Samuel Gutu Macharia, Lucy Waithera Mwangi, Julius Kariuki Mwangi, Stephen Maina Wanuthi & Kirima Service Limited v Patrick G. Mwangi, Moses Mathews, James Karagu Wanuthi, Kagoe Mwangi, Obadiah K. Macharia, Joseph M. Macharia, Godfrey Mwangi Kabage, Zaverio Nganga Murugani & 2 Others [2017] KEHC 3524 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & ADMIRALTY DIVISON

CIVIL SUIT. NO.624 OF 2015

SAMUEL GUTU MACHARIA…................................................1ST PLAINTIFF

LUCY WAITHERA MWANGI………………………………….2ND PLAINTIFF

JULIUS KARIUKI MWANGI…………………………………..3RD PLAINTIFF

STEPHEN MAINA WANUTHI………………………………...4TH PLAINTIFF

KIRIMA SERVICE LIMITED…………………………………..5TH PLAINTIFF

VERSUS

PATRICK G. MWANGI.......................................................1ST DEFENDANT

MOSES MATHEWS……………………………………...….2ND DEFENDANT

JAMES KARAGU WANUTHI……………………………... 3RD DEFENDANT

KAGOE MWANGI…………………………………………....4TH DEFENDANT

OBADIAH K. MACHARIA…………………………………..5TH DEFENDANT

JOSEPH M. MACHARIA……………………………………6TH DEFENDANT

GODFREY MWANGI KABAGE……………………………7TH DEFENDANT

AND

ZAVERIO NGANGA MURUGANI &

2 OTHERS……………………………………………INTERESTED PARTIES

RULING

1. In a Ruling dated 17th November 2016, this Court granted Leave to the Interested Parties to join this suit. They now apply for the following Orders through the Notice of Motion dated 9th December 2016:-

d) THAT an order does issue directing that any proceeds collected and those to be collected by the Agent of the 6th Plaintiff/Respondent be deposited with the court pending the hearing and determination of this suit.

e) THAT this Honorable Court does issue Orders directing the Interested Parties as the Shareholders of the 6th Plaintiff/Respondent, pursuant to the provisions of the Companies Act and the Memorandum and Articles of Association of the Company to call for and hold General Meeting and conduct valid elections  of new Directors.

2. Not to be left behind the Defendants filed an Application dated 20th March 2017 whose main prayer is for an order to issue authorizing Masterways Properties Ltd (hereafter Masterways) to release all funds belonging to the 6th Plaintiff to its Bank Account held at Equity Bank Ltd, Fourways Branch, Account No. [particulars withheld].

3. It was agreed by Parties that both applications be heard together. The Application by the Interested Parties is supported by the Affidavit of Zaverio Nganga Murugami sworn on 9th December 2016.  He explains that the Interested Parties are shareholders of the 6th Defendant Company (herein the Company).

4. That on 15th December 2015, the Defendants purported to hold an Extra-ordinary General meeting of the Company where Elections were allegedly conducted and the Defendants irregularly elected as Directors.  The Interested Parties disapproved of the purported elections. It is their case that notwithstanding their Objection, the change in Directorship was effected by the Registrar of Companies.

5. The Interested Parties are aware that the Defendants have written to Masterways stating that they shall be taking over the Management of the affairs and Commercial properties of the Company.  This has made them apprehensive.

6. It is also alleged that one of the Defendants Kagoe Mwangi (the 4th Defendant) is facing a charge of forgery in criminal case No. 595/2015 which is a demonstration of his unfitness to hold Directorship.

7. The Interested Parties aver that a majority of the shareholders of the Company reside in rural areas and place great reliance on proceeds of the Company to sustain their livelihood.  They complain that they have been waiting for payment of overdue dividends from the Company for far too long.

8. On another front the Interested Parties seek the Court’s intervention to direct that the Shareholders convene a General Meeting in accordance with the Companies Act and the Companies Memorandum and Articles of Association in order to conduct fair elections of new Directors.

9. Led by the 1st Defendant, the Defendants are opposed to the said Application. It is their view that the Application before court seeks to address an issue that is resjudicatethe Application of 4th May 2016.  Secondly, they assert that they are the legally elected and current Directors of the Company and nothing can prohibit them from managing the Company.

10. They state that as Directors of the Company, they have a duty to act in the best interest of the Company but can only do so when they have access to funds. Annexed to the Affidavitof Mr. Mwangi are copies of demands made against the Company. It is the case of Defendants that the Company risks facing legal action unless it settle the demands.

11. In support of their Application that the management of the Properties owned by the Company be transferred to them the Defendants state that Masterways have asked for a Court order to that effect so that they are not entangled in the current dispute between the Shareholders.

12.  The Plaintiffs responded to the Defendants Application through the affidavit of Lucy Waithera Mwangi (the 2nd Plaintiff) sworn on 24th April, 2017. The 2nd Plaintiff deponed that prior to the unlawful elections held on 15th December 2015, the 5th Defendant had filed a Winding Up Cause citing mismanagement of the Company.  That the Petition was hastily withdrawn when the Defendants unlawfully assumed Office. It is averred that the Plaintiffs appointed Masterways to manage the affairs of the Company to avoid constant squabbles and pilferage of the Company property that was characterized by the tenure of the Defendants as Directors.

13. That the Agent has effectively managed the funds and has defrayed all of expenses owed by the Company and there should be no reason for the funds to be released to the Directors. Further, that should the money being held by the Agent be released to the Defendants without Accounts being table in a General Meeting of the shareholders then the Plaintiffs would be exposed to Criminal Prosecution in the event that the funds are misappropriated.

14. It is also alleged by the Plaintiffs that the 1st Defendant is not a shareholder of the 6th Plaintiff and that the application by the Defendant is therefore supported by the Affidavit of a stranger.

15. In addition, the Plaintiffs assail the Defendants for failing to call any General Meeting from the time they were installed into office.

16. The Court has considered the arguments by Counsel and takes the following view of the matter.

17. Through a Notice of Motion of 4th May 2016 the Interested Parties had sought the following prayer:-

“3. THAT this Honourable Court be pleased to annual and /or cancel election of the Defendants herein as Directors of Kirima Bus Service ltd and call for fresh election of new Directors to be held under supervision of this Honorable Court or the office of the Registrar of Companies”.

18. In its ruling of 17th November 2016 this Court declined to grant that prayer and stated:-

“13. However, for reasons that made this Court to refuse the prayers in the Notice of Motion dated 29th February 2016, prayer 3 of the Application of 4th May 2016 is declined”.

19. The reasons were, inter alia, that if the Court were to grant the Orders as sought then its effect would be to determine this matter substantially but not quite in the manner contemplated by the Amended Plaint.

20.  In this regard it has to be recalled that a substantive prayer in the Amended Plaint is for an Order to compel the Defendants to convene a General Meeting within a period of 60 days or such other period as the Court may order.  Prayer (e) of the Motion of 9th December 2016 (the current application) defers slightly from prayer 3 that this Court declined to grant because on this occasion the Interested Parties do not seek that the Meeting and Election of Directors be supervised by Court or the Office of the Registrar of Companies.

21. What the Interested Parties have done in essence is to relaunch an application that this Court had declined to grant.  This Court therefore agrees with the Defence that the matter is res judicata.

22. And this needs to be emphasized.  The matter before Court is on the basis of the Amended Pleadings of 29th February 2016.  In those Pleadings the Plaintiffs have not complained that the Defendants have failed to convene the General Meeting that is required by the Companies Act and The Memorandum and Articles of Association of the Company.  The Interested Parties were granted Leave to participate in these Proceedings but cannot purport to take them over and expand them beyond the Pleadings filed by the main protagonists.

23.  I turn to the other Prayer in the Notice of Motion dated 9th December 2016.

24. The Court is asked to direct that the rent currently collected from the Property belonging to the Company be deposited with the Court pending the hearing and determination of the Suit.  The obligation and duty of managing the Assets of a Company ordinarily rests with the Directors. If this Court were to make the orders then it would be interfering with the internal affairs of the Company. Is there justification to do so?

25. The decision in Re K Boat Service [1998] eKLR cited by the Plaintiffs is a reminder that as a general rule Courts will not interfere with the internal affairs of a Company.  The decision however sets out when an intervention is necessary and Kuloba J. renders himself as follows:-

“Courts will interfere only where the act complained of is ultra vires or is of a fraudulent character or not rectifiable by ordinary resolution. It is realty very important to companies and to the economy of the Country in general, that the Court should not, unless a very strong case is made out on the facts pleaded and proved or admitted, take upon itself to interfere with the domestic forum which has been established for the management of the affairs of a company.  Accordingly, acts by or on behalf of a company which require the authority of a resolution of the Company and are done without it, or are otherwise irregular, but which can be regularized by the Company at a general meeting and without a special resolution, and are neither ultra vires nor of a fraudulent character, are not a ground for the Court’s interference upon a winding –up petition (which is not this case), or a petition to remove a director by a minority shareholder (as in the present case) under the “just and equitable” rule.  If the various acts which have been irregularly carried out by the company are not acts which are ultra vires the Company, nor are they acts which require special resolutions of the Company, or no fraud has been disclosed with regard to those irregularities, those irregularities should be regularized or nullified by the Company at a General Meeting as established in the rule in Foss v Harbotlle, (1843X 2 Hare 461, and also explained by James, LJ, in In re Lcmgham Skating Rink Co, (1877), 5 Ch D685: Cole v RC Irving & Co Ltd and others, 1970(2) AL R Comm 422”.

26. Although their positions are contested, the Defendants are the current Directors of the Company.  And it is common ground that upto now the Defendants have not been able to access the rental income as it being collected and managed by Masterways.  For that reason it would have to be in the realm of speculation that the Defendants will mismanage or defraud the income of the Company.  Indeed in paragraph 23 of the Supporting Affidavit of the 1st Interested Party, he states,

“That unless this Honorable Court grants the orders sought herein and in view of the colossal amounts involved, the Interested Parties may be unable to recover from the losses incurred should directorship be granted to either the Defendants or Plaintiffs/Respondents”.

I am afraid that the Interested Parties have not made out a strong case to justify the Court’s intervention in the internal affairs of the Company.

27. The Court then makes some brief comment on the application by the Defendant seeking an order authorizing Masterways to release all funds to the Plaintiff. Masterways is not a party to these Proceedings and while the Orders sought may not harm them, it is always fair to hear a Party who will be affected by an Order. This Court does direct that the Application be served on Masterways before making any determination on it.

28. In the meantime the Motion of 9th December 2016 is dismissed with costs.

Dated, Signed and Delivered in Court at Nairobi this 13th day of July,2017.

F. TUIYOTT

JUDGE

PRESENT;

Wakwaza h/b Juma for Interested Party

Gachure for Defendants

N/A for Plaintiffs

Carlos - Court Clerk