[2022] KEHC 14997 (KLR)

Wanjala & 2 others v Registrar of Companies & 2 others; Okoa Finance Ltd (Interested Party) (Commercial Petition E001 of 2021) [2022] KEHC 14997 (KLR) (Commercial and Tax) (7 November 2022) (Ruling)

Neutral citation: [2022] KEHC 14997 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Petition E001 of 2021

DAS Majanja, J

November 7, 2022

IN THE MATTER OF OKOA FINANCE LIMITED

Between

Justus Murenga Wanjala

1st Petitioner

Damaris Nyabonyi Nyang’au

2nd Petitioner

Henry Peter Gathogo Kimani

3rd Petitioner

and

Registrar of Companies

1st Respondent

Western Community Health Association Limited(Wecohas)

2nd Respondent

Charles Chunge

3rd Respondent

and

Okoa Finance Limited

Interested Party

Ruling

1. The genesis of this suit is a shareholders agreement dated February 15, 2018 (“the agreement”) between the 2nd respondent (“WECOHAS”) and the interested party (‘’the company’’). It was agreed that the two entities shall form a joint company for the purpose of providing banking services to the members of WECOHAS. The company would have an initial share capital of Kes 1,000,000. 00 divided between WECOHAS, OKOA and other interested local parties who were not part of the agreement. In addition to the share capital, each shareholder was obliged to give a shareholder loan to the company with WECOHAS expected to remit Kes 33,000,000. 00.

2. On January 5, 2021, the petitioners, who are the shareholders of the company approached the court by way of a petition dated December 15, 2020 citing WECOHAS and its director, the 3rd respondent, for breach of the agreement. They claim to have transferred their shares in OKOA to WECOHAS and the 3rd respondent but that WECOHAS has never invested the Kes 33,000,000. 00 shareholders loan as promised in the agreement. The petitioners’ seek the following reliefs in the petition:a.Declaration that the transfer of shares effected on March 23, 2018 is rescinded and thus null and void.b.An order of mandamuscompelling the 1st respondent to rectify the records in regards to shareholding of the interested party by striking of the 2nd and 3rd respondents as shareholders.c.An order of prohibition directed at the 2nd and 3rd respondents restraining them from presenting themselves as shareholders of the interested party or acting in any capacity as shareholders of the interested party.d.The costs of this petition be awarded to the petitioners.

3. The petition is supported by affidavits of Justus Murenga Wanjala, Henry Peter Gathogo Kimani and Damaris Nyabonyi Nyang’au all sworn on December 15, 2020. The petitioners state that upon the said transfer of shares the 2nd and 3rd respondents failed to pay the amount of Kes 33,000,000. 00 and have attempted through force and intimidation to take control of the company. The petitioners seek to have the court to compel the Registrar to rectify the current records and strike out the names of the WECOHAS and the 3rd respondent as shareholders of the company. The petitioners also wish to have the agreement to be declared null and void as the transfer of shares was done through fraudulent misrepresentation.

4. WECOHAS and the 3rd respondent opposed the petition through a replying affidavit of Prof Charles Chunge sworn on May 10, 2021 which denied the allegations of breach and fraudulent misrepresentation. WECOHAS and the 3rd respondent hold that it is the petitioners who have frustrated the performance of the agreement through the following acts:i.Instituting numerous vexatious court cases with the sole aim of frustrating the shareholder’s efforts of recovering their funds from the company.ii.Refusing to surrender the details of operations, income and expenditure of the company for purposes of auditing.iii.Operating an unauthorized bank account, a Commercial Bank of Africa (now NCBA) in the name of the company.iv.Diverting members’ funds through Mpesa paybill number 886 to an account not authorized by the 2nd and 3rd respondents.v.Remaining as a sole signatory to the company bank account held at Equity Bank Kakamega through deceit and in particular by failing to submit a change of mandate of signatories to the bank.

5. WECOHAS and the 3rd respondents’ position is that the consideration for the transfer of shares was paid in full as indicated in the transfer deed and that the petitioners have not proved the claims of fraud, misrepresentation and or illegality. They also claim that the members of the 2nd respondent deposited Kes 22,000,000. 00 and much more through deposits from diaspora members which the 1st petitioner failed to release to the trustees.

6. WECOHASand the 3rd respondents claim that the petitioners are only after recovery of the members’ funds and that there is an ongoing court assisted mediation process requested in Kakamega Civil Suit No 32 of 2020. In essence,WECOHAS and the 3rd respondent, state that there is no mistake in the shareholding of the company to warrant the rectification sought. They urge the court to dismiss the petition since it has not met the threshold for granting orders mandamus and prohibition.

7. The petition was disposed of by way of written submissions. From the reliefs sought there are three issues for consideration. The first is whether the transfer of shares effected on March 23, 2018 is null and void. Second, whether the court should issue an order of mandamus to compel the Registrar to rectify the company records by striking off WECOHAS and the 3rd respondent as shareholders and third, whether the court should issue an order of prohibition directing WECOHAS and the 3rd respondent and restraining them from presenting themselves as shareholders of the company or acting in any capacity as shareholders of the company.

8. One striking feature of this case is the mixture of the private law and public law remedies hence I intend to deal the preliminary issues that may resolve the suit. The petitioners have joined the Registrar to this petition and sought an order of mandamus directed at it. An order of mandamus is a public law remedy whose mandate and scope was discussed extensively by the Court of Appeal in Kenya National Examination Council v Republic Exparte Geoffrey Gathenji Njoroge & 9 others [1997] eKLR. The court stated that, “[An] order of mandamus will compel the performance of a public duty which is imposed on a person or body of persons by a statute and where that person or body of persons has failed to perform the duty to the detriment of a party who has a legal right to expect the duty to be performed.”

9. The petitioners pray that the Registrar rectify the company shareholding but there is no allegation against the Registrar that it failed to perform a statutory or public duty. As I understand, the petitioners’ case is predicated on the allegations of the breach of the shareholders agreement. These allegations are for the court to determine and not the Registrar. In the event when the court makes a decision on the matter, it is only then that the Registrar can implement the decree of the court if it results in changes in the shareholding.

10. The Registrar has power to rectify the register of a company under section 863 of the Companies Act, 2015 which provides as follows:"(1)The Registrar shall remove from the register any entry-(a)that derives from anything that the court has declared invalid or ineffective, or to have been done without the authority of the company; or(b)that the court has declared factually inaccurate; or to be derived from something that is factually inaccurate or is forged, and that the court has directed to be removed from the register.(2)The court shall specify in the order the entry that is to be removed from the register and indicate where in the register it is to be found.(3)The court may not make an order for the removal from the register of any entry the registration of which had legal consequences as mentioned in section 861(3) unless it is satisfied –(a)that the presence of the entry in the register has caused, or may cause, damage to the company concerned; and(b)that the company’s interest in removing the entry outweighs the interest (if any) of other persons in the continued appearance of the entry in the register.(4)If, in such a case, the court makes an order for removal, it may make such consequential orders as appear just with respect to the legal effect (if any) to be accorded to the entry because it has appeared in the register.(5)The court shall ensure that a copy of its order is sent to the registrar for registration.(6)This section does not apply in respect of any entry in the register if the court has other specific powers under this Act to deal with the matter." [Emphasis mine]

11. A reading of section 863(1) aforesaid, shows that the court has power to issue an order directing the Registrar to rectify any entry in the register. The provisions seem to suggest that the court may make the declaration in an ordinary action instituted by the aggrieved party and if a case has been made out then the court may issue an order directing the Registrar to rectify the register. Since the issue in this case concerns the agreement, no purpose would be served by joining the registrar particularly where no allegation is made against it and the basis of the allegations have not been established.

12. The petitioners’ also seek an order of prohibition against WECOHASand the 3rdrespondent. Again, I emphasize that this is a public law remedy which is issued against the public bodies or private citizens exercising public authority. Thus, the order of prohibition cannot be granted in the manner sought against WECOHAS and the 3rd respondent. In the Kenya National Examination Council case (supra) the court dealt with the scope of an order of prohibition as follows:"What does an order of prohibitiondo and when will it issue? It is an order from the High Court directed to an inferior tribunal or body which forbids that tribunal or body to continue proceedings therein in excess of its jurisdiction or in contravention of the laws of the land. It lies, not only for excess of jurisdiction or absence of it but also for a departure from the rules of natural justice. It does not, however, lie to correct the course, practice or procedure of an inferior tribunal, or a wrong decision on the merits of the proceedings."

13. Since the court cannot grant prayers 2 and 3 of the petition, what remains is the petitioners’ plea that the court issues a, “declaration that the transfer of shares effected on March 23, 2018 is rescinded and thus null and void.’’ The petitioners submit that the transfer of shares was done through fraudulent misrepresentation of WECOHAS and the 3rd respondent who argue that the petitioners have not shown any proof of breach of the agreement and have not proved the particulars of fraudulent misrepresentation or concealment of facts. WECOHAS and the 3rd respondent further argue that the transfer of shares deeds were executed, witnessed by an advocate, properly stamped and lodged for registration and there is nothing to show the illegality to warrant its nullification. WECOHAS and the 3rd respondent submit that the petitioners have not proved the grounds upon which the agreement should be rescinded.

14. This suit was brought by way of petition. Ordinarily, a petition relating to the affairs of a company would be filed pursuant to specific provisions of the Companies Act, 2015. For example, a petition by a minority shareholder for relief from against the oppression is filed under section 211 of the Act. Having held that there is no basis for relief against the Registrar, there is no reason to bring this suit by way of a petition against the 2nd and 3rd respondents.

15. The reality of this matter is that it is a case for breach of the agreement. This is a contractual matter that ought to have been filed as an ordinary suit by way of plaint. The allegation of breach, fraud and misrepresentation are properly tried in process that it tried and tested for that purpose. Once the suit is filed, the parties will be afforded a full opportunity for case management and the attendant benefits including discovery and then a full hearing where parties will be examined and cross-examined on the factual issue.

16. I am aware that article 159(2)(d) of the Constitution urges the court to eschew technicalities matter in favour of substantive justice. This provision does not of course permit parties who seek relief to avoid all the court rules and procedures. What the court is instructed not to do is to have, “undue regard to technicalities.” In this case, the law has prescribed a procedure for instituting such suits and there is no reason why filing this suit under the wrong procedure should be excused. This is what the Supreme Court stated in Raila Odinga v Independent Electoral and Boundaries Commission & others SCK Petition No 5 of 2013 [2013] eKLR:"Our attention has repeatedly been drawn to the provisions of article 159(2)(d) of the Constitution which obliges a court of law to administer justice without undue regard to procedural technicalities. The operative words are the ones we have rendered in bold. The article simply means that a court of law should not pay undue attention to procedural requirements at the expense of substantive justice. It was never meant to oust the obligation of litigants to comply with procedural imperatives as they seek justice from courts of law. In the instant matter before us, we do not think that our insistence that parties adhere to the constitutionally decreed timelines amounts to paying undue regard to procedural technicalities. As a matter of fact, if the timelines amount to a procedural technicality; it is a constitutionally mandated technicality."

17. It now inevitable that this suit must be struck out as the court has not made any determination on merits. Consequently, the petitioners will also have an opportunity to move the court appropriately. There is also no reason that the normal rule on costs should apply.

18. For the reasons I have set out above, I order as follows:a.This petition be and is hereby struck out.b.The respondents shall have the costs of the suit.

DATED AND DELIVERED AT NAIROBI THIS 7TH DAY OF NOVEMBER 2022. D. S. MAJANJAJUDGECourt of Assistant: Mr M. OnyangoMr Kibathi instructed by Kiamah Kibathi Advocates LLP for the Petitioners.Mr Situma instructed by Situma Nyongesa and Company Advocates for the 2nd and 3rd RespondentsMr Odhiambo, Advocate instructed by the Office of the Attorney General for the Registrar of Companies.