[2006] KEHC 703 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Civil Case 578 of 2006

SONALI KUMARI ZACHARIA ………..…………………. PLAINTIFF

VERSUS

BINOY ZACHARIA

SARA PREMA ZACHARIA

ISMAIL MAWJI

RICKSHAW TRAVEL (KENYA) LIMITED

FLYING RICKSHAW LIMITED ………………………DEFENDANTS

R U L I N G

These are two applications by way of Notice of Motion dated 14. 11. 2006 brought under the provision of Section 3A of the Civil Procedure Act, the Advocates Act, Order III of the Civil Procedure Rules and all enabling provisions and procedures of law. The applications have been lodged by the firm of M/S Kilonzo & Company Advocates on behalf of the 4th and the 5th defendants. Both applications seek one principal order each that the Memorandum of Appearance filed by M/S ole Kaikai & Company Advocates on behalf of the 4th and 5th defendants respectively be struck out and expunged from the record.

I heard the applications together and this ruling is in respect of the two applications.

The grounds for the applications are identical and are as follows:-

1. That the plaintiff who is the Managing Director of the

4th and 5th defendants instituted this suit against

the 4th and 5th defendants on 23. 10. 2006.

2. That the 4th and 5th defendants’ directors, Binoy Zachariah

Sara Prema Zacharia resolved to appoint the firm of

M/S Kilinzo & Co. Advocates to act for the 4th and 5th

defendants on 26. 10. 2006 in respect of any action filed

by the 4th and 5th defendants against the plaintiff or

vise versa.

3. That the plaintiff purportedly as Managing Director

appointed the firm of ole Kaikai and Company Advocates

on 31. 10. 2006 to act on behalf of the 4th and 5th defendants.

4. That the plaintiff’s appointment of Advocates to defend the

Companies she has sued to retain the position of

Managing Director raises a serious conflict of interest,

is an abuse of the court process and is to the prejudice

of the 4th and 5th defendants.

5. That it is not in the interest of the 4th and 5th

defendants to be represented by an Advocate appointed

by the plaintiff.

6. That the plaintiff as Managing Director is a mere

employee of the 4th and 5th defendants and cannot

commit the 4th and 5th defendants to a firm of

Advocates not approved by its directors.

The applications are supported by affidavits of Binoy Zacharia and Sara Prema Zacharia. They have deponed in the affidavit that on 26. 10. 2006 they resolved to appoint the firm of M/A Kilonzo and Company Advocates to represent the 4th and 5th defendants in any suit filed by the plaintiff against the companies or vice versa. A copy of the resolution is annexed as “A” to the affidavits. They have further deponed that the plaintiff purportedly as Managing Director has appointed the firm of Ole Kaikai & Company Advocates to act on behalf of the 4th defendant. A copy of the letter from Ole Kaikai & Company Advocates to that effect is exhibited as “B”. It is further deponed that the plaintiff has no authority from the Board of Directors to appoint an advocate for the 4th and the 5th defendants as there would be an obvious conflict of interest for her as plaintiff to appoint an Advocate to defend the 4th and 5th defendants against her own claim. It is also deponed that the plaintiff appointed the firm of Ole Kaikai & Company Advocates on 31. 10. 2006 having obtained an ex parte injunction and order for maintenance of the “Status quo” purely for purposes of frustrating the efforts of the 4th and 5th defendants to discharge those orders and defend the suit and save for filing Memorandum of Appearance the firm of Ole Kaikai & Company Advocates no pleadings have been filed.

The applications are opposed and there are replying affidavits sworn by the plaintiff. She has deponed that in her capacity as the Chief Executive Officer, she instructed M/S Ole Kaikai & Company Advocates to enter appearance for the 4th and 5th defendants and further that as director the 1st and 2nd defendants do not have any greater right to appoint anAdvocate for the 4th and 5th defendants. She has also deponed that as Managing Director of the 4th and 5th defendants she was vested with the powers of running the day to day affairs of the companies including appointing counsel. She has further deponed that before varying the representation for the 4th and 5th defendants a full meeting of the Board of Directors has to be convened to pass the necessary resolutions. In the plaintiff’s view there is no conflict of interest but the 1st and 2nd defendant’s interests are in conflict with those of the 4th and 5th defendants.

The application was canvassed before me on 20. 11. 2006 by Mr. Ochieng who has taken over from M/S Kilonzo and Company Advocates and Mr. Kaikai both of whom claim to have been instructed by the 4th and 5th defendants. Both counsels elaborated on the averments contained in their respective client’s affidavits and urged that orders be made in favour of their respective clients.

I have considered the application and the affidavits together with the annextures. I have also given due consideration to the submissions made to me by the counsels appearing. Having done so I take the following view of this matter. The plaintiff’s suit seeks a declaration with regard to notices issued by the 3rd defendant for director’s meeting of the 4th and 5th defendants of 25. 10. 2006. The plaintiff also seeks an order restraining the defendants from holding the said directors’ meeting. The plaintiff finally seeks as one of her main prayers a declaration that the 3rd defendant be forthwith removed as Company Secretary of the 4th and 5th defendants.

From the above prayers, it cannot be said that the plaintiff filed this suit for the benefit of the 4th and 5th defendants. On 28. 10. 2006 the plaintiff amended her plaint and seeks inter alia the following orders:- A declaration that the resolutions passed on 25. 10. 2006 by the 1st three defendants in respect of the 4th and 5th defendants are null and void and pending the determination of this application the status quo ante 25. 10. 2006 be maintained, an injunction restraining the defendants from effecting the said resolutions and minutes or proceedings of the said meeting; an injunction restraining the 1st, 2nd and 3rd defendants from sacking, removing or otherwise getting rid of the plaintiff as a director and Managing Director of the 4th and 5th defendants pursuant to the said resolutions, minutes or proceedings and a declaration that the 3rd defendant be forthwith removed as Company Secretary of the 4th and 5th defendants. Prima facie, the plaintiff suit reveals a dispute between the Managing Director and her co-directors over the 4th and 5th defendants. It is well settled that a company is an artificial person and takes its decisions through the agency of its administrative organs namely the Board of Directors or the general meeting of its shareholders. Either of these organs may authorize the use of the company’s name to sue. It may also authorize the retension of counsel in litigation. The decision to act as above should be guided by the Company’s Articles of Association in the case of registered companies. The 4th and 5th defendants are such companies. The plaintiff has deponed that as Managing Director of both the 4th and 5th defendants she had the power to appoint M/S Kaikai and Company Advocates as the advocates for the companies. I have perused the Articles of Association of both companies. The 4th defendant’s Articles of Association do not seem to have a provision for a Managing Director while the 5th defendant’s article 17 reads as follows:-

“17. The directors may entrust to and confer upon

a managing director any of the powers exercisable

by them upon such terms and conditions and

with such restrictions as they think fit and either

collaterally with or to the exclusion of their

own powers and may from time to time revoke,

withdraw, alter or vary “all or any” of such powers.”

That article makes it clear that a managing director only exercises powers given him or her by the directors. Article 1 of the same Articles of Association is as follows:-

“1. Subject as hereinafter provided the Regulations

contained in part 1 of Table “A” in the First

Schedule to the Companies Act (hereinafter

Referred to as Table “A”) shall apply to the

Company.”

That article puts it beyond doubt that the company’s Articles of Association do not contain the complete code of regulations and where deficient, Table “A” applies.

Article 1 of the Articles of Association of the 4th defendant save for certain exceptions also adopts the same Table “A”. Article 8 of the 4th defendant’s Articles of Association reads as follows:-

“8. The quorum for transaction of business of the

Directors may be fixed by the directors and

unless so fixed shall be two.”

That means plainly that any two director in a meeting lawfully convened would pass resolutions that would bind the company. Article 12 should in my view be read together with article 8 in order to avoid contradiction and absurdity. The plaintiff has not exhibited any authority from the directors that their powers had been donated to her. In my view in the absence of such authority only the Board of Directors have authority to determine who should act for the companies. Annexed to the affidavit in support of the 4th defendant’s application is exhibit “B”,which is a resolution signed by the 1st and 2nd defendants by which M/S Kilonzo and Company Advocates were instructed to institute and defend proceedings by and against the 4th defendant. To the supporting affidavit of the 5th defendant is annexed a similar resolution marked as exhibit “B”. By that resolution, the same M/S Kilonzo and Company Advocates were instructed by the 5th defendant to institute or defend proceedings on behalf of the 5th defendant.

This is not a case where the plaintiff has instituted these proceedings for the benefit of the 4th and 5th defendants in which event the 4th and 5th defendants would be sued for their own benefit. It is a case to protect the plaintiff’s interest. In my view she would not be entitled to appoint counsel for the 4th and 5th defendants. The plaintiff in my view does not fully appreciate our company law position with regard to the companies’ separate and distinct legal existence.

The upshot is that the two applications succeed and the Memorandum of Appearance filed by M/S Ole Kaikai and Company Advocates for both 4th and 5th defendants are struck out and expunged from the record. As the plaintiff, the 1st and 2nd defendants are related by marriage and the 4th and 5th defendants are family concerns. I make no order as to costs.

DATEDand DELIVERED at NAIROBI this 28th day of November 2006.

F. AZANGALALA

JUDGE

Read in the presence of:- Ongicho for the plaintiff and Ochieng for the defendants and Kaikai for the 4th and 5th defendants.

F. AZANGALALA

JUDGE

28/11/06