[2020] KEHC 10063 (KLR)

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

PETITION NO. E003 OF 2020

IN THE MATTER OF HOTSTAR INVESTMENTS LIMITED

AND IN THE MATTER OF AN APPLICATION FOR LEAVE TO COMMENCE A DERIVATIVE ACTION

AND IN THE MATTER OF

PROTECTION OF MEMBERS AGAINST OPPRESSIVE CONDUCT AND UNFAIR PREJUDICE

BETWEEN

SIMON MUHIA ………………….……………………….…………………………... PETITIONER

AND

EUNICE MUTHONI KURIA ….………..……………..………………………. 1ST RESPONDENT

MARGARET WANJIRU KURIA …………………………………………….. 2ND RESPONDENT

AND

HOTSTAR INVESTMENTS LIMITED ……..…………..…………………….. AFFECTED PARTY

REGISTRAR OF COMPANIES …………………………..………………… INTERESTED PARTY

RULING

1. The Petitioner seeks relief from oppressive conduct by the majority shareholders and for permission to institute a derivative suit against the Respondents under provisions of the Companies Act, 2015 (“the Companies Act”).

2. Before I deal with the application for consideration, it is important to outline the background of the matter. Hotstar Investment Limited (“the Company”) was incorporated by the late Eliud Njoroge Kuria (“the deceased”), the family patriarch, as a property holding company. At the time of his death, the deceased held 90 shares while Eunice Muthoni held 10 shares.

3. The family members applied for and Peter Kuria, Bernard Njoroge, Simon Muhia and Phyllis Wangari Njoroge were granted letters of administration intestate for the estate of the deceased on 10th June 2020 in Nairobi HC Succession Cause No. 2423 of 2010. The grant was confirmed by a judgment dated 10th May 2019. A Certificate of Confirmation was issued distributing the deceased’s 100 shares to the deceased’s two houses as follows: 67 shares to the 1st family comprising Margaret Wanjiru, Peter Kuria, Lucy Wanjiku, Nelly Nduta, Bernard Njoroge, Eunice Muthoni and Geoffrey Kiarie and 27 shares to the 2nd family comprising Phyllis Wangari, Simon Muhia and Joseph Kuria.

4. The gravamen of the petitioner’s claim as set out in the petition dated 30th March 2020 concerns the management and control of the Company’s only asset, LR No. 209/2788/17 situated within the Nairobi central business district which was managed solely by the deceased prior to his death. After his death, the other shareholder, the 1st Respondent, was left manage the property. She thereafter appointed her mother and brother, the 2nd and 3rd respondents, as directors and allocated them shares without notifying the administrators of the deceased’s estate though an Annual General meeting. The Petitioner alleged that the last Annual General meeting was held in 2016.

5. The Petitioner alleged that the 2nd respondent resigned from directorship while the 3rd respondent was removed from directorship but both of them continue to act as directors while at the same time benefitting from the rental income of the Company to the detriment of the other shareholders. The Petitioner also complained that the 1st respondent has failed to file changes with the Registrar of Companies or even file annual returns and audited financial statements. He accused the 2nd respondent of continuing to deposit the rent due to the Company in her personal account. The Petitioner therefore seeks the following reliefs in the petition:

a) Leave be granted to the Petitioner/Applicant to continue with the suit for the benefit of the affected party as a derivative action.

b) A declaration be made by this Honourable Court that the 2nd & 3rd defendants are not directors of the affected party (Hotstar Investments Limited).

c) A permanent mandatory injunction to prevent the 2nd defendant herein from diverting the rental proceeds into her own personal account.

d) An Order be made that the affected party’s (Hotstar Investments Limited) revenue collected from the rental proceeds be deposited in an account in the company’s name.

e) An order for the Respondents to render accounts and furnish the petitioner & the Honourable Court with detailed financial accounts from the year 2014 to date.

f) An order be made that a general meeting of Hotstar Investments Limited be convened to appoint another director(s) to act with the continuing director and to streamline the operations of the 3rd defendant company.

g) In the alternative and without prejudice to the foregoing, the Plaintiff seeks a declaration that the 1st 2nd & 3rd respondents purchase the shares due to petitioner at rates to be agreed upon by the parties or at the market rates upon valuation of the company be determined by a valuer.

h) Costs and interests of this suit.

i) Any other alternative relief that this Honourable court may deem fit and just to grant

6. Together with the Petition, the Petitioner filed a Notice of Motion dated 30th March 2020 seeking an order for permission to continue with the suit as a derivative action for the benefit of the affected parties and orders to compel the respondents to secure the rental income from the Company property in a joint account of the shareholders.

7. The petition is opposed by the replying affidavits of Eunice Muthoni sworn on 6th May 2020, and Peter Kuria sworn on 30th April 2020. The parties filed their respective submissions which set out their respective arguments. In the course of proceedings, I also gave the parties an opportunity to resolve the matter amicably but this was not successful. What is apparent and not disputed is that the Company has been the subject of various suits regarding its management despite the fact that the grant of letters of administration for the deceased’s estate having been settled in favour of the beneficiaries. I do not propose to deal with the accusations and counter accusations made by the parties for the reasons that will become apparent. In my view, the case can be resolved by asking whether the court should grant the orders sought in the petition even assuming the petitioner’s facts are true and correct.

8. Prayers (b), (e) and (f) of the petition, which I have set out above, deal with matters ordinarily dealt with at the Company Annual General meeting. Prayers (c) and (d) concern management of the Company which ordinarily vests in the directors of the Company. It is therefore evident that the dispute in this case can only be resolved by having a General Meeting to appoint new directors who will deal with the issues concerning the management of the Company. The Company directors have the power and authority to deal with the way the Company property is managed, where and how the Company’s is secured and expended. In addition, the management has the responsibility of maintaining and compiling books of account to be tabled at the General Meeting.

9. Turning to the application for permission to proceed with the petition as a derivative action and without deciding whether in fact permission to institute a derivative action should be granted to the petitioner, one of the considerations that court takes into account in granting permission under 241 of the Companies Act, is whether the acts complained of may be authorised by the company if they are yet to take place or whether they can be ratified by the Company if they have taken place. The authorization and ratification is an act of the Company at a General Meeting. According to the petitioner, the last Annual General Meeting was held in 2016 while the 1st respondent depones that her attempts to convene General Meetings in 2015 and 2015 have been thwarted as they have degenerated into shouting matches between family members. What is clear to me is that the matter complained of concern the management of the Company, it key asset and income therefrom which are matters I am satisfied can be resolved in a properly conducted General Meeting.

10. It is common ground that a General Meeting is required to unlock the disputes in the management of the Company. In prayer (f) of the petition, the petitioner seeks an order that the court direct that a General Meeting be held. The respondents have also proposed a General Meeting be held in their respective written submissions. The point departure is what should be on the agenda of the meeting. In the circumstances, I propose to invoke the powers of the court under section 280 of the Companies Act which empowers the court to convene a General Meeting as follows:

280. (1) This section applies if for any reason it is impracticable –

(a) to convene a meeting of the company in any manner in which meetings of that company may be convened; or

(b) to conduct the meeting in the manner required by the articles of the Company or this Act.

(2) the court may, either on its own initiative or on the application: -

(a) of a director of the company; or

(b) of a member of the company who would be entitled to vote at the meeting, make an order requiring a meeting to be convened, held and conducted in any manner that court considers appropriate.

11. Another issue of concern which must be dealt with in order to move forward, is that the administration of the deceased’s estate must now be completed by ensuring that each beneficiary of the deceased shares is entered on the register of shareholders. This must be done as a matter of urgency and should be part of the agenda of the proposed meeting and for the new members to elect new directors to manage the affairs of the Company.

12. I now invite submissions on the proposed directions of the meeting to held by the Company before I make final orders on the matter.

DATEDandDELIVEREDatNAIROBIthis14th day of SEPTEMBER 2020.

D. S. MAJANJA

JUDGE

Mr Okeyo instructed by Kioko Munyoki and Company Advocates for the petitioner.

Mr Mwaura instructed by Mwaura Kelvin Karuga and Associates Advocates for the 1st and 2nd Respondent

Peter Kuria in person.