https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/8657

Mombasa Cement Ltd v Paddy (K) Ltd (Commercial Case E017 of 2020) [2026] KEHC 8657 (KLR) (Commercial and Tax) (19 June 2026) (Ruling) Neutral citation: [2026] KEHC 8657 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Commercial Courts) Commercial and Tax Commercial Case E017 of 2020 JWW Mong'are, J June 19, 2026 Between Mombasa Cement Limited Plaintiff and Paddy (K) Limited Defendant Ruling Introduction and Background 1.Before the court for determination is the Plaintiff’s Notice of Motion dated 22nd July 2025 made under sections 628, 635 & 1002 of the Companies Act(Chapter 486 of the Laws of Kenya), Order 22 Rule 35 and Order 51 of the Civil Procedure Rules and section 1(a)(b) and 3A, 6 and 63 of the Civil Procedure Act seeking orders inter alia that the Defendant’s two directors/shareholders, Mr. Patrick Nthiga Mvungu And Ms. Joyce Wangu Wachira, to personally appear in court to be questioned under oath about the Defendant’s affairs, assets, and its ability to pay the decretal sum of Kshs.628,248,624.24/=. 2.Further, that the same directors should be ordered to produce the Defendant’s books of accounts from 2019 to date, audited financial statements, certified bank statements and cheque books and other statutory documents relating to the Defendant’s operations. That if the directors fail to attend court or produce the documents or if the examination/document review reveals evidence of fraud, misuse of company funds, or intent to defraud creditors, the court should lift the Defendant’s veil of incorporation and make the directors personally responsible for paying the entire decretal sum. In the alternative, the Plaintiff urges the court to commit the directors to civil jail for not less than 6 months if they default on attendance or if fraud is proven. 3.The application is supported by the grounds on its face and the supporting affidavit of the Plaintiff’s Accountant, Jayantilal Vaiji Kethan, sworn on 22nd August 2025 and it is opposed by the Defendant through the replying affidavit of its director, Patrick Nthiga Mvungu, sworn on 23rd February 2026. The parties supplemented their arguments by filing written submissions that I have considered and I will be making relevant references to the same in my analysis and determination below. Analysis and Determination 4.From the parties’ submissions, the court is being asked to determine whether the Plaintiff has satisfied the threshold for the grant of the orders sought in the Plaintiff’s application. As stated in the introductory part and as submitted by the Plaintiff, its application is grounded under inter alia Order 22 Rule 35 of the Rules which provides as follows:“Where a decree is for the payment of money, the decree- holder may apply to the court for an order that-(a)the judgment-debtor;(b)in the case of a corporation, any officer thereof; or(c)any other person,be orally examined as to whether any or what debts are owing to the judgment-debtor, and whether the judgment-debtor has any and what property or means of satisfying the decree, and the court may make an order for the attendance and examination of such judgment-debtor or officer, or other person, and for the production of any books or documents. 5.It is not lost to the court that a company is a separate legal entity from its members and shareholders as espoused by the Court in the English case of Salmon vs Salmon [1987] AC 78, but that this position is not cast in stone as there are instances where the corporate veil of a company may be pierced and/or lifted. The Court of Appeal, in Riccatti Business College of East Africa Limited v Kyanzavi Farmers Company Limited [2016] KECA 763 (KLR) held that “The Court may lift the corporate veil in exercising its inherent jurisdiction to do justice and fairness for the ends of justice. This jurisdiction may be exercised only in special circumstances where the Court finds improper conduct, fraud or when a company is a sham, acting as an agent of the shareholders or evading tax revenues.” 6.The Plaintiff’s case is that on 23rd November 2023, the court entered judgment for the Plaintiff against the Defendant for Kshs.370,053,796.45/= plus interest and costs and that as of 15th August 2025, the outstanding decretal amount including interest and costs had grown to Kshs.628,248,624.24/=.The Plaintiff contends that all standard enforcement attempts have failed as warrants of attachment against the Defendant’s movable assets were returned unsatisfied since no assets were found and garnishee proceedings failed because the bank confirmed the account had a NIL balance. The Plaintiff believes the Defendant has deliberately relocated its business to an unknown place to evade creditors and that the directors knew the Defendant could not pay such a large debt but still incurred it. That the Defendant’s failure to pay, combined with its mysterious relocation, suggests fraudulent or wrongful trading and the corporate veil is being used to shield fraud and improper conduct, and it is in the interests of justice to lift it. 7.In response, the Defendant depones that the Plaintiff’s claim of fraud is based solely on non-payment of the debt and the Defendant’s nil bank balance as confirmed in the garnishee proceedings. The Defendant claims that non-payment alone does not constitute fraud and that the Companies Act requires clear evidence of unconscionable abuse of the corporate form to pierce the veil. That no specific fraudulent acts such as asset stripping or hiding funds have been proven and that the Defendant’s financial collapse resulted from external economic pressures, not fraudulent conduct. It states that the COVID-19 pandemic caused a lockdown and caused transportation disruptions, leading to severe revenue decline in the logistics sector and many Kenyan businesses faced similar shutdowns without any fraudulent intent. 8.The Defendant avers that it was not a sham or façade but a legitimate transportation company, incorporated under the Companies Act, with proper filings and operations until 2020. That there is no evidence of intermingling of personal and corporate funds, nor use of the company as a sham, that the directors operated the Defendant diligently, investing heavily in the transportation business and that its closure in 2020 was a lawful response to unsustainable losses, not a scheme to defraud creditors. It states that the Plaintiff’s claim of an unknown relocation of offices is incorrect as the company ceased operations entirely and no new office was established. It claims that it faces several other pending suits from different creditors, which demonstrates a general insolvency problem rather than targeted evasion of the Plaintiff. 9.The directors depone that they have fulfilled their fiduciary duties under section 143 of the Companies Act, acting in good faith to preserve the Defendant’s interests and the decision to cease operations was prudent to avoid further losses. That no personal benefit was derived from the Defendant’s collapse and that their personal financial statements show no significant personal assets, reinforcing that the liabilities are corporate, not personal. The Defendant contends that lifting the corporate veil without conclusive evidence of fraud violates public policy and the principle of separate legal personality and that courts exercise this remedy sparingly, requiring a high threshold that the Plaintiff has not met. That imposing personal liability on directors for insolvency caused by external factors like the pandemic would deter legitimate business operations. For these reasons, the Defendant urges the court to dismiss the Plaintiff’s application to lift the corporate veil and award the Defendant costs 10.It is undisputed that the Plaintiff holds a substantial judgment of now Kshs.628,248,624.24/= which remains unpaid. It has also not been disputed that standard execution methods have failed as warrants of attachment were returned unsatisfied and garnishee proceedings failed because the Defendant’s bank account had a nil balance. The essence of an order sought under Order 22 Rule 35 of the Rules is to assist with discovery. This observation was made by Ringera J., in Ultimate Laboratories V Tasha Bioservice Limited; HCCC No. 1287 of 2000 where the Learned Judge emphasized thus:“Two things emerge from the above proposition. One, the power of the Court to summon a person to attend and be examined under Order 22 Rule 35 is circumscribed within the purpose set out in the Rule. That is;…as to whether any or what debts are owing to the judgment debtor, and whether the judgment debtor has any and what property or means of satisfying the decree. I therefore, take the view that, as long as the Applicant has shown that the Respondent is in a position to provide information in the nature of discovery….as to whether any or what debts are owing to the judgment debtor, and whether the judgment debtor has any and what property or means of satisfying the decree, the Court should summon the person to attend and be examined in relation to the purpose stated in the Rule.” 11.The Plaintiff has stated on oath that it cannot trace the Defendant’s assets and this is the exact situation the aforementioned rule was designed for. The directors are the proper persons to be summoned and as per the CR-12 annexed by the Plaintiff, they control the company as both directors and shareholders and are in the best position to explain its affairs, assets, and financial history. The Defendant’s argument that it has ceased operations and is insolvent due to the COVID-19 pandemic does not negate the Plaintiff’s right to examine the directors. In fact, it reinforces the need for an examination to verify these claims and to see if any assets were transferred or if the Defendant’s closure was properly conducted. I therefore find that the prayers for summoning the directors for oral examination and production of the Defendant’s documents is merit and it is hereby granted. 12.On lifting the corporate veil, the Plaintiff has cited inter alia Ng’ang’a v Spero Africa Limited (Civil Case 140 of 2014) [2024] KEHC 12608 (KLR) and Asterisk Limited v Humming Healthcare Limited [2021] KEHC 5528 (KLR) where the court set out a clear two-step process of first, summoning and examining the directors and order production of documents under Order 22 Rule 35 and then second, only after that examination, if evidence of fraud, improper conduct, or an abuse of the corporate form is uncovered, the court can then consider lifting the veil and holding the directors personally liable. The Plaintiff’s allegations of fraud are serious and as the Defendant correctly noted, the burden of proving fraud is high and the court cannot, on mere allegations alone, make a final determination of fraud and impose personal liability for over Kshs.628 million. I find that the examination is required to uncover the evidence needed to meet that standard. 13.The Defendant has offered a coherent, non-fraudulent explanation for its collapse that the severe economic shock of the COVID-19 pandemic on the transport sector led to its insolvency. It also disclosed multiple other pending suits, suggesting a general business failure rather than a scheme specifically to defraud the Plaintiff. These are factual claims that must be tested through oral examination and documentary evidence. To lift the veil without testing these claims would be contrary to the principle that a company’s insolvency alone is not grounds for piercing the veil (see Corporate Insurance Co. Ltd v Savemax Insurance Brokers Ltd & another HCCC No. 125 of 2002 (UR)] 14.It is therefore my finding that the Plaintiff has not yet made out a sufficient case for the court to grant, at this stage, an order to lift the veil of incorporation and hold the directors personally liable for the decretal sum and imprison them for 6 months. Conclusion and Disposition 15.In the foregoing, I allow the Plaintiff’s application dated 22nd July 2025 as follows:1.Summons do hereby issue directed to Patrick Nthiga Mvungu And Joyce Wangu Wachira, Directors and shareholders of the Defendant/Judgment Debtor to attend Court on a date to be fixed for purposes of being orally examined as to the business and affairs of the Defendant/Judgment Debtor, and the property or properties of the Defendant/Judgment Debtor, and the Defendant/Judgment Debtor’s means of satisfying the decretal sum herein.2.An order is hereby issued directing Patrick Nthiga Mvungu And Joyce Wangu Wachira, in their capacity as Directors and shareholders of the Defendant/Judgment Debtor, to produce before Court the following documents:i.Books of accounts relating to the day to day running of the company from 2019 to date;ii.Audited financial statements from 2019 to date;iii.Certified company bank statements from 2019 to date;iv.Cheque books from 2019 to date;v.Other statutory documents relating to the operations and transactions of the Defendant/Judgment Debtor and its affiliates from 2019 to date.The said Directors shall be examined on oath on the said documents.3.The prayers seeking to lift the veil of incorporation and hold the Directors personally liable for the decretal sum are hereby held in abeyance pending the completion of the oral examination and production of documents ordered above and the Court shall give further directions on the same after the examination.4.This matter will be mentioned within 60 days of this ruling for the purpose of confirming compliance and scheduling the oral examination.5.The costs of this application are awarded to the Plaintiff to be borne by the Defendant and the same is assessed at Kshs.20,000.00/-. DATED SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 19TH DAY OF JUNE 2026............................................................................J.W.W. MONGAREJUDGEIn The Presence OfMs. Mary Munjogu holding brief for Ms. Kendi for the Plaintiff/Applicant.Mr. Asiyo holding brief for Mr. Nzavi for the Respondent.Amos - Court Assistant