https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12930

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **COMMERCIAL AND TAX DIVISION** **CIVIL SUIT NO. E128 OF 2025** **WAWERU MAINA GITAU (Suing through his Power of Attorney** **VERONICA WANJIKU MAINA)..…………....………………..PLAINTIFF** **VERSUS** **STANLEY KITHIA RIMBERE..…………...….…….….1ST DEFENDANT** **BANK OF BARODA (KENYA) LIMITED………………2ND DEFENDANT** **SIDIAN BANK LIMITED…………………………………3RD DEFENDANT** **YUVI CONSTRUCTION LIMITED……………………..4TH DEFENDANT** **AND** **EQUIPPED TRADING (K) LIMITED………….NOMINAL DEFENDANT** **RULING** 1. Vide a Notice of Motion dated 26th February 2025, the Plaintiff seeks two substantive orders: 2. *A temporary injunction restraining the transfer of funds held in the Nominal Defendant's bank accounts number 958\*\*\*00001355 and 010\*\*\*00737915 with the 2nd and 3rd Defendants respectively* 3. *Leave to institute derivative proceedings on behalf of Equipped Trading (K) Limited*. 4. The Plaintiff's case is that he and the 1st Defendant are equal shareholders and co-directors of the Nominal Defendant. Following the Plaintiff's illness in February 2024, the 1st Defendant allegedly assumed unilateral control of the company's affairs and facilitated an unauthorized transfer of Kshs. 20,095,000/= to the 4th Defendant. The Plaintiff contends that the 1st Defendant has refused to engage him in the management of the company, thereby creating a managerial deadlock and exposing the Nominal Defendant to tax demands and outstanding liabilities. 5. The application is opposed by the 1st and 4th Defendants. The 1st Defendant contends that the application is incompetent and an abuse of court process for non-compliance with Sections 238 and 239 of the Companies Act. He further challenges the Plaintiff's *locus standi*, arguing that the Plaintiff ought to have obtained appointment as Waweru Maina Gitau's legal representative under the Mental Health Act, and disputes the validity of the Powers of Attorney relied upon by the Plaintiff. He maintains that the payment to the 4th Defendant was authorized under the subcontract and was not an unauthorized transfer. 6. The 4th Defendant similarly opposes the application, arguing that the Plaintiff has failed to establish a *prima facie* derivative claim under Section 238 of the Companies Act and has not demonstrated that the impugned conduct falls outside the directors' legitimate business judgment. It contends that the Plaintiff failed to make a prior demand upon the board before commencing the derivative action and accuses the Plaintiff of acting in bad faith and pursuing a personal dispute rather than the interests of the Nominal Defendant. 7. The application was canvassed by way of written submissions. The Plaintiff filed submissions dated 13th June 2025, the 1st Defendant filed submissions dated 12th February 2026, while the 4th Defendant filed submissions dated 4th September 2025. **Analysis and determination**. 1. I have carefully considered the application, the affidavits and the respective submissions by the parties. The application raises two principal issues for determination: 2. *Whether the court should grant leave to pursue a derivative claim.* 3. *Whether an injunction should issue.* 4. According to the Defendant, the suit filed by the Plaintiff is fatally defective in law, incurable and cannot stand in law as it offends the provisions of Section 238 of the Companies Act which expresses that: 5. ***In this Part, 'derivative claim' means proceedings by a member of a company—*** 6. ***In respect of a cause of action vested in the company; and*** 7. ***Seeking relief on behalf of the company.*** 8. ***A derivative claim may be brought only*** 9. ***Under this Part; or*** 10. ***In accordance with an order of the Court in proceedings for protection of members against unfair prejudice brought under this Act.*** 11. ***A derivative claim under this Part may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.*** 12. ***A derivative claim may be brought against the director or another person, or both.*** 13. ***It is immaterial whether the cause of action arose before or after the person seeking to bring or continue the derivative claim became a member of the company.*** 14. ***For the purposes of this Part*** 15. ***Director' includes a former director;*** 16. ***A reference to a member of a company includes a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law.*** 17. A derivative suit is defined to mean proceedings by a member of a company in respect of a cause of action vested in the company and seeking relief on behalf of the company in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company. 18. In the case of **Sultan Hasham Lalji and 2 Others vs Ahmed Hasham Lalji and 4 Others [2014] eKLR**, it was held as follows: **“It is the minority shareholders that are availed to the protection by the exceptions since generally majority shareholders exercise powers of the Company and control its affairs.”** 1. Further, in **Altaf Abdulrasul Dadani Vs. Amini Akberazi & 3 Others, Nairobi (Milimani) HCCC No. 913 of 2002 [2004] 1 KLR 95,**Mwera, J (as he then was) stated as follows: ***“By derivative suits, the minority shareholders (s) feeling that wrongs have been done to the company which cannot be rectified by the internal company mechanisms like meetings and resolutions, because the majority shareholders are in control of the company, come to court as agents of the ‘wronged’ company to seek reliefs or relief for the company itself, all the shareholders including the wrong doers, and not for the personal benefit of the suing minority shareholder(s)…it is a cardinal principle in company law that it is for the company and not the individual shareholder to enforce rights and actions vested in the company to sue for the wrongs done to it…However, if due to an illegality a shareholder perceives that the company is put to loss and damage but cannot bring an action for relief in its own name, such shareholder can bring an action by way of derivative action…mere irregularity in internal running of a company cannot be a basis for one to bring a derivative suit for such can be rectified by a vote/resolution at the company’s meetings…”*** 1. I should first dispose of the 1st Defendant’s contention that the suit is incompetent because leave was not obtained before its institution. In**Isaiah Waweru Ngumi & 2 Others v Muturi Ndung’u[2016] KEHC 3032 (KLR),** the Court expressly held that leave may be granted after commencement of a derivative suit. The filing of proceedings contemporaneously with an application seeking permission does not, therefore, without more, render the suit incompetent. 2. It is common ground that the Plaintiff and the 1st Defendant are the only directors and shareholders of the Nominal Defendant, each holding 50% of its shares. The Nominal Defendant was awarded the construction contract at Mukurwe-ini Technical Training Institute and subcontracted part of those works to the 4th Defendant. 3. The Plaintiff's complaint is that following his illness in February 2024, the 1st Defendant assumed unilateral control and caused Kshs. 20,095,000/= to be transferred to the 4th Defendant on 11th July 2024 without corporate authority. He further complains that the 1st Defendant has declined to engage his appointed attorney, creating a deadlock in management. 4. The Plaintiff has produced earlier cheques demonstrating that payments to the 4th Defendant had previously been authorized by the Plaintiff. At this stage, the Court is not required to make a final finding on whether the payment constituted misappropriation. The inquiry is whether the material discloses a *prima facie* corporate cause of action warranting further investigation at trial. 5. The dispute concerns a substantial payment from the Nominal Defendant's funds and allegations that one of its two directors exercised his powers contrary to the company's interests. If established, such conduct is capable of constituting default, breach of duty, or breach of trust within Section 238(3) of the Companies Act. That is sufficient at this stage, the Plaintiff need not prove the derivative claim to finality. 6. This is not the usual case of a minority shareholder challenging a majority-controlled board. The Nominal Defendant is owned equally by the Plaintiff and the 1st Defendant. Neither enjoys a majority. Once disagreement arose, the company was exposed to a management deadlock. The board consists of only two directors holding equal interests, and the alleged wrongdoing is directed against one of them. It is difficult to see how a board resolution authorizing proceeding against the 1st Defendant could have been obtained without his concurrence. 7. I have considered the allegation that the Plaintiff is pursuing a personal disagreement. There undoubtedly exists a serious disagreement between the two shareholders. That fact, standing alone, does not deprive the proceedings of their derivative character. The material question is whether the wrong complained of is a wrong to the Plaintiff personally or to the company. The impugned Kshs. 20,095,000/= belonged to the Nominal Defendant. Any unauthorized depletion would principally constitute a loss to the company. The relief sought is consequently capable of benefiting the company as a whole. 8. I thus find that the Plaintiff has established the threshold for grant of leave to continue with a derivative suit. *Whether an injunction should issue* 1. The principles governing the grant of an interlocutory injunction are settled. Under **Order 40 Rule 1** of the **Civil Procedure Rules** and the principles in **Giella v Cassman Brown & Co. Ltd[1973] EA 358**, as restated in **Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR**, “an applicant must establish a *prima facie* case, demonstrate that he stands to suffer irreparable injury incapable of adequate compensation by damages and, where the Court is in doubt, show that the balance of convenience lies in his favour.” 2. Although I have found that the Plaintiff has established a *prima facie* case sufficient to sustain the derivative action, that finding does not, of itself, entitle him to an injunction. 3. The injunction sought would restrain all transfers from the Nominal Defendant's two bank accounts and would, in effect, freeze its operations pending determination of the suit. Yet the Plaintiff's own pleadings acknowledge that the company has continuing tax, loan, and contractual obligations. Moreover, the principal transaction complained of the Kshs. 20,095,000/= payment is quantified and, if ultimately found unlawful, is capable of recovery. Beyond that disputed transaction, no sufficient evidence has been placed before the Court demonstrating an imminent risk that the remaining funds will be dissipated. The Plaintiff has therefore not demonstrated irreparable injury within the meaning of **Nguruman Limited** (supra). 4. The balance of convenience similarly weighs against the injunction. Freezing the accounts would potentially prevent the Nominal Defendant from servicing its loan, meeting tax liabilities, and discharging legitimate contractual obligations, thereby exposing the company to greater prejudice. Since a derivative action is pursued for the benefit of the company, an interlocutory order should preserve rather than paralyze its operations. 5. I therefore find that the Plaintiff has not satisfied the threshold for the temporary injunction sought. That prayer is accordingly declined. 6. In the circumstances, the Notice of Motion dated 26th February 2025 succeeds in part. I make the following orders: 1. ***Leave is hereby granted to the Plaintiff to institute and continue the derivative proceedings on behalf of and for the benefit of Equipped Trading (K) Limited pursuant to sections 238 and 239 of the Companies Act, 2015.*** 2. ***The prayer for a temporary injunction restraining the transfer and/or disposal of any sums held in account No. 958\*\*\*00001355 with the 2nd Defendant and account No. 010\*\*\*00737915 with the 3rd Defendant is declined.*** 3. ***The costs shall be in the cause.*** It is so ordered. **RULING** delivered virtually, dated and signed at **NAIROBI** This **13th** day of **August** 2026. **PETER M. MULWA** **JUDGE** **In the presence of:** *Mr. Kibaara* for Plaintiff *Mr. Rotich* for 1st Defendant *Ms. Andere h/b for Mr. Busaidy* for 4th Defendant Court Assistant*: Sharon*