards the repayments of the group loan, it was noted that under Clause 5 of the Charter RPKL’s board required to approve all significant transactions.

113. Based on the evidence placed before us, this Tribunal is persuaded that the primary reason for the MTN issue was not disclosed in the IM. Proceeds of the MTN were not applied in the manner that was disclosed in the IM. The company and its directors must therefore take responsibility for this regulatory breach.

114. As was held by this Tribunal in CMT Appeal No. 5 of 2022: Anthony Gross vs. Capital Markets Authority, for listed companies that make public offers of securities, the legal obligation to make truthful and sufficient disclosure in the prospectus cannot be understated. Disclosure of information in the prospectus plays a critical role in public offers of securities. The disclosure made in the prospectus is expected to give investors a true picture of the company including its legal status as well as the financial health and other critical information about the company. In turn, investors rely on the information contained in the prospectus to make investment decisions. This explains why the law has put in place provisions to ensure that companies offering their securities make full and accurate disclosures in their prospectus and where they fail to do so liability attaches.

115. Part of the Appellant’s response to these issues as captured in his letter of 16th February,2020 was that any investor who invests in non-secured senior notes knows that he/she runs the risk of non-payment in future and that in the end it is the investors own responsibility to make its investment decision.

116. While the Tribunal agrees that investors need to do their homework properly, in form of due diligence when making investment decisions, it cannot be left alone to the investors. They would be seriously exposed to errant market players. In cases of public offers of securities, the investors can only make informed decisions when there is full and accurate disclosure in prospectuses by issuers. To say that it is the investors own responsibility defeats the very reason why we have a robust regulatory framework that governs the capital markets.

117. Publication of misleading, deceptive or false prospectus, leads us to section 30D as read with Section 30E of the Capital Markets Act which provide for liability on not just on the company but also directors and persons named in the prospectus or supplementary prospectus as directors. The Capital Markets Act does not draw any distinction as to the category of directors. Section 2 of the Act provides that a director has a meaning as assigned to it by the Companies Act.

118. At section 3(1) of the Companies Act,2015 defines a director of a company in the following words.“director” in relation to a body corporate, includes-a.any person occupying the position of a director of the body (by whatever name the person is called); andb.any person in accordance with whose directions or instructions (not being advice given in a professional capacity) the directors of the body corporate are accustomed to act;”

119. Accordingly, we agree with the findings of the Respondent based on the alternative charge in the NTSC; that the Appellant, in his capacity as a Board Member of RPKL at the time of issuing the IM, must take responsibility for the false and misleading or deceptive statement, and that he made material omission on the use of the proceeds in the IM. This was in violation of Section 30D,30E and section 34(b) of the Capital Markets Act.

120. The appellant also submitted to the tribunal that the decision of the respondent including imposition of a penalty of Kshs.5 million was arbitrary and unreasonable in the circumstances. The respondent citing section 25A(a) (c)(i) of the Act as read with section 11(3)(cc) of the Act also disqualified the Appellant from board member and some key personnel of any issuer, licensed person in the Capital Market in Kenya.

121. Under Section 25A of the Act, where the respondent as the regulator establishes breach of the provisions of the Act, sanctions that may be imposed and the financial penalties that may be levied against an errant market player are categorised in three broad categories to either cover: (a) the licenced person; (b) issuer of securities exchanges or; (c) an employee of an issuer, or approved person or a director of an issuer or a licenced person. Section 11(3) cc of the Act also empowers the respondent to impose sanctions for breach of the provisions of the Act in including the levying of financial penalties.

122. It is therefore clear to us that the respondent acted within its discretion under law to impose a sanctions against the appellant as it did. In our overall assessment of the appeal, we have no reason to interfere with the sanctions imposed by the Respondent.

Disposition 123. In the upshot, this Tribunal by unanimous decision (Hon. G. Wang’ong’u having recused himself), finds that the appeal succeeds in part and makes the following orders;a.The decision of the Respondent which held that the Appellant in his capacity as a Board Member of RPKL at the time of issuing the IM, made false and misleading or deceptive statement in the IM and made material omission on the use of the proceed contrary to of Section 30D,30E and section 34(b) of the Capital Markets Act is hereby affirmed.b.Part of the decision of the Respondent which held that the Appellant failed to guide the Board in the oversight of management of RPKL in the application of MTN proceeds and in violation of the Articles 2. 3.1 and 2. 3.2 of the Corporate Governance Practices for Issuers of Securities to the Public, 2015, is hereby set aside.c.The sanctions and penalties imposed by the Respondent against the Appellant are hereby affirmed.d.Each party shall bear its own costs in this appeal.

Dated and delivered at NAIROBI this 5th day of June 2024SUBPARA 1. on. Paul Lilan, MBS (Chairman)SUBPARA 2. Hon. Dr. Constance Gikonyo, PhD (Member)SUBPARA 3. Hon. Paul Wanga (Member)SUBPARA 4. Hon. Josephine Eboko (Member)