Spedag Interfreight Kenya Limited & Spedag Interfreight Tanzania Limited v Jyoti Structures Limited & Jyoti Structures Kenya Limited [2019] KEHC 7527 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

COMMERCIAL &ADMIRALTY DIVISION)

HCCC NO.22 OF 2018.

SPEDAG INTERFREIGHT KENYA LIMITED...............1ST PLAINTIFF

SPEDAG INTERFREIGHT TANZANIA LIMITED.......2ND PLAINTIFF

-VERSUS-

JYOTI STRUCTURES LIMITED...................................1ST DEFENDANT

JYOTI STRUCTURES KENYA LIMITED....................2ND DEFENDANT

R U L I N G

1. There are three applications for determination by thecourt in this ruling. The first to be filed was by the plaintiff and dated 21. 3.2018 seeking orders of attachment before judgment, that the defendants do furnish security  in the sum sued for and that judgment on admission be entered for the he plaintiff in the aggregate sum ofUSD 900,486. That application is supported by the affidavit ofHitesh Khumbhatwhich exhibits documents evidencing the plaintiff’s claim including a document headed‘memorandum of understanding between’the plaintiffs and the 1stdefendant dated 17. 11. 2016.

2. That application is opposed by the defendants by theground of opposition dated 29. 3.2018 and the Replying Affidavit and Further Affidavit ofCharian C Sebastiansworn on 16. 4.2018 and 24. 5.2018 respectively as well as the Notice of Motion dated 10. 10. 2018. The affidavits assert that the 1stdefendant was never served with the plaint and that there is no privity of contract between the plaintiffs and the 2nddefendant hence no claim is maintainable against the 2nddefendant. On behalf of the 1stdefendant it is contended that its agreement with the plaintiff had an arbitration clause which mandate that disputes be referred to arbitration and heard in Tanzania hence it is the 1stdefendant’s case that the court lacks jurisdiction in the matter. It was also contended, while admitting the execution of the memorandum of understanding, that there had not been proof that there had occurred any breach of the terms thereof.

3. The second application is also by the plaintiff and dated27. 4.2018 once again seeking orders of judgment on admission for the sum claimed in the plaint and for security for costs of the counter-claim in the sum ofUSD 42,817. 64. That application is made pursuant to orders 13 rule 2 and 26 rules 1,2 &5 as well as the overriding objective provisions and inherent powers of the  court. It is also supported by the affidavit ofHitesh Khumbhatwhich in addition to the depositions made therein sought reliance on the earlier affidavit filed in support of the first application. This application the defendants contend has not been directed to be heard and it appears no replies have been filed on it just as no submissions have been offered against it. On the same footing it is of note that the defendant has not offered any submissions for the application dated 6. 4.2018.

4. For the defendant, two applications were filed dated19. 4.2018 and 11. 10. 2018. The first of those applications seeks orders that the court reviews and sets aside its orders of 10. 4.2018 and the conditional attachment be withdrawn. The second application by the defendant dated 10. 10. 2018 is seeking to have the plaint struck-out on the basis that the suit was filed while the 1stdefendant was under administration and was so filed without the consent of the administrator or sanction of the court as is mandatory under section 560 of the Insolvency Act, 2015. The application is premised on the grounds that Administration /Insolvency Resolution Proceedings were filed inNational Company Law Tribunal, Mumbai branch, in company Tribunal case No. CP 1137 of 2017on the 4. 7.2017 and the said matter is yet to be concluded. The application was supported by the Affidavit ofCherian C Sebastianwhich reiterates the grounds and annexed the order issued by the tribunal together with email correspondence to prove the existence of the order and the same being within the knowledge of the plaintiff.

5. That application was opposed by the plaintiff on the basisthat; the Applicant has not in its pleadings in the defence disclosed that it is under administration; have not taken objection to the proceedings and  have as a result accepted these proceedings without protest; the Applicants have not complied with the requirements undersection 720of the insolvency Act read together with the Fifth schedule under paragraph17(1) (2), 19, 21 and 23and that the power to grant the recognition of the foreign proceedings is discretionary and finally that failure by the applicants to meet the conditions of having foreign proceedings recognized in Kenya as provided under the fifth schedule makes the foreign proceedings lack the force of law and that the interests of a creditor should be adequately protected as dictated under the Insolvency Action rather than the court resorting to the draconian remedy of striking out. On various dates this court and my sister Njoki Mwangi J gave various directions on how to deal with those applications. Those various directions may sound confusing and in fact did present difficulties to court in preparing this ruling necessitating the need by the court to conference with the parties on the 5. 4.2019, on which applications they expected the court to determine between them. From that conference it became clear to court that the two applications by the plaintiff need not necessarily be heard together but one would suffice just like the application by the defendants dated 19. 4.2018 was exhaustively dealt with by Njoki j on 30. 4.2018 and deserves no further consideration by the court. Additionally, on the13. 7.2018, this court directed, among other directions that the application by the defendant dated19. 4.2018 be heard as an opposition to that by the plaintiff dated 21. 3.2018. With that outlook and taking into account Mrs Kibe’s protest about the plaintiff’s second application, I now consider that only the plaintiff’s application dated 21. 3.2018 is due for hearing and determination together with the application by the defendant dated 10. 10. 2018.

6. There being the two applications to be heard together,and by their very nature, I propose to deal with the defendant’s application which seeks striking out first then, and only if it fails, would there then emerge a reason to interrogate the plaintiffs’ application.

DEFENDANT’S APPLICATION

7. I have pointed out that the application faults the suit forhaving been filed while there existed an Administration Order against the 1stdefendant. It was therefore contended that the suit is bad for having been filed without the concurrence of the administrator or the court.  Sections 560 and 561 of the Insolvency Act were therefore cited to ground the application. The Applicants thus points out that the information of them being under administration was within the plaintiff’s knowledge by virtue of the Email correspondence produced and exhibited to that effect.

8. On the face of it the provision of section 560, InsolvencyAct, 2015, dictates that no suit can be commenced or proceeded with against a company under administration without the consent of the administrator or approval by the court. However, it is to be remembered and appreciated that the first defendant is a foreign company and the appointment of the administrator was also made outside jurisdiction.

9. The Defendants’ application dated 10th October 2018seeks to have the plaint and application filed against the 1stdefendant struck out with costs on the grounds that 1stdefendant had been put under Administration in India when the suit was filed and that the Plaintiff ought to have sought leave from this honourable court or the consent of the administrator before proceeding to file a suit as required underSection 560 (1) (d)of the insolvency act.

10. For the plaintiff/Respondent the application was opposeson the two grounds; that the Applicant has not in its pleadings disclosed that it is under administration and as a result they accepted these proceedings without protest and secondly that the insolvency proceeding being foreign have not been recognised in Kenya as to have the legal force.

11. It is thus submitted that the 1st Defendant/Applicants hasnot complied with the requirements undersection 720of the insolvency Act read together with the Fifth schedule under paragraphs17(1) (2), 19, 21 and 23and that the power to grant the recognition of the foreign proceedings is discretionary.

12. The Respondent submits that failure by the applicants tomeet the conditions of having foreign proceedings recognized in Kenya as provided under the Fifth Schedule makes the foreign proceedings lack the force of law and that the interests of a creditor should be adequately protected by having the matter dealt with on the merits without resort to the draconian remedy of striking out.

13. The starting point is that striking out is a guillotine remedythat must be applied with utmost caution and in the plain of the plainest of cases. Here I do not find that the assertions that the 1stdefendant having been put under administration in a foreign jurisdiction without more presents a plain case for the suit to be struck out.

14. The second consideration is the basic principle of law thatparties and the court are bound by the pleadings filed by them so as to leave no room for adventure outside such pleadings as filed. In this suit, the 1stdefendant has not mentioned at all that it is under administration so as to make his participation be subject to statutory strictures but has in fact filed a counter-claim, a cross action, seeking a raft of orders against the plaintiff. It should not come from that defendant that this court should lack power to determine a suit against it but suddenly retain the same power to hear and determine its counter-claim. I do take the view and make finding that the 1st defendant is bound by what it chooses to say to court as well as what it chose to conceal from it and cannot be allowed to double speak.

15. On the fulcrum of the application being theadministration order issued in India, the Sections of the law relied upon by the defendant read as follows:-

560. Moratorium on other legal process while administration order has effect

(1)While a company is under administration—

(a)…

(b)

(c)

(d)a person may begin or continue legal proceedings (including execution and distress) against the company or the company’s property only with the consent of the administrator or with the approval of the Court.

16. It is indeed a fact that in this suit no consent has beenshown to have been obtained from the Administrator nor has approval of the court to commence the action against the Defendant been sought and obtained.

17. The Administration/insolvency proceedings being reliedon by the Defendants were filed at Mumbai in Indian, therefore making those insolvency proceedings foreign. In order for foreign insolvency proceedings to be recognized under our laws such proceedings have to be taken through the process of recognition as provided under the fifth schedule of the insolvency act schedule under paragraph17, 19, 21 and 23.

18. The Schedule provides that foreign representative mayapply to the Court for recognition of the foreign proceeding in which the foreign representative has been appointed and the court reserves the power to reject same if some requirements are not met including failure to disclose all foreign proceedings in which the debtor as known to the representative.  In its own discretion the court considers whether the recognition of such foreign proceedings is necessary to protect the assets of the debtor and the interests of the creditor and may give the orders prescribed under paragraph 23 as the justice of the case may demand.

19.    I have gone through the entire court proceedings and thereis nowhere the Defendant/Applicant avers that the proceedings annexed as exhibit ‘CS1’ have been recognized by our local courts and /or has the Defendant/Applicant furnished any court order or court proceedings showing that they are in the process of having the foreign insolvency proceedings recognized.

DISPOSITION

20. It is my finding that section 560(1) d of the Insolvency Actis not applicable in this present case reason being that the foreign insolvency proceedings being relied on by the Defendants have never been recognized by our local courts and currently there is no documentation before this honourable court to show that the process of recognizing the foreign insolvency proceedings has been commenced as required under paragraphs 17, 19, 21 and 23 of the 5thschedule of the insolvency Act. That being the position the decisions cited to court by the defendant /Applicant beingSurya holdings ltd vs ICICI Bank ltd (2018)eKLR as well as Suryakant Bhagwanji Raja Shah vs Aperit Investments Ltd (2002)eKLRare equally of no assistance to the parties and the court because here the 1st defendant is still an existing legal entity in the country of incorporation even if it has been put under administration.

21. For the above reasons it is my opinion and finding that theforeign insolvency proceeding however much they show that the Defendant/Applicant is under administration do not have any legal effect since the said proceedings have not been recognized by our courts neither has the process of recognition of the foreign insolvency proceedings, which ought to be initiated by the Administrator been commenced. Accordingly,Section 560(1) dwithout compliance with the provisions of    paragraphs17, 19, 21 and 23of the 5th schedule to the Insolvency Act, is of no assistance to the 1stdefendant in grounding the notice of Motion dated 19. 04. 2018. for that reason that application lacks merit and the same is hereby ordered dismissed with costs

The plaintiffs’ application

22.  According to the roadmap drawn at the start of thisruling, a determination of the defendant’s application would inform the need or otherwise in considering the plaintiff’s application. Now that the event has come, the next task is to look at the plaintiff’s application dated 21. 03. 2018. as stated before. That application makes prayers that:-

“ a)THAT this application be certified urgent and service hereof upon the Defendants be dispensed with in the first instance.

b)  THAT the sums of US$1,100,486. 00 lying to the credit of the Defendants whether jointly or severally with the Kenya Revenue Authority (‘KRA’) and/or the Kenya Electricity Transmission Company Limited (‘KETRACO’) be conditionally attached pending further orders of this Honourable Court.

c)  THAT the Defendants be directed within a time to be fixed either to furnish security for the sum of US$.1,100,486. 00 or to produce and place at the disposal of this Honourable Court when required, the amounts to the extend of US$1,100,486. 00 of the sum owed to the Defendants by the KRA and/or KETRACO or such amount and/or proportion thereof as may be sufficient to justify the decree, or to appear and show cause why they should not furnish such security.

d)THAT judgment be entered as against the Defendants jointly and severally in the sum of US$900,486. 00 on account of the Defendant’s admission of debt contained in the Agreement set out in the Memorandum of Understanding dated the 16th November 2016 together with interest thereon as prayed in the Plaint and costs of the suit.

e)THAT the costs of this Application be awarded to the Plaintiffs.

23. The foundation of the application is the document called thememorandum of understanding dated   16. 11. 2016 which the plaintiff regards to constitute an admission while the defendants contend that the prayer is premature because the agreement was made conditional and the conditions have not been fulfilled. After that application was filed the defendants did file statements of defenses in which the existence of the debt is not denied but acknowledged at paragraphs 4 and 10 of the statement by the 1stDefendant dated 17. 4.2018 and filed in court the next day

24. For the court to determine the tenure and effect of thedocument and relate it to the application for determination, it is necessary to set out the clauses I consider relevant to this determination. I have in mind clauses 1-5 by which the parties agreed and covenanted as follows:-

1. “Jyoti Structures Limited (JSL) – owes the following amounts to various SpedagInterfreight group companies.  All together JSL has a total outstanding of USD 1,591,382 towards SPIF.

Company Amount

USD

SpedagInterfreight AG (SPIF AG) 394,561

SpedagInterfreight Uganda Limited (SPIF UG) 30,954

SpedagInterfreight Tanzania Limited (SPIF Tz) 478,337

SpedagInterfreight Tanzania Limited (SPIF Tz) 621866

M & R India Pvt Ltd 65,664

TOTAL 1,591,382

2. JSL is committed to clear its entire outstanding towards SPIF and has made the below proposal to clear the above balances.

3. Outstanding towards Spedag Interfreight Tanzani Limited – Total amount USD 621,866:

a. JSL vide its letter No. JSL/PRS/DAR/16-17/069 dated 1st July 16 to SPIF Tzhad on agreed on a payment plan to clear the above outstanding.  However, JSL could not clear the balance as indicated in the letter due to delay in completion of the project in Tanzania.

b. JSL confirmed that SPIF Tz shall be paid from the retention money which TANESCO shall pay them upon completion of the project.

c. The project in Tanzania is expected to be completed by 21st November 2016.  JSL expects the release of first batch of retention money by mid Jan 2017.

d. JSL agrees to pay a minimum balance of USD 300,000 to SPIF Tz by 15th Jan 2017.

e. The balance USD 321,866 shall be paid by JSL to SPIF Tz by 31st March 2017.

4. Outstanding towards SPIF KE – Total amount USD 478,337.

a. JSL confirmed that SPIF KE shall be paid from other retention money with KETRACTO. JSL expects KETRACO to release the retention money upon completion of the project.

b. The project in Kenya with KETRACO is expected to be completed by Feb 2017.

c. JSL expects to pay SPIF KE USD 478,337 by June 2017.

5. JSL has a pending VAT refund in KE USD 593093.  They confirmed if the refund is received from KRA before the date indicated in point 4 above (i.e June 2017) then JSL shall clear SPIF KE outstanding using this money”.

25. From that document there cannot be any doubt that the debtwas acknowledged and admitted. Moreover even by own defence there is express admission of the voluntary execution of the agreement but made an attempt to explain that the obligation therein arising had not accrued because the same was made subject to completion of the projects and payments including payments of retention money and VAT refunds. The question that this court has to answer is whether the defenses filed amount to an explanation as to displace or negate on the admissions.

26. A plain reading of the agreement does not disclose anagreement that parties agreement and committed that the payments would be subject to the defendant being paid by the disclosed third parties. Rather the agreement reveals the unequivocal admission of the debt and a proposal to pay on definite dates. There was however no clear provision that any delay in receiving payment would result in automatic delay or total failure to pay the admitted debt.  Further the proposed dates for payment have long passed. I therefore do find that there is an incontestable admission that the 1stdefendant owes to the plaintiffs an aggregate sum of USD 1,100,203. Of that sum the Plaintiffs only seek a judgment on admission in the sum of USD 900,486. That is the sum I find to be due and payable to the plaintiffs by the 1st defendant in terms of prayer 3 of the notice of Motion under consideration.

27. In coming to that conclusion I have taken into account theplea by the defendants that this court lacks jurisdiction because the sums owed to the 2ndplaintiff were incurred in Tanzania outside the jurisdiction of the court besides the fact that the 1stdefendant has a valid counterclaim against the said plaintiff. On such pleading I am guided by the provisions of section 15, Civil Procedure act that a plaintiff has the option to file a suit where the cause of action arose or where the defendant resides or carries out business. The body of documents availed to court show that the 1stdefendant has offices atSclaters House 3rd Floor, Parklands Road, Nairobiand has had contracts executed in Kenya and thus carries out business here. In fact the documents of contract are in the letterheads of the 1stdefendant showing its Kenyan address and it thus can be said that the contract was entered in Kenya. I have also held that that there was never a condition that the payment would only come after the defendants get paid but that the proposal to pay was definite with dates which have since passed by.

28. Having entered the judgment as such, what becomes ofprayers 1 & 2 of the application? On the 13. 7 2018 this court in giving its directions on the need to hear the application dated 21. 3.2018 first noted that doing so would afford the defendants an opportunity to show cause. I have read the Replying Affidavit sworn by Mr Cherian C Sebastian and I am not satisfied there has been shown sufficient cause why the sums owed to the defendant or held on the defendants’ account by Kenya revenue Authority and Kenya Electricity transmission Company Ltd should not be attached to answer to the judgment entered for the plaintiffs in this matter.

29. The upshot is that judgment is entered for the plaintiff againstthe defendant in the sum of USD 900,486. 00 with interest thereon at court rates from the 16. 11. 2016 till payment in full. Having heard the fears of the plaintiff that the 1stdefendant being a foreign corporation may collect its debts from Kenya and spirit the same out of jurisdiction, and in order that justice between the parties is met, I give a further order that all the sums owed to the defendants whether individually, jointly or severally, be attached and not released unless towards the settlement of the decree herein.

30. I award the costs of the suit to the plaintiff to be paid by thedefendants.

Dated and Delivered at Mombasa this 8th day of May 2019.

P.J.O.  OTIENO

JUDGE