Gikumbo Farmers Multipurpose Company Ltd & 6 others v Gatumu & 8 others [2023] KEHC 23926 (KLR)

Gikumbo Farmers Multipurpose Company Ltd & 6 others v Gatumu & 8 others (Civil Suit 71 of 2009) [2023] KEHC 23926 (KLR) (17 October 2023) (Judgment)

Neutral citation: [2023] KEHC 23926 (KLR)

Republic of Kenya

In the High Court at Embu

Civil Suit 71 of 2009

LM Njuguna, J

October 17, 2023

Between

Gikumbo Farmers Multipurpose Company Ltd

1st Plaintiff

Faith Wambui Noorla

2nd Plaintiff

Harrison Maguh

3rd Plaintiff

Shadrack Njogu Mugo

4th Plaintiff

Peter Mbogo Njagi

5th Plaintiff

Betha Kuthaiya Kinyua

6th Plaintiff

Francis Mbogo Wamunge

7th Plaintiff

and

Stephen Njeru Gatumu

1st Defendant

Cyrus Ndogo Nyaga

2nd Defendant

Muchiri Kiambati

3rd Defendant

James Njagi Njoroge

4th Defendant

Francis Gachoki Njagi

5th Defendant

Cyrus Gichobi Kathuri

6th Defendant

Francis Muchira Kiambati

7th Defendant

Catherine Wawira

8th Defendant

Nancy Reguru Njogu

9th Defendant

Judgment

1. The plaintiffs filed a plaint dated 10th April 2007 in Nyeri High Court Civil Case No 23 of 2007. In the same suit, the defendants responded with a statement of defense and counterclaim dated 09th May 2007. The case was transferred to Embu High court vide order of the court dated 25th March 2009 for hearing and final determination. The plaintiffs filed an amended plaint dated 28th April 2014 and a further amended plaint dated 07th July 2021, while the defendants also filed an amended statement of defense and counterclaim dated 15th June 2015. Since institution of the suit, there have been series of applications that have been determined.

2. Through the further amended plaint dated 07th July 2021 the plaintiffs seek judgment against the defendants jointly and severally for:a.A permanent injunction restraining the defendants by themselves, their agents, servants, employees or any other persons claiming through them from interfering with the plaintiffs’ company operations and/or affairs and/or operating the company’s bank accounts either at Equity Bank (Kenya) Limited Embu Branch and/or Family Finance Building Society Embu Branch and at Nawiri Sacco;b.A declaration that the notice dated 20th March 2007 and any other subsequent meetings based on the said notice or any other such notice issued at the same time are null and void;c.An order that the defendants pay the misappropriated monies owed to the 1st plaintiff as particularized under paragraph 9A of the further amended plaint;d.An order that the defendants surrender the 1st plaintiff’s books, documents, equipment and stationery outlined in paragraph 9B of the further amended plaint;e.Costs of the suit; andf.Any other relief that the court will deem fit to grant.

3. The facts of the case are that by a notice dated 20th March 2007, the 1st, 2nd and 3rd defendants gave notice to the members to attend a special general meeting and elections to be held on 17th April 2007. It is the plaintiffs’ case that the notice was irregular and it contravened the mandatory provisions of the Companies Act and on the basis that: no requisition was lodged at the company’s office prior to the notice convening the meeting, the said defendants do not hold a tenth of the shares in the company; the notice was not served upon all members of the company; the notice is not signed and the address given on the notice is not that of the company.

4. They stated that the defendants are interfering with the operations of the company with their illegal and unlawful actions which are bound to cause irreparable harm to the plaintiffs. That the 1st, 2nd and 3rd defendants intend to change the directorship of the company against the provisions of the Companies Act and have refused to surrender the company’s bank documents, books, equipment and stationery and had also misappropriated company money in the sum of Kshs 23,381. 40/=. That the said defendants are crippling the operations of the company by retaining the company’s records and by the 4th -9th defendants fraudulently changing the directors.

5. Through their amended statement of defense and counterclaim dated 09th May 2007, the defendants denied the allegations made in the plaint and put the plaintiffs to strict proof. They stated that as of 28th September 2006, they were the duly elected directors of the company and were therefore mandated to take control of the affairs of the company. That the 2nd-7th plaintiffs convened an illegal meeting on 31st October 2006 purporting to hold elections and elect themselves as directors. They counterclaimed that they are the rightful directors of the company and they sought declaratory orders to that effect. They also denied the averments of paragraph 9A and B and put the plaintiffs to strict proof thereof. They also sought orders that the meeting held on 31st October 2006 by the 2nd-7th plaintiffs electing themselves as directors, be declared a nullity and an injunction be issued against them from interfering with the business of the 1st plaintiff.

6. At the hearing, PW1 was the 4th plaintiff who stated that he had not attended any of the meetings alleged by the defendants and that if any meeting had been held on 21st and 28th of September 2006, the minutes provided had not been signed and stamped. He stated that he was elected as director through a meeting held on 31st October 2006 and he had shares in the company. That a notice for the meeting had been pinned on the noticeboard at the company premises and that is where he saw it. That he was not served with a notice for the special general meeting.

7. It was his further evidence that a notice was issued dated 01st October 2006 but the 1st -3rd defendants were not expected to attend the meeting because they did not have share certificates which was a requirement for attendance of the meeting. That the 1st-3rd defendants withdrew Kshs 105,800/= and misappropriated part of it and that they have since refused to hand over bank documents and continue to run the company together with the 4th -9th defendants. He alleged that they have been selling coffee but not depositing the proceeds into the company account.

8. On cross-examination, he stated that the 1st-3rd defendants may have had shares but they had not collected their share certificates and they were only interim directors of the company before the next cohort was elected. He stated that their articles of association allowed for 3-5 directors but a 6th one could be allowed as a patron. That he was also a member of the interim board together with the 1st -3rd defendants before the first cohort of directors was elected. That he was the treasurer of the board but he did not authorize withdrawal of the Kshs 105,800/=. That the signatories to the account were not the 1st – 3rd defendants. That he did not have any proof that the Kshs 23,381. 40/= was misappropriated. That the quorum for meetings is ¾ of the members and on 31st October 2006 the meeting was attended by 46 members, who also voted. He added that the 4th -9th defendants were the current directors of the company.

9. On further cross-examination, he stated that a director was supposed to hold office for 3 years but between 2006-2013 that was not the case. He stated that he did not have proof that the right procedure was followed in electing the current directors and also that he did not have the current audited books of accounts of the company since 2006. On re-examination, he stated that he did not know the whereabouts or the time when the amount was withdrawn from the bank neither does he have any proof that the amount was misappropriated because the books of accounts were never handed over to him. He concluded by stating that the 1st- 3rd defendants wanted to be directors by force.

10. DW1 was the 2nd defendant who stated that he was the honorary secretary having been appointed as such on 21st March 2002, that the 4th plaintiff was the treasurer, the 1st defendant was the vice chairperson and the now deceased 2nd plaintiff was the chairperson. That after 4 years in office, some directors rebelled and accused the 1st – 3rd defendants of misappropriating company money and the same was reported to the local authorities. He stated that they withdrew the Kshs 105,800/= and distributed all of it to the coffee farmers to whom the money was owing and then they parted ways. That on 28th September 2006, elections were held and new directors were appointed. That soon after, the 3rd plaintiff started posing as the patron and yet the position was not provided for in the constitution.

11. That DW1 was arrested together with the 1st and 3rd defendants and they never got to assume office. That upon arrest, all the documents they had, belonging to the company were confiscated and nothing was spared. On cross-examination, he stated that the meeting where he was elected director was attended by 52 shareholders and in the same meeting the board was dissolved. That the meeting was not marked as an AGM and the minutes were neither stamped nor signed as it should be. That after the arrest, they were forced to give away all the company documents in their custody to the assistant chief.

12. DW2 was the 5th defendant who is the current chairperson of the board which comprises of the 4th- 9th defendants and were elected into office on 15th June 2018. That they took over directorship from the 4th and 7th plaintiffs and not from the 1st – 3rd defendants and at the time when they took office, they did not find any documents or portable items belonging to the company, including ownership documents, audited statements and title deeds. That the 4th plaintiff who was the chairperson at the time refused to acknowledge and attend the meeting where the election was also done. He stated that he himself did not have a share certificate. That by the time they were taking over the company, things were not working well within the company and returns had not been filed for 11 years. That the AGM was necessary because of the wrangles within the company.

13. The parties filed their written submissions.

14. The plaintiffs, in their submissions, stated that it is questionable that the 1st- 3rd defendants held an election on 28th September 2006 and then attempted to arrange another election on 17th April 2007 unless the alleged prior election was a cover-up to invalidate all other elections. That even the elections and meeting held in 2018 regarding the directorship of the 4th – 9th defendants did not comply with the procedure of 21 days’ notice according to section 133(2) of the Companies Act. That DW1 was unable to verify that he didn’t have the company records as his evidence that the same were confiscated by police, is contradictory. That DW1 admitted that Kshs 105,800/= was withdraw from the company account but couldn’t produce proof as to how the same was utilized. In conclusion, they relied on the cases of Jatin Shantilal Malde & 9 others v Transmara Investment Limited & 2others (2018) eKLR and Elijah Adul v Rift Valley Sports Club (2003) eKLR.

15. The 1st -3rd defendants submitted abandoning their counterclaim as they are no longer interested in the directorship of the company. They stated that the plaintiffs had failed to prove their case on a balance of probabilities and therefore the orders sought need not be granted. It was their case that the meeting convened on 28th September 2006 was held in accordance with the memorandum and articles of association and that the meeting held by the plaintiffs on 31st October 2006 should be held as illegal by this court. That the claim that the 1st- 3rd defendants misappropriated Kshs 23,381. 40/= is baseless as all the money withdrawn was used to pay the shareholders for their coffee. That the burden is on the plaintiffs to prove that the money was indeed embezzled by the 1st- 3rd defendants who are also alleged to have taken off with the company’s financial and other records, but they failed to discharge this burden.

16. The 4th – 9th defendants submitted that they were enjoined in the suit in the year 2021 and that they had been elected into office pursuant to article 20 of the articles of association of the company. That the articles of association were clear on the term of directors, which is 3 years but is not clear on procedure for elections and removal of directors. They stated that the plaintiffs have failed to discharge the burden of proof per section 107 of the Evidence Act and the case of Kinyanjui Kamau v George Kamau (2015) eKLR. That fraud has been alleged but has not been proved. They urged the court to apply the Companies Act 2015 and find that the directors acted in the best interest of the company.

17. The issues for determination are as follows:a.Whether the notice dated 20th March 2007 should be declared null and void;b.Whether the plaintiffs’ case has satisfied the requirements for issuance of a permanent injunction against the defendants in the terms claimed;c.Whether an order should be made for the defendants to refund company money that was allegedly misappropriated;d.Whether an order should be made that the defendants should surrender the company records as per the further amended plaint; ande.Who should bear the costs of the suit?

18. On the first issue for determination, it is pertinent that I review the articles of association of the company. I take note of the fact that the 1st-3rd defendants have since abandoned their counterclaim as it has been overtaken by events and they have lost interest in the same. According to the articles of association of the 1st plaintiff, article 4 provides that the directors shall be elected from amongst the highest share contributors; article 13 provides that the number of directors shall not be less than 3 or more than 5; article 20 provides for the term of a director to be 3 years and the director shall be eligible for re-election; Articles 46 and 47 provide for annual general meetings and special general meetings and the latter can be convened by a director if need be; and Article 54 provides for quorum at meetings to be at least 33 members in person.

19. The registered directors in 2006 were 2nd – 7th plaintiffs according to the annual returns for the year 2006. The trend was consistent over the years as per CR12 dated 10th December 2010, the directors were still the same. The contention here is that the 1st-3rd defendants gave a notice dated 20th March 2007 for a meeting and election to be held in April of the same year. According to the evidence, this is about 4 months since the previous election where the 2nd-7th plaintiffs had been installed in office through elections and had been registered as such by the registrar of companies.

20. When it comes to the people who may convene a special general meeting, the articles of association limit this to the directors of the company. Therefore, it is my view that the attempt by the 1st-3rd defendants to convene a meeting and yet they were not directors at the time, defeats the purpose whatsoever. According to Sections 276 and 278 of the Companies Act, the directors have the power and duty to convene meetings. In the present case, the notice for the intended meeting by the 1st-3rd defendants was void as they were not directors of the company at the time.

21. On the second issue for determination, for a court to issue an injunction of any nature, a certain threshold must be met as set out in the case of Giella v Cassman Brown and Co Ltd (1973) EA 358. It is a three-pronged threshold based on the following elements:a.The applicant ought to have established a prima facie case;b.The applicant stands to suffer irreparable harm that cannot be compensated by damages if the order is denied; andc.In whose favour the balance of convenience lies.

22. Additionally, I am well cautioned by the sentiments of the court in the case of Showind Industries v Guardian Bank Limited &another (2002) 1 EA 284 in which the court held as follows: -“…….an injunction is granted very sparingly and only in exceptional circumstances such as where the Applicant’s case is very strong and straight forward. Moreover, as the remedy is an equitable one, it may be denied where the Applicant’s conduct does not meet the approval of Court of equity or his equity has been defeated by laches”

23. In my determination on this issue, I shall also address the 3rd and 4th issues for determination. While keeping in mind the standard of proof, the plaintiff has alleged that the 1st-3rd defendants took the company’s documents and the same have never been returned. If these documents were available and produced in court, they would aide the arguments of both opposing sides. Per section 107 of the Evidence Act, he who alleges must prove, albeit to the required standard of “on a balance of probabilities”. The plaintiffs have not produced evidence, rebuttable or otherwise that indeed the 1st-3rd defendants took the documents and have refused to bring them back.

24. In their defense, the 1st-3rd defendants stated that they were arrested by the police and the alleged documents were taken into custody by the chief and/or the police. This allegation remains unproven as it is one person’s word against another’s. Even if the court is bound to consider the evidence on a balance of probabilities, the evidence must first of all be placed on the scale for it to tip!

25. The plaintiffs also allege that the defendants withdrew money from the company account in the sum of Kshs 105,800/= out of which Kshs 23,381. 40/= is alleged to have been misappropriated. The 1st-3rd defendants do not deny withdrawing the amount but they deny having misappropriated it. Once again, I see an allegation without evidence to subject to the required standard of proof. The allegations against the defendants have not been proved on a balance of probabilities.

26. Another basis for seeking the permanent injunction is that the plaintiffs are bound to suffer harm which may not be compensated by way of damages if the order is denied. The reading of the prayer is “A permanent injunction restraining the defendants by themselves, their agents, servants, employees or any other persons claiming through them from interfering with the plaintiffs’ company operations and/or affairs and/or operating the company’s bank accounts either at Equity Bank (Kenya) Limited Embu Branch and/or Family Finance Building Society Embu Branch and at Nawiri Sacco”. The 1st-3rd defendants have since relinquished their interest in directorship of the company.

27. PW1, DW1 and DW2 all stated that the 4th-9th defendants are the current directors of the company who, according to article 57 of the articles of association of the company, have power to sign against bank transaction in the name of the company. However, the legality of their election is unknown. More so, it is evident that their election as directors is as a result of the impugned notice dated 20th March 2007, whose validity is to be determined by this court.

28. Sections 107 and 109 of the Evidence Act provide for the standard of proof in civil cases. The plaintiffs are bound to prove their case on a balance of probabilities. In my view, this has been done. The 1st plaintiff’s documents relating to all company operations are untraceable and they may or may not be in the custody of the defendants (this, we shall never know).

29. Going by the evidence presented before me, and especially the CR12 dated 10th December 2010, the directors of the 1st plaintiff are the 2nd - 7th plaintiffs. I am bound to make a decision based on the available evidence.

30. Ultimately, having considered the arguments herein and the relevant case law, I find that the plaintiffs’ case partially succeeds. Therefore, the following orders are hereby issued:a.A permanent injunction is hereby issued in favour of the plaintiffs, restraining the defendants by themselves, their agents, servants, employees or any other persons claiming through them from interfering with the plaintiffs’ company operations and/or affairs and/or operating the company’s bank accounts either at Equity Bank (Kenya) Limited Embu Branch and/or Family Finance Building Society Embu Branch and at Nawiri Sacco;b.A declaration is hereby made that the notice dated 20th March 2007 and any other subsequent meetings based on the said notice or any other such notice issued at the same time are null and void; andc.Each party shall bear its own costs of the suit.

31. It is so ordered.

DELIVERED, DATED AND SIGNED AT EMBU THIS 17TH DAY OF OCTOBER, 2023. L. NJUGUNAJUDGE