Soet Kenya Limited & Nathaniel K. Tum v Cabinet Secretary, Ministry of Agriculture, Livestock and Fisheries & Co-operatives, Attorney General, Kenya Seed Company Limited, Samson Chelule, Elsbeth Naeku Tolu & Muchohi Ruiru Gikonyo [2020] KEHC 873 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT ELDORET

PETITION NO. 7 OF 2020

IN THE MATTER OF ARTICLES 10,21, 23, 25, 27, 40, 47, 50, 73, 159(2) AND 232 OF THE CONSTITUTION OF KENYA, 2010

AND

IN THE MATTER OF FAIR ADMINISTRATIVE ACTION ACT, 2015

AND

IN THE MATTER OF THE COMPANIES ACT, 2015

AND

IN THE MATTER OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION, KENYA SEED COMPANY LIMITED

AND

IN THE MATTER OF THE CONSTITUTION OF KENYA (PROTECTION OF RIGHTS AND

FUNDAMENTAL FREEDOMS) PRACTICE AND PROCEDURE RULES, 2014.

BETWEEN

SOET KENYA LIMITED................................................1ST PETITIONER/APPLICANT

DR. NATHANIEL K. TUM............................................2ND PETITIONER/APPLICANT

AND

THE CABINET SECRETARY, MINISTRY OF AGRICULTURE,

LIVESTOCK AND FISHERIES & CO-OPERATIVES...................1ST RESPONDENT

THE HON. ATTORNEY GENERAL................................................2ND RESPONDENT

KENYA SEED COMPANY LIMITED.............................................3RD RESPONDENT

SAMSON CHELULE(DR)..............................................................4TH RESPONDENT

ELSBETH NAEKU TOLU...............................................................5TH RESPONDENT

MUCHOHI RUIRU GIKONYO....................................................6TH RESPONDENT

RULING

1. The petitioners filed this application under a notice of motion dated 14th May, 2020 seeking for orders:

a.  That pending the hearing and determination of the application herein, there be a stay of the 1st respondent’s decision contained in the letter dated 17th April, 2020 and the Gazette Notice No.3374 dated 4th May, 2020 and/or taking effect and/or the appointment of Samson Chelule(Dr), Elsbeth Naeku Tolu and Muchohi Ruiru Gikonyo from assuming office, carrying out themselves as directors of the Kenya seed company limited

b.  That pending the hearing and determination of the application herein, there be temporary orders of injunction restraining the appointed directors Samson Chelule(Dr), Elsbeth Naeku Tolu and Muchohi Ruiru Gikonyo from assuming office, carrying themselves out as directors of Kenya Seed Company Limited.

c.  That pending the hearing and determination of the petition, there be stay of the 1st Respondent’s decision contained in the letter dated 17th April, 2020 and the Gazette Notice No. 3374 dated 4th May, 2020 and/or the taking effect thereof and/or the appointment of Samson Chelule(Dr), Elsbeth Naeku Tolu and Muchohi Ruiru Gikonyo to be members of the Board of Directors of Kenya Seed Company Limited for a period of three years with effect from 4th May, 2020 pursuant to the publication in the Kenya Gazette No. 3374 dated 4th May,2020.

d.  That pending the hearing and determination of the petition, there be temporary orders of injunction restraining the appointed Directors Samson Chelule(Dr), Elsbeth Naeku Tolu and Muchohi Ruiru Gikonyo from assuming office, carrying themselves as directors of Kenya Seed Company Limited.

2. The application is based on the grounds that Kenya Seed Company Limited the 3rd Respondent herein was incorporated on 2nd July, 1956 as a private limited liability company by shares and by a special resolution (No. 13/60) dated 1st October, 1960 the company was converted from private Limited Liability Company to a Public Limited Liability but the Company’s Memorandum and Articles of Association 1960 were never changed and have remained in force to date.

3. That after conversion of the 3rd Respondent into a Public Limited Liability Company, the 1st petitioner/Applicant acquired shares in the 3rd Respondent Company from private persons and/or individuals on a willing seller willing buyer basis.

4. That by the year 2000, the 1st petitioner/applicant held share Certificate No. 563 and 564 for 466,248 and 1,033,752 shares respectively totaling to 1,500,000/= shares which translated to 13. 91%.

5. The 2nd petitioner/applicant similarly purchased shares in the 3rd respondents from private persons and/or individuals on a willing buyer willing seller basis and as of today the 2nd petitioner/applicant holds 419,131 shares which translate to 3. 89% in the shareholding of the 3rd respondent.

6. Upon acquiring the shares in the company, the petitioners/applicants right to property and their protection under the constitution of Kenya crystalized and as such the petitioners/applicants enjoyed the rights and privileges accorded to the shareholder.

7. The 3rd respondent is required by law to hold an annual general meeting, however, between the year 2003-2013, no meeting was held until the court made an order that an annual general to be convened within 60 days.

8. After the 49th annual general meeting was finalized on 28th September, 2016 ADC and the Government have wrongfully resisted, frustrated and scuttled any attempts by shareholders, including the petitioners/applicants, of holding any general meetings of the 3rd respondent.

9. Given that 4 years had lapsed and no meeting had been held, an annual general meeting was virtually held on 3/4/2020 and resolutions were passed.

10. The 3rd respondent later declared the said meeting illegal and went on to issue a gazette notice no. 3374 appointing Directors Samson Chelule(Dr), Elsbeth Naeku Tolu and Muchohi Ruiru Gikonyo as directors of the 3rd respondent for a period of 3 years with effect from 4th May, 2020.

11. The 1st respondent’s decision to unilaterally appoint directors of the 3rd Respondent’s Board of Management was ultra vires and in contravention of Article 47 of the Constitution of Kenya.

12. The provisions of the State Corporations Act which the 1st respondent purportedly acted wrongfully, erode the minority shareholders’ fundamental rights in instances where a government entity acquires majority shareholding in a company established under the companies act.

13. Lastly, that the applicants have wrongfully and unconstitutionally been disadvantaged as investors given that their expectations was to receive returns from the investment they made when they purchased shares in the 3rd respondents company.

14. In support of the application, the applicant filed a supporting affidavit sworn by Edwin Kipchichir Tum and which is a replica of the grounds supporting the application.

15. The application is opposed through a replying affidavit sworn by Peter Gatirau Munya and the grounds that the appointment of the board of members of state corporations is a preserve of the Cabinet Secretary as provided for under Section 6(1)(e) of the State Corporations Act.

16. That the acts of the 1st respondent do not in any way contravene Article 48 of the Constitution of Kenya nor are they in any way a contravention of Section 310 of the Companies Act (2015).

17. That vide a letter dated 25/3/2020, the Cabinet Secretary directed that the purported meeting should not be held as it was among the non-essentials meetings suspended as part of management of Government business during the management of Corona Virus pandemic.

18. The purported annual general meeting was un-procedural, null and void and in contravention of Article 10 of the Constitution of Kenya.

19. Lastly, that the 1st respondent’s powers are not discriminative to the minority shareholders as alleged by the petitioners.

20. The appointment of the board members was to enable Kenya Seed Company to execute its mandate and functions. This is intended to benefit the public and majority shareholders.

21. The 3rd respondent opposed the application through a replying affidavit sworn by Fred Oloibe and that grounds that the applicants herein have not demonstrated the injuries that will be suffered by allowing the 4th, 5th and 6th Respondents to assume office.

22. It is contended that is the 3rd respondent who will suffer irreparably if the said respondents are not allowed to assume office, as its activities will be highly curtailed which may affect its performance negatively.

23. Further, that it has been the duty of the 1st respondent to appoint the directors of the 3rd respondent by publishing in the Kenya Gazette, so there is no wrong doing in the 1st Respondent’s action to appoint the 4th, 5th and 6th respondents.

24. The 2nd petitioner further filed a supplementary affidavit dated 24th June, 2020 and the grounds that no plausible reasons have been given by the 3rd respondent as to why an annual general meeting had not been held since 2016.

25. That the mere fact that there is a pending court case cannot be used to as scape goat to not convening an annual general meeting.

26. The State Corporations Act is inconsistent with Articles 10, 27 and 40 of the Constitution of Kenya. That the 1st Respondent action was to serve and protect the interests of the majority shareholders to the detriment of the minority shareholders such as the 1st petitioner.

27. That no wrong or illegality was committed by the minority shareholders that would warrant the illegal appointments of the 4th, 5th and 6th Respondents.

28. The application was canvassed by written submissions. The applicant submitted that the purpose of a stay is to preserve the status quo pending the final determination of the decision that is being challenged so that not to render it nugatory.

29. The petitioner’s major complaint is that the appointment was without the participation of the shareholders. The petitioners have sought to quash the decision hence the stay orders being sought given that if the 1st respondent is allowed to fully implement his decision then the petition before the court will be rendered nugatory.

Issues for determination.

30. The main issues for determination are whether the Petitioner merits the orders sought for stay and Injunction against the 1st Respondents decision.

31. All parastatals are established by an Act of Parliament. The Government exercises control of Parastatals through the State Corporations Act and through the Ministries and the Kenya Seed Company falls under the Ministry of Agriculture, Livestock, Fisheries and Cooperatives.

32. The parastatal’s management board answers to the Minister who is in turn accountable to Parliament for the parastatal’s vote.

33. A Minister has powers to give directions of a general nature to the parastatal and the Ministers and Ministries are responsible for developing policy, identifying objectives and allocation of resources for their sector parastatal.

34. The purpose of an order of a stay is to preserve the status quo so that the application is not rendered nugatory. The effect or implication of the stay order is a necessary consideration for the grant of stay orders. A stay contemplates that an order is being implemented or carried out.

35. In this case, it is not in dispute that vide a gazette notice dated 4/5/2020 appointed members of the board without involvement of the applicants.

36. It will thus be proper that the court grants an order of stay of the implementation of the said appointments pending the hearing and determination of the petition herein to allow the operations of Kenya Seed Company to continue running.

37. The legal dimensions for the grant of temporary injunctions were well settled in GIELLA V CASMAN BROWN & CO LTD (1973) EA 358 that they cannot be called upon to justify their existence. The guiding principles are:-

a)    An applicant must show a prima facie case with a probability of success;

b)   An injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury; and

c)    When the court is in doubt, it will decide the application on the balance of convenience.

38. In the case of Mrao Vs.First American Bank of Kenya Limited and 2 others (2003) KLR 125 a prima facie case was described as follows:

A prima facie case in a Civil Application includes but is not confined to a ‘genuine and arguable case’. It is a case which, on the material presented to the court, a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.

39. The applicant alleges that the process of appointment of   members of the board of directors was in contravention of Articles 10 of the Constitution on public participation and consultation.

40. The respondents have not demonstrated how they arrived at the names of the appointed members of the board of directors of Kenya Seed Company and what criteria was used.

41. The prayer for temporary injunction is merited, the same to be allowed.

E-delivered and dated this 10th day of December 2020 at Eldoret

H. A. OMONDI

JUDGE