In Re CITY CABANAS LIMITERD [2004] KEHC 74 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Winding Up Cause 36 of 1999

IN THE MATTER OF CITY CABANAS LIMITED

AND

IN THE MATTER OF COMPANIES ACT (CHAPTER 486) OF THE LAWS OF KENYA

RULING

This winding - up Petition was filed against a companycalled City Cabanas Limited on 15th July 1999. It was filed by analleged creditor called Compusense Limited which claimed that itwas owed a sum of Kshs. 974, 454 and that despite service of aNotice under Section 220 of the Companies Act dated 19. 5.99, andexpiry of 21 days there from the Company had refused andneglected to pay or satisfy the said sum.

By an application dated 5th August 1999, the Company hereinapplied to Court for Orders that the Petitioner be restrained fromfurther proceeding with the petition and advertisement thereof pending the hearing and disposal of the application. It furthersought an Order that the Petition be struck out and that in thealternative and without prejudice to the foregoing, the applicant begranted leave to file an affidavit opposing the petition out of time.The application was heard by my brother, Justice Njagi on30. 6.2003, who delivered his Ruling on 25th July 2003. The Courtdeclined to give the orders for the time being but allowed thecompany to file its affidavit opposing the petition out of time.

The Company thereafter on 25th November 2003 filed thepresent Motion under Certificate of Urgency. It is made underinter alia, Section 223, 224 and 225 of the Companies Act andsought the following orders: -

1. That the court grants a temporary stay of proceedings in

the following cases, pending the inter parties hearing of

the application herein: -

(i)    CMCC NO EJ 410 of 1999, Bernard Muchiri Mburu t/a Peeves Suppliers, Kenya - vs - City Cabanas Limited.

(ii) RMCC NO EJ 678 of 1999, Pinkertons KenyaLimited-vs - City Cabanas Limited

(iii) RMCC NO. 257 of 2000, Gailey and RobertsLimited -vs. - City Cabanas Limited

(iv) CMCC NO. 957 of 2001, Kenya Meat SupplyCompany Limited -vs. - City Cabanas Limited.

(v) CMCC NO. 1177 of 2001 Meshack Tinega t/aMeelin Design Services - vs. - City CabanasLimited

(vi) CMCC NO. 404 of 2002, Kenya Canvas Limited-vs- City Cabanas Limited

(vii) CMCC NO. 1994 of 2002, James NjorogeMuiruri -vs. - City Cabanas Limited

(viii) CMCC NO. 8324 OF 2003, Menje HoldingsLimited -vs. - City Cabanas Limited.

(ix) CMCC NO 10927 of 2003, Catering Trainingand Tourism Development Levy Trustees -vs.-City Cabanas Limited.

2. That the court be pleased to grant a temporary stay of proceedings in the said 10 cases.

3.    That the Honourable Court be pleased to stay the suitsreferred to above under section 223 (b) 224 and 225 of theCompanies Act pending the hearing and determination ofthe Petition herein.

4.    That the applicant/Company be at liberty to apply forfurther orders and/or directions as the Honourable Courtmay deem fit to grant.

5.  That the costs of the application be costs in the cause.

Apart from filing an Affidavit sworn by one Rosaline NjeriMacharia, a director of City Cabanas Limited, the applicant listsfor 4 grounds to justify its application. These are: -

a)         That a petition to winding up the Applicant CompanyCity Cabanas limited dated 12th July 1999 was presentedto this Honourable Court on 15th July 1999.

b)  That the several matters sought to be stayed are pendingbefore various Magistrates' Courts while a Petition to wind up the Applicant Company is pending before thisHonourable Court.

c)  That in the light of the Provisions of Section 223 (b), 224and 225 of the Companies Act chapter 486 Laws ofKenya, the aforementioned suits ought to be stayedpending the hearing and determination of the Petitionfiled herein.

d)  That it is in the interest of justice that the proceedings inthe aforementioned suits be stayed pending the hearingand determination pending before this HonourableCourt.

The petitioner was served with the application but did notappear by itself or its advocates at the hearing of the application.Six of the plaintiffs in the listed suits appeared at the hearing andopposed the application.

During the hearing, the company inter alia, stated that itwishes to have protective orders to preserve the assets of theCompany and in particular against preferential treatment of some creditors to the detriment of the general body of creditors. Thatany execution of any decree or disposition would amount to afraudulent preference, which is against the law. Also that anysubsequent attachment of the Company's assets resulting from adecree from any of the listed suits would be wrongful. That thecompany would suffer prejudice and could close down.

I have considered the application, the grounds and affidavitin support, the Replying Affidavit in submissions of all counsels. Iam of the view that the High Court has the power and discretion toorder a stay of proceedings or restrain the proceedings in any suitpending before a lower court or any other court with lesserjurisdiction. Section 223 (b) of the Companies Act provides: -

"223 At any time after the presentation of a winding- uppetition, and before a winding up order has been made, thecompany, or any creditor or contributory, may-

(a).................................................

(b)   Where any other suit or proceeding is pending againstthe company, apply to the court having jurisdiction to wind up the company to restrain further proceedings inthe suit or proceedings;

and the court to which application is so made may, as the case may be, stay or restrain, the proceedings accordingly on such terms as it thinks fit.

This provision gives the court very wide powers anddiscretion. However, I would think that the invocation of thepower or exercise of the discretion must be justified. There mustbe some sufficient and justifiable cause. In the other words somevery good reasons in law and fact, balancing the interests of allwho would be affected and all the circumstances of the case. So,are the reasons given by the Applicant good enough? Do they fitthe grounds that I have set above? The said fetter I have proposedto the Courts' power and discretion are not founded on anyauthority that I have read but they would be the principles that Iwould apply in considering this application.

In the premises, I will ask myself, what will happen if the 10suits or proceedings which are pending in Court are not stayed and/or restrained? What prejudice will the Applicant suffer? Andlastly, whether continuation of the suit or proceedings will result inany violation of any provision of the Law e.g. preferentialtreatment of the Plaintiffs as creditors and/or fraudulent preference.

To answer the said question I would categorize the 10 suitsinto two general groups: namely: -

a)  Those where the cases have been concluded and there isjudgment in favor of the plaintiff.

b)  Those where the suit is still pending and are awaitingtrial or are partly heard In other works those in whichjudgments have not been given yet and are still pendingto be heard on the merits.

I will deal with each group successively.

Group a: -

In the cases where there are judgments in favor of respectiveplaintiffs and there are possible or impending executions ofdecrees, I would say that the Applicant is not likely to be affectedor prejudiced whatsoever neither can any preferential treatment or fraudulent preferences arise.  This is as a result of operation of theLaw under Sections 224 and 225 of the Companies Act, the veryprovisions upon which the applicant relies.Section 224 provides as follows: -

"224. In winding up by the Court, any disposition of theproperty of the Company, including things in action, and anytransfer of shares, or alteration in the status of the members ofthe company, made after the commencement of the winding up,shall, unless the court otherwise orders be void.

Strictly speaking the provision relates to dispositions of theproperty of the Company in the ordinarily course of business.However, in my view, any disposition or transfer of the property ofsuch a Company as a result of a Court Order, or judgment otherthan the Court having jurisdiction to wind up the Company (i.e.,High Court) or the Court of Appeal would be affected or caught bythe provision of Section 224. In the premises, I would add that Iam of the view that Section 224 contemplates not only the ordersof a Court with competent jurisdiction to order such disposition and/or transfer but one that has specifically addressed its mind toSection 224 and given the reasons for the order or exception to thesaid provision.

If I am right in the aforesaid interpretation of Section 224,then I do not accept that the Applicant herein will be prejudiced ifthe10 suits listed and are part of Group (a) herein above are notstayed. Section 224 prohibits the disposition of the Company assetsor transfer thereof. Secondly, the Courts in which all the 10 suitshave been filed do not have the jurisdiction to invoke the provisothereof as the Resident Magistrate's Court and the ChiefMagistrate's Court do not have the power to act under Section 224which is a preserve of the High Court and the Court of Appealunder the provisions of Sections 218 and 223 (a) of the CompaniesAct.

It follows therefore that there can be no preferential treatmentor fraudulent treatment through any of the 10 cases in whichdecrees or judgments exist. It would otherwise be against the law and illegal.  As the law has taken care of this, no purpose will beserved to make any orders for stay of suit or proceedings.Section 225 provides as follows: -

“225. Where any company is being would up the court, anyattachment, distress or execution put in force against the estateor effects of the company after the commencement of  the windingup shall be void"

The words in and meaning of this Section are simple andclear. They speak for themselves. Executions of any judgmentand/or decree against a company being wound up is in effectprohibited by Section 225 and if any takes place it would be void.This means that the Plaintiff in the 10 suits who have judgmentsand/or decrees in their favor against the Applicant cannot in lawexecute the same. As a result, once again there would be no usefulpurpose to be served to stay the said suits or proceedings. There isno likely prejudice to the applicant or likelihood of any preferentialtreatment or fraudulent preference.I now turn to Group b.

Group b

These are suits in the list which are still pending and areawaiting trial. What may happen if the said suits or proceedingsare not stayed or restrained from proceeding? What prejudice willthe applicant suffer and will the continuation of the saidproceedings result in any of the events apprehended by theapplicant?

The only and logical consequence is that either the plaintiffswill succeed and obtain judgment against the Defendant orPlaintiffs will fail in the claim and the suits dismissed in favor ofthe applicant herein which is Defendant in those suits. If theDefendant is successful in any of the suits then it has nothing tofear and it cannot suffer any prejudice neither can any creditors orthe general community of creditors. In the event any of the Plaintiffs succeed and obtain judgments in their favor and theconsequential decree or orders, as we have seen above, the samecannot in law be executed or enforced against the Applicant byvirtue of the provisions of Section 225 of the Companies Act. The effect of the said provisions has been set out above. Due to thesaid results, there is no useful purpose to be ultimately achieved instaying the said suits or proceedings.

To the contrary, there will be definite prejudice andinconvenience not only to the plaintiffs in the said suit but also tothe administration of justice. If the said suits or proceedings are stayed and the matters do not take their course to trial, the suitswill not be disposed of expeditiously and there would beunnecessary delay and uncertainty. It would be unclear and uncertain how long the suits would take since it will not equally beclear and certain when the petition herein will be heard anddisposed of. It is going to almost 5 years now yet the petition hasnot been heard. It is outrageous and untenable that the Petitionerhas been allowed to sustain the existence of the Petition so far andfor such a long period. Already, it may well be that many creditorsof the applicant could have withheld action against the Applicantdue to the Petition.  It is not known but one cannot rule out that possibility. It is another file at the Court Registry reflectingnegatively on performance of this Court.

To allow the 10 suits or those that have not gone to trial ordetermined, be stayed will only lead to Plaintiffs in the said suits tosuffer unreasonably and unfairly by delay of their cases. They maysuffer irreversibly as witnesses may pass on, leave jurisdiction andas we all know, time dims one's memory even for the availablewitnesses. Documents and other evidence could get lost or bedestroyed. All these possibilities would operate to the detriment ofthe Plaintiffs whether they succeed subsequently on the merits ornot. To have one's day in Court is a fundamental right by itself.

This court will not allow such a situation to arise if it canhelp it. In the end result, I do hereby unreservedly accept theRespondents submissions in this application. The Applicant'sapplication has no merits whatsoever and I am tempted to believethat it was intended to defeat the rights of the plaintiffs in the saidsuits and deny them their rights. To allow the application wouldamount to perpetuation of an abuse of the Court process.

I have no hesitation in dismissing the Applicant Company'sapplication, which I hereby do with costs to the Creditors whoparticipated in this application and are on record.

In order to ensure that this Petition is disposed ofexpeditiously, in the interest of justice and invoking the Court'spowers under the Companies Act and its inherent powers, I dohereby order that this Petition be set down for hearing within thenext 45 days by the Petitioner or the Company, failing which this Court will take appropriate action at its own instance. Thepetitioner is to be served with a copy of the Order resulting fromthis Ruling within the next 10 (ten) days from the date hereof. Service to be effected by the Applicant Company.Orders accordingly.

DELIVERED and SIGNED at Nairobi this 27th day of April 2004

M K .IBRAHIM

JUDGE