[2008] KEHC 803 (KLR)
The court found that the debt in question was genuinely disputed, as the applicant admitted part of the debt and provided reasons for disputing the remainder, specifically citing entitlement to credit notes for rejected works. The respondent's refusal to accept the admitted payment and insistence on full payment,...
Source-derived case information.
- Citation
- [2008] KEHC 803 (KLR)
- Parties
- Applicant: Falcon Commercial (K) Ltd; Respondent: Petitioner (printing and advertising services provider)
- Court
- High Court
- Court Station
- High Court at Nairobi (Milimani Commercial Courts)
- Jurisdiction
- Kenya
- Case Number
- Winding Up Cause 13 of 2007
- Procedural Posture
- Winding Up Petition / Ruling on Application to Strike Out Petition
- Outcome
- Application allowed; winding up petition struck out.
- Legal Topics
- Winding Up Petitions, Disputed Debt, Abuse of Process, Company Insolvency
- Source Language
- en
Source-derived case record
Summary, issues, holding and outcome
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Parties
Falcon Commercial (K) Ltd
Applicant
Petitioner (printing and advertising services provider)
Respondent
Procedural Posture
Winding Up Petition / Ruling on Application to Strike Out Petition
Legal Issues
- 1 Whether a winding up petition can be maintained where the debt is disputed by the company.
- 2 Whether the petition amounts to an abuse of court process when used to enforce payment of a disputed debt.
- 3 Whether there is evidence of insolvency or inability to pay debts by the applicant company.
Ratio Decidendi
The court found that the debt in question was genuinely disputed, as the applicant admitted part of the debt and provided reasons for disputing the remainder, specifically citing entitlement to credit notes for rejected works. The respondent's refusal to accept the admitted payment and insistence on full payment, followed by the filing of a winding up petition, was deemed an attempt to exert undue pressure on the applicant to pay the disputed sum. There was no evidence of insolvency or inability to pay debts on the part of the applicant company. The court held that the proper procedure for resolving disputed debts is through civil proceedings, not by way of a winding up petition....
Court Disposition
Application allowed; winding up petition struck out.
Orders
- The winding up petition dated 02.07.2007 against Falcon Commercial (K) Ltd is struck out.
- Costs of the application and the petition to be paid by the petitioner/respondent.
Full Case Text
Judgment text and source record
26 paragraphs
IN THE MATTER OF FALCONCOMMERCIAL (K) LTD………………........PLAINTIFF
VERSUS
IN THE MATTER OF THECOMPANIES ACT….………………….….......DEFENDANT
RULING
Application dated 10. 08. 2007 seeks to strike out the petition filed herein on 04. 07. 2007, on the grounds that the petition is intended to enforce payment of a disputed debt.
The application is supported by the affidavit of Mr. Chetan Magdani Magdani. It is not disputed that the application is against a limited liability company registered under the Companies Act Cap 486 and that the petitioner is a provider of printing and advertising services to the Applicant, payment was on account.
When the petitioner raised an invoice and statement claiming Kshs. 1,068,843. 50, the applicant protested and the bill was reduced to kshs. 1,027,083 /=. However, the applicant disputed this figure and forwarded payment for Kshs. 879,728 /= which they admitted. The petitioner rejected this payment and insisted on being paid full amount. He returned the cheques before presenting them for payment. According to the applicant, they disputed kshs. 147,337 /=. The reason given for rejecting the cheques is that the Respondent had filed this petition and the amount of Kshs. 897,728 /= was not acceptable. There is evidence of dispute here.
The meaning of inability to pay is defined in the Act. Section 220 defines the inability to pay debts, thus :
1. If a creditor indebted to a company a sum exceeding Kshs. 1,000 /= and statutory notice for 21 day is served and no payment is received, or
2. If execution of decree in favour of a creditor is returned unsatisfied, or
3. It is proved to court that the company is unable to pay its debts after taking into account the contingent and prospective liabilities of the company.
The applicant herein relies on the case of Intona Ranch Ltd. (In liquidation) Vs Joseph Thomas Obrien, Civil Appeal No. 107 pf 1990. Where the court said:
“The company having disputed the debts cited in the statutory notice but offered to pay the admitted portion, then the Respondent was not entitled to present the petition. To do so was tantamount to exerting pressure on the company to pay what was due and offered as well as the disputed portion”
Further, the court said.
“Petition for winding up order of a company should never be presented as a means of exerting pressure to pay even an admitted amount where there is no evidence of insolvency and inability to meet the debt.”
Again in Standard Ltd Exparte Tricon Paper International. Ringera J. (as he then was said.
“If a petition is intended to enforce the payment of a disputed debt, it will be treated as an abuse of process of court and will be struck out.”
I have perused the Respondents submissions I see that although the payment of Kshs. 879,728 was to be paid, the Respondent refused to accept the payment because it had already filed this petition and the amount was not in full settlement of the debt. The Respondent’s conduct in refusing to accept the payment was evidence that the debt was disputed. From the Applicants admissions, only a sum of kshs. 147,355. 50 is disputed. The reasons why it is disputed is stated as not due as the Respondent was entitled to credit notes on account of rejected works. This is a dispute on the payment of the said sum. It was not a mere refusal. The Applicant said it was not due, if the works were rejected.
Upon receiving the Respondents submissions and authorities cited, it is clear that the Respondent in rejecting the amount admitted was pressuring the Applicant to pay even the disputed amount. What is unacceptable is the intention to pressurize the other party. As Ringera J. said, the proper procedure to enforce payment of disputed debts is to resort to civil courts for the trial.
There is no evidence here that the Applicant Company is insolvent. I have no hesitation in holding that the petition is an abuse of court process. The Respondents demonstrates that it wanted to pressurize the Applicant to pay the amount disputed. The petition was filed in bad faith.
I therefore allow the application and order that the winding up petition filed in this cause and dated 02. 07. 2007 against Falcon Commercial (K) Ltd be and is hereby struck out.
Costs of this application and the petition to be paid by Petitioner/Respondent.
It is so ordered.
DATED this 15th day of October 2008.
JOYCE N. KHAMINWA
JUDGE