gotham ck mbele vs efatha foundation ltd and another 2020 tzhc 627 31 march 2020

IN THE HIGH COURT OF TANZANIA

DAR ES SALAAM DISTRICT REGISTRY

AT DAR ES SALAAM CIVIL APPEAL NO. 59 OF 2018 (Arising from the judgement and decree of the Resident Magistrates' Court of Dar es Salaam at Kisutu in Civil Case No. 91 of 2014 delivered on 8th December, 2017 by Hon. G J . Mhini SRM) GOTHAM C. K. MBELE................................................... APPELLANT

VERSUS EFATHA FOUNDATION LTD................ 1st RESPONDENT EFATHA BANK LT D ............................ 2nd RESPONDENT

JUDGMENT Date of Last Order: 20/3/2020 Date of Judgment: 31/3/2020 S.M. KULITA, J. This appeal arises from the decision of the Resident Magistrates' Court of Dar es Salaam at Kisutu in Civil Case No. 91 of 2014. In that case the Appellant, Gotham C. K. Mbele sued the respondents, Efatha Foundation Ltd and Efatha Bank Ltd for an order ofset- off of the loan against the 2nd respondent from the 1st respondent and forpayment of the outstanding sum of Tshs. 2,471,785.84 being the balance after the set- off and the costs of the suit. The facts that gave rise to the decree, the subject matter of Civil Case No. 91 of 2014 and consequently this appeal can be briefly stated as follows; The appellant is a shareholder of the 1st respondent holding shares worth Tshs. 125,000,000/= which he purchased by virtual of being the Managing Director of the 2nd respondent. On 4th day of February, 2014 the appellant resigned from employment as Managing Director of the 2nd respondent. However, before resignation, the appellant had obtained a loan facility of Tshs. 122,528,214.16 from the 2nd respondent. It was alleged by the appellant that the 1st respondent was the shareholder of the 2nd respondent thus the two were different but one. On resignation the appellant made it clear that the loan advanced to him by the 2nd respondent be set- off against the monies that he is holding with the 1st respondent

monies for the shares. On a number of times the appellant demanded from the 1st respondent payment of the money for the shares he purchased to be paid to him or to the 2nd respondent to set- off the loan of the appellant but the 1st respondent took no efforts to have the loan set-off against the money that it was holding. The appellant claimed that the loan was of Tshs. 122,500.000/= and his shares were valued at 125,000,000/=. Thus the appellant prayed the shares he owned be used to pay back the loan and the balance be remitted to him. He also prayed for the costs of the suit. In their defense the respondents disputed that Efatha Foundation Ltd and Efatha Bank Ltd are two separate legal entities with different management, rules and regulations and they are not one as alleged by the appellant though Efatha Foundation Ltd is one of the shareholders of Efatha Bank Ltd. The appellant had a loan of Tshs. 122,528,214.16 with Efatha Bank. The appellant did not pay the loan to the Bank. The respondents contended that the shares that the appellant purchased from the 1st respondent according to the loan agreement were not pleaded as security for the loan he obtained and by its nature could not be acted as security as they are transferrable and not negotiable instruments as they fractuate according to the market. The appellant was required sell the shares himself by following the

procedures stated in the memorandum and articles of association of the company and pay the loan owed by him to the Bank together with the interest as the Bank could not take his shares as payment for the loan. Thus the respondents prayed the case to be dismissed with costs. After hearing of the Case the trial Court was of the views that the appellant failed to prove his claims against the respondents on the required standard of balance of probabilities and therefore the case was dismissed with costs. The appellant was aggrieved by the decision of the trial Court hence this appeal which is based on four grounds: 1. The trial magistrate erred in law and in fact in not taking into account that the 1st respondent did not respond to the letter requesting for set-off the loan against the shares held by the appellant with the 1st respondent.

2. The trial magistrate erred in law and in fact in holding that the plaintiff is neither proved nor substantiated claims on the balance of probabilities.

3. The trial magistrate erred in law and in fact in holding that the appellant is not entitled to the order of set-off the loan.

4. The trial magistrate erred in law and in fact by failing to analyze evidence before it. At the hearing of the appeal, the appellant was represented by Daibu Kambo, Advocate while the respondents were represented by Daniel Haule Ngudungi, Advocate. Prior to the hearing date the learned advocates for the parties agreed the matter to be disposed by way of written submissions. The learned counsel for the appellant submitted for the 1st ground of appeal that the appellant in his examination in chief tendered Exhibit P3, a letter requesting for set off the debt against the shares that the appellant holds at the 1st respondent but the 1st respondent did not respond to the letter and the only notice that was brought to the attention of the appellant was that the request was sent to the board of directors of the 1st respondent. The board of directors did not respond to the letter but DW2 in her evidence told the trial Court that the board discussed the matter and decided that the appellant should follow the procedure of disposing shares, but such piece of evidence was not supported by any document. The trial Court did not take into account that the board of directors did not respond to the letter and never addressed as to whether the board had the obligation to respond or not. Had the board of directors responded on the letter, the appellant would have reconsidered other option of

dealing with the shares. On the 2nd, 3rd and 4th grounds of appeal the learned counsel for the appellant argued jointly that the appellant exhibited proofs of shares he was holding with the 1st respondent and 2nd respondent and tendered various share certificates which proved the existence of the shares and the value of those shares. The value of the shares was enough to set off the loan with the 2nd respondent. The trial Court banked on DW1 and DW2 bare words that the board of directors declined set off despite the fact that there were no supporting documents. The learned counsel for the appellant prayed this appeal be allowed with costs. On the other hand, Mr. Ngudungi for the respondents submitted for the 1st ground of appeal that the submission that the trial Magistrate did not take into account the respondents' failure to respond to the appellant's letter requesting for set off of the loan against shares held in the 1st respondent company is out of the question as a matter before the court was whether the shares held by the appellant in the 1st respondents' company was amenable for set off. The appellant's shares held in the 1st respondent company were not at any given moment pledged as security for the loan obtained from the 2nd respondent by the appellant. On the 2nd, 3rd and 4th ground of appeal the learned counsel for the respondents argued that the respondents are not

one in law, they are different companies with separate legal entities despite the fact that the 2nd respondent is a shareholder of the 1st respondent. The appellant was a shareholder of the 1st and the 2nd respondents. The question of set off the loan with the shares the appellant held with the 1st respondent company does not hold water because shares are goods and its value is not static, it changes from time to time based on the viability of the company itself and the market forces. Shares in companies have special forum of how they can be disposed, the procedures are found in the memorandum and articles of association of the company. The appellant brought nothing to the court to suggest whether the course he took was one of the recourse envisaged in the 1st respondents' memorandum and articles of association. Mr. Ngudungi for the respondents urges this court to uphold the findings of the trial court and dismiss this appeal with costs. Upon careful consideration of the evidence on record and the grounds of appeal I am of the view that as the matter before the trial court which is also the matter in question in this appeal is whether the shares held by the appellant in the 1st respondent company was amenable to set-off the loan in the 2nd respondent company. The principles governing set-off is provided for under Order VIII Rule 6 (1) of the Civil Procedure Code [Cap 33 RE 2002]. In order for the person to claim set-of he must prove essential four points which are; 1. The suit must be for the recovery of money.

2. The set-off must be for an ascertained sum of money which is legally recoverable by him from the plaintiff.

3. The amount of the set-off does not exceed the pecuniary jurisdiction of the Court.

4. That both parties fill the same character as they fill in the plaintiff's suit. As to the issue at hand I am going to address the fourth principle of set­ off that both parties must fill the same character. The same character here means that the set -off, like the main claim itself, must be in respect of the same parties, and they must not be totally unconnected claims. In this case the main claim is that the 2nd defendant/respondent owes the appellant Tshs. 122,528,214.16 which is the loan facility the 2nd respondent advanced to the appellant. The appellant is a shareholder of the 1st respondent holding 10,800 shares worth Tshs. 100,800,000/= and also a shareholder of the 2nd respondent holding 1700 shares worth Tshs. 17,000,000/=. Now the appellant claims from the 1st and the 2nd respondents to set-off the loan of Tshs. 122,528,214.16 he obtained from the 2nd respondent. The appellant's counsel submitted that the 1st respondent is a shareholder of the 2nd respondent so they are one. The 1st respondent which is Efatha Foundation Ltd and Efatha Bank Ltd (2nd Respondent) are both legal entities. From the evidence at the trial court it was not disputed that these companies each has its own certificate of incorporation, object and management. The fact that the 1st respondent is a shareholder in the 2nd respondent does not make them to be one. So the appellant's claim that the

shares he is holding from the 1st respondent to set-off the loan advanced to him by the 2nd respondent is totally unconnected claims. The 1st respondent does not fill the same character and is not a party to that claim/loan. The loan agreement was between the appellant and the 2nd respondent. The 1st respondent is a stranger to that agreement and has no obligation to that agreement. No person can be sued on a contract unless he is a party to it. The Board of Directors of the 1st respondent had no obligation to respond to the appellant's letter because the 1st respondent is a privy to the contract between the appellant and the 2nd respondent. On the other hand, from the evidence it was not disputed that the appellant is holding 1700 shares with the 2nd respondent worth Tshs. 17,000,000/=. The amount of the loan owed by the appellant to the 2nd respondent which is unpaid is Tshs. 122,528,214.16. Here there is a relationship of between the two, that is to say both are parties to the loan agreement. There is no evidence that the appellant pleaded his shares he is holding from the 2nd respondent as security for the loan he obtained and there is no agreement or evidence produced by the appellant to pledge his shares as security for the loan he obtained from the 2nd respondent. From the evidence on record, there is no evidence from the appellant that in the Memorandum and Articles of Association of the 2nd respondent to set- off agreement is permissible. There is no evidence that the 2nd respondent's general meeting approved the shares of the shareholders to set-off their debts in the company. From the above findings, I hereby dismiss this appeal with costs. S.M. KULITA

JUDGE 31/ 03/2020