Kithinzi v Kyanzavi Farmers Co Ltd & 6 others (3rd - 7th Respondents sued in their capacity as Directors of Kyanzavi Farmers Co Ltd); Muindi & 8 others (Defendant) [2022] KEHC 164 (KLR)

Kithinzi v Kyanzavi Farmers Co Ltd & 6 others (3rd - 7th Respondents sued in their capacity as Directors of Kyanzavi Farmers Co Ltd); Muindi & 8 others (Defendant) (Miscellaneous Application E006 of 2021) [2022] KEHC 164 (KLR) (15 February 2022) (Ruling)

Neutral citation: [2022] KEHC 164 (KLR)

Republic of Kenya

In the High Court at Machakos

Miscellaneous Application E006 of 2021

MW Muigai, J

February 15, 2022

IN THE MATTER OF COMPANIES ACT CAP 17 LAWS OF KENYA ANNUAL GENERAL MEETING OF KYANZAVI FARMERS COMPANY LIMITED

Between

Samuel Mwei Kithinzi

Applicant

and

Kyanzavi Farmers Co Ltd

1st Respondent

The Registrar of Companies

2nd Respondent

Francis Mwikya Kalinzoya

3rd Respondent

Joshua Kimeu Kioko

4th Respondent

Juvenalis Musyoki Kavita

5th Respondent

Juvenalis Musyoki Kavita

6th Respondent

Benjamin Mutua Kavithi

7th Respondent

3rd - 7th Respondents sued in their capacity as Directors of Kyanzavi Farmers Co Ltd

and

Michael Ngei Muindi

Defendant

Anthony Muthama Ndunda

Defendant

Philip Muasa Mbaluto

Defendant

Elizabeth Kaluki Maweu

Defendant

Mumbua Musyoki

Defendant

Anastacia Kamene Ngovo

Defendant

Rose Ndanu Mutua

Defendant

Ndunge Singila Stephen Munyao

Defendant

Samuel Kiluku Dilu

Defendant

Ruling

1. By Certificate of Urgency Application filed by the Applicant, Samuel Mwei Kithinzi on 25th January 2021, sought that the Court issues directions and order and direct that an Annual General Meeting (AGM) of Kyanzavi Farmers Co Ltd be convened by Registrar of Companies and held within 60 days and on such terms and conditions as the Court deems fit just and expedient to hold the AGM within and in compliance with Corvid 19 protocols and Regulations.

2. That the Court also directs that the AGM be conducted in accordance with the Company’s Articles of Association and Companies Act_No 17 of 2015_Revised Compressed.pdf Companies Act 2015 and the Agenda to include adoption of Audited Accounts of the Company, election of Directors and Officials of the Company and Company Secretary of the Company.

3. The Court to direct that Registrar of Companies or duly appointed Representative to consider appropriate venue, attend the meeting and cause return of the meeting to be filed.

4. The Court directs that that OCS Machakos Police Station to deploy officers to maintain law and order. The Court directs that costs of facilitating the AGM be borne by the Company.

5. The Application is based on the following grounds;The Applicant member No 715 of the Company wrote letters dated 9th September 2019; marked D-1 to Registrar of Companies and D-2 letter of 1st November 2019 to Chairman & Directors of Kyanzavi Farmers Company Limited on the following facts;a.That the Company had not held an Annual General Meeting for 5 years.b.The management of Company affairs and operations are run in an opaque and mysterious manner.c.Annual returns have never been filed.d.Annual Reports have not been presented to the members for adoption.e.No dividends have been declared or paid out to members.f.No elections have been conducted yet Company Directors; namely; Sammy Wambua & Chairman James Muia Mwema are deceased and have not been replaced.g.As per letter of 6th May 2019 by Directors to Registrar of Companies it was intimated that at the AGM of August, 2017, members mandated the Board to complete the process of subdividing the farm and give plots to members. The process of survey has been ongoing (and has not been resolved todate).

6. The Registrar of Companies by letters dated 29th April 2019 and 13th May 2020 marked ‘C’ annexed to the application; directed the Directors to constitute an Annual General Meeting in compliance with Section 310 of Companies Act within 60 days.

7. The Respondent Francis Mwikya Kalinzoya filed Replying Affidavit on 2nd February 2021 and deposed as follows;He took over as Chairman of the Company in acting capacity upon the demise of the Chairman in 2018 and in 2019 he was involved in putting in place administrative mechanisms which are necessary for smooth running of the company.

8. The Chairman set to hold Annual general Meeting in 2020 but Corvid -19 pandemic set in and made it a challenge to hold a physical meeting due to huge number of shareholders. Efforts to hold AGM- shareholders meeting through hybrid system is hampered by elderly members who are not computer literate.

9. The Chairman reiterated that the Directors are lawfully in office and the prayer for elections is unfounded.

10. After parties’ canvassed through respective learned Counsel the instant Application on 12th October 2021 and 7th December 2021, this Court reserved Ruling on 28th February 2022. Since the matter was heard the last week to the Court Vacation and the Court thereafter was to proceed on leave and resume in February 2022, and the bone of contention was/is the Company holding the Annual General Meeting which is a statutory mandatory requirement, this Court in light of the anticipated Court recess urged the Respondents to facilitate the Annual General Meeting before 28th February 2022 before the delivery of the Ruling scheduled on 28th February 2022.

11. Parties filed written submissions and Counsel for Respondent informed this Court that an AGM would be held in March 2022. APPLICANT’S SUBMISSIONS

12. In support of the application, it is submitted that pursuant to Section 277(1) of the Companies Act a member such as the Applicant herein may require the Directors of the Company to convene a General Meeting and he did so vide his letter dated 1st November, 2019 attached to his supporting affidavit as annexture D-2 but the Directors have refused to do so in breach of Section 277. According to the Applicant, the Company is required by law to convene a General Meeting on a regular basis notwithstanding Section 277(4) wherein it is required that the member request to convene the meeting be supported by at least 5% of the paid up members. It is submitted that Section 310(1) of the Companies Act was not complied with yet the 1st Respondent is a public Company which is required to hold an annual general meeting within 6 months and in default it amounts to an offence.

13. Reference was made to the 1st Respondent’s letter dated 6th May, 2019 where it is admitted that the last AGM was in 2017. According to the Applicant, the failure to hold the AGM is an excuse since the 1st to 5th Interested Parties have not demonstrated how the holding of the meeting would have stalled or prevented the process of further subdivision of the farm to the members. It is submitted that there is no reason why a meeting was not convened after the death of the previous Chairman in 2018 and through 2019 when there was no Covid 19 pandemic. Reference was made to annexture C and D-1 that the Registrar had directed the 1st Respondent to conduct AGM.

14. According to the Applicant, a virtual meeting can be held or both physical and virtual. Reliance was placed on Kimondo J. sentiments in Radio Frequency Systems (EA) Limited & Another vs. Simon Horner & 2 Others [2020] eKLR with regard to virtual meetings. It is submitted that the 1st Respondent has not attempted to hold meetings in a large open space field or by proxy.

15. According to the Applicant, the failure to conduct an AGM exposes the Company to criminal penalties which will be deleterious to the Company and all its members, the Applicant included. Reliance was placed on the case of Agricultural Development Corporation of Kenya vs. Nathaniel K. Tum & Another [2014] eKLR and in Gitahi Gethenji & 3 Others vs. James Ndungu Gethenji & 3 Others [2018] eKLR on the importance of an AGM. According to the Applicant, the failure to hold an AGM for over years entitles him to seek redress before this court.

16. The Applicant urged the court to order and direct that an AGM be convened in accordance with the Articles of Association of the Company and Covid 19 protocols and regulations.1STTO 6THRESPONDENT’S SUBMISSIONS

17. On behalf of the Respondents, it is submitted that the Motion is premature hence offending the doctrine of exhaustion for the reason that Section 277(4) of the Companies Act requires that a request to convene an AGM by a member be supported by at least 5% of the paid up members but no such evidence has been availed to show compliance. It submitted that no evidence has availed to show that the requirement of Section 279(1) were complied with by calling a meeting supported by at least half of the Company’s shareholders. Reliance was placed in the case of Geoffrey Muthinja Kabiru & 2 Others vs. Samuel Munga Henry & 1756 Others[2015] eKLR on the need to adhere to the exhaustion doctrine.

18. In a summary, whether the Motion is merited, it is submitted that that they cited the disruption caused by the passing on of then Chairman in 2018, Covid 19 pandemic which caused them to be denied by the County Commissioner permission to hold an AGM, the advanced age of majority of the members hence they are unable to follow and participate in online meetings if any were called.

19. The 1st Respondent urged the court to find the Motion is unmerited and the same be dismissed with costs to the Respondents and Interested Parties.

20. Today, 16th February 2022, the Respondents filed the followingApplication under Certificate of Urgency seeking review, vacation of this Court’s direction for the Company to hold Annual General Meeting before the 28th February 2022. CERTIFICATE OF URGENCY OF 15THFEBRUARY 2022

21. By Certificate of Urgency filed on 10th February 2022, the Applicant sought the application be heard on priority basis for reasons that the Defendants/Applicants were dissatisfied by directions issued by this Court on 8th December 2021, directing that the Company to consider carrying out the Annual General Meeting before the Court delivers Ruling on 28th February 2022 to which the Notice was published on 4th February 2022 in the Daily Nation and the meeting is scheduled to take place on 25th February 2022.

22. The Applicants asserted that these directions and Notice cannot be enforced as the membership of the Company consists of more than 1,800 members who are elderly and there are Ministry of Health Guidelines and Regulations on Covid 19 pandemic to be compiled with, and considering the age of members, the Company cannot conduct physical and/or virtual meeting and hence the Applicant is seeking that the Court reviews its orders and set aside its orders and/or directions issued of 8th December 2021.

23. The Notice of Motion annexed to the Application, the Applicant sought the following orders;1. Spent

2. The Court issues order joining the proposed Defendants/Applicants to these proceedings.

3. A temporary injunction be issued against the Respondents, their agents and/or servants from holding the intended annual general meeting as advertised in the Daily Nation of 4th February 2022 to be held at Kianza Farm, along Tala Thika Road.

24. The Application is based on the following grounds;a.On 8th December 2022, this Court issued directions to all members of the Company and Directors of the Company to convene an Annual General Meeting (AGM) before this Court delivered its Ruling on 28th February 2022. b.Pursuant to the directions on 4th February, 2022, the AGM Notice was published in the Daily Nation scheduled meeting to be held on 25th February 2022. c.On 25th February 2021, the Chairman of the Company requested for a permit from County Commissioner to hold the Annual General Meeting and the permit was not issued as indicated by copy of letter of 25th February 2021 marked MNM-3, due to the magnitude of the meeting of 1,890 members most of whom are elderly and would it be [hazardous] during Covid - 19 pandemic.d.On 3rd February, 2022, the Chairman made another request for a permit to hold the Annual General Meeting and the request was not approved as per the letter of 31st January 2022 annexed and marked as MNM-4, until all members were vaccinated and provided proof of the same.e.On 3rd February, 2022, the Chairman [approached] the Chief Officer, Public Health & Community Outreach Machakos County, to allow the members hold AGM and was informed vide copy of annexed letter of 3rd February 2022 marked MNM-5; of Ministry of Health Guidelines on Covid 19 Rules remain to be complied with, that holding a formal meeting of higher number of people/members than recommended is against the statutory laws of the Country.f.The Applicants deposed that the Annual General Meeting involves lots of funds Kshs 5,670,000/- to pay each member Ksh 3,000/- and dividends Kshs 5,670,000/- and the Company has insufficient funds.

25. It is based on the above grounds that the Defendant/Applicants sought temporary injunction against the Respondents, their agents and/or servants from holding the intended Annual General Meeting as advertised on 4th February, 2022, scheduled to be held on 25th February 2022.

26. The Respondents filed Grounds of Objection on 15th February 2022 and deposed that the matter was argued by the parties through Respective Counsel on 7th December 2021, under Certificate of Urgency filed on 25th January 2021 by Respondents and is pending judgment on 28th February 2022.

27. The Respondents reiterated that there is already a scheduled Annual General Meeting advertised and scheduled on 25th February, 2022 and the orders sought are drastic, far reaching and injurious to the Company and 1,890 members. The balance of convenience tilts in favor of disallowing the Application taking into account the public Company has not held an Annual General Meeting for 4 years now.

28. The Proposed Defendants/Applicants have remedies to pursue in law in the event the scheduled AGM of 25th February 2022 is not compliant with Statute & Regulations. The Proposed Defendants/Applicants are guilty of laches and non -disclosures and the Application is evidently an attempt to litigate by proxy and the Applicant should not be granted.DETERMINATION

29. The Court is asked to determine the application filed on 25th January 2021 which sought AGM to be held. While the matter has been pending delivery of Ruling pursuant the Court order that an AGM is conducted before the Ruling, the instant application seeking review and vacation of these directions is sought in the subsequent application of 15th February 2022. Due to urgency of the matter and special circumstances of this case, this Court shall determine both applications together as the germane issue is conduct of AGM by the Company.

30. The Applicant’s case is that the KYANZAVI FARMERS CO LTD has not held AGM for 5 years now and outlined various concerns affecting management and operations of the Company. On the other hand the Respondents’ while not categorically denying that AGM has not been held have put forward various handicaps or hurdles that hinder the Company holding AGM key among them Corvid-19 pandemic.

31. The Court takes judicial notice under Section 60 (1) (o) of Evidence Act1. the courts shall take judicial notice of the following facts –

(o)all matters of general or local notoriety;on the global Covid -19/Corona pandemic that occurred from March 2020 and led to lockdowns and curfews and resulted in Public 2017/21 Health Corvid -19 Protocols that included social distancing, masking and vaccinations of the public. Naturally, the Company’s AGM could not be held 2020-2021.

32. However, The Applicant’s claim is that AGM has not been held from 2017, clearly 3 years before onset of the Pandemic and if there were practical challenges at the time, the Board of Directors did not apply to Registrar of Companies to extend the period of compliance that requires that a Company shall convene AGM once a year.

33. Section 275A Companies Act; makes holding AGM mandatory statutory duty as outlined below.275A. Annual general meeting.(1)Every company shall convene a general meeting once a year. (2) Subsection (1) does not apply to single member companies.(3)The Registrar may, on the application of the company or for any other reason the Registrar thinks fit, extend the period referred to in subsection (1) even if, as a result, the period is extended beyond the calendar year.(4)A company that fails to comply with this section commits an offence and is liable to a fine not exceeding one hundred thousand shillings.

34. The Annual General Meeting is important in the management and operations of a Company and serves 2 important purposes; as a mechanism of accountability to shareholders and shaping the business of the Company and in compliance with the law. The Company being a separate legal entity ( See Salomon Co Ltd vs Salomon 1897 AC 22 H.L) and distinct from its shareholders and Directors, the Company operates through human agents ie. Board of Directors appointed in compliance with Articles of Association registered with Registrar of Companies and have conduct of operations and management of the Company in compliance with the law including under Section 276 of Companies Act to conduct AGM. So as it is, the Company is acting in contravention of the law and any member is legally entitled to seek redress in Court. Hence the Applicant’s application of 25th January 2021.

35. See Agricultural Development Corporation of Kenya vs Nathaniel K.Tum & Anor [2014] eKLR where the court observed that;-“Therefore, the directors assume the responsibility of ensuring that the company abides by all legal requirements; all that will preserve its juristic personality and property; and avoiding default that would attract serious legal sanctions, or affect its juristic personality and assets. The legal requirements include; accountability of its business to the shareholders and to the law; operations; directorship; liabilities; assets; payment of taxes, only to mention but a few. Besides liability on the directors, if a company fails to observe the legal responsibilities and obligations set out in law, it will face serious legal penalties and sanctions; some default may occasion temporary disablement but there are others which are dire and may lead to its de-registration or winding-up. Should the gravest of the consequences for non-compliance with the law attach, the juristic existence of the company is decimated and the property may fall bona vacantia to the government.”

36. This Court relied on Section 280 of Companies Act and granted extempore orders on 8th December 2021 that the Company conducts AGM, the Section reads in part as follows;280. Power of Court to order general meeting to be convened

(1)This section applies if for any reason it is impracticable—(a)to convene a meeting of a company in any manner in which meetings of that company may be convened; or(b)to conduct the meeting in the manner required by the articles of the company or this Act.(2)The Court may, either on its own initiative, or on the application—(a)of a director of the company; or(b)of a member of the company who would be entitled to vote at the meeting, make an order requiring a meeting to be convened, held and conducted in any manner the Court considers appropriate.(3)If an order is made under subsection (2), the Court may give such ancillary or consequential directions as it considers appropriate.(4)Directions given by the Court under subsection (3) may include a direction that one member of the company present at the meeting be regarded as constituting a quorum.(5)A meeting convened, held and conducted in accordance with an order under this section is taken for all purposes to be a meeting of the company properly convened held and conducted.

37. The Respondents have now lodged the present Application to have the said order of 8th December 2021 reviewed due to the implementation of Covid -19 Protocols that prevents the advertised and scheduled meeting of 25th February 2022 to take place by the issuance of a temporary/interim injunction.

38. In Giella –versus- Cassman Brown & Company Limited(1973) E A 358, the court expressed itself on the conditions that a party must satisfy for the court to grant an interlocutory injunction:“First, an applicant must show a prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which would not adequately be compensated by an award of damages. Thirdly, if the Court is in doubt, it will decide an application on the balance of convenience."

39. The test for granting of an interlocutory injunction was also considered in the American Cyanamid Co. –versus- Ethicom Limited [1975] A AER 504 where three elements were noted to be of great importance namely:“i.There must be a serious/fair issue to be tried,ii.Damages are not an adequate remedy, andiii.The balance of convenience lies in favour of granting or refusing the application.”

40. The Court of Appeal in Mrao Ltd versus First American Bank of Kenya & 2 others [2003] KLR 125 defined an arguable case as; -“A genuine and arguable case a case which on the material presented to the court, a tribunal properly directing itself will conclude there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.”

41. The Applicants in the instant application have made out a prima facie case on why it is impractical to hold the AGM on 25th February 2022 in compliance with the Public Health Corvid 19 Protocols and enforcement by the Local Administration, as evidenced by correspondence from local Administration and Public Health Ministry. In light of ongoing observance of Covid-19 Health Protocols and the limited period to implement the protocols it is reasonable to put off the meeting and adequately prepare for full compliance of the protocols. There is also the legal requirement to give adequate notice of 21 days and with preparations to host 1,860 members it is not possible to comply in the circumstances within the short period. The damage that non-compliance of Covid 19 protocols would cause, would be health risk to lives and irreparable ill-health to the members. Therefore the grant of temporary injunction of the scheduled meeting is merited and hereby granted.

42. However, the Applicant’s application of 25th January 2021 shall be complied with as required by law as it is a compulsory legal requirement of the Company to hold AGM according to the Company’s Articles of Association and Companies Act. The Court notes that there is a new normal, in the Covid–19 aftermath; public services and processes have resumed but with mandatory safety measures in management of public activities whether in sports, religious gatherings, entertainment, Court processes transport and travel process among others; they have all resumed subject to Corvid -19 Protocols that are in force. The social, political and economic activities are allowed subject to social distancing, masking, sanitation and vaccination among others as part of Covid 19 protocols. It is reasonable that the Director of the Company have ample and reasonable period/time to comply with these protocols and hold the Company AGM.DISPOSITION

43. The Application of 10th February, 2022 is granted; interim temporary injunction is granted to stop the advertised and scheduled AGM of 25th February, 2022 which is cancelled due to the limited time and resources to comply with Ministry of Health Corvid 19 Protocols.

44. The Application of 25th January 2021 is granted as it is a mandatory requirement of the law, that the Company through Directors shall hold AGM within 120 days of issuance of 21 days’ notice from date of delivery of this Ruling and the Directors shall implement arrangements for members to observe the Covid -19 Protocols masking, social distancing, sanitization, vaccinations, meeting in open space/area facilitate and employ a hybrid system and allow proxies and/or legal representatives to represent members and manage the numbers of members within the protocols.

45. The AGM shall be held in compliance of the Company’s Articles of Association and Companies Act 2015.

46. In default, Registrar of Companies or member may apply for deregistration or compulsory dissolution of the Company or pursue criminal sanctions as prescribed by in the Companies Act and Section 423 & 425 (g) of Insolvency Act.

47. The reports confirming holding of AGM shall be filed with the Court through Deputy Registrar Machakos High Court after 120 days.

DELIVERED SIGNED & DATED IN OPEN COURT ON 17THFEBRUARY 2022 (VIRTUAL CONFERENCE)M.W. MUIGAIJUDGEIN THE PRESENCE OF:Makori For The Applicant – Present OnlineMr. Muli For The Respondent – Present OnlineGeoffrey – Court Assistant