SUMMER LIMITED v KAKA WHOLESALERS, RITESH SOBHAG SHAH, SAIJUL SOBHAG SHAH & LALJI RAVJI BHUDIA [2009] KEHC 1359 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Civil Case 246 of 2009

SUMMER LIMITED ............................................... PLAINTIFF

VERSUS

KAKA WHOLESALERS...........................1ST DEFENDANT

RITESH SOBHAG SHAH ........................2ND DEFENDANT

SAIJUL SOBHAG SHAH ..........................3RD DEFENDANT

LALJI RAVJI BHUDIA...............................4TH DEFENDANT

RULING

The defendants sought to have the plaint filed on 8th April 2009 struck off and the suit dismissed with costs to the defendants.  This application is based on the grounds that the plaintiff’s suit is an abuse of the court process because the subject matter contained in the suit filed on 8th April 2009 is the same subject matter under the Winding up cause No. 24 of 2008.  Further the assertion by Vijay OSHA by way of a verifying affidavit that there is no other suit pending constitutes perjury.  Moreover the 2nd and 3rd defendants who are directors of the 1st defendant have been sued maliciously in their own capacity.

This application is supported by the affidavit of SAIJUL SOBHAG SHAH.  He has annexed a copy of the winding up cause which was filed by the 1st respondent and the plaintiff is listed as one of the creditors.  According to counsel for the defendants, this suit is an abuse of the court process, as it does not seek to lift the veil of the company which is the only way the directors can be sued.

This application was opposed by the respondent who relied on the affidavit sworn on 9th July 2009 by Suryakant Premchand Shah. Counsel submitted that the winding up cause is a distinct process which is different from the civil suit.  The 2nd, 3rd and 4th defendants have been sued because of their personal liabilities as managers of the 1st defendants.  There are allegations of fraud against the defendants which was perpetuated by the 2nd and 3rd defendants who negotiated for goods and services that were delivered to the 1st defendants.  The 1st  defendant issued cheques for payment of those goods and the cheques were signed by the 2nd  and 3rd defendants who were the only persons authorized to operate the 1st defendant’s accounts.  The dishonored cheques are annexed to the affidavit.

It is the 2nd and 3rd defendants who negotiated for the sale of sugar, while using the 1st defendant to mask their own identity.   The 2nd and 3rd defendants cannot hide under the veil in order to defraud the plaintiff for the goods which they ordered.  The goods were supplied amounting to over 38 million and the 2nd and 3rd defendants issued cheques in the accounts of the 1st defendants while knowing it had no funds to pay the cheques.  There are allegations of fraud and particulars of the fraud on the part of the 2nd and 3rd defendants which they must respond to.

Regarding the winding up petition, counsel submitted that the petition has never been served upon the plaintiff nor has it been advertised from the time it was filed in November 2008.  Counsel urged the court to dismiss the application and allow the suit to proceed for hearing.

I have considered the rival submissions as summarized above, there are allegations against the defendants especially the 2nd and 3rd defendants which are particularized in the plaint.  The respondent has been able to demonstrate that the claim raises triable issues requiring this matter to proceed for trial.  Those allegations, on whether the 2nd and 3rd defendants used the corporate veil of the 1st defendants to hid their identity in the eyes of the law and equity in order to perpetuate the fraud against the plaintiff is a triable issue.  Further the 2nd and 3rd defendants have not denied that the 2nd and 3rd defendants acted as agents on behalf of the 1st defendant and in that case the issue of whether they assumed personal responsibility is also a matter for trial.   Moreover, the defendants do not deny that the goods were supplied and they issued cheques that upon presentation for payment in the bank were dishonored.

For the above reasons I am satisfied that there is a cause of action against all the defendants on whether they committed the acts of fraud and misrepresentation.  As regards the 1st defendants, cheques were issued which were dishonored.

Accordingly the application dated 22nd May 2009 is without merit, it is dismissed with costs to the plaintiff.

On the application dated 6th July 2009 by way of notice of motion the plaintiff sought for the defence by the 1st 2nd and the 3rd defendants be struck out on the grounds that the defendants are truly and justly indebted to the plaintiff.  The defence filed is a mere sham an abuse of the court process and does not disclose any reasonable defence.  The 2nd and 3rd defendants committed fraud against the plaintiff and they are using the company as a shield to hide their identity.  The 2nd and 3rd defendants are the sole directors of the 1st defendant.

This application is supported by the affidavit of Suryakant Premechand Shah sworn on 6th July 2009.  The plaintiff’s claim is for a liquidated sum of 28 million with interest.  It is based on the grounds that on the 28th March 2008 and 2nd April 2008 the plaintiff supplied the 1st defendant with sugar amounting to Ksh. 38 million against which the defendants issued various cheques in settlement.  All the cheques were signed by the 2nd and 3rd defendants and upon presentation for payment by the bank they were dishonored.  The plaintiff has annexed all those bounced cheques to the supporting affidavit.

The 2nd and 3rd defendants were the sole directors and shareholders of the 1st defendant and they were in full control of the company which was being used to mask the 2nd and 3rd defendants to avoid their recognition by the law and in the eyes of equity.  The particulars of the fraud are stated under paragraph 12 of the affidavit.  Counsel urged the court to enter summary judgments against the defendants.

This application was opposed by counsel for the defendants who relied on the replying affidavit of SAIJUL SOBHAG SHAH sworn on 17th July 2009.  It is contended that the 2nd and 3rd defendants are directors of the 3rd defendant which is a limited liability company.  At the time the goods were supplied, the two companies were trading in their capacities as companies.  The business of the 1st defendant experienced problems when the bank recalled the overdraft facilities owned by a sister company.  That is why the 1st defendant filed the winding up petition so as to reorganize its debts. The defendants have denied the allegations of fraud and contend that they were in genuine business and that is why the plaintiff trusted them with the supply of a huge consignment of goods worth 38 million.

Under the provisions of order 6 r13 (1) 1 it is provided as follows:-

“At any stage of the proceedings the court may order to be struck out of amended any pleading on the grounds that:

(a)it discloses no reasonable cause of action or defence; or

(b). . .

(c). . .

(d)It is otherwise an abuse of the process of court, and may order the suit to be stayed or dismissed or judgment to be entered accordingly, as the case may be.”

The primary issue to determine is whether the defence raises triable issues.  The claim against the 1st defendants is straight forward and is liquidated, and summary judgment can be entered.  However the allegations against the 2nd and 3rd defendants require to be proved through the court room process through examination and cross examination to establish whether they perpetuated the allegations of fraud against the plaintiff while using the veil of the 1st defendant.  For that reason, I will disallow the application and direct the parties to comply with the pretrial processes within 60 days and fix a hearing date of the suit on priority basis.

Costs of this application will be in the cause.

RULING READ AND SIGNED ON 30th OCTOBER 2009 AT NAIROBI.

M.K. KOOME

JUDGE