MCA NO

IN THE HIGH COURT OF TANZANIA (DAR ES SALAAM SUB-REGISTRY)

AT DAR ES SALAAM MISC. CIVIL APPLICATION NO. 25790 OF 2023 (Arising from Sinza Primary Court in Civil Case No. 259 of 2020) MASATU MANYAMA …….………………………………………….………. APPLICANT

VERSUS MADISON PROPERTY LIMITED…………………...................... 1ST RESPONDENT SEMELA LUKAGO MADULU ………………………………..………. 2ND RESPONDENT DICSON JACOB SANGA ………………………………………..…... 3RD RESPONDENT

RULING 16th & 31st July, 2024 BW EGOGE, J. The applicant above named has instituted an application herein praying this court to lift the corporate veil of the 1st respondent who is the judgment debtor and order the arrest and detention of the 2nd and 3rd respondents who are directors of the 1st respondent for neglecting to satisfy the decree 1 of TZS 17,190,000/= entered by the Primary Court of Sinza in favour of the applicant. This application is brought under section 15(1) of the Companies Act [Cap. 2 R.E 2002] and sections 38(1), 42(c) (e), 44(1), (c), 68 (e), 95 and Order XX1, rules 9, 10(2)(j)(iii), 28, 35(1) (2), 36 and 39(2)(b)(d) of the Civil Procedure Code [Cap. 33 R.E. 2019]. The application is supported by the affidavit of the applicant herein. Briefly, the factual background of this matter as depicted from the pleadings filed hereto is as follows: On 14th April, 2020, the applicant entered a sale agreement with the 1st respondent over a plot of land located at Plot. No. P18579 at Madale area, Kinondoni Municipality. The applicant deposited the purchase price into the 1st respondent's account to the tune of TZS 20,190,000/= as agreed. The 1st respondent covenanted to effect the transfer of title within three months. However, the 1st respondent failed to discharge her contractual obligation. In the process of following up, the applicant had several meetings with the

3rd respondent herein who is the director of the 1st applicant. The same enlightened the applicant that the transfer could not be effected due to a change of survey plan on the said plot of land; hence, the applicant is at liberty to choose to be offered a new 2 plot or a refund of his purchase price. The applicant opted for a refund of his purchase price. The same was to be refunded the whole purchase amount within 14 days from 17th July, 2020. However, the 1st respondent refunded the applicant TZS 3,000,000/= only. The applicant opted to commence proceedings in the Primary Court of Sinza against the respondents, claiming the outstanding amount of TZS 17,190,000/. The judgment was entered in favour of the applicant. During the execution of the decree, the respondents prayed to pay the outstanding amount in instalments. However, they failed to honour their promise. And the attempt to execute the decree proved futile as the applicant found no property belonging to the applicant for attachment to satisfy the outstanding decretal amount. Hence, this application. In substantiating the application herein, Mr. Mbuli submitted for the court to lift the corporate veil and hold the directors or shareholders liable for the act of the company in their personal capacity, the applicant is obliged to demonstrate that the directors and, or shareholders acted dishonestly and shielded

themselves under the principle of the corporate veil. The counsel cited the case of Saguda Magawa Salum & Others vs. Nam Company Limited & Another (Civil Application No. 34 of 2021) [2022] TZHC 12907 3 wherein the court stated: "……… since the company acts and transacts its business through its directors and since the second respondent was one of the directors responsible for the decree which has yet to be honoured; the court cannot permit the director to use shield and hide under the corporate veil to avoid legal obligation as the director who was responsible for the contract." In the same vein, the counsel submitted that the facts adduced in paragraphs 6 to 15 of the supporting affidavit, demonstrate that the 2nd and 3rd respondents herein who are the directors of the 1st respondent are acting dishonestly and deliberately neglecting to satisfy the decretal sum since 2021 to date. The counsel opined that the 2nd and 3rd respondents’ actions imply that they are using the doctrine of corporate veil as a shield for their dishonest acts. Further, the counsel enlightened this court that the respondents have relocated to an unknown place and changed their physical address; hence, the decree of the trial court cannot be executed. Therefore, the counsel opined that it is in the interest of justice that the application herein for lifting 4 the corporate veil of the 1st respondent and

order the arrest and detention of the 2nd and 3rd respondents as civil prisoners be granted. Ab initio, I find it pertinent to restate that from the date of incorporation, the company becomes a separate legal entity from its members whereas the same acquires legal personality with the capacity to sue and be sued in its name, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up, in terms of the provision of section 15(2) of the Companies Act [Cap. 212]. Thus, the director(s) of the company cannot be held liable for the actions of the company. However, in some circumstances, the court is empowered to lift the corporate veil and find the managing directors liable for the acts of the company. Such circumstances, among others, encompass a fraudulent and dishonest use of the legal entity and, or employing the entity to defeat public convenience. In such circumstances, the individuals concerned will not be allowed to take shelter behind the corporate personality in what in law is known as lifting or piercing through the corporate veil [Solomon vs. Solomon & Co. Ltd [1897] AC 22]. The reason is not far to see, though the company has a separate legal personality from its directors/shareholders, 5 still, it remains under the operation of the very people who created and reap benefits from the same. In our

jurisdiction, the procedure to commit the judgment debtor as the civil prisoner is governed, among others, by Order XXI, rules 28,35 (1)(2),36(b) and 39(2)(b)(d) of the Civil Procedure Code. Thus, for the grant of prayer of arrest and detention of judgment debtor, the conditions set by the law mentioned above have to be established. See the case of Sac Profit Emerge Limited vs. Contract International Limited, Commercial Case No. 30 of 2012 (unreported) in this respect. In the same vein, pursuant to Order XXI, rule 39(2)(b) of the Civil Procedure Code, the applicant is obliged to prove the concealment and, or bad faith on the part of the judgment debtor for grant of arrest and detention. See also the cases of Grand Alliance Limited vs. Mr Wilfred Lucas Tarimo & Others (Civil Application No. 187/16 of 2019) [2020] TZCA 191; Yusuph Manji vs. Edward Masanja & Abdallah Juma (Civil Appeal No. 78 of 2002) [2008]; and TZCA 83 ABS Tanzania t/a Hyatt Regency DSM vs. Wicliff Shilaho & Martin, Commercial Case No. 82 of 2017 HC (unreported) in this respect. 6 Hence, the applicant herein is obliged to substantiate the alleged concealment and, or bad faith on the part of the respondent’s directors/shareholders beyond mere accusation of default or indifference to pay. Simply stated, the applicant is required to satisfy the court in that the respondents have had the ability to pay but they have

improperly avoided or postponed doing so or otherwise dishonestly committed acts of bad faith in respect of their assets. It is deposed in the supporting affidavit that the applicant searched the details of the 1st respondent herein and found that the directors in control of the 1st respondent are the 2nd and 3rd respondents herein. That the 2nd and 3rd respondents herein fraudulently, induced the applicant to purchase the plot of land of which, to their knowledge, it was non-existent. That the 2nd and 3rd respondents herein employed the company to commit fraud and caused the applicant to suffer monetary loss. It is an uncontroverted fact that the respondents were ordered by the trial court to pay the applicant the decretal sum of TZS 17,170,000/= within 30 days from the date of judgment on 10/11/2020. The respondents neither appealed against the judgment of the trial court nor complied with an order 7 to satisfy the decree though their prayer to pay by instalments was granted. It has been alleged by the applicant that the respondents have vacated their office and relocated to an unknown place. And the attempt to trace the 1st respondent’s properties for attachment has proved futile. Having considered the deposed matters in the supporting affidavit and submission made by the applicant’s counsel, I am satisfied that the 2nd and 3rd respondents herein purported to sell a surveyed

piece of land to the applicant of which, in the circumstances, it was non-existent. The fact that the 2nd and 3rd respondents purported to refund the applicant his purchase money, but reimbursed him TZS. 3,000,000/= only out of TZS 20,190,000/= paid as purchase price; and now vacated their premises and relocated to an unknown place, whereas there are no traceable properties of the company, the decree issued by the trial court is likely to be rendered nugatory to the detriment of the applicant. I agree with the applicant in that the 2nd and 3rd respondents employed the company to unjustly enrich themselves. The same should not be allowed to shield under the corporate veil in avoiding the legal obligation to make restitution for the monetary loss suffered by the applicant. 8 Thus, I find that the applicant has demonstrated that the failure to pay the decretal sum on the part of the respondents herein was instigated by bad faith to warrant grant of order for the arrest and detention of the 2nd and 3rd respondents as civil prisoners. Given the foregoing, I find the application herein meritorious. I hereby grant the application herein with costs. DATED at DAR ES SALAAM this 31st July, 2024. O. F. BWEGOGE

JUDGE 9