Rubina Ahmed, Ahmed Aftab, Taxtile Investment Limited & Mavin M. Mehta v (First National Finance Bank succeeded by Guardian Bank Limited [2020] KEHC 575 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI COMMERCIAL & TAX DIVISION

CIVIL SUIT NO. 1129 OF 1997

RUBINA AHMED.......................................................1ST PLAINTIFF

AHMED AFTAB.........................................................2ND PLAINTIFF

TAXTILE INVESTMENT LIMITED.......................3RD PLAINTIFF

MAVIN M. MEHTA...................................................4TH PLAINTIFF

VERSUS

(FIRST NATIONAL FINANCE BANK) succeeded by

GUARDIAN BANK LIMITED........................................DEFENDANT

JUDGMENT

BACKGROUND

The Plaintiffs instituted this suit against the Defendant by a Plaint dated 12th May 1997, where they deponed;

On or about the month of March 1997, the Defendant asked for the said Universal Apparels EPZ Ltd to create a debenture over their assets in favour of the Defendant

On or about the month of April 1997, the necessary documentation was done and a debenture created.

The Defendant demanded payment of the principal sum on the 9th of May 1997 amounting to USD 319,401. 04 and at the same time appointed receivers which course of action amounted to arm twisting and tainted with bad faith.

The Plaintiffs claimed against the Defendant [that there] was an injunction restraining them from appointing a receiver over Messrs Universal apparels EPZ Ltd without proper process.

The Plaintiff prays for judgment against the Defendants for reasons;

a) An injunction restraining the Defendants from appointing a receiver over Messrs Universal Apparells (EPZ) Limited.

The Plaint was supported by a supporting affidavit dated 12th May 1997 sworn by Rubina Ahmed the 1st Plaintiff herein who is the Managing Director and principal shareholder of the Company – Universal Apparels (EPZ) Limited. He stated that it was against this background that the Company approached the Defendant to advance it credit.

That the Defendant readily agreed to assist the company and advanced USD 400,000 to enable the company import the raw materials.

He averred that it was agreed that the Defendant would be repaying itself from the proceeds of letters of credit in favour of the company which letters of credit were drawn by the importers (the company’s customers).

The Defendant advanced the said amount in August 1996 to enable the company trade.

That it was mutually agreed and understood by both the company and the Defendant that the facility was pegged to the company obtaining business.

That at the time of awarding the facility, the Company gave a performance bond equivalent to the facility amount the directors’ personal guarantees coupled with whatever letters of credit the company could get.

That the relationship between the Company and the Defendant soon turned sour and by November of the same year the Defendant was pressurizing the Company to repay the facility.

AMENDED PLAINT

In the amended Plaint dated 16th June 1997, the Plaintiffs amended pleadings as follows;

The Plaintiffs are subscribers and shareholders and as such have a vested legal and financial interest in the continuity of the company known as Universal Apparells (EPZ) Ltd registered under the Companies Act, Cap 486 of the Laws of Kenya. Prior to commencement of these proceedings Universal Apparells (EPZ) Ltd (hereinafter called the Company) had carried on a lucrative business as manufacturers of garments at the company’s factory located at the Export Promotion Zone, Industrial Area complex, Nairobi.

On or about the month of August 1996, M/S Universal Apparells (EPZ) Ltd obtained a loan of USD 4,000,000/- against letters of credit and performance bond and the director’s personal guarantees from the defendant as working capital.

On or about the month of March 1977, the Defendant requested that a debenture be created over the assets of Messrs Universal Apparells Ltd in the Defendants favour on the understanding that the said debenture was used by the Defendant to enhance the facility to USD 1,000,000/-

That on or about 30th April 1997, the documentation was done and a debenture created and executed by the 1st Plaintiff only. The said debenture was/is not and has never been validly executed and cannot confer any right upon the Defendant to appoint a receiver/manager.

By a letter dated 9th May 1997 the Defendant purported to appoint Receiver Manager over Messrs Universal Apparels (EPZ) Ltd and also demanded payment of the outstanding financial facility. The Plaintiffs contend that the appointment was vitiated by lack of a prior demand and the appointment was null and void.

The Plaintiff’s claim against the Defendant was for an injunction restraining them from appointing a receiver over M/S Universal Apparel’s (EPZ) Ltd without proper process and with reference to the debenture referred hereinabove.

The Plaintiffs’ sought the following additional prayers;

a) (i) A declaration that the debenture in respect to Universal Apparell (EPZ) Ltd dated 30th April 1997 was null and void for want of due execution.

b) (i) A declaration that the purported appointment of a receiver/manager in respect of Messrs Universal Apparells (EPZ) Ltd is null and void.

c) An injunction to restrain the Defendant, its servants and or agents from interfering with the Plaintiff’s company Messrs Universal Apparells (EPZ) Ltd by appointing a receiver/manager.

d) General damages

e) Special particulars to be adduced at the hearing hereof

f) Costs of the suit

g) Any other or further relief that the court may deem just and expedient

DEFENCE

The Defendant filed a defence dated 12th September 1998, averred that the Plaintiffs are non-suited and would apply to have the Plaint struck out with costs. The Defendant specifically averred the Plaintiffs had no locus standito bring this suit as there was no privity of contact between the Defendant and the Plaintiffs. The suit therefore disclosed no cause of action and should be struck out with costs.

The Defendant averred that by a letter dated 15th August 1996 Universal Apparels (EPZ) Limited (hereinafter referred to as the Company) applied to the Defendant for credit facilities and the Defendant agreed to extend to the Company credit facilities in the sum of US Dollars 400,000 (approximately Ksh 25,000,000).

The Defendant in reply to paragraph 4a of the amended Plaint averred that it was not true that the Company (EPZ) obtained a loan of US Dollars of 4,000,000 from the Defendant in August 1996 as alleged in paragraph 4(a).

The Defendant denied that it requested the said Company to issue a Debenture to the it on the undertaking that the Defendant would enhance the credit facility advanced to the said Company to US Dollars 1,000,000 as alleged in paragraph 6 (a) of the Amended Plaint.

The Defendant averred that by a Debenture dated 30th April 1997 the Company charged its undertaking, goodwill, assets, both present and future to the Defendant to secure the Company’s indebtedness to the Defendant. The said Debenture was duly registered on the 5th May 1997 and issued on the basis of the letters of offer dated 15th August 1996 and 15th November 1996.

The Defendant averred that by a letter dated 9th May 1997 the Defendant demanded the immediate payment of the total amount due from the Company to the Defendant. The said demand letter was delivered to the Company and was duly accepted by its authorized officer. The Defendant averred that after the said demand was made upon the Company, the Company failed to make payment of the amount demanded and/or failed to make any proposals for payment.

The Defendant stated that it’s right to appoint Receivers and Managers over the Company accrued when demand for payment was made upon the Company as aforesaid.

The Said Debenture was/is a valid security for the US Dollars 400,000 advanced to the said Company by the Defendant and the appointment of Receivers and Managers over the said Company by the Defendant was valid and lawful and the same had been done regularly.

FURTHER AMENDED PLAINT

In a further amended Plaint dated 21st July 1997, the Plaintiffs further amended the Plaint as follows;

By a letter dated 9th May 1997, the Defendant purported to appoint a receiver manager over Messrs Universal Apparels (EPZ) Ltd and also demanded payment of the outstanding financial facility. The Plaintiffs contend that the appointment was vitiated by lack of a prior demand and the appointment was null and void.

By reason of the above, the Plaintiffs have suffered loss, hardship and damage.

The Plaintiffs claim against the Defendant is for an injunction restraining them from appointing a Receiver over M/S Universal Apparels (EPZ) Ltd without proper process and with reference to the debenture referred hereinabove.

The Plaintiffs’ pray for judgment against the Defendant for;

a) A declaration that the debenture in respect to Universal Apparels (EPZ) Ltd dated 30th April 1997 was/is null and void in respect of us Dollars 400,000 advanced prior to its execution.

b) An order reinvesting the running and management of M/S Universal Apparels (EPZ) Ltd to the Plaintiff.

i. A declaration that the purported appointment of a receiver/manager in respect of Messrs Universal Apparels (EPZ) Ltd was/is null and void.

c) An injunction to restrain the Defendant, its servants and or Agents from interfering with the Plaintiffs’ Company Messrs Universal Apparels (EPZ) Ltd by appointing a Receiver/Manager.

The Plaintiffs filed application to amend the amended Plaint and annexed Further Amended Plaint vide application/Notice of Motion of 26th March 2012. The proposed amendment was to add the Company Universal Apparells as Plaintiff Company in addition to the 4 Plaintiffs and to substitute the First National Finance Bank to its successor Guardian Bank.

By Ruling delivered by Hon Mabeya J on 28th November 2012, partly granted substitution of the predecessor bank to successor bank and dismissed the addition of the Company as Plaintiff as it would amount to reopening and relitigating similar issues as determined in HCCC 2496 OF 1997 First  National Finance Bank vs Universal Apparells (EPZ) Ltd & HCCC 874 of 2002 First National Finance Bank Ltd vs KenIndia Assurance Company Ltd.

The Plaintiffs lodged appeal in Court of Appeal and the appeal matter was dismissed on 22nd March 2019.

HEARING

On 17th October 2019, Ahmed Aftab 2nd Plaintiff testified and relied on his Witness Statement filed on 24th May 2019 and pleadings on record for Plaintiff’s case.

The Plaintiffs decided to venture into manufacture of garments for export to USA & Europe. The 4 plaintiffs were subscribers, Contributories, Shareholders and Directors of Universal Apparels (EPZ) Ltd. The gist of Plaintiff’s claim is that they obtained credit facility from the defendant USD 400,000 on 15th August 1996 and complied with conditions set;

a) Commitment Fees USD 8000

b) Performance Bond from KenIndia Assurance Ltd Ksh 25,000,000

The plaintiff obtained Letter of Credit valid for 1 year upto 16th August 1997. A Debenture was drawn on 30th April 1997 signed only by the 1st Plaintiff for USD 500,000 facility.

On 9th May 1997, 4 days after registration of the debenture the Defendant appointed Receivers/Managers who demanded from the Company payment of outstanding sum of USD 319,401/04 against facility of USD 400,000 and not USD 500,000 which was not advanced to the Plaintiff/Company.

The 2nd plaintiff stated they were shocked and had been forced to sign the debenture as the bank recalled the facility before1 year was over.

The 2nd Plaintiff denied that the Company did not comply with conditions set. The 2nd Plaintiff relied on the fact that the Company had a stock list, letters of Credit had opened bank accounts with the Defendant Bank and there was the Performance bond.

The bank’s action wrote away 22years of the Plaintiffs lives, they lost projected business opportunities and lucrative contracts, profits, 400 employees’ jobs, equipment, machinery, assets of the Company and the Company itself.

The 2nd Plaintiff asserted that the debenture was not valid  and he was a director of the Company as he did not author the letter declaring him as having resigned as director of the Company.

On 2nd March 2020, DW1 Narayanmurthi Sabesan CEO of Guardian Bank

Successor of First National Finance Ltd Bank testified and he relied on his Witness Statement filed on 24th May 2019 and all pleadings filed on behalf of the Defendant.

In a nutshell, the witness relied on documents held by the Defendant bank, he deponed that the Plaintiffs did not sign a contract with the Bank and on 15th August 1996 Universal Apparell Ltd applied for credit facilities to support garment manufacturing business. The Plaintiffs were not parties to the Contract.

By letters dated 15th August 1996 and amended on 15th November 1996, the Defendant bank agreed to extend credit facilities in the sum of USD 400,000 ( Ksh 25 million at the time) to the Company and was initialled  by 1st & 2nd Plaintiffs on behalf of the Company.

On 30th April 1997, a debenture was drawn for Ksh 25 million only. The Debenture secured loans, overdraft, cash credit facilities and financial accommodation granted to the Company from time to time. The Company charged all its undertaking, goodwill, assets, books, debts, property both present and future in favour of the Bank.

Contrary to Clause 11 of the Debenture, the Company failed to pay outstanding debt of USD 319,401. 04 and the bank appointed Receivers and Managers of all properties and assets of the Company by powers conferred by Clause 13 of the Debenture and Companies Act (Repealed).

PLAINTIFFS’ SUBMISSIONS

On whether the Plaintiffs’ have locus standi, the Plaintiffs relied on the Court of Appeal case  Alfred Njau & 5 Others vs City Council of Nairobi [1983] eKLR, where the Court put  it in the following terms:-

“The term Locus standi means a right to appear in Court and, conversely, as is stated in Jowitt’s Dictionary of English Law, to say that a person has no locus standi means that he has no right to appear or be heard in such and such a proceeding.”

The Plaintiffs’ submitted that it was not disputed that they were the Investors behind UAEL and were the shareholders of the company. The only thing that the Defendant challenged in evidence regarded the 2nd Plaintiff as a Director of UAEL. During cross examination; the Defendant referred PW1 to a letter on page 78 of the Plaintiffs’ main bundle and another on page 80 of the same bundle in order to demonstrate that PW1 was no longer a Director or shareholder of UAEL. It is important to note that the letter on page 78 was not authored by PW1 and cannot therefore bind him.

In the case of Mandey Limited vs M. K. & Sons Limited (under Receivership) & Another (2010) eKLR the court held;

“The general principle is that once a company has been placed under Receivership it lacks competence to institute a suit or be sued in its company name. it can only sue or be sued through the Receiver.”

It was the Plaintiffs’ submissions that the distinguishing element their present case with those such asCyperr Enterprises Ltd vs Metipso Services Ltd & 2 Others is that in the Plaintiffs’ present case, the wrong doer was the Defendant and it’s the one that had appointed the Receivers and Managers. The Receivers in Plaintiffs’ case could not therefore have been urged to grant leave for the subject company to sue their master.

The Court of Appeal in Chief Land Registrar & 4 Others vs Nathan Tirop Koech & 4 Others [2018] eKLR found that;

“It is trite law that a suit should not in principle be struck out or defeated for joinder or non-joinder of a party. Except where is a legal bar to maintainability of a suit by reason of non-joinder of a party or where in his absence, the decree that may be passed might become infructuous or in executable, a court cannot dismiss a suit for non-joinder of a person.”

In civil proceedings, Order 1 Rule 9 CPR 2010, is explicit that;

“No suit shall be defeated by reason of the misjoinder or non-joinder of parties, and the Court may in every suit deal with the matter in controversy so far as regards the rights and interests of the parties actually before it.”

On whether the subject Debenture was valid, the Plaintiffs’ submitted that the letters from UAEL to the Managing Director of the Defendant, UAEL sought additional funding which is something that was possible under Clause 1 of the Terms and Conditions of the initial offer (page 72 of the Plaintiffs’ main bundle). In the letter dated 17th January 1997 appearing on page 85 of the Plaintiffs’ main bundle, UAEL made a passionate appeal for additional funding and indicated that the reason why they were willing to accede to a Debenture was so that they would obtain additional funding from the Defendant.

The purpose of the Debenture is further demonstrated by the Board Resolutions which were supplied in support of the Debenture. The Resolution appear on page 155 of the Plaintiff’s main bundle.

They further submitted that even the Debenture itself was not for the same amount indicated in the Initial letter of offer i.e USD 400,000 but Ksh 25,000,000/-. It is worth noting that at the time, the exchange rate of 1 USD to Ksh was 55. 4933. The equivalent of USD 400,000 was therefore Ksh 22,197,320. Clause 1 of the Debenture (page 132 of the Plaintiff’s main bundle) showed that the Debenture was in respect of future requests by UAEL for advances, this further shows that the Debenture was never expected to cover any past liabilities of whatever nature.

Whether the appointment of Receivers was valid.

a) No Monies were advanced under the Debenture

The Plaintiffs’ reiterated that the Debenture created was forward looking. It was executed in consideration of monies or accommodation that was to be advanced. That the Debenture was executed on 30th April 1997. It was registered on 5th May 1997. There was no money advanced to UAEL under the said Debenture and hence it was not in order for the Defendant to appoint Receivers when it had itself not fulfilled its obligation of advancing funds.

Strangely, within 4 days, the Defendant had held meetings, resolved to appoint Receivers and indeed did so by a letter dated 9th May 1997 which was delivered to the 1st Plaintiff on a Saturday 10th May 1997.

This appointment of Receivers was done in contravention of the consideration under the Debenture terms. Clause 1 of the Debenture clearly stated that “…in consideration of the bank agreeing to make advances to the company by way of loan, overdraft, cash credit or other credit facilities…” UAEL covenanted to secure the said sums with the Debenture.

b) No basis in recalling the Import Letters of Credit Facility

They submitted that if the Court examines the Initial letter of Offer appearing on page 71 of the Plaintiffs’ Bundle of Documents, it will note that the L/C Facility was for a period of 1 year with an option to review. Considering the nature of L/C transactions, there was no provision for termination or recalling of the said Facility in the Letter of Offer.

c) The appointment was done in bad faith and with Malice and/or ulterior motives

It was obvious that the orchestration of the Debenture and appointment of Receivers was not in the bona fide pursuit of dues. The Defendant ultimately desired to have absolute control of the Company and extract what it could whether the Company remained alive or otherwise was not a bother to the Defendant.

As at this time the Defendant was properly secured by a Performance Bond. If it was all about its security, the Bank was well covered with Original Letters of Credit, Directors’ Guarantees and the said Performance Bond. There was no need for a Debenture. The Defendant duped UAEL and made them believe that upon execution of the debenture, they will be able to avail further financing from the Defendant. Yet when the Debenture was registered, the Defendant in less than a week after the registration immediately recalled the Import Letters of Credit Facility.

d) Whether the Plaintiffs suffered loss and to what extent

As a result of the unlawful appointment of Receivers, the operations of UAEL ground to a halt and a chain reaction involving reduced business, translocation of the business from Sameer EPZ to Likoni Road, the levying of distress on Universal Apparels (EPZ) Ltd and the seizure of the Equipment and stocks in trade of Universal Apparels (EPZ) Ltd by the Customs Department of Kenya Revenue Authority (KRA) occurred that eventually led to the total collapse of an otherwise profitable healthy company with prospects for expansion and a bright future.

UAEL lost business deals particularly with large conglomerate Companies including but not limited to Indigo Trading Company, Scope International Group LLC & Caravan Clothing since it could no longer meet orders on time or at all.

UAEL also lost Equipment, Plant and Machinery estimated at US $ 176,786/-, stocks in trade and raw materials estimated at US $ 208,855/-, Loss of future earnings or expected revenue from 1997 to date. The Court should examine the valuation report appearing on page 110 of the Plaintiffs’ main bundle of documents. The report assessed the value of UAEL at total of Ksh 28,260,792/-. That was the worth of the investment that the Plaintiffs had put in and the value that they lost.

In addition, the 1st and 2nd Plaintiff became exposed due to Directors’ Guarantee they had executed. They were sued in HCCC 2496 of 1997 First National Bank Ltd vs Universal Apparels (EPZ) Limited, Rubina Ahmed & Aftab Ahmed whereby Interlocutory Judgment was entered for the unlawful sum of US $ 314,415. 95. The Defendant made recovery of the sum of Ksh 54,377,095/- on or around 2nd December 2008 when it obtained payment from the Performance Bond by Kenindia Assurance (K) Ltd.

As a direct consequence of the sabotage of their investment by the Defendant, the 1st & 2nd Plaintiffs suffered stress, mental anguish and distress which took a toll upon their marriage and consequently led to their separation and ultimate break up of their family unit.

Submitting on the major prayer for general damages, the Plaintiffs relied on the case Delilah Kerubo Otiso vs Ramesh Chander Ndingra [2018] eKLRwhere the Court of Appeal held as follows;

“The appellant conceded that whereas the general legal principles is that court do not normally award damages for breach of contract, there are exceptions such as when the conduct of the Respondent is shown to be oppressive, high handed, outrageous, insolent or vindictive.”

DEFENDANT’S SUBMISSIONS

The Defendant submitted that under the letter of offer, Universal Apparels was to provide as security;

a) Board of Director’s resolution to borrow USD 400,000/-

b) Director’s personal guarantee

c) Original Letter of Credit

d) Performance Bond by Canon Assurance (K) Limited.

The Defendant submitted that the amendments to the letter of offer were in respect to the Security clause. It stated that Universal Apparels should provide:

a) Board of Director’s resolution to borrow USD 400,000. 00

b) Director’s personal guarantee

c) Original export Letter of Credit

d) Performance Bond by Kenindia Assurance (Kenya) Limited for Ksh 25 Million

e) Fixed and floating Debenture over the Company’s present and future assets.

f) Assets to be insured with a reputable company against all risks and the bank’s interest noted therein; and

g) Stock list to be submitted to the bank on a monthly basis.

It was the Defendant submission that Universal Apparels, however failed to comply with the terms of the Letter of Offer as amended and the Debenture dated 30th April 1997. The Company failed to pay an outstanding sum of USD 319,401. 04 and did not conduct the account as expected prompting the Defendant to demand immediate payment of the outstanding sum plus interest. Exhibit No. 2 is the demand letter dated 9th May 1997 at page 90 of the Plaintiff’s Bundle of Documents.

The Defendant submitted that the Application for joinder served two purposes. First, it was an acknowledgement by the Plaintiffs that there was no privity of contract between themselves and the Defendant herein. It was further an admission that there were wrong parties before this Court. As such, they wanted to bring in the proper or main party to the impugned contracts so that the issues could be addressed before the court as between the Defendant and Universal Apparels. Having failed in their application before the High Court and the Court of Appeal, the Plaintiffs’ goose was cooked. It cannot litigate on behalf of parties who are not before this Court and without any proper authorization to do so.

On the second argument by the Plaintiff’s, the Defendant submitted that the said argument is equally fallacious and untrue. While Universal Apparels was under receivership from 9th May 1997, Universal Apparels continued to exist as a corporate body and its Board of Directors continued to hold office save that some of their powers were restricted. They could however discharge most of their obligations in the name of and on behalf of the company without the need to obtain leave of the Receivers and Managers of the Company to do so. In Samuel Kamau Macharia & Another vs Kenya Commercial Bank Limited & 2 Others [2012]eKLR, the Supreme Court held at paragraph 40 thus;

“The question as to whether the receiver’s power to commence or defend proceedings in the name of a company under receivership is exclusive has received judicial attention in foreign jurisdictions. While it remains the position that a receiver and manager supplants the board of directors in the control, management and disposition of the assets over which the security rests, it is also acknowledged that the receiver and manager does not usurp all the functions of the company’s board of directors. The extent to which the powers of the directors are supplanted will vary with the scope of the receivership and management vested in the appointee. Directors have continuing powers and duties. Their statutory duties include: the preparation of annual accounts; the auditing of those accounts; calling the statutory meetings of shareholders; maintaining the share register and lodging returns. (see Hawkesbury Development Co. Ltd vs Landmark Finance Pty Ltd (1969) 2 NSWR 782 (emphasis added).”

On the question of the Company instituting proceedings, the Supreme Court added in Samuel Kamau Macharia case, Supra thus at paragraph 41:

“In the case of Newhart Developments Ltd vs Co-operative Commercial Bank Ltd, (1978) 2 All ER 896, (CA), it was held that the power given to the receiver to bring proceedings was an enabling provision so that he could realize the company’s assets and carry on business for the benefit of the debenture-holders. The provision did not divest the directors of the company of their power to pursue a right of action if it was in the company’s interest and did not in any way impinge prejudicially upon the position of the debenture- holders by threatening or imperiling the assets which were the subject of the charge. The court further opined that if in the exercise of his discretion, the receiver chooses to ignore some assets such as a right of action, or decides that it would be unprofitable from the point of view of the debenture-holders to pursue it, there is nothing in the case law suggesting that it is not then open to the directors of the company to pursue that right of action if they think that it would be in the interests of the company. (emphasis added)”

It was Defendant’s submission that the Courts have also been emphatic that where the appointment of receivers is challenged, then the company can file a suit without leave of the Receivers Managers, like in this case. In Odera Obar & Co. Advocates vs Charter House Bank Limited [2018]eKLR, the Court of Appeal cited with approval KERR on the Law and Practice as to Receivers and Administrator- 17th Ed, where the authors state at P. 369, 2nd paragraph;

“However, the directors are entitled to use the name of the company for the purposes of litigating the validity of the security under which the appointment has taken place.”

In making the foregoing decision, the Court of Appeal followed the Supreme Court decision in Samuel Kamau Macharia case supra as well as a long time of authorities from the Court of Appeal including Anspar Beverages Limited vs Development Bank of Kenya Limited, East African Development Bank, International Finance Corporation, Abn Amro Bank N.V [2003] EKLR,where the Court of Appeal observed;

“The learned Judge appreciated that where the validity of the appointment of receivers/managers was directly in question the right of the company to bring an action in its own name to challenge the receivership was not disputable. This he did on the authority of cases like Hastings Irrigation (K) Ltd vs Standard Chattered Finance Services (Civil Appeal No. 88 of 2000) (unreported).”

The Defendant submitted that the Plaintiff’s admitted that USD 319,401. 04 was overdue and the Defendant’s forbearance to demand the same would still fall under the aspect of other accommodation embodied in the Debenture. In HCCC No. 813 of 2000, First National Finance Bank Limited vs Paramount Universal Bank Ltd & 2 Others, this Court (Ocheing J.) interpreted any other financial accommodation to include the conversion of an outstanding balance to a loan facility a falling within the contemplation of the parties. The 1st Plaintiff’s request to be given one last chance as at 7th May 1997 was first an admission that monies were due after the Execution and Registration of the Guarantee and that the Defendant had given it several chances to make good its part of the bargain. This constitutes forbearance which has been deemed to be good consideration.

In Charles Mwirigi Miriti vs Thananga Tea Growers Sacco Ltd & Another [2014]eKLR, the Court of Appeal defined consideration at paragraph 12 thus:

“Consideration is further classified as either executed or executory. The common Law Series on the Law of Contract by Robert Bradgate at paragraph 2:49 defines executed and executory consideration as follows;

“A distinction is generally drawn between executed and executory consideration. Consideration for a promise is executed where it consists of an actual act or forbearance. Consideration is said to be executory when it consists of a promise of an act or forbearance. A simple eample of a situation where consideration is wholly executory is provided by a contract for sale of goods to be delivered at a future date on credit terms. There is a fully binding, bilateral executory contract as soon as promises are exchanged, despite the fact that neither seller nor buyer has actually performed as yet. Each party’s promise is consideration for that of the other. This example is typical of commercial contracts which often are bilateral executory contracts. When either party renders performance in accordance with his promise his consideration is executed.”

Halsbury’s Laws of England(Supra) at paragraph 314 indicates that:-

“Consideration is said to be ‘executory’ when it consists of a promise to do or forbear from doing some act in the future; and it is said to be executed’ when it consists some act or forbearance completed at the earliest when the promise becomes binding.”

The learned author of Cheshire, Fifoot & Furmstone’s Law of Contract, 14th Edition at page 83 in distinguishing executory and executed consideration stated,

“Consideration is called executory when the defendant’s promise is made in return for a counter promise from the Plaintiff, executed when it is made in return for the performance of an act…. At the time when the agreement is made, nothing has yet been done to fulfil the mutual promises of which the bargain is composed. The whole transaction remains in future.”

DW1, Mr. Naranmurthy Sabesan, further testified that Universal Apparels failed to pay the outstanding sum of USD 319,401. 40 prompting the bank to exercise its power of appointment of receiver and manager under Clause 12 of the Debenture and appointed Azim Jamal Virjee and Ketan Shah of Samvir & Company Certified Public Accountants as Receivers and Managers of all the property and assets of Universal Apparels with the power to exercise all the power conferred upon them under the Clause 13of the debenture and the Companies Act (repealed).

The Defendant submitted that during cross examination, the 2nd Plaintiff readily conceded that the items and/or heads of loss as stated in the Amended Plaint and in his evidence before this Court are all in respect of the Company. PW1 confirmed that the Company is the one that lost machinery and income and business deals. He also conceded that the company, Universal Apparels was a separate entity from him though he insisted that the company cannot be divorced from its investors. In these loaded statements, the Plaintiffs confirm that the Company is separate from them. In fact, the valuation Report at pages 110-111 of the Plaintiffs’ Exhibit 2 all relate to the assets, machinery and other items owned and belonging to the Universal Apparels, which is not a party to this suit. Any loss thereto can only be claimed by the company, not the Plaintiffs herein. Moreover, the claim of loss of business deals or future earnings can only be equally claimed by the company, not the Plaintiffs herein. There is no contractual or collateral relationship between the Defendant herein and Plaintiffs.

DETERMINATION

The Issues raised for determination arising out of pleadings and testimonies of parties and submissions are;

A) Whether the plaintiffs had/have locus standi in this Suit

B) Whether the Debenture of 30th April 1997 was/is valid

C) Whether the appointment of Receivers was valid/legal

D) Whether Plaintiffs suffered loss and if so to what extent.

E) Whether the court may order reinvesting the running and management of M/S Universal Apparels to the 2nd  Plaintiff.

ANALYSIS

A) Whether the plaintiffs had/have locus standi in this Suit

The Defendant deposed in their Defense that Plaintiffs are non suited as they lacked locus standi to bring suit against the Defendant. They had no privity of contract between them and the Defendant and thus the suit disclosed no cause of action against the Defendant.

The Defendant raised a Preliminary objection on the same issue that the Plaintiff’s lacked locus standi to pursue the suit and application which ought to be struck off. By Ruling delivered by Hon Lady J Aluoch on 23rd September 1997the Preliminary Objection was dismissed as the as the issue of locus standi could not be determined at the Preliminary stage.

The Defendant was of the view;

First, it was an acknowledgement by the Plaintiffs that there was no privity of contract between themselves and the Defendant herein. It was further an admission that there were wrong parties before this Court. As such, they wanted to bring in the proper or main party to the impugned contracts so that the issues could be addressed before the court as between the Defendant and Universal Apparels. Having failed in their application before the High Court and the Court of Appeal, the Plaintiffs’ goose was cooked. It cannot litigate on behalf of parties who are not before this Court and without any proper authorization to do so.

The Plaintiffs submitted that there was no dispute that the Plaintiffs were/are subscribers, investors, shareholders of the Universal Apparels (EPZ) Company. The only objection raised is with regard to the 2nd Plaintiff being one of the Directors of the Company. By a letter dated 3rd December 1996, addressed to M.D First National Finance Bank Ltd, referred to by the Defendant housed at Pg 78 of the Plaintiff’s bundle of documentswhich reads;

“ATTENTION: MR. SIDDIQUE

this is to inform you that Mr. Aftab Ahmed Ashraf is not a director or shareholder of Universal Apparels EPZ Ltd and we would like you to;

1. Return all guarantees signed by Mr. Ahmed. The same will be signed by our other director.

2. Mr. Ahmed will no longer be a signatory to the Account.

Signed by Rubina Ahmed”

There is another letter dated 3rd December 1996 housed at Pg 80 of Plaintiff’s bundle which reads;

“TO WHOM IT MAY CONCERN

This is to confirm that I have resigned as a director and shareholder of Universal Apparels EPZ Ltd. All my shares to be transferred to Rubina Ahmed Ashraf

Signed  by                                     signed by

Aftab Ahmed Ashraf                            Rubina Ahmed”

It confirms that the 2nd Plaintiff resigned as director and shareholder of Universal Apparells EPZ Ltd. All his shares were to be transferred to Rubina Ahmed Ashraf. The letter is signed by Aftab Ahmed Ashraf and Rubina Ahmed. During oral hearing PW1/2nd Plaintiff vehemently denied authorship of the letter and its contents and contested his signature in the 2nd letter. Investigations were not commenced and hence the truth of the matter cannot be determined in these proceedings as there were internal management matters of the Company.

Clearly, the letter depicts internal wrangles between Directors and Shareholders of the Company.

The letter was not written by PW1but by the 1st Plaintiff Co director Rubina Ahmed. The 2nd Plaintiff’s ouster as Director was not in line with Section 88 (c) Companies Act Cap 486 (repealed.)that the 2nd Plaintiff could only resign from the Company by writing to the Company and putting it on Notice. The said letter was not registered with Registrar of Companies and the Company’s register was not rectified to reflect the 2nd Plaintiff’s ouster/resignation as Director from the Company.

Be that as it may, the Plaintiffs contributed and subscribed shares of the Universal Apparell EPZ Co LTD they injected capital to jumpstart the pioneer project of manufacture of garments for export. They invested in purchase of equipment and machinery. They approached the Defendant Bank for overdraft facilities to run the Company and executed contracts/agreements on the Companies behalf. Although the Company is a separate legal entity, these facts indicate the Plaintiffs as Board of Directors were the mind of the Company and executed the Company’s objects. In the case of Michael Kyambati vs Principal Magistrate Milimani Commercial Courts Nairobi & Anor [2016] eKLR,the Court observed as follows in referring toPeter O.Ngoge T/A OP Ngoge & Associates vs Ammu Investment Co Ltd[2012] eKLR;

“The general law, however, is that a corporation is an artificial legal entity. Accordingly, it must of necessity act through agents. Usually the Board of Directors. A Company may in many ways be likened to a human body; it also has hands which hold tools and act in accordance with directions from the center. Some of the people in the Company are mere servants and agents…..[ and ] others are directors and managers who represent  the directing mind and will of the company, control what it does…..ultimate responsibility rests with the directors.”

Therefore, whereas the Company is a separate legal entity as enunciated in Salomon vs Salomon& Co Ltd [1897]AC 22 the corporate veil is lifted in circumstances set out in Mugenyi & Co Advocates vs AG[1999]2E.A.199, which the instant circumstance fall under;

“1. Where companies are in the relationship of holding and subsidiary companies;

2. Where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors on the ground that business continued after the membership had dropped below the legal minimum, to the knowledge of the shareholder;

3. In certain matters relating to taxation;

4. In the law relating to exchange control;

5. In the law relating to trading with the enemy;

6. In the law of merger control in the United Kingdom;

7. In competition of the European Economic Community;

8. In abuse of law in certain circumstances;

9. Where the device of incorporation is used for some illegal or improper purpose; and

10. Where the private company is founded on personal relationship between the members.”

In the instant case despite Plaintiff’s attempt to join the Company as Plaintiff having failed, lifting the Corporate veil where the private Company was founded on personal relationship between the members, the Plaintiffs as directors are the brain and mind of the Company and have demonstrated financial and legal interest sufficient to pursue the suit. The Defendant also conceded there are instances that a Company through Directors can/may institute a suit/proceedings. For these reasons, the Plaintiffs have locus standi.

Secondly, Order 1 Rule 9 CPR 2010 provides that no suit shall be defeated by reason of misjoinder or non-joinder of parties. This principle was echoed in The Court of Appeal in Chief Land Registrar & 4 Others vs Nathan Tirop Koech & 4 Others [2018] eKLR supra

From the above considerations, I find that the Plaintiffs as Board of Directors were/are the mind and body of the Company and executed its objects in steering management and operations of the Company. The Plaintiffs had financial and legal interest in the Company. The Plaintiffs tried albeit belatedly to join the Company as a party in these proceedings and were unsuccessful. The justice of the case demands that the Court determines the substance of the dispute and not dismiss the same on the basis of technicalities only. Therefore, the totality of the evidence on record confirms parties had/have locus standi to pursue their claim.

B) Whether the Debenture of 30th April 1997 was/is valid

By letter dated 15th August 1996, the Defendant bank wrote to Plaintiffs Company letter of offer import letters of credit & USD Financing for USD 400,000 and approved the Company’s request and application for credit facilities subject to the following terms and conditions;

a) Board of Director’s resolution to borrow USD 400,000/- from First National Finance Bank Ltd

b) Directors’ personal guarantees

c) Original Export Letters of Credit

d) Performance Bond by Canon Assurance (K) Limited for USD 400,000

The 1st & 2nd Plaintiffs executed the letter of offer accepting the terms and conditions.

On 15th November 1996, the Defendant bank made further amendments to the offer of 15th August 1996. It stated that Universal Apparels should provide:

h. Board of Director’s resolution to borrow USD 400,000. 00

i. Directors personal guarantees

j. Original export Letter of Credit

k. Performance Bond by Kenindia Assurance (Kenya) Limited for Ksh 25 Million

l.Fixed and floating Debenture over the Company’s present and future assets.

m. Assets to be insured with a reputable company against all risks and the bank’s interest noted therein; and

n. Stock list to be submitted to the bank on a monthly basis.

The Plaintiff asserts that the Debenture was invalid because;

a. It did not reflect the amount sought from Company resolution of USD 500,000.

b. The debenture was for additional funds as requested by letters dated 17th & 30th January 1997by 1st Plaintiff Mrs Rubina Ahmed (Pg 82 & 86 of the Plaintiff’s bundle) and the security was by creating debenture on Company’s assets.

c. The additional funds were not advanced even after the debenture was drawn up

d. The debenture was for Ksh 25,000,000 not USD 400,000 already disbursed by the Defendant bank to the Company, also not USD 500,000 as per Company’s resolution

e. The debenture was contrary to the resolution of November 1996 (At Pg 155 of plaintiff’s bundle) to secure USD 500,000 and required to be signed by 1st & 2nd Plaintiff and was instead signed by one Mr Oloo demolished any element of its validity.

The Defendant objected the 2nd Plaintiff’s claim that the debenture was/is invalid because the Plaintiff failed to adduce evidence in Court of the Defendant’s approval/consent of the Plaintiff’s proposal to release additional credit facilities to the Plaintiffs upto USD 500,000 as requested.

The debenture signed on 30th April 1997 and registered on 5th May 1997 with the Companies Registry was pursuant to fulfilment of one of the conditions in the Amended letter of 15th November 1996 which the Plaintiffs signed as directors of the Company for the advanced USD 400,000(Ksh 25,000,000).

The letter of offer of 15th August 1996 approved the Plaintiffs/ Company’s request for Import letters of Credit to the tune of USD 400,000 subject to terms and conditions outlined above and later was amended to include terms as outlined above vide letter of 15th November 1996. The amendment of terms included   Fixed and floating Debenture over the Company’s present and future assets.

The request for additional facilities vide letters dated 17th & 30th January 1997 by 1st Plaintiff Rubina Ahmed where they offered that the debenture would be created on Company’s assets were as follows;

“we would like to request you to increase our facilities with yourselves as our business is now growing very rapidly and the facility of $400,000 is not enough for us.

…Mr. Siddiqui in order for us to continue progressing well, we will require beside the US & 400,000 for L/C facility another similar amount for working capital. This way, our business will not have any hindrances.

….as a security, we have provided you with a Performance Bond of $ 400,000 and also are now allowing you to register a Debenture on our Company Assets of upto $ 500,000 whereas the Assets inclusive of Stocks are amounting to almost $ 800,000. ”

By letter dated 17th January 1997, the Defendant bank responded to the Plaintiff’s letter of the same date as follows;

“We have exceptionally agreed to your request to disburse Ksh 400,000/- to you for payment of salaries and other office expenses on condition that no further disbursement will be made unless the underlisted documents are received by us;

i) Resolution duly signed by all the Directors authorizing Ms. Rubina Ahmed to run the Company.

ii) Letters of Credit covering the entire liability

iii) Stock List for inspection by our authorities

iv) Up-to-date accounts of the Company.

v) Please acknowledge receipt on the copy hereof signifying your acceptance of the above.”

Clearly, the request for additional facilities was not acceded to until the conditions were met by the Plaintiffs to the Defendant Bank.

The 2nd Plaintiff referred to the Company resolution of November 1996 (at Pg 155 of Plaintiff’s bundle) by Plaintiffs requesting from the Defendant bank a loan facility of USD 500,000 to be secured by debenture and 1st & 2nd Plaintiffs to execute endeavours on behalf of the Company as follows;

“1. That a Bank Account of the Company be opened with First National Finance Bank Limited Nation Centre – 7th Floor, Kimathi Street Branch Nairobi. This account to be opened by Rubina Ahmed and Aftab Ahmed Ashraf jointly and severally.

2. That a request be made to the said Bank for a Loan Facility of US $ 500,000 which amount be used to facilitate profit generating enterprise as per the Company’s Memorandum of Association.

3. That the said Facility be secured by offering the Bank a Debenture over the Company’s assets both fixed and floating and that other demands of the Bank be met with a view of securing the said amount.

4. That Rubina Ahmed and Aftab Ahmed Ashraf be given the mandate to execute endeavors on behalf of the company with a view to effecting the Resolutions as contained hereinabove.”

The Letter of offer of USD 400,000 dated 15th August 1996 included Other Terms & Conditions at paragraph 5 which stipulated;

Future loans /banking accommodation against present securities shall be given at our discretion and subject to;

i. Availability of funds

ii. Satisfactory servicing by you of the loan hereby approved

iii. The loan hereby approved is liquidated in full

With the above conditions to additional credit facilities by the Defendant bank to the Plaintiffs/Company, it is apparent that Plaintiffs ought to have complied with the conditions before the further facilities were availed. It follows that the Debenture was not based on additional facilities of USD 500,000 as requested vide the Plaintiffs/Company resolution but as stated in clause 1 of the Debenture;

“In consideration of the Bank agreeing at the joint and several requests of the Company and the Guarantors to make advances to the Company by way of loan overdraft/cash/credit/and/or other credit facilities by permitting the Company to overdraw its current account[s]with the bank or by giving to the company other financial accommodation from time to time a total amount not exceeding Ksh 25,000,000/-

The Letters of offer of USD 400,000 dated 15th August 1996 amended on 15th November 1996 required Fixed and Floating Debenture over the Company’s present and future assets as one of the conditions to be fulfilled by the Plaintiffs/Company for the amount of USD 400,000 already advanced.

With regard to signage/execution of the Debenture, the 2nd Plaintiff alluded to its validity; that it was vitiated by lack of execution by both 1st & 2nd Plaintiffs. Instead, the Debenture was signed by Director, Rubina Ahmed 1st Plaintiff and Director/Secretary Mr Oloo. The 2nd Plaintiff stated it was contrary to the Company Resolution of November 1996 where it was agreed that 1St & 2nd Plaintiffs were to execute the endeavors on behalf of the Company with a view to affecting the resolutions as contained in the resolution.

It is on record at Pg 78 & 80 of Plaintiff’s bundle 2 letters both dated 3rd December 1996 one addressed to MD of Defendant Bank and the 2nd letter addressed “to whom it may concern”. The import of both letters is that the 2nd Plaintiff was no longer a shareholder, Director, of the Company Universal Apparell EPZ and he was no longer a signatory of Company Accounts. Of interest, the 2nd letter the same was signed by the 2nd Plaintiff and 1st Plaintiff respectively. During the Court proceedings whilst admitting, he had left running of the Company for a while, the 2nd Plaintiff contested the authorship signage and content of the 2 letters.

The cumulative effect is that the import of the 2 letters signify internal directors feud on management and operation of the Company. How and when one of the Directors was removed and/or replaced was within the Company through its directors, it did not seem to involve the Defendant Bank which was only informed by correspondence. The information was relied to the Defendant bank vide the letter of 3rd December 1996, the Plaintiffs/company held the 1st Plaintiff and Mr Oloo as signatories of the Debenture. No evidence was presented depicting, undue influence, duress, coercion or misrepresentation or illegality by the Defendant bank or any involvement of removal/ replacement of Director(s) of Plaintiff’s Company. The 2nd Plaintiff would appropriately raise the issue of signing the debenture by Mr. Oloo and not him with the 1st Plaintiff Rubina Ahmed. It is also, strange to note that the 1st Plaintiff who was actively engaged in the management and operations of Universal Apparell EPZ Co Ltd did not testify in Court. No reasons were advanced why such a crucial witness did not testify in court. Also, no evidence was adduced to confirm any payment made by the Plaintiffs and/or Company towards repaying the debt. Suffice is that the Debenture was duly signed by Directors of the Plaintiffs/Company and the Debenture was registered. It is a valid and legal debenture. The Debenture was also drawn and registered in compliance of conditions for advancement of USD 400,000.

C) Whether the appointment of Receivers was valid/legal.

The 2nd Plaintiff submitted that the Debenture was not valid   consequently the appointment of receivers and managers was not valid /legal/regular.

Secondly, the defendant made a demand for the outstanding debt on 9th May 1997 at the same time they appointed the Receivers and Managers.

Thirdly, the Plaintiffs had letters of Credit worth USD 135,000 and they pleaded with Defendant Bank to withhold appointment of Receivers. The Plaintiffs vide letters of 7th May 1997 and 15th May 1997 (At Pg 88- 95-96 of Plaintiff’s bundle) pleaded with the Defendant bank to suspend appointment of Receivers based on prospects of the Company’s business and gave proposals to offset outstanding debt to it.

Fourthly, by letter dated 16th March 1997, the Plaintiffs obtained reprieve from Victoria Commercial Bank (Pg 106 of the Plaintiff’s bundle) to take up the Plaintiffs/company debt from Defendant Bank and offer USD 1,000,000 worth of financing. The Defendant bank refused to indulge or compromise on the proposal.

The Defendant bank insisted on the receivership and there was an available letter of credit of USD 245,869 which left a shortfall of USD 73,531/54. The Defendant advertised the appointment of Receivers in the Press and published Notices in the premises.

It is for these reasons that the 2nd Plaintiff attributed the receivership to bad faith and was intended to economically sabotage the operations of the Company.

The Defendant objected to the 2nd Plaintiff’s assertion on grounds; that the debenture was additional security to the offer of advanced USD 400,000 based on letter of offer of 15th August 1996 amended on 15th November 1996 both signed accepted and consented to the Directors of the Company.

Universal Apparells EPZ Co Ltd derived benefit from the advanced funds availed under the Letters of Credit and operational costs upto 9th May 1997.

Secondly the terms of the Debenture were clearly spelt out by Clause 1 outlined above as follows;

“in consideration  of the Bank agreeing at the joint and several requests of the Company and the Guarantors to make advances to the Company by way of loan overdraft cash credit and/or facilities by permitting the Company to overdraw its current account or accounts with the Bank or by giving to the company other financial accommodation from time to time to a total amount not exceeding kenya Shillings Twenty Five Million (Ksh 25,000,000/-) or such lower limit as may for the time being be fixed by the Bank the Company HEREBY COVENANTS that it will on demand in writing made to it by the Bank pay to the Bank all moneys which now are or at any time hereafter may be due and owing by the Company to the Bank or for which the Company may be or become liable to the Bank on any current or other account or in any manner whatsoever and discharge all liabilities incurred by the Company to the Bank…..”

Thirdly, the Company through the 1st Plaintiff admitted USD 319,401. 04 was due and owing and she accepted the appointment of Receivers and Managers vide the meeting held on 10th May 1997, between the Company which 1st Plaintiff represented and the Defendant Bank Officials.

The Defendant relied on the case of Kisumu Paper Mills Ltd vs National Bank of Kenya& 2 Others [2006] eKLRwhere the Court quoted Hon J Kimondo in John Muriiti Gacugonganga vs HFCK Ltd & Anor HCCC N 15 of 2005where the Court observed;

The letters of offer executed by the parties are relevant in forming the foundation of the contract and intention of the parties.

Hon Justice Tanui in Kisumu Paper Mills suprawent on thus;

Accordingly, the letter of offer and any other pertinent document in the bargain of the loan which eventually leads to a charge, bind the parties in so far as they are not inconsistent with the charge.

The Defendant bank relied on the Letter of offer of 15th August 1996 amended on 15th November 1996 and had debenture drawn signed and duly executed. Upon default by the Plaintiffs and Company on servicing the advanced facility, the Defendant Bank pursued one of the remedies prescribed in the Debenture to recover outstanding debt.

The Debenture was signed on 30th April 1997and registered on 5th May 1997. The demand to the Company for outstanding debt and appointment of Receivers were of the same date by the Defendant to the Company on 9th May 1997. Was this legal under the debenture?

In James Job Kihori Kahagi vs Ken City Clothing Ltd (1977) eKLR the Court observed;

“However, it has been established that where there is a floating charge over movable property of an execution debtor created by the Debenture, the floating charge crystallizes on the date of the Appointment of the Receiver. The charge becomes a fixed charge over all charges movable property of execution debtor. What happened in the appointment of Receiver was to crystalize the floating charge which then became a fixed charge.”

The debenture provided in Clause 2 that the Company charged;

“all its undertaking goodwill, assets, books, debts and property whatsoever and wheresoever both present and future in favour of the bank with the payment and discharge of all moneys and liabilities hereby agreed to be paid or discharge of all moneys and liabilities hereby agreed to be paid or discharged by the Company to the Bank….”

The debenture provided in Clause 3

“The charge created by this debenture shall rank first as a 1st charge on the property and assets hereby charged and shall constitute a floating security but so that the Company is not at liberty to create mortgage or charge or other encumbrance upon any of the property;..”

The debenture provided in Clause 11 (a)

“Notwithstanding any provision hereinbefore contained the whole balance of all the principal moneys and interest and other moneys hereby secured to the bank shall immediately become payable;

Upon demand made by the bank for the moneys due to it under the  provisions of these present…..”

The debenture provided in Clause 12

“At any time after the principal money hereby secured becomes payable under the provisions of the last preceding Clause, and without prejudice to any other remedies provided by law for recovery of interest on the said loan and on overdraft facility and of other monies hereby secured by the bank  may without notice or further notice appoint in writing any person/personswhether an officer or officers or an agent or agents of the Bank or not to be  a Receiver and Manager or joint Receiver and Managers of all or part of the property and assets charged as the bank shall deem fit…..”

The debenture was/is duly executed by the Directors of Plaintiffs/Company with the Company Seal. The parties and the Bank were/are bound by terms of the debenture which include the above outlined clauses, which provide for appointment of Receivers and Managers in default of settlement of the debt when called up/demanded.

It is not contested that the Company/Plaintiffs had outstanding debt of USD 319,401. 04 as at 9th May 1997. By Clause 11 & 12 of the Debenture the Defendant bank legally invoked its right to appoint Receivers& Managers in writing. The appointment of Receivers crystallized the Floating charge to a fixed charge over all charged properties and assets of the Company as contracted in Clause 2 of the Debenture.

The Supplementary Affidavit by Mr Ketan Shah (at Pg 28 of Plaintiff’s bundle) he deposed that following appointment of Receivers on 9th may 1997, a meeting was held with 1st Plaintiff Mrs Rubina Ahmed and Defendant’s Directors and the 1st Plaintiff acknowledged and accepted appointment of deponent and another as Receivers and Managers of the Company.

From the Defendant’s bundle, the 1St Plaintiff’s affidavits of 12th May, 26th November & 8th December 1997, the 1st Plaintiff Mrs Rubina Ahmed acknowledged default of payment of outstanding debt and validity of the appointment of the Receivers.

The appointment of Receivers & managers was valid and legally based on the terms of the Debenture which was additional security to the offer of USD 400,000.

F. Whether Plaintiffs suffered loss and if so to what extent.

Having found that on the basis of a valid Debenture and legal appointment of Receivers& Managers under Clause 11& 12 of the Debenture, this Court cannot delve into the issue of considering loss occasioned to the company or to Plaintiffs as the Court has not found the Defendant bank liable so as to move to quantum.

G. Whether the court may grant order reinvesting the running and management of the Plaintiff Company to the 2nd Plaintiff

The Court record confirms that on 9th May 1997, the Receivers/Managers were appointed to take over the Universal Apparel EPZ Co Ltd to recover USD319,401. 04.

The outcome of the exercise of realization of outstanding debt to the Defendant Bank through the Receivers/Managers by the Company ought to be confirmed first. Any balance or surplus should be disclosed and accounted for. If there are assets, machinery or equipment that were not disposed of to realize the outstanding debt, these ought to be declared and returned to the Plaintiffs. The Plaintiffs are entitled to full disclosure and reconciliation of Accounts, having satisfied payment/realization of the outstanding debt. Until then, this court cannot at this stage grant orders reinvesting the running of the Company as it is not known/declared what remains of the Company and/or its assets whether it is still a going concern or not and what remains after recovery of the debt by the Defendant.

DISPOSITION

1. The Plaintiffs had/have locus standi in instituting this suit as Directors/Shareholders/Contributors/Investors of Universal Apparell EPZ Co Ltd as the have legal and financial interest in the Company.

2. The Debenture executed on 30th April 1997 and registered on 5th May 1997 was/is valid.

3. The appointment of Receivers& Managers was valid/legal based on Clause 11& 12 of the Debenture.

4. The Court did not consider Plaintiffs suffered loss because liability against the Defendant Bank was not proved.

5. The outcome of realization of outstanding debt through receivership of the Company shall be disclosed to the Plaintiffs.

6. Each party to bear own costs.

DELIVERED SIGNED & DATED IN OPEN COURT ON 2ND DECEMBER 2020.

M.W. MUIGAI

JUDGE

IN THE PRESENCE OF;

GUANDARU THUITA & CO. ADVOCATES FOR PLAINTIFFS - N/A

OCHIENG, ONYANGO, KIBET & OHAGA ADVOCATES FOR DEFENDANT –N/A

COURT ASSISTANT: TUPET