James Obiero & 2 others v Magereza Sacco Society Limited, James Too, Peter Talam , Benard Mayaka, Bonaya Galgalo, Nun Kiboi, Lewis Korkong, Nicholas Maswai, Patrick Aranduh & Samwel Thirata [2021] KECPT 517 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE CO-OPERATIVE TRIBUNAL

AT NAIROBI

TRIBUNAL CASE NO.103 OF 2021

JAMES OBIERO……………………………………………………………………….. …………..1ST CLAIMANT

ANDERSON MBAYA……………………………………………………………………………….2ND CLAIMANT

GEOFFREY BARAZA MUTUBA…………………………………………………………………….3RD CLAIMANT

VERSUS

MAGEREZA SACCO SOCIETY LIMITED………………………………………….………..…1ST RESPONDENT

JAMES TOO…………………………………………………………..…………………….….…2ND RESPONDENT

PETER TALAM……………………………………………………………………………………3RD RESPONDENT

BENARD MAYAKA………………………………………………………………………….……4TH RESPONDENT

BONAYA GALGALO…......................................................................................................5TH RESPONDENT

NUN KIBOI…………………………………………………………………………………..……6TH RESPONDENT

LEWIS KORKONG…...........................................................................................................7TH RESPONDENT

NICHOLAS MASWAI………………………………………………………………………....….8TH RESPONDENT

PATRICK ARANDUH……………………………………………………………………………..9TH RESPONDENT

SAMWEL THIRATA…………………………………………………………………………..….10TH RESPONDENT

RULING

The matter for determination is a Notice of Motion Application dated 9th February 2021 filed on 12. 2.2021 filed under certificate of urgency seeking the following prayers:

1. Spent

2. Spent

3. That the Honourable Tribunal be pleased to issue temporary orders of injunction against the 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th and 10th Respondents their agents, servants or employees from conducting the delegates elections scheduled for between 15th and 19th February 2021 pending the hearing and determination of this claim.

4. That the Honourable Tribunal be pleased to suspend the delegates elections scheduled for between 15th and 19th February 2021 pending the hearing and determination of this application.

5. That the Honorable Tribunal be pleased to suspend the delegates elections scheduled for between 15th and 19th February 2021 pending the hearing and determination of this claim.

6. That the costs of the application be provided.

The Application is based on the grounds on the face of the application and a Supporting Affidavit of James Obiero deponed (undated) and filed on 12. 2.2021 and a further Affidavit filed on 24. 3. 2021.

The Application is opposed vide the Replying Affidavit deponed on 25. 2.2021.

The Application was directed to be dispensed with by way of written submissions. The applicant filed their written submissions on 24. 3.2021 while the Respondents filed their written submissions on 31. 3.2021.

The gist of the Application is that the Respondents scheduled delegates elections to be held between the 15th to 19th February 2021. In utter breach of the Sacco by-laws and all other laws in force. That they introduced new eligibility criteria and/or qualifications for the delegates via a circular dated 1st February 2021. That this was intended to disenfranchise the claimants and other members and was a gross violation of the law, abuse of the members’ rights and discriminatory. That they therefore filed the instant suit to stop the illegalities perpetuated by the 2nd - 10th Respondents, since the Claimants and the members stood to suffer prejudice and irreparable harm. That the 2nd -10th Respondents in particular contravened with clause 31 of the 1st Respondent’s By-laws which have not been amended to include such requirements. That the said requirements were therefore not only illegal and unlawful but also irregular, null and void ab- initio.

That the circular of 1st February 2021 also introduced unfair distribution of delegates slots, giving some regions more slots than others like

- Central Regional Commissioner (RC) (Nyeri) 2 slots instead of 1.

- Nairobi West Prison 3 slots instead of 2.

- PSTC 4 slots instead of 3.

That the circular which introduced the requirements was issued by the Board of Directors being 2nd – 10th Respondents yet such powers belongs to the members in a general meeting.

The Respondents in their Replying Affidavit deponed by Augustine Mutisya averred that the Board of Directors is the governing authority subject to the directions from a delegates meeting. That they issued the circular dated 1. 2.2021 and collected information and thereafter updated the Register. That on 30. 1.2021 the Board of Directors convened a meeting in which the distribution of delegates was discussed as follows:

1. For stations with less than 150 members to be determined by the Board of Directors;

2. For stations with above 200 members - 2 delegates slots;

3. For stations with over 350 members – 3 delegate slots:

4. for over 350 and less than 500 members, to ensure adequate representation. This effect, Nairobi West Prison with 405 members was allocated 4 delegates slots; PSTC with 540 members, 4 delegates slots were allocated; Central RC Nyeri 3 slots were reduced to 2 slots.

That in regard to the eligibility criteria, the same was within the ambit of clause 31of the By-laws and did not constitute an illegality. That the Respondents did not introduce or impose new eligibility criteria nor did they perpetrate any illegality.

That the members were educated on the circular and they did not raise any concerns. That under clause 73, of the By-laws, the members were to refer the disputes to the Board of Directors before referring it to the Tribunal, which they did not do.

That most stations had conducted elections and submitted results by the time injunctive orders were issued and the new members had assumed their respective responsibilities.

The parties filed their respective written submissions and the issues for determination are as follows:-

(i) Whether the Tribunal has jurisdiction in the matter.

(ii) Whether the application has met the threshold for issuance of interlocutory injunction/ interim orders.

(iii) Who should bear the costs?

(i) Whether the Tribunal has jurisdiction in the matter.

The Applicants in their written submissions averred that the By-laws the said clause 73 cannot oust the member’s rights under Section 76 Co-operative Societies Act to refer their disputes to the Tribunal. That Section 76 prevails over the provisions of the By-laws. That due to the urgency of the matter and the competing interests in the Sacco, the Claimants preferred to seek the intervention of the Tribunal. The Applicants cited Republic -vs- Board of Management Asili Credit and Savings Co-operative & 3 others Ex-parte Abuto George Omollo [2018] where it was held that:

“ disputes concerning the business of a Co-operative Society would include issues such as when elections should be conducted, how they should be conducted and whether the person so elected were validly elected…….”

The Applicant therefore submitted that the matter was properly within the jurisdiction of the Tribunal.

The Respondents in their written submissions averred that the “business of the Society” as held in Gatanga Coffee Growers co-operative Society Limited - vs- Gitaru CA 35 of 1967.

“ the business of the society is not confined to the internal management of the society but covers every activity of the society within the ambit of the By-laws and rules..”

That therefore the By – laws of the 1st Respondents envisions the Board of Directors adjudicating any and all disputes arising in relation to the By-laws before reference to the Tribunal. In this regard, the Respondents submitted that the Claimants should have first exhausted the dispute Resolution mechanisms before filing the matter in the Tribunal hence the same should be referred back to the Board of Directors for adjudication. That under clause 73, each member is bound by the By-laws.

We have carefully considered the submission of both parties. We note the provisions of Article 73 of the 1st Respondents’ By-laws. We also note the provisions of Section 76 Co-operative Societies Act which provides as follows:

Section 76 (I) Co-operative Societies Act if any dispute concerning the business of a Co-operative Society Arises:

(a) Among members, past members and persons claiming through members, past members and deceased members; or

(b) Between members, past members or deceased members, and the society, its committee or any officer of the society; or

It SHALL be referred to the Tribunal Clause 73 of the 1st Respondents’ By-laws provides as follows:

Clause 73 – if any dispute concerning the business of the society arises:

(a) Among members, past members and persons claiming through members, past members and deceased members; or

(b) Between members, past members or deceased members, and the society, its committee or any officer of the society; or

(d) any dispute arising from these By-laws or concerning the business of the society which cannot be determined by the Board of Directors or delegates meeting SHALL be referred to the Co-operative Tribunal.

The Applicants averred that they felt that their dispute with the Board of Directors in regard to the requirements for nomination as delegates would not have been properly handled by the Board of Directors due to intimidation and fear as a result of vested interests.

We note that the Board of Directors met on 30. 1.2021 as per the minutes “AM3” in the said minutes, it’s clear that as per MIN.II TEAM WORK C- lack of a structured way of resolving conflicts among team members was an issue discussed in the meeting. It’s clear that even as a team, the Board of Director had the realization that they did not have a structured way of to resolve conflict amongst themselves, it therefore begs the questions whether the same Board of Directors had the capacity to resolve disputes amongst the members.

The Board of Directors in their meeting, set up the requirements for eligibility of delegates as per MIN- IV ELIGIBILITY FOR DELEGATES. The same delegates deliberated the Clause 31 (b) of the By-laws and made resolutions in regards to Rule “(iii) to include borrowing loans from other financial institutions.” The Board of Director came up with their resolutions in the said meeting of 31. 1.2021. The same Board of Directors purports to determine disputes as stipulated in clause 73 of the By-laws. So, one wonders how the general members of the society would challenge the resolution of the Board of Directors before the same Board of Directors which created the said resolution!!.

Clause 73 of the By-laws is also clear that “any dispute arising from these By-laws or concerning the business of the society which cannot be determined by the Board of Directors or the delegates meeting . SHALL be referred to the Co-operative Tribunal.

We find that the matter challenging the resolution of the Board of Directors cannot therefore by all reason be determined by the Board of Directors hence the reason why the Claimants referred the same to an Independent Arbiter being the Tribunal. Further, Section 76 (1) Co-operative Societies Act is crafted in mandatory terms that “any dispute…… SHALL be referred to the Tribunal. The Co-operative Societies Act is the parent Act for all Co-operatives Societies and must take precedence and carry out the authority over all the By-laws of the Co-operative Societies. Members must be protected by the Co-operative Societies Act which is “ An Act of parliament relating to the constitution, registration and regulation of Co-operative Societies and for purposes incidental thereto”.

In the circumstances therefore, we find that there would have been a conflict of interest with the Board of Directors sitting to determine issues which were in effect challenging the resolutions passed by the same Board of Directors. The proper forum for such disputes that by all due diligence cannot be determined by the Board of Directors, or so, to include the delegates meeting (who were the affected members) is in essence the co-operative Tribunal which is an independent arbiter for the co-operative Societies as enumerated under Section 76 of Co-operative Societies Act.

(ii) Whether the application has met the threshold for issuance of interlocutory injunction/ interim orders.

The parties have submitted that it is settled law that injunctions threshold is established in Giella –vs- Cassman Brown & Company Limited [1973] EA 358 whose conditions are:

(a) A prima facie case with a probability of success

(b) Irreparable harm

(a) PRIMA FACIE CASE

The Applicants submitted that the Respondents in calling for the delegates elections, introduced new eligibility criteria/ requirements for the aspiring delegates which was not founded by the Sacco By-laws Clause 31 (b). That the circular dated 1st February 2021 introduced new eligibility criteria, which the Respondents have tried to justify the eligibility criteria in the By-laws clause 31 b (iii). That such new requirements will lead to absurd results since the members may opt to obtain loans from others financial institutions based on consideration for a higher loan limit from other financial institution as opposed to the Sacco. That the requirement amounts to a restrictive trade practice under Section 21 (3) (e ) and (f) Competition Act 12/2010. That this would mean that the members will be disenfranchised and would not be able to participate as delegates. That the delegates meeting is vested with supreme authority and as such, those delegates will be locked out from the management of the Sacco.

The Respondents submitted that the eligibility criteria were guided by the provisions of Clause 31 (a) which gives the Board of Directors the discretions to determine the representation of the members. That the applicants did not demonstrate any illegality perpetrated by the 2nd - 10th Respondents for setting up the requirements. That the applicants were challenging the discretion exercised by the Board of Directors and that this was a question of fact and law which can only be determined by way of evidence in the suit.

We have considered the submissions of both parties on this issue. We note the provisions of clause 31 of the by – laws which states as follows:

Clause 31 (a) Magereza Society shall be represented at the general meetings by delegates.

a. Each delegate will represent 150 members or as may be decided by the Board of Directors…..

b. Eligibility for Elections as a Delegates:

(i) Has been a member of Magereza Sacco society for at least six (6) months;

(ii) He does not receive salary/remuneration from the society save in accordance with the Act;

(iii) Has not been involved in business directly competing with the Society (lending money/shylocking)

(iv) He is able to read, write or understand English language;

(v) He has accumulated a minimum of Kshs.150,000/= in deposits with the SACCO;

(vi) He has not been convicted of any criminal offence including financial malpractice in a competent court of law.”

We have noted the contents of the circular dated 1. 2.2021 at page 4 which has set out the requirements or conditions for delegates as follows:

1. Has been a member of Magereza Sacco society for at least six (6) months;

2. He does not receive salary/remuneration from the society save in accordance with the Act;

3. Has not been involved in business directly competing with the Society (lending money/shylocking)

4. He is able to read, write or understand English language;

5. He has accumulated a minimum of Kshs.150,000/= in deposits with the SACCO;

6. He has not been convicted of any criminal offence including financial malpractice in a competent court of law;

7. Has no loan from another financial institution

8. Complies with chapter six (6) Kenya Laws.

9. Successful candidates should be willing to process his/her salary through the SACCO/MAGFOSA within a period of two (2) months.

We note that the By –laws are the supreme or governing laws of the Co-operatives Societies and are provided for under Section 8 Co-operative Societies Act. In Section 8 (6) Co-operative Societies Act, it provides:

“ In this Section “amendment” includes the making of a new By-law and the variation or revocation of a by-law, but excludes the variation of the registered address of a Co-operative Society where this forms a part of the by-laws of such a society. ..”

Section 8 (2) Co-operative Societies Act provides:

“No amendment of the By-laws of a Co-operative Society SHALL be valid until the amendment has been registered under this Act, for which purpose a copy of the amendment….”.

In the instant application, we have looked at the By-laws and the circular dated 1. 2.2021 and there bears a distinct variation to the requirements or eligibility of the delegates. The documents have been provided by the parties and duly filed. The Respondents have confirmed that vide the meeting of the Board of Directors by the its own initiative passed the resolution “ to add to rule (iii), to include borrowing loans from other financial institutions as this was promoting competitions against the Sacco”. That this rule was to affect those aspiring for the delegate positions or positions in the Board of Directors/Supervisory Committee but not the general membership. They further indicated in the minutes that “ most eligibility requirements were discussed with the members.”

We note that clearly, from the documents on record, there is a “variation “ between the eligibility criteria as set out in the By-laws, vis- a- vis the eligibility criteria in the circular of 1. 2.2021. This is an issue which has been contested by the Applicants and the Section 8 (6) Co-operative Societies Act is clear that an “amendment” includes the making of a new By-laws and “ the variation” or “revocation” of a By-law. Section 8 (2) Co-operative Societies Act provides that such an amendment SHALL only be valid when it has been registered under the Act (Co-operative Societies Act). This we find is an issue which is glaring and can be determined without any further evidence being adduced by either party. In this regard therefore, this issue has established a prima facie case.

In MRAO LIMITED - VS- FIRST AMERICAN BANK OF KENYA LIMITED & 2 OTHERS [2003] KLR 125, a prima facie case was defined as follows:-

“ in civil cases, a prima facie case is a case in which on the material presented to the court, a Tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party to call for an explanation or rebuttal from the latter….. it’s not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the applicant’s case upon trial.”

From this definition, it is clear that there was a right that was infringed when we juxtapose the provisions of the By- laws with the circular of 1. 2.2021.

On the issue of the addition and removal of slots, we find that the By-laws Clause 31 (a)is clear on the delegates presentation as provided that 1 delegate will represent 150 members or as may be decided by the Board of Directors. The discretion of the Board of Directors on this matter is clear hence the mandate lies with the Board of Directors as the governing body of the 1st Respondent.

(b) IRREPARABLE HARM

The Applicants have filed documents which have evidenced the variation of the eligibility criteria. There is a variation as discussed in (a) above between the By-laws and the Board of Directors’ circular. The Applicants submit that members with loans from other financial institutions have been locked out from offering themselves for elections as delegates. That this gives unfair advantage to those who wish to offer themselves but have loans from other financial institutions.

The Respondents submitted that the Board of Directors eligibility requirements are not subject to a general meeting since they were set up in the exercise of the powers of the Board of Directors.

As discussed above, the By-laws are the governing laws of the Society. They cannot be amended or varied without such amendments or variations being registered. The By-laws under Section 13 Co-operative Societies Act bind the members and all the members are expected to observe all the provisions of the By-laws. To this effect, the Board of Directors is also bound to observe and ensure observance of the By-laws. Section 28 (3) Co-operative Societies Act is clear that:

“ the committee shall be the governing body of the Society and shall, subject to any direction from the general meeting or the By-laws …. Direct the affairs of the Co-operative Society”

Section 28 (6) Co-operative Societies Act further provides:

“ in the conduct of the affairs of a Co-operative Society the committee shall exercise the prudence and diligence of ordinary mess of business and the members shall be held jointly and severally liable for any losses sustained through any of their acts which are contrary to the Act, rules, by-laws….”

The Board of Directors is therefore expected to adhere to the By-laws since they are accountable to the members. By introducing the variations to the eligibility criteria, we find therefore that there is a big danger of disregard to the supreme law in the By-laws of the society and this may be to the prejudice of the members who wish to present themselves for elections as delegates. This in effect may deny them an opportunity to serve in the decision making organs of the society. Such loss may not be in any way being compensated by way of damages. Hence irreparable.

The applicants submitted that the balance of convenience lies in their favour. That they were already prejudiced when the elections were going on and if the application is not granted, the elections will proceed. That the Respondents submitted that they had spent a lot of resources from the contributions of the members in organizing the elections but no particulars were provided.

The Respondents submitted that elections were scheduled for 15th - 19th February and had commenced by the time they were stopped. That if the injunctions is granted, they cannot comply with the said orders and further suspension will leave the members in disarray. That the newly elected delegates had already taken up their roles as delegates. That the elections were scheduled for February in order to ensure elected delegates attend the delegates meeting in March for purposes of the distribution of dividends amongst the members. That further delay will prejudice the 1st Respondent members and negatively impact the fiduciary duty of the 1st Respondent members.

We have considered the submissions of both parties. We note that the Board of Directors has the responsibility to ensure that the By-laws of the society are adhered to strictly as discussed earlier. When there is a dispute concerning a society, it’s always prudent to resolve the dispute first instead of engaging in an exercise in futility. The Respondents went ahead and introduced new eligibility criteria for the delegates, contrary to the established and registered By-laws. They were to ensure strict adherence to the By-laws of the society and ensure compliance by themselves and by their members. They have submitted that they cannot comply to the injunctive orders that would be issued and this is not the right position to take in the circumstances of this case.

“ Equity in nature will do nothing in vain” The Tribunal cannot make orders which cannot be enforced or grant an injunction that will be ineffective for practical purposes. If it will be impossible to comply with the injunction sought, the Tribunal will decline to grant it. At the time of filing the Application and issuance of the orders of 17. 2.2021, the elections had been carried out in some stations. These elections were carried out on 16th and 17th February in accordance to the new eligibility criteria set by the Board of Directors. This eligibility criterion as discussed earlier was not in accordance to the registered By-laws of the society. It therefore goes without say that the elections carried out in accordance to an eligibility criteria that is illegal or contrary to the By-laws is not a valid election and the results thereof cannot therefore be legal. It is the duty of the Tribunal to ensure that the business of the Co-operative Societies is carried out in a legal and valid manner to the interest of the members of the society.

The essence of granting an injunction is an equitable remedy to prevent grave and irreparable injury; that is injury that is actual, substantial and demonstrable, injury that cannot be adequately compensated by an award in damages. An injury is irreparable where there is no standard by which their amount can be measured with reasonable accuracy or the injury or harm is such a nature that monetary compensation, will never be adequate remedy. This was established in KenyaCommercial Finance Company Limited –vs- Afraha Education Society [2001] Vol. I EA 86 and In Nguruman Limited - vs- San Bonde Nielsen & 2 others CA 77 /12.

In this case, we find that by granting the injunction, the balance of convenience will lie in favor of the applicants. This is because; allowing the Respondents to proceed with an illegality would be a graver consequence to the society. The purpose of the By-laws is to ensure that the business of the society is carried out in accordance to the laid down principles of the general membership.

CONCLUSION/DETERMINATION

In conclusion of the above, we find that:

1. The Board of Directors did not have mandate to “amend”/”vary” the eligibility requirements of the delegates. The delegates should meet the criteria/requirements as set out in the By-laws. Any variations in the clause 31 (b) therefore is illegal since the same has not been registered as required under Section 8 Co-operative Societies Act .

2. The Board of Directors under clause 31 (a) (i) has the discretion to vary or determine the number of slots for delegates in representation of its members. The issue of the discretion in distribution of the delegates slots is an issue of law and fact and there is required evidence in the circumstances at the main suit hearing.

3. The elections carried out in the various stations under the criteria set out in the circular dated 1st February 2021 are not valid elections hence the purported new delegates have not been validly elected. The duty of the Tribunal is to ensure that the By-laws are adhered to by the societies and any diversions from the By-laws amounts to an illegality ab-initio. The said results are therefore not valid and the Board of Directors must ensure that elections are carried out in accordance to the By-laws.

REMEDIES

1. The Tribunal under Rule 3 Co-operative Tribunal Practice and Procedure Rules 2009 provides as follows:-

“ nothing contained in these Rules SHALL limit or otherwise affect the inherent power of the Tribunal to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Tribunal.

Rule 4provides:

“ The Tribunal SHALL have power an discretion to decide all matters before it with due speed and dispatch without undue regard to technicalities”

In light of the Rules 3 and 4 Co-operative Tribunal (Practice and Procedure) Rules 2009, the Tribunal has the power and discretion to ensure that the business of the Co-operative Societies is carried out in the manner prescribed by the Co-operative Societies Act Cap 490 the rules and By-laws as set out in the societies. In this regard, the Tribunal in making its decision, will balance out the interest of the members of the society as a whole and the parties herein.

The Tribunal therefore has the inherent power to make such orders as may be necessary for the ends of justice. The members are entitled to representation by their delegates, the delegates are entitled to be elected in accordance to the By-laws. The society is entitled to continue with the running of its business without any prejudice to the general membership of the society. We accordingly make the following orders:

1. The Board of Directors to issue immediately a fresh notice for elections of delegates in accordance to the eligibility conditions/ criteria/requirements as provided for under clause 31 (b) of the By-laws of Magereza Savings and Credit Co-operative Society limited CS/NO.1946(amended 2014).

2. The results in the elections called out between 16th - 19th February 2021 in some of the areas are hereby declared null and void ab initio.

3. Fresh elections of the delegates to be carried out within 14 days of the fresh notice as per order 1, and in adherence to the Presidential directive and Ministry of Health guidelines.

4. For the purpose of the fresh elections, the delegates slots will be maintained as per the decision of the Board of Directors meeting held on 30. 1.2021 at MIN.III DELEGATE REPRESENTATION LIST.

5. Costs of the application in the cause.

6. Mention for Pre- trial directions on 24. 5.2021.

Ruling read, signed, dated and delivered virtually this 15th day of April, 2021.

Hon. B. Kimemia Chairperson Signed 15. 4.2021

Hon. M. Mwatsama Deputy Chairperson Signed 15. 4.2021

Mr. P. Gichuki Member Signed 15. 4.2021

Miss Aradi advocate for Respondent Present

Ochieng holding brief for Micha for Claimant present

Hon. B. Kimemia Chairperson Signed 15. 4.2021