https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12826

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **COMMERCIAL AND TAX DIVISION** **COMM CASE NO. E657 OF 2025** **BETWEEN** **SATINDERPAL SINGH KHALSA….……………………………..…………PLAINTIFF** **AND** **YAZIM NANJI……………..........…………………..…………………..DEFENDANT** **AND** **HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED........1ST INTERESTED PARTY** **STARLYNX UTILITY LIMITED……………………………..2ND INTERESTED PARTY** **RULING** **Introduction and Background** 1. The Plaintiff has filed the Notice of Motion dated 6th October 2025 under inter alia **sections 238-241,782,786,1000, 1004 and Part XI** of the ***Companies Act(Chapter 486 of the Laws of Kenya)*** and **section 3A** of the ***Civil Procedure Act(Chapter 21 of the Laws of Kenya),*** and **Order 51** of the ***Civil Procedure Rules*** seeking leave to bring a derivative claim on behalf of the 1st Interested Party (“the Company”) against the Defendant. He also seeks a temporary injunction restraining the Defendant from dealing with the Company’s assets and finances, orders compelling the Defendant to produce all books, accounts, bank statements of the 2nd Interested Party(“Starlynx”) and for the Defendant and Starlynx to refund all diverted revenues to the Company. 1. He further seeks to compel the Defendant to cease interference with the Company’s clients and issue corrective communications, to restrain the Defendant from threatening or intimidating the Plaintiff, a mandatory injunction to restore the Plaintiff’s access to the Company’s billing portal and official email accounts and a prohibitory injunction restraining the Defendant from soliciting the Company’s clients. The application is grounded on facts set out on its face and the Plaintiff’s supporting affidavit sworn on 6th October 2025 and it is opposed by the Defendant through the Notice of Preliminary Objection dated 13th October 2025 and his replying affidavit sworn on 6th November 2025. The application and the Objection have been canvassed by way of written submissions that I have considered and I will be making relevant references to them in my analysis and determination below. **Analysis and Determination** 1. I propose to first deal with the Objection raised by the Defendant which seeks to strike out the suit and the application on grounds that there is already a pending case between the same parties on the same subject matter, that is, **Insolvency Petition No. E057 of 2025** concerning the Company and therefore, the present suit offends **section 6** of the ***Civil Procedure Act***, which prohibits parallel proceedings in different courts over substantially the same issues, hence *res sub judice*. The Defendant claims the Plaintiff filed this derivative suit while already a party to the ongoing insolvency proceedings and that this suit is meant to embarrass, circumvent, or pre-empt the determination of the insolvency petition. 2. The Defendant asserts that the dispute over management and control of the company falls under the exclusive jurisdiction of the Insolvency Division of this court under **sections 424-427** of the ***Insolvency Act*** and citing the famous case of **Owners of the Motor Vessel “Lillian S" v Caltex Oil (Kenya) Ltd [1989] KECA 48 (KLR)**, the Defendant argues that if the court lacks jurisdiction, it must down its tools. It is the Defendant’s further position that the Plaintiff commenced this suit without first obtaining the mandatory leave of court required under **section 239(1)** of the ***Companies Act*** to bring a derivative claim. 3. The parties agree that for one to succeed in putting forth a Preliminary Objection, the facts pleaded by the other party are assumed to be correct; it must be a matter of law which is capable of disposing off the suit; it must not be blurred by factual details calling for evidence and it must not call upon the Court to exercise discretion(see **Mukisa Biscuit Manufacturing Co. Ltd v. West End Distributors Ltd. (1969) EA 696**). I am in agreement with the Plaintiff’s submissions that the issue of sub-judice does require the ascertaining of facts or probing of evidence in the earlier suit mentioned which this court is not privy to. It therefore follows that the issue of sub-judice is not a pure point of law capable of being considered as a preliminary objection properly raised and does not meet the litmus test of what in law amounts to a preliminary objection (see **Cyrus Mucebiu Irungu v Martha Wanjiru Irungu & another [2022] KEELC 810 (KLR)]** 4. To determine whether the issues in this case are directly and substantially the same as those in the insolvency suit, the court would need to examine the insolvency pleadings, compare the reliefs sought; and ascertain whether the earlier suit was filed first and is still pending. This is not a pure point of law as it requires factual investigation and production of evidence. This ground of objection therefore has no merit. 5. On the objection on jurisdiction, I am in agreement with the Plaintiff that this suit is a derivative claim under **sections 238–242** of the ***Companies Act*** which is expressly within the general jurisdiction of the Court and not specifically or exclusively within the Insolvency Division of the court. As submitted by the Plaintiff, there are no prayers seeking the winding up of the Company nor is the Plaintiff invoking any provisions of the ***Insolvency Act.*** I therefore find that the court has jurisdiction to determine this suit and application. 6. On the derivative claim being filed without leave of the court, **section 239(1)** of the ***Companies Act*** provides that *“In order to continue a derivative claim brought under this Part by a member, the member has to apply to the Court for permission to continue it.”* The Plaintiff filed the application and the suit expressly seeking leave to commence/continue the derivative claim and therefore, the objection that no leave was obtained is factually false on the face of the record as the application for leave is pending before the court. In any event, this court has always held that leave to institute a derivative claim can be sought even after the commencement of the suit (see **Wekhan Investment Limited & another v Wambui & 3 others [2021] KEHC 407 (KLR)]** 7. On the objection that the suit discloses no cause of action against the Defendant, I am in agreement that this determination will require a probing of evidence as the Plaintiff has pleaded detailed facts including breach of fiduciary duty, incorporation of a competing company, diversion of clients and revenue and blocking email and billing systems. These facts, if proved, clearly disclose a cause of action and Preliminary Objection on this ground cannot succeed where the pleading is not vague or hopeless. This ground therefore fails and the net effect of my findings above is that the Preliminary Objection as a whole has no merit and the same is dismissed. 8. I now turn to the application by the Plaintiff that seeks leave to continue the derivative claim and for injunctive relief. It is not in dispute that whether the court should grant him permission to proceed with this suit as a derivative claim is governed by **sections 238** and **239** of the ***Companies Act*** which provide as follows: *238 (1) In this Part, "derivative claim" means proceedings by a member of a company—* *(a) in respect of a cause of action vested in the company; and* *(b) seeking relief on behalf of the company.* *(2) A derivative claim may be brought only—* *(a) under this Part; or* *(b) in accordance with an order of the Court in proceedings for protection of members against unfair prejudice brought under this Act.* *(3) A derivative claim under this Part may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.* *(4) A derivative claim may be brought against the director or another person, or both.* *(5) It is immaterial whether the cause of action arose before or after the person seeking to bring or continue the derivative claim became a member of the company.* *(6) For the purposes of this Part—* *(a) "director" includes a former director;* *(b) a reference to a member of a company includes a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law.* *239. Application for permission to continue derivative claim* *(1) in order to continue a derivative claim brought under this Part by a member, the member has to apply to the Court for permission to continue it.* *(2) If satisfied that the application and the evidence adduced by the applicant in support of it do not disclose a case for giving permission, the Court—* *(a) shall dismiss the application; and* *(b) may make any consequential order it considers appropriate,* *(3) If the application is not dismissed under subsection (2), the Court—* *(a) may give directions as to the evidence to be provided by the company; and* *(b) may adjourn the proceedings to enable the evidence to be obtained.* *(4) On hearing the application, the Court may—* *(a) give permission to continue the claim on such terms as it considers appropriate;* *(b) refuse permission and dismiss the claim; or* *(c) adjourn the proceedings on the application and give such directions as it considers appropriate.* [Emphasis mine] 1. The aforesaid provisions provide the framework for instituting claims by members of the Company on behalf of the Company. Prior to the enactment of the ***Companies Act****,* such suits were governed by the rule in ***Foss v Harbottle* [1843] 67 ER 189** which established the general principal that a wrong alleged to have been done to a company, can only be remedied by an action by the company itself. However, several exceptions to the rule developed including the derivative action which allowed a minority shareholder to bring a claim on behalf of the Company. 2. The late Onguto J., in **Ghelani Metals Limited, Ghelani Enterprises Limited, Tononoka Fireworks Limited & Jayshree Suchak Sanjiv v Elesh Ghelani Natwarlal & Registrar of Companies [2017] KEHC 4629 (KLR)** explained the effect of the ***Companies Act*** on the common law rule in ***Foss v Harbottle* (Supra)** as follows: *44. Statutory procedure is now the exclusive method of pursuing derivative claims. The Act sets out what sorts of company claims may be pursued and is also explicit that derivative claims may only be pursued under the Act. The question must only be the factors the court ought to consider before approving a derivative claim.* *45. There appears, in my view, to exist a two stage process. The court must first satisfy itself that there is a prima facie case on any of the causes of action noted under s.238(3). S.239(2) of the Act provides that the application for permission will be dismissed if the evidence adduced in support “do not disclose a case” for giving of permission. The essence of judicial approval under the Act is to screen out frivolous claims. The court is only to allow meritorious claims. All that the applicant needs to establish, through evidence, is a prima facie case without the need to show that it will succeed.* 1. The position that an applicant ought to establish a prima facie case was affirmed by the Court of Appeal in **Amin Akberali Manji, Hemanth Kumar & Musikland Millenium Limited v Altaf Abdulrasul Dadani & Musikland Limited (Under Receivership) [2015] KECA 356 (KLR).** In considering whether to grant permission, the court is also guided by **section 241** of the ***Companies Act*** which sets out circumstances under which the court shall refuse the application and the considerations the court shall take into account when granting permission to the applicant to continue the suit as a derivative suit. The section provides as follows: *241. (1) If a member of a company applies for permission under section 239 or 240, the Court shall refuse permission if satisfied—* *(a) that a person acting in accordance with section 144 would not seek to continue the claim;* *(b) if the cause of action arises from an act or omission that is yet to occur-that the act or omission has been authorized by the company;* *(c) if the cause of action arises from an act or omission that has already occurred — that the act or omission—* *(i) was authorised by the company before it occurred; or* *(ii) has been ratified by the company since it occurred.* *(2) In considering whether to give permission, the Court shall take into account the following considerations:* *(a) whether the member is acting in good faith in seeking to continue the claim;* *(b) the importance that a person acting in accordance with section 143 would attach to continuing it;* *(c) if the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be—* *(i) authorised by the company before it occurs; or* *(ii) ratified by the company after it occurs;* *(d) if the cause of action arises from an act or omission that has already occurred-whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company* *(e) whether the company has decided not to pursue the claim;* *(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in the member's own right rather than on behalf of the company.* *(3) In deciding whether to give permission, the Court shall have particular regard to any evidence before it as to the views of members of the company who have no personal interest (direct or indirect) in the matter.* [Emphasis mine] 1. In **Isaiah Waweru Ngumi & 2 others v Muturi Ndung’u [2016] KEHC 3032 (KLR)** Prof. Ngugi J.,(as he was then) summarized some of the factors to be considered in granting permission to commence or continue a derivative action as follows: *[21]…Among other things, the Court considers the following factors:* *(a) Whether the Plaintiff has pleaded particularized facts which plausibly reveal a cause of action against the proposed defendants. If the pleaded cause of action is against the directors, the pleaded facts must be sufficiently particularized to create a reasonable doubt whether the board of directors’ challenged actions or omissions deserve protection under the business judgment rule in determining whether they breached their duty of care or loyalty;* *(b) Whether the Plaintiff has made any efforts to bring about the action the Plaintiff desires from the directors or from the shareholders. Our Courts have developed this into a demand or futility requirement where a Plaintiff is required to either demonstrate that they made a demand on the board of directors or such a demand is excused;* *(c) Whether the Plaintiff fairly and adequately represents the interests of the shareholders similarly situated or the corporation. Hence, a shareholder seeking to bring a derivative suit in order to pursue a personal vendetta or private claim should not be granted leave. In the American case of* ***Recchion v Kirby*** *637 F. Supp. 1309 (W.D. Pa. 1986), for example, the Court declined to let a derivative lawsuit proceed where there was evidence that it was brought for use as leverage in plaintiff’s personal lawsuit;* *(d) Whether the Plaintiff is acting in good faith;* *(e) Whether the action taken by the Plaintiff is consistent with one a faithful director acting in adherence to the duty to promote the success of the company would take;* *(f) The extent to which the action complained against – if the complaint is one of lack of authority by the shareholders or the company – is likely to be authorised or ratified by the company in the future; and* *(g) Whether the cause of action contemplated is one that the Plaintiff could bring as a direct as opposed to a derivative action.* 1. The Plaintiff’s case is that him and the Defendant are equal 50/50 directors and shareholders in the Company which provides technology solutions to hotels and he alleges that the Defendant has breached his fiduciary duties under the ***Companies Act***, unlawfully incorporated a competing company, Starlynx, without the Plaintiff’s knowledge or consent, diverting the Company’s clients, projects, equipment, and revenue to his new company, falsely telling clients that the Company was restructuring or rebranding. He accuses the Defendant of crippling the Company’s operations by blocking access to its billing system, ETR machine, and official email accounts and causing the Company’s monthly revenue to drop from approximately Kshs. 2,200,000.00 to Kshs. 1,400,000.00, placing the Company at risk of insolvency. 2. The Plaintiff annexed Starlynx’s CR12 which indicates that it was incorporated on 21st May 2025 and it is fully owned by the Defendant, there are email correspondences where the Defendant is telling clients that the Company was “restructuring” and to “hold any subscription rental payments” and that the Company had “transitioned” to Starlynx. There is also confirmation that the Company’s email account was disabled by the “admin/super admin” and the Plaintiff accused the Defendant in concert with Starlynx. Through the *WhatsApp* message extracts annexed by the Plaintiff, the Defendant is accused of confiscating an ETR machine and laptop; the bank statements show a drop in revenue collections and in a letter dated 23rd September 2025 and an email dated 24th September 2025, the Defendant admits that CAM cards were transferred to Starlynx. I find these to be prima facie evidence showing acts of potential breach of duty, conflict of interest, and diversion of corporate assets. 3. It is my further finding that the Plaintiff appears to be acting in good faith for the benefit of the Company and that this suit not for a personal vendetta against the Defendant. A director acting under **section 143** of the ***Companies Act*** has a duty to promote success of the company would likely want to recover diverted clients and revenue, restore access to billing and email systems, stop a director from operating a competing entity using company equipment and therefore, continuing the claim is important to the Company’s survival. Further, the alleged wrongs were committed by the Defendant without the knowledge or consent of the Plaintiff who is the only other director/shareholder and the Defendant controls the Company’s systems and is unlikely to ratify his own misconduct and thus, ratification is not a realistic possibility. It is also not lost to me that the Company is deadlocked at 50/50 and the Defendant is in de facto control of the Company’s email, billing, and physical assets. The Company cannot pursue the claim in its own name because the Defendant would most likely block it hence the reason why a derivative claim is necessary. 4. It is also my finding that continuing diversion of clients and revenue, the inability to invoice and the risk of insolvency if the Defendant continues to strip the Company of its business will likely cause irreparable harm on the Company that damages would not compensate for loss of goodwill, client relationships, and the Company itself. The balance of convenience favours the granting of the injunctive reliefs sought to preserve the Company assets and operations pending final determination of the suit. **Conclusion and Disposition** 1. In the upshot, I now make the following dispositive orders: 2. **The Defendant’s Notice of Preliminary Objection dated 13th October 2025 is hereby dismissed** 3. **The Plaintiff’s application dated 6th October 2025 is allowed** 4. **The Plaintiff/Applicant is hereby granted leave to continue this suit as a derivative claim on behalf of the 1st Interested Party, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED.** 5. **A temporary injunction is hereby issued restraining the Defendant, his duly authorized agents, servants, employees, assignees, and/or personal representatives from alienating, selling, transferring, disposing of, removing, charging, or in any other manner whatsoever dealing with the assets and finances of the 1st Interested Party, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED.** 6. **A prohibitory injunction is hereby issued restraining the Defendant, whether by himself, his agents, servants, employees, assignees, and/or personal representatives, from soliciting, inducing, encouraging, or otherwise interfering with the contractual relationships between the 1st Interested Party, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED and its clients, including but not limited to encouraging migration to the 2nd Interested Party, STARLYNX UTILITY LIMITED or any other competing entity.** 7. **A mandatory injunction is hereby issued compelling the Defendant to immediately restore the Plaintiff’s access to the official email accounts of the 1st Interested Party, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED including but not limited to raju@hospitalitysolutions.biz, within seven (7) days from the date of this Order, and to cease any further obstruction of the Plaintiff’s ability to discharge his duties as a director of the 1st Interested Party.** 8. **A mandatory injunction is hereby issued compelling the Defendant to immediately restore the Plaintiff’s access to the 1st Interested Party’s, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED, online billing portal and accounting system, including the ETR machine, to enable the company to resume normal operations, including invoicing and receiving payments from clients, within seven (7) days from the date of this Order.** 9. **The Defendant is hereby compelled to cease all interference with the 1st Interested Party’s, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED, clients and to issue a corrective communication to those clients unlawfully diverted to the 2nd Interested Party STARLYNX UTILITY LIMITED, clarifying that the 1st Interested Party, HOSPITALITY TECHNOLOGY SOLUTIONS LIMITED remains in full operation, within fourteen (14) days from the date of this Order.** 10. **The Defendant is hereby ordered to produce, within twenty-one (21) days from the date of this Order, the books of record, books of accounts, tax statements, bank statements, and financial statements or accounts of the 2nd Interested Party, STARLYNX UTILITY LIMITED, from May 2025 to date, for inspection by the Plaintiff and his advocates, subject to appropriate confidentiality undertakings.** 11. **The Defendant shall bear the costs of this application.** **DATED SIGNED and DELIVERED virtually this 7th DAY OF AUGUST 2026** **............................................................................** **J.W.W. MONGARE** **JUDGE** **IN THE PRESENCE OF** 1. Ms. Ndeto holding brief for Mr. Oganya for the Applicant. 2. Ms. Ochieng for the Respondents 3. Amos- Court Assistant