AYOUB MTAFYA AND NCBA BANK T LTD MISC

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA (COMMERCIAL DIVISION) AT PAR ES SALAAM MISCELLANEOUS COMMERCIAL APPLICATION NO. 31622 OF 2024 (Arising From Miscellaneous Commercial Cause No. 123 of 2018) IN THE MATTER OF WINDING UP OF EMEC ENGINEERING LIMITED IN THE MATTER OF THE COMPANIES ACT, 2002 IN THE MATTER OF THE COMPANIES (INSOLVENCY) RULES,2005 IN THE MATTER OF AN APPLICATION FOR RELEASE OF CERTIFICATE OF TITLE FOR PLOT NO. 917 BLOCK H, MBEZI MEDIUM DENSITY, DAR ES SALAAM BETWEEN AYOUB MTAFYA (LIQUIDATOR)............................ ...APPLICANT AND NCBA BANK TANZANIA LIMITED.......................... RESPONDENT RULING Date of Last Hearing: 18/12/2024 Date of Ruling: 19/12/2024 MKEHA, J: 1 I P a g e The applicant is moving the court for issuance of an order compelling the respondent to release to him (the liquidator), the original certificate of title in respect of landed property on Plot No.917 Block H, Mbezi Medium Density, Dar es Salaam in the name of EMEC Engineering Limited which is under liquidation. The application is made under section 275 of the Companies Act, Rule 416 of the Companies Insolvency Rules, 2005, section 2(3) of the Judicature and Application of Laws Act and section 95 of the Civil Procedure Code. The Chamber Summons is accompanied with an affidavit sworn by Mr. Ayoub Mtafya, an advocate of the High Court. On the other hand, the application is resisted through a counter affidavit sworn by Ms. Brigitha Mhumba, legal counsel of the respondent who handled various transactions relating to EMEC Engineering Limited. Whereas Mr. Erick Denga learned advocate represented the applicant, Mr. Idrissa Juma learned advocate represented the respondent. From the affidavit supporting the Chamber Summons and the counter affidavit in opposition of the same, the undisputed facts leading to the present application can be summarized as follows: On 28th May 2020, this court appointed the applicant as the Liquidator of the affairs of a company known as EMEC Engineering Limited. Following the said 2 | P a g e appointment, the Liquidator filed a notice of appointment as well as winding up notice at BRELA. He also published the notice of appointment in the Government Gazette and Newspapers. In addition, the Liquidator issued a notice of Liquidation to TRA and the general public. In the notice issued to the general public, the Liquidator asked all the creditors of the company to furnish full details of their claims against the company at an address which was given in the notice by filling and filing Form No. 365a (proof of debt) within 14 days from the date of publication. Following the said notice, a number of creditors lodged Form No. 365a. The respondent was not one of the creditors who lodged the said proof of debt form. After the preliminary steps were completed, the Liquidator started searching for the assets of the company, valuation of the same and advertisements for sale via newspapers and social media. All the creditors including the respondent were fully engaged in the process of searching for buyers. Copies of email correspondences were annexed to the applicant's affidavit as Annexture "AM 3". Engagement of the creditors (the respondent inclusive) to secure buyers of the disputed property did not yield positive results. The 3 | P a g e liquidator opted to sell the property at TZS 710,000,000/=, a price above the property's market value at the time of sale. Upon sale of the property, the Liquidator asked for release of Certificate of Title from the respondent by way of a letter dated 12th August 2024. The respondent refused to release the title on ground that the same would not be released until repayment in full of TZS 978,738,933/=, secured by the disputed landed property. The bone of contention between the parties was on consequences of the respondent's failure to fill and file Form No. 365a. Whereas the applicant held a firm position that for the said failure, the respondent had to surrender the security to share the benefits arising therefrom with all other creditors, the respondent maintained that, at no point in time did the respondent surrender her rights as a secured creditor. The respondent denied the implication asserted by the applicant that, failure to file Form No. 365a discharged EMEC Engineering Limited from its obligation under the Facility and the Mortgage. In view of the position taken by the respondent, being a secured creditor, she was entitled to hold the Title Deed subject of the mortgage until all the outstanding amount is paid in full. 4 | P a g e When the parties were invited to argue the application, Mr. Ayoub Mtafya (the Liquidator) commenced his submissions by adopting his own affidavit and prayers in the Chamber Summons as part of his submissions in chief. He then added that, by the provisions of section 289 of the Companies Act, the winding up order ought to operate in favour of all creditors the respondent inclusive. And that, by the provisions of section 299 of the Companies Act, the Liquidator was entitled to take into custody or control all the properties of the company under liquidation. Therefore, in his considered view, supported by the position of the law, as a Liquidator, he was entitled to take into his custody, the Title Deed subject of the present application. The Liquidator submitted that, by the provisions of Rule 170(1) of the Companies (Insolvency) Rules of 2005, the respondent, for her omission to fill and file Form No. 365a with the Liquidator, was obliged to surrender the security to the benefit of all creditors. According to the Liquidator, the respondent, having consented to the sale, it would be absurd to resist releasing the Title Deed. The Liquidator submitted that, the respondent would be entitled to challenge distribution of sale proceeds, being one of the entitled beneficiaries. The Liquidator added that, having participated in the sale process in which she failed to bring a 5 I P a g e purchaser, the respondent could not be heard asking for a higher price after sale. Mr. Idrissa Juma learned advocate commenced his submissions by adopting the contents of the counter affidavit as part of his submissions. He then submitted that, following his appointment as the Liquidator of the assets of EMEC Engineering Limited, the applicant had a duty of paying off the liabilities of the company under liquidation. The learned advocate submitted that, any mortgaged property ought to be treated as a liability and not as an asset. According to the learned advocate, when mortgage was created over the disputed property, it deprived the right of the mortgagor company over the property. In view of the learned advocate, for the Liquidator to treat the security as an asset, he had to redeem it first. The learned advocate referred to section 121 of the Land Act to drive an argument that, in no way could a mortgage be treated as discharged in the absence of evidence regarding full payment of the debt. The learned advocate went on to submit that, given the fact that the respondent was a secured creditor, sections 289 and 299 of the Companies Act had been cited out of their contextual meaning. 6 | P a g e Finally, the learned advocate submitted that, in any event, it was still open for the respondent to present proof of debt as the proceeds of sale were yet to be distributed. To strengthen his argument, the learned advocate cited the decision in NIWAMANYA ROSELINE VS. HAPPY CHARLES AND FOUR (4) OTHERS, CIVIL SUIT NO 0582 OF 2022, THE HIGH COURT OF UGANDA, COMMERCIAL DIVISION, AT KAMPALA. In the case cited by the learned advocate for the respondent, the High Court of Uganda held that, a creditor may come in and prove at any time before the company is dissolved. Everybody who had a subsisting claim at the time of commencement of the insolvency is entitled to participate in the assets, as long as assets remain unadministered he or she is at liberty to come in and prove his or her claim, not disturbing any former distribution (see In re Metcalfe 1879 (13) Ch. D. 23 and In re Kit Hill Tunnel 1880 (16) Ch. D 590). The penalty of not coming in before the day fixed by the Liquidator is not exclusion altogether, but exclusion from the benefit of any distribution made before proof. Causes of action survive the commencement of insolvency, to the extent of a corporation's undistributed assets. The object of the insolvency 7 | P a H - mechanism is to allow a liquidation to proceed as efficiently as possible rather than to achieve a fair result for each creditor. When the Liquidator rose to rejoin, he condemned the learned advocate for the respondent for failure to cite any law to the effect that, the liquidator ought to have redeemed the security, before treating it as an asset. The liquidator submitted further that, Rule 170 (1) of the Companies (Insolvency) Rules ought to read together with Rule 148 (3) of the Rules. The only determinative issue is whether a secured creditor should surrender his security to the general benefit of all the creditors if he omits to fill and file Form No. 365a with the Liquidator in his proof of debt. Proof of debts in liquidation is dealt with under Chapter 9 of the Companies (Insolvency) Rules, GN. No. 43 of 2005. The procedure for proving debts is specifically explained under Rule 148 of the Rules. The said Rule instructs in part as hereunder: 148 (1) Where a company is being wound up by the court, a person claiming to be a creditor of the company and wishing to recover his debt in whole or in part shall, subject to any order of the court under rule 144, submit his claim in writing to the liquidator. 8 | (2) A creditor who claims is referred to as ''proving ''for his debt; and a document by which he seeks to establish his claim is his ''proof". (3) A proof shall be in the form known as ''proof of debt" whether in Form 365a, or a substantially similar form which shall be made out by or under the directions of the creditor, and signed by him or a person authorised in that behalf Rule 170 (1) of the Companies (Insolvency) Rules is explicit on consequences of omission on part of a secured creditor, to disclose his security in his proof of debt. The Rule is couched in mandatory terms as hereunder: Where a secured creditor omits to disclose his security in his proof of debt, he shall surrender his security for the general benefit of creditors, unless the court, on his application, relieves him for the effect of this rule on the ground that the omission was inadvertent or the result of honest mistake. There was admission in the counter affidavit and the learned advocate for the respondent reiterated that, the respondent had neither filled nor filed Form 365a with the liquidator. In other words, the respondent admitted that there was no proof of debt envisaged under sub-rule (3) of Rule 148 of the Companies (Insolvency) Rules. That being 9 | P a g e the position, it goes without saying that, there was an omission on part of the respondent (secured creditor) to disclose his security as there wouldn't be any such disclosure in the absence of proof of debt as per the mandatory provisions of the law. The net effect of the respondent's failure to comply with sub-rule (3) of Rule 148 of the Rules is to render the security being to the general benefit of all the creditors, the respondent inclusive. In the language of Rule 170 (1) of the Rules, the respondent should surrender the security for general benefit of all creditors. The respondent cannot be relieved with the effect of this rule as he made no application to that effect as it does not seem that the omission was inadvertent or the result of honest mistake. Whereas Mr. Idrissa Juma learned advocate was of a position that the respondent, as a secured creditor, was entitled to continue holding the Title Deed until the outstanding amount is discharged in full, Rule 148 (1) to (3) does not appear to distinguish between a secured and unsecured creditor. Any creditor of a company under liquidation is bound to adhere to the provisions of Rule 148 of the Companies (Insolvency) Rules for proof of his debt. 10 | P a g o The submission by the learned advocate for the respondent that a claim would be presented at any time was not backed up by any statutory provision. The case law cited by the respondent supports the liquidator's position that, even at this stage, the respondent's claim could still be considered but as an ordinary creditor and not as a secured creditor. That is the import of Rule 170 (1) of the Companies (Insolvency) Rules. For the foregoing reasoning, the application is found to be meritorious. The application is consequently granted. I proceed to make an order compelling NCBA Bank (the respondent) to release to the applicant, original Certificate of Title in respect of the landed property on Plot No. 917 Block H, Mbezi Medium Density in the name of EMEC Engineering Limited (under liquidation). No order is made as to costs. It is so ordered. DATED at DAR ESALAAM this 19th day of DECEMBER 2024. C.P. MKEHA JUDGE 19/12/2024 11 | P a g e COURT: Ruling is delivered in the presence of Mr. Makori Lucas learned advocate for the applicant and Mr. Idrissa Juma learned advocate for the respondent. C.P. MKEHA JUDGE 19/12/2024 12 | P a g e