[2023] KEHC 24713 (KLR)

Bell Estate Agency Limited v Sifa Towers Management Ltd (Commercial Miscellaneous Application E120 of 2023) [2023] KEHC 24713 (KLR) (Commercial and Tax) (3 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24713 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Commercial Miscellaneous Application E120 of 2023

FG Mugambi, J

November 3, 2023

Between

Bell Estate Agency Limited

Applicant

and

Sifa Towers Management Ltd

Respondent

Ruling

1. Before the court is an application dated 17th February 2023 and brought under sections IA, IB, 3,3A and 63(e) of the Civil Procedure Act, sections 17 and 692 of the Insolvency Act No. 18 of 2015 and regulations 16,17,77 and 78 of the Insolvency Regulations 2016. The application seeks the following orders:i.Spentii.Spentiii.This Honourable Court be pleased to issue a permanent injunction directed at the Respondent, its agents or servants from lodging a liquidation petition and further insolvency proceedings against the Applicant, based on the Statutory Demand dated 27th January, 2023,iv.This Honourable Court be pleased to issue a temporary injunction directed at the Respondent, its agents or servants from lodging a liquidation petition and further insolvency proceedings against the Applicant, based on the Statutory Demand dated 27 January, 2023, pending the hearing and determination of this Application.v.This Honourable Court be pleased to issue a temporary injunction directed at the Respondent, its agents or servants from lodging a liquidation petition and further insolvency proceedings against the Applicant, based on the Statutory Demand dated 27 January, 2023, pending the hearing and determination of of Civil Appeal No. E220 of 2021; Bell Estate Agency Limited & Another vs Sifa Towers Management Limited.vi.The Statutory Demand dated 27th January 2023 be set aside.vii.Any other relief which this Honourable Court deems fit and just to grant.

2. The row between the parties is premised on unpaid service charge by the applicant on premises managed by the respondent company. Following a decree in HCCC No. 439 of 2017; Sifa Towers Management Limited v Bell Estate Agency Limited, the respondent served the applicant with a Statutory Demand dated 27th January, 2023 for the sum of Kshs.8,951,550/=. The applicant has since filed an appeal against the decision of the High Court in Civil Appeal No. E220 of 2021; Bell Estate Agency Limited & Another v Sifa Towers Management Limited.

3. It is on this basis that the application is brought to set aside the Statutory Demand as the amount is disputed. The applicant acknowledges that the Court of Appeal declined to issue a stay of execution of the Judgment and/or decree order but affirmed in its ruling of 4th February 2022 that the intended appeal was arguable.

4. The respondent has opposed the application on grounds that the debt was acknowledged and the applicant had in fact already paid an amount of Kshs.500,000/= towards settling the same. Further, the respondent argues that the applicant did not respond to the statutory demand despite service.Relying on the case of East Africa Cables Limited V SMB Bank (K) Limited, [2020] eKLR, the court held that a debt was not substantially disputed since the debtor did not respond to the statutory demand after service of the same. If the debt was disputed, the applicant could at the very least, respondent to the demand.

Analysis 5. The Court has carefully considered the pleadings, submissions and evidence placed before it by rival parties. Before I venture into the substance of the application, I wish to deal with the question of validity of the Statutory Demand. The applicant contends that the Demand was defective as it was not endorsed by the Deputy Registrar before it was served on the Company. This is supposedly in contravention of the mandatory terms under Regulation 15(3) and (4) as read together with Regulation 77B (2)(a) of the Insolvency Regulations, 2016. For the avoidance of doubt, these provisions read as follows:“(1)For the purposes of section 17 of the Act, the procedure for complying with or setting aside a demand is as provided under regulations 16 and 17. (3)The petition shall be preceded by a statutory demand and shall be in Form 6 set out in the First Schedule.(4)The statutory demand in sub regulation (3) shall be endorsed by the Deputy Registrar of the High Court before it is served on the debtor.”

6. Regulation 15 of the Insolvency Regulations falls under Part V of the Regulations which relates to Personal Insolvency. By way of further confirmation that the regulation applies to personal insolvencies, the introductory part to regulation 15 in fact refers to section 17 of the Act which is to be found in Part III of the Act, on Bankruptcy of Natural Persons. It is clear therefore that regulation 15 does not apply to insolvency but to bankruptcy of natural persons. On the converse, regulation 77B(2)(a) of the regulations requires that:“(2)The petition for liquidation shall be accompanied by the following documents—(a)a statutory demand in Form 32E set out in the First Schedule if the reason for petition is indebtedness; and…”

7. Form 32E of the Statutory Demand applies to corporate insolvency. The format of Form 32E makes provision for the form to be endorsed by the Deputy Registrar before service. The Statutory Demand which was served on the applicant was not endorsed.

8. Even then, I note that while the requirement for endorsement appears on the face of the Form 32E, such requirement is not imposed by regulation 77B of the regulations which is applicable to this case as it is in regulation 15 which applies for individual bankruptcies. I therefore find and hold that failure to endorse the statutory demand by the Deputy Registrar does not invalidate the demand issued by the petitioner.

9. Be that as it may, it is now settled that non-compliance with the form of the statutory demand is not fatal as long as there was substantial compliance with the requirements of the law. (see for instance Re: Kipsigis Stores Limited, ML HC INC No. 14 of 2016 and Re: Sucasa at Mombasa Road ML HC INC No. 9 of 2018, [2019] eKLR. I associate myself with this position and I find and hold that the Statutory Demand sets out the substance of the respondents’ claims by against the Company. It is substantially in Form 32E and sets out the material details as required.

10. Moving on to the substantive grounds of the application, Regulation 17(6) of the Insolvency Regulations provides the grounds upon which the court can set aside a statutory demand as follows:“The Court may grant the Application if: -a.The debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;b.The debt is disputed on grounds which appear to the Court to be substantial;c.It appears that the creditor holds some security in respect of the debt claimed by the demand, and either paragraph (6) is not complied with in respect of the demand, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt, or;d.The Court is satisfied, on other grounds, that the demand ought to be set aside.”

11. For the avoidance of doubt, this court has previously held that although the aforesaid provisions apply to the bankruptcy of natural persons, the principles outlined in Regulation 17(6) are equally applicable to the insolvency of corporate persons. Either way the court retains inherent jurisdiction to strike out a statutory demand it considers an abuse of the court process along the lines set out therein. (See DAC Aviation (EA) Limited V Stevenson Kibara Ndung’u & 8 Others, [2020] eKLR and Re Libya Arab Africa Investment Company Kenya Ltd HC IN No. E031 of 2020, [2021] eKLR amongst others).

12. The applicant seeks to have the Statutory Demand set aside on grounds that the debt is disputed on grounds which appear to the Court to be substantial. The rival parties have each relied on judicial pronouncements that reflect what the courts have considered as a substantial dispute.

13. In Flower City Limited V Polytanks & Containers Kenya Limited, (Insolvency Cause 033 of 2020) [2021] KEHC 34 (KLR) (Commercial and Tax) (22 February 2021) the Court, Mativo J (as he then was) was emphatic that even though it may not be possible to provide a closed list of the elements of a genuine dispute, the applicant must:i.Show a plausible contention requiring investigation;(ii)Be bona fide, genuine and real;(iii)Be in good faith and show a prima facie plausibility;(iv)Truly exist in fact, and contain a serious question to be tried;(v)Be something more than mere bluster or mere assertion;(vi)Be a claim that may have some substance;(vii)Have a sufficient degree of cogency to be arguable;(viii)Have objective existence; and(ix)Have sufficient factual particularity.

14. This view was espoused in Universal Hardware Limited V African Safari Club Limited, MSA CA Civil Appeal No. 209 of 2007 [2013] eKLR, where the Court noted that:“The principle as I understand is that a disputed debt on substantial and bona fide grounds cannot be the subject of a winding-up proceeding on account of the company’s inability to pay its debts.”

15. Likewise in Flower City Limited V Polytanks & Containers Kenya Limited, [2021] eKLR, the court also held that:“Decided cases are in agreement that the court can set aside a Statutory Demand if it is satisfied that there is a genuine dispute about the existence of the debt; or if the court is satisfied that there is a genuine dispute about the amount of the debt, so much of that amount as the court is satisfied is not the subject of such a dispute.”

16. A cursory look at the record shows that the applicant herein filed an application for stay of execution of the judgment on which the statutory demand was issued. The Court of Appeal at paragraph 10 of its ruling dated 4th February 2022 confirmed that the applicant had an arguable appeal in the following words:“Without saying more less we embarrass the bench that will be seized of the main appeal, we are satisfied that the intended appeal is arguable.”

17. The Court however dismissed the application on the basis that:“…if the decretal amount is paid to the respondent and it is established that it ought not to have been paid, the amount can be recovered from the respondent or prorated for the benefit of the applicants. The appeal will therefore not be rendered nugatory…”

18. As I have already alluded to earlier, the application before the Court of Appeal addressed execution through payment of a money decree and may not necessarily have extended to insolvency proceedings. Unlike in a money decree where money can be refunded if found to have been wrongly paid, a liquidation order cannot be reversed easily and the ripple effect on an entity is enormous.

19. The bottom line is that that a creditor’s petition should not be entertained if it is meant to enforce a debt that is disputed and the company is actually solvent. That is not the objective of insolvency proceedings. The court must satisfy itself that the substantial dispute must be the kind of dispute that in an ordinary civil case will pass the test of a bona fide, proper or valid defense.

20. Considering the observation made by the Court of Appeal I am of the opinion that the Statutory Demand herein may have been issued pre-maturely as the applicant has demonstrated that there are reasonable grounds for disputing the debt.

Determination 21. For the foregoing reasons, I allow the applicant’s Notice of Motion dated 17th February 2023 and set aside the Statutory Demand dated 27th January 2023 issued to the applicant. The respondent shall bear the costs of the application.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 3RD DAY OF NOVEMBER 2023. F. MUGAMBIJUDGE