https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/9746

Ragot & another v Odiya (Civil Case E175 of 2025) [2026] KEHC 9746 (KLR) (Commercial and Tax) (2 July 2026) (Ruling) Neutral citation: [2026] KEHC 9746 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Commercial Courts) Commercial and Tax Civil Case E175 of 2025 F Gikonyo, J July 2, 2026 Between Raphael Ragot 1st Plaintiff Charlteq Industrial Engineering Limited 2nd Plaintiff and Charles Oyugi Odiya Defendant Ruling 1.The 1st plaintiff’s notice of motion dated 5.3.2025 expressed to be brought under Section 238, 239 of the Companies Act seeks the following orders: -1.leave to continue the derivative suit seeking relief on behalf of Charteq Industrial Engineering Limited.2.restraining orders against the respondent, prohibiting him from transacting, withdrawing, or undertaking any activities with the company’s bank account3.restrain the defendant and his agents from moving, transferring, or in any other manner dealing or interfering with any money up to a sum of USD 131,082.17 (or the equivalent rate) held or to be received in MPESA Account Number +254 71xxxxxx88 or +254 78xxxxx87 or +254 72xxxxx08 in any other bank or MPESA account registered in his name against his ID Number 109xxx63 and that this order be enforced by Safaricom Limited or any telecommunication agency or bank;4.a temporary injunction restraining the defendant and agents from selling, alienating, transferring, charging, disposing, removing or in any way manner whatsoever dealing with the company's assets, including motor vehicle registration number KDR 161U;5.That this Order be enforced by the OCS Lungalunga Police Station do effect order No. 5 and 8 upon issuance by the Court; 2.The application is supported by affidavits sworn by the applicant on 5.3.2025 and 11.7.2025 and written submissions dated 28.7.2025. Applicant’s case 3.The applicant stated that he joined the 2nd plaintiff company as a shareholder and director in December 2003, formalized in May 2024. He and the respondent agreed that they would share equally the responsibility to transact the company’s Dollar and Kenya Shillings bank accounts. The company established a banking arrangement where either director could unilaterally sign and authorize transactions to facilitate smooth handling of administrative matters. There was a mutual verbal agreement that any transaction would only be undertaken after consultation with and notification to the other director. 4.The applicant also stated that the company procured 7 local purchase orders (LPOs) issued by Seychelles Breweries Limited (SBL) in April and May 2024, with the agreed payment terms being that 70% of the project cost would be paid upfront to the company’s account, and the remaining 30% would be remitted upon the successful completion of the project. 5.The applicant further stated that he provided the required capital contribution to enable the company to meet its financial obligations arising under the LPO’s. The LPOs required the company to procure and ship goods to Seychelles Breweries’ plant, with items sourced from Tianjin Credit Import and Export Trading Company Limited in China. One such LPO dated around 20.4.2024 related to the installation of a hydrant system valued at USD 73,199.20. Pursuant thereto, Seychelles Breweries Limited remitted USD 51,339.44 (being 70% of the contract sum) on 20.6.2024 as mobilization funds, with completion scheduled for March 2025. 6.The applicant alleged that only 30% was remitted to the supplier in China, while approximately 70% was diverted for unauthorised purposes, including transfers to the respondent’s personal accounts and the purchase of motor vehicles, contrary to the agreed project purpose. As a result, not all deliverables were shipped, causing client dissatisfaction and a near loss of the contract, and the plaintiff had to inject additional funds to sustain performance. 7.The applicant further discovered an unauthorized transfer of USD 25,000 to Fuan Keliang Electrical Engineering Limited, unsupported by any LPO or procurement requisition. 8.The applicant also stated that he found a letter dated 16.7.2024 addressed to KCB Bank Kenya Limited, authored by the respondent, indicating an alleged resolution to add him as a signatory to the company’s account and open a Euro account. That that the said KCB account had been concealed from him. 9.The applicant stated that the company engaged certified accountants to reconcile all transactions and distinguish legitimate expenditures from alleged personal withdrawals. Grounds 10.The major grounds in support of the application are that: -1.The respondent breached his fiduciary duty to the company and its stakeholders by unilaterally executing financial transactions.2.The respondent concealed critical information about the company’s financial operations and appears to have misappropriated funds contrary to the principles of good corporate governance.3.The respondent has breached his duty to act in good faith in the best interests of the company.4.The respondent’s acts have affected the company’s ability to fulfil its contract and pay its employees. Response 11.The respondent opposed the application through a replying affidavit sworn on 16.4.2025 and written submissions dated 25.11.2025. He claimed that the application is based on misunderstanding of the law, concealment of material facts, rumours, conceited half-truths, lies and damned lies. 12.The respondent stated that he incorporated the company on 29.10.2018 as the sole shareholder and director. He confirmed that in April 2024, the company had a contract for supply of fire hydrants with Seychelles Breweries Limited. 13.The respondent claimed that the company did not have enough financial capacity to deliver the project, leading him to approach the applicant for a loan. That the applicant agreed on condition that he was made a director in the company and a signatory to its accounts as a security measure. That he only agreed to the condition because of desperate circumstances and on the understanding that upon settlement of the debt the 1st applicant would resign. 14.The respondent deposed that once the applicant became a director, he was advised that he could not loan the company directly and he stated that the funds would be channeled through his wife, Linda Solita. The applicant’s lawyers drafted the loan agreement dated 1.11.2024 between her and the company. The loan was not to be paid to the company but directly to the company’s supplier, Tianjin Credit Import and Export Trading Company Limited. 15.The respondent further deposed that the applicant through his wife loaned the company USD 9.930.52 and started on the contractual work and substantially delivered. However, there were delays with deliverables due to financial challenges and supplier delays. On 3.1.2025, the client paid USD 61,096.23. On 8.1.2025, the 1st applicant informed him that he and his wife wanted their money paid immediately and in cash. He went to Bank of Africa, Westlands and withdrew USD 13,636. He was joined by the 1st applicant and his wife who received the amount in cash. 16.The respondent claimed that after the debt was settled, the applicant refused to resign from the company as a director, demanded for more payment. He declined. He transferred the money to the company’s accounts that the applicant had no access. This led to a smear campaign by the applicant. The applicant wrote the letter dated 13.1.2025 to the client. The client investigated his allegations and dismissed them. The 1st applicant then had him arrested and detained at Industrial Area Police Station. After investigations by the Directorate of Criminal investigations (DCI), he was released without being charged. The 1st applicant also misled the DCI to securing orders freezing the company’s bank accounts and following investigations, the freeze was lifted. 17.The respondent asserted that there is no basis for the orders sought. He claimed that the 1st applicant lacks the locus to maintain these proceedings and that the grievances raised are against him personally, not the company. 18.The respondent claimed that if the orders sought are granted, the company would be crippled, and its projects would be shut down cascading the effects to the clients and personnel. 19.The respondent contended that no audit was mandated by the company, the purported audit report was solely procured and undertaken by applicant. He claimed that the applicant forged the company stamp and his signature. Reply 20.The 1st applicant denied the respondent’s claims. He stated that the contract with Seychelles Breweries Limited was secured through his professional networks having previously worked with Diageo as a field service engineer. Prior to onboarding the project, the client required proof of technical competency and regulatory compliance, satisfied through his professional certifications and licensed engineering credentials. The qualifications were instrumental in meeting the tender requirements and eventual award of the project. 21.The 1st applicant asserted that he contributed both his technical expertise and financial resources to initiate and sustain the project. He denied that the funds were extended as a loan-as-security or were subject to any condition requiring his resignation upon repayment. He stated that the routing of some funds through his wife in November 2024 was necessitated by her independent financial accommodation to the company to enable the project’s continuity. This arrangement was made at the respondent’s insistence and in accordance with sound commercial practice. 22.The 1st applicant confirmed that in line with best practice in project financing, the payments were made directly to Tianjin Credit Import and Export Trading Co. Ltd. 23.The 1st applicant admitted that his wife advanced the USD 9.930.52 loan to the company; that there were delays attributed to the respondent’s misappropriation of funds; that USD 61,096.23 was received on 3.1.2025. His wife insisted that part of the funds be used to settle it, which they did. Upon returning from an official trip the following week, he discovered that the company’s bank account had been depleted of USD 59,096.22. When he asked the respondent, he told him that he had used the funds for personal reasons and undertook to refund the same with interest. Thereafter, the respondent ceased all communication. 24.The 1st applicant highlighted that in the email dated 21.1.2025, SBL raised concerns and requested immediate clarification on the director dispute. He stated that the respondent’s arrest was a result of an independent DCI investigation initiated upon his complaint. He stated that he neither threatened the respondent’s family nor interfered with police procedures. 25.The 1st applicant denied any allegations of forgery. He admitted that the company operated bank accounts prior to his appointment. However, he denied that the respondent’s unilateral transfers were duly authorized. He asserted that the respondent agreed to pay him a salary of Kshs. 500,000/-. Submissions 26.The 1st applicant submitted that he has met the legal threshold for leave under sections 238-241 of the Companies Act. He relied on Amin Akberali Manji & 2 Others v Altaf Abdulrasul Dadani [2015] eKLR to the effect that leave will be granted where the applicant establishes a prima facie case, showing both locus standi and that the intended claim falls within the well-recognized exceptions to the rule in Foss v Harbottle. 27.The 1st applicant also relied on Ghelani Metals Limited & 3 Others v Elesh Ghelani Natwarlal & Another [2017] eKLR and Isaiah Waweru Njumi & 2 Others v Muturi Ndungu [2016] eKLR 28.The 1st applicant submitted that he pleaded detailed and specific facts that disclose a clear cause of action in breach of fiduciary duty, mismanagement and abuse of office by the respondent. He pointed to the bank statements and financial records clearly tracing unauthorized withdrawals and transfers including the USD 50,498.19 whose destination and purpose remains unexplained. 29.The 1st applicant asserted that the company is unlikely to bring a claim by itself since the respondent is in control of it and would frustrate such claim. Further, that as envisaged under section 239 (2) (a), the respondent has denied it access to financial records and refused to answer direct inquiries about the use of corporate funds. 30.The 1st applicant submitted that the pleadings and evidence show that he has acted consistently in pursuit of transparency and accountability and that there is no evidence of conflict of interest, collateral motive or attempt to advance personal claims under the guise of a derivative suit. That the prayers sought (financial disclosure, asset preservation and restitution of company funds) are in the best interests of the company as a going concern. 31.The 1st applicant asserted that he has established the three limbs for the test for the interim injunctive reliefs sought pending the hearing and determination of the suit. He relied on Giella v Cassman Brown & Co. Ltd [1973] EA 360, Mrao v First American Bank of Kenya Ltd & 2 Others [2003] KLR 125 and Mohammedin Mohamed & Another v Ibrahim Ismail Isaak & Another [2021] KEHC 7313, Halsbury’s Laws of England, 3rd Ed, Vol. 21 at para. 739, Galot v Galot; Galot Industries Limited & Another (Affected Companies) [2024] KEHC 14746 (KLR) and Bunde & another v Muchuma [2024] KEHC 4598 (KLR). 32.The 1st applicant relied on the Mohammedin Mohamed case [supra] and Ooko & 4 Others v Muruthi & 4 Others [2024] KEHC 1588 (KLR) to submit that the court should compel production of financial and documentary records relating to the company’s affairs. 33.The respondent submitted that the applicant has failed to demonstrate any harm done to the company. He relied on Titus Musyoki Nzioka v John Kimathi Maingi & another [2013] KECA 32 (KLR) on the definition of a derivative suit. He also relied on Lalki v Diamond Hasham Lalji & 2 Others [2023] KECA 853 (KLR) on the factors that a court should consider in determining an application for leave to institute a derivative action. He argued that the applicant has shown that he resigned from the company but has refused to formalize his resignation. Analysis and Determination Issues 34.Two questions constitute the issues before the court. Whether the court should give leave to the applicant to continue the derivative action; and whether the injunctive reliefs sought are deserved. 35.By law, a company is the proper entity to sue for a wrong committed against it. Foss v Harbottle [1843] 2 Hare 461 36.However, a derivative claim brought under section 238 of the Companies Act is one of the exceptions to the rule in Foss v Harbottle [supra]. 37.Section 238 (1) of the Companies Act, 2015 provides that a derivative claim entails proceedings brought by a member of a Company in respect of a cause of action vested in the Company, seeking relief on behalf of the Company. 38.The applicant ought to establish that he is a member of the company; that the action is vested in the company and that the reliefs sought are on behalf and benefit of the company and not for personal gain or benefit. A derivative suit should also not be used for ulterior purposes or motives. I should add here that the applicant should not be the wrongdoer. 39.Under section 239 (1) of the Companies Act, a member of a company ought to seek permission to continue a derivative claim. 40.The principles for consideration by the court in determining this were discussed by Joel Ngugi J. (as he then was) in Isaiah Waweru Njumi & 2 others Muturi Ndungu, [2016] eKLR as follows: -“…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. 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;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 authorised 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 a derivative action.” Locus 41.The respondent argued that the applicant has shown that he resigned from the company but has refused to formalize his resignation. 42.I have read the letter of 13.1.2025 by the applicant to SBL communicating to the client his resignation as a director with effect from 13.1.2025 due to the mistrust, embezzlement of funds by the respondent and withdrawing his indemnity as to the performance of the contract and the quality of work done. 43.I have also seen the CR12 showing that as of 29.7.2024, The applicant and the respondent were both shareholders and directors of the 2nd plaintiff company. Both held 500 ordinary shares; and the resolution dated 21.5.2024, to the effect that the respondent transferred 500 shares to him and he is appointed as a director. 44.Derivative actions are a form of remedy available to members of the company where the company is unwilling to pursue the remedy due to collusion amongst or complicit directors or members. 45.While the respondent has challenged the applicant’s locus to bring the claim on basis of his alleged resignation as a director, the applicant’s locus to institute a derivative claim principally arises from his status as a shareholder/member which has not been disputed. 46.Therefore, I find no merit in the objection as to the applicant’s locus to institute the derivative suit. Nature of the cause of action 47.Section 238 (3) of the Companies Act provides that 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. 48.The respondent submitted that the applicant has failed to demonstrate any harm done to the company. 49.On the other hand, the applicant asserted that he has met the legal threshold for leave. 50.In this matter, the applicant has, among others, pleaded that the respondent has embezzled, mismanaged and misappropriated company funds, breached his fiduciary duty, mismanaged the project deliverables, concealed bank accounts, colluded with a client’s employees to wire funds to secure work for the company and breached trust and corporate governance. 51.The applicant produced: -a.Copies of email correspondences from Seychelles Breweries Limited highlighting non-compliance by the company arising from the incomplete delivery;b.Letter dated 16.7.2024 by the respondent to KCB Bank Limited regarding a resolution adding the applicant as a signatory to the KCB account and to open a Euro account in the company’s name.c.Copies of employment contracts.d.Copies of correspondences to clients and the bank by the applicant.e.Copies of bank statements, forensic report and audited accounts for 2024. 52.The applicant also produced copies of the LPOs by SBL for fire hydrant system installations for USD 73,199.20, and for other items for USD 2,055.86, USD 12,352.50, USD 18,975.00, USD 3,115.35. 53.I have read the email correspondences of October 2024 by the client complaining about the delay in project delivery and the letter of 13.1.2025. 54.I have also read the letter of 16.1.2025 by the applicant to the Bank of Africa requesting for a restriction on transactions pending the resolution of the outstanding dispute regarding the management of the company and operation of the company’s accounts and recovery of stolen funds. 55.The copies of bank statements show various cash withdrawals by the respondent, transfer of funds from USD to Kshs. Account, several undefined transactions, 56.From the pleadings and the evidence presented, I find that the applicant has pleaded particularized facts which plausibly reveal a cause of action against the respondent. Such cause of action is also available to the company against a director who acts otherwise than in accordance with company resolutions. 57.I also find that the applicant has demonstrated, prima facie, that he has raised the issues he would like addressed in this derivative suit with the respondent but in vain. 58.On the other hand, I am not satisfied, that the respondent has established prima facie that the applicant has instituted the suit in bad faith. Injunctive relief 59.As to the prayer for injunctive reliefs, applying the threshold in the Giella, the Mohamedin Mohamed and Bunde cases [supra], I find that since the applicant has demonstrated a plausible cause of action against the respondent, he has also established a prima facie case with a probability of success. 60.Secondly, I find that if the respondent proceeds with the wrongs complained of, it would be prejudicial to the company, its members, employees and clients among others. Therefore, the applicant has demonstrated irreparable harm that cannot be compensated by damages. 61.On the balance of convenience, I must consider the interests of preservation of company assets and the need to promote business continuity. I do note that the respondent has been unreachable and unresponsive to the issues raised for a considerable period, leaving the applicant to deal with the clients and other obligations of the company. 62.Therefore, I find that the balance of convenience tilts in favour of granting the interim injunctive reliefs sought. Production of financial and documentary records 63.Lastly, on the orders seeking the production of the financial and documentary records, section 239 (3) of the Companies Act provides that the court may give directions as to the evidence to be provided by the company. 64.It is in the interests of justice that the prayer for production of financial and documentary records of the company by the respondent should be granted but to form part of the production and discovery process in the suit upon grant of leave. Disposal 65.In conclusion, I find that the applicant has met the threshold for permission to continue with the derivative claim. 66.I also find that the applicant is entitled to the interim injunctive relief sought and the orders of production of financial and documentary records by the respondent. 67.The application dated 5.3.2025 is allowed in the following specific terms: -i.Leave to continue the derivative suit seeking relief on behalf of Charteq Industrial Engineering Limited is hereby granted.ii.The respondent is hereby restrained and prohibited from acting alone in transacting, withdrawing, or undertaking any activities with the company’s bank account.iii.The respondent and his agents are restrained from moving, transferring, or in any other manner dealing or interfering with any money up to a sum of USD 131,082.17 (or the equivalent rate) held or to be received in MPESA Account Number +254 71xxxxxx88 or +254 78xxxxx87 or +254 72xxxxx08 in any other bank or MPESA account registered in his name against his ID Number 109xxx63 and that this order be enforced by Safaricom Limited or any telecommunication agency or bank;iv.a temporary injunction restraining the defendant and agents from selling, alienating, transferring, charging, disposing, removing or in any way manner whatsoever dealing with the company's assets, including motor vehicle registration number KDR 161U except in a manner consistent with the company’s lawful business and this order;v.Any business of the company shall be operated in accordance with the constituting instruments of the company and the law. DATED, SIGNED AND DELIVERED AT NAIROBI THROUGH MICROSOFT TEAMS ONLINE APPLICATION THIS 2ND DAY OF JULY, 2026-------------F. GIKONYO MJUDGEIn the presence of: -Ms. Gatwiri for Obandi for defendantMiruka for Ms Cherono for 1st PlaintiffRagot in personCA – Ivan/Aggrey