https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/8691

Varma & another v Athi Stores Ltd (Miscellaneous Application 234 of 2013) [2026] KEHC 8691 (KLR) (19 June 2026) (Ruling) Neutral citation: [2026] KEHC 8691 (KLR) Republic of Kenya In the High Court at Machakos Miscellaneous Application 234 of 2013 BM Musyoki, J June 19, 2026 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 INVESTIGATIONS OF COMPANY AFFAIRS IN APPLICATION Between Madan Mohan Singh Varma 1st Applicant Sunit Sher Singh Varma 2nd Applicant and Athi Stores Limited Respondent Ruling 1.This matter was commenced by way of originating motion dated 16th September 2013 which had the following prayers;1.All necessary direction be given.2.An order do issue: -i.That the Court appoints one or more competent inspectors, to exhaustively investigate the affairs of Athi Stores Limited, since 17th January 1997 to-date, that include;a.All books of accounts.b.All management decisions taken impacting on the business performance.c.All loans, overdraft facilities and letters of credit taken in the name of the company and its utilisation.d.All taxes paid or due (if any) to the Government of Kenya.e.All returns filed/or due to the Companies' Registry.f.All movable assets if any disposed off and/or transferred to other Companies whether lawfully or otherwise.g.All historical businesses and contracts transferred to other competitor companies whether lawfully or otherwise.h.All bank accounts opened in the name of the company and their lawfulness.i.Any infringement of "business judgement rule' on the part of any director.j.Acts of ‘usurping corporate opportunities and or receiving improper persona/ benefits’ (if any) on the part of any director.k.Any breach of fiduciary duty and obligation on the part of any director.ii.That the affairs of Sparetech Trading Company Limited to the extent of business relationship(s) with Athi Stores Limited including;a.Any conflict of interest and its consequential exposure of Athi Stores Limited.b.Any contractual business previously undertaken by Athi Stores Limited on behalf of suppliers and manner in which such contracts were transferred.c.Monetary benefits accruing from (b) above.d.Rent, rates and commissions due to Athi Stores Limited (if any).e.Returns filed if any to the Companies Registry.f.Taxes paid and/or due to the Government of Kenya.iii.That the affairs of Uniken Enterprises Company Limited to the extent of business relationship(s) with Athi Stores Limited including;a.Any conflict of interest and its consequential exposure of Athi Stores Limited.b.Any Contractual business previously undertaken by Athi Stores Limited on behalf of suppliers and manner in which such contracts were transferred.c.Monetary benefits accruing from (b) above.d.Rent, rates and commissions due to Athi Stores Limited (if any).e.Returns filed if any to the Companies Registry.f.Taxes paid and or payable to the Government of Kenya.3.The Inspector(s) appointed under paragraph 2 above undertake the exercise within sixty (60) calendar days from the date of such issuance.4.The Inspector(s) appointed under paragraph 2 above submit an interim report within thirty (30) calendar days from the date of such issuance.5.If upon scrutiny of the Inspector(s) report filed in Court, apparent criminality on the part of any director is discovered, then the Court forwards a copy of the report to the Director of Public Prosecutions to consider institution of Criminal Prosecution.6.If upon scrutiny of the Inspector(s) report filed in Court, apparent breach of fiduciary duty is revealed the Court orders: -a.Rescission of any contracts entered into by Shamit Niranjandass Ghai improperly.b.Any identifiable property acquired and held by Shamit Niranjandass Ghai by proceeds from Athi Stores Limited is held in trust for Athi Stores Limited.c.Refund of any funds and monies irregularly drawn and/or transferred to Shamit Niranjandass Ghai and/or his associate Companies Uniken Enterprises Company Limited and Sparetech Trading Company Limited.d.Mr. Shamit Niranjandass Ghai indemnifies all other directors on liabilities occasioned by his irregular conduct and breach of fiduciary duty.7.Costs of and incidental to this application be in the cause. The applicants’ case 2.In the supporting affidavit sworn by the 1st applicant who has since passed on, it is deponed that the respondent company (hereinafter referred to as ‘the company’) was incorporated on 24th June 1971 and has since then been operating and engaging in mining of limestone, pozzolana, gypsum, and other minerals for supply to cement manufacturing companies. By 1996, the company was owned by Shammit Singh Varma (hereinafter referred to as ‘Varma’) with 50 per cent shares and the applicants with each having 25 per cent shares. In December 1996, the directors of the company entered into a memorandum of understanding (MOU) with Anil Kumar Puri (hereinafter referred to as ‘Puri’), Shammit Niranjandass Ghai (hereinafter referred to as ‘Ghai’) and Aya Arvindbhai Patel (hereinafter referred to as ‘Patel’) to inject capital and take over 50 per cent equity shareholding. 3.The applicants added that at the time of the MOU, the company had an existing loan of Kshs 105 million with Kenya Commercial Bank against which there was a charge of L.R. Number 11895/1, three debentures and guarantees. They added that Ghai formed Sparetech Trading Company (hereinafter referred to as Sparetech) and Uniken Enterprises (hereinafter referred to as ‘Uniken’) in 1997 without the consent of the respondents and started diverting business meant for the company which was against the MOU. It is alleged that Ghai promised the applicants that all the shareholders of the company would be allocated prorated shares within the new entities. 4.It is deponed further that the aforesaid securities were discharged on 26th April 2006 through Nairobi High Court Civil suit number 900 of 2001 and between May 2005 and August 2006, the company negotiated multiple financial facilities from Imperial Bank Limited amounting to Kshs 97,968,707/= and Kshs 46,303,946.00 in loan and overdraft respectively payable within 48 months which were secured by legal charge over LR No. 11895/1, fixed and floating debenture and irrevocable letter of credit. 5.The applicants averred that since 1998, the company affairs were conducted in a cloud of secrecy by Ghai and in 2003, Puri out of frustration issued a comprehensive memo detailing financial irregularities in respect of spare parts, haulage and other pertinent issues following which Puri left the company because the its accounts were being fiddled with to the advantage of Ghai. 6.The deponent stated further that in early 2008, he discovered that he had been removed as a signatory to the company’s account at Imperial Bank and added that he got information from the company’s staff that between 2003 and 2011, Ghai had irregularly and unilaterally conferred benefit to himself and his associate companies drawing colossal sums while investing in other ventures not sanctioned by or related to the company. He added that there were fraudulent management of accounts in terms of remittance of tax and statutory deductions. He also claimed that the same staff members told him that various goods and services consumed by Sparetech and Uniken were paid for by the company. 7.He added that their efforts to get disclosure from Ghai were in vain and that continued operations of the company by Ghai was contrary to its Articles of Association and breach of the MOU. It is also deponed that no general and directors’ meetings have been held since 1997 which was occasioned by Ghai’s frustrations of other directors. There have also been no audits availed to the directors and the audit firm which kept the reports would share with Ghai only in exclusion of the other directors and no returns have been filed with the Registrar of Companies. 8.It was deponed further that in 2007, Ghai invited one Stephen Nyaga Gitari to the Board of Directors without the company’s resolution. Due to these frustrations, the deponent rescinded the MOU and served a notice of vacation from LR No 11895/1 which attracted court actions from companies associated by Ghai. In September 2012, Ghai tried to persuade the applicants to sign a document to the effect that they were not a party to the rescission of the MOU which they resisted following which he stopped their monthly remuneration without resolution of the Board of Directors. 9.The applicants averred further that between 2008 and 2013, the debts of the company spiralled to Kshs 280 million with Ghai obtaining an extra loan of Kshs 105 million without authority of the Board in 2012 for which the applicants declined to sign. It was claimed that Ghai had made an extract of a non-existent Board meeting accepting an offer of the loan which paved way for release of the loan and that Imperial Bank had refused to share this information with the applicants. On the above basis, the deponent averred that the conditions for investigations under Section 165 and 167 of the Companies Act have been demonstrated. Respondent’s case 10.The application was opposed by Ghai through a replying affidavit sworn on 29th October 2025 with the leave of the court granted on 7-02-2025. He depones that he is a director of the company and adds that a complaint similar to the applicants’ allegations in this matter was lodged with the Directorate of Criminal Investigations through a statement recorded on 29-03-2019 by Varma and the same was investigated and concluded. He exhibited letters written to LJA Advocates on 1-10-2025 and 28-04-2023 which indicating that the Director of Public Prosecutions had ordered the file be closed without any further action. 11.After giving a short history of the company’s incorporation and shareholding, Ghai added that the company had obtained credit from Kenya Commercial Bank in 1995 and charged L.R. Number 11895/1 and issued debenture over its assets. When the loans went into arrears, the bank threatened to sell the charged property which were owned by the company’s shareholders which prompted filing of civil suit number 900 of 2001 at the High Court at Nairobi. He added that, afraid of losing the properties, the then shareholders approached Rajan Ghai, himself and Ajay to inject Kshs 40 million into the company and in return acquire 50 per cent shareholding in the company. Another consideration for injecting the money was that 20 acres of L.R no 11895/1 would be transferred to the company. 12.Ghai added that the incoming shareholders duly made the payments which was acknowledged by the company’s registered auditors on 30th April 2013. The incoming shareholders were appointed as directors on 7th July 2006 and 8th August 2006 through Board resolutions. Eventually, the properties were discharged through a consent recorded in civil suit number 900 of 2001. 13.Ghai avers further that the applicants on 22-10-2013 and 20-08-2018 wrote letters indicating that they did not wish to proceed with this matter with the 2nd applicant confirming that he was unaware of who revived it again. He claims that the relationship between the old and incoming directors was cordial until the company insisted on transfer of the 20 acres as per the MOU. He adds that the old shareholders have not denied that the 20 acres belong to the company and actually the company with concurrence of Varma offered to sell the land to Bamburi Cement Limited in 24th July 2015. 14.He has added that, the owners of the proprieties have selfishly attempted to dispose the land without the knowledge of the company and have attempted to evict the companies associated with the company. They have also been filing frivolous suits and making complaints to police against the company and have purported to cancel the MOU. 15.On the issue of management, Ghai has stated that all the directors of the company including the applicants have been involved in the management and there has always been a quorum in its meetings. He also states that the Article of Association provides for disputes among the directors to be resolved internally. In that regard, he states that, all the actions of the company are done by all the directors including the applicants and they are complicit in any alleged acts of wrongdoing and he was never appointed a managing director or chairman at any time and that this matter is meant to settle personal scores without hiving off the property belonging to the company. He as laid out details of suits the company has in other courts in respect of the failure to transfer the 20 acres. 16.Ghai has added that the company is active except that, from 2019 its operations slowed down due to lack of business and has gone on to produce its financial statements for 2005 to 2014, annal returns for 2021 to 2023, business permits for 2016 and 2018 and invoices to Bamburi Cement Limited for 2012 to 2015. He adds that Varma who is a co-director/shareholder of Sparetech which was incorporated in 1996 before the registration of the MOU is also the Chairman of the company and any dealings between Sparetech, Uniken and the company were duly sanctioned by the company. He has also stated that Uniken is a transport company which was formed in 1994. He produced some Board resolutions which recognised inter-relationships between the three companies. Analysis and determination 17.The applicant informed me on 27-02-2026 that they had opted not to file any submissions. I would take it that they intended to rely on the supporting affidavit as they did not expressly state that they had abandoned their application. The respondent filed submissions dated 23-01-2026 which I have read and duly considered. In addition to the merits of the application, the respondent has suggested in its submissions that, since the old Companies Act was repealed while this suit was pending, the matter should be moot. Based on this and what has been raised in the averments and submissions of the parties, I discern that the issues for determination in this matter are;a.Whether this matter is competently before this court.b.Whether sufficient grounds have been laid for the grant of the orders prayed.c.What are the appropriate orders in the circumstances? 18.The respondent submits that upon repeal, a statute ceases to have legal effects unless expressly provided by the repealing statute. That may be so but the court cannot act in ignorance of provisions for transition from one regime of law to a new one. It cannot be true that matters commenced in court under a statute which undergoes repeal or substantive amendments would automatically cease or become moot. It cannot be fair and justifiable that once a new law comes into effect, the rights of parties which have accrued in a litigation are terminated without a remedy unless the court has made substantive and final findings in respect of the issues therein. 19.The respondent has pointed out that the Paragraph 45 in Part 5 of the Sixth Schedule to the Companies Act 2015 makes provisions for continuance of investigations commenced under Sections 165 or 166 of the old Act. It however submits that the said Paragraph talk of continuing investigations which had already commenced and since the investigations in this matter had not commenced, new proceedings must be brought under the current Act. 20.In my view, the encompassing of the two Sections of the repealed Act in the said Paragraph envisaged a process which had already been triggered under the Sections irrespective of the stage. That process in my view includes applications or suits commenced as at the time of the repeal of the old Act. Paragraph 45(2) provides that;‘ Despite the repeal of sections 167 to 172 of the repealed Act, those sections continue to apply to an investigation continued under paragraph (1) as if their repel had not taken effect.’ 21.If the Legislature intended to terminate all pending suits as the respondent suggests, it would have made reference to investigations continuing pursuant to an order given under the Paragraphs. I therefore hold that this matter is competently before the court and should proceed as if it had been brought under Sections 786 and 788 of the Companies Act, 2015. That is the purport of Section 1024 of the Companies Act in particular subsection 2 which provides as follows;If-a.any act, matter or process required or permitted to be done under, or for the purpose of, a provision of the repealed Act before this section came into operation;b.a provision of this Act corresponds to the provision of the repealed Act; andc.the act, matter or process was not completed, or had not ceased to have effect, before, this section came into operationthe act, matter or process shall or (as the case requires) may be completed, or continues to have effect, under the corresponding provision of this Act as if done under or for the purpose of that provision.’ 22.The respondent has argued that prayers seeking to investigate Sparetech and Uniken are incompetent as the two have not been made parties to these proceedings. I entirely agree with this line of submissions. The applications of this nature were not meant by the law to be made and argued ex-parte. The company and its directors must be given due notice and fair hearing before any orders are made in respect of their affairs. The owners, shareholders or directors of the two entities have not made any application for their investigations. This court cannot make adverse orders against persons who are not parties to the suit. As rightly submitted by the respondent only members of a company are entitled to file application for investigations under Section 786 of the Companies Act. 23.The applicants have not rebutted either by way of submissions or further affidavit, the averments contained in Ghai’s replying affidavit. I note that on 7-02-2024, the applicants were granted leave to file a supplementary affidavit in response to reply by the respondent which opportunity they did not seize. In my analysis of the narration from both sides, the company was in the red when Ghai and the other incoming shareholders injected money into it through the MOU. It is this injection which revived the company and saved the securities from being realised. The owners of the land which had been charged and who were shareholders of the company were to transfer 20 acres to the company which they failed to do and instead attempted to rescind the MOU. It is common ground between the parties that the old and incoming shareholders had the intention of transferring the twenty acres when Ghai and others were invited to join the company. 24.It is clear to me that Ghai and the other incoming shareholders and later directors did good more than bad to the company. Their investment revived the company to the extent that Imperial Bank agreed, appraised or approved and found it worth to get credit to the tune of 105 million. There is no evidence produced to proof that the company was being injured by acts of Ghai. There is nothing to show that Ghai pilfered assets or finances of the company except the unproven allegations of the staff informing the applicants of the misuse or misapplication of its funds or finances. The deponent of the supporting affidavit alleged that he was removed as a signatory of the company’s account sometime in 2012 but no evidence to that effect has been produced. 25.An investigation into the affairs of a company under Sections 786 and 788 of the Companies Act would be justified only where the court is shown evidence of mishandling of the affairs or processes of the company. This application is not a derivative suit but an application by disgruntled shareholders and directors who in themselves failed to meet their obligations to the company. A court cannot be called upon to micromanage a limited liability company or supervise its operations. 26.I have taken note of documents filed in Machakos ELC Misc. application number E170 of 2025 which have been produced as exhibit SNG4 in Ghai’s replying affidavit. In the application, Ghai accuses the applicants’ family of failing to transfer to the company its rightful share of the LR number 18696/55 which was a portion from LR number 11895/1. That’s is not an issue before me and I am not suited to handle it in this application but it is an important pointer to the fact that Ghai has been working for the best interest of the company. He actually strikes me as the most active director in protecting the property of the company. 27.The allegations that Ghai started Sparetech and Uniken without the consent of the other directors of the company does not hold water as far as the issues in this application are concerned. There is no law prohibiting or illegality in a director of a company incorporating or starting another business without the consent of their co-director. A director like any other person has a right to hold shares or directorship in different companies without attracting sanctions from his co-directors. I have also not been provided with evidence to the effect that Sparetech and Uniken were competitors of the company and I cannot act on speculations or mere statements. In any case, the respondent has demonstrated through annexures SNG 39 and SNG40 that Varma who is the Chairman of the company is also a shareholder and director in Sparetech yet he has not been accused of any wrong doing. Annexure SNG40 is a resolution of the company dated 5-08-1997 which makes reference to relationship between the company and Sparetech. The resolution shows that both applicants were present when the resolution was made. 28.It is also notable that Varma who is a director of Sparetech and the company recorded a complaint with Directorate of Criminal Investigations against Ghai alleging that he had mismanaged the finances and affairs of the company. I have gone through the statement which was produced as exhibit SN1 in Ghai’s replying affidavit. The statement in my view disclosed a complaint similar to what the applicants are complaining about in this matter. The DCI investigated that complaint and upon forwarding the file to the Director of Public Prosecutions, it was recommended that the matter be closed without any further police action. This is contained in letters from DCI to Varma, Ghai and Rajan Niranjandas Ghai dated 28th April 2023 and to LJA Associates LLP Advocates dated 1-10-2025 dated 1-10-2025 which letters have been produced as exhibit SNG2 of Ghai’s replying affidavit. I have no reason to doubt the contents or authenticity of the letters. 29.In view of the above, it would be correct to say that the prayer for an order directing investigations for criminal activities has been overtaken by events. I also doubt that this court would be right to refer this matter to the Director of Public Prosecutions as proposed in the application. Article 157(4) of the Constitution gives powers to direct investigations in criminal matters to the Director of Public Prosecutions. This court would be usurping the powers of the said office and the police in making such an order which would amount to overstepping its mandate and unnecessary overreach. The court should ordinarily let the other constitutional and statutory bodies to discharge their duties without undue interference or micro-management and only come in where there is clear attempt to abuse power. In the Court of Appeal emphasised this position by holding in Commissioner of Police & Director of Criminal Investigations Department & another v Kenya Commercial Bank Ltd & 4 others [2013] KECA 182 (KLR) that;‘ Whereas there can be no doubt that the field of investigation of criminal offences is exclusively within the domain of the police, it is too fairly well settled and needs no restatement at our hands that the aforesaid powers are designed to achieve a solitary public purpose, of inquiring into alleged crimes and, where necessary, calling upon the suspects to account before the law. That is why courts in this country have consistently held that it would be an unfortunate result for courts to interfere with the police in matters which are within their province and into which the law imposes upon them the duty of enquiry. The courts must wait for the investigations to be complete and the suspect charged.’ 29.The applicant had claimed that no annual or director’s meetings have been held since 1997. This is a self-defeatist and contradictory statement. There is evidence available from both sides that the company and its directors among them the applicants filed Nairobi High Court civil suit number suit 900 of 2001. A resolution of the company dated 7-07-2006 made Ghai a director of the company following which the process of discharging the securities started and was completed. The applicants are quick to complain about lack of general or directors’ meetings but conveniently turn a blind eye to the favourable processes which were conducted in the same period guided by Ghai. 30.I doubt that the above said processes could have been done without directors’ meetings. If indeed there were no such meetings, the applicants should have made a requisition for one which they don’t seem to have done. As rightly submitted by the respondents, actions or omission of the company are results of the acts of directors who are its agents. If there were no meeting or returns, all the directors are jointly responsible for the omission. The applicants have not shown what efforts they made to correct any omissions and how any such efforts were frustrated by Ghai. 31.In my analysis, I do not think that the applicants have laid sufficient basis for granting of the orders sought. A court should only issue orders of investigations where there is clear evidence of mismanagement, oppression or fraud against the company which poses risk of either running it down or causing injury or loss to shareholders. Going by the general statements some of which are not factual, the applicants were in my view pursuing other personal interests as opposed to the interest of the company. I am persuaded by holding of Justice Njoki Mwangi in Osewe v Guda & another [2026] KEHC 1027 (KLR) thus;‘ The remedies provided for in the foregoing Sections of the Companies Act , are drastic and exceptional and they are intended to be exercised where there is clear prima facie evidence of fraud, oppression, mismanagement, or serious breach of statutory duty. Allegations alone, without cogent and uncontested evidence, are insufficient to justify such intervention.’ 32.Based on the above analysis it is my conclusion that the applicants have not made a case to warrant granting of the prayers sought in the originating motion dated 16th September 2013. The same is hereby dismissed with costs to the respondents. DATED, SIGNED AND DELIVERED AT NAIROBI THIS 19 TH DAY OF JUNE 2026.B.M. MUSYOKI JUDGE OF THE HIGH COURT .Ruling delivered in presence of Mr. Njoroge Muriu for the applicant and Mr. Orwenyo holding brief for Mr. Owuor Thatcher for the respondent.