United Millers Limited v B. N. Kotecha & Sons Limited [2019] KEHC 1768 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT KISUMU

INSOLVENCY CAUSE NO. 1 OF 2018

IN THE MATTER OF THE INSOLVENCY ACT (2015)

IN THE MATTER OF SECTIONS 384(1)(A), 423(1)(E) & 425(1)(B) OF THE

INSOLVENCY ACT (2015) OF THE LAWS OF KENYA

UNITED MILLERS LIMITED ...............PETITIONER/RESPONDENT

VERSUS

B. N. KOTECHA & SONS LIMITED.......RESPONDENT/APPLICANT

RULING

This Ruling is in relation to 2 applications.  The first application dated 29th May 2018 was brought by B. N. KOTECHA AND SONS LIMITED(who shall hereinafter be cited as “the Company”).

1. By the said application, the Company sought orders for setting aside, discharge or vacation of the Order made by Justice T.W. Cherere on 11th April 2018.

2. The order which was made by the learned Judge on 11th April 2018 was made by the consent of the parties in KISUMU HCCC NO. 38 OF 2015.

3. Pursuant to the said consent order, the Company was to payKshs 5,000,000/= per month.

4. It was the Company’s contention that the consent order was illegal, unlawful, void and null ab initio, hence unenforceable against the Company.

5. When the said application came up before the Court on 12th June 2018, the Petitioner, UNITED MILLERS LIMITED, sought and were granted leave to cross-examine the Directors of the Company.

6. Secondly, Mr. Menezes Advocate was granted leave to file a Replying Affidavit, as the Company had alleged that it had not given instructions to him, to enter into the consent orders on 11th April 2018.

7. Indeed, it had been asserted that the Company had never given instructions to the Law Firm of L.G. MENEZES & COMPANY ADVOCATES.

8. There then arose the question as to whether or not the Law Firm of PROF. TOM OJIENDA & ASSOCIATES ADVOCATESwere properly on record in this Insolvency Cause.

9. On 16th October 2018 this Court delivered a Ruling in which it declared Messrs. PROF. TOM OJIENDA & ASSOCIATES ADVOCATESwere not yet properly on record.

10. On 24thJanuary 2019, the Company’s two Directors were scheduled to be cross-examined.

11. However, when the matter came up, the Company informed the Court that there had been several new developments, which necessitated the filing of a new application.

12. The Court was informed that there were ongoing Investigations on the authenticity of the documents that had been filed in KISUMU HCCC NO. 38/2015.

13. In the light of the said investigations, the Company, through an application dated 21st January 2019, sought orders for stay of proceedings until the said investigations were completed.

14. The investigations were allegedly being carried out by the Director of Criminal Investigations.

15. As far as the Company was concerned, the investigations would demonstrate that the contracts between the Petitioner and the entities it had allegedly supplied with sugar, were tainted with illegalities.

16. As a result, the Company hoped that the results of the investigations would enable it to prove that;

“The said contracts/LPOs/Delivery Notes (which are the subject of the alleged loss of business) allegedly entered into on behalf of the company and the consents entered into on 28th March, 2017 in Kisumu HCCC No. 38 of 2015 and 11th April, 2018 were therefore illegal, unlawful, void and null ab initio hence unenforceable as against the company.”

17. In its submissions, the Company expressly acknowledged that a Consent Judgment or Order can only be set aside on grounds which would justify the setting aside of a contract, or if any conditions which were supposed to be me, had not been met.

18. The Company told the court that the consents which it seeks to set aside were obtained through force exerted through blackmail and duress on one of its directors.

19. Secondly, the Company asserted that the advocate who was on record for the Company at the material time, did not have instructions to enter into the said consents as the Company’s Board of Directors had not passed any such a resolution.

20. The advocate who was on record at the material time has made it clear that he was duly instructed.

21. He said that apart from being expressly instructed by one of the two directors of the Company, the said director informed him of negotiations between the company and the Petitioner, culminating in the consent recorded on 11th April 2018.

22. Mr. Menezes Advocate further explained that Mr. HEMAL KOTECHA, (who is one of the two directors of the Company), accompanied him to court when the consent order was recorded.

23. At this stage, I am not saying that the statements made by the Company are necessarily false.

24. I say so because the Petitioner and Advocate Menezes had already been granted leave to cross-examine the Directors of the Company, so as to enable the court make an informed determination.

25. Instead of allowing that process to proceed, the Company decided to engage KPMG ADVISORY SERVICES LIMITEDto undertake an audit review of the transactions of the Company with other trading partners.

26. Secondly, the Company decided to engage the Director of Public Prosecution, with a view to having investigations carried out on the allegedly fraudulent transactions, LPOs and Delivery Notes.

27. I have been asked to put on hold, the Company’s own application, through which the consent order was to be set aside.

28. In my understanding, as the Company has decided that there is need for it to finalize further investigations, through both KPMGAdvisory Services Limited and also the Director of Public Prosecution, that is an express implication that the Company believes that it requires more evidence.

29. In the case of SAMSON OLE TINA Vs CLERK TRANS MARA COUNTY COUNCIL, HCCC NO. 4 OF 2007, Musinga J. (as he then was), held as follows;

“Whereas an advocate has general authority to compromise on behalf of his client, he can only do so if he acts bona fides and not contrary to express and/or implied direction.”

30. I find that, so far, the Company has not shown that the Advocate who was on record at the material time had acted contrary to any express instructions or directions of the Company.

31. According to the Company;

“The Applicant herein began making payments based on the Court Order only to discover the impropriety and irregularity of the LPOs.”

32. The impropriety and irregularity being mentioned herein was not in the transaction between the Company and the Petitioner.

33. In my understanding, the Company is saying that its director was misled by documents which showed that the Petitioner had suffered the loss of business between the Petitioner and other business entities.

34. In the alternative, it would appear that the Company believed the information provided by the Petitioner about its alleged loss of business.

35. However, the Company is now saying that if it had been aware of the correct factual position, about the Petitioner’s alleged losses, it could not have entered into the consent, in 2017.

36. This court has been reminded that no Court of Law ought to enforce an illegal contract, where the person seeking to enforce the contract is implicated in the illegality.

37. There is absolutely no doubt that no Court of Law will lend its aid to a man who found his cause of action on an immoral or an illegal act.

38. In this case, the Company was asserting that Duress and Blackmail was exerted on one of its Directors.

39. The nature of the alleged Duress and Blackmail was that the Petitioner’s conduct was based on the;

“….. personal, private and individual issues, without any scientific or factual basis”,

between the Petitioner and Hemal Kishore Kotecha.

40. That was stated in the affidavit sworn by Hemal on 18th September 2018.

41. Earlier, on 14th February 2018 Hemal Kotecha had sworn another affidavit in this matter.  By that affidavit Hemal said;

“7.   I issued instructions for entering of the  consent judgment under extreme duress and coercion having been subjected to  intense and immense stress, threats and  pressure from the Petitioner’s director, Sunil Shah, who consistently and persistently threatened to embarrass the Respondent Company by filing a winding up petition and executing by way of attachment of the Respondent Company’s assets.”

42. To the best of my knowledge, when a Creditor threatens to file a winding-up Petition or to execute a Decree by way of attachment of the property of a Judgment-Debtor, that cannot be construed as being illegal or unlawful.

43. A legitimate use of the legal structures which are available to a Decree-Holder, in the process of recovering a Decretal amount is wholly acceptable.

44. Therefore, when a Decree-Holder tells a Judgment-Debtor that he will take lawful steps to execute the Decree, I hold the considered view that that is neither duress nor coercion.

45. In any event, the Director who had allegedly been threatened, did not act on the spur of the moment.  Instead, he gave instructions to the advocate who was then on record for the Company.

46. In effect, even if a director of the Petitioner had told Hemal Kotecha about the legal actions which the Petitioner intended to take if the decretal amount was not paid, I find that Hemal had an opportunity to seek legal advice from the Company’s advocates.

47. I also find that the Company’s conduct, after the consent order was made, was consistent with not only knowledge but also approval of the terms of the consent.  I so find because the cheques which the Company issued were signed by its two directs.

48. In conclusion, I find no reason to warrant setting aside or the discharge of the consent order made on 11th April 2018.

49. I further find that by seeking to have the proceedings stayed until the Director of Public Prosecution completes his investigations, suggests that the Company had realized that it did not yet have sufficient evidence which could have persuaded the court to set aside the consent orders.

50. This Court is not stopping the Director of Public Prosecution from undertaking appropriate investigations.

51. However, the fact that such investigations were being carried out, or even because KPMGAdvisory Services Limited were carrying out an audit or investigations, is not reason enough to justify a stay of proceedings.

52. In the result, the applications dated 28th May 2018 and 21st January 2019 have no merit; and are both dismissed, with costs to the Petitioner.

DATED, SIGNED AND DELIVERED AT KISUMU

This 8thday of October2019

FRED A. OCHIENG

JUDGE