[2022] KEHC 17235 (KLR)

Lalji Mehji Patel & Company Limited v Nature Green Holdings Limited; Andolo (Interested Party) (Miscellaneous Application 41B of 2016) [2022] KEHC 17235 (KLR) (2 December 2022) (Ruling)

Neutral citation: [2022] KEHC 17235 (KLR)

Republic of Kenya

In the High Court at Kajiado

Miscellaneous Application 41B of 2016

SN Mutuku, J

December 2, 2022

Between

Lalji Mehji Patel & Company Limited

Decree holder

and

Nature Green Holdings Limited

Judgment debtor

and

Donald Muhonda Andolo

Interested Party

Ruling

1. The Applicant brought this application through a Notice of Motion dated October 2, 2020 under Sections 3, 3A and 63E of the Civil procedure Act, Order 51 Rule 1 of the Civil Procedure Rules, Section 429, 430 and 431(3) of the Insolvency Act No 18 of 2015, seeking orders that;a.Spent.b.That Donald Muhonda Andolo, a co-director of the Judgement debtor be enjoined in these proceedings as an interested party.c.Spent.d.That this Honourable Court issues an order setting aside the Decree dated March 27, 2017. e.That this Honourable Court issues an order setting aside the Execution order dated November 21, 2017. f.That this Honourable Court issues an order setting aside the Notification of Sale dated September 16, 2020. g.That this Honourable Court issues an injunctive order restraining the Decree Holder whether by themselves or their agents from disposing by way of public auction or in any other way or interfering or dealing howsoever with the properties known as Land Reference Numbers Kajiado/Kaputei North 32238 and Kajiado/Kaputei North 32242 pending hearing and determination of Insolvency Cause No 1 of 2017 at the High Court in Kajiado.h.That the Decree Holder be ordered to avail before this Honourable Court and to the interested party the valuation report conducted on property title Number Kajiado/Kaputei North/32259 with the improvements thereon before the supposed public auction was carried out.i.That this Honourable Court be pleased to order an audit by an impartial audit firm into the sale by public auction of the property title number Kajiado/Kaputei North/32259, including but not limited to bank accounts of the buyer, Decree Holder and his agents Icon Auctioneers to ascertain the amount paid and the beneficiaries are the same.j.That the costs of the application be provided for.

2. This application was supported by an Affidavit sworn by Donald Muhonda Andolo on October 2, 2020. He averred that this Honourable Court issued a Decree dated March 27, 2017, an Execution Order dated November 21, 2017 and a Notification of Sale dated September 16, 2020 in regards to parcels Kajiado/Kaputei North 32238 registered in the Judgement Debtor’s name and Kajiado/Kaputei North 32242 where the Judgement Debtor holds a beneficial interest. That the Decree Holder has instructed Icon Auctioneers to sell the said properties by way of public auction. That the auctioneers issued an advertisement in the Daily Nation on September 18, 2020.

3. He averred that the Judgement debtor and its assets are subject of insolvency proceedings under Insolvency Cause No 1 of 2017 at the High Court in Kajiado. Further that once insolvency proceedings are instituted, all the assets, belonging to the subject matter company are precluded from any disposition, attachment, sequestration, distress and execution. It was his case that by a Conservatory order issued on June 19, 2018 no dealings of any kind were to be undertaken over the assets of the judgement debtor pending the determination of the same.

4. He argued, further that, should the auction happen the Insolvency cause shall be nugatory. It was his case that his Co-Director (Douglas Okeyo) kept him in the dark with regards to the affairs of the Judgement-Debtor, and thereby necessitated the filing of the Insolvency suit. He further stated that the Co-Director was acting in collusion with the Advocate on record for the Decree Holder, Mr Osundwa Sakwa in an effort to defeat the ends of justice by alienating the properties belonging to the Judgement-Debtor. He averred that it is in the interest of justice and fairness that the orders are granted.

5. The Decree Holder filed their Replying Affidavit sworn by Cynthia Sheunda their legal officer. She averred that the Decree and execution proceedings herein are not to be stayed/or set aside on account of allegations made. That the only recourse available to the Judgement Debtor is to settle the balance of the decree amount which continues to accrue interest. They argued that they are not the valuers or auditor and should not be compelled to avail what they don’t have. That the person who can produce the same is the auctioneer who conducted the execution process. It was their case that for the Applicant to challenge the auction, he must file a proper suit and further the orders sought cannot be granted as he is not properly admitted as a party. It was her statement that the orders sought cannot be granted for want of jurisdiction. That the court is functus officio and hence cannot grant the substantive orders sought.

6. It was their case that the filing of the Insolvency proceedings does not absolve the Applicant from meeting his obligations which accrued prior to the institution of the same. That the said cause was filed after an attempt to stop the adoption of the arbitral award failed, intended to defeat the Decree holder’s fruits of judgement. That on March 27, 2017 they were issued with a decree for the sum of Kshs 13,058,027 which arose from arbitration proceedings between the parties. That the same has not been fully settled and attracts interest. It was their case that the Judgement Debtor did not take any steps to set aside the award or to appeal and/or review the award.

7. It is deposed that the Decree Holder then engaged auctioneers on November 27, 2017 to proceed and recover the decreed amount. She deponed that the warrants of attachment and the Notification of sale were duly served upon the Judgement Debtor on February 2, 2018 and receipt was acknowledged. That on November 1, 2019 the Decree Holder took out Notice to show cause, the executed Notice was served upon the Judgement Debtor before the commencement of the Insolvency proceedings. That despite proper service the Applicant and Judgement Debtor did not disclose the existence of court order prohibiting any further dealings with the suit properties as some had been sold pursuant to the Decree of the Court. It was their argument that there is no Insolvency order between the parties hence nothing prevents the Decree Holder from pursuing all lawful means in executing lawful Decree. Further that the conservatory order issued does not exclude execution of the Decree of this Court.

8. The Applicant filed a Supplementary Affidavit dated July 28, 2021 in which it is averred that the Cynthia Sheunda, the Deponent to the Decree Holder’s Replying Affidavit, did not have the authority to do so as she was not their legal officer as stated. That through a search and confirmation from LSK it was noted that she worked in the firm of Osundwa & Company Advocates on record for the Decree Holder. That therefore the Replying Affidavit is fatally defective and ought to be struck out and expunged from the record. They argued that this court has jurisdiction having granted inter alia the Decree dated 27th March and the Execution Order dated November 21, 2017. That though the Decree Holder is not a party to the Insolvency proceedings, they know of its existence and have deliberately chosen not to be enjoined in the proceedings.

9. They argued that the Insolvency Petition came first in time before the latest attempt to sell the last 2 properties Kajiado/Kaputei- North 32238 and 32242. Further the Petition was filed way before the Decree-Holder obtained any orders for execution, even in respect of Kajiado/Kaputei-North/32259 and hence the orders were obtained fraudulently through concealment of facts. He averred that he was not aware and/or notified of any execution proceedings and knew of the same through an advertisement in the Daily Nation on September 18, 2020.

10. The Decree Holder filed their Supplementary Affidavit dated November 5, 2011. It was her case that the was appointed and authorized to depone and/or sign any Affidavits and documents made furtherance of this suit. That she urged the court to find that the impugned affidavit was deponed to with the requisite authorization,

Submissions 11. The matter was canvassed by way of written submissions. The Decree Holder filed their submissions dated November 17, 2021. They raised 4 issues for determination. On the first issue of whether Cynthia Sheunda had requisite authority to depone to the Affidavits, they argued that such issues are of the management and internal working of the companies. They relied on the case of Fidelity Commercial Bank Limited -vs- Simon Maina Gachie [2016] eKLR; On my part, I believe unless a defendant has information obtained from within the Plaintiff company, the said defendant should be very slow to depone that the company had not given to any particular person the requisite authority to swear the verifying affidavit. I say so because the passing of resolutions such as those:1. To authorize an advocate to represent the Plaintiff,2. to authorize the advocate to institute proceedings; or3. To authorize an officer or a director of the company to swear a verifying affidavit; are all matters which happen within the scope of the ordinary management of the company.They argued that through a letter dated July 14, 2020 by Lalji Meghji Patel & Company limited seconded Cynthia Sheunda to Osundwa and Company Advocates for a period of 1 year. Therefore, the decree holder outsourced its legal function to Osundwa & co Advocates by Board Resolution. That when she swore the Replying affidavit, she still had the responsibility to execute the required pleadings and affidavits on behalf of the decree holder.

12. The second issue was whether a liquidation petition leads to an automatic stay of ongoing execution proceedings. They argued that due process was followed in the extraction of the Decree and taking out Notice to show cause. It was their argument that the Notice to show cause was for the outstanding sum that had accumulated and stood at Kshs 9,077,050. That the fresh notice to show cause was a follow up on an execution process which was otherwise continuing. Further, the Judgement debtor being aware of the of the steps that had been taken and the full import of the notice made no application for stay order at the time of issuing the notice to show cause. That the Applicant never attended court, they didn’t apply to stay the execution and thirdly they never drew to the court’s attention the existence of insolvency proceedings or any order stopping the proceedings.

13. They further argued that liquidation petition does not lead to automatic stay of liquidation petition. On this they stated that Section 431(2) of the Insolvency Act provides that: if the court makes a liquidation order under section 534, the liquidation commences on the making of the order. That there is no insolvency order between the parties and hence nothing can prevent the Decree Holder from pursuing all lawful means of recovering debts owing from the judgement debtor. They relied on the case ofInvesco Assurance Company Limited -vs- Kinyanjui Njuguna & Co Advocates & another [2021] eKLR: 'I also find that the submissions of the insolvency petition filed at Milimani are not relevant because no insolvency order has been issued from the Milimani Insolvency Petition No E155 of 2019 pursuant to section 431(1)(b) and(2) of the Insolvency Act to bar the Respondents from seeking to execute the decree.'

14. The third issue is whether the applicant has satisfied the threshold for grant of interlocutory reliefs. On this they quoted the famous case ofGiella-vs Cassman Brown (1973) EA 358. It was their case that the Applicant has not demonstrated that they have a primafacie case. They argued that the Applicant did not disclose to the court of any insolvency proceedings, they did not file for stay and that they are not a party to the insolvency proceedings and cannot be bound by the conservatory orders. They further argued that there is no proof that the Applicant would suffer irreparable harm in that they did not disclose its assets and monies. They argued that they have property in the decretal sum and they are therefore at risk of loosing out on the fruits of judgement. On Balance of convenience they averred that it tilts in their favour. On this they relied on the case of Pius Kipchirchir Kogo-versus- Frank Kimeli Tenai (2018) eKLR where the concept of balance of convenience was defined. They reiterated the fact that the Applicant was served with the Notice to show cause but ignored it. They cannot therefore allege existence of a greater inconvenience that it may suffer if the application is not granted. They further argued that the Applicant approached the court with unclean hands. It was their case that the Applicant never appealed the arbitral award where the decree emanated from. That they awoke 5 years after the execution process started.

15. The fourth issue was whether the Applicant is entitled to the Reliefs Sought. They argued that the judgement debtor’s act to disregard the notice to show cause is an act of sheer indolence which disentitled them to any equitable relief. That the directors of the judgement debtor are estopped from faulting the court from issuing warrant of attachment and sale of Kajiado/Kaputei North 32238 and Kajiado/Kaputei/North 32242. It was their submission that the application was brought in bad faith to frustrate the lawful process of execution.

16. The Applicant filed their submissions dated August 3, 2022. They also brought 4 issues for determination. The first issue was whether the proposed interested party should be enjoined in the suit. It was their case that the proposed interested party being a director and a co-shareholder of the Judgement Debtor is directly affected by the suit herein and will help the court reach a conclusive and well-informed decision in the suit and should therefore be enjoined. On this they relied on the case of Skov Estate Limited & 5others -vs- Agricultural Development Corporation & another [2015] eKLR.

17. The second issue was whether Cynthia Sheunda has the requisite authority to swear affidavits on behalf of the decree holder in this matter. They reiterated the contents in their Affidavit. They argued that the letter of secondment annexed to the supplementary affidavit sworn by Cynthia Sheunda does not confer nor give authority for her to swear affidavits on behalf of the Decree holder. They argued that the Replying Affidavit should be expunged from the record. They relied on Order 19 rule 3 of the Civil procedure Rules which provides that affidavits shall be confined to such facts as the deponent is able of his own knowledge to prove. They argued that Cynthia Sheunda is a stranger to the Judgement debtor and the facts arising from the suit are not within her knowledge. They also relied on the case of Korica(U) Limited &another-vs- Kenya Ports Authority [2008] eKLR.

18. The third issue is whether the execution process was irregular and unlawful. They argued that the insolvency proceedings were instituted on April 18, 2017 and as such any execution proceedings instituted by the judgement creditor or any other party after the said date were unlawful. They submitted that insolvency proceedings take precedence over execution proceedings as was observed in the case of Invesco Assurance Company Limited -vs- Kinyanjui Njuguna & Co Advocates & another [2021] eKLR.It was their submissions that the quoted section 431(2) of the Insolvency Act by the Decree Holder is irrelevant. The same states that, if the court makes a liquidation order under section 534, the liquidation commences on the making of the order. They argued that section 534 concerns the appointment of an administrator by the holder of a floating charge. That none of those factors are applicable to the judgement debtor. That therefore the applicable section is 431(3) which states that: in any other case, the liquidation of a company by the court commences when the application for a liquidation order is made.That the Notice to show cause dated November 1, 2019 is therefore void as it was done after the commencement of the Insolvency proceedings.It was their argument that the execution process was unlawful as it did not adhere to the provisions of the law. They argued that the Notification of sale was served upon the judgement debtor on September 17, 2020 a day before the advertisement appeared in the Daily Nation. Section 15(d) of the Auctioneers Rules sets out a mandatory period of 45 days to be issued to a judgement-debtor to redeem the property once a notification of sale is issued. They relied on the case of Emree Global Investors Ltd-vs- Housing Finance Company of Kenya Ltd& 2 others [2014] eKLR.

19. The fourth issue is whether the Applicant has satisfied the threshold of granting interlocutory relief. This principle is well established in the case of East Africa Trufoods [1972] EA 420 and Giella -vs- Cassman Brown & Co Ltd [1973] EA 358. On primafacie case, they argued that they have established this by showing that the execution process was illegal and unlawful. They relied on the case of Mrao -vs First American Bank of Kenya Limited & 2 others [2003] eKLRon the definition of prima facie case.It is their case that the right to property risks being violated by the Respondents through the intended unlawful sale. That the Applicant stand to suffer irreparable harm that cannot be sufficiently compensated by way of damages. It was their case that therefore the balance of convenience tilts in their favour.

Analysis and Determination 20. I have considered the issues raised in the application together with the affidavits and the submissions by the parties. My analysis of the matter raised the following issues for determination:a.Whether the proposed interested party should be enjoined in these proceedings.b.Whether Cynthia Sheunda has the requisite authority to swear affidavits on behalf of the Decree Holder in this matter.c.Whether the execution process is irregular/illegal.d.Whether the Applicant has satisfied the threshold for granting interlocutory relief.

21. On the first issue, the interested party is one of the directors of the Judgement Debtor and is therefore affected by the suit herein. He has also filed a Petition for the Insolvency of the Judgement Debtor and is affected by the execution proceedings by the decree holder.The law provides under, Order 1 Rule 10 (2) of the Civil Procedure Rules that state:The court may at any stage of the proceedings, either upon or without the application of either party, and on such terms as may appear to the court to be just, order that the name of any party improperly joined, whether as plaintiff or defendant, be struck out, and that the name of any person who ought to have been joined, whether as plaintiff or defendant, or whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit, be added.

22. Similarly, in the case of Habiba W Ramadhan & 7 others v Mary Njeri Gitiba (2017) eKLR; Nairobi High Court ELC Case No 119 of 2014 the Court stated as follows:'As already observed by the Court, under Order 1 Rule 10(2) the Court has 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 in order to enable the court to effectually and completely adjudicate upon and settle all questions in dispute...' 23. In Trusted Society of Human Rights Alliance v Mumo Matemu & 5 Others [2014] eKLR, an interested party is defined as follows:

'[An] interested party is one who has a stake in the proceedings, though he or she was not party to the cause ab initio. He or she is one who will be affected by the decision of the Court when it is made, either way. Such a person feels that his or her interest will not be well articulated unless he himself or she herself appears in the proceedings, and champions his or her cause…'

24. In Meme v Republic, [2004] 1 EA 124, the High Court observed that a party could be enjoined in a matter for the reasons that:'(i)Joinder of a person because his presence will result in the complete settlement of all the questions involved in the proceedings;(ii)joinder to provide protection for the rights of a party who would otherwise be adversely affected in law;(iii)joinder to prevent a likely course of proliferated litigation.'

25. Going by the above provision of the law and the authority stated herein, it is my view that the interested party should be enjoined in the proceedings as he has a role to play and would assist the court to settle questions raised in the matter.

26. I have considered the issue as to whether Cynthia Sheunda had the requisite authority to swear affidavits on behalf of the Decree Holder in this matter and the arguments in respect of that issue.

27. The Law under Order 19 Rule 3 (1) of the Civil Procedure Rules, 2010. This rule provides that:'Affidavits shall be confined to such facts as the deponent is able of his own knowledge to prove: Provided that in interlocutory proceedings, or by leave of the court, an affidavit may contain statements of information and belief showing the sources and grounds thereof.'

28. In Research International East Africa Versus Julius Arisi and 213 Others, Nairobi CA 321 Of 2003, the Court of Appeal set out the requirement of order 1 rule 12(1) (2) of the Civil Procedure Rules as follows:12(1) 'where there are more plaintiffs than one, any one or more of them may be authorized by any other of them to appear, plead or act for such other in any proceedings and in a like manner where there are more defendants than one, any one or more of them may be authorized by any other of them to appear plead or act for such other in any proceedings.(2)The authority shall be in writing signed by the party giving it and shall be filed in the case.'

29. I have seen a letter dated July 14, 2020 giving authority to Cynthia Sheuda to swear the affidavit. I am therefore satisfied that this issue has been resolved.

30. I have considered whether the execution process is irregular/illegal. I have read the extensive submissions by parties on this issue. The background of the execution order emanated from an arbitral award between the parties which was adopted as an order of the court through a ruling of March 13, 2017. A decree was then issued on March 27, 2017 for an amount of Kshs 13,058,027/-. An execution order was then issued on November 21, 2017 and a Notification of sale dated September 16, 2020 in regard to Land parcels known as LR No Kajiado/Kaputei 32238 and 32242.

31. The Applicant submitted that the said execution was irregular as there were Insolvency proceedings already in place instituted on April 18, 2017. That the same take precedence over execution proceedings. Further that conservatory orders were issues by this court on June 19, 2018, that no dealings of any kind were to be undertaken over the assets of the Judgement Debtor. I note, however, that the arbitral award and the Decree were issued before the Applicant instituted the Insolvency Proceedings.

32. I have the provisions of the Insolvency Act under sections 428, 430 and 431 provides that:428. Power to stay or restrain proceedings against company when liquidation application has been made

(1)At any time after the making of a liquidation application, and before a liquidation order has been made, the company, or any creditor or contributory, may(a)if legal proceedings against the company are pending in the Court—apply to the Court for the proceedings to be stayed; and(b)if proceedings relating to a matter are pending against the company in another court—apply to the Court to restrain further proceedings in respect of that matter in the other court.(2)On the hearing of an application under subsection (1)(a) or (b), the Court may make an order staying or restraining the proceedings on such terms as it considers appropriate. 430. Attachments and other forms of execution against company in liquidation to be void

If a company is being liquidated by the Court, any attachment, sequestration, distress or execution instigated against the assets of the company after the of the liquidation is void. 431. When liquidation of company by the Court commences

(1)If, before the making of an application for the liquidation of a company by the Court, a resolution has been passed by the company for liquidating the company voluntarily—(a)the liquidation commences at the time of the passing of the resolution; and(b)unless the Court, on proof of fraud or mistake, directs otherwise, all proceedings taken in the voluntary liquidation are to be regarded as having have been validly taken.(2)If the Court makes a liquidation order under section 534, the liquidation commences on the making of the order.(3)In any other case, the liquidation of a company by the Court commences when the application for liquidation order is made.

33. It is clear from the above provisions that once the Liquidation process commences then the execution process against the company, subject of the liquidation proceedings, ought to halt and that proceedings leading up to execution against the company are put on hold awaiting the outcome of the liquidation order and appointment or not of the liquidator.

34. I have also read a Ruling of this court delivered on September 22, 2022, in Insolvency Cause No 1 of 2017 where the Judgment Debtor is the subject of liquidation in those proceedings, where this court noted that the properties subject of these proceedings, being Kajiado/Kaputiei-North 32238 and Kajiado/Kaputiei-North 32242 are some of the properties included in a conservatory injunction prohibiting disposing, transferring, alienating, sequestering, attaching, levying distress, levying execution, constructing on or dealing in any way that is prejudicial to the interest of the Judgment Debtor in these proceedings. This court found that the conservatory order was still active and was never lifted as argued in the application giving rise to that ruling.

35. This being the case, it is clear to me that the orders of this court read together with the provisions of the law cited above clearly favour the Applicant herein. Given that there is in place a conservatory order affecting the two parcels of land, I need not belabour the point. However, for clarity’s sake, I grant the following orders:i.The Applicant, Donald Muhonda Andolo, is hereby enjoined in these proceedings as an interested party.ii.The decree issued dated March 27, 2017, the execution order dated November 21, 2017 and the Notification of sale dated September 16, 2020 are hereby set aside.iii.Prayers No 3 and 7 of the Notice of Motion dated October 2, 2020 are covered by the conservatory order referred to under paragraph 34 of this ruling.iv.Prayers No 8 and 9 are held in abeyance pending the outcome of the Insolvency Cause No 1 of 2017. v.Costs of this application shall be in the cause.

36. Orders shall issue accordingly.

DATED, SIGNED AND DELIVERED THIS 2ND DECEMBER, 2022. S. N. MUTUKUJUDGE