Tumuhimbise v Turyamwijukye & 4 Others (Company Complaint 32897 of 2024) [2024] UGRSB 14 (16 July 2024)

Full Case Text

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# THE REPUBLIC OF UGANDA IN THE MATTER OF THE COMPANIES ACT CAP 106 IN THE MATTER OF BOKASHI GROUP (U) LIMITED **COMPANY APPLICATION NUMBER 32897 OF 2024**

ARTHUR TUMUHIMBISE::::::::::::::::::::::::::::::::::::

**VERSUS**

- 1. TURYAMWIJUKYE JULIUS - 2. MWESIGE EDWIN - PROF. MONDO KAGONYERA - 4. FERTILPLUS ORGANIC LTD - 5. BOKASHI GROUP (U) LTD::::::::::::::::::::::::::::::::::::

## RULING ON THE PRELIMINARY OBJECTIONS

Before Muliisa Solomon, Registrar of Companies

### A. Background

- 1. The applicant filed this complaint on $7th$ February 2024 alleging fraudulent management of the 5th respondent and fraudulent registration of the 4th Respondent Company. The applicant states that the 5th Respondent was incorporated to conduct the business of manufacturing, supplying, producing, formulating, mixing fertilizers and related products. That in 2017, the directors admitted the 3rd Respondent with 25 shares. That the 1st respondent and the applicant also had 25 shares. That 10 of the shares remained unalloted. - 2. The applicant states that the company (5th respondent) continued to conduct business well, including selling and importing fertilizers. That among the fertilizers dealt in by the company, was "fertiplus fertilizers", imported from a Dutch company. The applicant adds that in 2018, he and the directors of the 5th respondent launched a product called "fertiplus fertilizers". The applicant accuses the $1^{st}$ and $3^{rd}$ Respondents of registering the $4^{th}$ Respondent, which he says, was

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formed for purposes of diverting the business of the company. He further alleges that money was paid into the accounts of the company but was taken by directors of the 4th respondent. That the 4th Respondent illegally took over properties of 5th Respondent including warehouses and office space and that this conduct made the 5th respondent a redundant company. The applicant therefore alleges that his economic rights have been infringed by the actions of frustrating business, diverting contracts, and unfair business competition caused by the registration of the $4$ th respondent.

- 3. The applicant seeks a number of remedies in form of prayers; first, he prays that investigations be made into the actions of the shareholders of the $4th$ Respondent, the applicant also claims unpaid dividends in the amount of Ugx, 2, 972, 919, 298/-(Two Billion, nine hundred seventy two million, nine hundred nineteen thousand, two hundred ninety eight) based on computations of a certified public accountant instructed by himself. The applicant prays for the striking off and de-registration of the 4th respondent, an order granting him access to the books of account and the financial statements as well as records of the 5th respondent to enable him conduct a forensic audit. The applicant also prays that the directors of the $4th$ respondent be ordered to compensate him and finally that the directors of the 4th respondent be "apprehended through fines or imprisonment or both" - 4. The Respondents filed their response on $15th$ March 2024, denying the allegations and contending that 4th Respondent was registered after the complainant frustrated the business of the 5th respondent. They prayed for dismissal of the application on grounds that it lacks merit.

### **B.** Hearing and resolution of preliminary issues.

5. The matter came for hearing on 16th May 2024 parties where parties were directed to address the Registrar by way of written submissions. Counsel Arthur Mwebesa together with Aggrey Ainomugisha appeared for the $1st$ to the $4th$ Respondents. Counsel Hannington Mutebi appeared for the applicant/complainant. Counsel for the Respondents raised numerous objections; that the applicant has no locus to file an action against the $4th$ respondent, that the applicant has no cause of action and

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that the 5th respondent is wrongly added. Counsel prayed for striking off of the 4th and $5$ th Respondent.

#### $(i)$ *The question of jurisdiction*

- 6. While Counsel for the Respondent has not raised a jurisdiction challenge or objection, I find it pertinent to address because jurisdiction is a serious issue. The applicant has raised numerous claims and seeks a number of remedies as summarized in the background section of this ruling. - 7. In summary, the applicant raised actions based on breach of directors' duties by registering the $4^{th}$ respondent and diverting the business of the $5^{th}$ respondent, actions for criminal penalization of the directors and shareholders of the 4th respondent. He also seeks compensation and payment of dividends and prays for the striking off of the $4^{th}$ Respondent. - 8. Jurisdiction of a hearing officer or tribunal is a serious issue. A decision taken without jurisdiction is null and void. Jurisdiction is a creature of statute and cannot be conferred by either consent or complacency of the parties nor by acquiesce of the presiding officer. Where either of the party does not raise a jurisdictional challenge and it comes to the attention of the presiding officer, the officer has an obligation to investigate it. Exercising jurisdiction, which is not conferred by statute, is a usurpation of powers and an act done ultra-vires. Any questions of jurisdiction being so central to the authority of a hearing officer to undertake proceedings in a case before him or her, must be addressed at the earliest opportunity so that the presiding officer does not engage in a futile exercise (see Owners of the Motor Vessel "Lillian S" v Caltex Oil (Kenya) Ltd [1989] KLR $1).$ - 9. In Owners of Motor Vessel "Lillians" v Caltex Oil Kenya Limited [1989] KLR 1 in which Nyarangi JA at page 13 explained the concept of jurisdiction as follows:

"By jurisdiction, is meant the authority which a court has to decide matters that are before it or take cognizance of matters presented in a formal way for its decision. The limits of this authority are imposed by statute, charter or commission under which the court is constituted and may be extended or restricted by the like means. If no restriction or limit is imposed the jurisdiction

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is said to be unlimited. A limitation may be either as to the kind and nature of the actions and matters which the particular court has cognizance or as to the area over which the jurisdiction shall extend, or it may partake both these characteristics. If the jurisdiction of an inferior court or tribunal (including an arbitrator) depends on the existence of a particular state of facts, the court or tribunal must inquire into the existence of the facts in order to decide whether it had jurisdiction; but, except where the court or tribunal has been given power to *determine conclusively whether the facts exist. Where the court takes it upon itself* to exercise a jurisdiction which it does not possess, its decision amounts to nothing. Jurisdiction must be acquired before judgment is given."

- 10. In addition, in the case of **Desai v Warsama** [1967] 1 EA 351, Court held that "it is well established law that a judgement of court without jurisdiction is a nullity". - 11. Jurisdiction has different categories. For this matter, the category in issue is subject matter jurisdiction. Subject matter jurisdiction is the requirement that a given court or tribunal has the power to hear the specific kind of claim that is brought to it. In Ozuu Brothers Enterprises v Ayikoru Civil Revision No.2 of 2016, Justice Stephen Mubiru explained jurisdiction as involving many features; "*The term may* have different meanings in different contexts. It has been defined as the limits imposed on the power of a validly constituted court to hear and determine issues between persons seeking to avail themselves of its process by reference to the *subject matter of the issues or to the persons between whom the issues are joined* or to the kind of relief sought (See: A. G of Lagos State v Dosunmu (1989) 3 NWLR $pt.111$ , pg. 552 S C). It therefore means and includes any authority conferred by the *law upon the court to decide or adjudicate any dispute between the parties or pass* judgment or order. A court cannot entertain a cause which it has no jurisdiction to adjudicate upon. A court must have both jurisdiction and competence in order to be properly seized of a cause or matter. Whereas Jurisdiction is a creature of statute and is the power conferred on a court by statute or the Constitution, a *court is competent when:*

(1) It is properly constituted with respect to the number and qualification of members.

(2) The subject matter of the action is within its jurisdiction and there is no feature in the case which prevents the court from exercising its jurisdiction (such as limitation or lack of capacity of the parties).

(3) The action is initiated in compliance with the rules of procedure and

(4) Any condition precedent to the exercise of its jurisdiction has been fulfilled."

- 12. The jurisdiction of the Registrar is spelt out in the Companies Act, Cap 106. It includes actions for minority oppression under section 247 of the Companies Act. The parameters of this claim have been clearly defined by numerous cases and include mainly situations where a minority is treated unjustly. See *CIVIL APPEAL* NO 03 OF 2015 Matthew Rukikaire v Incafex ltd). Others claims where the Registrar has jurisdiction include application for rectification of the Register under the Companies (power of the Registrar) Regulations 2016, jurisdiction to order an investigation under sections $173-183$ of the Companies Act. - 13. The applicant's main cause of action is the action of the respondents in registering the $4th$ Respondent where he alleges that this action diverted business and therefore was prejudicial to him and one can argue that it is a breach of director's duties under section 198 of the Companies Act. Whether the applicant could succeed or not in these causes of action is an issue for judicial determination before courts of law. The jurisdiction to determine actions for prejudicial conduct is a preserve of the High Court as stipulated in section 248 of the Companies Act. Further, derivative actions to challenge the conduct that is deemed prejudicial to members and may be brought before court by a shareholder. See **David Nahuria** v Baguma Cyprian and others CIVIL SUIT NO 392 OF 2014 where it was stated that:

"A derivative action is brought by a member of the company where the wrongdoers are in control and prevented the company itself from suing. The Plaintiffs are not members or shareholders in the third Defendant company to sustain a derivative action and therefore the action is misconceived and a nullity. Even if the Plaintiffs were allowed to proceed with a claim against the Defendants, they would still fall short of the exceptions laid down in the case of Foss versus Harbottle (1843) to Hare 461. The exceptions to the general rule are

detailed in the case of Salim Jamal versus Uganda Oxygen Ltd Civil Appeal No. 64 of 1995 where justice Oder JSC quoting Lord Denning said:"

- 14. The forum for derivate actions is High Court and not the Registrar of companies. Similarly, actions for breach of director's duties can only be brought before the High Court and not the Registrar of Companies. The applicant also does not cite the provisions of the law that grant the Registrar power to adjudicate and grant remedies sought, including, surprising, the order for penalization of the 1-3rd respondents by fine or imprisonment or both! . The applicant also seeks deregistration of the 4th Respondent but does not point me to any section that grants the Registrar such powers in the circumstances of this case. The rest of the claims such as claims based on lack of information and prayers to direct the respondent to avail various documents do not have legal basis and Counsel for the applicant has not drawn my attention to any provision of the law. They could for instance be invoked procedurally in form of disclosure but only if the applicant has filed the correct causes of action in High Court. - 15. It is against that background that I find that the Registrar has no jurisdiction to hear and determine the various claims filed by the applicant nor to grant the prayers sought. Having found that the registrar of companies is not vested with jurisdiction to hear and determine this matter, I find no reason of resolving the other three preliminary objections. The application is accordingly dismissed with no order made as to costs.

I so Order.

Dated this 16th day of JULY 2024. **Muliisa Solomon**

**Registrar of Companies**