[2003] UGCommC 133

## THE REPUBLIC OF UGANDA

#### IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL COURT)

| MISCELLANEOUS APPLICATION<br>of<br>out<br>(Arising<br>Suit<br>Civil | NO. 649<br>OF 2001<br>No. 432<br>OF 2001 | |---------------------------------------------------------------------------------------------------------------------------|------------------------------------------| | AMRIT<br>GOYAL | '<br>PLAINTIFF | | VERSUS | | | HARI<br>CHAND GOYAL<br>1.<br>2.<br>SUBASH GOYAL<br>3.<br>ASHOK<br>GOYAL<br>(INDIA)<br>4.<br>ROADMASTER INDUSTRIES<br>LTD, | > **'<br>DEFENDANTS |

BEFORE: THE HONOURABLE MR. JUSTICE JAMES OGOOLA

#### **JUDGMENT**

#### **Facts:**

- **1.** (U) Ltd ("ROADMASTER Both the Plaintiff and the Defendants are members of the same family which is domiciled in India. The story of the present dispute between the parties is truly a classic family tragedy, in which the aged patriarch: H. C. Goyal attempted to do his best to pacify the disputes and dissensions among and between his progeny - but apparently with little, if any, visible success. As is quite evident from the present suit, harmony and concord continue to elude the Goyal family. The First Defendant, H. C. Goyal, is the father of both the Plaintiff and his brothers Subash and Ashok (the Second and Third Defendants, respectively). All of them were shareholders in the Fourth Defendant company ("RMI CYCLES LTD"), which in turn is the registered shareholder of 24,997 ordinary shares in the family's Ugandan company, known as Roadmaster Cycles **CYCLES").** - 2. The Plaintiff who originally had only one share in ROADMASTER CYCLES now contends that at a family meeting of 20/09/2000, it was agreed that the First, Third and Fourth Defendants transfer to him all

their shares in ROADMASTER. CYCLES; and that that agreement was subsequently reduced into writing in the form of a Memorandum of Family Arrangement dated 02/10/2000. Accordingly, the Plaintiff now prays this Court to order rectification of the share register of ROADMASTER CYCLES, and to declare him to be the true owner of all those shares. No instruments of share transfers into the Plaintiff's names have ever been executed, and the Defendants still claim ownership of their shares in ROADMASTER CYCLES.

#### **Issues:**

- **3.** At the scheduling conference of this matter, the parties agreed the following issues: - (1) Whether the Family Memorandum was entered into by the parties thereto? - (2) Whether that Memorandum is enforceable by this Court? If so, against whom? - (3) Whether the Plaintiff is the beneficial owner of all the shares of ROADMASTER CYCLES? If so, whether the Plaintiff is entitled to rectification of the share register of ROADMASTER CYCLES as prayed?

### **Proper law of the contract:**

4. Inherent in the second agreed issue postulated above is the question of what is the proper law for this case - at any rate for the determination of the validity, legality and applicability of the above Memorandum of Family Arrangement ("MOFA"). The Defendant's position was that the MOFA is not enforceable in Uganda "because of its being null and void under Indian law under which it was purportedly reached". For his part, the Plaintiff contended that the MOFA "is

governed by Indian law and that this Court in adjudicating on this dispute would have to receive evidence from experts in Indian law as to the position of that law on the MOFA".

*^&gt;* **5.** Notwithstanding their above initial stands on this issue, however, both parties were eventually in agreement as to the application of Section 43 of the Evidence Act; as to the treatment of questions of foreign law as being questions of fact; and as to the necessity for the parties to call Indian Law Experts to evaluate Indian (Hindu) law. Indeed, at the hearing of the matter, each party did call an Indian law expert, who submitted extensively on the application of Hindu law *vis a* vis the MOFA and, in the process, availed the Court several texts, treatises and case authorities on the applicable Hindu law. In the circumstances, this Court agrees fully with the conclusion of the parties that the MOFA - which was drawn and executed in India, between persons who are residents of India, regarding distribution of property situated in India or owned by persons resident in India - is indeed governed by Indian law.

### **Issue No. 1: Whether the MOFA was entered into by the Parties:**

6. Initially, the Defendants challenged the execution of the MOFA. However, subsequently, both the Third Defendant (ASHOK GOYAL), as well as the Defendants' counsel, in his written submissions, admitted that the MOFA was indeed executed by all the parties. Accordingly, (by consent of both parties) the first issue must be answered in the affirmative - that indeed the MOFA was executed by all the parties.

# **Issue No. 2: Whether the MOFA is enforceable by this Court? If so, against whom?**

- **7.** As stated above, each party called an expert witness who testified on Indian law generally, and on Hindu law in particular. In this regard, the Plaintiff called YASH NARULA (PW3), a 52 year old practising lawyer in India enrolled in 1973 with the Delhi Bar Council, and a specialist in civil law, family law and company law. For their part, the Defendants' expert was PULTHIEDATH BHASKAR MENON (DW1), an 82 year old Senior Advocate of the Supreme Court of India. Both experts availed the Court a number of treatises and various case authorises on Hindu law. In the rest of this judgment this Court will rely heavily on the testimony and authorities adduced by both these experts - starting right away with the issue now at hand: namely, the enforceability of the MOFA. - **8.** contention were the following two arguments: The Defendants' position was that the MOFA is null, void and unenforceable under Indian law. Basic to the Defendants' above - (i) that the property apportioned under the MOFA pertained to the partition not of joint ancestral property, but of self-acquired property; and - (ii) that the Fourth Defendant being a company, could not enter into a family arrangement because it is a corporate entity and that company members cannot include their shares in a family arrangement. - **9.** I am afraid I cannot agree with the above contentions. On the face of it, the MOFA involves distribution of family property by a father (H. C Goyal) to his direct descendants (his 3 sons). This is therefore strictly ^a family matter. It involves persons all of whom are Hindu by birth.

The crux of the matter is a partition of a Hindu father's property to each of his sons.

- **10.** The Defendants' expert witness (DW1) contended that a father's property is not governed by Hindu law as it is not from ancestral property. However, with respect, the learned expert was merely splitting hairs. Ancestral property must begin somewhere. A father (such as H. C. Goyal in the instant case) is quite capable of beginning the ancestral line, with his progeny of sons and daughters (and their children) becoming his ancestral lineage. Therefore, the distribution of the father's property to his sons (as was the case in the MOFA) is indeed distribution of ancestral property. Such was the testimony of the Plaintiff's expert witness (PW3). - **11.** I am inclined to concur with PW3's testimony as against that of DW1. This is because DW1 was (to his credit) quite candid in his testimony. He openly stated that he "does not know the facts of the [GOYAL] case". Indeed on p.7 of their written submissions, the Defendants' counsel reiterated DWl's concession by categorically stating that "he does not know for a fact whether [the MOFA] is a father and son's self acquired property". Given this express doubt on the part of DW1, this Court is bound to believe the testimony of the other expert (PW3) who, far from expressing any doubts at all as to the background and facts of the Goyal family arrangement, has in fact represented the Plaintiff in Indian courts on this very matter. He is therefore extremely knowledgeable about the background and facts of this case. - **12.** Notwithstanding all the above, however, the position is that whether the MOFA involved distribution of "ancestral" property or not, and whether such distribution was to co-perceners or not, are questions that are quite irrelevant. This Court is satisfied that Hindu law does not require as a pre-requisite that a family arrangement be concluded

only between members of ^a joint family - see MULLA on **Hindu Law (16th Edn.) p.286, para 4,**which confirms that:

*"It can be entered into by members of any family, though in most cases such arrangements are arrived at among members of a Joint family. AH that is necessary to show is that the parties are related to each otherin some way and have a possible claim or even a semblance ofa claim,* "[emphasis added]

- 13. From the above well-regarded treatise, it is evident that the parties to a Hindu family arrangement (such as the MOFA) need not be coperceners in a Hindu Mitakshara Joint family. That, in my, view settles the matter definitively and conclusively. Accordingly, I am satisfied that the GOYAL's MOFA is indeed a proper, valid and effective family arrangement under Hindu law. - 14. The Defendants' second primary contention was to the effect that the Fourth Defendant, being a corporate entity, its property (i.e. shares) could not constitute ^a part of the family arrangement; and that, in any event, the GOYALS are entitled to avoid the settlement as they own only 92.6% of the Fourth Defendant's shareholding. In short, the Defendants' argument was that the MOFA cannot bind the Fourth Defendant. - 15. The Plaintiff's response to the above arguments was that when the family members sat to consider the MOFA, they sat not only in their individual capacities as Goyals, but also in their capacity as an organ of the company, the property (i.e. shares) of which constituted a part and parcel of the family property. In any event, the Plaintiff's claim against the Fourth Defendant is for a declaration that the Plaintiff is the beneficial owner in equity of all the shares of the Fourth Defendant in ROADMASTER CYCLES (U) LTD; and, secondly, an order of rectification

of the members' register of ROADMASTER CYCLES to effect the above shareholding by the Plaintiff.

**16.** In this Court's view, the above position is analogous to the family agreeing to buy shares from elsewhere - for instance, from the stock exchange and then pooling such shares into the ancestral property pool for distribution to the family members or to any one of them. Such an arrangement would not have involved the stock exchange as a party to the family arrangement. In the instant case, the family already owned the shares in the Fourth Defendant Company, and agreed to reapportion all those shares to one of their own family members (i.e. the Plaintiff). That agreement does not involve the company as a party to the family arrangement. Conversely, it does not detract from the fact that the MOFA was indeed a family arrangement. In this regard, in the Indian Supreme Court case of **K. K. Modi v K. N. Modi [1998] 3 SCC 573.,** the Court upheld ^a family arrangement where the partition of "family properties" between two Groups of the same family comprised nothing else but splitting the shares and units of public limited companies and distributing them between the family members of the two Groups.

In the circumstances, the corporate nature of the Fourth Defendant does not, in this case, affect the validity of the (MOFA) under Hindu law.

**17.** However, having established the propriety and validity of the MOFA as shown above, the Court still needs to go further and establish whether the MOFA is enforceable by this Court and, if so, against whom. In this connection, the Court needs to establish the necessary test(s) for enforceability.

18. The test for enforceability is set out in learned DUTT's treatise on **Indian Contract Law (9th Edn.), p.73,** thus:

" *A family arrangement which is for the benefit of the family generally can be enforced in a court oflaw. But before doing so the court must see that there was an occasion for effecting a family arrangement and that it was acted upon."* [emphasis added]

- 19. It is evident from the above quoted treatise that the relevant test for enforcement of a Hindu family arrangement (such as the MOFA) is two-pronged, namely: - (i) that the arrangement is in response to disputes or rival claims in the family; and - **(>•)** that the settlement is made to effect a fair and equitable partition or division of the family property between the various family members in an effort to resolve their dissension(s) once and for all. - 20. The above conclusion is firmly supported by the Indian Supreme Court case of **Kale v Deputy Director of Consolidation. AIR, [19..] SC, p.126, para 10(1) and (2)** in which the Court held that:

" *The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment ofproperties between the various members ofthe family."*

Similarly, in **Shambu Prasad Singh v PhoolKumari & Ors. [19711 (2) Supreme Court Cases** 28,^the Supreme Court of India (SHELAT, J) held that:

" *The tests [foraccepting a family arrangement] are whether it was to allay disputes, existing or apprehended, in the interest ofharmony in the family or the preservation ofthe property."*

*21.* In the instant suit, the existence of the occasion for the MOFA (namely: family disputes and dissensions) is both express and categoric. It is graphically described in the MOFA's own pre-ambuiar paragraphs, thus:

" *WHEREAS there have been disputes and dissensions in the family over the working ofthe manufacturing and trading units among the co-perceners ofthis family for guite sometime leading to huge losses and bickering. WHEREAS itis necessary and expedient to maintain harmony in the house.*

*WHEREAS to achieve this purpose, the parties to this Memorandum orally agreed on the twentieth day ofthe month ofSeptember the year Two thousand (20-9-2000) as under".*

22. From the above, it is quite self-evident that the GOYAL family was racked by internal strife and that the partition of the family property under the MOFA was done precisely to resolve those disputes. This position is on all fours with the requirements set forth in Kale's case, p.120 *(supra)* in which FAZAL ALI and KRISHNA IYER, JJ (with SARKARIA, J concurring) emphasised that:

*"By virtue ofa family settlement or arrangement members ofa family descending from a common ancestor or near relation seek to sink their differences and disputes, settle and resolve their conflicting claims or disputed titles once and for all in order to buy peace ofmind and bring about complete harmony and goodwill in the family.* *The object ofthe arrangement is to protect the family from long-drawn litigation to perpetual strifes which mar the unity and solidarity ofthe family and create hatred and bad blood between the various members ofthe family. Itpromotes socialJustice through wider distribution of wealth."* [emphasis added]

*23.* Thus, the MOFA satisfies the first criterion for its enforceability (namely that it was executed to quell the Goyal family's internal disputes and dissensions). However, that leaves one more criterion under Indian law - namely, that the family settlement should be acted on. With regard to the satisfaction of this second criterion, learned counsel for the Plaintiff did set out, on pages 7 and 8 of his written submission, a long list of actions - which have not been challenged or contradicted by the Defendants. It would be handy and useful to reproduce that list, *in extenso,* as follows:

*September 2001. Hostilities commenced on the 18th September 2001 when the 1st and 3rd Plaintiffs wrote the letter, Exhibit P3 in these proceedings, wherein they denied for the first time that an effective family settlement had been concluded. The parties thus acted in accordance with the family settlement for about one year before this dispute arose. They continue to date still to act on it as all the Defendants have kept and still run the respective companies they got in the settlement. None of the Defendants has returned or relinquished their allotted companies.* " *The Plaintiff testified that the parties acted on this family settlement from October 2000 when it was made until hostilities commenced in*

*The Plaintiff further testified that upon the MOFA being executed he resigned from his job as the Joint Managing Director of Roadmaster Steels Limited and moved to Uganda to manage to Roadmster Cycles (U) Limited which is the company he was given in the MOFA. Under*

*the MOFA the 4th Defendant went to Ashok Goyal. The 1st and the 3rd Defendants then resigned from the Plaintiffs Companies being Roadmaster Industries (U) Limited and Roadmaster Cycles (U) Limited. Their resignation letters were tendered in evidence as Exhibit P9.*

*The Plaintiff then proceeded to appoint his daughter and son in law Ruchie Goyal and Vishal Garg to the Board of Roadmaster Cycles (U) Limited and to change the bank signatories of Roadmaster Cycles (U) Limited to himself signing solely and two of his employees signing jointly.*

*He testified that he with effect from the partition run Roadmaster Cycles (U) Limited by himself and for his own benefit without any interference from any other family members. He testified that was the same position pertained with regard with (sic) the other family companies which were taken over and run by their respective beneficiaries.*

*The Plaintiff testified that all the other parties run their units completely independently from any interference and for their own benefit in keeping with the family arrangement. He gave specific examples ofthis being the following.*

*RMI cycles India, the 4th Defendant which was the company taken by Ashok Goyal sold one to its manufacturing units in Ghaziabad and the proceeds thereof went to Ashok Goyal to the exclusion of all the other former shareholders ofthat company.*

*He testified further that Subash Goyal who was the recipient of RMI Foods Limited under the family settlement appointed his two sons to the RMI Foods Limited's board of directors. This was quite in order and the Plaintiff was not consulted. Exhibit P13 clearly bears this*

*out. Subash Goya! also sold 5 equity shares of RMI Steels Limited owned by RMI Foods and kept the proceeds thereoffor himselfas the sole owner ofRMI Foods Limited. This too was done without query.*

*From the above it is dear the MOFA was indeed acted on by all the parties and this continues to be the case to the present day. This second criterion ofenforceability ofthe family settlements underIndian Law has thus been met."*

The Indian Supreme Court expressed itself quite forcefully and very clearly in **Modi v Modi** *(supra),* when SUJATA V. MANOHAR, J stated (at p.594, para 52) that:

" *Such a family arrangement should not be lightly interfered with especially when the settlement has already been acted upon by some members ofthe family. In the present case, from 1989 to 1995 the Memorandum ofUnderstanding has been substantially acted upon and hence the parties must be held to the settlement which is in the interest ofthe family and which avoids disputes between the members ofthe family."* [emphasis added]

*24.* The Defendants also raised a subsidiary contention against the enforcement of the MOFA in as much as the non-GOYAL shareholders of the Fourth Defendant Company [RMI CYCLES (U) Ltd] have not disposed of their 7.4% shares in that company. On this, the Court readily agrees with the Plaintiff that this is a mere technicality, without substance. **First,** the Goyals had an overwhelming majority shareholding in the company, to the tune of 92.6%. **Secondly,** as established above, the company's shareholding had no nexus to the validity of the GOYAL family arrangement (MOFA). **And third,** Indian courts are quite emphatic on their inclination to enforce family

arrangements. In this regard, their Lordships in the **Kale case** *(supra)* spoke with one voice at pp. 120 and 126, thus:

**"** *Courts lean in favour offamily arrangements. Technical or trivial grounds are overlooked. Rule ofestoppel is pressed into service to prevent unsettling ofa settled dispute.*

*The Courts have therefore leaned in favour ofupholding a family arrangement instead ofdisturbing the same on technical or trivial grounds. Where the courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule ofestoppe!is pressed into service and is applied to shut outpleas ofthe person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some materia! benefits."*

*25.* In the same vein, the learned authors of DUTT **on Contract** *(supra)* state (at pp.74 and 75) that:

*"The cases establish that when once a family settlement has been entered into or acquiesced in by allpersons interested in the family property and has been carried into effect, then none ofthe persons who consented thereto may thereafter be heard to repudiate that arrangement.*

*The Plaintiff who has taken beneft under the transaction was not entitled to turn round and say that the transaction was invalid. The rule ofestoppel embodied in section 115 ofthe Indian Evidence Act would, therefore, shut out such pleas ofthe Plaintiff."*

Moreover, the Indian Supreme Court (SHELAT, J) in the case of **Singh v Kumari** *(supra)* adds another dimension to the above, namely that:

" *Even in England, family arrangements are viewed as arrangements governed byprinciples which are not applicable to dealings between strangers.. Matters which would be fata! to the validity ofsimilar transactions between strangers are not objections to the binding effect offamily arrangements.* See *Halsbury's Laws of England, (3d Ed.), Vol 17, p.215]."* [emphasis added]

## **Issue No. 3: Whether the Plaintiff is the beneficial owner of 25,000 shares of Roadmaster Cycles? If so, whether the Plaintiff is entitled to rectification of Roadmaster's share register?**

**26.** With regard to this issue, the Defendants raised two sets of challenges. The first set dealt with Indian law, while the second set raised challenges under Ugandan law. These challenges are considered *seriatim* as hereunder:

The Defendants raised three **Challenges Under Indian law:** challenges - namely, that the MOFA was both unenforceable and inadmissible in evidence (i) as it contravened section 17 (l)(b) of the Indian Registration Act of 1908 (requiring registration of such arrangements); (ii) as it contravened section 2(15) of the Indian Stamp Act. Q. L1899. .(requiring the stamping of such arrangements); and (iii) as it contravened section.-. 108(c) of the Indian Companies Act (which prohibits the transfer of shares in ^a foreign company - such as ROADMASTER CYCLES (U) LTD - without the consent of the Government of India).

27. Concerning the above three challenges, the Court can be quite brief. **First,** no registration is required under Hindu law for a family arrangement (such as the MOFA) with respect to which - as in the

instant case - the written arrangement merely records ^a prior oral agreement made by the parties. Both experts, Mr. MENON (DW1) and Mr. NARULA (PW3) were in their respective testimonies in total agreement on this position of the law. In this regard, the MOFA itself in one of its pre-ambular paragraphs states that:

" *...the parties to this Memorandum orally agreed on the twentieth day of September of the Two thousand (20-9-2002) as [specified] under."*

**28.** On the basis of the above, DW1 in his testimony during crossexamination confirmed that the MOFA:

> " *does not need to be registered -given Kale's case, head note (a) atp. 120, read together with para 10(4) atp. 126 of that case."*

29. In **Kale's case** *(supra),* their Lordships of the Indian Supreme Court expounded on the Indian law to be as follows:

" *Itis well established that registration would be necessary only if the terms ofthe family arrangement are reduced into writing. Here also a distinction should be between a document containing the terms and recitals ofa family arrangementmade under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose ofthe record or for information ofthe court for making necessary mutation. In such a case the memorandum itselfdoes not create or extinguish any rights in immovable properties and therefore does not fall within the mischiefofsection 17(2) ofthe Registration Act, and is therefore not compulsorily registrable.* "[emphasis added]

- **30.** From all the above, this Court is fully satisfied that the MOFA, being a mere record of the earlier oral agreement between the parties, did not require registration under the applicable Indian law. - *31.* **Second,** regarding the challenge of insufficiency of stamp duty, again the Defendants' own expert witness, Mr. MENON (DW1) stated quite explicitly that under section 2(15) of the Indian Stamp Act, stamp duty is payable only on partition instruments executed by "co-owners" of the relevant property; and that:

**"** *That expression [co-owners] does not include co-perceners, which is a distinct term. There is no otherprovision in the Stamp Act which requires stamp duty on co-perceners."*

32. **Third,** concerning the challenge on the lack of Governmental consent for the transfer (to an Indian citizen) of shares in a foreign company, the Court is satisfied that the applicable Indian law requires Governmental consent only where the foreign company has an established place of business in India. In this regard, section 18(c) of the Indian Companies Act, provides that:

> *"No body corporate or bodies corporate under the same Management which holds, or holding in the aggregate, ten per cent or more ofthe nominal value ofequity share capital ofa foreign company, having an establishedplace ofbusiness in India, shall transfer any share in such foreign company to any citizen ofIndia or any body corporate incorporated in India except with the previous approval ofthe Government ofIndia, provided that approval shall not be refused unless the Central Government is ofthe opinion that such transfer would be prejudicial to the public interest."*

**33.** Quite clearly, the above-quoted provision of the Indian law simply does not apply to a company, such as ROADMASTER CYCLES (U) LTD, which has no established place of business in India. Accordingly, the Defendants' challenge of the MOFA on this score was totally misplaced.

## **Challenges Under Ugandan Law:**

- 34. Here again the Defendants raised three challenges against the enforcement of MOFA - namely, (i) that Ugandan courts cannot apply Hindu/Indian law; (ii) that the Plaintiff cannot be declared to be the beneficial owner of all the shares of ROADMASTER CYCLES (U) LTD, without the execution by the Fourth Defendant of a share transfer; and (iii) that such declaration or rectification of the register as prayed by the Plaintiff would contravene the former section 14 (now section 15) of the Exchange Control Act of Uganda. - 35. The Defendants' challenge against Ugandan courts applying Indian/Hindu law is, with the greatest respect, misconceived. **First,** it begs the question which the parties themselves and the Parties' expert witnesses have already expressly agreed as settled - namely, that the proper law of this suit's contract (i.e. the MOFA) is Indian/Hindu law (see paragraphs 4 and 5 above of this Judgment). To this end, both parties conceded the relevance and applicability of section 43 of the Evidence Act and, accordingly, called their Indian/Hindu law experts as witnesses to expound to this Court on their respective understanding of the law. For the Defendants to now attempt to turn around and extricate themselves from their original position, by raising this particular challenge, is simply incomprehensible and totally impermissible. **Second,** but closely related to the above point, it is now an established fact that our courts do indeed apply foreign laws all the time. This happens, for instance, when parties to a contract indicate in their contract the particular law that they wish the courts to

apply to their contract. A recent example of this kind of choice is the Kenyan case of **Tononoka Steels Ltd v The Eastern and Southern Africa Trade and Development Bank [2000] 2 EA 53§,** in which the Parties, based in Kenya, agreed in their loan agreement to refer disputes to arbitration in London; and to construe the contract in accordance with English law. Upon repudiation of the contract by the Bank, the company filed suit in the Kenyan High Court, which agreed with the Bank that Kenyan courts had no jurisdiction to entertain the suit since the agreed law of the contract was the law of England and not the law of Kenya. However, on appeal, the Kenyan Court of Appeal overruled the High Court. LAKHA JA held that:

" *It is ^a principle of the common law that the parties to ^a contract may make it one ofthe express or implied terms ofthe contract that they will submit any [dispute] thereto, to the jurisdiction of a foreign court and a person who has thus contracted is bound by his own submission.*

*Where the arbitration clause specified the applicable taw, the agreement was to be construed in accordance with that law. In the instant case, the defence of immunity was not available to the Bank because the applicable law was the law ofEngland and not Kenyan law. Under English law, immunity does not extend to commercial transactions."*

TUNOI JA concurring with LAKHA JA emphasised that:

" *I may observe that [choice of foreign law] is ^a standard provision in many international trade agreements where the customer is either a developing country or one ofits citizens or corporations."*

**18** And KWACH JA rejected the Bank's argument that the arbitration clause and the choice of English law for the loan agreement amounted to ouster of the jurisdiction of Kenyan courts.

**36.** In addition to the two points analysed in paragraph 35 above, this Court is also mindful of the clear intent of our Judicature Act (Cap.; IX Revised Edition 2000). Section 14(2)(b)(i^ of that Act gives the High Court unlimited jurisdiction in all matters, to be exercised:

> " *(b) subject to any written law and in so far as the written law does not extend or apply, in conformity with- (i) the common law and the doctrines ofequity;"*

37. In view of the above-quoted provision of the Judicature Act, and in view of the absence of any direct Ugandan statutory provision on the point, it is clear that the common law is to apply in this instance. In this connection, the common law rule as to the proper law of a contract is stated in **Cheshire and North on Private International Law (10th Edn.),** at page 208 as follows:

> *closest and most real connection'." "...where it has not been expressly chosen, the proper law depends upon the localization of the contract. The court imputes to the parties an intention to stand by the legal system which, having regard to the incidence of the connecting factors and of the circumstances generally, the contract appears most properly to belong. In short, the proper law, as Westlake stressed, is 'the system of law by reference to which the contract was made or that with which the transaction has the*

and at page 211, that:

*"In its search for the system of law with which the contract is most closely connected the court must look at all the circumstances ofthe contract. To lay down firm rules would be to return to the rejected use ofpresumptions, but there is little doubt that the court will take into account such factors as the place of residence or business of the parties, the place where the contract is made or is to be performed and the nature and subject matter ofthe contract."*

- It is quite evident, as stated at the outset of this Judgment (see paragraph 5), that as the suit contract (the MOFA) was drawn and executed in India, between persons who are residents of India, regarding distribution of property situate in India or otherwise relating to companies situate in India, this Court must apply Indian/Hindu law. - 38. The Defendants' second challenge against the applicability of Ugandan law was to the effect that the Plaintiff cannot be declared beneficial owner of the shares in ROADMASTER CYCLES or have those shares transferred to him, without the Fourth Defendant having first executed a share transfer to him. **First,** in **Kale's case** *(supra)* their Lordships of the Indian Supreme Court stressed the *equitable* nature of a family arrangement (such as the instant MOFA) under Indian/Hindu law. At page 120 of that case, their Lordships emphasised that:

*"Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made."* [emphasis added]

Indeed, at page 126 of the case, their Lordships drive the point (of equity versus law) very forcefully when they categorically state the following:

" *The court when deciding the rights of parties under family arrangements or claims to upset such arrangements, considers what in the broadest view ofthe matter is most for the interest of families, and has regard to considerations which, in dealing with transactions between persons not members of the same family, would not be taken into account. Matters which would be fata! to the validity ofsimilar transactions between strangers are not objections to the binding effect offamily arrangements."* [emphasis added]

**Second,** it is trite law that pending the formal transfer of a company's shares, the transferee (whether such transferee is the buyer or donee of such shares or otherwise) enjoys a beneficial interest in those shares as the equitable owner thereof - see GOWER's **Principles of Modern Company Law (6th Edn. 1997), p. 348,** which explains that:

*"...only ifand when the transfer is registered will the transferor cease to be a member and shareholder. However, notwithstanding that registration has not occurred, the beneficial interest in the shares may have passed from the transferor to the transferee.*

*Notwithstanding that the transfer is not lodged for registration or registration is refused, the beneficial interest in the shares will, it seems, pass from the seller to the buyer.*

*The seller then becomes a trustee for the buyer and must account to him for any dividends he receives and vote in accordance with his instructions (or appoint him as his proxy)."* [emphasis added]

With - see **Hardoon v. Belilios [1901] AC 118, P. C** regard to gifts (rather than sales of shares), it has been heid that so long as the donor had done all he needs to do, the beneficial interest passes from him to the donee - see **Re** Roe [1949] **Ch** 78, and **Re Roe [1952] Ch 499 CA.**

**Third,** when the court entertains an application to rectify a share register, it is bound to go into all the circumstances of the case, and to consider what equity the applicant has to call for its interposition - see **Halsbury's Laws of England, (4th Edn.), Vol. 7(1) para 394** and the cases cited in note 3 thereof.

It is noted, moreover, that the Plaintiff's prayer in this regard was for ^a Court order that the share register of ROADMASTER CYCLES be rectified by deleting the name of the Plaintiff and his nominee as the owner of the Fourth Defendant's shares. On this point, **Halsbury's Laws** *(supra)* **para 393 note 2** is quite categorical concerning the proper forum for rectifying ^a company's share register. It states that:

*"Rectification of the share register is a matter for the court of the country of incorporation of the company: International Credit and Investment Co. (Overseas) Ltd v Ad/tam (199-1) 1 BCLC 66 at 78 per Herman^. See also Re Fagins Bookshop p/c [1992]BCLC118."* [emphasis added]

39. From all the above, there can be no doubt at all but that the **principles of equity** govern the transaction at hand; and that the proper court to entertain an application for the rectification of the share register of ROADMASTER CYCLES is the court in the country of ROADMASTER's incorporation (i.e. Ugandan courts).

- **40.** The final challenge was to the effect that declaration of the Plaintiff as the beneficial owner of the ROADMASTER CYCLE shares and rectification of that company's share register would contravene the former section 14 (now section 15) of the Exchange Control ~Act of Uganda. That section prohibits transactions in securities held by nominees without the permission of the Minister. That prohibition is ^a typical exchange control measure of the classic type - typical of the ancient and outdated restrictive exchange system prevailing in 1951 when the Exchange Control Act of Uganda came into force. - **41.** been liberated. However, ever since the 1950s revolutionary developments have emerged on the exchange front. This Court is inclined to take judicial notice of the notorious fact that ever since the 1990s, exchange controls in Uganda were removed and exchange transactions have A prime example of this liberation was the foreign exchange liberalisation wrought by the Exchange Control (Forex Bureaux) Order, ¹⁹⁹¹ - promulgated as S. I. No. ⁷ of 1991, which completely liberalised all transactions involving the sale, purchase and transfer of foreign exchange. In similar vein, sections 75-87 of the 111. I . , Companies Act allow complete freedom in effecting the very transactions involving company securities that are purportedly prohibited by the Exchange Control Act. Paramount among these provisions are sections 75,77,79, 81 and 85 which give absolute freedom to transfer a company's shares in any manner provided by the articles of that company. There is no restriction or qualification to these transfers - certainly none requiring Ministerial permission. - **42.** To the extent that one Act provides for prohibitions on dealings in securities (without Ministerial permission), while the other Act provides for complete freedom in these dealings, there is a direct and manifest conflict between the two Acts. The conflict is made even more poignant given that notwithstanding the recent series of amendments

to the Companies Act - the last of which was effected only as recently as ¹⁹⁹⁶ - no restrictions or prohibitions at all (similar to those of the exchange control legislation) have been introduced to encumber the freedom of share transfers. In as much as the Companies Act is the more direct regulatory regime for transferring company shares (than the Exchange Control Act is), the Companies Act prevails in the event of a conflict between the two Acts. In this regard, it is trite law of statutory construction (called the *generalia specia/ibus* rule) that a specific legislation on a particular subject matter, takes precedence over general legislation - see **Refrigerated Express Lines (A/Asia) Pty Ltd. v Australian Meat and Livestock Corporation (1980) 29 ALR 333, at 347.** See also this Court's Ruling of 01/06/99 in **Sule Pharmacy v The Registered Trustees of the Khoja Shia Itana Shari Jamat, Misc. Application No. 147 of 1999** (unreported).

The Court is satisfied that on this issue, the antiquated restrictive Exchange Control Act has been fully and effectively overtaken by the Government's declared policy of liberalisation.

**43.** Conflicts similar to those considered in paragraphs 41 and 42 above, also arise between the Exchange Control Act and the Capital Markets Authority Act. While the definition of "securities" in section l(l)(l) of the Exchange Control Act is for all purposes the same as the definition of that term in section l(hh) of the Capital Markets Authority Act (Cap. 8^), yet the latter Act does not impose any restrictions on the issuance, dealings in, or transfer of securities of the kind promulgated in the Exchange Control Act. On the contrary, the Capital Markets Authority Act is based on the philosophy of a fully liberalised regime of trading securities on or through the stock exchange(s). Here again, there is an evident conflict between the two Acts. That conflict must be resolved in favour of liberalism, in as much as the Capital Markets Authority Act is the later legislation (Statute 1 of 1996), as opposed to the ancient Exchange Control Act (of 1951).

$44.$ In conclusion, all three challenges raised by the Defendants against the applicability of Ugandan law to the instant case have absolutely no foundation. They must fail. In the result, Judgment is hereby entered for the Plaintiff as prayed:

e ç

- (a) for a declaration that the Plaintiff is the beneficial owner of all the shares of ROADMASTER CYCLES (U) LTD; - (b) for rectification of the share register of ROADMASTER CYCLES (U) LTD by deleting therefrom the name of the Fourth Defendant, and substituting therefor the name of the Plaintiff and his nominee as the true owner of the Fourth Defendant's shares in ROADMASTER CYCLES (U) LTD; - (c) for the costs of this suit against all the Defendants, jointly and severally.

## Ordered accordingly.

James Ogoola **JUDGE** 25/09/2003

## DELIVERED IN OPEN COURT, BEFORE:

Masembe Kanyerezi, Esq – Counsel for the Plaintiffs Oscar Kambona, Esq – Counsel for the Defendants J. M. Egetu – Court Clerk

> James Ogoola JUDGE 25/09/2003