[2001] KEHC 113 (KLR)
The court held that before a director of a limited liability company can be charged personally for acts committed by the company, the corporate veil must first be lifted by a court order. Since no such application had been made to lift the veil in this case, the criminal charge against the applicant was premature...
Source-derived case information.
- Citation
- [2001] KEHC 113 (KLR)
- Parties
- Applicant: Peter Murigi Njirwa; Respondent: Republic
- Court
- High Court
- Court Station
- High Court at Nairobi (Milimani Law Courts)
- Jurisdiction
- Kenya
- Case Number
- Children Miscellaneous Application 499 of 2001
- Procedural Posture
- Miscellaneous Application / Ruling on Application for Order of Prohibition
- Outcome
- order of prohibition granted
- Judges
- A Mbogholi-Msagha
- Legal Topics
- Corporate Veil, Director Liability, Theft by Agent, Criminal Procedure
- Source Language
- en
Source-derived case record
Summary, issues, holding and outcome
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Parties
Peter Murigi Njirwa
Applicant
Republic
Respondent
Procedural Posture
Miscellaneous Application / Ruling on Application for Order of Prohibition
Legal Issues
- 1 Whether a director of a limited liability company can be held criminally liable for acts of the company without first lifting the corporate veil.
- 2 Whether a criminal charge can be sustained against a director before the corporate veil is lifted by court order.
Ratio Decidendi
The court held that before a director of a limited liability company can be charged personally for acts committed by the company, the corporate veil must first be lifted by a court order. Since no such application had been made to lift the veil in this case, the criminal charge against the applicant was premature and could not be sustained. The court emphasized that the statutory protection of limited liability must be respected unless a court determines otherwise, and proceeding with the criminal charge without first lifting the veil would be contrary to law and risk a miscarriage of justice.
Court Disposition
order of prohibition granted
Orders
- An order of prohibition is issued restraining the prosecution of the applicant as prayed.
Full Case Text
Judgment text and source record
16 paragraphs
REPUBLIC OF KENYA IN THE HIGH COURT OF KENYA AT NAIROBI MISC. CASE NO 499 OF 2001
PETER MURIGI NJIRWA……………………………….…....APPLICANT
VERSUS
REPUBLIC…………………………….……………….….RESPONDENT
R U L I N G
The applicant is a director of Njilux Motors limited, a limited Liability company dealing with buying and selling of new and used cars. He now faces a criminal charge of theft by agent in his individual capacity.
It is conceded by the investigating officer that one Ephantus Njeru Ireri appointed Njilus Motors limited as commission agents to sell m/v Reg. No. KAH 806K which belonged to his (Njeru’s) wife.
The said motor vehicle was sold but Njulux motors had failed to remit the purchase price less its commission to the owner of the motor vehicle. One Loice Wanjira Njeru, the owner of the motor vehicle made a complaint that led to the filing of the charge against the applicant. The applicant now contends that he is not criminally liable for the acts of a company with limited liability.
I have considered the nature of the transaction, the contents of the material placed before me and the law applicable.
Inspector of police Hamad Mbwana is right in his averment that where there is a fraudulent transaction conducted by the company the corporate veil is lifted so as to hold the director(s) of the company personally liable. And this is the turning point
The criminal charge is against the applicant alone. How many directors there are in this company we are not told. Most important however is that, the veil of incorporation must be raised first before the charge is laid against the director(s). That veil can only be raised by an application to the court because in the first place it is conferred by statute.
Before that step is taken, the charge cannot be filed. And therefore, even if the applicant is delaying an obvious eventuality, the law must follow its course. If allowed to proceed, the criminal charge may lead to miscarriage of justice. The Republic has to make a choice.
In view of the foregoing the order of prohibition is hereby issued as prayed. It is so ordered.
Dated and delivered at Nairobi this 20th day of September, 2001
A. MBOGHOLI MSAGHA
JUDGE