Judy Nyakonyu Maina v Benson Maina Ngari & Isiolo Mwangaza Company Ltd

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT ISIOLO** **CIVIL SUIT NO. E001 OF 2026** **JUDY NYAKONYU MAINA ............................................. APPLICANT** **VERSUS** **BENSON MAINA NGARI ................................................DEFENDANT** **ISIOLO MWANGAZA COMPANY LTD ....... (AFFECTED PARTY)** **RULING** 1. What is coming up for determination is the Plaintiff’s Notice of Motion dated 23/4/2026.It seeks orders as follows: - *1). (spent.)* *2). (spent)* *3). (spent)* *4). That pending the hearing and determination of the suit, an Order be issued directing that no withdraws should be made from the Company’s Accounts;* * *070000014254 -Family Bank Limited.* * *1103347179 -KCB Bank Limited.* * *0410297551984 -Equity Bank Limited.* * *10111200000015-Consolidated Bank of Kenya Limited.* * *01024020002140- Sidian Bank Limited.* *Without the signature and participation of the Plaintiff in the said withdrawals.* *5). That pending the hearing and determination of the suit, an Order of Temporary injunction do issue restraining the Defendant from preventing the Plaintiff from accessing the business premises of the Company and from running the day to day activities of the Company.* *6). That the Plaintiff be granted leave to continue with the derivative suit filed herewith on behalf of the Company.* *7). That costs of the application be provided for;* **The Applicant’s case** 1. The Applicant states that she is the minority shareholder and Director of Isiolo Mwangaza Company Ltd the Affected party herein .( hereafter referred to as the Company). The Defendant/ respondent is her husband and Co-owner of the Company. The plaintiff holds 300 shares while the defendant holds 700 shares. Both are directors of the company, with the defendant being the Managing director. 2. She states that around March 2026, the Defendant barred her from accessing her office at the Company’s premises; that she has been denied remuneration as the director of the company; that he has denied her access to Company records, Cheques and Financial Reports, and removed as a signatory to the company’s Accounts held in Kenya Commercial Bank and Equity Bank, and replaced by two employees of the Company. 3. The Applicant further accuses the respondent of withdrawing money from the company’s Accounts and converting it to his personal use; that he has used the company’s funds to purchase immovable properties, which properties are registered solely in his name. That the respondent has also used the company funds to purchase a Motor vehicle, which she is not allowed to use. The Applicant has attached *Mpesa* statements showing the withdrawals allegedly made by the Respondent. 4. It is the Applicant’s case that there was no resolution passed to bar her from the Company operations or remove as signatory to the aforesaid Bank Accounts. 5. In response to the respondent’s assertion that are no investigation that have been carried out into the alleged fraud, she argues that lack of investigations does not negate the breaches referred to. she denies taking Ksh. 27,000 from the Company. To the contrary she states that the Defendant withdrew 1,260,000 from Absa Bank between 20/01/2016 and 30/03/2026. She has attached some Mpesa statement as proof of such withdrawals. 6. The Applicant further states that the respondent has not denied the fact that he has used funds from the Company to purchase several plots and parcels of land which are registered in the sole name of the Respondent. 7. In her submissions, she argues that by using the Company’s funds to purchase personal properties, the Defendant has breached his financial and fiduciary duty to the company, has oppressed the minority shareholder by removing her as a signatory to the Company’s Bank Accounts. She also states that, he has failed to carry out the Audit of the Company. 8. It is argued that in the circumstances, the Applicant has established a prima facie case to entitled her to the prayers being sought. she asserts that she has invested in the development of the Company, and that if the orders sought are not granted the company risks being ran down. 9. On where the balance of convenience tilts, it is submitted that it is prudent to preserve the interest of the Plaintiff in the Company. 10. The Applicant finally submits that she has met the conditions necessary for granting leave to continue the derivative suit. To buttress this submission, she asserts that: she has demonstrated instances of breach of statutory and fiduciary duties; that Alternative Dispute Resolution Mechanism has failed; That the Plaintiff is seeking to protect the interest of the company not her own, and finally has demonstrated that there has been loss of funds. 11. In making a case of derivative suit the Plaintiff has relied on the following decisions: - * ***min Akberali Manji & 2 Others vs Altaj Abdulrasul & Another [2015] KECA 356.*** * ***Grace Wanjiru Munyinyi & Another.vs. Gedion Waweru Githunguri & 5 Others [2011] eKLR,*** **The Respondent’s Case** 1. In his Replying Affidavit sworn on 5th May 2026, the Respondent states that there is neither any criminal proceedings that have been preferred against him nor is there any investigation going on into the alleged fraud or any complaint filed with the police. He further states that the Plaintiff has not been able to account of Ksh. 27 million which she has taken from the company. He argues that any granting of the orders sought will jeopardize the operations of the company. 2. In his Submissions the Respondent states that the Plaintiff has never conducted any transaction on behalf of the Company and has failed to perform her duties. He states that to the contrary he is the one who has been solely carrying out the operations of the Company. 3. The Respondent accuses the Plaintiff of carrying out the Company’s transactions through *Mpesa* rather than the Company’s Accounts. He further asserts that there are reasonable grounds to believe that the Company’s funds were diverted to personal Accounts without proper Authorization. He finally states that the Company Accounts are available for scrutiny. **Analysis and Determination** 1. I have considered the Notice of Motion, the affidavits filed for and against it, the parties’ written submissions and the authorities cited. The issues that arise for determination are: a). whether the Applicant has made out a case for leave to continue the suit as a derivative claim. b). whether she has satisfied the requirements for interlocutory injunction. c). who should bear the costs of the Application. *whether the Applicant has made out a case for leave to continue the suit as a derivative claim.* 1. A company is a legal person distinct from its shareholders and directors. Ordinarily, therefore, where a wrong is done to a company, the company is the proper claimant. That is the rule in the old case of ***Foss v Harbottle (1843) 2 Hare 461.*** 2. A derivative claim is the recognised exception which permits a member, in appropriate circumstances, to pursue in his or her own name a cause of action vested in the company and to seek relief on behalf of the company. The rationale of the Rule was explained in the decision of [***Amin Akberali Manji & 2 others v Altaf Abdulrasul Dadani & another [2015] eKLR***](https://new.kenyalaw.org/akn/ke/judgment/keca/2015/356/eng%402015-09-25)***,*** where the court stated that the remedy prevents injustice where those alleged to have wronged the company are themselves in control and cannot reasonably be expected to cause the company to sue. 3. The remedy is now governed by Part XI of the Companies Act, 2015. Under section 238, a derivative claim is one brought by a member in respect of a cause of action vested in the company and seeking relief on its behalf. It may concern an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director, and may be brought against the director, another person, or both. Section 239 requires the member to obtain the Court’s permission to continue the claim. The Court may grant permission on such terms as it considers appropriate, refuse it and dismiss the claim, or adjourn the application and issue directions. 4. It is required of the Applicant, at the commencement of the suit, to place before the Court evidence disclosing a prima facie case for permission. In ***Ghelani Metals Limited & 3 Others v Elesh Ghelani Natwarlal & Another [2017] eKLR***, the Court observed that permission performs an important filtering function: it allows a bona fide claim intended to protect the company to proceed while excluding claims which are frivolous, vexatious or driven by an ulterior personal purpose. 5. Further in deciding whether permission should issue, the Court is required to apply section 241 of the Act. Among the relevant considerations are whether the member acts in good faith; the importance that a director promoting the success of the company would attach to continuing the claim; whether the impugned act has been, or is likely to be, authorised or ratified; whether the company has decided not to pursue the claim; and whether the member has an alternative cause of action in her own right. 6. Turning to the present case, it is common ground, that the Applicant holds 300 shares in the company while the Respondent holds 700 shares, and that both are directors. The Applicant alleges that the Respondent, who is the majority shareholder and controls the company’s operations, has withdrawn company funds for his own use and has applied company money to acquire immovable property registered solely in his name. She further alleges that she has been excluded from company records and removed as a signatory to some of its bank accounts without a board or members’ resolution. 7. The alleged diversion and conversion of company funds, if ultimately proved, would constitute a wrong to the company and would fall squarely within negligence, default, breach of duty or breach of trust contemplated by section 238(3) of the companies Act. It would also implicate the statutory duties of a director to act within powers, promote the success of the company, exercise reasonable care, skill and diligence, and avoid conflicts of interest under sections 142 to 146 of the Act. Any recovery, restitution or account flowing from that alleged misuse would belong to the company rather than to either shareholder personally. 8. The Respondent denies wrongdoing and alleges, in turn, that the Applicant has herself failed to account for Kshs. 27 million. Those competing allegations cannot be resolved conclusively at this stage. In my view, they demonstrate the need for accounts and a full trial, rather than the absence of a triable issue. 9. Further agree with the Applicant’s submission that the fact that no complaint has been made to the police, no investigation commenced and no criminal charge preferred does not determine whether a civil breach of fiduciary or statutory duty has occurred. This is a case of civil liability and this kind of liability is not dependent upon or can be postponed by criminal investigation or prosecution. 10. There is no evidence before the Court that the alleged withdrawals or acquisition of property in the Respondent’s name, were authorised in advance or ratified by an independent decision of the company. Noteworthy, the Respondent has not denied purchasing the plots or purchasing a car using the company’s funds without authorization. 11. Further, given the Respondent’s majority shareholding and control of the company’s operations, it is unrealistic at this stage to expect the company, acting through him, to commence proceedings against him. The Applicant’s demand for scrutiny and restoration of company funds is, on its face, directed to the company’s benefit. However, her personal complaints concerning remuneration, access to office and participation in management must, however, be distinguished from the derivative wrong and be determined on their own evidential basis. 12. I am satisfied that the Applicant has satisfied the legal threshold set out under sections 238, 239 and 241 of the Companies Act. She has established a bona fide prima facie case concerning an alleged wrong to the company; that the alleged wrong has not been shown to have been authorised or ratified; and a director acting to promote the company’s success would attach importance to the recovery of any funds improperly diverted from it. The prayer for permission **to** continue the derivative claim is warranted**.** *whether the Applicant has satisfied the requirements for interlocutory injunction* 1. The next issue is whether the Applicant has satisfied the conditions for granting an injunction. The applicable principles were stated in the celebrated case of ***Giella v Cassman Brown & Company Limited [1973] EA 358*** , restated by the Court of Appeal in ***Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR*** and other numerous decisions of the superior courts. 2. The conditions are that the Applicant must sequentially establish a prima facie case with a probability of success; demonstrate that damages would not be an adequate remedy, and, where the Court remains in doubt, show that the balance of convenience favours the injunction. 3. For the reasons earlier given in this judgment, the Applicant has established a prima facie case in relation to the alleged misuse of company funds. Continued dissipation of company money would prejudice the company itself, disrupt its ability to meet obligations to employees, customers, creditors and other stakeholders and such disruptions may not readily be repaired by an award of damages to the Applicant. 4. The court has anxiously considered prayer 4 of the Application. It seeks to prohibit every withdrawal from five company accounts unless the Applicant signs and participates in it. The court is alive to the possibility that with the present two-member company, that order could give either party a veto over every payment. However, the court has equally considered that the prayer if granted will conversely bring the two directors to give priority to the interest of the Affected party while protecting their respective interests, as the shareholders of the company. In the circumstances, am satisfied granting this order will protest the interest of the company and that of the Applicant as a shareholder. 5. Prayer 5 of the Application seeks to compel the Respondent to restore the Applicant to the business premises and to participate in running the company. The Applicant’s status as a director is not in dispute, notwithstanding the fact that there are disagreements between the two. Further to the extent that this court has directed her inclusion in the company’s financial transactions, then her presence in the day to day operations of the Company is indispensable. Further unless and until the respondents proves that her participation in the day to day operations of the company is detrimental to the company, *primafacie* , no valid reason that has been given for her exclusion. The court does not consider the alleged disinterest in the running of the company a plausible reason to lock her out of the company’s daily operations. 6. In conclusion, the Notice of Motion dated 23 April 2026 succeeds and the following orders hereby issue: a). Pending the hearing and determination of the suit, an Order is hereby issued that no withdraws should be made from the following Bank Accounts of Isiolo Mwangaza Company Ltd * 070000014254 -Family Bank Limited. * 1103347179 -KCB Bank Limited. * 0410297551984 -Equity Bank Limited. * 10111200000015-Consolidated Bank of Kenya Limited. * 01024020002140- Sidian Bank Limited. Without the signature and participation of the Plaintiff in the said withdrawals. b). pending the hearing and determination of the suit, an Order of Temporary injunction do issue restraining the Defendant from preventing the Plaintiff from accessing the business premises of the Company and from running the day to day activities of the Company. c). That the Plaintiff is hereby granted leave to continue with the derivative suit filed herewith on behalf of the Company. d). For avoidance of doubt, to ensure that the operations of the Company do not stall, the plaintiff and the Defendant shall sign for all Bank withdrawals. e). The costs of this Application shall abide the suit. Dated, signed and delivered at Isiolo, this 30th day of July 2026. S. Chirchir Judge. In the presence of : Roba Katelo- Court Assistant Mr. Otieno Opiyo for the plaintiff Mr.Ondari for the Respondent.