JUSTINE RANGE

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA MUSOMA SUB-REGISTRY

AT MUSOMA MISC. CIVIL CAUSE NO. 8948 OF 2024 IN THE MATTER OF THE COMPANIES ACT, NO. 12 OF 2002

AND

IN THE MATTER OF APPLICATION FOR LEAVE TO PRESENT AN APPLICATION FOR UNFAIR PREJUDICES UNDER SECTION 234(1) OF THE COMPANIES ACT NO.12 OF 2002

BETWEEN JUSTINE MARWA RANGE........................................................... Ist APPLICANT DAVID RANGE BOAZ.................................................................... 2nd APPLICANT AND RANGE BOAZ RANGE................................................................. 1st RESPONDENT JURA TANZANIA LIMITED.......... 2nd RESPONDENT INTERESTED PARTY

RULING OF THE COURT 11/12/2024 & 17/02/2025 Kafanabo, J.: This is an application for leave to institute and prosecute derivative action on behalf of the 2nd Respondent made under section 234(1) of the Companies Act, Cap. 212 R.E.

2002. The application is made by chamber summons supported by affidavits of the Applicants. According to the chamber summons, the Applicants are praying for the following orders: i 1. That this honourable court be pleased to grant leave to the Applicants herein to institute and prosecute derivative action on behaifofthe 2nd Respondent 2. Any other order(s) that this honourable court deems proper to issue for the end ofjustice. The 1st Respondent filed counter affidavits opposing the application and a preliminary objection challenging the competence of the application. However, before the hearing of the application, a preliminary objection raised by the 1st Respondent was withdrawn as its determination would not be without meddling with evidence. It follows that a brief backdrop of the matter as gathered from the record is that the Applicants and the 1st Respondent are the shareholders of the 2nd Respondent. Moreover, the Applicants and the 1st Respondent are also the directors of the 2nd Respondent. It was deposed by the Applicants that the 1st Respondent was a managing director of the 2nd Respondent responsible for operating the daily affairs of the company. However, in an unexpected turn of events in October 2022 the 1st Respondent informed the Applicants orally that he was no longer interested in being a shareholder of the 2nd Respondent, and that he was ready to sell his

shares. It was also averred that the 1st Respondent had formed his company called Ingwe Enterprises Limited which was his focus in business. It is also on record that the 1st Respondent was asked to officiate his decision but he did not, and he also did not cooperate in handing over the affairs of the 2nd Respondent to the Applicants. 2 The facts as deposed in the affidavits also indicate that in the year 2022, the 1st Respondent withdrew TZS 657,100,000/= from the 2nd Respondent's NMB Bank account but were not used to facilitate the business of the 2nd Respondent. It was also stated that the 1st Respondent transferred TZS 52,900,000/= from the 2nd Respondent's bank account to his personal bank account. It was also alleged that the 1st Respondent claimed ownership of the 2nd Respondent's business stock and equipment, a car, and a house located at Plot No. 25, Block L, Nyamwaga Road, and from which the 1st Respondent collected rent without accounting for the same to the 2nd Respondent. It was also further deposed that the 1st Respondent had failed to ensure that the tax liabilities of the 2nd Respondent are honoured and the outstanding tax burden to the Tanzania Revenue Authority is almost TZS 200,000,000/=. As alluded to hereinabove, the 1st Respondent filed counter affidavits challenging the Applicant's depositions as misleading save for the fact that he was a managing

director of the 2nd Respondent until he was fraudulently removed by the Applicants in the year 2022. He also countered the alleged fact that he withdrew money from the 2nd Respondent's account for other purposes at the expense of the 2nd Applicant as deceitful. When the application was called for hearing, the Applicant was represented by Mr. Akram Magoti, Advocate, and the 1st Respondent was represented by Messrs. Emmanuel Mwita and Raphael Lukindi, Advocates. The matter proceeded exparte against the 2nd Respondent as none of the Directors and shareholders were ready to accept the service of this application. When the Court was satisfied that the 2nd Applicant could not be 3 served with the summons and the application, substituted service by publication was ordered and the same was effected. Further, on 11/12/2024 the hearing of the application was ordered to proceed exparte against the 2nd Respondent. In support of the Application, Mr. Magoti commenced his submissions by adopting the affidavits of the Applicants as part of his submissions. He submitted that the conditions for granting leave for instituting a derivative action are provided in section 234(2) of the Companies Act, Cap. 212, R.E. 2002 (hereinafter referred to as the 'Companies Act') which provides for the Court to satisfy itself on the three conditions before granting leave. One is whether the Applicants have

issued notice to other directors of the company, also if the Applicants have demonstrated good faith in bringing the matter to Court. Third, the action intended to be taken is to protect the interest of the company. It was further submitted that apart from the conditions in the statute, there are other conditions which, although used to gauge applications for leave to appeal to the Court of Appeal, provide guidance in this matter. One is if the application has demonstrated arguable or disturbing features that need the directives of the Court. Also, the application for leave may be granted if the Applicants are likely to succeed in the application before the Court, citing the case of Innocent Bisusa v. Rajabu Rashi Mgozi, Civil Application No. 680 of 2021. The Applicants' learned Advocate further submitted that in the present matter, the three conditions as prescribed by law have been met. As regards 4 the first condition of issuance of the notice to the directors, he submitted that paragraph 19 of the affidavit of the 1st Applicant explains that the Applicants issued notice to the 1st Respondent and other shareholders of the 2nd Respondent that they intended to institute legal proceedings, and the notice was attached to the affidavit as annex 'Jura 6'. The notice was issued on 04/08/2023 and it was received by the 1st Respondent on 14th August 2022 and it was replied by a

letter dated 22/08/2023 by Advocate Claudio Msando. The said reply is also part of annex 'Jura 6'. A similar notice was issued to Abdallah Mshuza on 07/08/2023 by advocate Noel. In that respect, the learned counsel submitted that the first condition was met. As regards the 2nd and 3rd conditions, it was submitted that the Applicants have demonstrated good faith and that what they intend to file in Court is in the interest of the company as demonstrated in paragraphs 13, 14, 15, 16, and 17 of the 1st Applicant's affidavit together with paragraphs 8-16 of the affidavit of the 2nd Applicant. It was submitted that those paragraphs showed that the 1st Respondent being a managing director of the 2nd Respondent had been using properties of the company for personal gain. The properties mentioned include a car, money, and a house. Moreover, the 1st Respondent had withdrawn money from the 2nd Respondent's bank account for personal use. The same paragraphs indicate that the 1st Respondent opened another company by the name of Ingwe Enterprises Limited which conducts the same business as that of the 2nd Respondent and by using the same premises as that of the 2nd Respondent. 5 The Applicants' counsel also submitted that the Applicants have demonstrated an arguable case as there are disturbing features in the present application as demonstrated in the referred paragraphs of the affidavits

supporting the application and which are objected to by the Respondent. The opposition of the said features by the 1st Respondent shows that the guidance of the Court is necessary as far as the affairs of the company are concerned. Further submission was that the Court also be pleased to consider the contents of the counter affidavits in paragraphs 4, 5, and 6 which show that the guidance of the Court is necessary. It was prayed that the application be allowed with costs. Responding to the submissions by the Applicants' counsel Mr. Mwita, initially prayed to adopt the affidavits of the 1st Respondent as part of his submissions opposing the application. He, at the outset, submitted that the present application has not met the conditions of the law as required by section 234(2) of the Companies Act which requires the fulfillment of the three conditions before the present application may be granted. The learned counsel submitted that the first condition is about notice to the directors of the 2nd Respondent and whether the notice was according to the law. In the memorandum and articles of association of the 2nd Respondent attached to the application, the directors mentioned include the Applicants, the 1st Respondent, and John Boaz Range. However, no notice was issued to John Boaz Range. It was further argued that even paragraph 19 of the affidavit of the 1st Applicant avers that

notice has been issued to the 1st Respondent and other shareholders for the intention to apply for leave. In the said paragraph there is only one notice of the 1st Respondent 6 which has been attached and none other. This is contrary to section 234(2) of the Companies Act. The notice which is issued by the shareholders to the Directors is very specific requiring the directors to take action. It was also argued that a derivative action is applicable when the cause of action calls for the minority shareholders to take action. The minority is given the right to protect the interest of the company when there is abuse in the management of the company by the majority shareholders. Moreover, it was submitted that attachment 'Jura 6' is the notice addressed to the 1st Respondent. It is a notice of 14 days to petition the High Court for unfair prejudice which is covered under section 233 of the Companies Act which is different from derivative action. It was also the 2nd Respondent's counsel submission that in the Memorandum and Articles of Association (hereinafter referred to as the 'MEMARTS') of the 2nd Respondent, the company has four (4) shareholders and all of them are directors, and two directors are the ones who have brought this matter to Court. The said directors have not stated anywhere in their affidavits that they have attempted to resolve the dispute by using the mechanisms

within the company. The company is not run by Court orders but by meetings within the company. It was also submitted that this Court has no jurisdiction to determine this dispute given that the majority and minority rule in the management of the company has not been considered by the Applicants. The Court may come in only if that stage has been considered and pursued by the company. Thus this action will only be tenable if the conditions set in the case of Mohamed Abdillah Nur & Others vs Hamad Masauni & Others (Civil 7 Appeal No. 630 of 2023) [2024] TZCA 129 (26 February 2024) have been met. It was further clarified that in the said case, the Court observed that this kind of application can only be entertained if the Court is satisfied that it is a derivative action and the Applicants have given reasonable notice for the purpose. This will help the court to screen and mirror the vexatious and frivolous claim. In this company, the Applicants who are majority shareholders have no remedy under the derivative right. The 1st Respondent's counsel also submitted that the allegations of mishandling the properties of the company and forming a new company have no basis. Also in the affidavit of the first Applicant, it is stated clearly that the 1st Respondent withdrew from managing the company, but in both affidavits of the Applicants there is no deposition that the board of

directors or the Applicants are unwilling to pursue the interest of the company, and there is no effort which has been taken to ensure that the company as a legal person takes action. It was also argued that the absence of the effort of the company to take action on the alleged abuse ousts the mandate of this Court to intrude into matters of corporate governance of the 2nd Respondent. This also protects the board of directors from harassment on matters within their jurisdiction and protects the interest of the company against unscrupulous directors who cloths the company their interest. Further, it was submitted that when the 1st Respondent was alleged to have misused the 2nd Respondent's finances in the year 2022, the 2nd Applicant had received TZS 49 Million in his personal account. Also, Douglas 8 Justine the son of the 1st Applicant had received TZS 20 Million from the 2nd Respondent. The transactions were done on the 2nd Respondent's bank account maintained at the CRDB Bank and received by the Applicants in their personal accounts. All this money was being paid by Cheque from the 2nd Respondent's account. The statement of account shows that money was withdrawn by the 2nd Respondent, not the 1st Respondent and the Applicants admitted to having signed cheques in paragraph four of the affidavit. It was thus submitted that the Applicants' allegations of blank cheques was a

kick of a dying horse. Mr. Lukindi, also opposing the application for the 1st Respondent, submitted that he who comes to equity must come with clean hands. Section 234(2)(b) of the Companies Act requires good faith which could be determined by examining the depositions of the Applicants' affidavits. Mr. Lukindi also submitted that paragraphs 4, 12, and 13 of the affidavit of the 1st Applicant are about the withdrawal of the money from the 2nd Respondent's account. The good faith of the Applicants is questionable because the Applicants attached a statement of one bank account of NMB, but annex 'Jura 5' which is a report of the TRA, indicates that there are two accounts of the 2nd Respondent, one maintained at CRDB bank and another at NMB bank. It was submitted that a statement of the 2nd Respondent's account maintained at the CRDB bank is attached to the counter affidavit, and which shows that the Applicants were involved in the transactions of the company and thus they were active in the operations of the company. It was thus argued that the Applicants' depositions in the affidavit do not reflect good faith required by law. 9 Furthermore, it was argued that paragraphs 9 and 11 of the affidavit of the 1st Applicant show that the 1st Respondent has been using the office premises of the 2nd Respondent. This is contrary to annex 'Jura 6' which indicates that the premises of Ingwe

Enterprises Limited are near the offices of the 2nd Respondent. The said annex also shows that the Applicants requested the 1st Respondent to remit TZS 710,000,000/= which is different from what is pleaded in paragraph 12 of the 1st Applicant's affidavit and paragraphs 11 and 12 of the 2nd Applicant's affidavit. It was further submitted that paragraph 18 of the 1st Applicant's affidavit shows that the 2nd Respondent owes the Tanzania Revenue Authority's outstanding taxes from 2021 to 2023, the time when the Applicants were part of the company and were conducting the transactions, and thus the Applicants were operating the company. Further argument was that the case of Innocent Bisusa (supra) cited by the Applicants' counsel is distinguishable from the present case because it was about a different procedure and a different law on appeals to the Court of Appeal. Moreover, article 36 of the 2nd Respondent's MEMARTS is about passing resolutions in matters of presentation of negotiable instruments. In paragraphs 3 and 4 of the 1st Applicant's affidavit, there is no attachment of a resolution passed by the company allowing the monetary transactions which means that the Applicants signed the cheque themselves. He prayed the matter be dismissed. In rejoinder submissions, Mr. Magoti submitted that the submissions of the Respondent's advocates have gone to the details of the matter as

if the main application is argued. The arguments of the 1st Respondent's io counsels would have been relevant if leave had been granted. The issue of withdrawal of money as demonstrated by the advocates of the Respondents are matters relevant in determining the application on merits not at this stage of leave. It was further argued that submissions by the advocates for the 1st Respondent are statements from the bar they are not in the counter­ affidavits of the 1st Respondent contrary to the trite law that parties are bound by their pleadings. On the issue of notice, it was submitted that the notice was issued to all the directors. It is not in dispute that the 1st Respondent has been served with the notice. The learned counsels argued that the notice issued is of unfair prejudice, but the application is for derivative action hence two different and unrelated aspects. He submitted that the words in the notice may not carry the interpretation of the Respondent, but the court may be satisfied that the proper notice was issued. Notwithstanding the words used in the notice, the Court may be satisfied that the notice has been issued properly. What is contained in the notice is the art of writing taking into account that there is no prescribed form for the said notice. It was further submitted that the notice was made under section 234(1) of the Companies Act which clearly provides

for what was intended by the Applicants and thus the notice was issued according to law. As regards the issue of notice to John Boaz Range, paragraph 6 of the counter-affidavits opposing the affidavits of the 1st and 2nd Applicants is relevant. In the said paragraph 6 of the counter-affidavits, the 1st Respondent is dissatisfied with the removal of the John Boaz Range as a director and the introduction of Abdallah Mshuza. This shows that the 1st Respondent is aware that John li Boaz Range was not a director. The removal of director John Boaz Range is not a matter for this Court to decide at this stage, but the notice was issued to Abdallah Mshuza according to law. Moreover, the issue of whether the Applicants are the majority shareholders is premature to be determined at this stage. At this stage of the application for leave, it is sufficient to establish that the conditions for issuing the same have been met. Also, section 234 is about a person who is interested in a company and not a minority or majority shareholder. It was thus submitted that the conditions for granting leave to the Applicants have been met and the application be allowed with costs. Having heard the submissions of the parties, it is now fitting for this Court to determine the merits of this application. As indicated earlier, this is an application for leave to institute and prosecute derivative action on

behalf of the 2nd Respondent (hereinafter referred to as the 'Company'.). The Application is made under section 234(1) of the Companies Act and the conditions to be satisfied in order to grant the same are provided for under section 234(2) of the same Act. For ease of reference, the said section 234(1) is reproduced herein below, as follows: "Subject to subsection (2), a person (the "applicant”) may, for the purpose ofprosecuting, defending or discontinuing an action on behalf of a company, apply to the court for leave to bring an action in the name and on behalf of the company or any of its subsidiaries, or intervene in an action to which any such company or any of its subsidiaries is a party. 12 In light of the above section, subject to the conditions prescribed under section 234(2) the law entitles any interested person to apply to the Court for leave to bring an action on behalf of the company, that is a derivative action. The law does not qualify that the Applicant should be a minority or majority shareholder in order to be able to apply for leave. The law also does not prohibit a majority shareholder from applying for leave under the above section. This means the 1st Respondent's counsel's submission suggesting that only a minority shareholder could invoke the provisions of section 234(1) is unfounded and has no basis in law. Moreover, in the case of Mohamed Abdillah Nur

& Others vs Hamad Masauni & Others (supra), the Court of Appeal cited two conditions to be met for the application for leave to be granted. The Court held that: "In our view, since a suit for derivative action in terms of section 234 (1) of the Companies Act is preceded by leave of the trial court, then in the course of granting that leave, the granting court obviously has to determine the existence of two legal requirements. One, that an action preferred is indeed a derivative action and two, the applicant has given a reasonable notice for the purposed Additionally, a derivative action is defined as follows: "a suit brought by a shareholder on behalf of a corporation or by a member on behalfof an association to assert a cause of action usually against an officer which the corporation or association has itself failed to assert for its injuries." 13 (See Merriam-Webster.com Legal Dictionary, Merriam-Webster, https://www.merriam-webster.com/legal/derivative%20action. Accessed 17 Feb. 2025). In light of the above, there is no glimmer of doubt that the Applicants, irrespective of their stake in the Company, and so long as they are members of the company, are entitled to invoke the provisions of section 234(1) of the Companies Act. Moreover, the 1st Respondent's Counsel submitted that this Court's jurisdiction is ousted because the Applicants did not explain in their affidavits if

the internal mechanism of the company under the governorship of the Board of Directors had failed to resolve the parties' differences to the extent of filing this application. It is noted that the learned advocate's submission was not based on any provision of the law, and no authority was cited in that respect, it was a mere submission not backed by law. It is also vital to point out that even the 2nd Respondent's MEMART does not contain a clause that bars its shareholders and/or directors from instituting legal proceedings before exhausting the alleged and undocumented internal dispute resolution mechanisms. Besides the depositions of the Applicants in paragraphs 7, 8, and 9 of the affidavits in support of the application indicate that the 1st Respondent did not officiate his decision of not being interested in the affairs of the company and did not handover the properties and affairs of the 2nd Respondent. Likewise, paragraph 6 of the 1st Respondent's counter affidavits indicate that there had been a series of disputes between the directors and shareholders of the company. This means that it was difficult for the parties' 14 differences to be resolved internally through meetings and resolutions as the 1st Respondent's counsel would wish the same to be. In light of the above, it is undoubtedly clear that the Applicants were entitled to invoke, as they did, the provisions of

section 234(1) of the Companies Act applying for leave to institute legal proceedings on behalf of the Company given the circumstances surrounding the operations of the Company. It is also clear that the Company (shareholders and/or the Board of directors) could not make a resolution for purposes of asserting the cause of action against the director and/or shareholder of the company. Next for consideration are the provisions of section 234(2) of the Companies Act which provides for necessary conditions to be met before an application for leave to institute legal proceedings on behalf of the company is granted. The said section reads as follows: "(2) No action may be brought, and no intervention in an action may be made under subsection (1) unless the court is satisfied that- (a) the applicant has given reasonable notice to the directors of the company or its subsidiary ofhis intention to apply to the court under subsection (1) if the directors of the company or its subsidiary do not bring, diligently prosecute or defend, or discontinue, the action; (b) the applicant is acting in good faith; and (c) it appears to be in the interests of the company or its subsidiary that the action be brought, prosecuted, defended or discontinued." 15 In light of the above provisions, three prerequisites are key in the determination of the application for leave. First, is the reasonable notice

to the directors of the Company to be issued by the applicant, that the applicant is acting in good faith and it is in the interest of the company that the action be brought on its behalf. In line with the statutory order of the conditions, this Court commences with the issue of notice to the directors which was highly contested by the parties. According to the affidavit of Justine Marwa Range, the 1st Applicant herein, the notice in compliance with section 234(l)(a) of the Companies Act was issued to the 1st Respondent as a director and other shareholders of the Company. The notice was attached to the 1st Applicant's affidavit as 'Jura 6'. The documents comprising 'Jura 6' are as follows: i. A letter (notice) dated 04/08/2023 with reference No. Afro/23/Vol.l/17 written by Advocate Noel Edward Nkombe on behalf of the Applicants to Range Boaz Range (the 1st Respondent herein) regarding misappropriation of the Company's finances and properties and intention to petition to the High Court for remedy. Notice was made under section 234(1) of the Companies Act. ii. A letter (notice) dated 05/08/2023 with reference No. Afro/23/Vol.l/18 written by Advocate Noel Nkombe on behalf of the Applicants to Abdallah Mshuza on intention to apply for leave to institute and prosecute derivative action on behalf of the Company against the 2nd Respondent. Notice was made under section 234(1) of the

Companies Act. 16 iii. A letter dated 22/08/2023 with reference No. MLO/RBR/DL/2023/08/22 written by Advocate Claudio Msando on behalf of the 1st Respondent herein responding to the Applicants' notice dated 04/08/2023. The 1st Respondent's Counsel challenged the notice to the 1st Respondent as nothing amounting to the notice required by law because it was for the Applicant's intention to petition the High Court for unfair prejudice, not for derivative action. However, as rightly argued by the Applicants' counsel the said notice was proper because it cited the relevant provision of the law under which it was made and that there is no prescribed format for the said notice under the relevant law. Moreover, if the 1st Respondent had doubts on the contents of the notice then he should have consulted the law in respect of which the notice was made. It is also an observation of this Court that choice of words especially on the title may not be a determinant factor on the purpose of the notice if the contents and substance of the notice are self-explanatory. The substance of the notice to the 1st Applicant was sufficient to enable the 1st Respondent to understand the intention of the Applicants and the reasons for the same. It follows that this Court is of the view that the Applicants issued a proper notice to the directors of the Company as required by law for the

following reasons: a. Apart from the Applicants, there were other two directors of the company namely Range Boaz Range (the 1st Respondent) and Abdallah Mshuza. Both were given notices under section 234(1) of the 17 Companies Act and the substance of the said notices was clear on the purpose and reason thereof. b. Both notices were received by the said directors and the 1st Respondent even replied to the notice. c. For purposes of notice to institute legal proceedings on behalf of the company, the said notices were sufficient and thus the 1st Respondent's dissatisfaction with the title of the notice is unfounded. d. The issue that there was no notice issued to John Boaz Range, the alleged director of the Company is out of place because the 1st Respondent's counter affidavits in paragraphs 6 and 7 of both counter affidavits, the 1st Respondent deposed that the said John Boaz Range was deregistered from the company after his shares were fraudulently sold by the Applicants. This shows that the said John Boaz Range was, on the face of the record, neither a shareholder nor a director of the company, and thus a notice to him could serve no purpose. The issue of whether his shares were properly sold and transferred cannot be determined at this stage and is not the subject matter of this application. Moving to the second condition, that is whether the Applicants are acting in good

faith, the 1st Respondent's learned counsels strenuously argued that the said condition has not been established by the Applicants because they were also involved in misappropriating the funds of the Company deposited in the Company's bank account maintained at the CRDB Bank and the Applicants did not attach the said statement in the application for leave. They also argued that the depositions in the affidavits supporting the application 18 on the premises of the Ingwe Enterprises Limited being the same as those of the Company, the 2nd Respondent, contradicts the notice attached to the affidavit as 'Jura 6', which shows that the said Ingwe Enterprises Limited is located nearby the 2nd Respondent's premises. Determination of the issue of good faith goes down to whether the Applicants' claims are true, or the Applicants believe the same to be true to justify the course they have taken for purposes of furthering the business of the company. At this stage, the issue of good faith can only be determined by examining the contents of the affidavits and none other. The affidavits of the Applicants raise serious concerns about the manner in which the affairs of the company are managed showing that they (Applicants) are concerned and disturbed with the state of affairs of the company which if not timely rescued would be disastrous to the members of the company and other third parties.

The Applicants' apprehension in not seeing the Company they invested in plunges into a catastrophic state of affairs demonstrates their good faith in preferring this application. The submissions by the 1st Respondent's counsels on misappropriation of the Company's finances by the Applicants are unreliable as a basis to demonstrate the Applicants' alleged mischievousness. This is because the allegations come from the bar as the counter affidavits did not specifically depose the said misappropriation of funds as the said Company's statement of account from the CRDB Bank was simply attached to the affidavit without specific particulars and depositions in that respect. It is trite law that parties are bound by their pleadings, see the cases of James Funke Gwagilo vs. Attorney General [2004] TLR 161 and Olorubare Nginyu vs Kilempu 19 Kinoka Laizer (Civil Appeal No. 416 of 2021) [2024] TZCA 598 (18 July 2024). Further, the allegations from the bar, if for the argument's sake are considered, are simply allegations that do not refute the Applicants' reasons or grounds for the Application. Instead, they fuel the burning fire amongst the directors and members of the company justifying the Court's intervention in resolving the wrangles within the company. Under the circumstances, this Court finds that the Applicants have demonstrated good faith in this application for leave. The remaining

condition is whether the Applicants have demonstrated that it is in the interest of the Company that the action be brought and prosecuted on behalf of the Company. In light of the depositions of the Applicants in paragraphs 6, 7, 8, 12, 13, 14, 16, 17, and 18 of the affidavits in support of the application, read together with paragraphs 5, 6, 7, 8, 9, 10, 11,12 and 13 of the counter-affidavits of the 1st Respondent, demonstrate that it is in the interest of the company that the action be brought and prosecuted for and on behalf of the company. This Court has arrived at such a decision for the following reasons: i. The affidavits and counter-affidavits have revealed that the directors of the company cannot work in harmony as the engine and brain of the Company (the 2nd Respondent). ii. The directors have no confidence in each other as regards finances and properties of the company which are supposed to be under the care of the board of directors which practically is non-existent. 20 iii. The board of directors is practically shattered into pieces as none is ready to cooperate for the benefit of the company. This was further evidenced by the fact that none of the directors or officers of the company was ready to accept the service of any document relating to this application for and on behalf of the company. Service to the Company had to be effected by substituted service through

publication. iv. There is a serious dispute as to who are the valid shareholders and directors of the Company thus creating a hurdle towards achieving the objectives of the company. v. The Applicants and the Respondents exchanged blameworthiness as regards the alleged fraudulent financial transactions on the Company's bank accounts. vi. The above factors, cumulatively, demonstrate that obtaining action from the corporate directors or the company itself was far from possible and there is no suggestion that the application is collusive. The above, though not exhaustive, shows that it is reasonable if leave is granted for the purposes of allowing the action to be brought and prosecuted on behalf of the Company in resolving the misunderstandings amongst the shareholders and the directors. It is a further view of this Court that the conditions as stipulated in section 234(2) of the Companies Act and as further explained in the case of Mohamed Abdillah Nur & Others vs Hamad Masauni & Others (supra) have been met. 21 At this juncture it is also important to point out that the case of Innocent Bisusa v. Rajabu Rashi Mgozi, (supra) cited by the Applicants' counsel is distinguishable from the circumstances of the present case, taking into account that it was about the application for leave to appeal whose disturbing features could be easily noted in the proceedings of the Court. Further,

at this stage of the application, it is impossible to determine whether the Applicants stand a chance to succeed in the application they intend to file. In light of the foregoing, the application is allowed and leave to institute and prosecute derivative action on behalf of the 2nd Respondent is hereby granted to the Applicants. Given the nature of the application and the parties involved, each party shall bear their costs. The ruling was delivered in the presence of Mr. Akram Magoti, Advocate for the Applicants, and in the presence of Mr. Akram Magoti, Advocate holding the brief of Mr. Raphael Lukindi, Advocate for the 1st Respondent, and in the absence of the 2nd Respondent. * K. I. Kafanabo Judge 17/02/2025 22