Background
1. Before the Court is an application dated 13th January 2022 [sic] brought under the provisions of sections 1A, 1B, 3A and section 63(e) of the Civil Procedure Act Cap 21, as well as sections 17, 384 and 692 of the Insolvency Act No. 18 of 2015, and Regulations 16, 17, 77 and 78 of the Insolvency Regulations 2016.
2. For the avoidance of doubt, this is one of three identical applications filed by the applicant against individual creditors. Each creditor served a separate Statutory demand related to the same debt.
3. The application seeks to set aside the statutory demand issued by the respondent. It also seeks a permanent injunction restraining the respondent from commencing any liquidation petition against the applicant on the basis of the statutory demand dated 15th July 2022 and lodged in court on 19th December 2022 (the statutory demand), or any other statutory demand relating to the same debt.
4. The applicant’s case is premised on three (3) grounds. These are that the statutory demand was not served in accordance with section 384 of the Insolvency Act, that the debt is disputed on substantial and bona fide grounds and that the statutory demand relates to that issued in Insolvency Cause No. E038 of 2021.
5. The application is opposed through a replying affidavit sworn by the respondent on 30th May 2023. The core of the respondent’s case is that the applicant approached the respondent along with three other creditors, for a loan of Kshs. 84,671,534.54. The collective amount was lent on the condition that the applicant would repay the principal sum plus Kshs. 11,906,935 as interest.
6. The amount that the applicant received from the respondent was Kshs. 14,145,945.10 to be repaid with an interest of Kshs. 1,989,179.63, totaling to Kshs. 16,135,124.73. This is the amount on the statutory demand dated 15th July 2022, issued by the respondent.
7. The respondent contends that the debt is neither disputed nor denied, as the applicant acknowledges receiving the money from the respondent and the other creditors.
Analysis and determination
8. I have carefully considered the pleadings, submissions and evidence presented by the respective parties in support of their positions. The question that this Court must determine is whether the applicant is deserving of the prayers sought.
9. Before delving into the substance of the statutory demand I must deal with a preliminary issue that has been raised by the applicant, which is the existence of another statutory demand relating to the debt in question.
10. Section 6 of the Civil Procedure Act (Cap 21), is clear that no court shall proceed with the trial of any suit or proceeding in which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, where such suit or proceeding is pending in the same or any other court having jurisdiction in Kenya to grant the relief claimed.
11. The Courts have consistently held that filing a multiplicity of suits on the same subject matter between the same parties is an abuse of the court process. For example, in the case of David Ndii & Others V Attorney General & Others, (2021), this Court emphasized the importance of avoiding multiplicity of suits and the rationale being that it was vexatious and oppressive for a claimant to sue concurrently in courts.
12. The applicant has attached to their supporting affidavit a set of pleadings filed in High Court E038 of 2021. The debtor in the statutory demand dated 15th June 2021 is B.N. KOTECHA & SONS LIMITED, the applicant herein. There are 4 creditors names on that Statutory demand, including BHAVINKUMAR MANHARBHAI PATEL, the 3rd creditor therein, who is the sole creditor in the statutory demand before this Court.
13. The respondent does not deny the existence of the proceedings in E038 of 2021 but argues that the court did not determine the issues therein on merit, and particularly the issue as to whether or not the debtor was indebted to the creditor. The respondent asserts that the Court set aside the Statutory demand on technicality as it was executed by the creditors’ agents rather than the creditors themselves.
14. I have carefully analyzed the decisions of this Court issued on 4th August 2021 (Muigai J) and 18th March 2022 (Mshila, J). It is clear from the latter that the Court did not consider the merits of the application for setting aside that Statutory demand. The Court stated as follows at paragraphs 41 and 42 of the Ruling:
“Upon perusal of the Statutory demand dated 15th June 2021 it is noted that it is signed by the creditor’s advocates namely M.M. Gitonga LLP and going by the definition the advocate is not a creditor and can only be deemed to be the agent of the creditors. The Notice served upon it by the creditors advocate is therefore found to be contrary to statute and found to be defective. This court is satisfied that there are no valid reasons to set aside the Order of 4/08/202l which would in effect reinstate a defective Statutory demand invalid and incapable of mounting up a petition for the liquidation of the debtor/company.”
15. I agree with the respondent on the submission that the Court did not have the opportunity to consider the substance of the application for setting aside and in effect the substance of the statutory demand issued by the respondent. I further agree that the ruling of 18th March 2022 ended the proceedings in E038 of 2021 and therefore that the statutory demand issued subsequently on the applicant was legally issued to correct the defect as highlighted in the said ruling.
16. The other preliminary issue that was raised by the applicant is lack of proper service of the statutory demand. The law is clear that in the case of a Company, proper service ought to be by way of delivering the statutory demand in the registered office of the Company.
17. Section 384 (1)(a) provides as follows:
“For the purposes of this Part, a company is unable to pay its debts— (a) if a creditor (by assignment or otherwise) to whom the company is indebted for hundred thousand shillings or more has served on the company, by leaving it at the company's registered office, a written demand requiring the company to pay the debt and the company has for twenty—one days afterwards failed to pay the debt or to secure or compound for it to the reasonable satisfaction of the creditor.” (emphasis mine)
18. While the respondent has not rebutted this averment by evidence demonstrating proper service, the applicant has also failed to substantiate this averment. For instance, the applicant does not disclose the circumstances under which he eventually received the statutory demand. It is however evident that the applicant was eventually notified of its existence, leading to the application to set it aside. I will therefore not delve further on this issue.
19. I might further add by way of a preliminary observation that based on numerous judicial pronouncements, the law on setting aside of statutory demands, is now settled. Courts have consistently held that Regulations 16 and 17 of the Insolvency Regulations apply in equal measure to setting aside a statutory demand in bankruptcy as well as liquidation of companies.
20. Finally, on the question as to whether the application herein was brought out of time, it is worth noting that the period from December 21st to January 13th annually is excluded from the computation of time. This is by dint of Order 50 rule 4 of the Civil Procedure Rules.
21. It is not denied that the Statutory demand though dated 15th July 2022 was lodged in court on 19th December 2022. If this is the case it follows that the time ran for 1 day and was suspended until 13th January 2024. Thereafter the applicants had 20 days from 14th January 2024 to file the application for setting aside the Statutory demand. The respondent has not proved that the application dated 13th January 2023 was filed outside of this timeframe.
22. The main ground upon which the applicant seeks to set aside the demand is that the debt is disputed on substantial and bona fide grounds. The applicant has referred this Court to the decisions of the Court of Appeal in Universal Hardware Limited V African Safari Club Limited, [2013] eKLR and Matic General Contractors Limited V The Kenya Power and Lighting Company Limited, [2001] 1LLR 4837 (CAK.
23. The respondent has also cited a number of authorities including the matter of P. J. Dave Flowers Limited, [2011| eKLR, Marc Ghislain V Penina Wairimu Nginye, (2021) eKLR, Peter Munga V African Seed Investment Fund LLC, [2017] eKLR, Re of Spencon Kenya Limited, [2016] eKLR and City Limited V Polytanks & Containers Kenya Limited, (2021) KEH 34 (KLR).
24. The thread that runs through all these decisions is the need for a disputed debt to be predicated on substantial and bona fide grounds. As held in Re African Safari Club Ltd {2006] eKLR, a substantive and bona fide ground for disputing a debt is a matter of evidence and varies from case to case.
25. The question that an insolvency court must determine is whether there is from the evidence presented by an applicant, a case that warrants further interrogation. If the dispute involves issues that require detailed examination, the court may be more inclined to set aside the statutory demand and refer the matter to a full trial.
26. The respondent has submitted before this Court a statement detailing how the alleged loan amounts were disbursed to the applicant. The applicant does not dispute receiving the money. The primary point of contention lies in the terms of the agreement between the parties. It appears that the contract was oral, and the only evidence presented to this Court consists of handwritten notes purportedly representing their intentions.
27. After considering the totality of the evidence before me, it is my view that the applicant has raised a substantive dispute regarding the nature of the debt, asserting that it was an investment agreement contingent on profits, rather than a straightforward loan. Given that the arrangement between the parties appears to be based on an oral contract with scant written evidence in the form of handwritten notes, there is a lack of clarity and ambiguity surrounding the terms of the agreement.
28. For these reasons it is clear that the matter involves issues that require detailed examination. The decisions cited by the parties, such as Universal Hardware Limited V African Safari Club Limited and Matic General Contractors Limited V The Kenya Power and Lighting Company Limited, [supra] support the position that an insolvency court is not the proper forum for litigating an underlying debt if it is disputed on substantial grounds.
29. These decisions emphasize that the court should set aside a statutory demand in such circumstances so as to allow for detailed examination. Since as I have stated the debt is disputed on substantial grounds, it then follows that the Statutory demand dated 15th July 2022 cannot stand. It must be set aside.
Disposition
30. For the foregoing reasons, I allow the application dated 13th January 2023 as prayed and set aside the Statutory demand dated 15th July 2022 issued to the applicant. The respondent shall bear the costs of the application.