[2023] KEHC 25160 (KLR)

Bhagirajh (Pursuant to Letters of Administration Ad Litem) v Rajput & another (Commercial Miscellaneous Application E873 of 2020) [2023] KEHC 25160 (KLR) (Commercial and Tax) (10 November 2023) (Ruling)

Neutral citation: [2023] KEHC 25160 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Commercial Miscellaneous Application E873 of 2020

FG Mugambi, J

November 10, 2023

Between

Chandrakant Durgadass Bhagirajh (Pursuant to Letters of Administration Ad Litem)

Applicant

and

Kiran Harilal Rajput

1st Respondent

The Registrar of Companies

2nd Respondent

Ruling

Background 1. On 23rd September 2022 this Court delivered a ruling in which the application filed by Chandrakant Durgadass Bhagirajh (hereinafter CDB) was held to be partially meritorious. By the said ruling, Kiran Harilal Rajput (hereinafter KHR) was suspended as a signatory of account No. 0142207001, in the name of Capitol Laundry Limited (hereinafter the Company) held at Diamond Trust Bank, South C Branch. Following that ruling, the following other applications have been filed before the Court.

Application dated 27thSeptember 2022 2. The Notice of Motion application filed by KHR is brought under Section 3A, of the Civil Procedure Act, Order 51 Rule (1), Order 42 Rule 6(1) of the Civil Procedure Rules. It seeks a stay of execution of the ruling delivered on 23rd September 2022 pending an intended appeal. The application is supported by the supporting affidavit and supplementary affidavit of KHR sworn on 27th September 2022.

3. The applicant avers that the effects of the orders given on 23rd September 2022 have been to freeze the operations of the Company which is not a party in these proceedings, as she was the only remaining bank signatory after the death of her husband. As a consequence, the Company is not able to pay it employees’ salaries, suppliers, remit taxes and meet other statutory obligations. The applicant fears that the Company will be liable to prosecution or attachment of its properties.

4. The applicant also notes that the Company is servicing a secured loan which will not be paid and as a result, the Bank is likely to seize and sell the assets of the Company in order to recover its money. The effect of the order therefore amounted to the winding up of the Company, and the Company’s operations will be crippled down and the Company exposed to litigation by third parties.

5. The applicant confirmed being ready to account to this Court for the running of the Company and abide by any decree or orders. Finally, KHR avers that there was an intended appeal which would be rendered nugatory if a stay of the orders granted on 23rd September 2022 was not granted.

6. The application was opposed vide a replying affidavit sworn by CDB. He argued that this Court was right in its finding that elements of fraud had been established in the ruling of 23rd September 2022 and in removing the applicant from being a signatory of the Company. In support of his averments, he attached a copy of the replying affidavit sworn on 21st March 2022 in response to the application dated 20th July 2020 by Zacharia Mwangi an Assistant Registrar of Companies who confirmed the forgery. To this KHR stated that the proof of fraud could only be determined after a full hearing.

7. CDB added that KHR had also mismanaged the Company leading it to fall into arrears with the Kenya Revenue Authority. He claimed that KHR intended to run down the Company and fly out of the country as she is a foreigner. He further averred that the application was overtaken by events as the orders of 23rd September 2022 had already been served on the Bank and urged the Court to dismiss the application.

The application dated 18thOctober 2022 8. This application was filed by the Company under section IA, 3A and 3B of the Civil Procedure Act, Order 1 rule 3 and 10(2) and Order 45 rule 1 & 2 of the Civil Procedure Rules. The application seeks the joinder of the Company as an interested party in the proceedings and for review of the ruling and orders of 23rd September, 2022.

9. The application was premised on the grounds on the face of it and on the supporting affidavit sworn by Peter Samoei the General Manager, on 18th October 2022.

10. Briefly, these grounds are that the Company had been adversely affected by the orders of the Court without being heard and will be greatly prejudiced if not allowed to participate in the proceedings. It was also averred that the orders of 23rd September, 2022 had fundamentally affected its running and operations and as a result it had obligations that it was not able to meet as the bank did not recognize KHR as the signatory of the account. The Company denied any wrong doing with regard to the alleged fraud on tax returns.

11. The application was opposed by the replying affidavit of CDB sworn on 13th December 2022 on the grounds that the application had been executed by KHR who was not a director in the Company.It was further stated that since KHR had no legal capacity to swear the affidavit, the same ought to be expunged from record.

Preliminary Objection dated 18thOctober 2022 12. The same was raised by the Company on grounds that this Honorable Court lacked the requisite jurisdiction to hear and determine matters that were pending before the Succession Court. It was also alleged that CDB was a stranger to the estate of the deceased Harilal Durgadass Rajput and therefore had no locus standi.

13. The preliminary objection was opposed by CDB through a replying affidavit dated 5th December 2022 whereby it was averred that the objection was filed by an Advocate who has not been properly appointed, since KHR was not a director of the Company. CDB accused KHR of having forged documents of her appointment as a director of the Company. It was further averred that this Court had jurisdiction to hear and determine the matter.

The application of 5th December 2022 14. This application was compromised through the orders of 20th December 2022 which allowed access to the Company bank accounts and appointed KHR and the Deputy Registrar as signatories to the Company accounts.

Preliminary Objection dated 5thDecember 2022 15. The preliminary objection was filed by CDB and was based on the fact that KHR had no capacity to act as director of the Company. It was averred that since the directors of the Company were deceased there was no Board constituted to pass resolutionsincluding a resolution to appoint the firm of Ongwenyi & Company Advocates to act for the Company in this suit.

Analysis 16. I have considered the applications, the responses in opposition to the applications, pleadings and all the submissions filed by Counsels. From the myriad of applications before the Court, I am of the opinion that the application dated 23rd September 2022 for joinder of the Company ranks in priority. This will enable the Court to determine whether the Company deserves to be heard in subsequent applications. Thereafter the Court will then determine the preliminary objections dated 18th October 2022 and 5th December 2022.

Whether the Company should be enjoined as an interested party to these proceedings 17. Order 1 Rule 10(2) of the Civil Procedure Rules, grants the Court discretion to order joinder of any party to a suit at any stage of the proceedings so long as the presence of that party before the Court is necessary to enable the Court to effectually and completely adjudicate upon and settle all questions in dispute.

18. The Court is generally guided by the principle that all parties necessary for the effectual determination of a dispute should be joined to the proceedings (see Rubina Ahmed & 3 Others v Guardian Bank Ltd (as successor of First National Finance Bank Ltd), [2019] eKLR).

19. In Pravin Bowry v John Ward & Another, [2015] eKLR the Court of Appeal adopted with approval the decision in Departed Asians Property Custodian Board v Jaffer Brothers Ltd, [1999] 1 EA 55 (SCU) where the Supreme Court of Uganda observed that:“A clear distinction is called for between joining a party who ought to have been joined as a defendant and one whose presence before the Court is necessary in order to enable the Court effectually and completely adjudicate upon and settle all questions involved in the suit. A party may be joined in a suit because the party’s presence is necessary in order to enable the Court effectually and completely adjudicate upon and settle all questions involved in the cause or matter...For a person to be joined on the ground that his presence in the suit is necessary for effectual and complete settlement of all questions in the suit one of two things has to be shown. Either it has to be shown that the orders which the plaintiff seeks in the suit, would legally affect the interests of that person, and that it is desirable, for avoidance of multiplicity of suits, to have such person joined so that he is bound by the decision of the Court in that suit. Alternatively, a person qualifies (on an application of a defendant) to be joined as a co-defendant, where it is shown that the defendant cannot effectually set a defence he desires to set up unless that person is joined in it, or unless the order to be made is to bind that person.”

20. In the case of Francis Karioki Muruatetu & Another v Republic & 5 Others Petition No. 15 as consolidated with No. 16 of 2013 [2016] eKLR, the Supreme Court laid out the threshold in an application of this nature. At paragraph 37 the Court stated that:“(i)The personal interest or stake that the party has in the matter must be set out in the application. The interest must be clearly identifiable and must be proximate enough, to stand apart from anything that is merely peripheral.(ii)The prejudice to be suffered by the intended interested party in case of non-joinder, must also be demonstrated to the satisfaction of the Court. It must also be clearly outlined and not something remote.(iii)Lastly, a party must, in its application, set out the case and/or submissions it intends to make before the Court, and demonstrate the relevance of those submissions. It should also demonstrate that these submissions are not merely a replication of what the other parties will be making before the Court.”

21. It is not disputed that the Originating Summons dated 20th July 2020 is yet to be heard and that the proceedings herein are therefore still alive. I am therefore of the view that this stage is appropriate for the application of this nature. (see: HOPF v Director of Survey & 2 Others; Sakaja & 2 Others (Interested Party) (Environment & Land Case 4 of 2021), [2022] KEELC 6 (KLR) (4 May 2022).

22. I am also satisfied that the applicant has a direct and sufficient interest and stake in the proceedings in the instant case. This is because the Originating Summons is premised on the cardinal question of directorship and management of the Company which is a separate legal entity from that of its directors and shareholders. The Company stands to be overly affected by whichever decision that is made by the Court. As a juristic person the Company would be entitled to make representations for the Court to make a determination that is favourable to its stake in the proceedings.

23. I am further satisfied that the presence of the Company before the Court is necessary in order to enable the Court effectually and completely adjudicate upon and settle all questions involved in the suit. The Company has demonstrated that its case is not a replica of what the other parties have filed before the Court. I am guided in this regard by the holding in the Judicial Service Commission v Speaker of the National Assembly & Another, [2013] eKLR.

24. For all the reasons that I have stated, I am satisfied that the Company should be joined in these proceedings.

The preliminary objections 25. The legal ambit of what constitutes a preliminary objection was set out in the celebrated case of Mukhisa Biscuit Manufacturing Co Ltd v West End Distributors where it was held that:“.... a Preliminary Objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit”.

26. The required threshold for distinguishing between questions of law and fact for purposes of sustaining a preliminary objection as is also a point that is well crystalized. In the case of George Oraro v Babak Eston Mbaja, [2005] eKLR the Court held that:“A preliminary objection is … declared to be a point of law which must not be blurred with factual details liable to be contested and in any event, to be proved through the processes of evidence. Any assertion which claims to be a preliminary objection, and yet it bears factual aspects calling for proof, or seeks to adduce evidence for its authentication, is not, as a matter of legal principle, a true preliminary objection which the Court should allow to proceed…”

27. Turning to the Preliminary Objections dated 18th October 2022 and 5th December 2022 I note that the two raise substantively similar issues and can therefore be determined together. The first assertion is that this Court lacks jurisdiction to hear and determine the matters in these proceedings as similar matters were pending before a Succession Court.

28. The existence of a succession cause involving the parties herein is not contested. While the pleadings as to what is pending before the Family Division of the High Court are not before the Court, in the absence of any proof to the contrary, I can only state that the prayers in the Originating Summons are in my view premised on procedures under the Companies Act.

29. The issue for determination pertains to the appointment of directors of a Company and whether the right procedure was followed in the appointment as required under the Companies Act. They do not relate to the claims and entitlements of beneficiaries which is the realm of the Law of Succession.

30. The second point of preliminary objection that has been raised relates to whether KHR is a bona fide director of the Company and whether she had the locus to pass the resolution to appoint the firm of Ongwenyi & Company Advocates to act for the Company in this suit. Referring again to the case of George Oraro v Babak Eston Mbaja, [supra], the issue of directorship is contested. It is a question that requires interrogation of the facts and production of evidence and cannot therefore be determined by way of a preliminary objection.

31. For these reasons the preliminary objections dated 18th October 2022 and 5th December 2022 are both devoid of merit.

Application for stay of execution and for review of the ruling of 27th September 2022 32. The conditions for granting of an application for a stay of execution are provided for in Order 42 Rule 6 (1) and (2) of the Civil Procedure Rules 2010. Rule 6(2) provides as follows:“No order for stay of execution shall be made under sub-rule (1) unless—(a)the Court is satisfied that substantial loss may result to the applicant unless the order is made and that the application has been made without unreasonable delay; and(b)such security as the Court orders for the due performance of such decree or order as may ultimately be binding on him has been given by the applicant.”

33. The objective of an order for stay of execution was enunciated in the Court of Appeal’s decision in Tabro Transporters Ltd v Absalom Dova Lubasis, [2012] eKLR. The Court opined that:“…the discretionary relief of stay of execution pending appeal is designed on the basis that no one would be worse off by an order of the Court, as such order does not introduce any disadvantage, but administers the justice that the case deserves.”

34. Turning to the threshold set out by the law, I note that the impugned ruling was delivered on 23rd September 2022 while the instant application and the intended appeal were filed on 27th September 2022. In the circumstances, I find that the application was filed within the reasonable timelines and without any delay whatsoever.

35. On the issue of substantial loss, KHR contends that the ruling of 23rd September 2022 crippled the affairs of the Company and that there there are pending bills and financial obligations that the Company is therefore unable meet. It was submitted that the orders froze the operation of the Company and if a stay of execution is not granted the appeal will be rendered nugatory.

36. In dealing with substantial loss this Court is alive to the fact that KHR ought to demonstrate that the execution of the orders will create a state of affairs that will prejudice the operations of the Company and that there will be substantial loss on KHR by the execution of the orders of 23rd September 2022 that removed her as a signatory of the Company.

37. From the record, I do note that this Court (Mabeya J.), on 20th December 2022 allowed access to the bank account held by the Company for purposes of withdrawing the amount of Kshs. 5,600,000/= to allow the Company to meet its obligations. By the same directions the Learned Judge appointed KHR and the Hon Deputy Registrar as joint signatories to the Company’s account. For this reason, I am not satisfied that KHR has proved any substantial loss that stands to be occasioned if the stay of execution of the orders is not granted. It has not been proved in what way the Company’s affairs will be crippled.

38. This Court in fact finds that the orders of 23rd September 2022 operate to preserve the Company, so that if the issue of directorship is resolved the Company will still manage to conduct its affairs and the monies will be intact. This Court in balancing the rights of the parties, should ensure that the interests of the Company are protected and safeguarded. I therefore find that the intended appeal would not be rendered nugatory if stay orders are not granted.

39. Finally, although no security has been offered by CHB, it is clear that the fate of the application is already sealed. The Court finds that KHR has not made out a case for stay of execution of the orders of the Court.

40. The prayer for review of the application of 23rd September 2022 by the Company must also fail. Review of orders is provided for under Order 45 of the Civil Procedure Rules. The Company has not shown that there exists new and important evidence which, after the exercise of due diligence, was not within its knowledge or could not be produced by him at the time when the decree was passed. No mistake or error apparent on the face of the record has been proved. There are also no other sufficient reasons that have been demonstrated by the Company for seeking a review of the orders of the Court.

Determination 41. For all the reasons stated herein, I find and order as follows:i.The Preliminary Objections dated 18th October 2022 and 5th December 2022 are hereby dismissed.ii.The application dated 27th September 2022 is dismissed.iii.The application dated 18th October 2022 succeeds in part to the extent that Capitol Laundry Limited is hereby enjoined as an interested party. All pleadings shall reflect as such.iv.Parties shall proceed to prepare and have the suit fixed for substantive hearing in order to determine the dispute on merits.v.In light of the nature of the dispute and relation of the parties, each party shall bear their own costs.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 10TH DAY OF NOVEMBER 2023. F. MUGAMBIJUDGE