ASL Credit Limited v D M Concrete (K) Limited & 5 others; Prime Bank Limited (Objector) [2022] KEHC 10713 (KLR) | Default Judgment | Esheria

ASL Credit Limited v D M Concrete (K) Limited & 5 others; Prime Bank Limited (Objector) [2022] KEHC 10713 (KLR)

Full Case Text

ASL Credit Limited v D M Concrete (K) Limited & 5 others; Prime Bank Limited (Objector) (Civil Suit E433 of 2019) [2022] KEHC 10713 (KLR) (Commercial and Tax) (10 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10713 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Civil Suit E433 of 2019

EC Mwita, J

June 10, 2022

Between

ASL Credit Limited

Respondent

and

D M Concrete (K) Limited

1st Applicant

D. Manji Constructions Limited

2nd Applicant

Devshi Manji Murji Patel

3rd Applicant

Harji Devshi Patel

4th Applicant

Narendra Devshi Patel

5th Applicant

Dipak Harji Patel

6th Applicant

and

Prime Bank Limited

Objector

Ruling

1. This ruling disposes of two applications both dated 15th September 2021. The first application is by the 1st to 6th applicants, brought under Orders 10 rule 11, 5 rule 16, 22 rules 6,18 and 22 and 51 rule 1 of the Civil procedure rules. It seeks to set aside default judgment entered against them on 5th June 2020 and leave to defend the suit.

2. The application is premised on the grounds on its face, the affidavit of Harshi Devshi Patel sworn on 15th September 2021 and written submissions dated 15th December 2021.

3. The gist of the application is that the applicants were not served with summons to enter appearance and, therefore, the court was misled to enter the default judgment. According to the applicants, depositions of Peris Bonuke, the process server, in the affidavit of service sworn on 20th February 2020 are factually incorrect and could not be the basis of entering of the default judgment.

4. It is the applicants’ case that Darmesh, the person allegedly served with summons on their behalf, had no authority to receive summons on their behalf, and there was no indication that Darmesh had any connection with them. On that score, the applicants assert that the default judgment is irregular and ought to be set aside.

5. The applicants again assert that a copy of the summons to enter appearance returned as having been served does not show the defendant it had been directed to. In that regard, the applicants state that the process server could not set out to serve a person that was not named in the Summons to Enter Appearance. The applicants maintain that service on a corporation has to be effected in the manner provided for in law which was not done. The process server did not also attempt to serve the 3rd to 6th applicants personally.

6. The applicants again state that auctioneers proclaimed on 10th of September 2021 in execution of warrants of attachment issued following the default judgment and without notice of entry of judgment having been served as required by law. The applicants argue that they have a plausible defence in the attached draft defence and pray that they be granted leave to defend. They rely on a number of decisions to urge the court to allow their application. These include; Mwalia v Kenya Bureau of Standards [2001] 1 EA 148, on the discretion of the court to set aside a default judgment, Agigreen Consulting Corp Limited v National Irrigation Board [2020] eKLR,Yalwala vIndimuli & another[1989] eKLR and Tree shade Motors Limited v D. T Dobie And Compnay (K) Limited & another [1998] eKLR.

Response 7. The respondent filed a replying affidavit by Daniel Wandera worn on October 12, 2021 and written submissions dated December 16, 2021. The respondent contends through the depositions and submissions, that the application is brought in bad faith and is intended to obstruct the course of justice. The respondent denies the applicants’ claim that they were not served with Summons to Enter Appearance.

8. It is contended that Summons to Enter Appearance issue on December 4, 2020 was served on 24th January on the applicants’ authorized agent, Mr. Dharmesh, but the applicants did not enter appearance or file defences. Default judgment was subsequently entered on 5th June 2020 and notice of entry of judgment was served on 16th June 2020. According to the respondent, the applicants are not truthful that they were not served with Summons to Enter Appearance.

9. It is the respondent’s case that after service of notice of entry of judgment, the 6th applicant visited the respondent’s offices on 21st August 2020 with a view to offering a proposal on settlement of the decretal amount, and was also given a copy of the decree. The 6th applicant then wrote to the respondent making a proposal on payment. The respondent maintains that the applicants’ indebtedness is long overdue and the default judgment is not irregular.

10. According to the respondent, Mr. Dharmesh who was served with Summons to Enter Appearance has not refuted the service, an indication that service was properly effected. The respondent also relies on the notice of entry of judgment to argue that the applicants were aware of the case. Based on the above arguments the respondent is of the view that the applicants don not deserve the orders sought.

11. The respondent relies on James Wanyoike & 2 others v CMC Motors Group Limited & another [2015] eKLR on the test to be applied for setting aside; Kipkai Enterprises Ltd v Maurine Louise Osembe [2019] eKLR, that where a party was properly served the resultant judgment is a regular judgment and Price & another v Hilder [1984] eKLR, on the principles governing exercise of judicial discretion.

12. The respondent also cites Savannah Cement Limited v new Age Developers and Construction Company Limited & another [2019] eKLR, where a party had engaged in correspondence, and Hass Petroleum Limited v A O Basid Limited [2015] eKLR, where the debt had been admitted and cheques issued by the defendant to pay the debt, thus the court declined to set aside the default judgment.

13. The respondent urges that he application be dismissed with costs.

Objection 14. The second application is the objection also dated 15th September 2021, by Prime Bank Limited (the bank). The bank seeks an order raising/lifting attachment of all the assets particularized in the proclamation dated 10th September 2021. The principal reason for seeking to lift the attachment is that the bank has legal and or equitable debentures over the whole of the 1st defendant’s assets by virtue of debentures the bank held over those assets. On the basis of the debentures, the bank asserts that the impugned proclamation over the 1st defendant’s assets forming the debenture is illegal and unlawful.

15. Similarly, the objector argues that similar debentures exist over the 2nd applicant company’s assets and, therefore, the proclamation over those assets forming the debentures is also illegal and unlawful. The bank urges the court to allow the objection and lift the proclamation on those assets. The bank has attached copies of the debentures to demonstrate its claim over the assets.

16. The respondent has filed a replying affidavit and written submissions in opposition to the objection. The respondent contends that the objection has been made in bad faith and is intended to frustrate and prevent execution of the decree. According to the respondent, the bank’s claim that its rights under the debentures crystallized upon proclamation is not correct. In the view of the respondent, a floating debenture only crystalizes upon appointment of a receiver or an administrator under the Insolvency Act.

17. In that respect, the respondent cites the decision in Paul M. Munyao & 2 others v Civicon Limited (Judgment Debtor); AEA Limited & another (Objectors) [2021] eKLR, that the objector having not intervened with regard to that debenture, cannot come at execution stage to stop the sale of the attached goods. The respondent again cites the decision in Landmark Port Conveyors Limited v Buzeki Enterprises Limited &another [2019] eKLR, that the floating charge having not crystallized, the objector could not claim priority, among other decisions. The respondent urges that the objection be dismissed with costs.

Determination 18. I have considered the two applications, the responses and submissions by parties. I have also considered the decisions relied on. In the circumstances of this matter, it is appropriate to consider the application to set aside the default judgment first. This is so because its success or failure will determine whether or not to consider the second application.

First application 19. The first application has been brought under Order Orders 10 rule 11 and 5 rule 16. Order 10 rule 11 provides that where judgment has been entered under this Order, the court may set aside or vary such judgment and any consequential decree or order upon such terms as are just. This order gives the court wide discretion when dealing with an application to set aside a default judgment.

20. The applicants’ case is that they were not served with summons to enter appearance. They have pointed fingers at the affidavit of service to show that they were not actually served. According to the 1st and 2nd applicants, the person who was allegedly served was not their agent and had no authority to receive summons on their behalf. The 3rd to 6th applicants also argue that there was no attempt to serve them with summons. The respondent has maintained that service of summons was properly effected on the applicant’s agent.

21. From these contestations, the issue before court is whether the default judgment was regular or irregular. If it is a regular judgment, the court has wide discretion to set aside such a judgment. If it is irregular, the judgment is to be set aside as a matter of course.

22. In James Kanyiita Nderitu & another v Marios Philotas Ghikas & another [2016] eKLR, the Court of Appeal distinguished between a regular and irregular default judgment, thus:From the outset, it cannot be gainsaid that a distinction has always existed between a default judgment that is regularly entered and one, which is irregularly entered. In a regular default judgment, the defendant will have been duly served with summons to enter appearance, but for one reason or another, he had failed to enter appearance or to file defense, resulting in default judgment. Such a defendant is entitled, under Order 10 rule 11 of the Civil Procedure Rules, to move the court to set aside the default judgment and to grant him leave to defend the suit. In such a scenario, the court has unfettered discretion in determining whether or not to set aside the default judgment, and will take into account such factors as the reason for the failure of the defendant to file his memorandum of appearance or defence, as the case may be; the length of time that has elapsed since the default judgment was entered; whether the intended defence raises triable issues; the respective prejudice each party is likely to suffer; whether on the whole it is in the interest of justice to set aside the default judgment, among other.Regarding irregular default judgment, the Court of Appeal stated:In an irregular default judgment, on the other hand, judgment will have been entered against a defendant who has not been served or properly served with summons to enter appearance. In such a situation, the default judgment is set aside ex debito justitiae, as a matter of right. The court does not even have to be moved by a party once it comes to its notice that the judgment is irregular; it can set aside the default judgment on its own motion. In addition, the court will not venture into considerations of whether the intended defence raises triable issue or whether there has been inordinate delay in applying to set aside the irregular judgment. The reason why such judgment is set aside as of right, and not as a matter of discretion, is because the party against whom it is entered has been condemned without notice of the allegations against him or an opportunity to be heard in response to those allegations. The right to be heard before an adverse decision is taken against a person is fundamental and permeates our entire justice system.

23. The distinction between a regular and irregular judgment is that in the former, the defendant is properly served with summons to enter appearance but for some reason, no appearance is entered or defence filed. In the case of irregular default judgment, no service was effected at all or the service was not proper. The court retains wide discretion under Order 10 rule 11 to set aside a regular judgment and any consequential decree or order upon such terms as are just. An irregular judgment must, however, be set aside without difficulty and on no terms at all.

24. In the present application, the applicants argue that they were not served with summons and, therefore, the judgment that was entered against them was irregular. The respondent maintains that the applicants were properly served and the judgment is a regular one.

25. I have perused the affidavit of service by Peris Bonuke, the process server, sworn on 20th February 2020. Ms. Bonuke deposed that on 24th December 2020, she was instructed to serve summons to enter appearance together with the plaint. She then deposed follows:(2)Thaton the same day (24th January 2020) at around 11:30 a.m I proceeded to D.M Concrete (K) Limited which is situated at Industrial Area Nairobi, where upon my arrival I found Mr. Darmesh who is authorized to receive the said plaint dated 18th day of November 2019 and Summons to Enter Appearance issued by the court on 4th day of December 2019 on behalf of the company.(3)ThatI introduced myself to Mr. Darmesh and the purpose of my visit I handed him over (sic) the said plaint Dated 18th day of November 2019 and Summons to Enter Appearance issued by the court on 4th day of December 219 and he accepted service on behalf of the 1st, 2nd, 3rd, 4th, 5th, and 6th defendants by appending his signature for the record.(4)ThatI swear this affidavit in support of the fact that the defendants were duly served with plaint dated 18th day of November 2019 and Summons to Enter Appearance issued by the court on 4th December 2019 which I now return to this Honourable court copy of the first page of the plaint together with the Summons to Enter Appearance all received on the 24th of January 202o.

26. As it clearly emerges from those depositions, the process server did not serve any of the applicants with summons to enter appearance. The person served was a Mr. Dharmesh whose relationship with the applicants was not explained. One must appreciate that the applicants fall into two categories, juristic persons (corporate entities) and natural persons (individuals), and the law provides on how service should be effect on each of these persons.

27. With regard to service on a corporate defendant, Order 5 rule 3 provides that summons may be served on the secretary, director or other principal officer of the corporation, or by leaving the summons at the registered office of the corporation, or by sending it by prepaid registered post or by a licensed courier service provider approved by the court to the registered postal address of the corporation; or if there is no registered office and no registered postal address of the corporation, by leaving it at the place where the corporation carries on business; or by sending it by registered post to the last known postal address of the corporation.

28. The process server did not state in the affidavit of service, who Mr. Dharmesh was in relation to the 1st and 2nd applicant corporations. That is, it is not clear whether Mr. Dharmesh was a secretary, director or principal officer of the 1st and 2nd applicants. It was the duty of the process server to explain to court when returning the summons to enter appearance, who was served on behalf to the corporate defendants in this matter. That was not done and was not been explained even at the hearing of this application.

29. There is also a peculiar aspect of this matter that the process server and the respondent have not explained. The 1st and 2nd applicants are corporate entities and, therefore, different persons. However, the process server served the same individual (Mr. Darmesh) on behalf of both corporate defendants without explaining whether they were related and, if so, how. During the hearing, the application, the court sought to know from counsel for the respondent, whether service was effected at the same place and whether the process server had indicated that the 1st and 2nd applicants operated from the same premises, but there was no answer to that inquiry.

30. Regarding the 3rd to 6th applicants who are individuals and natural persons, Order 5 rule 8 (1) provides that wherever it is practicable, service should be on the defendant in person, unless he has an agent empowered to accept service, in which case service on the agent should be sufficient. The process server did not state in what capacity Dharmesh was served on behalf of the 3rd to 6th applicants. It is instructive to note that these applicants disputed that Dharmesh was their argent. The process server did not also show that she had tried to trace the 3rd to 6th applicants for service without success before she decided to serve Dharmesh. Once again, the process server did not demonstrate that Order 5rule 8 had been complied with.

31. Where there are several defendants, Order 5 rule 7 provides that service of the summons should be made on each defendant. I have perused the record and, in particular, the summons returned by the process server. I note that there is only one copy returned and there is also one file copy. Both the file copy and the copy returned by the process server do not show which defendant the summons to enter appearance was addressed to and, therefore, which defendant was meant to be served. There being six defendants and since each defendant was to be served, there was to be a triplicate copy of summons for each defendant addressed to that particular defendant. The process server would serve the original copy and return the duplicate while the triplicate would remain as the file copy. That is not the case I find here.

32. In John Akasirwa v Alfred Inai Kimuso (C.A. No. 164 of 1999) (UR), the Court of Appeal stated thus;Proper service of summons to enter appearance in litigation is a crucial matter in the process whereby the court satisfied itself that the other party to litigation has notice of the same and therefore chose to enter appearance or not. Hence the need for strict compliance with order 5 Rule 9 [1]. The ideal form of service is personal service, it is only when the defendant cannot be found, that service on his agent empowered to accept service is acceptable.

33. In the present case, the process server did not indicate what attempts she made to serve the 3rd to 6th applicants personally before deciding to serve theirs alleged agent. Similarly, the process server did not demonstrate that she had served the 1st and 2nd applicants as required by law.

34. Every person has a right to be heard before judgment is passed against him or her. The right to be heard was underscored by the Supreme Court of India inSangram Singh v Election Tribunal Koteh1955 AIR 425, thus;[T]here must be ever present to the mind the fact that our laws of procedure are grounded on a principle of natural justice which requires that men should not be condemned unheard, that decisions should not be reached behind their backs, that proceedings that affect their lives and property should not continue in their absence and that they should not be precluded from participating in them. Of course, there must be exceptions and where they are clearly defined they must be given effect to. But taken by and large, and subject to that proviso, our laws of procedure should be construed, wherever that is reasonably possible, in the light of that principle.

35. This principle though stated decades ago, it is now engraved in Article 50(1) of our Constitution. In that regard, no judicial process should be conducted and decisions taken on the back of a litigant who is to be affected by the judicial process and the resultant decision without being given the opportunity to participate in those proceedings.

36. The mode of service employed here cannot be said to have been proper service at all. In the circumstances, the default judgment entered against the applicants was irregular because the applicants had not been server or properly served with summons to enter appearance. The default judgment is to be set aside ex debito justitiae, and as a matter of right to the applicants.

Second application–objection 37. Having come to the conclusion that there was no service or proper service of summons to enter appearance, and that the default judgment entered against the applicant was irregular, it follows that the application by the bank, namely the objection, does not fall for consideration as it becomes moot.

38. Flowing from what I have stated above, the application dated 15th September 2021, seeking to set aside the default judgment, is allowed. The default judgment entered on 5th June 2020 and all consequential orders are hereby set aside and the applicants granted unconditional leave to enter and defend. The applicants shall enter appearance within 15 days from the date of this order and file defences 15 days thereafter. Costs of the application to the applicants.

39. As the second application (objection) has not been considered given the result of the first application, the objector, (Prime Bank Limited), shall bear own costs of the objection.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 10TH DAY OF JUNE 2022E C MWITAJUDGE