[2024] UGRSB 20


# IN THE MATTER OF THE COMPANIES ACT 2012 IN THE MATTER OF A PETITION BY GREAT LAKES ENERGY COMPANY N. V. FOR RECTIFICATION OF THE REGISTER IN RELATION TO MSS XSABO **POWER LIMITED**

### IN THE MATTER OF COMPANY PETITION NUMBER 005 OF 2020

# GREAT LAKES ENERGY COMPANY N. V:::::::::::::::::::::::::::::::::::: **VERSUS**

MSS XSABO POWER LIMITED:::::::::::::::::::::::::::::::::::: **RULING**

## BEFORE: MERCY K. KAINOBWISHO, REGISTRAR GENERAL / REGISTRAR OF **COMPANIES**

#### A. Background

1. This application was filed in 2020 and brought under Section 173 of the Companies Act, 2012¹ ( as it was then) and Regulations 8 and 9 of the Companies (Powers of the Registrar) Regulations, 2016. The application is supported by a statutory declaration sworn by Mr. Micheal John Kearns, a British national and director of the Applicant company. This application seeks rectification of the register by expunging resolutions allegedly executed and filed illegally revoking or forfeiting the Applicant's 96 shares. It is brought under the Companies (Powers of the Registrar) Regulations, 2016 which provide for the procedure for handling applications for rectification. I note that Regulations 21 of those regulations provide that; "unless otherwise provided, every application to the registrar shall be in writing". Hence the nature of this action is an "application" and not "a petition" as referred to by the Applicant and the Respondent. Although this error has no bearing on the merits of the case, I will use the appropriate language in this ruling— "application" and "Applicant" as opposed to "petition" and "Applicant" to refer to this action and the persons party to it.

#### **B.** The Applicant's case

2. The Applicant seeks rectification of the register of the Respondent company by invoking the powers of the Registrar under the Companies Act and the Companies (Powers of the Registrar) Regulations, 2016 to strike off the record or expunge a board of directors' resolution dated 4^th

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^&lt;sup>1</sup> The law applicable now is the Companies Act, 106.

November 2019 and filed on 5^th November 2019, which revoked the Applicant's 96 shares held in the Respondent company. It also seeks the restoration of the Applicant's 96 shares in the Respondent company and restraining orders against the Respondent's further acts of altering the share structure of the company.

- 3. The Applicant relied on the following facts as the basis for its application. That on 30^th November 2017, the Applicant executed an investment agreement (amended on 16^th November, 2017 and 22^nd March, 2018) with Bryan Xsabo Strategy Consultants (Uganda) Limited, Mola Solar Systems (Uganda) Limited, Dr. David Alobo and Consicara Global Investors Ltd in connection with the financing, development and operation of a 20 MW solar panel plant in Kabulasoke, Gomba District by MSS Xsabo Power Limited—the Respondent herein. That pursuant to the said investment agreement, the Applicant granted several loans to the Respondent to develop the said solar project. That further, the parties entered a Call-option Agreement dated 30^th April, 2017 by which the Applicant was granted the contractual option to require the existing shareholders, at the time of the exercise of the option, to transfer such number of shares in the Respondent which would result in the Applicant holding 60% of the total issued share capital of the Respondent company. - 4. That in furtherance of the terms of the investment agreement, the Respondent company increased its share capital by creation of 96 additional ordinary shares, making a total of 196 shares and increasing share capital from Ugx 100,000,000/= to 196,000,000/= by further resolution of $5^th$ December 2017, the Respondent Company approved a share charge and an allotment of the 96 ordinary shares to the Applicant. - 5. The Applicant states that subsequently a dispute arose between the Applicant on one hand and the Respondent, Mola Solar, Dr. David Alobo and Consicara Global Investors limited on the other hand, regarding to failure by the Respondent to repay loan facilities and to abide by the call option. That with regard to this dispute, arbitral proceedings were commenced at the London Court of International Arbitration. That subsequently, on 14^th January 2019, Dr. Alobo—director of the Respondent, filed a resolution of the Respondent suspending the investment agreement with the Applicant. That on 6^th August, 2019, the said Dr. Alobo filed another resolution unilaterally revoking the investment agreement for reasons that were stated to be sealed in a document, which the Applicant states, were never brought to its attention. The same resolution also reversed the shareholding and restored the share structure to its state before the contractual arrangements, to Bryan Xsabo Strategy Consultants (Uganda) Limited holding 80 percent and Mola Solar Systems (Uganda) Limited holding 20 percent. On 4^th November 2019, the Respondent company passed a board resolution, in a board meeting, which the Applicant did not participate in, and revoked the Applicant's 96 shares. The Applicant is aggrieved by the unilateral actions of the Respondent in revoking its 96 shares and contends that such an action was illegal. The Applicant contends that the said 96 shares were paid up and were not liable to revocation, cancellation or forfeiture. The Applicant further contends that cancellation of fully paid-up shares is subject to confirmation by order of the High Court, and since this was not done, the actions of the Respondent are illegal.

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#### C. The Respondent's case

- 6. In its amended answer to the application, the Respondent stated that it was incorporated on 30^th September 2013, with Bryan Xsabo Strategy Consultants (Uganda) Limited holding 80 ordinary shares and Mola Solar Systems (Uganda) Limited holding 20 ordinary shares. That on 5^th December 2017, after entering into the Investment agreement with the Applicant, the shareholding was altered where the Applicant was allotted 96 ordinary shares, Bryan Xsabo Strategy Consultants (Uganda) Limited 80 shares and Molar Solar Systems (Uganda) Limited 20 shares. That the said shareholding remained like that until November 2019, when it was altered to Bryan Xsabo Strategy Consultants (Uganda) Limited holding 156.8 ordinary shares and Molar Solar Systems (Uganda) Limited 39.2 ordinary shares. The Respondent states the reasons for those changes as follows; - 7. That in furtherance of its intention to start a pilot solar power project of 20 MW in Kabulasoke Gomba District, the Respondent, together with Consicara Global Investors, Mola Solar Systems (Uganda) limited, Bryan Xsabo Strategy Consultants (Uganda) Limited and Dr. David Alobo executed an investment agreement with the Applicant. That the Respondent was made to believe that the Engineering, Procurement and Construction (EPC) Price for the 20MW solar project was USD. 24,500,000/-. That Dr. David Alobo signed the EPC contract and committed to pay and contribute his part of the investment on the mistaken belief that the correct amount of the said is USD. 24,500,000/- which was what had been calculated to the total EPC price. That after committing to the contract amount of USD. 24,500,000/-, the Respondent unearthed fraud that it deemed to make the whole investment contract voidable at their option. That the Respondent discovered from IMMODO Power Africa, that the total EPC price was actually USD. 18,050,000/-The Respondent treated this as an act of deceit, false misrepresentation and fraud. The Respondent contends that if it had known this, it would not have accepted to pay their part because of the inflated price, which it considers a dishonest cunning act by the Applicant. This inflation was based on a false project development consultancy agreement worth USD. 6,450,000/- with Long Red Technology Company Ltd, a company the Respondent claims is owned by Mr. Kariuki Humprey and family. - The Respondent contends that the fraudulent inclusion of USD. 6,450,000/- was perpetrated by 8. Rikin Shah, the Executive Director of the Applicant under the direction of Humprey Kariuki who owns the Applicant, where IMMODO Power Africa was ordered to pay USD. 6,450,000/- to Long Red Technology Company Ltd owned by the said Kariuki and family. That this act breached clause 9.3 of the Investment agreement, and that upon finding out, the Respondent deemed it that law and equity imposed a duty on the Applicant to only expect the Respondent to contribute based on the correct EPC of USD.18,050,000/-. That it was because of these fraudulent actions that the Respondent decided to suspend the investment agreement and notify the Applicant with an intention of amicably resolving the dispute as per clause 16.2 of the investment agreement. That

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despite their efforts, the Applicant and Kariuki refused to meet the Respondent and for this reason, the Respondent cancelled the shares of the Applicant and allotted them to the other two shareholders. The Respondent denies the Applicant's assertions that these actions were illegal and also denies that they constitute reduction of share capital within the meaning of the Companies Act.

- 9. The Respondent further contends that its actions are justified and were taken in accordance with the memorandum and articles of association of the company. The Respondent refers to articles 5, 6, 7, 22 and 26 of the memorandum and articles in support of this averment, and that the articles give the directors powers to allot shares. The Respondent also adds that the decision of the directors to reverse the 96 shares was approved by the shareholders of the company. That prior to forfeiture of the shares, the Respondent was given notice to clear the allegations of fraud, later suspended so that it could explain the inflated commission it had fraudulently made. That the suspension gave the Applicant an opportunity for a fair hearing of 90 days from the time the Respondent learnt of the fraud from Immodo. That another letter was issued by Dr. David Alobo detailing the reasons for the suspension of the investment agreement, and a subsequent letter dated 4^th February 2019 was issued. That instead of accepting to appear and amicably resolve the dispute, through Macfarlane's letter dated 6^th February 2019, the Applicant denied wrongdoing. That on 28^th March 2019, the Respondent issued another letter to the Applicant seeking explanation why the benefit of USD 6,450,000/- was not disclosed. That further, on the same date, the Respondent wrote to Long Red Technology Company ltd to clarify on the alleged consultancy agreement. That on 3^rd April 2019, Macfarlane wrote on behalf of the Applicant seeking a meeting to resolve the issue. This meeting took place in Lisbon and was attended by Dr. David Alobo. The Respondent states that this meeting did not yield resolution of the dispute and accuses Mr. Humphrey Kariuki of resorting to intimidating Dr. David Alobo. That it was after all these efforts had failed that the Respondent and its promoters with whom it had entered the Investment Agreement on one hand, with the Applicant, decided to treat the investment agreement and its ancillary agreements as being void, and decided to repudiate them—consequently revoking the Applicant's shares. - 10. The Respondent avers that the board resolution dated 4^th November 2019 cancelling the Applicants shares, were, in light of the circumstances, justified and that the London Court of Arbitration in its partial award has confirmed that the Applicant received a secret bribe in breach of its fiduciary duty and that the only remedy available is for the Applicant to petition the directors of the Respondent to address the dispute. In response to the contention that the 96 shares were fully paid, the Respondent asserts that the same were never paid and that a call on shares was made vide a letter dated 17^th November 2017, requiring the Applicant to pay for the shares within 60 days, and the same was delivered via DHL under packet number 5587364580, and that upon failure to honor the call, the Respondent's board, on 17^th February 2018, resolved to forfeit the shares and, by resolution of 4^th November 2019, resolved to re-allot the same to the original shareholders and that as such, this resolution, which was filed on 5^th November 2019, is not misleading, inaccurate, neither is it issued in error nor does it contain an illegal endorsement as alleged by the Applicant.

14/1624

#### **D.** Hearing and Representation

- 11. When this matter came up for hearing on 4^th September 2024, before Assistant Registrar Solomon Muliisa, the Applicant was represented by Counsel Hussein Kashillingi of M/s. Kashillingi, Rugaba & Associates while the Respondent was represented by Counsel Andrew Mupenie together with Esther Natenge of M/s Makada and Partners. - 12. Mr. Micheal John Kearns, a director of the Applicant and Ms. Sheila Kaburu, the legal officer of the Applicant, were present. Scheduling was conducted and the issues were modified from those set out in the joint scheduling memorandum. The issues raised for determination were as follows; - $(i)$ *Whether the Applicant was allotted 96 fully paid-up ordinary shares in* consideration for the entry into and performance of the Investment Agreement. - $(ii)$ *Whether the 96 ordinary shares issued to the Applicant were fully paid up.* - Whether the 96 ordinary shares allotted to the Applicant cannot be revoked or (iii) cancelled without the consent of the Applicant. - $(iv)$ *Whether the cancellation or forfeiture of the shares allotted to the Applicant* resulted into reduction of share capital. - $(v)$ *Whether the Applicant committed any breach of the investment agreement or* the call option agreement warranting the actions taken by Dr. David Alobo. - *Whether the board of directors' resolution on 5^th November 2019 revoking/* $(vi)$ cancelling the Applicant's shares in the Respondent is misleading, inaccurate, issued in error, contains and illegal endorsement and was illegally obtained and as such qualifies to be expunded from the register. - $(vii)$ What are the remedies available?

#### $\mathbf{E}.$ **Examination in Chief and Cross-Examination of Micheal John Kearns**

12. After the scheduling, Micheal John Kearns was examined in-chief by Counsel for the Applicant and cross-examined by Counsel for the Respondent. I will take into account this evidence in determination of the issues raised above.

#### $\mathbf{F}$ . Submissions by the Party's Advocates.

13. Counsel for both parties filed written submissions, which I have carefully read and I will address in determination of the issues.

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#### **G.** Recall of the Decision of the Assistant Registrar of Companies.

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- 14. This matter had been previously handled by Assistant Registrar of Companies, Solomon Muliisa. When he submitted the draft Ruling for clearance, I advised him to review the awards from the London Court of International Arbitration and all documents available on record to satisfy ourselves on the question of payment for shares and we discuss the same. - 15. Contrary to my advice, the Assistant Registrar immediately went ahead and issued what he had presented as a draft Ruling. This prompted me to recall the same. It is against this background that I took over this matter, hence this ruling. - 16. From the evidence and submissions of the parties on record, I did not find it necessary to require the parties to appear before me again. I have therefore relied on the pleadings, evidence and submissions that had already been filed by the parties.

## H. Preliminary Point of Law as to the Scope of the Registrar's Jurisdiction in this Application

- 17. Counsel for the Applicant started by making legal arguments on the scope of the Registrar's jurisdiction, and I agree with him, that it is important for the Registrar to clearly demarcate matters that are within his/her jurisdiction and those that are not given the protracted nature of this dispute. Counsel submits that addressing this issue is relevant because the Respondent, in its amended answer to the application, and the accompanying statutory declaration of Dr. David Alobo, inappropriately seeks to address substantive issues arising from the Investment agreement, matters which are outside the scope of the Registrar's inquiry. Counsel rightly submits that matters under those agreements have been adjudicated by the London Court of Arbitration and Courts of Judicature, and that those issues are contractual in nature and clearly outside the Registrar's jurisdiction. Counsel further submits that with regard to this application, the Registrar should confine himself to company law issues. Counsel prays that the Registrar delivers a preliminary ruling on this issue before delivering the ruling on substantive issues. - 18. In his submissions in reply, Counsel for Respondent submits that the matters which Counsel for the Applicant avers are outside the scope of the Registrar's inquiry, were introduced by the Applicant under para 2.4 of the Petition—which alleged that the 96 shares were consideration for entry into and performance of the investment contract, and that as such were fully paid up. Further, under para 3.1, the Applicant/Applicant also alleged that revocation, cancellation of the 96 shares were unlawful because they were issued as fully paid up and hence were not eligible for revocation, cancellation or forfeiture. That further, the cancellation resulted in reduction of share capital, and that the Applicant did not commit a breach of the investment agreement and that revocation of the shares constitutes a change in the Respondent's control, requiring the consent of ERA. To respond to this averment. Counsel submits that it was necessary to introduce matters related to the breach


of the investment agreement. Further, owing to the awards rendered by the London Court of Arbitration, it was necessary to amend the answer to the petition and include those developments, as opposed to proceeding with the petition as it was filed in 2020.

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- 19. I agree with the arguments of both Counsel on this issue. With Respect to the submissions by Counsel for the Applicant, I agree that the jurisdiction of the Registrar is limited to aspects of company law involved. However, I decline Counsel's prayer to first issue a ruling on this preliminary point as I consider it a mere issue of caution on my side as the presiding officer, and not a dispute between the parties requiring a binding determination. With respect to the submissions in reply by Counsel for the Respondent, I agree that it is necessary to analyze the facts relevant to this dispute for giving proper context. As such it is necessary to give the background of the dispute, and indeed the updates on the developments that have since taken place. The duty is then left to the Registrar to analyze these and limit her determination to matters within her jurisdiction. - 20. As both Counsel are aware, and indeed were both Counsel in proceedings before the Honourable Justice Boniface Wamala in 2022, when Counsel for the Respondent filed Company Cause No.13 of 2022: MSS Xsabo Power Ltd v Great lakes Energy Company N. V challenging the decision of Ms. Angela Nyesiga (the Assistant Registrar that was handling this matter at the time), who had ruled against the Respondent's application to file an amended answer to the petition and introduce new facts that are relevant to its defense. The Honourable Justice Boniface Wamala, in reversing the decision of the Registrar, issued useful guidance on the scope of the Registrar's inquiry in this application. I quote extensively below;

"I am alive to the aspect that the facts before the Registrar also formed the basis of the concurrent proceedings in the London Court of International Arbitration (LCIA) Tribunal. It was the understanding of both parties that the two proceedings would go on concurrently. Both the Registrar and the Arbitral Tribunal were also aware of the existence of the concurrent proceedings. That being the case, the Appellant cannot be denied an opportunity to rely on facts which also happened to be part of the concurrent arbitral proceedings. The question, therefore, is not whether the facts sought to be adduced in the amendment were also traversed in the arbitral proceedings. Rather, the correct question is whether the facts are relevant and are being adduced in support of the Appellant's case before the Registrar of Companies. It is expected that the arbitral tribunal would steer clear of matters that are a preserve of the Registrar of Companies. Similarly, the Registrar of Companies is also expected to steer clear of matters that were the subject of the arbitral proceedings or of any potential court action. In my view, such is the principle and approach that ought to have been applied by the learned Registrar of Companies.

As a matter of fact, I am aware that the Arbitral Tribunal rendered its Final Award on $11^th$ September 2023. The present Appellant with 4 others preferred an application before the Commercial Division of the High Court vide Arbitral Cause No. 014 of 2024 seeking an order

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refusing the recognition and enforcement in Uganda, of the Final Arbitral Award of the London Court of International Arbitration (LCIA). Earlier on, the present Respondent vide Arbitration *Cause No. 075 of 2023 had lodged an application before the Commercial Court seeking an order* recognizing as enforceable in Uganda, the said Final Arbitral Award; and for leave of the Court to enforce the same. The two applications were consolidated and determined by Hon. Justice Stephen Mubiru in a decision dated 18^th April 2024. It is, therefore, now clear on record which matters have been subject of pronouncement by the Arbitral Tribunal on the one hand and the *Court on the other in applications subsequent to the Arbitral Award. The Registrar of Companies is therefore well placed to, while relying on the same or related facts, hear and determine matters* that are within the confine of her jurisdiction." (Emphasis mine)

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21. The guidance of Court above is quite clear and I have no doubt that it should be sufficient to allay Counsel for the Applicant's fears. As rightly stated by the learned Judge, the Registrar cannot blindfold herself from the relevant current facts that are key to determine this dispute. Indeed, by allowing the application for amendment, the Court impliedly directed the Assistant Registrar to examine those facts. Otherwise if it had not found them relevant to this application, the High Court would have agreed with the ruling of the then Assistant Registrar Nyesiga Angela who had ruled against amendment of the answer to the petition to introduce those facts. In addition, I am mindful that since the decision of the first registrar who first heard this dispute in 2020 was quashed by the High Court presided over by Hon. Justice Musa Sekaana, I am determining this dispute afresh. I am therefore required to take into account the new facts in the amended answer to the petition. I will leave this issue at that and proceed to determine the Respondent's preliminary objection and the rest of issues, following the guidance of Court cited above.

### **I. Preliminary Objection by the Respondent as to Jurisdiction of the Registrar to Determine This** Dispute.

22. Counsel for the Respondent, outrightly disputes the jurisdiction of the Registrar to determine this application, contending that the Registrar is barred by Regulation 4 of the Companies (Powers of Registrar) Regulations, 2016 which bars the registrar from hearing matters that are pending before Courts of Judicature. Counsel for the Respondent bases this argument on the fact that the decision of Justice Stephen Mubiru in Great Lakes Energy Company N. V versus MSS Xsabo Power Ltd and Others, Arbitration Cause No. 0002 and 0005 of 2023, in an application which sought the recognition and enforcement of the two partial awards, was appealed to the Court of Appeal vide **CACA No. 1020 of 2023**. Subsequently, the Court of Appeal, with the Consent of the Parties, issued a temporary injunction. That appeal specifically challenges the finding of the High Court that orders 271 to 271.3 of the award are unenforceable for being contrary to public policy. Counsel submits that should the Court of Appeal reverse this order, the award will be deemed a decree of Court under section 43, and hence enforceable. Counsel adds that should the Registrar find that the shares were not paid for, this would conflict with the award, which on account of its recognition, is in essence a conflict with a decree of Court. Counsel concludes that regulation 23

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(a) of the Companies (Powers of the Registrar) Regulations, 2016 requires the Registrar to dismiss a matter pending before court, and in essence, invites me to dismiss this application. In rejoinder, Counsel for Applicant disputes these reasons, and states the basis for Justice Mubiru's decision to refuse recognition of parts of the partial awards relating to the ownership of 96 shares, from a public policy perspective was that the appropriate forum, for determination of the question regarding the 96 shares was the registrar and not the arbitral tribunal. I agree with Counsel for the Applicant that indeed this was the finding of Justice Mubiru, and his decision was anchored on the decision of Justice Musa Sekaana in Company Cause No. 13 of 2020, where the first decision of the Registrar who reversed the resolution of the Respondent revoking the 96 shares herein was successfully challenged. At the time, the dispute had been presided over by the then Assistant Registrar Tumukunde Tonny. Court having found gross irregularities in the process, set aside the ruling and ordered that the matter be re-heard by a different Registrar. It was this very decision of Justice Sekaana that Justice Mubiru made note of in his decision to deny enforcement of the parts of the partial awards, when he stated as follows;

"Furthermore, it is not disputed that the Civil Division of the High Court on 7^th July, 2021 delivered judgement in Company Cause No. 13 of 2020 setting aside the orders of the Registrar of Companies, reversing the decision of the $1^{st}$ Respondent's board of directors in relation to its shareholding, and directed the re-hearing of the Applicant's complaint before a different Registrar. The re-hearing directed by Court is yet to be concluded yet some aspects of the same matters are the subject of the two partial awards now in issue. It is a matter of public policy that an international arbitral award that conflicts with a local judgement may not be entitled to recognition, especially where the conflict relates to an issue of public policy. It is on that account that this Court finds the following order in the first partial award handed down on 11^th March, *2022 to be unenforceable for being contrary to the public policy of Uganda'' (emphasis mine)*

- 23. For that reason, I am unable to see how an appeal against the finding of Justice Mubiru as clearly set out in the extract above, which was a mere recognition of the existence of an earlier position, is part of the matters pending appeal before the Court of Appeal. The only appeal in my view that would constitute a bar to the Registrar's jurisdiction under regulation 4 of the Companies (Powers of Registrar) Regulations, 2016 is an appeal against the decision of Justice Musa Sekaana in Company Cause No 13 of 2020: Bryan Xsabo Strategy Consultants (Uganda) Ltd and 2 others V Great Lakes Energy Company N. V that directed the Registrar to hear this matter. That decision, as far as I am aware, was not appealed against and is a direct instruction to the Registrar to re-hear this matter. For the avoidance of doubt, I reproduce the order of court, made at page 15 of the ruling; "This ground of review succeeds. The order of the Registrar is set aside. The registrar *is directed to re-hear the complaint before a different person (registrar).*" (Emphasis mine) - 24. In light of that Order, and contrary to the submission of Counsel for the Respondent, the Registrar is duty bound to comply with the orders of court. Accordingly, the Objection is overruled. ## J. Resolution of Issues

Issues (i) and (ii): Whether the Applicant was allotted 96 fully paid-up ordinary shares in consideration for the entry into and performance of the Investment Agreement and Whether the 96 ordinary shares issued to the Applicant were fully paid up.

25. I will address issues (i) and (ii) concurrently. In resolving these issues, I will limit my analysis to Company law issues within my scope as the Registrar under the Companies Act and its related regulations. I will consider the relevant evidence provided in the parties' Statutory Declarations, their submissions, and pertinent documents filed in the company registry.

# **Applicant's Case**

- 26. The essence of the Applicant's case for Issues (i) and (ii) is derived from the Statutory Declaration sworn by Michael John Kearns and the Applicant's submissions. The Applicant asserts that, under an Investment Agreement dated 30^th April, 2017 with several parties, including the Respondent, they agreed to provide financing to the Respondent in exchange for ordinary shares. - 27. The Applicant claims that after fulfilling their obligations under the Investment Agreement, and in consideration of this performance, the Respondent passed a shareholders' resolution on 5^th December 2017, filed on 19^th January 2018, along with a board resolution dated 5^th December 2017, filed on 29^th January 2018. These resolutions approved the terms of the Investment Agreement, waived pre-emption rights, authorized the creation of 96 ordinary shares, and authorized the directors to allot these shares irrevocably to the Applicant. - 28. The Applicant further asserts that the Company filed a Return of Allotment dated 5^th December 2017 and filed on 29^th January 2018, in which it allotted 96 fully paid shares to the Applicant. The Applicant reiterates that the shares allotted to them were fully paid, supported by the filed Return of Allotment, a share certificate for 96 shares, and the Company's annual returns for 2019 and 2022, indicating a fully paid-up share capital of 196 shares, of which the Applicant held 96.

## **Respondent's Case.**

29. The Respondent's case, as derived from Respondent Counsel's submissions and Statutory Declaration sworn by Dr. David Alobo, is that the Respondent entered into an Investment Agreement with the Applicant, under which financing would be provided through the acquisition (by payment) of ordinary shares. The Respondent's shareholders conditionally approved and authorised the creation of 96 additional shares to be allotted to the Applicant, and a Shareholders' Agreement was subsequently signed, acknowledging this allotment.

- 30. The Respondent argues that the Investment Agreement stipulated that share acquisition was to occur through payment, not merely through the Applicant's participation or performance under the agreement. They contend that the Applicant failed to pay the required 96,078,431.37 UGX. Despite loans provided by the Applicant that could have been converted to equity, the Applicant instead demanded repayment of the loans rather than paying for the shares. - 31. After repeated reminders to the Applicant to settle the share payment, the Respondent's Board issued a formal call for payment on 17^th October 2017, granting a 30-day notice via letter, followed by a second 60-day notice on 17^th November 2017. When the Applicant failed to remit payment, the Respondent's Secretary declared the shares forfeited on 17^th February 2018. - 32. In his Statutory Declaration, Dr. David Alobo contends that the evidence adduced by the Applicant like the share certificate was undated and issued in good faith, with the understanding that the Applicant would eventually pay. He further claims that the Applicant improperly completed and filed the Return of Allotment without making any payments. Dr. Alobo also states that the 2022 annual returns showing the Applicant as a shareholder with 96 fully paid shares were filed by the Applicant because the Registrar of Companies refused a return.

# Applicant's Rejoinder

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32. The Applicant in rejoinder asserts that the 96 fully paid shares were allotted as a result of the Applicant's fulfilment of their obligations under the Investment Agreement, which included making financial contributions and allocating a cash amount of USD 27,026 for ordinary shares. They maintain that a share certificate was issued, confirming the authorised 196 shares, with 96 shares being fully paid and registered in the Applicant's name.

## **Ruling on Issues (i) and (ii)**

- 33. This matter has been extensively litigated before the London Court of International Arbitration as well as the High Court of Uganda. I am aware that the arbitration has been concluded and there is no pending application to have the awards set aside at the seat of arbitration. I am also aware that there is a pending appeal in the Court of Appeal in relation to the recognition of the arbitral awards. - 34. In light of the fact that the arbitral awards have not been set aside, nor is there a pending application to set them aside, in determination of this issue, I will take into account findings of fact made by the Tribunal and the Courts. - 35. From the submissions of both parties, it is not disputed that 96 shares were allotted to the Applicant in the Respondent Company. This is evidenced by the relevant company resolutions passed by the Respondent as well as the return on allotment in respect to those shares. The point of contention is whether those shares were allotted as fully paid or unpaid.

- 36. In resolving this issue, I take into account decided cases, the agreements executed and filed by the parties, and factual findings made at different levels of litigation. - 37. In *Matthew Rukikaire v. Incafex*, Civil Appeal No. 03 of 2015, the Supreme Court addressed a dispute over whether allotted shares were paid up, establishing that allotment is essentially the company's acceptance of an offer to take shares. And that determination of whether shares were paid up can be done by examination of admitted evidence. However, the Court cautioned that any one single piece of evidence should not be taken as conclusive proof implying that all evidence should be examined as a whole. - 38. The Respondent argues that the Investment Agreement required the Applicant to acquire shares through direct payment for those shares, which the Applicant allegedly failed to do, prompting the Respondent to issue a call on the shares and subsequently forfeit the allotted shares. The Respondent also argues that the cancellation/forfeiture was based on fraud committed by the Applicant in respect of the secret commission which the Applicant took from the project. - 39. The Applicant on the other hand asserts that they fulfilled their investment obligations through payments under the Investment Agreement and related funding agreements. They argue that this fulfilment formed the basis for the allotment of the 96 fully paid-up shares, as evidenced by the company resolutions, return of allotment, share certificate and annual returns. - 40. The contractual provisions setting out the parties' intentions are contained in the Investment Agreement, the Call-option Agreement and the Shareholders Agreement. Clause 2 of the Investment Agreement provides as follows:

## STRUCTURE OF THE INVESTMENT.

2.1 The project cost shall be a combination of debt financing ("the debt financing"), ordinary shares and redeemable preference shares in the project company to be financed by the financier, *the investor and the first promoter as follows;*

## 2.1.1 Debt financing

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$2.1.1.1$ Debt financing is to constitute 0-70% of the project cost and shall be procured by the *investor and/or the promoters from the financier.*

## 2.1.3, Ordinary shares.

The rest of the project cost (i.e. less debt financing and redeemable shares) shall be financed by the investor and the $1$ ^st promoter in the ratio of 49:51% by way of an acquisition of ordinary shares of the project company in ratios proportionate to the Parties' Investment i.e. 49:51%. The parties may acquire the shares directly or through entities nominated by each of them."

MK<br>Wilbozy

41. It follows from the contractual provisions set out above that the project cost was to be financed by a mixture of debt financing (to be obtained from a financier as defined in the Agreement) and equity (in the form of ordinary and redeemable preference shares).

$\tilde{\boldsymbol{z}}$

- 42. Article 1 of the Investment Agreement defines debt financing as "such amount of the project cost as may be funded by way of debt from the financier". The same article defines a financier to mean a banking or any other financial institution that shall be engaged by the investor to provide the debt financing portion of the project cost. My understanding is that debt financing had to come from a third party engaged by the parties to the Investment Agreement. - 42. The London Court of International Arbitration made a finding of fact in the second partial award that the project company did not receive "debt financing" as contemplated in the agreement. The Respondent did not prove otherwise in the proceedings before me. I have read the Statutory Declaration of Dr. Alobo in response to the application and I note that he does not deny the Respondent receiving funds from the Applicant in respect of the project. From the foregoing, money disbursed by the Applicant to the Respondent did not constitute debt financing and as such it can only be equity contribution. - 43. I have reviewed various filings made by the Respondent company on its file and there is consistent information indicating that the 96 shares were issued as paid up. According to Section 59 of the Companies Act, CAP 106, a company must, within 60 days of allotting any shares, file a Return of Allotment with the Registrar of Companies. This return must indicate the amount paid, unpaid, or partly paid on the shares. - 44. The Respondent company filed a Return of Allotment dated 5^th December 2017 and registered on 29^th January 2018. My examination of the Return of Allotment shows that the Applicant was allotted 96 shares valued at UGX 96,000,000. Further, it confirms that the company's total shares amount to 196, each valued at UGX 1,000,000, with a fully paid-up share capital of UGX 196,000,000. This return was signed by the Respondent's Director, Dr. David Alobo. - 45. Dr. Alobo, in his Statutory Declaration acknowledges that he signed the Return of Allotment but claims that he handed it to the Applicant, intending that it would only be filed after the Applicant paid for the shares. However, he claims that the Applicant filed the return without completing payment. - 46. I find this explanation implausible, as the Return of Allotment, signed by the Director and filed with the Registry of Companies, clearly states that the total shares of the Company were 196 shares worth UGX 1,000,000 and amount paid for shares at the time of filing was indicated as UGX 196,000,000. The Respondent adduces no evidence for his assertions that the Applicant manipulated the return of allotment. I therefore find no reason to ignore the filed return of allotment indicating that the Applicant has 96 shares and that the fully paid share capital of the company is UGX 196,000,000.

NKK<br>Wilboy

47. The Applicant further relied on a Share Certificate with Serial No. 173030 (annexed to Micheal John Kearn's Statutory Declaration) indicating that all the shares were issued as fully paid, and it bears the official stamp and signatures of the Director and Secretary of the Respondent Company. The Respondent contends that although the certificate indicates the shares were fully paid, it was issued undated and in good faith based on the Applicant's promise to eventually pay for the shares, and therefore should be disregarded.

Section 90 of the Companies Act CAP 106 provides as follows:

"A certificate under the common seal of the company or any other title evidencing securities under this Act or any other law specifying any shares held by any member shall be prima facie evidence of title of the member to the shares."

- 48. I have examined the certificate in issue and it indicates that the 96 shares were allotted and fully paid. I note that Dr. Alobo in his Statutory Declaration introduced an annex to the share certificate he tendered in, which contained conditions in relation to the 96 shares stated in the share certificate. The Applicant maintains that it only received a share certificate with no such attached conditions. - 49. In light of Section 90 of the Companies Act, I am unable to believe the conditions attached to the share certificate as presented by the Respondent to warrant casting doubt on the contents of the share certificate presented by the Applicant. If the Respondent indeed intended to issue a share certificate in respect of unpaid shares, the certificate should have stated so on the face of it. - 50. I further notice that the company has been filing annual returns indicating that all the 196 shares are fully paid and that there is no indebtedness on the shares. Section 128 (1) of the Companies Act CAP 106 provides that a company having a share capital shall, at least once in every year, make a return containing with respect to the registered office of the company, registers of members and debenture holders, shares and debentures indebtedness, past and present members and directors and secretary, the matters specified in Part I of Schedule 3 to this Act and the return shall be in the form and shall be made up to the date set out in Part II of that Schedule or as near to it as circumstances admit. The purpose of the annual return is to provide the registry with the status of the Company at the time it is filed. - 51. Having carefully evaluated all the evidence and the submissions of the respective parties, I am satisfied that the Respondent Company allotted the 96 ordinary shares to the Applicant as fully paid up shares in the Respondent company. Accordingly, Issues (i) and (ii) are answered in the affirmative.

19KK<br>Whilbozy

# Issue (iii): Whether the 96 ordinary shares allotted to the Applicant cannot be revoked or cancelled without the consent of the Applicant.

- 52. Counsel for the Applicant submitted that the shares in issue were validly created, allotted, and that the relevant documents such as the resolution and the Return of Allotment had been respectfully filed with the Registrar of Companies. Counsel added that the company had recognized the Applicant's shareholding even in subsequent annual returns and as such the company was estopped from claiming that the Applicant's shares had been cancelled/revoked. - 53. The Respondent's counsel on the other hand argued that whereas the shares in issue were rightfully allotted to the Applicant, the Applicant never paid for them, thereby flouting his obligation and warranting revocation of those shares. He relied on the testimony of Dr. David Alobo who testified that the company made a call on the 96 shares held by the Applicant in the company, and upon the Applicant's failure to adhere to the call, the board passed a resolution to effect forfeiture of the Applicant's shares in the company. In the opinion of counsel for the Respondent, the Applicant's shares could be revoked and/or forfeited, and the contested revocation and/or forfeiture was done within the confines of the law.

In rejoinder, Counsel for the Applicant largely reiterated his earlier submission.

## **Analysis.**

- 54. The terms forfeiture, revocation and cancellation of shares were mixed-up especially on the part of the Respondent. For clarity, I will describe revocation, cancellation and forfeiture, and determine whether they apply to the matter before me. - 55. *Revocation of shares* is not defined in our legal regime. Zolleb, J in O'Hagan v. Kracke, (300 N. Y. S. 351, 362, 165 Misc.) defined the term "revoke" as; "To annul or make void by recalling or *taking back; cancel; rescind; repeal; reverse.*" - 56. Going by this definition, in my opinion, the term "*revocation of shares*" is a broad term which when used attracts two interpretations in relation to our domestic company law, which may be: - a) Either cancellation of shares, or - b) Recalling or taking back of shares (forfeiture) - 57. These are provided for under our laws and I will delve into whether the Respondent could exercise either of them against the Applicant's 96 shares in the Respondent Company.

# a) Cancellation of shares.

58. The Companies Act, Cap 106 only provides for cancellation of shares under Section 74 (1) formerly $76(1)$ which provides as follows:

"Special resolution for reduction of share capital"

$\bar{\boldsymbol{z}}$

(1) Subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if authorised by its articles, by special resolution reduce its share capital in any way, and, in particular, without prejudice to the generality of the *foregoing power, may—*

(a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up; (b) with or without extinguishing or reducing liability on any of its shares, cancel any paid up *share capital which is lost or unrepresented by available assets;*

- b) with or without extinguishing or reducing liability on any of its shares, pay off any paid up share *capital which is in excess of the requirement of the company, and may, if and so far as is necessary,* alter its memorandum by reducing the amount of its share capital and of its shares accordingly. (2) A special resolution under this section is in this Act referred to as "resolution for reducing *share capital.* - 59. Mubiru J in Re: Transtel (Company Cause No. 0001 of 2021) considered Section 74 of the Companies Act in determining an application for reduction of share capital by the Applicant. He noted that the provision applies to instances of where the company is reducing share capital, and in those instances, there are conditions that have to be satisfied. These are: - a) the Applicant's Articles of Association permit the reduction of its share capital; - b) a unanimous special resolution to that effect has been passed by the Applicant; - c) the Applicant has published notice of its intention to reduce its share capital in the National Gazette and a newspaper of wide circulation within the jurisdiction of this court; - d) the Applicant has secured the consent of its creditors; or - e) the interests of its creditors will not be prejudiced by such a reduction, and - f) the resolution has been confirmed by a court of competent jurisdiction. - 60. It follows therefore that cancellation of shares can only happen where a company has fulfilled all the conditions as laid out above. None of the above conditions were satisfied and clearly the case before me does not suggest that cancellation of shares is applicable.

## b) Recalling or taking back of shares (forfeiture)

- 61. The Companies Act does not define the terms "share recall, take back and forfeiture" and neither do any of its attendant regulations. Table A of the Companies Act however contains provisions relating to forfeiture of shares. - 62. Table A is a model format and only applies if, in their articles, the shareholders have decided to adopt it either wholly or in modified manner. This is what Section 13 (1) of the Companies Act states; "Articles of association may adopt all or any of the regulations contained in Table A of *Schedule 2 to this Act*". Article 2 of the Respondent company's Articles of Association, provides;

"save as otherwise indicated, the regulations contained or incorporated in the Companies Act of *the Republic of Uganda shall apply to the Company*". My understanding of this Article is that the Respondent company intended to apply all the provisions of the Companies Act including Table A. Indeed when the Respondent commenced the forfeiture process, it was akin to the process prescribed under Table A of the Companies Act.

63. Forfeiture is provided for under Regulations 33 to 39 of Table A of the Companies Act. These provisions detail the manner in which forfeiture is executed in respect of shares of companies.

Regulation 33, provides:

$\overline{a}$

"Where a member fails to pay any call or instalment of a call on the day appointed for payment of the call, the directors may, at any time after that when any part of the call or instalment remains unpaid, serve a notice on him or her requiring payment of so much of the call or instalment as is *unpaid, together with any interest which may have accrued.*" (Emphasis mine)

- 64. It is clear from the above regulation that forfeiture applies only in respect of shares that have not been paid up. Nothing suggests that a call on shares and forfeiture may apply in respect of shares that have been paid up. In my view, the purpose of forfeiture is to obtain capital that the shareholders have undertaken to each contribute to the company's capital. Where one has already paid for their shares, forfeiture does not apply in respect of his shares. - 65. I have already held on issues (i) and (ii) above that the 96 shares allotted to the Applicant in the Respondent company were paid up. It follows that these shares were not available for forfeiture and could not be forfeited by the Respondent. Issue (iii) is therefore answered in the affirmative.

# Issue (iv): Whether the cancellation or forfeiture of the 96 shares allotted to the Applicant *results into reduction of share capital?*

66. Since I have concluded in issue (iii) above that this case does not fall under the category of reduction of share capital and I have resolved that the shares were not available for forfeiture, this issue is resolved in the negative.

# Issue (v): Whether the Applicant committed any breach of the investment agreement or the call option agreement warranting the actions taken by Dr. David Alobo.

67. While addressing the preliminary issue raised by Counsel for the Applicant at the beginning of this ruling, I clearly cautioned myself, that while it is important to discuss the context of the investment agreements and the resultant decisions of the London Court of International Arbitration as well as the High Court of Uganda as I have already done, such discussion is aimed at giving context in resolving issues that are strictly within the jurisdiction of the Registrar. I do not think this issue is within the scope of the Registrar's inquiry. It requires me to determine whether the Applicant breached the investment agreement or the call option agreement warranting the actions taken by

Nilles<br>NK

Dr. Alobo. I must state categorically that the Registrar has no jurisdiction to determine disputes concerning breach of contract.

68. As I understand from reading the voluminous annexures to this application, the issues relating to breach of the investment agreement and the ancillary agreement were resolved by the London Court of International Arbitration, and some were the subject of post-arbitration objection proceedings where the High Court (Commercial Division) has made its determination. As such, I agree entirely with Counsel for the Applicant's arguments in paragraph 32 of his written submission that the Registrar has no jurisdiction over this issue and I accordingly decline to resolve $it$

Issue (vi): Whether the board of directors' resolution filed on 5^th November 2019, revoking/cancelling the Applicant's shareholding is misleading, inaccurate, issued in error, contains and illegal endorsement and was unlawfully obtained, such as to qualify to be expunged from the register.

69. Having resolved issues (i), (ii) and (iii) in the affirmative, the 96 shares of the Applicant were not available for forfeiture and could not rightly be forfeited by the Respondent. Accordingly the board resolutions purporting to forfeit the said shares are misleading, inaccurate, issued in error, and as such should be expunged from the register.

#### *Issue (vii); What are the remedies available?*

Based on the findings and resolutions on the above issues, I order as follows:

- 1. The application is allowed - 2. The 96 ordinary shares held by the Applicant in the Respondent Company were validly issued and allotted as fully paid up and were not liable for forfeiture or cancellation. - 3. The board resolution dated 6^th August 2019 and registered on 19^th August 2019 be expunged. - 4. The board resolution dated 4^th November 2019 and registered on 5^th November 2019 be expunged. - 5. Each party bears its costs.

I so Order

Given under my hand this ....................................

# Mercy K. Kainobwisho **REGISTRAR GENERAL/REGISTRAR OF COMPANIES**