PRANESH PREMJI VARSAN VS VARSAN DEWJI RAMJI COMM CASE NO

IN THE HIGH COURT OF TANZANIA (COMERCIAL DIVISION)

AT PAR ES SALAAM COMMERCIAL CASE NO. 60 OF 2017 PRANESH PREMJI VARSAN...................................................... PLAINTIFF

VERSUS VARSAN DEWJI RAMJI& CO LTD............................................ DEFENDANT 02/11&07/12/2018

JUDGMENT MWANDAMBO, J This is a suit founded on a claim by a shareholder against the defendant in which the plaintiff owns shares. The plaintiff who is represented by Mr.Fikiri Liganga learned Advocate alleges that his rights as a shareholder in the defendant have been violated and thus claims reparation in monetary terms by way of specific damages, right to dividends declared but not paid out and general damages amongst other reliefs. The Defendant for its part resists the suit contending as she does that the claims are baseless and prays for the dismissal of the same with costs. Initially, this suit was presided over by Mruma, J who could not stay in this division long enough to complete the trial and compose the judgment. I took over the trial after the closure of the plaintiff's case and commencement of the defence case by DW1 following the transfer of the former trial judge to another duty station. I proceeded with hearing of the case which entailed taking evidence from DW2 up to the conclusion of the trial and ultimately composition of the judgment. The undisputed factual background to the suit runs as follows. The defendant is a limited liability company in which one of the shareholders up to 3rd September 2013 was Premji Dewji Patel who transferred his shares amounting to 1 120,000 to his son, the plaintiff on that date. The transfer was sanctioned by a resolution of

the defendant's board of director at its meeting held on 3rd September 2O13.The board resolution and the agreement for share/stock transfer were admitted in evidence as exhibit Pl collectively. Following the defendant's resolution, the plaintiff became a shareholder of the defendant with all rights enjoyed by other shareholders of the company including entitlement to payment of annual dividends duly declared by the company directors according to its relevant memorandum and articles of association. It is equally not in dispute that the defendant declared dividends for the year 2014, 2015 and 2016. It is further not in serious dispute that the plaintiff made several demands for the payment of his dividends to no avail and hence the institution of the instant suit. So much for the undisputed facts. As to disputed facts, it is the plaintiff's case that he never received any dividends from the year he became a shareholder owning 20% of the shares in the defendant together with his entitlements to profits generated from the business activities of the company namely; construction, renting of its properties in Tanzania and sale of some of the assets earning the defendant a total of USD 6,375,166.79 and TZS.502,366,250.28 gross between 2013 and 2016. The plaintiff contends further that as a shareholder he was entitled to unrestricted access to the defendant's financial reports and

accounting documents but the defendant has not allowed him to the such documents which prompted him to make demands for the same personally and through his lawyers but no avail and hence the institution of the suit for the following reliefs: (a) A declaration that the Plaintiff is entitled to 20% of the Defendant's yearly declared dividend from the year 2013 to the present. (b) A declaration that the Plaintiff is entitled to all other net incomes and/profit generated by the Defendant from the year 2013 to the present 2 (c) An order for payment by the Defendant to the Plaintiff of TZS.80,473,250.056/= as special damages. (d) The Defendant be decreed to furnish payment of interest to the decretal amounts in 'c' above at the court's rate of 12% per annum from the date of judgment to the date of full satisfaction of the same. (e) The Defendant be decreed to pay commercial interest in 'b'above at the rate prevailing at the judgment day from the date of cause of action till full satisfaction of the same. (f) An order for payment of punitive and/or exemplary damages by the Defendant to be assessed by this honourable Court. (g) Payment of general damages to be assessed by this honourable Court. (h) Costs of this suit be borne by the Defendant. (i) Any other relief as the Honourable Court may deem fit to grant in the circumstances of this case. The defendant who acts through ENS Africa

Tanzania Attorneys denies all claims leveled by the Plaintiff praying for judgment dismissing the suit. It is the defendant's case that whilst not disputing that the plaintiff is a shareholder, his entitlement to declared dividends is limited to the shares reflected in the share transfer (exhibit Pl) and nothing more. The defendant contends further that payment of the dividends has not been made to the plaintiff because the amount payable was applied to offset the capital gains tax and stamp duty obligations on share transfer. As to the rest of the claims, the defendant contends that it never earned the incomes shown in the plaint to which the plaintiff claims to be entitled to and so, except for the right to payment of dividends the claim from the income of the defendant in the manner claimed is baseless. Pursuant to rule 49 (2) of the High Court (Commercial Division) Procedure Rules, 2012 (the Rules) both parties filed witness statements in the manner provided for under rule 48 of the said Rules. The plaintiff filed one witness 3 statement for himself to which several documents were annexed. However, some of the documents did not meet the test of admissibility and so the Court refused to admit them as part of the plaintiff's evidence regardless of them being referred as exhibits in the witness statement. For her part the defendant filed two witness statements of Lalji Dewji

Patel (DW1) and Khimji Dewji Patel (DW2). Like the plaintiff, several documents were annexed to the defendant's witness statements but some were rejected for failure to meet the test of admission. Before the commencement of the oral hearing during which witnesses tendered documentary exhibits and stood cross-examination, the learned Advocates had filed a memorandum of agreed issues which my predecessor appears to have adopted as issues for the determination of the dispute in this suit. The learned Advocates filed the memorandum of agreed issues pursuant to the Court's order made on 6th March 2018. The issues which the learned Advocates agreed on and adopted by the Court are as follows:- 1. Whether the Plaintiff is entitled to 20% yearly dividends and all other incomes and net profits generated by the Defendant from the year 2013, presently.

2. If issue No.l is answered in the affirmative, whether the Plaintiff is entitled to payment of TZS.80, 473,250.056 in the circumstances as special damages.

3. Whether the Defendant has earned a total of USD 6,375,166.79 and TZS 502,366,250.28 as alleged by the Plaintiff as gross profit of its business for the period between 2013 to 2016.

4. What reliefs are the parties entitled to. As indicated above, the plaintiff who testified as PW1 had no other witness than himself during the trial at which he tendered four documentary exhibits namely; documents namely; Board resolution of the Defendant approving transfer of 120,000 shares from Premji Dewji Patel to Pranesh Premji Varsani (the Plaintiff) (exhibit Pl), letter Ref. No.VDR/LCA/0015/17 date 6th March 2017 titled: demand notice with intention to sue (exhibit P2),Email 4 correspondence from the Plaintiff Lalji @ Varsani tz.com dated 25" September, 2016 and 50" October 2016 and, Internal irrevocable Private Arrangement executed on 2nd November, 2016 (exhibit P4).By and large the Plaintiff's documentary exhibits were meant to prove; the transfer of 120,000 shares to the Plaintiff, the existence of demands for entitlement to payment of dividends and existence of an agreement for the Plaintiff's entitlement to 20% shares in the Defendant's Company. On the other hand, the defendant had Lalji Dewji Patel (DWl) and Khimji Dewji Patel (DW2) produced two exhibits that composed of Ledger accounts for Pranesh Premji Varsani for the period between the year 2013 and 2017 (exhibit Dl collectively) and audited financial statements of t he Defendant for 2014, 2015 and 2016 years of i ncome (exhibit D2 Collectively). Essentially, the documents were intended to prove payment of

dividends to the plaintiff and the earning of the company for the relevant period in dispute. I will revert to the substance and weight of the evidence on the documents in my discussion of the issues to which I will turn shortly. Before I delve into the discussion of the issues I wish to make it plain at this stage that the burden of proof on all of the issues lies on the plaintiff as required by section 110 of the Evidence Act, Cap 6 [R.E. 2002]. The defendant has no such burden until such time the plaintiff discharges his regardless of weakness (if any) of the defence case. At the risk of making this judgment unduly long, I will let the learned authors of Sarkar's Laws of Evidence, 15" Edition M.C. Sarkar, S.C. Sarkar and P. C. Sarkar, published by Lexis Nexis to speak for themselves: .. the burden of proving a fact rests on the party who substantially asserts the affirmative of the issue and not upon the party who denies it; for negative is usually incapable of proof. It is ancient rule founded on consideration of good sense and should not be departed from without strong 5 reason....Until such burden is discharged the other party is not required to be called upon to prove his case. The Court has to examine as to whether the person upon whom the burden lies has been able to discharge his burden. Until he arrives at such a conclusion, he cannot proceed on the basis of weakness

of the other party...." (at page 1896). Commentaries from the distinguished authors were referred by this Court in Kibaigwa Agriculture and Marketing Co-operative Society Ltd vs. Stanbic Bank Tanzania Limited, Civil case No. 211 of 2011(unreported) and Atashasta Nditiye and Others vs. Lingo Milele Haule& 3 Others, Land Case No. 63 of 2010(unreported).I will thus be guided by the foregoing principle in the determination of the issues relative to the evidence on record. The first issue is whether the plaintiff is entitled to 20% yearly dividend and all other incomes and profits generated by the defendant from the year 2013 presently. I think the word presently must be construed to mean the date when the suit was instituted. Ms.Jacqueline Kapinga, learned Advocate for the defendant has invited the Court to answer the issue negatively largely because there is no evidence to prove the entitlement to 20% of the dividends neither did the plaintiff justify the claim for profits of the company as a shareholder. On the contrary, the learned Advocate submitted that as shown in the audited financial statements (exhibit D2) the total number of shares in the defendant is 1,000,000 out of which the plaintiff owns 120,000 shares equivalent to 12% of the total shares in the defendant. In the light of the foregoing, the learned Advocate argued that the plaintiff can only be entitled to 12% of

the annual declared dividends and not more. Furthermore, it was the learned Advocate's submission that a shareholder like the plaintiff is entitled to no more than the right to dividends. For his part, the learned Advocate for the plaintiff submits that PW1 discharged his burden proof in issue one warranting an affirmative answer. To 6 reinforce his contention, the learned Advocate submits that the plaintiff's shareholding of 20% shares in the defendant has been established through DW2's evidence answering questions in cross examination as well as the Internal Irrevocable Private Arrangement (exhibit P4) by which the parties agreed that the plaintiff's shareholding was 20% of the shares in the defendant company along with Lalji Dewji Patel (DW1) and Khimji Dewji Patel (DW2). As to payment of dividends, the learned Advocate submits that DW2 admitted that the defendant declared dividends for all years from 2013 to 2017, the Court should hold that the plaintiff is entitled to 20% of all dividends declared for five years working out to TZS 80,000,000/=. Submitting on the defendant's justification for deducting TZS 32,362,404/= said to have been spent for payment of taxes to the Tanzania Revenue Authority (TRA ) on shares transfer, the learned Advocate argues that the plaintiff had no obligation to pay the said taxes and so the deduction was unjustified. To fortify his argument, the

learned Advocate relies on section 9 (2) (b) of the income Tax Act, 2004 which imposes liability to pay capital gain tax on the person who gains from an investment which in this case was the Plaintiff's father, the transferor of the shares and not the transferee. It is the leaned Advocates' submission that the defendant's decision to pay capital gain tax on transfer of shares on behalf of the transferor on the basis of the oral agreement with the plaintiff's father was not a justification in deducting the plaintiff's entitlement to his dividend to offset a liability of his father. On the other hand, the learned Advocate challenged the defendant's ledger accounts by way of exhibit DI for lack of credibility and authenticity. The learned Advocate argued that the documents constituting exhibit DI are computer printouts which are admissible in evidence subject to the mandatory conditions spelt out under section 18 (2) (a) - (d) and of (3) of the Electronic Transactions Act, 2015. It is the learned Advocate's submission that regardless of the 7 admission of exhibit DI, the same lacks evidential value as proof of payment of dividends to the plaintiff for failure to meet the test of evidential weight and authenticity couched in mandatory terms in section 18 (2) (a) - (d) and (3) of the Act. The learned Advocate submitted further that contrary to the mandatory requirements prescribed

under the aforesaid section, the defendant has not placed anything before the Court to accord evidential and authenticity weight to the documents in exhibit DI. On that basis the Court was invited to accord no weight to exhibit DI. At any rate, the learned Advocate argued, the rejection of exhibit DI was more compelling because the same runs contrary to the defendant's defence that the plaintiff was not entitled to payment of dividends because the same were deducted to offset the capital gains tax payments the defendant made to TRA. The learned Advocate pointed out that DW1 reiterated that stance in his witness statement and so it was surprising that the same witness could produce proof of payment through exhibit DI as he did. I have passionately examined the evidence and the submissions by the learned Advocates on the first issue and I think there is no issue regarding entitlement of the plaintiff as a shareholder in the defendant to declared dividend according to his shares in the company. There is equally no dispute that the defendant declared dividends for the year of income in 2014, 2015 and 2016 and so all things being equal, the plaintiff like all other shareholders were entitled to dividends proportionate to their respective shareholdings. According to the plaintiff, his shareholding in the company is 20% of the shares and so he was entitled to 20% of the declared

dividends on the basis of a Private Irrevocable Arrangement tendered in evidence as exhibit P4. The learned Advocate for the defendants did not specifically address her mind to exhibit P4 but she maintained that the only evidence of the defendant's shareholding is none other than the 8 transfer of shares (exhibit Pl) as against exhibit P4 which does not show the amount of shares. Having examined the evidence on record I am inclined to reject the plaintiff's claims for entitlement of dividends at 20°/o of the defendant's shares. It is plain through exhibit Pl, the plaintiff acquired 120,000 shares hitherto held by his father. According to the audited financial statements of the defendant (exhibit D2) the authorized issued and fully paid shares of the defendant is 1,000,000 ordinary shares out of which the plaintiff owns 120,000 shares equivalent to 12% as rightly submitted by the learned Advocate for the defendant. There is no other evidence on record to show that exhibit P4 altered the shareholding in the defendant and so, exhibit P4 cannot be a basis for holding that the plaintiff owns 20% of unspecified number of shares in the defendant. That aside, exhibit P4 which is labeled Internal Irrevocable Private Arrangement is, for all intents and purposes an agreement which is subject to the Law of Contract Act, Cap.345 [R.E 2002]. Section 25 (1) of Cap 345 stipulates that an

agreement without consideration is void unless it i s in writing and registered under the law regulating registration of documents or made on account of natural love and affection between parties standing in a near relation to each other or it i s a written promise for payment of a debt. There is no indication in exhibit P4 that consideration exchanged between/among the parties thereto nor is there any indication that the conditions set out i n section 25 (1) (a) and (b) of Cap 345 have been satisfied to make exhibit P4 valid. In the absence of proof of consideration or satisfaction of any of the conditions spelt out under section 25 (1) of Cap 345, exhibit P4 is, but void and therefore unenforceable. A void contract cannot be a basis of any proof that the plaintiff owns 20% of the shares in the defendant. At any rate, clause 2 of exhibit P4 purports to disregard the shareholding shown in the annual returns 9 of the company in sheer contravention of the section 130 (2), (4) and (5) of the Companies Act, Cap 212 [R.E 2002]. Specifically, section 130 (5) (a) of Cap 212 requires an annual return filed with the Registrar of Companies to state the number of shares of each class held by each member of the company at the date on which the return is made. A statutory requirement could not be rendered impotent by exhibit P4 and so even if I was to hold that exhibit P4 is valid, I would

declare it invalid for contravening section 130 (5) of Cap 212. The foregoing aside, it is clear in exhibit P4 worth for what it purports to be that the agreement was executed on 22nd November 2016 superseding earlier ones made on 5th March 2002 and 20th December 2010. There is no indication that exhibit P4 had a retrospective effect so as to cover the period from 2013 when the plaintiff became a shareholder in defendant's company. That means that even if I were to place any value in exhibit P4, I would only hold that the purported 20% shareholding could have impact in the payment of dividends for 2016 accounting year and not before. The next question is whether the plaintiff is entitled to the yearly declared dividends and all other income generated by the defendant's company from the year 2013 to date. It is trite law that a shareholder in a company is entitled to dividends recommended by directors and declared by the company at a general meeting for any accounting period as per section 180 (1) of Cap 212. The plaintiff in this suit claims for the dividends from 2013 to the present date. The defendant has, through its written statement of defence at paragraph 2 admitted that it declared dividends for the year 2014, 2015 and 2016 at TZS.80,000,000/= for each accounting year. Proof of declaration of dividends for the relevant years has been made through exhibit D2 showing

proposed dividends for three years. There is no evidence of dividend declaration for the year 2013 and 2017. The burden of proof of declaration of dividend for the relevant years lies in no other io person than the plaintiff. It is clear in these proceedings that the plaintiff has failed to discharge that burden and so I hold that the plaintiff was only entitled to dividends declared for the year 2014, 2015 and 2016. It is common ground that the declared dividends for each of the three accounting years is TZS 80,000,000/= and so the plaintiff i s held to be entitled to his dividend out of the said amounts proportionate to his shares. As to other income and profits from the company, I would respectfully agree with Ms. Kapinga that a shareholder in the plaintiff's position has no right to distribution of i ncome of the company and profits other than dividends duly declared in accordance with section 180 (1) and (2) of Cap.212. There is no proof whatsoever showing that the defendant had at any time resolved to pay to the shareholders income and profits generated from its business other than dividends. There being no such proof, I decline to make any finding that the plaintiff was entitled to payment out of the defendant's income and profits as claimed. In the upshot, save to the extent i ndicated, the answer to the first i ssue is answered negatively. I note that the plaintiff's

Advocate made formidable arguments regarding the weight and authenticity of exhibit D1 but I think those arguments are not relevant to the determination of the first issue. At best, those arguments could become useful to the 2nd iSSUe which deals with the specifics to which I now turn my attention. The second issue is predicated on the affirmative answer to the first i ssue. It seeks a determination whether the plaintiff i s entitled to payment of TZS.80, 473,250.056 in the circumstances as special damages. Mr. Liganga invited the Court to answer the issue affirmatively contending as he did that the amount claimed represents unpaid dividends of 16,000,000/= per annum for five accounting years from 2013 to 2017. However, the learned Advocate did not account for the balance of TZS 473,250,056. Ms. Jacqueline 11 Kapinga took the view that the plaintiff has not adduced satisfactory evidence to prove payment of TZS.80, 473,250,056 as special damages. The learned Advocate argued that the claim of that amount based on the 20% shareholding in the defendant is flawed because the evidence of ownership of 20% of the defendants shares is too shaky to sustain that claim. Since that amount is claimed as special damages, the principles governing claims of special damages have to be invoked squarely. The fundamental principle is that that specific damages must be specifically pleaded and

strictly proved. The law is so settled that one need not cite any authority in substantiation. However, if some will be required, I will refer to Stanbic Bank (T) Limited v Abecrombie & Kent (T) Ltd, Civil appeal No 21 of 2001(unreported). In Nyakato Soap Industries Ltd vs Consolidated Holding Corporation, Civil Appeal No. 54 of 2009 (unreported) the Court of appeal cited with approval a passage by Lord McNaughten in Bolag V. Hutchson [1950] AC 515 thus: "Special damages are..., such as the law will not infer from the nature of the act. They do not flow in the ordinary course. They are exceptional in their character and, therefore, they must be claimed specially and proved strictly..." (reproduced at page 11 Nyakato Soap Industries case) Paragraph 3 of the plaint provides a summary of the plaintiff's claims including payment of TZS 80, 473,250.056 as special damages and entitlement to 20% yearly dividends from the year 2013 to the present. Apart from the claim for TZS 80,473,250,056 nowhere did the plaintiff make specific pleading to backup that claim in the plaint. PWl's witness statement on the other hand claims that the plaintiff is entitled to 20% shareholding in the company and so his rightful dividends from 2013 to the present date should correspond to that 12 percentage but the amount of TZS 80, 473, 250.056 is conspicuously missing in the witness statement. In other

words had the amount been specifically pleaded in the plaint, the plaintiff had a corresponding duty of surmount the hurdle of strictly proving the same. That the amount is not well supported is confirmed by Mr. Liganga's submissions in which the learned Advocate links the amount to the Plaintiff's entitlement to 20% of the yearly dividends from 2013 to 2017 which works out to TZS 80,000,000/= leaving an unaccounted balance of TZS 473,250.056. It was stated by the Court of Appeal of Kenya in Siree vs. Lake Turkana El Molo Lodges Ltd [2000] 2 EA (Law Africa publication) that where damages are claimed and calculated to a cent these must fall in a category of special damages which must be specifically pleaded before they can be strictly proved up to the last cent. The plaintiff has not surmounted that hurdle. All the same, going along with the formula put forward by Mr. Liganga still the plaintiff's the position will be no better. I have already rejected the claim for 20% shareholding in the defendant as baseless and so the plaintiff's shareholding should correspond to the actual shares reflected in exhibit Pl relative to the issued and fully paid shares in the defendant amounting to 1,000,000 per exhibit D2 which works out to 12%. I have also found and held when discussing the first issue that the only evidence available in respect of declaration of dividends is through exhibit

D2 showing that the defendant declared dividends in 2014, 2015 and 2016 accounting years for TZS 80, 000,000/= per accounting year which works out to a total of TZS 240,000,000/=.The plaintiff has not produced any evidence to prove declaration of dividends in 2013 and 2017 and so there can be no basis for claiming dividend on the two years. That being so, the only entitlement to the declared dividends for the three years per exhibit D2 payable to the plaintiff is 12% of TZS 13 240,000,000/= which works out to TZS 28,800,000/=. I would thus find that the plaintiff is entitled to 28,800,000/= unpaid dividends for 2014, 2015 and 2016. That said, I will now revert to the question whether the defendant was entitled to withhold payment of dividend on account of the capital gains tax on transfer and stamp duty amounting to TZS 32,362,404/-. In a nutshell, Mr. Liganga submits that the defendant has blown hot and cold on the same breath on the issue and urged the Court to uphold the plaintiff's evidence that the withholding of payment of dividends was unjustified I need not belabor the point more than necessary. As rightly submitted by Mr. Liganga, learned Advocate for the plaintiff the liability to pay capital gains tax on transfer of shares was on the vendor/transferor of the said shares as stipulated under section 9 (2) (b) of the Income Tax Act. The plaintiff had no

obligation whatsoever and the fact that the defendant discharged that liability on behalf of the plaintiff's father on an oral agreement cannot have any negative effect on the plaintiff's entitlement to receive his dividends. Consequently, I hold that it was wrong for the defendant to withhold the plaintiff's dividends on account of discharging capital gains tax obligations to TRA on behalf of the plaintiff's father. Having so held I will now move on to the third issue. The third issue relates to the defendant's alleged earnings of USD 6,375,166.79 and TZS 502,366,250.28 as gross profits the period between 2013 and 2016. Mr. Liganga readily conceded that in view of the Court's order refusing to admit documentary evidence meant to prove the said amounts, the same has to follow suit. In consequence, the issue has to answered negatively and I so hold. That takes me to the fourth issue dedicated to the reliefs the parties are entitled to in this suit. In the light of the answers to the first and second issues, there will be judgment for the plaintiff for a declaration that he is entitled to payment of 12% 14 of the declared dividends for the year 2014, 2015 and 2016. The entitlement to the dividends takes care of the claim for specific damages reduced from TZS 80,473,250.056 to TZS 28,800,000. Apart from special damages, the plaintiff has claimed damages under three heads namely,

general, punitive and exemplary damages. However, the plaintiff did not adduce any evidence to justify payment of punitive damages over and above general damages. Accordingly, that claim stands rejected. With regard to the claim for general damages, evidence has shown that the defendant's refusal to pay the plaintiff his dividends to offset a claim for capital gains tax paid on behalf of his father was wholly unjustified which caused unnecessary disturbance and inconvenience to the plaintiff culminating into institution of the suit. Having regard to the prevailing circumstances culminating into the institution of the suit and the defendant's conduct I think a sum of TZS 15,000,000/ will be a fair compensation for the inconvenience the plaintiff was subjected to. In summary, judgment is entitled for the plaintiff as follows:- 1. Payment of TZS 28,800,000/= as special damages 2. Payment of TZS 15,000,0000/=as general damages 3. Payment of interest on special and general damages at 7% per annum from the date of judgment till full and final satisfaction.

4. Costs of the suit. Order accordingly. Dated at of December 2018 15