20031218 TZHC Dar es Salaam

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION)

AT DAR ES SALAAM MISC. COMM.CASE NO. 34 OF 2002 IN THE MATTER OF DIESEL & AUTO ELECTRIC SERVICES (DAS) LIMITED AND IN THE MATTER OF THE COMPANIES ORDINANCE CAP.212 OF THE LAWS [Made under section 167 and 169 of the companies Ordinance CAP.212]

RULING KIMARO, J. ' This is a petition in which Mr. Paul Juma Is praying for the following orders: II (a) That DIESEL& AUTO ELECTRIC SERVICES (DAS) LIMITED be wound up. IN THE ALTERNATIVE but without prejudice to the foregoing. (bJ That the Petitioner be paid the value of his 50% equity of the said company. rcJ Any other and further relief(sJ that this Honourable court may deem just. 11 The petition is made under sections 167 and 169 of tt,e: companies ordina.nce, cap.212.· The petitioner is represented by Mr. Ringia, II -11 • 2f,I 11 I ·.Learned .Advocate" from Mr. Nyange and co. Advocates. Mr. I 'Werner ·Alfred·· Werner appeare~I and he is objecting to the r· Kesaria, Learned Advocate. . petition. He· Is represented by Mr. i· .Mr. Paul .Juma ls.. a contributory to DIESEL & AUTO ELECTRIC SERVICES (DAS) LIMITED. He is seekimg for an order for the winding · up of the -company. ·The company was registered on 8th August, 1984 under the companies Ordinahce, cap.212. The company was I . I jointly established by the petitiioner and the objector. The I I grounds upon which the petitioner is seeking for the winding up i are contained In paragraph . 7<c> ofI the petition. Among them ls fraud and carrying on the affairs ot, the company unlawfully. some 1 I, of the grounds are reproduced hereunder:- , I, I " iJ The company's affairs nav~ been conducted without the I petitioner's knowledge

and/or consent, l.e in secrecy I between the co-director Werner Alfred Wolf formerly known I 1, as Abdulaziz Wolf and his single handed appointed II lieutenants. t ii I, riiJ That the said Werner Alfred wolf formerly known as I I Abdulaziz Wolf did forge and/or falsify company I. resolution on the appointment of his child, WOLF ANNE I ALEXA a shareholder and Dirsotor of the said company 1 I with malicious intention1 of reducing the petitioner's ' voting powers and to ultimately kick the Petitioner out iI of the said company. I I, !,, <iiiJ The. .said Werner Alfred Wol(i formerly . known as Abdulaziz ...·.•,· .. : ; .Wolf did unilaterally appoint his said child, who had not 3 attained th_e age of majority as a Director and maliciously conspired to expel the petitioner from the company. That subsequent to the said unlawful appointments the said Werner Alfred Wolf formerly known as Abdulaziz . Wolf and his child purportin.g to constitute a corum of the said company appointed further directors e.g one -Linus \ Dismas Nyoni. Subsequent ·,meetings of the said Werner Alfred Wolf formerly known as Abdulaziz Wolf and the unlawful appointed directors removed the petitioner on the , ( ' company Board of directors 1n furtherance to their acts of isolating the Petitioner from tne affairs of the company. ,. ; iiiJ That the said Werner Alfred Wolf formerly known as Abdulaziz Wolf has

purportedly and unilaterally reduced the shares of PAUL JUMA and Increased his snare to sooo. n The objector who will also be referred to as the respondent, denied. all the allegations and prayed for the dismissal of the petition. ' Four issues were framed for determination by the court, iJ whether ,, or not there has been any fraud committed ' by the objector in relation to the petitioner's share·· · · holding in the company. 1 iiJ What is the percentage of shareholding of the Pf;titioner and objector in .the company. I . 4 , 1i0 . . .w~~fher or not the aiairs of the company were conducted in accordance with the law; JvJ Wh~ther Diesel & Auto Electric services (DASJ should be wound up. In his, f_inal sub.missions Mr. resaria submitted t~at much as fraud was pleaded, no evidence was led to prove fraud. Mr. Ringla I on the other hand submitted that the fraud which ls complained of is not exclusively documentarJ but it is based to a great extent in the whole process and or the donduct of the objector since the I 1 Incorporation of the company. He started with the objector's use 1 :1 1 of the name of . Abdul Aziz arguln. Ig that . It was used at inception as a fictitious name so as to defraud the government as his resld_ence permit then, did not allow him Ito engage in any business other than what he came here for Le an employment with Tanzania . oevelopmen t Finance I . ·ted

(TDFU. L1m1 With respect to Mr. Rlngla, there Is neither pleadings, nor ' evidence led by the petitioner ih relation to the use of the name t 1 Abdul Aziz with his residence pe rmit or employment. Neither was it framed as an issue in this prJceedings. Final submissions must always relate to the pleading's and the evidence which was . .\ . . .. . tendered-. in. 1court. Matters Which were neither pleaded nor litigated upon by· -the court can not be brought into _..the proceedings at final submissions stage. I refer. to the case of • I Vidyrthi V Ram Rakha (19571 EJ 527. He -also challenged the m'anner '. • . 1 in which the I ·. proportion of 1 . ,shar~:- ,. .... ; 8,0I.Gtir,g. ..wa_s . . ·~ . . . , ' dqne sayi 'g that the valuation which was . ' •. ' I I ~ .. 5 ' carried out was .for purposes of Insurance. He further challenged 1- the transfer of shares from the respondent to his daughter as well as the appointment of Mr. Linus Nyonl as a Director. Finally Mr. Ringia questioned the rational~ of raising the value of the additional 3900 shares allotted later, to T.shs 10,0001 = each, while the company was operating profitably, saying that it was an arbitrary decision. After evaluating the evidence, 1 entirely agree • ,I with Mr. Kesaria that everything which has been complained off against the objector was dohe In accordlnance with the Memorundum and Articles of AS$OClatlon of the

company. It was tendered and admitted In court as Exhibit P1. Exhibit P1 shows that at the time of incorporation; the authorized share capital was I T.shs 100,0001 = divided Into 100· shares of shs 10001 = each. The ·' petitioner and the obJector were the subscribing shareholders of one share each. This evidence Is'; corroborated by the company's i first annual return filed with the Registrar of companies. This Is 1, the objector's exhibit D1 at pp ,..65 - 67. The first annual return 1 i' states that the petitioner and the objector were the only shareholders and Directors In- the company when It was ,r' 1 ' incorporated. Only 2 shares oJ.t of the 100 shares had been allotted, one to the petitioner and one the respondent. I. . The position continued until 1987 when a decision was taken 1 r • to make a valuation of the assets of the company and allot more I shares, depending on each shareholder's contribution. The evidence on record. shows that tt:ils was done with full Knowledge of the petitioner. He signed the minutes of the Director's Meeting convened for that, purpose. Th~ meeting was convened on 7tn March, 1987; The objectors exhibit D1 - Minute 9/87 on pg 361 and • • • I 12/87 at pg 366 ' show. that the betitioner was present In those ' 6 meetings and he indeed signed a Resolution which retained 1. Martin Heyman to do the valuation. The allegations made by petitioner on

this point are not true. Subsequent to the valuation exercise a Directors Meeting was convened on 25 th July, 1987 <Exh.D1 pg 367 - 369) where a Resolution was made authorizing the share capital of the company to be increased from shs 100,0001 = to shs 10,000,0001 =. 9,900 additional shares of T.shs 1,000/= each were created. The proposal to increase the company's authorized capable to T.shs 10,000,000/= was made by the respondent and seconded by the petitioner. Minute (6/87 refers>. The petitioner's contribution to the company rose to T.shs 1,oso,0001= while that of the objector rose to T.shs 5,050,000/ =. Shares which were allotted to the petitioner then rose to 1050 and to the respondent 5050. Again, the increase of the share capital and the allotment of 1050 and 5050 shares to be petitioner and the respondent was done in the presence of and with full knowledge of the petitioner. The evidence to support this is his signature to the , minutes of the meeting (Minute 34/87 at pg 368 exhibit D1>. Form No.16 which is the Notice of increase In the Nominal capital filed with the Registrar of companies on 17th September, 1987 and supported by the companies Resolution signed by both the petitioner and the objector, reflect the same shareholding proportion. Even the Annual returns filed with the Registrar of Companies <Pg 86 - 91 of Exhibit D1) reflect the same proportion of share

holding - 1050 (petitionen and 5050 <objector). 7 I What flows-from the proportioh of shares above, is that the initial subscribing shareholding of onb share each changed to 1050 shares of the petitioner and 5050 shares of the objector. This r, change shows that-as far back as 19th, the petitioner was already I a minority shareholder and he was fully aware and participated In 1 the process which changed the poslti :ons. /, Ii I; . As regards the allegation of the appointment of the objector's daughter Alexa as DirectJr, there was no evidence to I prove this. What the evidence show~ Is that the objector gave hfs I daughte~ Alexa so shares In 1996. Nojtraud was committed. Article 33<9) of the company's Article o Association permitted the 1 objector to exercise such a right. The article permits a member to . !' transfer shares to members of the ~amily like a child, son In law, ' daughter in law, father, mother, brother, or sister. There are no • Ii conditions which are attached to the,, transfer. The person who was appolntJ Director was Mr. Linus Nvonl ':1 and the appointment was done In 1988. By then, the obJector was f, I the majority shareholder. He ias entitled to make th:e appointment by . Article 82 (3) ofl: the company's Articles of Association. This appointment Is also;reflected In all annual returns of the company filed with the ReglsJrar of companies since 1988. I ,, r

•·,; Article 82 (3) allows a member ho!d·ing at least 40% shares to . I appoint at leasttwo Directors. At the time of-the apporntment, ' i/ the respondent had more than 40% shares. ~ I' 1: The petitioner. also complaine~.I that the objector appointed his child Wolf Anne Alexa a :shareholder and· Director with . . I n1alicious intention of reducing thi~ petitioner's voting powers 8 - . and: . that-at , .. .. the -time . , , . • •. of the appointment, I Alexa had not attained - the age of the majority. As said earlier, this complaint was not suppSlrted by evidence. The evidence shows that Alexa was not .. appointed a' director. She was only given shares. At the time she . ' , ; ~ was _given shares, sh~ had attained age of majority. The birth certificate of Alexa which was part!I of exhibit D1 shows that Alexa I, .~as born in 1972. In 1996, when she was given the Shares, she was .

24. She was an adult. As shown earlier, article 33 (9) of the Articles _of Association of the company per,titted the objector to give her . I I I' shares. Mr. Ringia relied on the Identity of the objector, that Is the use of the names "Abdul Aziz'' and werner Alfred Interchangeably I to imply fraud. As stated before th',ere was no sufficient evidence to prove fraud In the content In wtntch Mr. Rlngla wants this court I i to believe. No evidence was led toi,, show how the objector came into this country to work with the lDFL and nor was evidence on I the restrictions which were tied i to his employment broug'ht !i before the court. Even evidence connected to the type of residence permit issued to the obj~ctor and conditions applicable I was not brought to court. The objector did explain the circumstances under which he came to use the name of Abdul ' Aziz. According to the objector, it !was his marriage to a Muslim J woman which led him to use the: name. Both names however, are · recprded in the company's Annual ~eturns flied with the Registrar of companies - (Exhibit D1 pages 1~5 - 136, 139 - 140, 143 - 144, 1-47 -148, 151 -157, 155 -156, 159 -160 and 163 -164J

I I I I• Mr. Ringia :did- raise questions !in relation to the valuation of . l • • • • I . i' . the. - .. assets '"-· of the . . . company which. changed the proportion of __ , . ' ,. I 9 shareholding saying that the valuation was done for purpose of .... insurance only and. nothing else. The evidence which is on record is clear. T:here are -minutes of the Meeting of Directors and a resolution .made to change the \ shareholding to which the petitioner was hot only fully aware -of but was also fully involved. ,.. I ' on the basis of the evidence which is on record, I find that there has been no fraud committed by the objector in relation to the petitioner's shareholding In the company. The next Issue Is the percentage of shareholding of the petitioner and the respondent In the company. The analysis of the first Issue simplifies the work involved in answering the second one. The evidence on record shows that as far back as 1987, the petitioner had 1050 shares while the objector had 5050 shares. This status of shareholding continued until June 2002 when a Board of Directors Meeting was convened and a decision taken to allot 3900 unall.oted ordinary shares to the existing shareholders. The decision was taken In order to raise ~,'-- .! additional capital for the company's working capital requirements Instead of seeking for Bank loans. A Resolution was passed <Minute 3/2002) that the

members of the company be offered first priority according .tq each one's shareholding percentage tG subscribe to the said 3900 shares, at a value of 10,0001 = per share. This exercise would have boosted the company's,worklng requirement by T.shs 39,000,000/ =. iI I According to. Mr. Joseph Rutabingwa (DW3) all company ·Shqreholders were .written a letter of Invitation to subscribe to . th:e add_i_t!onal. ~90.0 shares as afore aid. It was further evidence of · ow~ that_ the-petitioner was served and he acknowledged receipt '. ' ' ' ' ' ' t .. (Exh.06 ' -or p 33 - of exh.01). There was no response from the '. ' ' ' i - petitioner; consequently, the 671 shares which were set for the petitioner, Were offered to the pther shareholders <pg 36 of Exh.D1L Minute of the company Meeting held on 28 th Nov, 2002 . confirms the allotment of the dgoo additional shares to the o"bjector and his daughter. Thi shares Certificates for the additional 3900 shares were tendJred and admitted in court as exhibit D7 -(pg 435 & 436 of Exh.D1~. The Minutes of the compa:ny meeting convened on 25th Novem9er 2002 <page 35 of exhibit 01J reflects the allotment. The allotme;~t Is also reflected in Form No.6 filed with the Registrar Of Companies (page 171 - 172 Of Exh.01). . ~ After the allotment of the 39IDO shares, the share proportion ' j of the members; is that, the petitioner has 1oso or 10.5% and

the ' objector and his daughter 8950 or ab.s%. From the analysis given above, the answer to the second I issue is that the petitioner holds 10.p% and the respondent 89.5%. The third Issues Is whether the affairs of the company were .I conducted in accordance with the · law. Mr. Ringla had no comments at all on this submissio~ much as· he had complained bitterly on the--objector's conduct. The objector and his witn sses produced in court the . I company's returns filed with thej Registrar of companies, the minutes. of meetings of the· Directors and shareholders, the . I :_ · .original certificates for the shares, the original Memorundum and 11 I i Articles of AssociatJqn of the compa~y and the company's audited Accounts. i Mr. Linus Dismas Nyoni testifted that he ls the Managing . ' ,1 Director . and an Accountant . . of theI company. He was lawfully appointed a Director under Article 82 <3) of the company's Articles of Association. The transfer of shares from the objector to his . ' . daughter Alexa was in conformity with article 33 (9) of the company's Articles of Association I Mr. Ringia 1 • . associated the ; allotment of the additional 3900 shates in the year 2002 with fraud on the ground that the company ~Id not need any funds from members nor did it need a bank facility because It was generating " great profits and growing steadily) I do not know the basis for I such

argument but I would thln:k that the sustainability and I growth of the company are issues olf management. Persons In the management are the best source f!or an assessment of the best methods which can be used to run the company .. For this reason, 1 I am not in an agreement with the supmission made by Mr. Ringla. I In as far as the evidence is cohcerned, the allotment of the additional 3900 shares was lawfiUI. The petitioner was not I discriminated. He was Invited to bjGy the shares but he did not ,· respond. Everything was done In accordance with what the law I 1 required except for the. transfer of ;the shares from Alexa to Kaoll . I' · because the transfer was done the time when Kaoli had not attained the age of majority. If she was born in 1986, this year she . I . is 17 wl1icl1 is not vet the age of majority. However, this is a matter whl.ch does not affect th~ proportion of shareholding ' :I I between he• petitioner and the objector. ,I 12 Much as the petitioner complained of having been kicked out of Directorsh_ip, there was no evidence to prove that he was kicked out. The petitioner has been a Director from the time the company was incorporated until 2002 when no one proposed him for nomination, not even his own proxy who represented him in that meeting. There is therefore no justification for complaining. The petitioner has also complained that he has not received any

dividend since when the company was Incorporated. The objector and his witnesses admitted that the company has not declared dividend, nor distributed the same. The profit which the company got was reinvested In the company. The operation of the company depends on equity ,and not external loans. Even then, the petitioner admitted that he receives from the company T.shs 125,000/= every week. My assessment of the evidence is that except for the transfer of the shares from Wolf Anne Alexa to Kaoli which was unlawful because it was done at a time when Kaoli had not vet attained the age of the majority, the affairs of the company were conducted in accordance with the laws. Lastly, is the Issue whether or not Diesel and Auto Electric services (DAS) Ltd should be wound up. The petitioner prays that the company be wound up because it is just and equitable to do so. At least this was the issue which Mr. Ringia addressed directly. Mr. Ringia .submitted that It Is just and equitable to have the company be wound up rather than letting one smart shareholder to swindle all profits that were . 13 •- I made and reinvest in a company t rough the petitioner's labour I and skills. He relied on the cases of Daniels vs Daniels and Ernest ' I Andrew Chitalika v Francis Phillip Temba (1996) TLR 287. Mr. Ringia submitted that f om the very beginning, the 1 conduct of the objector cannot be fermed as

anything else other than grossly unfair to the petitioner. Mr. Kesaria for the objector submitted that there is nothing inl the conduct Of the affairs Of - the company which should be consltrued as unjust or inequitable. To the contrary, it would be unjust 1nd inequitable to wind up the company because It Is successful) profitable and .solvent. The petitioner is only a disgruntled sha+holder. He relied on the cases of Re a company Butterworths co,mpany Law case 1985 PP 151 - 163 and Mitha V Mitha 1967 EA 575. Mr. Kesaria submitted furt er that the petitioner is a minority shareholder with only 10.5% while the majority shareholder has 89.5%. The company is hugely successful and It operates branches in oar-es-Salaarrt Mwanza and Arusha. It has a I work force of about 70 workers. It\ is a tax payer and contributes to the National economy by pa:ving taxes of approximately I . 2so,ooo,0001 = per annum. All the ,.se successes are without any 1 ' ·bank loans or borrowing. Mr. Kesar)a is of a view that winding up such a company because of the ·petitioner's grievances which are · ·net justified, would be detrimental to th~f economy of our nation. After having gone throubh the evidence and the submissions by the Advocates, I erltiretv agree with Mr. Kesaria 1. that an order for a vyindlng up of the company would be unjust and inequita~le-under the circumstances of the case. In deed,

ram 14 . "' . vvondering why Mr..,.-Ringia is insisting· that the company should be •· . • , . ~ •• I vy9und up vyhile _th~- _petitioner himself has not done so. Since . ' ·1987, he is a minority ' . . .. . shareholder.': He has never remained an I equal share -with. ttJe objector. It is ~ fact well known to him. He has shown an intention to pull out ·df the company several times , . ' . , r, but he has not been able to make up his mind. Even the company was ready to buy him out but he p~rsisted and came to file this petition. He raised-· quite a numbeir of accusations against the majority shareholder - and almost ;all, I except the one of the I transfer of shares from Alexa to Kaoli (which however was not i even pleaded) were unfounded. .l lI Even the authorities cited b~ Mr. Ringia cannot assist the petitioner in this prayer. In both the cases of Re venidje i. "Tobacco co. Ltd".1916, L.J warring.ton and Daniel v Daniel 1978 Templemen. J. It was· held that an ~order for a winding up by a ', minority share holder will only be is~ued by the court where there '· is no other remedy. Likewise in ·~rnest Andrew Chitalika vs Francis Phillip Tesha It was held t~at an order for a winding up will only issue where the court Is of an opinion that it will be Just r and equitable. \ In the present case, issuing a~ order for the winding up of ', the company will not be just and equitable. It

Is a company which 'I · ·\.,:· '.: is going on well. Winding up the co:mpany is not the only remedy i ' which the .petitioner has. Even the. petitioner himself does not ' support an order for the winding Jp of the company. As he gave ' • 1 ,I his testimony in. cross examination, he 1 said - ' I I, I i I .· .. ' 15 . -. " The company is health and profitable. There are 130 employees. The company has branches in Arusha and Mwanza. The company contributes to the economy of the country. If an assessment is made on how the shareholders can buy off my shares, there is no need for winding up the company. What I need is a fair share." Under the circumstances, I would entirely agree with Mr. Kesaria that it is not just and equitable to order the company to be wound up. It is not the only, remedy which is available to the petitioner. He can sell his shares. Moreover, he has not proved the grounds upon which this petition is founded. In the case of Mitha v Mitha [19671 EA 575 the court he!d that the petitioner failed to . prove that it would be just and equitable to make a winding up order. The petition was dismissed. Likewise, I will order the dismissal of this petition with costs because the petitioner failed to prove that it is just and equitable to give such an order. Mr. Kesaria asked this court not to consider an alternative remedy. I do not consider this to be the best way of

handling this case. I mentioned before that the winding up is not the only remedy which is available. 1 feel duty bound to explain which other remedy is available to the p,etitioner. In his own testimony the petitioner said he would be satisfied if the shareholders can buy him off. What both parties should do under the circumstances is to consider the best way in which the petitioner's shares should be sold. The parties themselves know their interest. With the assistance of their Advocates, they can 16 .. work. out the best- methods in which !the problem .can be solved. VVh~r:e any need arises, they can always seek the help of the court. i: ·, Having said all, the petition is dismissed with costs. I N.P.KIMARO,

JUDGE I r 4,532 - words. , I, I,'