[2022] KEHC 15080 (KLR)

Patel (Suing as the legal administrator of the Estate of the Narshibhail Patel Fulabhai - Shareholder) v Patel & another; Kenya Flexogravure Limited (Affected Party) (Commercial Cause E001 of 2022) [2022] KEHC 15080 (KLR) (10 November 2022) (Ruling)

Neutral citation: [2022] KEHC 15080 (KLR)

Republic of Kenya

In the High Court at Nakuru

Commercial Cause E001 of 2022

TM Matheka, J

November 10, 2022

IN THE MATTER OF: AN APPLICATION FOR LEAVE TO INSTITUTE A DERIVATIVE CLAIM AGAINST THE RESPONDENTS BEING THE DIRECTORS KENYA FLEXOGRAVURE LIMITED AND IN THE MATTER OF: THE COMPANIES ACT, NO. 17 OF 2015 AND IN THE MATTER OF: PART XI, SECTION 238 OF THE COMPANIES ACT NO. 17 OF 2015

Between

Nita Hasmukh Patel

Applicant

Suing as the legal administrator of the Estate of the Narshibhail Patel Fulabhai - Shareholder

and

Mahendra Chandulal Patel

1st Respondent

Sejal Ashish Patel

2nd Respondent

and

Kenya Flexogravure Limited

Affected Party

Ruling

1. What is before me is the notice of motion dated February 28, 2022 brought by Nita Hasmukh Patel suing as the Administrator of the Estate of Narshinbhai Patel Fulabhai (hereinafter – N.F Patel ) who she describes as a shareholder.

2. The application is for leave to institute a derivative claim against the respondents, Mahendra Chandulal Patel (MC Patel) and Sejal Ashish Patel (SA Patel) the directors of Flexogravure (K) Limited, hereinafter the affected party.

3. The application is brought under the provisions of part xi, section 238 of the Companies Act cap 17 of 2015, and articles 159 (1) (d) of the Constitution, sections 1A, 1B and 3A of the Civil Procedure Act, order 51 rule 1 of the Civil Procedure Rules.

4. The applicant has filed together with the application a proposed plaint, annexed to the supporting affidavit sworn by the applicant on February 28, 2022.

5. The applicant’s case as gleaned from the affidavit and other annexures is this: She is the daughter in law of N F Patel who died in 1991. N F Patel was the father of Hasmukh Patel who was her husband, and who died in 2019. That in 1979 NF Patel and MC Patel founded the company Flexogravure Limited on a shareholding of 50:50 as per the memorandum of association. That sometime along the way a third party one Aaron Kandie was brought on board, and some shares offloaded to him. That consequently without a reasonable explanation N F Patel’s shares were reduced to 30%.

6. Further that after the demise of N F Patel and with the consent of the family, in the interest of the deceased’s estate, his 1st born son, Hasmukh N. Patel the husband of the applicant, took over NF Patel’s position as director in the company. There was no formal transfer of the deceased’s shares, but he was recognized and treated as director, shareholder until his demise in 2019.

7. Following the death of NF Patel, and that of her husband, the applicant is now the administrator of the estate of NF Patel pursuant to grant of letters of administration intestate made to her on January 11, 2021.

8. She brings this application for and on behalf of the estate of NF Patel and the affected party who is not in a position to deal with the issues that she has placed before the court. She contends that since becoming the administrator, she learnt that the respondents have jointly and severally breached the express and implied provisions of the affected party’s memorandum and articles with respect to NF Patel’s interest in the company, and that is what prompted the filing of this case.

9. From her supporting affidavit, she gives the background to what she terms to be the breaches. That when her husband (who was representing the interests of NF Patel in the company without any formal procedures having been followed) died, in 2019 the respondents convened a meeting they styled; “board of directors meeting”, where she and her son Neel H. Patel were invited. This was barely 10 days after his death.

10. That at the time, neither she nor her son Neel H. Patel had obtained grant of letters of administration for the estates. That the meeting purported to pass resolutions, giving authority to the 1st respondent and one Rakesh Mahindra Patel who was neither a director nor a shareholder to transact the company’s bank accounts.

11. This action, of convening a meeting of non-directors, passing resolution, was unlawful, un procedural and illegal, and the resolution passed was ab initio illegal. Her efforts, through her advocates to have that resolution vacated fell on deaf ears. That on February 2, 2021, the said Mr Rakesh Patel, whose position in the company is unknown, informed her that the 20% shares of the estate of NF Patel would be diluted with or without her consent unless she deposited USD 80,000/=. This was without any resolution of the company (directors/shareholders) and her view of the matter was that this was an extortionist and blackmail attempt to extract money from her on the pretext that the company needed capital injection.

12. That article 88 of the articles of association of the company clearly set out that the number of directors shall not be less than two (2) or more than seven (7) unless a general meeting determines otherwise. All this time there has been one director. That as the administrator of the estate of NF Patel she has tried to get information, audited accounts from the years 2018, 2019 and 2020 and other financial details of the company to ascertain the veracity of the need for dilution of shares of the estate of NF Patel. Despite letters by herself and her advocate, no response was forthcoming.

13. That on February 15, 2021, the respondent, without the involvement of minority shareholders, held a meeting where they appointed 2nd respondent as director, is violation of article 117 and 118 of the articles of association.

14. In the meeting they also raised nominal share capital in violation of article 56, but there was no indication of how the value attached to the shares was arrived at.

15. That the amount that became due and payable was Kshs 22,500,000/=. That coincidentally the respondent had earlier offered to buy the NF Patel’s shares atKshs 30,000,000/= but when she made the counter offer to buy the other shares at Kshs 70,000,000/=, her offer was rejected. To her this was a clear indication that there was malice on the part of the respondents. She honestly believes that this is another extortionist scheme, as the value of 30% shares of NF Patel does not equate to theKshs 30,000,000/= the respondents were demanding. That this demand was to the determent of the affected party.

16. That when she finally received the financial report for the affected party from the years 2016 to 2020 there was no evidence of financial difficulties on the part of the affected party as it had been making profits. Hence the intended dilution of the minority shareholders shares is fraudulent and will be to the detriment of the affected party, she believes that the demonstrated ultra vires actions of the respondents are a strategy to defraud the minority shareholders and frustrate their rights and interests in the affected party, and she can only stop them through a derivative action as a minority shareholder.

17. The respondent filed grounds of opposition on March 23, 2022 to the effect that the application in incurably defective and incompetent ab initio as it has no underlying pleading, hence, no cause of action; that it breaches section 239 of the Companies Act which implies that a derivative suit could be seeking permission to ‘continue a derivative claim’ in a suit already filed, that the applicant had failed to follow the two (2) stage process of a derivative suit, that the applicants complaint was not about a benefit of the company as a cooperate entity, but a shareholding dispute between shareholders; that no evidence had been placed before court of the respondents having committed any acts or omissions of negligence, default, breach of duty or breach of trust as directors or acted contrary to the interests of the company and that the court had no jurisdiction to grant orders seeking stay of meetings, restriction of activities of board of directors, freezing of bank account of the affected party, reversal of dilution of shares, dissolution of board of directors and replacement with interim board, injunction against respondents from acting as directors, for the following reasons;i.The applicant has not filed pleadings in the nature of a plaint, a petition of originating summons or motion that pleads a cause of action and upon which an interlocutory motion can be granted.ii.The court, if it grants the injunction orders sought by the applicant at this stage, will not have an opportunity to try the validity of the said orders at a trial stage, for the applicant has not filed a suit that will go for a full trial.iii.Leave to continue a suit as a derivative suit is a stand-alone permission/prayer and such an application cannot seek injunctive orders for there is no suit or pleadings before the court at this moment in time.iv.Leave granted to continue a suit as derivative suit cannot operate as a stay of any action. Such procedure and process are unknown in law.

18. The 1st respondent (MC Patel) filed a replying affidavit sworn on April 28, 2022. In it he gave his background to the relationship between him and NF Patel, and the affected parties.

19. That in 1979, he was an Indian citizen without Kenyan papers, and wanted to start a business. To do so, he need a Kenyan citizen. He reached out to NF Patel and offered him shares in his company without any consideration, save for his Kenyan citizenship, “Out of the goodness of his heart.”

20. That the affected party was incorporated on June 23, 1979 with two (2) subscribers, himself and NF Patel, with one share each. In 1983, 29th December the two (2) held a meeting and resolved to approve the allotment of additional shares for cash, the share structure changed whereby he held 375, NF Patel, 100 and a new entrant Aaron Kandie, 25 total becoming 500 shares. NF Patel’s were 20%. He stated that this remained so, until the capitalization of the shares. That upon the demise of NF Patel, and without any letters of administration, the family fronted his son Hasmukh N Patel, who “took over as a director of the company” and represented the interest of his father’s estate. He deponed, “we accommodated the family of NF Patel and allowed them to participate in the affairs of the company even as they endeavoured to take out succession papers.” He takes the position that the position of director cannot be transmitted through the Law of Succession Act, further that the shares held by NF Patel were never transmitted to Hasmukh Patel as no share transfer documents were ever executed, and the proposition that the shares were deemed to have been transmitted to Hasmith Patel was unfounded in law. That shares could only be transmitted on the appointment of a personal representative or administrator of the estate of a shareholder, and that the family of NF Patel had not obtained a certificate of confirmation of grant for any such transmission to take place, hence at no time were the 20% share of NF Patel transferred to Hasmukh Patel.

21. The respondent deponed to meetings of board of directors, chaired by himself and attended by Hasmukh Patel, on March 21, 1991, resolved to increase capital created 500 ordinary shares of Kshs 1000/= each; March 5, 2003 where shareholding charged, he was to hold 70% and Hasmukh Patel 30%. That it is here the structure of shareholding changed, that the new 30% held by H. Patel, would include the 20% that was NF Patel’s and could be transferred to H Patel, that H Patel would contribute to his 30%, which he never did. Hence no transfer was done of NF Patel’s shares to H Patel’s shares.

22. He deponed to the fact that everything he did for the last twenty nine (29) years was in the best interests of the company, and they had accepted Hasmukh Patel as the representative of the NF Patel, and that the family had benefited from the profit of the company. He also deponed that with respect to the 2nd respondent he followed the law in appointing a new director to the company after the passing of H Patel. That in doing so he complied with the law, and the requirements of the Companies Act.

23. With respect to the need for capital injection he deponed that the company’s profits declined between 2016 and 2020 from Kshs165 million to 55 million. He cited the opinion of the auditors showing that the company was having financial problems.

24. That the directors held a meeting on February 15, 2021 and resolved to increase share capital fromKshs 1,000,000/= to Kshs 31,000,000/=, they then called shareholders to take up shares according to their percentage holding, with a deadline of June 30, 2021, they were allocated viz-Respondent - 22,500/=NF Patel - 6,000/=Aaron Kandie - 1,500/=Estate of NF Patel was required to pay Kshs 6,000,000/=. The 1st respondent paid Kshs 22,500,000 increasing his shares to 22875. The applicant’s family did not take up the offer. He deponed further that it is evident that the applicant is not seeking any relief on behalf of the affected party but on her own behalf, that her is a personal claim against the respondents as directors, as she has failed to particularise any alleged or actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by the respondents, hence no basis for the derivative suit.

Submissions 25. Parties filed written submissions through their respective counsel, for the applicant, M/s Sheth & Wathigo Advocate and highlighted by Ms Aoko. For the Respondent by M/S Ahmed Nassir Abdullah Advocates, highlighted by Mr Ahmednassir SC.

26. The applicant framed three (3) issues for determination;i.Whether the application is incompetent and incurable;ii.Whether the applicant has met the threshold for grant of leave to file a derivative suit.iii.Whether the applicant has established a case for the preliminary reliefs sought.

Analysis And Determination 27. I have carefully considered the rival submissions in light of the affidavit evidence, and the annexures there with. I will adopt the three issues as set out by the applicant, and determine them as follows;The place to begin is with what is a derivative suit? Both parties are in agreement that derivative claims are now founded in statute, section 238 to 241 of the Companies Act, No 17 of 2015. Specifically, section 238 which states;“238. Interpretation: part xi(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.”This is what was said in Ghelani Metals Limited & 3 others v Elesh Ghelani Natwaria &another [2017] eKLR:“That statutory procedure is now the exclusive method of pursuing derivative claims”.

28. On how to proceed with the claim, counsel for the respondent argued that there is a two (2) stage process set out at section 239 and section 241 respectively. There must be a cause of action arising out of an actual/proposed act/omission, involving negligence, default, breach of duty or breach of trust by a director of the company. To continue the claim, permission must be obtained from court. To get permission, the applicant must provide evidence that discloses a case for the giving of the permission. On this, the respondent cites Isaiah Waweru Ngunui & 2 others v Muturi Ndung’u [2016] eKLR (also cited by the applicant);“In making that determination, the court is guided by the considerations stipulated in section 241 (2) of the Companies Act. 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. 1309 (W.D. Pa. 1986), for example, the court declined to let a derivative law suit 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 authorized or ratified by the company in the future; andg.Whether the cause of action contemplated is one that the plaintiff could bring as a direct as opposed to derivative action.”

29. First from the authorities cited by the plaintiff, the failure to first file a suit and then seek leave is not necessarily fatal. This comes out clearly fromJoachim Mwangi Githinji & 7 others v Peter Gicheru Mbuthia & 8 others & Ol Kalou Diaries Ltd [2019] eKLR.“I have considered several authorities and it seems that the courts have been quite flexible on the procedure of instituting a derivative suit. Whether one files an application for leave first, the court will consider the said application and if it discloses a prima facie case, then the suit will subsequently be filed. On the other hand, the application for leave may be file contemporaneously with the plaint. In the persuasive decision by J. Musinga as he then was, in Misc Appl 273/2012in the matter of CMC Holdings the court held that the fact that the plaint was filed in a different court file from the one where leave was granted could not invalidate the derivative suit because that was a procedural issue and article 159(2) (d) of the Constitution empowers the court to dispense justice without undue regard to procedural technicalities.I find that the fact of filing a miscellaneous application seeking leave to file a derivative suit cannot deny the applicants the right to leave. All they have to do is establish that they have a prima facie case sufficient for the court to grant them leave.”

30. I am of similar persuasion because at the end of the day, the issue for determination at the moment is not whether their case has any probability of success, but whether there is before the court, prima facie evidence to enable me grant the leave the applicant seeks. Hence I do not agree with the submission by the respondent that by mere dint of the applicant’s failure to file an enabling pleading the application is incompetent and a non-starter.

ISSUE No2- Whether the present case meets the legal threshold of a derivative actionBlacks Law Dictionary, 10th Edition defines a derivative action as:“A suit by a beneficiary of a fiduciary to enforce a right belonging to the fiduciary; a suit asserted by a shareholder on the corporation’s behalf against a third party because of the corporation’s failure to take some action against the third party.”The Companies Act No 17 of 2015, defines “a derivative claim” at section 238 :“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.” 31. Under section 238 of the Companies Act, for a party to succeed in a derivative suit, the party must demonstrate the following:1. the party must be a member of the company which includes a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of the law;2. The proceedings must be seeking relief on behalf of the company;3. The proceedings must be for the protection of members against unfair prejudice brought under the Companies Act;4. The proceedings are 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.

32. In Dadani v Manji & 3 othersHCC 913/2002 (2004) I KLR, the court said:“If due to an illegality a shareholder perceives that the company is put to loss and damage but cannot bring an action for relief in its own name, such a shareholder can bring an action by way of a derivative suit.”

33. The applicant is the legal representative of the estate of NF Patel, her father in law and the actual shareholder of the shares in question. The applicant steps into the position of shareholder by virtue of s 79 of the Law of Succession Act which states:Property of deceased to vest in personal representativeThe executor or administrator to whom representation has been granted shall be the personal representative of the deceased for all purposes of that grant, and, subject to any limitation imposed by the grant, all the property of the deceased shall vest in him as personal representative.

34. The applicant is a member by operation of the law.

35. The applicant has set out the acts of the respondents that have put the company to what she considers to be loss and damage, and demonstrated how the company is not in a position to file the suit by itself. She has demonstrated her accusations of what she calls manipulative dominance, holding of capricious and secretive meetings, passing illegal resolutions, making unilateral decisions to the detriment of shareholders and breaching of express and implied provisions of the affected party’s memorandum and articles of association.

36. According to the draft plaint annexed to applicant’s supporting affidavit the applicant seeks declaration that the directors are in gross violation and breach of their duties and fiduciary obligations; an order of removal of the respondents from office of the director of the affected party herein; an order revoking all the illegal resolutions passed from the date of cause of action arose; an order reversing the purported dilution of shares or any changes in the shareholding not properly effected by competent and lawful resolution of the company; an injunction freezing all the bank accounts and assets owned by the affected party until appointment of new directors; an order for a comprehensive audit and valuation of the company assets and verification of liabilities to be conducted by an independent auditor agreed upon by parties or appointed by court and costs of the suit

37. It is evident that the majority of these prayers would be beneficial to the affected party. This is because the applicant has demonstrated that since the death of NF Patel, and even when the late H Patel represented the family of NF Patel, there was only one director of the company, the 1st respondent. H Patel’s participation in the company was not as a director and since he was not the legal representative of NF Patel, he could not have been the legal representative of his estate. He was not a director of the company and none was appointed. Upon his death, other irregularities continued. It is the directors of the company who had the duty to do the right thing and blame cannot be placed on the applicant for what happened there before.

38. The applicant has also demonstrated that the intended derivative suit represents the interests of the minority shareholders of the company. I am not persuaded that it is an avenue to pursue a personal claim. This is evident from the fact that there is no evidence that the other minority shareholder indeed participated in any of the decisions made the respondents.

39. The 1st respondent has indicated that the family of the applicant enjoyed the profits of the company all these years and waited for over 20 years to raise these issues. If that was the case, they could simply have continued enjoying the profits. That itself is a demonstration that this is not about a personal claim. The fact that this went on for that long without the 1st respondent who was the Director then correcting the situation is further evidence that the application is not unfounded.

40. From the foregoing it is clear that the applicant is compliant with the provisions of section 238 of the Company Act. She is not seeking personal relief but reliefs for the benefit of the company and therefore this case meets the legal threshold of a derivative action.

ISSUE No3 Whether the Applicant should be granted leave to institute and prosecute this suit as a derivative action on behalf of Kenya Flexogravure Limited 41. The applicant must establish that she has a prima facie case for the court to grant her leave to institute a derivative suit.

42. A prima facie case was defined in the case of Mrao Ltd v First American Bank of Kenya Ltd (2003) KLR 125, the court rendered itself thus:“A prima facie case in a civil application includes but is not limited to a genuine and arguable case. It is a case which on the material presented to the court, a tribunal properly directing itself concludes that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.”

43. In the case of Isaiah Waweru Ngumi & 2 others v Muturi Ndung’u[2016] eKLR which both parties have relied on, the court observed that in making a determination whether prima facie case has been established the court should be guided by the considerations stipulated in section 241(2) of the Companies Act and the following factors:i.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;ii.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;iii.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;iv.Whether the plaintiff is acting in good faith;v.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;vi.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 authorized or ratified by the company in the future; andvii.Whether the cause of action contemplated is one that the plaintiff could bring as a direct as opposed to a derivative action.

44. The court is not required at this stage to delve deep into the arguments by the parties and similarly the applicant is not required to prove her case and every assertion raised by the respondents. The rationale for the requirement of leave is to exclude frivolous or vexatious applications as held in the case of Republic v County Council of Kwale & another ex parte Kondo and 57 others (1998) eKLR. As per the draft plaint, the applicant has particularized breach of the affected party’s articles of associations & breach of the right of members of the company by the respondents and also breach of director’s obligations to act within their powers.

45. These claims by the applicant disclose a plausible cause of action and if proved, could lead to findings against the respondents.

46. From the pleadings before me the applicant has complied. The materials on record show that there is a case for further inquiry and are sufficient to allow the applicant to proceed to substantive hearing via derivative suit.

ISSUE No4- Whether the applicant has satisfied the conditions for grant of the temporary reliefs sought 47. It is trite in law that an applicant seeking the grant of interim injunction must show to the satisfaction of the court that it has a prima facie case; that it stands to suffer irreparable injury in the event that the orders are not granted and lastly, that even if the court is in doubt, the balance of convenience tilts in its favour. See the case ofNguruman Limited v Jan Bonde Nielsen & 2 others, CA No77 of 2012; [2014]eKLR. These three pillars provide the foundation upon which any order of injunction, interlocutory or permanent rests. Each provides a separate, distinct and logical but sequential hurdle towards the orders sought.

48. Looking back, the applicant is seeks the following interlocutory reliefs:-1. The leave granted do operate as stay of any meetings whether general or special that may be convened by the board of directors of Kenya Flexogravure Limited pending hearing and determination of this application and the intended derivative suit.2. The leave granted do operate as protection restricting all activities of the board of directors of the affected party specifically on convening any annual, emergency or special meetings, resolutions on capital raising through sale, transfer or otherwise of shares or assets of the affected party pending hearing and determination of this application and intended suit.3. This honourable court be pleased to freeze the affected party’s bank accounts and all assets and revoke the current bank signatories pending hearing and determination of this application and the intended suit.4. This honourable court be pleased to reverse the dilution of shares process that was approved by the board of directors pending the hearing and determination of this application and intended suit.5. This honourable court be pleased to order that the board of directors of the affected party be dissolved and, in its place an interim board be constituted to report to court whenever called to do so.6. This honourable court do issue a temporary injunction restraining the 1st respondent and 2nd respondent from acting as directors of the affected party pending the hearing and determination of this application and the intended suit.

49. It is necessary that the affected party remains a going concern. Any order that may bring its operations to a standstill would not be in the best interests of the affected party. To do so the affected party would have to regularize the appointment of a 2nd director in accordance with its memorandum & articles and the issue of bank signatories. The following orders arise for issuance:i.The leave be and is hereby granted to the applicant to bring a derivative suit as per the draft plaint annexed to this application.ii.The leave granted do operate as stay of any meetings whether general or special that may be convened by the board of directors of Kenya Flexogravure Limited pending hearing and determination of the intended derivative suit.iii.The leave granted do operate as protection restricting activities of the board of directors of the affected party specifically on convening any annual, emergency or special meetings, resolutions on capital raising through sale, transfer or otherwise of shares or assets of the affected party pending hearing and determination of this intended suitiv.The parties herein are at liberty to pursue an out of court settlement through mediation or alternative justice system pursuant to article 159(2) (c) of the Constitution.

ISSUE No5- Who Should Bear The Cost Of This Application 50. It is trite law that costs follow the event and are granted at the discretion of the court. Section 27 provides: -“(1)Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incidental to all suits shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid; and the fact that the court or judge has no jurisdiction to try the suit shall be no bar to the exercise of those powers: provided that the costs of any action, cause or other matter or issue shall follow the event unless the court or judge shall for good reason otherwise order.”

50. The applicant has succeeded in establishing that she deserves to be granted leave to commence a derivative suit against the respondents on behalf of the affected party herein while the respondents equally succeeded demonstrating that some of the preliminary reliefs sought by the applicant are unmerited.

51. Each party will bear their own costs.

DATED, SIGNED AND DELIVERED VIA EMAIL THIS 10TH DAY OF NOVEMBER 2022. Mumbua T. MathekaJudgeC/A JenifferSheth & Wathigo AdvatesEmail:info@shethandwathigoadvocates.co.ke, conveyance.sheth@gmail.com, www.shethandwathigoadvocateco.keAhmednasir Abdullahi Advocates LLPEmail: info@ahmednasir.law