N.K. Brothers Limited v Royal Ngao Holdings Limited [2023] KEHC 26370 (KLR)

N.K. Brothers Limited v Royal Ngao Holdings Limited (Insolvency Notice E150 of 2022) [2023] KEHC 26370 (KLR) (Commercial and Tax) (8 December 2023) (Ruling)

Neutral citation: [2023] KEHC 26370 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Insolvency Notice E150 of 2022

FG Mugambi, J

December 8, 2023

Between

N.K. Brothers Limited

Debtor

and

Royal Ngao Holdings Limited

Creditor

Ruling

Brief Facts 1. This ruling determines the application dated 27th October 2022 seeking to set aside the statutory demand dated 13th October 2022. The application is premised on the grounds set out on the face of it and supported by the affidavit sworn by Rajesh Rathod. The applicant also filed written submissions dated 24th March 2023.

2. The grounds upon which the application is sought are that the respondent’s claim for Kshs.158,514,415. 00/= includes a claim on interest which is exaggerated, that there exists no judgement in favour of the respondent against the applicant in Nairobi HCCC No. 156 of 2019 on which the demand is based and that there is a pending application filed by the applicant in the said suit, dated 6th October 2022 seeking to strike out the suit and refer the dispute to arbitration.

3. The application is opposed by way of a replying affidavit sworn by David J.o Nyakang‘o, the Company Secretary of the respondent company on 9th November 2022. The respondent insists that the applicant is a Judgement Debtor in Nairobi HCCC l56 of 20l9 where there is an unsatisfied decree. The respondent filed written submissions dated 19th April 2023.

Analysis 4. I have carefully considered the pleadings, submissions and evidence placed before this Court by rival parties. Regulation 17(6) of the Insolvency Regulations provides the grounds upon which the court can set aside a statutory demand as follows:“The Court may grant the application if:a.The debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;b.The debt is disputed on grounds which appear to the Court to be substantial;c.It appears that the creditor holds some security in respect of the debt claimed by the demand, and either paragraph (6) is not complied with in respect of the demand, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt, or;d.The Court is satisfied, on other grounds, that the demand ought to be set aside.”

5. The applicant disputes the existence of a valid decree and the respondent appears adamant that the decree is valid and unsettled. In my understanding, the role of an insolvency court is not to get into an enquiry on evidence that should be tabled before a civil court, but to ascertain that indeed there is proof of a debt which a debtor is unable to pay or that there are circumstances for setting aside the statutory demand.

6. I therefore fully agree with the view expressed by the Court (Mativo, J as he then was) in Flower City Limited V Polytanks & Containers Kenya Limited, [2021] KEHC 34 (KLR) that:“The function of the bankruptcy court, on the hearing of an application brought under regulation 17(6) is not to conduct a full hearing of the putative claim. Rather, it is simply to determine whether the claim in question, after having regard to “all the circumstances”, raises a “genuine triable issue.”

7. Against this background, the statutory demand dated 13th October 2022 is premised on a decree of this Court dated 24th October 2019. The decree was issued subsequent to a default judgment entered against the applicant in HCCC 156 of 2019. Both the Request for Judgment and the Decree have been produced before the Court by the respondent. It is a final decree as it completely disposes of the suit between the parties.

8. The applicant claims that it has filed an application seeking to strike out and set aside the default judgment and the decree of 24th October 2019 which it claims to be irregular and illegal. Principally, this means that the applicant acknowledges the existence of a decree in the matter. No evidence has been provided of such application neither is there evidence of stay orders. The allegation by the applicant that the Court file has gone missing is untenable as the applicant had the option of annexing a copy of the electronic application filed in Court from the Case Tracking System (CTS) to prove its allegation.

9. The applicant also submits that it has a more superior claim against the respondent which exceeds the amount of the debt specified in the statutory demand. No evidence of a counterclaim has been provided to the Court in this regard. This is the same case with the allegation that the subject matter of the dispute is still pending before arbitration. The applicant has not presented any evidence to prove the same.

Determination 10. Consequently, the application dated 9th September 2022 is devoid of merit and is dismissed with costs to the respondent.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 8TH DAY OF DECEMBER, 2023. F. MUGAMBIJUDGE