https://new.kenyalaw.org/akn/ke/judgment/keelc/2026/3518

Pathania v Ndinguiri & 3 others (Environment and Land Case E355 of 2025) [2026] KEELC 3518 (KLR) (11 June 2026) (Ruling) Neutral citation: [2026] KEELC 3518 (KLR) Republic of Kenya In the Environment and Land Court at Nairobi Environment and Land Case E355 of 2025 CG Mbogo, J June 11, 2026 Between Dinta Devani Pathania Plaintiff and Samuel Ngugi Ndinguiri 1st Defendant Anya Esther Ivan 2nd Defendant Monrovia Enterprises Limited 3rd Defendant The Chief Lands Registrar 4th Defendant Ruling 1.Before this court for determination is the notice of motion dated 9th February, 2026 filed by the plaintiff/applicant, and it is expressed to be brought under Sections 1A, 1B & 3A of the Civil Procedure Act, Order 1 Rule 10(2) (4), Order 8 Rules 3 & 5 and Order 51 Rule 1 of Civil Procedure Rules and Sections 238, 239,240,241 & 242 of the Companies Act Cap 486 seeking the following orders:-1.Spent.2.Leave be and is hereby granted to the plaintiff/applicant to continue these proceedings as a derivative suit within the meaning of Sections 238 to 242 of the Companies Act, Cap 486.3.Leave be and is hereby granted to the plaintiff/applicant to amend the plaint dated 17th July, 2025 so as to frame and prosecute their suit as a derivative action on behalf of Pelican Limited, the registered proprietor of LR Nos 209/12555 and 37/754.4.Leave be and is hereby granted to the plaintiff/applicant to amend the plaint dated 17th July, 2025 to realign the reliefs sought so as to properly reflect the nature of the dispute and the jurisdiction and remedial mandate of this honourable court.5.The draft amended plaint annexed hereto be deemed as duly filed and served upon payment of the requisite court fees.6.The defendants/respondents be granted corresponding leave to amend their proceedings if they so wish.7.Costs of this application be borne in the cause. 2.The application is premised on the grounds inter alia that the suit properties LR Nos. 209/12555 and 37/754 are registered in the name of Pelican Limited. The application is further supported by the affidavit of the plaintiff/ applicant sworn on even date. The plaintiff/applicant deposed that she is a director/shareholder of Pelican Limited and appointed the 1st defendant/respondent and one Addah Nduta Ndambuki as directors of the company for purposes of marketing and general business growth. 3.The plaintiff/applicant deposed that in breach of his fiduciary duty, the 1st defendant/respondent conspired with the 2nd and 3rd defendants/respondents and fraudulently transferred the suit properties to the 3rd defendant/respondent. Further, she deposed that she had not authorized the said transfer nor any board resolution. She added that the wrongful acts were committed against Pelican Limited and that any cause of action arising therefrom vests in the said company as the registered proprietor of the suit parcels. 4.She went on to depose that prior to the registration of the impugned transfer, the 1st defendant/respondent resigned as the director of the company, and that at no time had Pelican Limited adopted the transaction before or after the 1st defendant/respondent’s resignation. She deposed that for this reason, the suit fell within the scope of a derivative action as it seeks redress for fraud, breach of fiduciary duty and unlawful disposition of company property. 5.The plaintiff/ applicant further deposed that the proposed amendment does not introduce a new cause of action but regularizes the proceedings through alignment of the pleadings with the true ownership of the suit properties. Unless the orders sought are granted, the company will suffer irreparable loss and the substantive suit risks being defeated on a technicality. 6.The 3rd defendant/respondent opposed the application vide the replying affidavit of Ibrahim Rashid Adan sworn on 3rd March, 2026. He deposed that the application is fatally defective and the orders sought were incapable of being granted. The 3rd defendant/respondent deposed that the plaintiff/applicant sought to substitute the plaintiff with a party that did not exist nor known in law. Further, that the plaintiff/applicant was using this suit to advance a private and self-serving agenda against her fellow director/shareholder thus unfairly and unnecessarily dragging the 3rd defendant/respondent, who are innocent purchasers for value without notice. 7.The 3rd defendant/respondent deposed that the plaintiff/applicant was at all times aware of the sale of the suit properties having expressed her intention to sell them, which fact is admitted in paragraph 14 of her plaint. Further, that the present suit was not genuinely concerned with the sale of the suit properties, but was instead motivated by the discontent over the distribution of the sale proceeds between herself and her fellow directors/shareholders, a dispute which does not involve the 3rd defendant/respondent. 8.It was further deposed that the plaintiff/applicant’s claim concerned matters internal to the company which fell within the ambit of the jurisdiction of the Civil Division of the High Court pursuant to Article 165(3) (a) of the Constitution as read together with Sections 3 and Sections 238 to 242 of the Companies Act, being the proper forum to adjudicate the matter. 9.The plaintiff/applicant filed a supplementary affidavit sworn on 13th March, 2026. She deposed that the company formerly known as Pelican Limited lawfully changed its name to Pelican Signs Limited and that the titles to the suit properties were duly updated to reflect this name change. While reiterating the circumstance surrounding the sale, the plaintiff/applicant deposed that the instant application has been brought in good faith for the purpose of protecting Pelican Signs Limited and recovering its assets. 10.The court directed the parties to file their written submissions. By the time of writing this ruling, neither of the parties had filed their submissions. Be that as it may, I have considered the application, the replies thereof. The main issue for determination is whether the plaintiff/applicant has established a prima facie case sufficient to be given leave to bring a derivative suit. 11.Section 238 of the Companies Act defines a “derivative claim” in Part XI in the following manner:-“(1)In this part, “derivative claim” means proceedings by a member of the 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.” 12.An understanding of the provisions of Section 238 of the Companies Act are to the effect that a derivative suit can be brought by a member of the company and the cause of action must be vested in a company and for the benefit of a company when there are issues of negligence, default, breach of duty or breach of trust through commission or omission. 13.In the case of Ghelani Metals Limited & 3 others V Elesh Ghelani Natwarlal & another [2017] KEHC 4629 (KLR) the court held as follows:-“A derivative action is a mechanism which allows shareholders to litigate on behalf of the corporation often against an insider (whether a director, majority shareholder or other officer) or a third party, whose action has allegedly injured the corporation. The action was designed as a tool of accountability to ensure that redress was obtained against all wrongdoers, in the form of a representative suit filed by a shareholder on behalf of the corporation.” 14.In the case of Juletabi African Adventure Limited & another v Christopher Michael Lockley [2017] KECA 118 (KLR), the Court of Appeal observed as follows:-“20.By dint of Foss v Harbottle (1843) 67 ER 189 popularly referred to in company law as “the rule in Foss v Harbottle” there is no argument that the proper plaintiff in any proceedings or action in respect of a wrong done to a company is the company itself. This is based on the principle that a company is a legal personality distinct from its directors and shareholders. However, there are exceptions to the rule which allow a person to sue on behalf of the company.21.In Grace Wanjiru Munyinyi & Another v Gedion Waweru Githunguri & 5 Others [2011] eKLR, this Court while discussing the exceptions where such a suit is termed as a derivative action expressed:-“There is also another remedy arising from the leading English legal precedent on Corporate Law which continues to apply in Kenya more than 160 years since it was decided: Foss v Harbottle (supra). As stated earlier, in any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself. This is the rule in Foss v Harbottle. But there are four exceptions to that rule which appear in the leading case itself but also in subsequent decisions on the subject. Firstly, where the directors or a shareholding majority use their control of the company to paper over actions which would be ultra vires the company or illegal. Secondly, if some special voting procedure would be necessary under the compasny’s constitution or under the companies Act, it would defeat both if they could be sidestepped by ordinary resolutions of a simple majority, and no redress for aggrieved minorities were to be allowed (Edwards v Halliwell [1950] 2 ALL ER 1064. Thirdly, where there is invasion of individual rights, such as voting rights (Pender v Lushington (1877) 6 Ch D 70. Fourthly, where a fraud on the minority is being committed. In all those cases, a “derivative action” could be brought before the court on behalf of the company where the wrongdoer is in control of the company or by the individual shareholder where his personal right is violated.”22.Restating the prerequisites of filing suit on behalf of a company this Court in Amin Akberali Manji & 2 Others v Altaf Abdulrasul Dadani & Another [2015] eKLR observed:-“It is our view that at whatever stage leave is sought, the crucial requirement is for the applicant to establish a prima facie case demonstrating that he has locus standi to institute such action, the company is entitled to the intended relief and that the action falls within any of the exceptions to the rule in Foss v Harbottle.…Secondly, on the question whether the suit was a derivative one, we find it was. The company was in the peculiar and unique position of having only two members who were equal in power and glory in relation to the company. There was no majority or minority shareholder. The two shareholders/directors had reached a stalemate until one left the directorship as the other migrated to Canada while the company was sinking into extinction. Proof of a stalemate in the boardroom was that there are no resolutions of the Board exhibited in the record on the matters complained of. On the face of it, the property of the company was disappearing or being taken over by a third party but the company was doing nothing about it. Did any of all this fit anywhere in the exceptions to the rule in Foss v Harbottle? The trial court found it did and we think it was right.” 15.In this case, the plaintiff/applicant contends that she never authorized the sale of the suit properties on behalf of Pelican Signs Limited which sale was allegedly done by the 1st defendant/respondent. The plaintiff/applicant contends that the wrongs committed by the 1st defendant/respondent were done against the company. For this reason, the derivative action sought in this application is within the exceptions of the rule in Foss v Harbottle. More so, that the amendment does not introduce a new cause of action but to regularize the pleadings. On the other hand, the 3rd defendant/respondent maintained that the application was fatally defective since the orders sought were incapable of being granted. Particularly, that the plaintiff/applicant sought to substitute the plaintiff with a party that did not exist in law. 16.I have perused the court record and I note a few discrepancies with regard to the name of the company. It is not in dispute that the CR12 as annexed confirms that the registered company in this instance is Pelican Signs Limited. This is a fact the plaintiff/applicant clarified in her supplementary affidavit. However, it is important to note that the draft amended plaint dated 9th February, 2026 seeks to commence a derivative action on behalf of Pelican Limited. I believe this is an issue that can be corrected through amendment. 17.A further perusal of the draft amended plaint does not seek to introduce a new cause of action, thus I find that the same is meant to regularize the pleadings. While the 3rd defendant/respondent contended that the claim herein lied with the Civil Division of the High Court, the circumstances leading to the registration of the title involved transactions within the company. The prayers sought and the pleadings itself does not point to any action that qualifies the suit to be heard by the high court. Let me also quickly point out that whether the dispute is between the directors of the company or not are issues that can best be canvassed during trial. As it is, I am satisfied that there is need to continue these proceedings as a derivative suit. 18.From the above, I find merit in the notice of motion dated 9th February, 2026 and it is allowed as follows:-i.Leave is hereby granted to the plaintiff/applicant to continue these proceedings as a derivative suit within the meaning of Sections 238 to 242 of the Companies Act, Cap 486.ii.Leave is hereby granted to the plaintiff/applicant to amend the plaint dated 17th July, 2025 so as to frame and prosecute their suit as a derivative action on behalf of Pelican Signs Limited.iii.Leave be and is hereby granted to the plaintiff/applicant to amend the plaint dated 17th July, 2025 and further file and serve the same within 14 days from the date hereof.iv.The defendants/respondents are hereby be granted corresponding leave to amend their defence if need be.v.Costs in the cause.It is so ordered. DATED, SIGNED & DELIVERED VIRTUALLY THIS 11TH DAY OF JUNE, 2026.HON. MBOGO C.G.JUDGE11/06/2026.In the presence of:Mr. Benson Agunga - Court assistantMr. Eugene Akumu for the Plaintiff/ApplicantMs. Anisa holding brief for Mr. Michael Mubea for the 3rd Defendant