[2022] KEHC 3384 (KLR)

Mayaka (suing on his own behalf and 53 others)) v Rao (As Administrator Of General Printers Ltd); General Printers Limited (Interested Party) (Under Administration) (Insolvency Cause E003 of 2022) [2022] KEHC 3384 (KLR) (6 May 2022) (Ruling)

Neutral citation: [2022] KEHC 3384 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Insolvency Cause E003 of 2022

A Mabeya, J

May 6, 2022

In the matter of General Printers LTD (Under Administration)

Between

William Inyende Mayaka

Plaintiff

suing on his own behalf and 53 others)

and

Ponankipalli enkata Ramana Rao

Defendant

As Administrator Of General Printers Ltd

and

General Printers Limited

Interested Party

Under Administration

Ruling

1. On 31/1/2022, the plaintiffs as plaintiffs of General Printers Ltd (under administration “the Company”) brought this suit seeking various prayers. These included, payment of claims under Schedule 2 of the Insolvency Act, 2015, provide details of the Company’s indebtedness amongst others.

2. Together with the plaint, the plaintiffs also lodged a Motion on Notice dated 31/1/2022. In it, the plaintiffs sought a raft of orders including, an injunction against the defendant from disposing the assets of the Company, provision of the true financial accounts of the Company, provision of the true indebtedness of the Company among others.

3. In the supporting affidavit, the plaintiffs made various allegations including mal-administration of the Company. In particular, they complained about alleged bad faith on the part of the defendant in the administration of the Company. Further that, the administrator had breached his fiduciary position in relation to the Company.,

4. In opposition to the Motion, the defendant filed a replying affidavit which he swore on 28/3/2022. He also filed a Preliminary Objection dated the same day. That is the objection that was heard on 1/4/2022 and which is the subject of this ruling.

5. The objection was to the effect that; applications under the Insolvency Act are to be by Notice of Motion and not suit; that there is no cause of action against the defendant as his actions can only be challenged in the Insolvency Cause where he is acting as administrator.

6. Arguing the objection, Ms. Wamuyu submitted that under Regulation 10 of the Insolvency Regulations and section 591 of the Insolvency Act, applications should be by way of Motion and not suit. She relied on the case of Mark Properties Ltd v Coulson Harney LLP Advocates[2021] wherein Majanja J held that any issue relating to administration of a company ought to be dealt with the court exercising insolvency jurisdiction. She urged that the Motion and the suit be struck out.

7. The objection was opposed by the plaintiffs. Mr. Marienga, Learned Counsel for the plaintiffs submitted that; there was no point of law in the objection raised; that the same was argumentative on how to approach the court, cause of action and the forum. That the ills the defendant had committed in the company warranted to be examined through the present suit. He had sold assets of the company at Kshs.330,000,000/- and paid himself Kshs. 8million and was liquidating the company.

8. Learned Counsel further submitted that the issues being raised were serious in nature as they related to collusion and fraud among others which cannot be dealt with by way of a Motion under the Insolvency Regulations. Counsel relied on sections 691 of the Insolvency Act and article 159(2) (d) of the Constitution of Kenya for the proposition that this was a technical objection which should be overlooked for substantive justice. The decisions in In Re Nakumatt Holdings Limited [2017] and I & M Bank Ltd v ABC Bank Ltd &anor [2021] were also cited in support of those submissions.

9. A preliminary objection is one which consists a pure point of law which when raised it is capable of disposing off the matter. It cannot be raised if facts are to be established or is the exercise of judicial discretion. See Mukisa Biscuits Manufacturing Co Ltd v West End Distributors Ltd[1969] EA 696

10. The present objection is to the effect that, under the provisions of the law, the plaintiffs have approached the Court wrongly and that the Court has no jurisdiction to entertain the matter. In my view, those are pure points of law and there is nothing argumentative as submitted by Learned Counsel for the plaintiffs.

11. I have seen the plaint that commenced these proceedings and even the Motion itself. They raise serious infractions on the part of the defendant. They relate to his actions while carrying on his duties as the administrator of the Company.

12. Section 591 of the Act provides: -1)A creditor or member of a company under administration may apply to the court claiminga.That the administrator is acting or has acted so as to detrimentally affect the interest of the applicant ……

13. On the other hand, Regulation 10 of the Insolvency Regulations, 2016 provide that all applications shall be by notice of motion.

14. In this regard, it is clear that the Act and the regulations have set out the procedure by which thecourt has to be approached. In my view, that procedure is not merely technical, it is meant to achieve substantive justice. Matters administration of companies have been extensively provided for and for good reason. That Act has itself set out the objectives of administration and all that appertains thereto is geared towards achieving that purpose.

15. In Fredrick Okoth Owino v T S S Grain Millers [2017] eKLR it was stated that: -“It is my considered view that the Insolvency Act intends (sic) to create a central forum for dealing with all insolvency disputes that may have been filed against the company. It does not matter whether the suits are pending appeal before the senior courts, the only court with the original jurisdiction to grant leave to continue suits against companies under administration, in my opinion, is the High Court. Consequently, I agree with the administrator that this court lacks jurisdiction to entertain the application for leave to continue the suit pending the administration of the respondent or to enjoin the administrator as a defendant.”

16. Further, when faced with a proceeding relating to a company that had been placed under administration, in Mark Properties Ltd v Coulson Harney LLP Advocates; Le Mac Management Company Ltd & another[2021] eKLR, Majanja J observed: -“… any issue relating to administration ought to be taken up with the court exercising insolvency jurisdiction, that is, within proceedings in Milimani Court IC No. E010 of 2021 Re: Mark Prime Properties Limited (Under Administration) in accordance with section 591 of the Insolvency Act."

17. In Lambert Lwanga Ogochi &others v Ponangipalli Venkata Ramana Rao & 2others [2022] eKLR, it was held: -“From the foregoing, several matters come to the fore. That the primary role of the Insolvency Court is to enforce the objectives of the Act as set out in section 522 of that Act. That in all proceedings under the Act, the primary concern is to uphold those objectives. Primary in those objectives is to ensure that, the company under administration is not unnecessarily harassed by way of legal proceedings and or obliterated by uncoordinated disposal of its assets.In view of the foregoing, that all matters concerning a company under administration are to be under the watchful eye of the Insolvency Court. It is for that reason that before any proceedings are under-taken against such a company, the court has to give its nod or the consent of the administrator, who is an agent of the court has to be obtained.In this regard, the core objective of the Insolvency Act is that a company under administration is not to be harassed and its assets wasted by either unnecessary litigation or enforcement of any rights against it. …In view of the foregoing, I hold that thecourt that is referred to in section 560 of the Act is the Insolvency Court. That is, the court that is exercising insolvency jurisdiction over the company. This is so because, being in-charge of the administration of the subject company, it is expected that the Insolvency Court will have the knowledge on the circumstances surrounding the placement of the company under administration. It will also be equipped with the necessary knowledge and concern for the achievement of the objectives under the Act.That court would be expected to know how the objects of the Act under section 522 may be achieved through the administration. The Insolvency court will definitely not treat the subject company in the normal manner, since it is no longer business as usual for such a company. It would take the necessary precautions and weigh all that goes towards achieving the objectives set out in section 522 of the Act before granting the leave under section 560 of the Act.…If any proceedings are instituted in any other court other than the court exercising insolvency proceedings, that other court will be acting with minimal or insufficient information regarding the company which might defeat the legislative intention in sections 522 and 560 of the Act. It is the Insolvency Court that will be better placed to weigh whether the intended proceedings will be promoting the objects of the Act in relation to the company or not.”

18. From the foregoing, it is clear that the intention of the Legislature was that matters concerning a company under administration should be dealt with the permission and under the watchful eye of the Insolvency court. That being the case, any proceedings brought outside the insolvency proceedings and without the permission of the Insolvency court would be without jurisdiction.

19. I am alive to the doubts expressed by Onguto J in the case relied on by the plaintiffs of Re Nakumatt Holdings Ltd[2017] eKLR to the effect that Regulation 10 of the Insolvency Regulations may not have been intended to restrict all matters brought under the Insolvency Act to be by way of Motions. To my mind, those doubts did not amend the law. The intention of the Legislature has to be upheld. The Insolvency court is capable of dealing with all and every manner of dispute, including collusion, fraud among others such as alleged in this case.

20. Further, I am not convinced that the failure by the plaintiffs to approach the court as provided for by law, that is, by way of Motion within the Insolvency Proceedings themselves is a technical issue. It cannot be cured by section 696(1) of the Insolvency Act or even article 159 of the Constitution of Kenya. The plaintiffs should have instituted the current proceedings within Insolvency Cause No. HCCOMMIP E009 of 2021 In the Matter of General Printers Ltd.

21. Accordingly, I find the Preliminary Objection dated 28/3/2022 to be meritorious and I allow the same. The Motion dated 31/1/2022 together with the suit are hereby struck out with costs.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF MAY, 2022. A. MABEYA, FCIArbJUDGE