[2022] KEHC 1992 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MACHAKOS

(Coram: Odunga, J)

MISCELLENEOUS APPLICATION NO. 234 OF 2013

IN THE MATTER OF ATHI STORES LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT CHAPTER 486 LAWS OF KENYA

AND

IN THE MATTER OF AN APPLICATION FOR INVESTIGATION OF

RESPONDENT AFFAIRS ON APPLICATION OF MEMBERS

AND

IN THE MATTER OF SUBSTITUTION OF A DECEASED APPLICANT - MADAN MOHAN S. VARMA

BETWEEN

REENA VARMA FOR(MADAN MOHAN SINGH VARMA-DECEASED)......1ST APPLICANT

SUNIT SHER SINGH VARMA..............................................................................2ND APPLICANT

SHAMIT SINGH VARMA......................................................................................3RD APPLICANT

AND

ATHI STORES LIMITED..........................................................................................RESPONDENT

RULING

1. By a Notice of Motion dated 13th April, 2021, the Applicants herein seek the following orders:

a) Leave be Granted, to Ms. Reena Varma to Substitute the 1st Applicant, Madan Mohan Singh Varma-Deceased, out of time, by virtue of the Probate and Administration High Court of Kenya at Nairobi Succession Cause 1254 of 2017 and Transmission under the Companies Act.

b) Leave Be Granted, to Mr. Shamit Singh Varma (a Director and 25% Shareholder) to enjoin in the Proceedings in support of the Application Dated 16th September 2013 as a shareholder in the Respondent holding 25% of the issued shares.

c) An ORDER do issue: -

(i) Restraining and/or Prohibiting the Respondent and/or any Director/s thereof, with a shareholding falling below 50% of the issued shares, from making, uttering, publishing and disseminating, unilateral decisions/resolution, directly affecting the Applicants and passing off, such resolution(s) as company resolution(s) pending hearing and determination of the main cause.

(ii) Restraining and/or Prohibiting the Respondent and/or and Director/s thereof with shareholding falling below 50% of the issued shares, from publishing and disseminating public notices in national newspapers (relating to the instant subject-matter) in public domain against its own shareholders and directors, pending hearing and determination of the main cause.

d) All Company Affairs relating to the should be ventilated in this Court

2. The application was supported by an affidavit sworn by Reena Varma, the wife of the deceased 1st Applicant the Late Madan Mohan Singh Varma and beneficiary pursuant to a probate of a written will, to all his shares in the Respondent. According to the applicant, the Late Madan Mohan Singh passed away on the 5th July 2017 and left a Written Will that informed the distribution of his estate. Following the death of the 1st Applicant herein Succession Cause No. 1254 of 2017 was initiated which resulted into the Grant of Probate on the 14th February, 2018. Those Succession proceedings were, according to the deponent, determined on the 1st July, 2018 with the Certificate of Confirmation of Written Will.

3. It was averred that the Will of the Deceased expressly stated that all shares (12. 5%) in the Respondent are to be transmitted to the deponent to be held absolutely in trust for the four offspring and beneficiaries. However, during the Probate and Administration of the Deceased’s estate, the Executors failed and were unable to effect the transmission of the shares because the Respondent had an “inactive” status at the Registrar of Companies; had failed to file annual company returns since 2010; the Respondent’s directors were yet to link the Respondent with their e-citizen registration details; and the Respondent’s status required regularisation of its status which entailed filing of annual company returns for all the missing years and payment of the requisite penalties.

4. Due to the foregoing and the fact that no Board of Directors meeting had been convened since 1997, the seamless transmission of the shares of the Deceased as per his wishes remains far-fetched. According to the deponent, the delay in seeking the substitution was occasioned by inability to effect the transmission of shares owing to the said inactive status of the Respondent. It was her averment that it is in the interest of justice that the period prescribed for seeking substitution of her Deceased husband be extended to allow for her substitution in these proceedings.

5. In was disclosed that on 17th March, 2021, the Respondent, through Mr Shamit Niranjandass Ghai in the absence of a Board of Directors Resolution, issued, published and caused to be issued in the Daily Nation Newspaper, a caveat emptor on LR No. 18696/55 Athi River, Machakos, without any lawful, proprietary or beneficial claim thereon. In the meantime, the Respondent and the said Mr Shamit Niranjandass Ghai continues to operate unilaterally to the exclusion of directors and shareholders with over 50% shareholding in the company.

6. It was therefor averred that it is of utmost urgency that the main application seeking investigations of the Respondent Company’s affairs be heard and determined and that the Registrar be appointed to critically examine the manner in which the company operations are being conducted.

7. In opposing the Application, the Respondent took preliminary objections on the following grounds:

1. The Applicants’ Application offends the mandatory provisions of Section 7 of the Civil Procedure Act; is res judicata- the matter directly and substantially in issue herein having been directly and substantially in issue before this Honourable Court; in the Court (Hon Justice GV Odunga)’s ruling delivered on 7 March 2019

2. The Application offends the mandatory provisions of Section 82 of the Law of Succession Act as it is brought by a person (Reena Varma) with no capacity to act for the estate of the 1st Applicant (Madan Moan Singh Varma- Deceased);

3. The suit has abated by virtue of Order 24 rule 4 (3) of the Civil Procedure Rules since the deceased 1st Applicant- Madan Moan Singh Varma died in July 2017 and therefore there is no valid suit by the 1st Applicant before this Honourable court for the said Reena Varma to be substituted.

4. The Application offends the mandatory provisions of Section 165 of the Companies Act Cap 486 [Repealed] as the proposed 3rd Applicant- Mr Shamit Singh Varma is admittedly a Director of the subject company whilst the application sought to be enjoined to is a reserve for only members holding not less than one-tenth of the shares issued.

8. By a replying affidavit sworn byShammit Niranjandass Ghai who described himself as a Director of Athi Stores Limited, it was averred that the Application is time barred, the suit is also improperly filed and without any merit whatsoever. According to him, the issues in dispute can be resolved through the provisions of the Respondent’s Articles of Association and of the Companies Act.

9. He disclosed that the Respondent is a limited liability company (the Company) incorporated in 1971 and its original directors and shareholders were Ajit Singh Varma and Sher Singh Varma. After the demise of Ajit Singh Varma and Sher Singh Varma, their sons, Shammit Singh Varma, Sunit Singh Varma and Mohan Singh Varma became the shareholders and directors of the Company, (hereinafter the original directors and shareholders). In addition to owning shares in Athi Stores Limited, Ajit Singh Varma and Sher Singh Varma were also owners of a property I.R. No. 25641/1 Athi River, Machakos County comprised in a Certificate of Title registered in Nairobi which property was, upon their demise, bequeathed to Santosh Kumari Varma, Sunit Singh Varma and Madan Mohan as tenants in common. However, the original portion of land has been subdivided into many smaller portions, parts of which have been sold. Out of the subdivisions, was a parcel of Land L.R No. 11895/1 measuring about 20 acres or thereabouts which remained in ownership of the family.

10. It was averred that Athi Stores Limited in 1995 had obtained credit facilities secured, by inter alia, a Charge over L.R. No. 11895/1 and a Debenture over the assets of the Company from Kenya Commercial Bank Limited (KCB) which account went into arrears and KCB had threatened, inter alia, to sell the Charged property and to appoint Receiver Managers over the assets of the Company. The Company then filed suit against KCB in HCC No. 900 of 2001 - Athi Stores Limited & Anor vs. Kenya Commercial Bankand obtained interim restraining orders. In addition to monies owing to KCB, in 1992, the directors and shareholders under the name of Church Road Development Limited had also borrowed monies from Giro Bank Limited and secured the facility by, inter alia, a Charge over L.R. No. 1870/V/204, a property situated on Church Road and registered in the names of Shamit Varma, Sunit Varma and Mohan Varma.

11. Alarmed that their personal properties together with the assets of the Company would be sold, the owners of the charged properties and the original directors and shareholders of the Company approached Rajan Ghai, Anil Kumar Puri, Ajay Patel and Shammit Ghai (incoming shareholders) and requested that in consideration of their injecting capital of upto Kshs. 40 Million into the Company, they would acquire 50% shareholding in the Company and that 20 acres of the original property in L.R. No. 11895/1, Athi River, Machakos County would be transferred to the Company. According to the deponent, it was agreed between the original shareholders of the Company and owners of the charged property that a portion of land measuring 20 acres and identified as Plot A, LR. No. 18696/55 (original 11851/1) would be hived off and transferred to the Company and that the full terms of the Agreement were captured in a Memorandum of Understanding (MOU) dated 15th December 1996 as well as in the Board Minutes of the Company of 7th December 1996. Pursuant thereto, the incoming shareholders duly made the requisite payment and Receipt of these payments was acknowledged by the Respondent’s registered auditors, Manohar Lall & Rai’s letter of 30th April 2013 in a reconciliation exercise conducted then. Accordingly, the incoming shareholders were appointed as directors and shareholders in 2006 and since then the shareholders and directors of the Company have been as follows:

I. SHAMIT VARMA 125,000 25%

II. SUNIT VARMA 62,500 12. 5%

III. MADAN M.S. VARMA 62,500 12. 5%

IV. SHAMMIT GHAI 125,000 25%

V AJAY PATEL 62,500 12. 5%

VI ANIL K. PURI 62,500 12. 5%

VII RAJAN GHAI

VIII Stephen Nyaga

TOTAL 500,000

12. A settlement was then reached between the Respondent, the owners of the charged property and KCB in HCC No. 900 of 2001 Athi Stores Limited & Anor vs. Kenya Commercial Bank and by letter dated 18th March 2006, the directors of the Respondent, instructed the Respondent’s then advocates, Singh Gitau Advocates to record a consent in Court, which Consent was filed in Court on 23rd March 2006 and adopted as an Order of the Court. The Respondent then made the requisite payments leading to, inter alia, a Discharge of both the Debenture and Charge over the charged property.

13. According to the deponent, pursuant thereto, the Respondent and its subsidiary Companies, which include Uniken Limited, Athi Minerals and Sparetech Limited have has been in sole occupation of the property and has been maintaining and paying power and other utility bills since then. While initially after the settlement of KCB’s debt, the relationship between the former directors and incoming directors was cordial, this soured when the Respondent insisted on transfer of the property as provided in the MOU. It was averred that whereas the Applicants initial shareholders have resisted transferring the suit property to the Respondent, they have never denied that the property belonged to the Respondent. For instance, in a letter dated 24th July 2015, the Company with the concurrence of Shamit Singh Varma, offered the property for sale to Bamburi Cement Limited.

14. According to the deponent, the relationship between old and new shareholders has recently deteriorated as the owners of the property are either selfishly attempting to dispose the property without authority or knowledge of the Company, and the other directors/shareholders. He disclosed that since 2008, there have been attempts to evict the Respondent from the property which attempts have been resisted. The Respondents have also attempted to assert rights of ownership which have also been unsuccessful. On the other hand, the Applicants have on occasions resorted to suits of unscrupulous tactics including trying to evict Companies associated with the Respondent from the premises in Machakos ELC Application No. E026 of 2021, Sunit Varma & Others vs. Uniken Limite & Others and purporting to cancel the Memorandum of Understanding. However, none of these acts, have been successful in removing the Respondent from the premises. That notwithstanding with the deaths of Mr Santosh Kumari Varma in 2018 and Mohan Singh Varma in 2017, their children have been more aggressive in their attempts to sell the property.

15. It was disclosed that on 2nd December 2020, an Estate Agent, M\s Lloyd Masika trespassed onto the Respondent’s premises with an e-mail request from Bamburi Cement Limited asking for valuation of the property. The e-mail from Bamburi Cement Limited to Lloyd Masika specified that the Applicant, Mr Shamit Varma, a director of the Company and a son of Santosh Kumari Varma had offered the said land for sale being a representative of other members of the family. On or about 4th December 2020, Ms Poonam Varma, a daughter of Santosh Kumari Varma and other members from the Varma family walked into the Respondent’s property accompanied by vicious guard dogs and officials from Lloyd Masika and upon enquiry, they informed the Respondent’s officers that they were the owners of the property and wished to sell it. This prompted the Respondent’s advocates by letter dated 9th December 2020 to write letters to both Bamburi Cement and Lloyd Masika informing them of the rights that the Respondent had acquired over the suit property. It was disclosed that the Respondent’s advocates, LJA Associates LLP, had since 12th February 2020 applied for registration of a Caution against the property, but have been unable to do so, ostensibly as the file at the Lands Registry has gone missing.

16. It was averred that by letter dated 15th December 2020, Nduati & Company Advocates, who were purportedly acting for on instructions of the Estate of Santosh Kumari Varma and the Estate of Madan Mohan Singh Varma and Sunit Varma purported to serve a 3 months’ Notice ending on 15th March 2021 on the Respondent and instructing them to vacate the premises to which by letter dated 13th January 2021, the Respondent’s advocates, LJA Associates LLP expounded to M/s Nduati & Company, the manner in which their client obtained possession and requested for a confirmation that the Defendant’s peaceful occupation of the property would not be interfered with. Rather than respond, the Applicants instead placed an advert in the newspapers claiming ownership of the property that the Respondent had occupied. Alarmed that the Applicants, or their successors would illegally sell the Respondent’s property, the Respondent in turn, placed a Caveat Emptor Notice in the Nation Newspaper.

17. According to the deponent, it is this action of notifying the public of the Applicants intended dealings that prompted the filing of this Application and of Machakos ELC Application No. E026 of 2021, Sunit Varma & Others vs. Uniken Limited & Others. He averred that the previous disputes between the shareholders and directors have been amicably resolved and in a letter dated 5th February 2013 the Applicants’ lawyers confirmed that a Settlement had been reached, including the Settlement that was arrived, and executed by the directors/shareholders.

18. It was his belief that if genuinely aggrieved, all issues in dispute between the directors/shareholders can be resolved as provided by the Company’s Articles or by virtue of the provisions of the Companies Act. He averred that as the Respondent’s chairman and board member, Mr Shamit Varma is responsible for calling Board Meetings and he is aware of this as advised by the Respondent’s Company Secretary vide the letter of 28th May 2013. Therefore, the Applicants actions are not only disingenuous, but make Mr Shamit Verma complicit in the purported mismanagement of the Company.

19. In a rejoinder, Reena Varma, the 1st Applicant deposed that since Shammit Niranjadass Ghai is not the Respondent, he lacks any form of lawful authority to represent the Respondent. It was noted that Shammit Niranjadass Ghai subtly admitted on behalf of the Respondent of an unexplained fall-out of the Directors of the Respondent, which he attributed to some imaginary forgery which had nothing to do with the deponent or the Deceased. It was however averred that the aforesaid fall-out of the Respondent Directors referred to had persisted since the year 2010 and had resulted in Shammit Niranjadass Ghai, unilaterally and illegally conducting the Business of the Respondent without any Board resolution(s). According to the deponent, the Respondent for all intent and purpose, ceased operations in the year 2019 and its offices and compound currently are abandoned.

20. It was averred that this application is distinguishable from a similar Application filed heard and dismissed on the 7th March 2018 in the sense that the said application was presented as an Application to Substitute the 1st Applicant with deponent upon Nomination by the Executors which the Court disagreed with; that the Probate and Succession of the Deceased 1st Applicant was concluded and confirmed; that the Probate and Succession of the 1st Applicant bequeathed her the 1st Applicant shares in Athi Stores Limited to be held in trust for the Deceased’s Beneficiaries; that she is the only lawful recipient of the transmission of all the Athi Stores Limited shares previously held by the Deceased; that at the Point of filing the Application for substitution the Confirmation grant had been issued but the Actual Transmission of Shares at the Registrar of Companies could not be affected; and that the Court’s decision was premised on the role of Executors under the Succession Act.

21. The deponent averred that though she has sought to exercise her rights flowing from the succession and trying to have the transmission of the 1st Applicant’s shares in Athi Stores Limited as per his wishes, the same is not possible owing to the following;

a) The Respondent has never filed its Annual Returns since the year 2010 in contravention of statutory law.

b) The Respondent has never issued any Notice of Death of the 1st Applicant as is Provided for in Memorandum and Articles of association.

c) The Respondent has never Issued any Notice of General Meeting from 1997 as is Provided for in Memorandum and Articles of association in contravention of statutory law.

d) The Respondent has never Convened any General Meeting Since the year 2010, as is Provided for in Memorandum and Articles of association in contravention of statutory law.

22. According to the deponent, the delay in filing this instant Application was occasioned by the transmission and distribution of the estate of the deceased, by the Executors who were reluctant to involve or participate in any legal suit(s) in court and that the delay in seeking her substitution was occasioned by the inability to effect “the transmission of shares” owing to the Respondent’s “inactive” Status at the Companies Registry.

23. The deponent reiterated that Shamit Niranjandass Ghai is not of any relation to the Deceased 1st Applicant, without any substantial rights whatsoever, in his Probate and Administration. It was averred that the Deceased 1st Applicant’s Probate and Administration was conducted and concluded without any objections whatsoever as is provided for in the law The deponent asserted that the Respondent is in-operational and inactive without a functional office or staff to enable her invoke provisions relating to transmission of shares as contained in Memorandum and Articles of Association. Owing to the foregoing difficulties she sought the support of the 2nd Applicant herein and 3rd Applicant who wrote to the Registrar of Companies Business Registration Services on the 3rd February 2021. However, owing to the foregoing, the Respondent shall only be activated by the Registrar of Companies Business Registration Services after all the Annual returns are filed from the year 2010 and penalties attracting thereof are Paid and beneficial ownership disclosures are complied with.

24. However, on 15th of July 2021 at 12pm, she visited the Respondent’s registered Offices in Athi River, and was surprised and shocked to see the condition of the so-called offices of Respondent – a company that was set up almost 70 years ago by her Father-in law, the late Sher Singh Varma and his nephew, the late Ajit Singh Varma. She stated that the Respondent’s registered Offices official signage and Name has since been removed and that (30-50 years ago), it had been a fully-fledged business bustling with the crushing of various raw materials, heavy, expensive machinery and new fleet of trucks for transportation of the same. Some would say it was a company that was ‘ahead of its time’ with great potential.

25. After describing what she saw, she concluded that the Respondent’s registered office and compound, is in a dire state and could be described as a filthy junk/ scrap yard with no water connection and Electricity Supply. However, when she went towards where the crushing of material was done in the past, the main crusher was in an unbelievably bad condition and only crushing a small amount of pozzolana (raw material), on site were two trucks Mercedes Benz-Axor of Sparetech Trading Ltd a company Associated with Shammit Niranjadass Ghai, registration numbers were KCH 902F and KCF 905F being loaded. However, besides the guard at the gate and the two truck drivers, there was no one else on sight.

26. The deponent explained that the reason why the Deceased 1st Applicant filed the primary motion seeking the investigations of company affair was because mismanagement, theft of company assets and illegal transfer of company business by one Director Shammit Niranjadass to his Associated companies. It was her position that any Claims for Land by Mr. Shamit Niranjandass Ghai and/or invocation of the impugned and Revoked MOU dated 15th December 1996 can best be dealt with in a Land and Environment Court but averred that the Respondent has no lawful claim whatsoever, on the property commonly known as Plot A LR No. 18695/55 whose Tenants in Common are free to deal with their interest as they deem fit and that Shammit Niranjadass Ghai and/or the Respondent lacks lawful claim thereon.

27. It was therefore averred that any Caveat Emptor made by Shammit Niranjadass Ghai and/or the Respondent on the property commonly known as Plot A LR No. 18695/55 is of no legal consequence and is irrelevant in the instant proceeding.

28. It was noted that the Respondent has never filed the Response to the main Application (Notice of Motion) dated 13th September 2013, seeking a court order to appoint inspectors to investigate its affairs and that the Respondent has not demonstrated in any way that it is a responsible corporate entity, complying with all regulatory requirements and also being tax compliant. It has further not in any way demonstrated it is an active company engaging in its business and that, it is not only active only for litigation purposes and not any other business.

29. There was a further affidavit sworn by Shamit Singh Varma,the 3rd Applicant, in which it was deposed that the Respondent’s Registered office situate upon all that property, commonly known as Plot A LR No. 18695/55 Athi River was Illegally abandoned and transferred unilaterally by Shammit Niranjadass Ghai to his office’ s along Airport North Road complex without any notice to the Directors or even the Registrar of Companies. According to him, the Respondent as an entity does not have any operational office and all its activities are conveniently subsumed to other businesses operated and controlled by Shammit Niranjadass Ghai. Though he noted that his application to be enjoined (sic) as a party is uncontested by the Respondent, he denied that he has attempted to sell to Bamburi Cement, Plot A LR No. 18695/55 as he is not a registered owner. According to him, while Mr. Shamit Niranjandass Ghai would posture that the promise to transfer the property commonly known as Plot A LR No. 18695/55 to the Respondent pursuant to a revoked MOU, was never kept, he has conveniently failed to disclose all other contraventions on his part that led to its revocation.

30. He disclosed that the property commonly known as Plot A LR No. 18695/55 is registered to Ms. Santosh Varma (deceased) with ½ a share of Tenancy in Common, Mr Madan Mohan Singh Varma (deceased) with ¼ Share of Tenancy in Common and Mr Sunit Singh Varma (2nd Applicant) with ¼ Share of Tenancy in Common. However, Ms. Santosh Varma (deceased) was not a member, shareholder or director in the Respondent and could thus not make a promise to transfer her interest in land at no consideration.

31. It was his position that the current state of the affairs of the Respondent is so dire to warrant the intervention of the Court. He was however, aware that the Respondent was subjected to the Tax Procedures Act in January 2018 when Auctioneers appointed by KRA undertook a proclamation on the Respondent hence the Respondent cannot receive a tax compliance certificate. He also disclosed that the Respondent, together with three (3) other companies Associated withMr. Shamit Niranjandass Ghai, were served with notice on the 15th December 2020, by the Registered owners to vacate the property commonly known as Plot A LR No. 18695/55. However, following the purported publishing of a caveat emptor and purported interference with a lawful sale by the Respondent on the 18th of March 2021 a letter was issued in response thereto clarifying the position and that while the Respondent has ignored the Notice to vacate, the other three (3) companies Associated withMr. Shamit Niranjandass Ghai,have challenged the Notice and are participating in the relevant judicial proceedings. The Respondent, on the other hand, has not moved any judicial or quasi-judicial forum to contest its eviction from the property commonly known as Plot A LR No. 18695/55 which does not belong to the Respondent.

32. Based on legal advice, the deponent averred that disputes touching on land are not dealt with in the Companies Court; that the Respondent has not resolved to acquire for consideration or otherwise the property commonly known as Plot A LR No. 18695/55; and that the deceased Ms. Santosh Kumar Varma has never been, a shareholder or director or sponsor of Athi Stores Limited and her ownership and control of the property commonly referred to as LR 11895/1 has nothing to do with Athi Stores Limited.

33. It was disclosed that the Respondent’s employees in January 2021 in response to the public notice to vacate have equally laid a claim upon the property commonly known as Plot A LR No. 18695/55 which does not belong to the Respondent insisting that the Respondent shall vacate only after All their terminal benefits are computed and paid. Further, the Respondent’s retrenched employees have Demanded over Kenya Shillings Sixty, Million (60,000,000/-) Kshs, as terminal benefits and unremitted NSSF, NHIF Statutory deductions.

34. It was therefore urged that there is demonstrable reason for the Court to entertain the Application and the onus is on the Respondent to demonstrate the contrary and lack of necessity of such a motion calling for investigations on its affairs and that should the application be allowed, all intra-shareholders/directors disputes allegations and counter allegations, malfeasance or misfeasance on the part of any director including possible criminal acts, may be unearthed. It was his position that by pleadings by all parties it is clearly demonstrable that the Respondent is not functioning, exposing the members, members of the public to risk. Based on legal advice, he stated that there is no bar or any inhibition to a member doubling as a director, to seek for the investigations of company affairs.

35. For and on behalf of the Applicants, it was submitted that the Respondent’s Preliminary Objection dated 23rd June 2021 is without merit and is being deployed as a sword by the Respondent contrary to public interest and justice. According to the Applicants, the Application is brought inviting the Court to invoke its jurisdiction Under Order(s) 1(10), 24(3) & 51 of the Civil Procedure Rules and Section3A of the Civil Procedure Act and Section of the Companies Act.

36. It was submitted that the Preliminary Objection is raised within the main derivative action motion, moved by members pursuant to the provisions of Section 165 of the repealed Companies Act currently Section 786 of Companies Act No. 17 of 2015 for the Court to Order an investigation into the Company affairs. The Applicants submitted that the motion in public interest and further in the interests of any members and creditors. The movers of the primary motion, it was submitted, are members of the company holding 25% with the 1st Applicant succumbing before the Application was disposed-off. The wife of the deceased is seeking leave to be enjoined as a party by virtue of the shareholding of 12. 5% being transmitted to her. The 2nd Applicant has a shareholding of 12. 5% while the 3rd Applicant seeks to be enjoined as a party by virtue of his 25% shareholding. It is noteworthy that this far exceeding the Statutory threshold as provided for in section 786 (1) (a) ii to wit; only 10% being sufficient threshold of a member to initiate such a motion.

37. As regards the preliminary objection, it was submitted that whereas the Application giving rise to the Courts Ruling was similar in nature, involving the same Applicant and seeking the same relief it is different to the instant Application since the 1st Applicant now seeks substitution by virtue of a probate in the estate of the deceased that has been confirmed bequeathing her with All the deceased’s Shares in the Respondent. That the Ruling dismissing the 1st Applicant’s Application on the 7th March 2019 was on the question as to whether the Executors could nominate the Applicant to be substituted in the Suit. According to the Applicants, the Objection raised is an Issue res judicata, on the other hand, arises where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided in previous proceedings between the same parties involving a different cause of action to which the same issue is relevant and one of the parties seeks to reopen that issue. In support of their submissions, the Applicants cited the case of The Independent Electoral and Boundaries Commission vs. Maina Kiai & 5 others, Nairobi CA Civil Appeal No. 105 of 2017 ([2017] eKLR),Henderson vs. Henderson (1843-60) ALL E.R 378, and submitted this case falls within the exception.

38. On the 2nd limb of the Preliminary Objections alleging contravention of mandatory provisions of Section 82 of the Law of Succession Act and that the 1st Applicant Lacks capacity to move the motion, it was submitted that this is not strictly a pure point of law and determination of the capacity of the Applicant to act is a fact to be ascertained that may necessitate evidence taking. Reliance was placed on the case of Hadson Moffat Kamau V Makomboki Tea Factor Ltd [2009] eKLR where the Court found that the objection required several issues to be investigated for example the capacity of the applicants and proceeded to overrule the objection to allow the motion to proceed.

39. It was submitted that the Court is empowered under Order 24 Rule 3 (2) of the Civil Procedure Rules where there are sufficient reasons to warrant extension of time to substitute the 1st Applicant as is evidenced in the affidavits of Reena Varma dated and 31st March 18th July 2021.

40. Regarding the issue of capacity of the 3rd Applicant to be joined substantively as a party, it was submitted that Sections 165 of the Repealed Companies Act and the Current Section 786 of the Companies Act no 17 of 2015 do not in any way inhibit the Applicant from being joined and there exists no explicit bar of a director or former director who doubles as a member to make this Application. According to the Applicants, the Preliminary Objection raised, fails for raising matters that are strictly not pure points of law and that the Respondent’s Affidavit of the Affidavit of Shammit Niranjadass Ghai dated 24th June 2021 proves the contrary in the following respect;

a) That the Respondent has a Fall-out amongst directors (it is not clearly elaborated).

b) The Respondent relies on the Memorandum and Articles as a basis of faulting the Applicant from compliance.

c) The Respondent alleges Crimes (forgery), committed by the Applicants to the detriment of the Respondent.

d) The Respondent attributes the instant Application to a land dispute between itself and the Applicants.

41. It was reiterated that the Respondent has never responded to the primary motion dated 16th September 2013 and that the Court should be minded of the Nature of Application before the Court, the Criminal allegations levelled that may be unravelled if the primary motion was to be heard and concluded. Accordingly, it was contended that this Application should be allowed to pave way for the main Motion in Public interest and in the interest of members, Respondent’s employees and creditors at large.

42. It was therefore submitted that the objection and filed Replying affidavit is without merit and that the Respondent shall not suffer any prejudice whatsoever should the Application(s) be allowed hence urge the Court should disallow the Preliminary Objection allow the Application(s) while invoking its overriding jurisdiction in public interest and in the interest of justice.

43. There was a further affidavit sworn by Shammit Niranjandass Ghai denying the allegations made in the said rejoinder.

44. On behalf of the Respondents it was submitted that Shamit Varma, Sunit Varma, Madan M.S. Varma, Shammit Ghai Ajay Patel, Anil K. Puri, Rajan Ghai and Stephen Nyaga are the Directors of the Respondent. As such, their remedies on the management and affairs of the Respondent are available under the Respondent’s Memorandum and Article of Association including an Annual General Meeting and a Board of Directors’ Meeting. Therefore, Section 165 of the Repealed Cap 486 under which the Applications are made is not available for them or anyone suing under their title.

45. It was further submitted that since Mdan Mohan Singh Varma died in July 2017, the time within which an application ought to have been made to sue under his title lapsed on July 2017 and that this finding has been made by this Court vide its ruling made on 7 March 2019. Further, as it stands, the said Reena Varma is neither a personal representative, executrix, or even a grantee in the estate of capacity to act for the estate of Madan Moan Singh Varma- Deceased.

46. In their understanding, this Court having made a determination on whether Ms Reena Varma can sustain an application for substitution of the 1st Applicant, the present application is therefore res judicatahaving been heard and finally decided by this Court. In this regard the Respondents relied on Uhuru Highway Development Ltd. vs. Central Bank of Kenya & Others [1996] eKLR.

47. According to the Respondents, it is not in dispute that Reena Varma is neither the executrix, the grantee under any Grant or even the personal representative of the 1st Applicant yet section 82 of the Law of Succession Act provides that only such authorized persons can sue or defend a cause in a deceased’s name. Reliance for this proposition was placed on Muriithi Ngwenya vs. Gikonyo Macharia Mwangi & 2 others [2018] eKLR, Registered Trustees of Ruiru Sports Club & 3 Others vs. Isaac Karuri Nyongo & 15 Others (2014) eKLR and Isaya Masira Momanyi v Daniel Omwoyo & another [2017] eKLR.

48. Since the deceased died in 2017 and substitution has not been successfully made within 1 year, the suit had abated and the Respondents relied on the case of Kenya Farmers’ Cooperative Union Ltd. Vs. Charles Murgor (deceased) t/a Kiptabei Coffee Estate (2005) eKLR where the Court held that a Court of law has no jurisdiction to Order for substitution where the suit has already abated by operation of law nor to hear and determine a suit that has already abated by operation of law. They also relied on Mary Wanjiru Kanyau vs. Solomon Muchai Nganga (deceased & another; Daniel Gakuya Muchai (Sued in own capacity and as the administrator of the estate of the late Solomon Muchai Nganga) (Proposed Substitute for 1st Defendant) [2019] eKLR.

49. According to the Respondents, it is not in dispute that the Applicants are/ were directors of the Respondent. Accordingly, their remedies where there’s a dispute over the affairs of the company lie with the Board of Directors since Section 165 of the Act is limited to members/ shareholders and not directors. The basis for this contention, it was submitted, is the Directors are involved in the operations of a Company and cannot approbate and apply for investigations of the affairs for which they are in charge.

50. It was further submitted that the present suit/ application is couched to be a derivative suit. In the case of Jitu Tribhovanbhai Savani v Parag Bhagwanjighai Savani & Another [2016] eKLR where the Court held that proceedings under Section 165 of Cap 486 do not fall within the realm of the Foss vs Harbottle rule. Further, the case of Brans Pharmaceuticals Limited vs. Salome Wachera Mwangi [2017] eKLR reiterated that such cases are only brought by shareholders.

51. It was therefore submitted that the Application dated 13th April 2021 can be determined in limine based on the Respondent’s Preliminary Objection.

Determination

52. I have considered the application, the affidavits both in support of and in opposition to the application as well as the grounds of opposition.

53. The Respondents have taken the issue that the instant application is res judicata as this Court on 7th March, 2019 dismissed a similar application. It is true that this Court did dismiss a similar application and in so doing the Court expressed itself as hereunder:

“In this case the applicant states that she is the widow of the deceased. That may be so. However, without letters of administration or probate, she has no capacity to litigate on behalf of the deceased or his estate simply because she is his wife. She however, contends that she has been authorised by the executors of the deceased’s estate to do so. With due respect, only the Court has the power, through issuance of grant of letters of administration or probate to authorise a person to step into the shoes of a deceased person. That power cannot be delegated to the executors. Accordingly, the executors themselves cannot lawfully delegate their power to administer the estate of a deceased person to a third party however close that third party is to the deceased. It follows that this application is devoid of merit. It is hereby dismissed but with no order as to costs.”

54. It is therefore clear that the earlier application was dismissed on the basis that the applicant had no capacity to bring the application as she did not have grant of representation in respect of her deceased husband’s estate. In this application, the applicant has averred that following the death of the 1st Applicant herein Succession Cause No. 1254 of 2017 was initiated which resulted into the Grant of Probate on the 14th February, 2018 and that on the 1st July, 2018 a Certificate of Confirmation of Written Will was issued. If that position is correct, then it would then seem that by the time the earlier application was being dismissed, there was a Certificate of Confirmation of the Will in respect of the Estate of the 1st Applicant. What is however clear is that in the earlier application, the applicant approached this Court in her capacity as the 1st Applicant’s widow as opposed to being the legal representative of his estate. Can res judicata apply under those circumstances?

55. In Omondi vs. National Bank of Kenya Ltd & Others [2001] KLR 579; [2001] 1 EA 177 it was held that:

“The objection as to the legal competence of the Plaintiffs to sue (in their capacity as directors and shareholders of the company under receivership) and the plea of res judicataare pure points of law which if determined in the favour of the Respondents would conclude the litigation and they were accordingly well taken as preliminary objections…In determining both points the Court is perfectly at liberty to look at the pleadings and other relevant matter in its records and it is not necessary to file affidavit evidence on those matters…What is forbidden is for counsel to take, and the Court to purport to determine, a point of preliminary objection on contested facts or in the exercise of judicial discretion and therefore the contention that the suit is an abuse of the process of the Court for the reason that the defendant’s costs in an earlier suit have not been paid is not a true point of preliminary objection because to stay or not to stay a suit for such reason is not done ex debito justitiae(as of right) but as a matter of judicial discretion.”

56. It is however, important to revisit the legal principles guiding the applicability of the doctrine of res judicata.

57. Section 7 of the Civil Procedure Act, 2010 provides as hereunder:

“No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court.”

58. As regards the rationale of the doctrine of res judicata, reliance was placed on the decision of the Court of Appeal inIndependent Electoral & BoundariesCommission –vs- Maina Kiai & 5 Others (2017) eKLR.

“The rule or doctrine of res judicata serves the salutary aim of bringing finality to litigation and affords parties closure and respite from the spectre of being vexed, haunted and hounded by issues and suits that have already been determined by a competent court. It is designed as a pragmatic and common-sensical protection against wastage of time and resources in an endless round of litigation at the behest of intrepid pleaders hoping, by a multiplicity of suits and fora, to obtain at last, outcomes favourable to themselves. Without it, there would be no end to litigation, and the judicial process would be rendered a noisome nuisance and brought to disrepute and calumny. The foundations of res judicata thus rest in the public interest for swift, sure and certain justice.”

59. In the Maina Kiaicase (supra), the Court quoted with approval the Indian Supreme Court in the case of Lal Chand vs. Radha Kishan, AIR 1977 SC 789 where it was stated;

“The principle of res judicata is conceived in the larger public interest which requires that all litigation must, sooner than later, come to an end. The principle is also founded in equity, justice and good conscience which require that a party which has once succeeded on an issue should not be permitted to be harassed by a multiplicity of proceedings involving determination of the same issue. The practical effect of the res judicata doctrine is that it is a complete estoppel against any suit that runs afoul of it, and there is no way of going around it – not even by consent of the parties – because it is the court itself that is debarred by a jurisdictional injunct, from entertaining such suit.”

60. In Lotta vs. Tanaki [2003] 2 EA 556it was held as follows:

“The doctrine of res judicatais provided for in Order 9 of the Civil Procedure Code of 1966 and its object is to bar multiplicity of suits and guarantee finality to litigation. It makes conclusive a final judgement between the same parties or their privies on the same issue by a court of competent jurisdiction in the subject matter of the suit. The scheme of section 9 therefore contemplates five conditions which, when co-existent, will bar a subsequent suit. The Conditions are: (i) the matter directly and substantially in issue in the subsequent suit must have been directly and substantially in issue in the former suit; (ii) the former suit must have been between the same parties or privies claiming under them; (iii) the parties must have litigated under the same title in the former suit; (iv) the court which decided the former suit must have been competent to try the subsequent suit; and (v) the matter in issue must have been heard and finally decided in the former suit.”

61. In Gurbachan Singh Kalsi vs. Yowani Ekori Civil Appeal No. 62 of 1958 the former East African Court of Appeal stated as follows:

“Where a given matter becomes the subject of litigation in, and of adjudication by a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not, except under special circumstances, permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgement, but to every point which properly belonged to the subject of litigation, and which the parties exercising reasonable diligence, might have brought forward at the time…No more actions than one can be brought for the same cause of action and the principle is that where there is but one cause of action, damages must be assessed once and for all…A cause of action is every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgement of the court. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved.”

62. In Apondi vs. Canuald Metal Packaging [2005] 1 EA 12Waki, JA stated as follows:

“A party is at liberty to choose a forum which has the jurisdiction to adjudicate his claim, or choose to forego part of his claim and he cannot be heard to complain about that choice after the event and it would be otherwise oppressive and prejudicial to other parties and an abuse of the Court process to allow litigation by instalments.”

63. That the doctrine applies with equal force to applications was appreciated in Uhuru Highway Development Ltd. vs. Central Bank of Kenya & Others 1996 eKLR where it was held that:

“There must be an end to applications of similar nature, that is to say further, widen principles of res – judicata apply to applications within the suit. If that was not the intention, we can imagine that the Courts could and would be inundated by new applications filed after the original one was dismissed.”

64. In the cases of Mburu Kinyua vs. Gachini Tuti [1978] KLR 69; [1976-80] 1 KLR 790 and Churanji Lal & Co vs. Bhaijee (1932) 14 KLR 28it was held that:

“However, caution must be taken to distinguish between discovery of new facts and fresh happenings. The former may not necessarily escape the application of the doctrine since parties cannot by face-lifting the pleadings evade the said doctrine. In the case of Siri Ram Kaura vs. M J E Morgan Civil Application No. 71 of 1960 [1961] EA 462 the then East African Court of Appeal stated as follows:

“The general principle is that a party cannot in a subsequent proceeding raise a ground of claim or defence which has been decided or which, upon the pleadings or the form of issue, was open to him in a former proceeding between the same parties. The mere discovery of fresh evidence (as distinguished from the development of fresh circumstances) on matters which have been open for controversy in the earlier proceedings is no answer to a defence of res judicata...The law with regard to res judicata is that it is not the case, and it would be intolerable if it were the case, that a party who has been unsuccessful in a litigation can be allowed to re-open that litigation merely by saying, that since the former litigation there is another fact going exactly in the same direction with the facts stated before, leading up to the same relief which I asked for before, but it being in addition to the facts which I have mentioned, it ought now to be allowed to be the foundation of a new litigation, and I should be allowed to commence a new litigation merely upon the allegation of this additional fact. The only way in which that could possibly be admitted would be if the litigant were prepared to say, I will show you that this is a fact which entirely changes the aspect of the case, and I will show you further that it was not, and could not by reasonable diligence have been ascertained by me before...The point is not whether the respondent was badly advised in bringing the first application prematurely; but whether he has since discovered a fact which entirely changes the aspect of the case and which could not have been discovered with reasonable diligence when he made his first application.”

65. However, it is trite that the mere addition of parties in a subsequent suit does not necessarily render the doctrine of res judicatainapplicable since a party cannot escape the said doctrine by simply undertaking a cosmetic surgery to his pleadings. If the added parties peg their claim under the same title as the parties in the earlier suit, the doctrine will still be invoked since the addition of the party would in that case be for the sole purpose of decoration and dressing and nothing else. Under explanation 6 to section 7 of the Civil Procedure Act, where persons litigate bona fide in respect of a public right claimed in common by themselves and others, all persons interested in such right shall, for the purposes of the section, be deemed to claim under the persons so litigating.

66. In Nancy Mwangi T/A Worthlin Marketers vs. Airtel Networks (K) Ltd (Formerly Celtel Kenya Ltd) & 2 others [2014] eKLR the Court quoted the case ofE.T vs. Attorney General & Another (2012) eKLR wherein the court noted thus:

“The courts must always be vigilant to guard litigants evading the doctrine of res judicata by introducing new causes of action so as to seek the same remedy before the court. The test is whether the plaintiff in the second suit is trying to bring before the court in another way and in a form of a new cause of action which has been resolved by a court of competent jurisdiction. In the case of Omondi Vs National Bank of Kenya Limited and Others (2001) EA 177 the court held that, ‘parties cannot evade the doctrine of res judicata by merely adding other parties or causes of action in a subsequent suit.’ In that case the court quoted Kuloba J., in the case of Njangu Vs Wambugu and another Nairobi HCCC No.2340 of 1991 (unreported) where he stated, ‘If parties were allowed to go on litigating forever over the same issue with the same opponent before courts of competent jurisdiction merely because he gives his case some cosmetic fact lift on every occasion he comes to curt, then I do not see the use of the doctrine of res judicata…..”

67. It is therefore clear that parties are not to evade the application of res judicataby simply conjuring up parties or issues with a view to giving the case a different complexion from the one that was given to the former suit.

68. As I have said hereinabove, the applicant herein brought the matter in her capacity as the widow of the deceased and not as the legal representative. In my view since the two capacities are different, the doctrine does not apply.

69. As regards, time bar, Order 24 rule 3 of the Civil Procedure Rules provides as follows:

3. (1) Where one of two or more plaintiffs dies and the cause of action does not survive or continue to the surviving plaintiff or plaintiffs alone, or a sole plaintiff or sole surviving plaintiff dies and the cause of action survives or continues, the court, on an application made in that behalf, shall cause the legal representative of the deceased plaintiff to be made a party and shall proceed with the suit.

(2) Where within one year no application is made under subrule (1), the suit shall abate so far as the deceased plaintiff is concerned, and, on the application of the defendant, the court may award to him the costs which he may have incurred in defending the suit to be recovered from the estate of the deceased plaintiff:

Provided the court may, for good reason on application, extend the time.

70. Order 50 rule 6 of the said Rules provides that:

“Where a limited time has been fixed for doing any act or taking any proceedings under these Rules, or by summary notice or by order of the court, the court shall have power to enlarge such time upon such terms (if any) as the justice of the case may require, and such enlargement may be ordered although the application for the same is not made until after the expiration of the time appointed or allowed:[Emphasis added].

71. It is therefore clear that an application for enlargement of time may properly be made even where the time allowed for making the application has lapsed. In other words, it would make nonsense of the provision to state that an application for enlargement to apply for substitution can only be made before the abatement of the suit. Since the abatement is by operation of the law, application for enlargement of time is only useful to those who have not made it within the prescribed time for substitution. In the premises, I find nothing wrong with the applicant seeking to have the time enlarged.

72. It is true that there has been a delay in making the application. However, what the Court is required to interrogate is whether there is a good reason. In deciding whether or not there is a good reason in such applications, where a litigant is dead and it is sought to substitute him, it is my view that the usual principles guiding the extension of time where the applicant is the actual litigant may not necessarily determine the outcome of the application. In matters such as this, the litigant is dead and what is sought to be protected is his or her estate hence in my view the Court ought to be guided by the broad approach under the current constitutional dispensation which is that unless there is fraud or intention to overreach, an error or default that can be put right by payment of costs ought not to be a ground for nullifying legal proceedings unless the conduct of the party in default can be said to be high handed, oppressive, insulting or contumelious. The court, as is often said, exists for the purpose of deciding the rights of the parties and not imposing discipline. SeePhilip Chemwolo & Another vs. Augustine Kubende [1986] KLR 492; (1982-88) KAR 103.

73. Where it is not shown that there is fraud or intention to overreach and an innocent party may adequately be compensated in costs, cases ought as far as possible be determined on their merits rather than on technicalities of procedure.

74. In this case parties agree that there have been squabbles between the former directors and the new directors as regards the management of the Respondent company. Whereas the new directors are of the view that the same have been resolved or are capable of being resolved within the ambit of the Company’s constituting documents and the law, the Applicant believes otherwise. However, it is not in doubt that the Applicant herein, if she is the legal representative of the estate of the 1st Applicant, is properly entitled to substitute the 1st Applicant in these proceedings and protect the interest of the estate of the 1st Applicant. That is the gist of the application before me though the parties have addressed me on many other issues which are not relevant at this stage.

75. As regards the prayer for the joinder of Shamit Singh Varma in order to support of the Application Dated 16th September 2013 as a shareholder in the Respondent holding 25% of the issued shares, I am not satisfied that his joinder is necessary for the said purpose. Nothing bars him from swearing an affidavit in support of whichever position he takes notwithstanding the fact that he is not a party as long as he has knowledge of the affairs of the Respondent Company.

76. As regards the orders for injunction, there is no evidence that there is an imminent threat that the Respondents intend to do what is sought to be injuncted. In any case the Respondent company has its own Memorandum and Articles of Association and any purported resolution advertised to the public is worthless unless properly passed by the Company and any person who purports to do otherwise risks facing legal consequences.

77. In the premises the order that commends itself to me at this stage and which I hereby grant is that Ms. Reena Varma is hereby substituted in place of the 1st Applicant, Madan Mohan Singh Varma-Deceased.

78. Considering the relationship between the parties herein, there will be no order as to costs.

79. In further consideration of the relationship between the parties herein, I direct that this matter be referred to mediation in order for the parties to attempt a mediated settlement.

80. It is so ordered.

Read, signed and delivered in open Court at Machakos this 2nd day of March, 2022.

G V ODUNGA

JUDGE

Delivered in the presence of:

Mr Mohochi for the Applicants

Mr Onyango for the Respondents

CA Susan