oceanic beverages ltd vs basil saprapasen others 2016 tzhc 2037 15 august 2016

IN THE HIGH COURT OF TANZANIA (Dar es Salaam District Registry)

AT DAR ES SALAAM CIVIL CASE NO. 87 OF 2006 OCEANIC BEVERAGES LIMITED................................PLAINTIFF

VERSUS BASIL SAPRAPASEN.............. ..........................1st DEFENDANT MELVIN SAPRAPASEN.............. ....................... 2nd DEFENDANT BRIAN FERNANDEZ.... .................. ...................3rd DEFENDANT 3 0 / 0 6 &15 /08 / 2 0 1 6

JUDGMENT MWANDAMBO, 3 The Plaintiff in this suit claims for an assortment of reliefs in two causes of action for breach of employment contract against the first Defendant only and for money had and received against the first and 2nd Defendants. In the course of the proceedings the Plaintiff abandoned its case against the 3rd' Defendant and thus the case is against the remaining two Defendants. The claims are vehemently contested by the Defendants praying for their dismissal with costs. The facts giving rise to the suit can be stated as follows. By a service contract signed on 1st February 2004, the Plaintiff agreed to employ the first Defendant as its Chief Executive Officer (CEO) effective that date for a period of one year. Apart from being a CEO of the Plaintiff, the first Defendant was allotted 35% of shares of the Plaintiff Company and became a shareholder together with a Company known as Fairnas Ventures Ltd holding 64% and one Monica Njigabha who subscribed to 1% of the shares in the Plaintiff Company. By virtue of the contract (exh. PS1) the first Defendant was responsible for following and implementing all policy issues as directed by thePlaintiff's Board to which he was answerable. Likewise, the 1st Defendant was responsible for the day to day operations of the Plaintiff and in charge in relation to administrative, financial, sales and marketing with.power to recruit

employees of all categories for the Company. The 2nd Defendant is a son of the first defendant and was recruited as one of the employees in the marketing department. On diverse dates in the course of their employment both Defendants received certain sums of money in United State Dollars for the use of the Plaintiff which the Plaintiff claims that the Defendants did not account for it and hence a claim for money had and received. It is alleged further that contrary to the terms of the service contract, the 1st Defendant breached that contract (exh. PS1) and neglected and/or failed to ensure creditors of the Plaintiff were paid against goods supplied and services rendered to the Plaintiff. It is further alleged that the First Defendant breached his contractual duties by failure to keep record of sales for accounting purposes in relation to its products, failure to prepare and keep 2 payroll of the employees of the Plaintiff, failure to disclose the value of sales in relation to certain quantity of alcoholic drinks delivered to third parties. Finally, it is also claimed that the Second Defendant failed to surrender USD 4,800 and/or account he received from One Andrea Shibalov for payment of rent to the Landlord on the premises where the Plaintiff had a small warehouse facility for its raw materials. . In consequence, the Plaintiff prays that the Defendants be ordered to pay

all amounts had and received as well as the amounts representing outstanding debts not paid to third parties as a result of the First Defendant's breach of the service contract. The Defendants' defence is a totaldenial of the Plaintiff's claims praying for the dismissal of the suit. To the extent related to the claim for money had and received, the Defendants deny having received any money for themselves other than for and on behalf of the Plaintiff and state that all monies received were accounted for including revenues generated from production duly reflected in the accounts presented to the Board of Directors.The pleadings in the suit resulted into the following issues namely: 1. Whether, having been employed as the Chief Executive Officer (CEO) o f .the P lain tiff the First Defendant is s till the CEO and a shareholder o f the P lain tiff Company ..2. What were the terms o f service contract between the P lain tiff and the First Defendant?

3. Whether or not there were breaches o f the term s o f service contract by the First Defendant as alleged in paragraph 8 o f the Plaint and vehemently disputed-by the Defendants' paragraph 6 o f the written statem ent o f defence, 4. Whether or not the First and second Defendants subm itted proper accounts for the m oney claim ed in paragraphs 9,10,11 and 12 o f the plain t and vehemently denied in paragraph 7 o f the written statem ent o f defence.

5. To what reliefs are the parties entitled. In the course of hearing, the Plaintiff abandoned its claims in paragraphs 11 and 12 and of the plaint and thus issue number 4 will accordingly be amended by removing reference to paragraphs 11 and • 12 of the plaint. Alexey Ignatov (PW1) kicked off the Plaintiff's case. This witness, a Russian by nationality gave an account of how he came to know the First Defendant through a recommendation from one Patrick Chokala who was by then (in 2004) Tanzania's Ambassador to Moscow. Later on an agreement was made for a meeting with the first Defendant (DW1) in Dar es Salaam to discuss a business for manufacture of beverages mainly; light alcoholic drinks including Gin Tan. It was PW l's testimony that at that time, there was a company called TBT International Enterprises Ltd (TBT) owned by Russians manufacturing light alcoholic and nonalcoholic beverages operating from Sinza in Dar es Salaam but was not being well managed. As a result, PW1 who had a power of Attorney from the shareholders of TBT dismissed the management of that company and had its business taken over by a new company to be run by a local person who happened to be the First Defendant. The discussions PW1 had with the First Defendant both in Dar es Salaam and Moscow resulted into the incorporation of the Plaintiff in which the First Defendant was allotted 35% of its

shareholding and was appointed to be its CEO pursuant to a service contract signed on IFebruary 2004 admitted in evidence as exh. PS1. Following its incorporation, the Plaintiff took over the business hitherto undertaken by TBT and had its (the Plaintiff) business of manufacturing light alcoholic drinks using machine and equipment leased from Fairnas Ventures Ltd PW1 produced two identical copies of the Leasing Agreement in evidence said to have been signed between the Plaintiff through DW1. The copies were admitted as exh. P2 and PS2. Except for the want of notarization in exh. PS2, the contents in both of them are the same. Under that agreement (exhibit P2) the Plaintiff agreed to pay the lessor certain sums of money on monthly basis commencing from 22May 2004. However, PW1 stated in his testimony that payment to the lessor of the machine and equipment wasnot made as agreed in Exh. P2 and that the 1st Defendant had the- responsibility of ensuring that payment obligations were discharged by the Plaintiff Company. According to PW1, the Plaintiff had to relocate the machine and-equipment from Sinza to a new rented premises on plot No. 185 Saza Road Chang'ombe industrial area where it had entered into a lease agreement with the owner of the said premises at a monthly rent of Tshs. 1,800,000/= payable every three months in advance. 5 PW1 produced the lease agreement in evidence

and the court admitted It as exh. PI. ■ PW1 stated in his evidence the First Defendant as the CEO of the Plaintiff Company breached his duties by failing to ensure that rent was paid as agreed in exhibit PI resulting into rent arrears equivalent to USD 14,400 as of the date of institution of the suit. PW1 maintained that the unpaid rent must be paid by the First Defendant personally together with the rental charges for the lease of the machine and equipment. With regard to the claim for money had and received, PW1 stated that the First Defendant received money from Fairnas Ventures Ltd as a shareholder of the Plaintiff to kick start its operations after its incorporation. PW1 stated that USD 66,400 was given to the First Defendant in cash and USD 18,000 was sent through the bank. To prove receipt of the money, PW1 produced four certificates of payment for USD 15,000 dated 19th February 2004, USD 15,000 received on 13thApril 2004, USD 10,000 on 29th April 2004 and USD 3,600 on 6thApril 2004 all from Georgi Bulatov representing Fairnas Ventures Ltd the majority shareholder in the Plaintiff Company. The certificates were admitted in evidence as exh. PS3 collectively. Outof the said payments, USD 40, 00 was for meant for purchase of shares and USD i I 3,600 was for rent for factory accommodation. According to PW1, the First Defendant faiied to furnish proof of how the money he

received was utilized for the intended purpose. PW1 went on with his testimony in relation to the claim for unsettled bills for goods supplied and services rendered to the Plaintiff Company. These include USD 3,792 due to the supplier of Laser Jet printer and Tshs.10, 00,000/= due to Clouds FM amounting to Tshs.10, 00,000/= for promotional services evidenced. Invoices for the outstanding payments were produced in evidence by PW1 and admitted as such as exhibits P3 collectively. PW1 proceeded with his testimony in relation to the claim for the First Defendant's failure to prepare proper books of Account and produced in evidence a document titled stock control partially filled in with necessary particulars and the same was admitted as exh. P4. It was PW l's testimony that as a result of the first Defendant's breaches of the service contract (Exh. PS1) the shareholders of the Plaintiff Company decided to terminate him from his post as CEO and forfeit his shares as he had failed to pay for them. PW1 stated that the two significant decisions affecting the First Defendant were made in a meeting held in February 2005 but the said decisions decision, had not yet been communicated to him. However PW1 could not produce any written resolution terminating th e ' First Defendant's employment contract neither did he produce any letter informing the 1st Defendant about such decision.

Likewise, PW1 did not produce any resolution forfeiting the shares allotted to the 1st Defendant for nonpayment. According to PW1, the 1st Defendant's breach of the service contract as well as failure to account for money had and received were unveiled by E.K Mangesho and Company an audit firm engaged in December 2005 to investigate the affairs of the Plaintiff company at the time when he (PW1) had already acquired majority shares hitherto held by Fairnas Ventures Ltd. However, no proof evidencing the share acquisition as well as transfer of those shares to him and the date of transfer was furnished in court. PW1 admitted that the Audit Firm conducted investigation of the affairs of the Plaintiff in the absence of the First Defendant and that there was no formal hand over of the Plaintiff's business following the First Defendant's impugned termination In re-examination, PW1 stated that the decision to dismiss the First Defendant from the post of C.E.O was necessitated by his failure to present reports regarding the activities and performance of the Plaintiff, failure to fulfill the terms and conditions of the service contract and inefficiency in the management of the Plaintiff company. PW1 was man enough to admit that he never invited the First Defendant to attend meetings of the Plaintiff because it was not operational and in any event his shares had already been forfeited

through a meeting of the shareholders for no payment. PW1 wound up his testimony by producing in evidence a special investigation report prepared by E.K. Mangesho & company which the Court admitted as exh. P5. The second witness was Ornprakash Shukla. This witness was sent to Dar es Salaam from Moscow by PW1 to obtain performance reports of the Plaintiff Company because DW1 was not submittingthe reports as required. DW2 had a power of Attorney to enable him perform the duties he was sent for but stated that he experienced difficulties in accessing DW1 at his city office as he is said to have been busy most of the time. After some time, DW2 visited the Plaintiff's factory in Chang'ombe a visit which was facilitated by Monica Njigabha a minority shareholder, of the Company. PW2met the Second Defendant but could not get anything out of him . because he was only required to talk to the First Defendant. Later on he managed to meet the First Defendant who asked him to pay rent for the Factory and after obtaining money from PW1, he delivered USD 7,200 to the First Defendant and got a receipt issued by Fernandes &Co. Advocates. The receipt was admitted as exh. P6. However upon sending exh. P6 to Moscow, it was objected to as it was a wrong receipt. At that time PW1 was in Moscow but before he came to Dar es Salaam, PW2 had witnessed the factory working and doing well after seeing

machinery and equipment, raw materials, ingredients and employees. PW2 admitted that he did not make any written request for reports from the First Defendant but he did it verbally during discussion with him in three occasions he happened to meet him. Frank Mdachi (PW3) was the last witness for the Plaintiff. PW3 was an auditor whose company conducted a special investigation resulting into the preparation of exh.P5, According "to PW3, the Plaintiff engaged his company on5 December 2005 to conduct an investigation and report on rent, sales and management of the Plaintiff Company. The covering letter in Exh. P6 addressed to PW1 as the Plaintiff's Chief Executive Officer makes reference to terms of reference from the Plaintiff dated 5 December 2005 but such terms of reference are conspicuously missing in Exh. P6. Like the first witness, PW3 admitted that at that time the First Defendant was not in office as CEO'of the Plaintiff Company.d According to him, efforts to trace him to clarify on issues involving the Plaintiff Company at the time he was its CEO did not succeed. All in all, PW3 testified that his team of auditors found that the money received by the Defendants from Moscow was meant for payment of rent to the Landlord as well as for the leasing of machinery and equipment from Fairnas Venture's Ltd was not paid by the First Defendant. Similarly, the findings in the report

indicate that the First Defendant did not perform according to the standard required of him per exh. PS1 PW3 stated further that according to the investigation findings, the sales were not properly recorded in the books of account as evident by lack of documents for sales, cash sales, sales invoices and bank deposit slips. In cross-examination, PW3 admitted that his team did not find any key performance indicators to measure the performance of the First Defendant but all the same. he., did not prepare management reports neither did the First Defendant ensure preparation of books of account which was part of his responsibilities under the service contract. PW3 admitted that at the time of the investigation his team did not interview the First Defendant neither did it have any exit meeting because he (the First Defendant) could not be easily traced. In re-examination PW3 stated that the Plaintiff'Company suffered heavy losses as a result of the First Defendant's failure to perform his contractual duties. Upon PW3's testimony, the Plaintiff closed its- case paving a way for the start of the defence case. j:. Basil Saprapasen (DW1) was the first to take a witness box for defence case. He had aseemingly impressive background as a leading businessman and went on with how hegot himself coerced to join the Plaintiff which resulted in him being allotted 35% of its shares. DW1 is on

record stating that he himselfhad the Plaintiff Company incorporated and lateron wasappointed as its CEO on 1 February 2004. He boasted himself to be the only shareholder who had fully paid his shares in the company having 10 made an investment therein in the sum of USD 500,000. However, DW1 did not produce any documentary evidence to prove not only the payment of 35% shares in the Plaintiff Company but also the investment made. DW1 stated that he was locked out of the Plaintiff Company on 26April 2005 at the instance of PW1 but he did not consider himself being terminated and so he is still the CEO regardless of the lock out. Testifying on claims for breach of the service contract, DW1 denied having breached any. of the terms of his contract of employment and despite there being no Key performance indicators (KPIs), he ran the company efficiently amidst difficulties and lack of co-operation from Russian shareholders. As CEO, DW1 was responsible to the Board of Directors in which he is indicated to be the chairman where he presented management reports every two weeks of its meetings. According to him he received nothing but commendation from the Board, as well as outside onlookers. It was DW l's testimony that his contract had no KPIs but he was contracted based on his qualification investment participation and proven expertise and was surprised to hear from PW1 that his

contract had been terminated for underperformance when the Board to which he was responsible never met at any time to deliberate on such aspect.. He produced in evidence one of the minutes of the Plaintiff Company's Board held on 10 February 2005 chaired by him and attended by Vadim Nizov representing Fairnas Ventures Ltd and Monica Njigabha. A copy of the minutes was admitted in evidence as exhibit D l. However, there is no indication in exhibit D1 if the minutes were confirmed later by any meeting duly convened. All in all, DW1 stated that the reports he made are with the Plaintiff at its premises from ii where he was locked out and denied access by PW1 to retrieve copies of the reports and other necessary documents. He confirmed that he was not given chance to do a formal handover neither was he contacted by the auditors on any issue in exh. P5 which he branded as a cooked report containing fabricated lies manufactured by PW1 but only signed by PW3 to justify the termination and forfeiture of his investment in the Company. This witness denied having signed any leasing agreement by way of exh. P2 both alone or with Svetlana Kuzmina whom he denied having met together in Dar es salaam and signed exh. P2. He claimed that although the signature in exh. P2 looks very identical to his signature; DW1 stated that the signature was^a forgery having been imposedon that document from a

photocopy taken from one of the documents he signed. DW1 insisted that it is for that reason he refused to pay any money to the owner of the equipment and machinery which were in any event too old and dilapidated to have been functional in the Plaintiff's factory. In relation to obligation to pay rent to the landlord, DW1 stated that there was no outstanding rent payable to him by reason of the Plaintiff having incurred renovation costs of the premises to meet the standards set by TFDA and TBS which costs had to be recouped from the rent. In any event, DW1 stated, .Mished Kotak who signed exh. PI was not the owner of the premises and when contacted to produce his Tax Identification Number he couldn't produce any to enable the Plaintiff deduct withholding tax from the rent paid. By that piece of evidence, DW1 denied having failed in his duties to the landlord. With regard to the outstanding unpaid invoices per exhibit P3DW1 admitted to have seen those invoices but stated that 12 payments were in the process but for his being locked out by PW1. DW1 admitted having received money for the Plaintiff per exh. PS3 but denied having failed to account for it maintaining that the details of expenditure were made in the financial reports he submitted to the Board. According to DW1, he had the books of accounts prepared by one Duncan Kaini who was employed as a Financial Controller

representing the interest of Fairnas Ventures Ltd (the majority shareholder) and it is he who was in a better position to explain about the expenditure of the money reflected in exh. PS3. As to the money received from PW2, DW2 stated that it was handed over to the Chief Accountant under the directorate of finance and banked. The second witness was Melvin Saprapasen (DW2) who admitted to have been employed in the marketing department under Andrea Shibalov. He was responsible for marketing of the Plaintiff's alcoholic drinks namely Kipepeo and Gin Tan but stayed in employment for less than a year because the factory was closed after'the other shareholders locked the CEO (DW1) out halting factory production and so could not continue with his duties he was contracted to do. DW2 recalled to have received USD 4,800 from Andrea Shibalov at Serena after working hours and the following day surrendered it to Duncan Kaini who deposited it with the Bank for onward payment of rent for a small warehouse for storage of raw materials. He denied having been questioned about the money any time during his employment with the Plaintiff Company. DW2 denied knowledge of USD 66,200 claimed in the plaint. 13 As regard his role in the operations of the Company, DW2 stated that he was only responsible for marketing and not sales of the products and denied having pocketed to himself USD l.,500 from the

Company neither did any one question him in relation to that amount any time before. Laurencia James Kipanda (DW3) testified as the last defence witness. DW3 was an electrical engineer initially employed by TBT but later her employment contract was transferred to the Plaintiff Company in 2004. She recalls the Plaintiff's factory at Chang'ombe being closed by Russians including Andrea Shibalov for six months before it resumed production under Omprakash Shukla (PW2) as the new CEO taking over from DW1. DW3 also recalled that production at the factory was done through some of the machines and equipment taken from TBT along with new ones imported from China during DW l's leadership. This witness stated that at the time DW1 was the CEO of the Plaintiff Company she and other employees used to receive salaries regularly and production was going on smoothly but later on payment of salaries became a problem such that she was claiming arrears of salaries in the sum of Tshs 10,000,000/=from the Plaintiff. After the trialhad come to an end, the learned Advocates were ordered to present their final submissions in writing on a schedule which was duly complied with by Mrs. Rita Chihoma learned Advocate having taken over the case from Marando& Mnyele Advocates for the Plaintiff and Mr. Cornelius Kariwa learned Advocate for the Defendants. I beg to be 14 excused that I cannot consider and take

into account each and every argument put by counsel but . - I will, to the extent I can refer to the submissions I consider to be relevant in the course of my determination of the issues. The first issue seeks to investigate two aspects in relation to the status of the First Defendant namely; his position as a CEO of the Plaintiff Company as well as his membership as a shareholder in relation to 35% shares allotted to him as evident in the Memorandum and Articles of Association of the Company henceforth to be referred to as the MemArts. The learned Counsel for the Plaintiff has invited me to determine that issue for the Plaintiff because, according to her, there*is sufficient evidence to support that finding. The learned Advocate for the Defendants has taken a different view urging me to find that there is no evidence to prove that the 1st Defendant was terminated and according to him, the only evidence available is that his client was locked out which is not the same as being terminated and thus he is still the CEO of the Plaintiff company to date until lawfully terminated. In relation to the ^Defendant's status as ,a shareholder, it is Mr. Kariwa's submission that his client who had fully paid up his shares couid nothave been removed from shareholding for nonpayment of the shares allotted to him but even if that was so, the Plaintiff has not proved that the shares held by his

client were lawfully forfeited. ThePlaintiffs evidence regarding the first issue was presented by PWlorally. In one breath PW1 maintains that the First Defendant was 15 dismissed as CEO in a meeting of the shareholders held on an unspecified date in February 2005 and his shares forfeited for nonpayment while in the other he says PW l resigned from his post as CEO. DW1 maintains that no such decision in a meeting of the Board or the shareholders has ever been made to dismiss him in his position as CEO dr forfeit his shares. DW1 is on record that there could not have been' any such meeting' dismissing him when in fact as late as 10th February 2005 the same Board commended him for managing the Company well amidst several challenges including lack of cooperation from Russian Partners as evident by minutes admitted in evidence as exh. D2. The Plaintiff did not attempt to challenge the authenticity of the correctness of exh.D2. I am inclined to believe DW2's evidence primarily because PW l's testimony on this is too unreliable to be credible and be capable of belief. PWl- produced- no evidence of the resignation by the 1st Defendant neither did he produce in evidence any written decision of the Plaintiff's Board or the shareholders terminating the 1st Defendant. The fact that PW l could not even recall the date on which the Plaintiff's shareholders met and made such decision in

February 2005 is consistent with a finding that no such meeting took place and hence the claim that the 1st Defendant was terminated remains to be an unproved claim as it were. Nevertheless, the fact that I have found that PW l's evidence on termination is wanting does not necessarily mean that the 1st Defendant is still the Plaintiff's CEO having regard to the events that took place on 26 April 2005. In my view, the conduct exhibited on 26 April 2005 locking the 1st Defendant out and denying him access to his office leaves no doubt that termination did indeed occur on that date. Whether 16 the termination in that manner or the other was proper is a question that I am not called upon to determine in these proceedings. I cannot do so for lack of jurisdiction but even if I had jurisdiction, the First Defendant has not raised any counter-claim against the Plaintiff as he indeed admits in his evidence. I hold therefore that having been terminated/removed from his position as a CEO of the Plaintiff Company rightly or otherwise, the First Defendant is no longer an employee of the Plaintiff in the position he was contracted for per exhibit PS1. As the learned counsel for the Defendants will be aware, there is no dispute from the pleadings as well as the evidence on record that the facts constituting the Plaintiff's cause of action leading to the First Defendant's termination arose in

the year 2005 before the coming into operation of the Labour institutions Act, 2004. Accordingly, section 51 of that Act relied upon by the learned counsel has no application to this suit neither is it appropriate for me to sit on the issue already determined by my colleagues in their rulings on preliminary objections raised by the Defendants. I cannot at this stage disregard those rulings even assuming (for the sake of argument) I was to take a different view from my Brothers. With respect, the challenge on jurisdiction in the learned Counsel's submissions is misplaced and the same stands rejected. I will now turn my attention to the second limb of issue No 1 regarding the -1st Defendant's position as a shareholder of the Plaintiff Company. As seen earlier, the nonpayment of the shares allotted to the 1st Defendant features in the oral testimony of PW1 without more. DW l's testimony was to the effect that-it could not have been possible to remove him as a shareholder because he is the only shareholder who had fully paid 17 up his shares. However, DW1 did not likewise produce any documentary evidence to prove payment for the shares allotted to him and he admitted as such during cross-examination. Accordingly, payment for the shares by DW1 has not been sufficiently proved and I so hold. The next question for my determination is whether the FirstDefendantis stilla shareholder in

the Plaintiff's Company. It is common ground that the shareholding of the First Defendant per the MemArts annexed to the amended written statement of. defence is a fact which is not disputed. Section 60 of the Evidence Act, Cap . 6 RE. 2002 provides; ' 'No fact need be proved in any civ il proceeding which the parties thereto or their agents agree to adm it a t the hearing or which, before the hearing ; they agree to adm it by any writing under their hands, or which by any rule o f pleading in force at the time they are deemed to have adm itted by their pleadings: Provided that: the court may/ in its discretion, require the facts adm itted to be proved otherwise than by such adm issions." Having regard to the foregoing, I would take it that the contents of the Company's MemArts annexed as BS1 stand admitted requiring no proof. It is to be noted, as rightly submitted by the learned Advocate for the Defendants that forfeiture of shares is one of the matters governed by the Company's Articles of Association to which the learned Counsel for the Defendants submits that the First Defendant is still a shareholder with 35% of shares allotted to him as indicated in the MemArts and admitted by PW1. It is the learned counsel's submissions that any forfeiture of shares 18 must be in accordance with the relevant provisions in the Articles of Association notably; 24 to 33 and in the absence

of evidence to prove compliance with the said*articles,-the purported forfeiture was ineffectual. I would respectfully endorse that submission. Articles 24 to 33 inclusive of the MemArts provide an elaborate procedure before forfeiting shares from a shareholder. Such procedure include notice of nonpayment of the allotted shares, requirement to pay for the shares within a fixed period of time and place faiiing which shares Shall be'forfeited. Further, upon failure to comply with notice to pay-for the shares there must be a resolution of the directors in a meeting duly convened forfeiting the shares and later by a declaration that the shares of a member have been duly forfeited and such member ceased to become a member -of the company. PW l's evidence on this aspect is to the following effect: ' '• "...yes we dism issed him given the position o f CEO and his shares in OBL were forfeited by the company m eeting o f shareholders because . it was found the First Defendant had not paid for the shares...." The foregoing is the only evidence in relation to forfeiture of shares allotted to the First Defendant. It is evident that none of therequirements prescribedin the Articles of Association has been complied with by the Plaintiff to justify a finding that the purported forfeiture of shares ever took place. As early as 1905, an Indian High Court Judge had this to say in relation to the

right to forfeit scares: "... The right to forfeit, shares [must, in order to be effectually exercised, be ■ pursued with the greatest exactness: it must be 19 exercised by the proper parties, i.e., by Directors properly appointed, and by the requisite number o f them and in, the proper m anner and for proper cause. The right m ust be exercised bona fide for the purpose for which it is conferred. It (the pow er o f forfeiture) cannot for example, be exercised* surreptitiously, for the purpose o f expelling a shareholder, nor by connivance, for the purpose o f assisting him in getting rid o f his- shares and retiring from the Company in fraud o f the other shareholders..." -Kansh Ram v Kishore Chand, AIR 1915 Lah. 109 Shad Lai 3, See also: Company Law, Dr. Avtar Singh, Eastern Book Company, Luckman 16th edition at P. 202. * The above decision was made on the basis of provisions of Company law similar to the law applicable in T anzania and thus I find myself persuaded by that decision in this case. Having regard to that decision there is no doubt in my mind that the purported forfeiture of shares by shareholders of the Plaintiff excluding the 1st Defendant was contrary to the express terms of the Articles of Association of the Plaintiff Company. As rightly submitted by the Defendants7 learned Advocate, the Plaintiff who had the burden to prove that the First Defendant's shares

were lawfully forfeited has not discharged that burden. The evidence of PW1 reproduced above speaks volumes on sheer noncompliance with the express forfeiture preconditions in the MemArts and in consequence, the purported forfeiture was and remains to be ineffectual and the 1st Defendant remains as it were a shareholder of the Plaintiff Company. That finding disposes of the first issue. 20 The second and third issues are interrelated. They relate to the terms of .the service contract and whether there was any breach of those terms. There is no dispute as to the' former. The First Defendant admits that the terms of the service contract were as prescribed in exhibit PS1. Under the said contract the First Defendant was answerable to the Board of Directors responsible for following and implementing all policy issues as directed by the Board. Further, the First Defendant was the in charge of all operations of the Plaintiff Company that,is,tO:say; administrative, financial, sales and • marketing with power to recruit employees of all categories for the Plaintiff. On the other hand, i t was the responsibility of the'Plaintiff Company to provide normal working conditions for the First Defendant to effectively perform his functions prescribed-under exhibit PS1. The First Defendant's evidence is that he performed ali duties contracted for and was not given, and key performance indicators

(KPIs) to measure his performance. The Plaintiff cites a number of areas to prove nonperformance which include failure to provide reports to the Board, failure to pay rent to the Landlord in respect of the premises from where the Plaintiff conducted its business per r exhibit PI, failure to effect leasing payments for the machine and equipment leased from Fairnas ventures Ltd per exhibit P2 and PS2, failure to prepare books of account, failure to pay debtors on invoices for goods and services supplied per exhibit P3." It is common ground that the incidences’ of breaches are a result of an investigation report (exh. P5) prepared by PW3. The learned Advocate for the Plaintiff would have me find that the Plaintiff has discharged its burden of proof on this issue and invites the court to find and hold that the 21 first Defendant breached the terms of the service contract based on the oral testimonies of PWl. and PW3 supported by exh. P5. The learned Advocate for the Defendants invites the Court to answer the issue against the Plaintiff. Counsel relies on section 34C (6) of the Evidence Act which deals with the factors which a Court is to take into account in estimating the weight of the statements by persons who cannot be called as witnesses admissible in evidence. In elaboration, the learned Counsel submits that the Court should not give weight to exh. P5 which forms the sole

basis of the Plaintiff's case in issue number three because the report in exhibit P5 was made after the First Defendant had been locked out of- office. At any rate counsel argues that the First Defendant was not given any key performance indicators to measure his. performance or consulted by PW3's team during the said investigation. The Defendants' learned Counsel has invited me not to attach any weight to the report because it was prepared to suit the Plaintiff's objective to justify the' removal of the First Defendant from his. office as CEO of the Plaintiff Company. With respect I do not think section 34 C (6) of the Evidence Act is necessarily applicable here because the maker of the statement (PW3) appeared in. Court and adduced oral evidence in support of the statement in exh. P5. I would thus consider the'weight of evidence in the light of the contents in exhibit P5 and oral evidence adduced by PW l and PW3 without necessarily being tied with section 34C (6) of the Evidence Act. From the evidence on record it is not in dispute any more that the 1st Defendant was effectively removed from his position on 26 April 2005 and ever since he has not allowed access to that office neither did he 22 handover his office to a new CEO who happened to be PW1. It is equally not in dispute that- it is -the same PW1 who engaged PW3's Firm on 5 December 2005 to conduct an investigation

with specific reference to the period the first Defendant was in office as the Plaintiff's CEO. Furthermore, by PW3's own evidence, exhibit P5 was prepared by PW3's team without involving the First defendant. I have taken note of PW3.'s evidence that his team made efforts to.contact the First Defendant but to no avail. However, PW3 did not furnish any proof of his efforts besides his bare assertions in the witness box. He did.not,.for instance give particulars of the phone calls he claimed to. have made neither did he produce any copy of a letter dispatched to the 1st Defendant., PW3 was aware that the First. Defendant who was the subject of investigation his company was engaged to report on had long been terminated and could not be available for interview in th’e office of the Plaintiff. Accordingly, the evidence contained in exh. P5 cannot be given much weight to prove breach.of the service contract. It will be noted that PVV1 is on record that the First Defendant was terminated in February 2005 for poor performance and mismanagement of the company. The First Defendant has strongly denied to have underperformed stating that at no time did the .Board raise any concern regarding under performance and mismanagement of the Plaintiff. I am bound to accept that evidence because according to exh. PS1, it was within the Board's power to evaluate the First Defendant. There is no

evidence that the ^Defendant's termination in February 2005 was a result of any evaluation of his performance. Indeed, the appointment of E.K. Mangesho 8tCompany in December 2005 to investigate the First Defendant's alleged 23 under performance and mismanagement was an exercise in futility given the fact that by PW l's own evidence,-the shareholders of the company had dismissed him for nonperformance way back in February of the same year. It is the same PW l who alleged that the 1st Defendant resigned from his post. There can be no doubt that the report (exh.P5) was not made in the ordinary course of business but to fish evidence. In Nyakato Soap Industries Limited v Consolidated Holding Corporation, CAT Civil Appeal No. 54 of 2009(unreported) the Appellant had instituted a suit for breach of contract alleging that the Respondent denied her* access to credit facilities which affected her ability to operate and manage to service a loan initially granted to her . It was alleged that in consequence the Appellant was declared a non performing entity and was accordingly placed, before a loan recovery Agent which was successfully challenged before LART Tribunal. Subsequently, the Appellant engaged an Accounting and Audit Firm to establish the loss sustained as a result of the denial of credit facilities and placing of the Appellant before the loan recovery Agent. A report of the

audit firm was tendered in-evidence as part of the Appellant's exhibit and the trial court placed no weight to the report which resulted in the dismissal of the claim for special damages which the Appellant claimed to have been proved by the report.. On appeal to the Court of Appeal one of the grounds of appeal was whether the trial court was right in dismissing the claim for special damages which had been proved through the auditor's report. Dismissing that ground, the Court of Appeal stated: ■ 17....Exhibit PI and P2 are not books o f account made in the ordinary course o f business but were a fishing expedition to 24 ju stify the claim. The evidential value o f the two documents is zero and the trial court was right in not placing any weight to it ... "(a tp p 11.and 12). •. I cannot in this judgment but follow that decision andlikewise attach no weight to exhibit P5 whose evidential value is zero. There is still one more aspect I find to be supporting a finding’ that the engagement of the PW3's Firm was but a fishing expedition to justify the claims in this suit. According to DW1, the Plaintiff had in place an audit Firm known as Price' Water House Coopers for doing the investigation. DW1 produced in evidence a letter from the said Firm’ dated 18 May 2005 stating that by mutual agreement with PW1 its services as investigators were terminated. That letter was admitted in

evidence as exhibit D1 without any objection. There is no explanation why a Firm which had been contracted presumably with DW i's approval to do the same job PW3's Firm did was not allowed to do its job if the purpose was to do investigation and nothing else. On balance of probabilities, the investigation by PW3's firm was meant to fish and to justify claims against the Defendants which forms the basis of the suit subsequently filed in court on 20 June 2006. In the upshot, I hold that the Plaintiff has not proved breach of the terms of the service contract by the First Defendant and I thus answer the third issue in the negative The main remaining issue before the reliefs is issuenumber four which is dedicated to the .claim for money had and received. I have already answered the preceding issue that the basis upon which the Plaintiff relies in establishing breach of the service contract lacks evidential 25 value. In so far as the proof of the fourth issue is predicated on the same exhibit which I have held to have zero evidential value I have no hesitation in answering that issue against the Plaintiff. The First and Second Defendant's evidence is that they accounted for the money received and if I understood them correctly, had they been consulted and interviewed before PW3 prepared his report they would have been in a better position to explain and provide full account of the

said funds. The Plaintiff has not adduced any other evidence to prove its claim for money had and received apart from exhibit P5. Put it differently, the Plaintiff has failed to discharge its burden of proof on this issue and I accordingly answer the fourth issue against the Plaintiff. In the event and for the foregoing reasons judgment must be and is hereby entered against the Plaintiff. To the extent.it relates to the position of the First Defendant as CEO of the Plaintiff, It is declared heis no longer the CEO of the Plaintiff Company but continues to be a shareholder.The suit is otherwise dismissed except to the extent indicated. The Defendants shall have their costs of the suit.Order accordingly. LJ. S MWANDAMBO

JUDGE 15 /08 / 2016 . 26