[2023] KEHC 24712 (KLR)

Soroya Investments Limited v Teriyaki Japan Limited (Insolvency Notice E088 of 2021) [2023] KEHC 24712 (KLR) (Commercial and Tax) (3 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24712 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Insolvency Notice E088 of 2021

FG Mugambi, J

November 3, 2023

Between

Soroya Investments Limited

Applicant

and

Teriyaki Japan Limited

Respondent

Ruling

Brief Facts 1. This ruling determines the application dated 9th September 2022 brought under sections 699(1) and (2) and 700 of the Insolvency Act No. 78 of 20l8. The application seeks the stay of execution of the statutory demand dated 15th November 2021 as well as stay of the insolvency proceedings against the applicant, pending the hearing and determination of the intended appeal against the ruling of 4th August 2022.

2. The applicant argues that the intended appeal is not frivolous but raises arguable grounds of appeal against the ruling and order of 4th August 2022 erroneously dated 21st September 2022 and that the said intended appeal will be rendered nugatory if this application is not granted.

3. The application is supported by the affidavit and supplementary affidavit of Brian D‘souza the Property Manager of the applicant, Soroya Investments Limited and the grounds on the face of the application. It was the applicant’s case that it filed an application on 14th December 2021 to strike out a statutory demand dated 15th November 2021. The application was dismissed and the court allowed the application for stay of execution pending appeal for 30 days to enable the applicant to file a formal application.

4. The applicants aver that the formal application was filed 5 days out of time through no fault of theirs. On 15th August 2022 the applicant’s advocates lodged a Notice of Appeal and requested for certified typed proceedings as well as a copy of the ruling. They were provided with an uncertified typed copy of the said ruling on 31st August 2022 but noted that the said ruling was erroneously indicated as delivered virtually, dated and signed on 21st August 2022 which was a Sunday. Counsel for the applicant wrote to the court on 1st September 2022 requesting for correction of the date but the rectified ruling was yet to be issued.

5. The applicant persists that it will suffer substantial loss and miscarriage of justice if the application is not granted as the respondent will at any time based on the statutory demand lodge an Insolvency Petition against the applicant on the basis of the said statutory demand and a debt that is disputed and denied. The appeal will also be rendered nugatory and will be overtaken by events.

6. The application was opposed vide a replying affidavit sworn on 27th September 2022 by John Baptista Gatuthu Kaniaru a director of Teriyaki Japan Limited, the respondent. The respondent notes that the applicant seeks a stay of the negative order of the Court dismissing its application with costs. Additionally, the respondents argue that the decision of the Court rendered on 4th August, 2022 did not order any party to do anything or refrain from doing anything and as such there was nothing to be stayed in the present proceedings.

7. In any case, the respondent argues that while there was an error on the date indicated in the ruling, the same did not go to the substance of the decision and can therefore not form the basis for a grant of stay of a negative order. Be that as it may, the respondent implores the Court that it if were inclined to grant the order of stay, to in addition, make an order that the Kshs.11,600,000/= be deposited in an interest earning account duly operated and overseen by the advocates on record for the respective parties.

8. The applicant is emphatic that the application does not seek to stay the orders of the court but to stay the execution of the statutory demand after its application for dismissal was dismissed. The respondent further argues that section 699(1) of the Insolvency Act, 2015 is clear about the fact that the lodging of a Notice of Appeal does not operate as a stay of proceedings and therefore that the application is merited.

Analysis 9. I have carefully considered the pleadings, evidence and submissions made by the parties. The issue for determination is whether the applicant has made out a case for stay of execution and whether the court has jurisdiction to issue such orders. I note from the record that the ruling dated 21st August 2022 dismissed the application seeking to set aside the statutory demand or strike it out. In the circumstances I would concur with the respondent that there is nothing to stay in the said ruling which as parties agree, is a negative order.

10. My understanding of the effect of the ruling by the court is that by virtue of the statutory notice having been upheld, the applicant had failed the test of solvency and the respondent was at liberty to file a liquidation petition based on the notice unless there was a stay of execution of the statutory demand. The applicant has emphasized time and again that what it seeks to stay is this process of execution of the statutory demand by way of a liquidation petition, pending appeal.

11. My further understanding of the law is that the process of liquidation begins from determining whether a company meets the requirements of liquidation in accordance with Part VI of the Insolvency Act. In other words, it is the statutory demand that triggers the entire process as it is the test of solvency. In my view the Court has jurisdiction to stay the insolvency proceedings in order to prevent the respondent from taking steps that would enable it to evade a possible outcome against it.

12. Having so stated, in William Odhiambo Ramogi & 2 Others v The Honourable Attorney General & 3 Others, [2019] eKLR, the court outlined the conditions one must satisfy for grant of stay of proceedings pending an appeal. These were that there must be an appeal pending before the higher court; since there is no express provision allowing for such an application, the applicant should explain why the stay has not been sought in the higher court due to the potential of an application for stay of proceedings causing inordinately delay the trial; the applicant must demonstrate that the appeal raises substantial questions to be determined or is otherwise arguable.

13. The court also held that the applicant must demonstrate that the appeal would be rendered nugatory if the stay of proceedings is not granted; the applicant must demonstrate that there are exceptional circumstances which make the stay of proceedings necessary as opposed to having the case concluded and all grievances arising taken up in a single appeal and the applicant must demonstrate that the application for stay was filed expeditiously and without delay.

14. Further, according to the Halsbury’s Laws of England, 4th Edition, Vol 37 at p 330:“Stay of proceedings is a serious, grave and fundamental interruption in the right that a party has to conduct his litigation towards the trial on the basis of the substantive merits of his case, and therefore the court’s general practice is that a stay of proceedings should not be imposed unless the proceedings, beyond reasonable doubt, ought not to be allowed to continue. This is a power which, it has been emphasized, ought to be exercised sparingly, and only in exceptional cases. It will be exercised where the proceedings are shown to be frivolous, vexatious or harassing or to be manifestly groundless or in which there is clearly no cause of action in law or in equity. The applicant for a stay on this ground must show not merely that the plaintiff might not, or probably would not, succeed but that he could not possibly succeed on the basis of the pleading and the facts of this case.”

15. This court is required to consider the prima facie merits of the intended appeal, in the sense of not whether it will probably succeed or not but whether it is an arguable one. Needless to say, this Court has already pronounced itself on the merits of the statutory demand. I should probably say no more on this.

16. Additionally, the applicants failed to disclose but the respondents confirmed that there is already an appeal at the Court of Appeal being Court of Appeal at Nairobi Civil Appeal No. E648 of 2022. This was not controverted by the applicant. No reason has been given for the failure to file the application for stay of execution and stay of proceedings at the Court of Appeal. This would not only avoid delays in the appeal but would enable the Court of Appeal to consider the application based on the laid down threshold of the Court, which is duly seized of the matter since a record of appeal has been filed.

17. A perusal of the record shows that counsel for the applicant wrote to Court on 15th August 2021 requesting for certified copy of the proceedings, the ruling and order of the court and again on 1st September 2021 informing the Court about the error on the face of the ruling. Although the delay in correcting the same has been blamed on the court, there is no evidence of further follow.

18. Besides the delay that has already been occasioned by not following up the ruling and proceedings and seeking the stay in the Court of Appeal, the applicant has not proved that there are any exceptional circumstances to persuade the court to grant stay of these proceedings. There is no good reason as to why the proceedings cannot proceed to hearing and conclusion and then an appeal filed against all grievances that may arise.

Determination 19. Consequently, the application dated 9th September 2022 devoid of merit and is dismissed with costs to the respondent.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 3RD DAY OF NOVEMBER,2023. F. MUGAMBIJUDGE