[2022] KEHC 14460 (KLR)

Bachu Industries Ltd v Buzeki Enterprises Ltd (Insolvency Petition E033 of 2020) [2022] KEHC 14460 (KLR) (Civ) (13 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14460 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Civil

Insolvency Petition E033 of 2020

WA Okwany, J

October 13, 2022

Between

Bachu Industries Ltd

Petitioner

and

Buzeki Enterprises Ltd

Respondent

Ruling

1. The Creditor herein, NCBA Bank (K) PLC, filed this application dated December 15, 2020 seeking the following orders;1. Spent2. The Amended Petition dated October 27, 2020 be transmitted for hearing and determination before the High Court of Kenya sitting at Mombasa.3. Without prejudice to (2) above, the Amended Petition be struck out for being an abuse of the court process.4. The costs of this application and of the struck out Amended Petition be awarded to NCBA Bank (K) PLC.

2. The application is supported by the affidavit sworn by Creditor’s Senior Legal Counsel Mr. Stephen Atenya and is premised on the following grounds:-1. This application raises fundamental jurisdictional issues, discussed in detail below, which require to be addressed in limine before any other application can be entertained.2. The Petitioner has pleaded at paragraph 2 of the Petition that Buzeki Enterprises Limited (the "Company") has its registered offices in Mombasa. Indeed, it has given evidence in the form of a search as at October 8, 2020. 3.Given paragraph (2) above, the High Court, sitting at Mombasa, is, by virtue of sections 12 & 15 of the Civil Procedure Act Cap 21, the competent court to hear and determine the Petition,4. In any event, the Petition is an abuse of the court process for invoking the liquidation jurisdiction of the High Court to pursue claims which are prima facie time barred. This is because;a.The Local Purchase Orders annexed at page 3 & 4 of the Petition show the transactions were done in September 2013. b.The Petitioner's demand letter dated May 4, 2020 show the debt of Kshs. 26,926,490. 00 was due even before the debt of 67,200,000. 00 was incurred on or around October 15, 2014. c.The Petitioner admits at paragraphs 7 & 9 of the Petition that the debt was already due as at October 15, 2014 when the cheques were purportedly issued by the Company.5. In light of paragraph (4) above, the Petition has been instituted to avoid the defence of limitation that would have been available if an ordinary civil suit had been pursued.6. Despite (5) above, the High Court has no jurisdiction to entertain any action, including a liquidation petition, where the basis of the action is a time barred debt.7. Further, the unsettled facts in the Petition render it an improper and impermissible attempt to recover a disputed debt. The following are the unsettled facts;a.Paragraph 7 of the Petition refers to the debt for Kshs. 26,926,490. 00 being incurred between September 16, 2014 and July 8, 2015. However, the demand letter dated May 4, 2020 says the sum "is an arrears pending from former transactions that have remained unpaid to date".b.The Local purchase order dated September 3, 2013 shows the total value of the 24 tipper trailers as 66,192,000. 00. The demand now however is for Kshs, 67,200,000c.The Local Purchase Order dated 3rd September 2013 for the 6 low loader trailers shows a total price of Kshs. 17,148,000. 00. When this is added to the Kshs. 66,192,000. 00 for the 24 tipper trailers, the total is Kshs. 83,340,000. 00 yet the Petitioner demands for Kshs, 94,126,490. 00 without any basis for it.d.It is a triable question why, if Kshs. 94,126,490. 00 was due as at October 15, 2014, cheques were given for Kshs. 83,340,000. 00 only. There is no indication how the balance of Kshs. 10,283,490. 00, whichever way it arose, would be catered for.e.The cheques dated 1October 5, 2014 are all issued by the Company. There is no evidence whatsoever that they were ever presented and dishonored.f.The cheques, which appear to have been dishonored, were issued by Zedekiah Buzeki Bundotich. There is no evidence that the debt allegedly owed by the Company was assigned or novated to Zedekiah Buzeki Bundotich. If it was, then the Company stands discharged and cannot be liquidated on the same date.g.The purported statement of account at page 62 of the Petition shows some Kshs. 90,000,000. 00 having been received by the Petitioner from NIC Bank (now NCBA Bank (K) PLC) on a date in November 2014. Whether this payment was to satisfy the Kshs. 83,340,000. 00 for the 24 tipper trailers and 6 low loaders is an arguable point8. From the foregoing unsettled and disputed facts, it is evident the Petition is being used as a debt recovery tool meant to put undue pressure on the Company without the Petitioner proving its debt to the required standard.9. In any event, the Petitioner is aware that the Company is indebted to NCBA Bank (K) PLC. From the search annexed by the Petitioner, the debt is a whopping Kshs. 1,300,000. 00 NCBA Bank (K) PLC, owed such a significant sum believes in the Petitioner's viability and solvency thus has not called up its security.10. Given the facts in paragraph (9) above, it would be contrary to the letter and spirit of the Insolvency Act No. 18 of 2015 to liquidate the Company merely because of an unclear and time barred debt for Kshs. 94,126,490. 0011. The issues raised above are not only weighty but go to the jurisdiction of the court. As the Petition is fixed for mention for directions on December 17, 2020, it is necessary to certify this application as urgent and to dispense with it prior to any other application, except for applications supporting it.12. It is in the interests of justice and fairness that the orders sought here are granted otherwise the application will be overtaken by events.

3. The Petitioner opposed the application through the replying affidavit of its Director Mr. Davinder Bhachu who states that the Petitioner’s registered office is in Industrial area in Nairobi where the motor vehicles in question were collected by the respondent’s representatives. He further states that the petitioner is at liberty to choose the suitable place for suing in view of the fact that the cause of action accrued wholly and/or, in part, in Nairobi. He further states that the cause of action is not time barred as the initial pleadings were filed within the prescribed timelines. He avers that the respondent was served with the requisite statutory notices but failed to make good of the claim. It is the Petitioner’s case that the debt of Kshs. 94,126,490. 00 is not disputed and that the respondent is unable to pay its debt in light of Section 384(1) (a) of the Insolvency Act. It is further, the respondent’s case that the bank is a secured creditor who has a right to call up its securities without affecting the rights of the petitioner who is a secured creditor.

4. The application was canvassed by written submissions which I have considered. The main issue for determination is whether the applicant has made out a case for the granting of the orders sought. The applicant moved the court to transfer the amended petition to Mombasa and for the striking out of the Amended Petition for being an abuse of the court process

5. The applicant contends that the court that is competent to hear and determine the application is the High Court in Mombasa where the respondent’s principle office is situated. The Petitioner, on the other hand, maintained that its registered office is in Nairobi and that the cause of action accrued in Nairobi.

6. Section 15 of the Civil Procedure Act provides as follows on the place of suing:-“Subject to the limitations aforesaid, every suit shall be instituted in a court within the local limits of whose jurisdiction –(a)the defendant or each of the defendants (where there are more than one) at the time of the commencement of the suit, actually and voluntarily resides or carries on business, or personally works for gain; or(b)any of the defendants (where there are more than one) at the time of the commencement of the suit, actually and voluntarily resides or carries business, or personally works for gain, provided either the leave of the court is given, or the defendants who do not reside or carry on business, or personally work for gain, as aforesaid acquiesce in such institution; or(c)the cause of action, wholly or in part arises.”

7. The above provision allows a party to institute a suit at the place where the defendant resides or carries out business or where the cause of action wholly or partly arose. It is not in dispute that the petition herein relates to unpaid sums of money arising from a contract. The contract in question was drawn and executed in Nairobi and the motor vehicles were dispatched from the petitioner’s place of business situate in Nairobi. I therefore find that this court has the jurisdiction to hear and determine the petition.

8. On the prayer to strike out the Petition, the applicant contended that the petition was instituted to overcome the defence of limitation of time which would have been available if a civil suit had been filed. The applicant further argued that the petition is being used as a debt recovery tool to pile undue pressure on the Company since the debt is disputed. The petitioner, on the other hand, maintained that the debt is not disputed and that it remained unpaid for several years. It was further argued that the applicant has failed to avail solid grounds to warrant the striking out of the amended petition.

9. Order 2 Rule 15 of the Civil Procedure Rules provides as follows;“(1)At any stage of the proceedings the court may order to be struck out or amended any pleading on the ground that—a.it discloses no reasonable cause of action or defence in law; orb.it is scandalous, frivolous or vexatious; or(c)it may prejudice, embarrass or delay the fair trial of the action; or(d)it is otherwise an abuse of the process of the court, and may order the suit to be stayed or dismissed or judgment to be entered accordingly, as the case may be.”

10. In Blue Shield Insurance Company Ltd vs Joseph Mboya Oguttu [2009] eKLR the Court of Appeal stated:“The principles guiding the Court when considering such an application which seeks striking out of a pleading is now well settled. Madan J.A. (as he then was) in his judgment in the case of D.T. Dobie and Company (Kenya) Ltd vs Muchina (1982) KLR 1 discussed the issue at length and although what was before him was an application under Order 6 rule 13 (1) (a) which was seeking striking out a plaint on grounds that it did not disclose a reasonable cause of action against the defendant, he nonetheless dealt with broad principles which in effect covered all other aspects where striking out a pleading or part of a pleading is sought. It was held in that case inter alia as follows:-“The power to strike out should be exercised after the Court has considered all facts, but it must not embark on the merits of the case itself as this is solely reserved for the trial Judge. On an application to strike out pleadings, no opinion should be expressed as this would prejudice fair trial and would restrict the freedom of the trial Judge in disposing the case.”We too would not express our opinion on certain aspects of the matter before us. In that judgment, the learned Judge quoted Dankwerts L.J in the case of Cail Zeiss Stiftung vs Ranjuer & Keeler Ltd and others (No.3) (1970) ChpD 506, where the Lord Justice said:-“The power to strike out any pleading or any part of a pleading under this rule is not mandatory; but permissive and confers a discretionary jurisdiction to be exercised having regard to the quality and all the circumstances relating to the offending pleading.”We may add that like Madan J.A, said, the power to strike out a pleading which ends in driving a party from the judgment seat should be used very sparingly and only in cases where the pleading is shown to be clearly untenable. “

11. The principle that emerges from the above cited case is that the power to strike out a suit is a drastic step that should be used sparingly. In the present case, I am of the view that time started to run the moment the alleged breach of the contract occurred. I am persuaded by the petitioner’s arguments that the breach occurred when the cheques issued to the petitioner did not go through. In this regard I find that the petition is within the timelines stipulated under the Limitation of Actions Act.

12. My further finding is that the issue of whether the debt is disputed is a matter that will be addressed in the petition. In the upshot I find that the instant application lacks merit and I therefore dismiss it with costs.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 13TH DAY OF OCTOBER 2022. W. A. OKWANYJUDGEIn the presence of: -Ms Akonga for PetitionerMr. Opole for Kongere for ApplicantMs Kiogothi for Kisilu for RespondentCourt Assistant- Sylvia