Introduction
1. This Ruling concerns a Notice of Motion application dated 12th November, 2024 filed by the Plaintiff/Decree Holder seeking orders for the lifting of the corporate veil of the 2nd Judgment Debtor, for its directors (specifically the 1st, 2nd, and 3rd Directors/Interested Parties) to be held personally liable for a judgment debt, and for ancillary orders including a Mareva injunction and an Anton Piller Order.
2. Specifically, the Plaintiff/Applicant seeks the following key reliefs in the Application:
i. That the corporate veil of the 2nd Judgment Debtor be pierced, and the 1st, 2nd, and 3rd Directors/Interested Parties be enjoined and held personally liable, jointly and severally, for the judgment debt.
ii. In the alternative, that the 1st, 2nd, and 3rd Directors/Interested Parties be summoned to show cause why they should not be held personally liable for the debts of the 2nd Judgment Debtor.
iii. That execution of the decree be ordered against the 1st, 2nd, and 3rd Directors/Interested Parties until full satisfaction.
iv. That a Mareva injunction be issued against the assets of the 3rd Director/Interested Party (specifically 401,620 Shares in Associated Motors Limited) pending the hearing and determination of the Application.
v. That an Anton Piller Order be issued against the bankers, accountants, and auditors of the 1st, 2nd, and 3rd Directors/Interested Parties and the 2nd Judgment Debtor to disclose dealings and financial transactions flowing from the 2nd Judgment Debtor's accounts to the Directors.
3. The Application is opposed by the 3rd Respondent, Moez Ismail Jamal, primarily on the grounds of sub judice and that the Applicant has not met the legal threshold for the orders sought.
4. The background of the dispute is that following a trial, judgment was entered in favour of the Plaintiff/Decree Holder in the sum of KShs. 3,100,000.00, which, as at the time of the instant Application, had arisen to approximately KShs. 5 million due to interest.
5. Attempts to execute the Decree against the 2nd Judgment Debtor proved futile as it had reportedly closed shop and ceased operations.
6. It emerged through pleadings filed in HCOMMISC E872/2024 that the closure of the 2nd Judgment Debtor was occasioned by alleged fraud perpetrated by its directors, who purportedly abused their positions to siphon funds for their personal benefit. A sworn affidavit in HCOMMISC E872/2024 from a shareholder, exhibit CNM-2, details this alleged fraud by the 1st, 2nd, and 3rd Directors/Interested Parties.
7. The Application was served upon the Company and its Directors, who, with the exception of the 3rd Respondent (Moez Ismail Jamal), chose not to file any response, rendering the application unopposed by the Company itself and the other two directors.
8. In his replying affidavit sworn on 28th March 2025, the 3rd Respondent, Moez Ismail Jamal, opposed the Decree Holder’s application on three primary grounds: first, that the instant application is sub judice Miscellaneous Application No. E872 of 2024: Eureka Holdings Limited vs Michael Nyachae & Others; second, that it has been brought under the wrong legal provisions; and third, that it fails to satisfy the threshold for the orders sought.
9. The matter was canvassed by way of written submissions. The Decree Holder/Applicant filed his submissions dated 20th March 2025, whilst the 3rd Respondent filed his submissions dated 25th March 2025.
Analysis and Determination
10. Upon considering the pleadings and rival submissions, the Court frames the following issues for determination: -
i. Whether the instant application is sub judice, Miscellaneous Application No. E872 of 2024.
ii. If not sub judice, whether the Applicant has satisfied the conditions for lifting the corporate veil of the 2nd Judgment Debtor and holding its directors personally liable.
iii. Whether the Applicant has anchored the Application on the correct provisions of law.
iv. What orders, if any, are appropriate in the circumstances.
Whether the Application is Sub Judice
11. The 3rd Respondent argued that the issues and facts in the present Application are live before Lady Justice J. Mong'are in Miscellaneous Application No. E872 of 2024 Eureka Holdings Limited-vs-Michael Nyachae & Others, with a ruling expected on 16th May, 2025 (now past). Mr. Jamal deponed that the Applicant in the present suit is a party to the proceedings before Lady Justice Mong'are.
12. Citing Section 6 of the Civil Procedure Act and the principles of sub judice as held in Seruji Limited v Savannah Cement Limited [2021] eKLR and Republic v Paul Kihara Kariuki, Attorney General & 2 others Ex parte Law Society of Kenya [2020] eKLR, the 3rd Respondent contends that this Court ought not to proceed to avoid conflicting decisions and multiplicity of proceedings.
13. The 3rd Respondent highlights that the application in Miscellaneous Application No. E872 of 2024, dated 25th October, 2024, seeks similar reliefs, particularly Orders Nos 5 and 6. Therefore, the current Application dated 12th November, 2024, filed after the other, is sub judice and an abuse of court process.
14. The doctrine of sub judice, codified under Section 6 of the Civil Procedure Act, prohibits a court from proceeding with the trial of any suit or proceeding where the matter in issue is directly and substantially in issue in a previously instituted suit or proceeding between the same parties, or parties claiming under them, litigating under the same title, and where such suit is pending in the same or any other court having jurisdiction to grant the relief claimed. The purpose is to prevent multiplicity of proceedings and conflicting decisions.
15. The Supreme Court in Kenya National Commission on Human Rights vs Attorney General; Independent Electoral & Boundaries Commission & 16 Others (Interested Parties) [2020] eKLR stated: -
“The term sub judice is defined in Black’s Law Dictionary 9th Edition as: “Before the Court or Judge for determination.” The purpose of the sub judice rule is to stop the filing of multiplicity of suits between the same parties or those claiming under them over the same subject matter so as to avoid abuse of the court process and diminish the chances of courts, with competent jurisdiction, issuing conflicting decisions over the same subject matter. This means that when two or more cases are filed between the same parties on the same subject matter before courts with jurisdiction, the matter that is filed later ought to be stayed in order to await the determination to be made in the earlier suit. A party that seeks to invoke the doctrine of sub judice must therefore establish that; there is more than one suit over the same subject matter, that one suit was instituted before the other; that both suits are pending before courts of competent jurisdiction and lastly; that the suits are between the same parties or their representatives.” [emphasis added].
16. Upon a careful review of the pleadings in this matter, as well as those in Miscellaneous Application No. E872 of 2024: Eureka Holdings Limited vs Michael Nyachae & Others—particularly the application dated 25th October 2024 and the subsequent Ruling referred to in the 3rd Interested Party’s affidavit—I find that the present application is not sub judice within the meaning of Section 6 of the Civil Procedure Act.
17. Firstly, contrary to the 3rd Respondent’s assertion, the dispute in Miscellaneous Application No. E872 of 2024 primarily concerns an internal dispute among the directors of the 2nd Judgment Debtor. It does not involve the Applicant herein in his capacity as Decree Holder, nor does it concern the enforcement of the decree against the company.
18. Secondly, I note from the Ruling ja on 13th June 2025, dismissed the said application of 25th October 2024, which had principally sought to refer the directors’ dispute to arbitration and to secure conservatory orders.
19. Paragraph 1 of Justice Mongare’s Ruling confirms that the application was brought by Eureka Holdings Limited under, among other provisions, Section 6 of the Arbitration Act. The application sought, inter alia, a stay of proceedings and referral of the dispute to arbitration. In dismissing the application, the Learned Judge stated that: -
“Conclusion and Disposition
In the upshot, I find no merit in EUREKA’s Originating Summons dated 25th October 2024 and the same is dismissed. For avoidance of doubt, the 1st Respondent’s application dated 6th November 2024 and Notice of Preliminary Objection dated 27th November 2024 are dismissed………. The parties are at liberty (to) pursue the consultation and arbitration mechanisms available to them in the 4th Nominal Respondent’s Memorandum and Articles of Association…”
20. From the said Ruling, it is clear that the Applicant herein was neither a party to nor involved in the proceedings leading to the ruling of 13th June 2025. Furthermore, there is no evidence that the issues raised in the present application were addressed in Miscellaneous Application No. E872 of 2024.
21. Accordingly, I reject the 3rd Respondent’s contention that the present application is sub judice. The objection in that regard fails.
Merits of Lifting the Corporate Veil:
22. The sub judice objection having failed, the next issue for consideration is whether the Decree Holder's application presents a strong prima facie case for the lifting of the corporate veil based on the alleged fraudulent conduct of the directors.
23. The Applicant contended that the 2nd Judgment Debtor has been used as a device to defraud creditors. The Decree Holder annexed to his application affidavits filed in HCOMMISC E872/2024, which, according to him, reveal that the Directors siphoned funds from the 2nd Judgment Debtor, rendering it a shell company. The Applicant relied on, among others, the case of Multichoice Kenya Ltd v Mainkam Ltd & Another [2013] eKLR in support of the argument that the veil of incorporation may be lifted where fraud or improper conduct is demonstrated.
24. The 3rd Respondent opposed the Applicant’s argument and submitted that the Applicant has failed to demonstrate any fraud, criminality, or improper conduct that would warrant lifting the veil and cited among others, the case of Lucy Mukembura Kimani v Nzuri Feeds Suppliers Ltd [2021] eKLR, in support of the argument. According to the 3rd Respondent, the inability to pay debts alone is not sufficient ground for piercing the corporate veil.
25. The 3rd Respondent argued that the Applicant has only relied on a shareholder affidavit from another case (Misc. E872/2024), before a court of concurrent jurisdiction, and no cogent evidence has been tendered in this matter to prove fraud. He argued that directors are generally not personally liable for company contracts if they acted with authority, and only the company is liable.
26. The doctrine of separate legal personality remains foundational in company law as pronounced in Salomon v Salomon & Co [1897] AC 22. However, courts have long recognized exceptions, particularly where the company is used to perpetrate fraud or defeat justice. In Multichoice Kenya Ltd v Mainkam Ltd & Another [2013] eKLR, Mabeya J held:
"Exceptions to the principle have been made where it is too flagrantly opposed to justice or convenience. Other instances include when a fraudulent and improper design by scheming directors or shareholders is imputed."
27. This Court acknowledges that the remedy of lifting the corporate veil is an extraordinary measure, reserved only for exceptional circumstances. It is not sufficient to merely demonstrate that a company is unable to meet its financial obligations. Rather, there must be proof, on a balance of probabilities, of fraud, abuse of the corporate form, or other improper conduct. This principle is well established, as reaffirmed in China Wu Yi Co Ltd v Edermann Property Ltd & 2 Others [2013] eKLR.
28. In the present case, the Applicant/Decree Holder has put forward serious allegations, supported by a sworn affidavit from Leon Nyachae, one of the directors of the 2nd Judgment Debtor, marked as exhibit CNM-2 in Miscellaneous Application No. E872 of 2024: Eureka Holdings Limited v Michael Nyachae & Others. In that affidavit, Leon Nyachae asserts that the other directors of the 2nd Judgment Debtor engaged in fraudulent conduct by siphoning company funds, resulting in the company’s closure and its subsequent inability to satisfy its financial obligations.
29. These allegations, which remain uncontroverted by the 2nd Judgment Debtor and the other two directors (save for the 3rd Respondent), provide a sufficient basis for this Court to initiate further inquiry into the affairs of the 2nd Judgment Debtor. I also find no merit in the 3rd Respondent’s contention that Leon Nyachae’s affidavit cannot form the basis for such an inquiry. On the contrary, the allegations therein warrant judicial scrutiny into the company’s financial dealings and the role of its directors.
Reliance on Incorrect Provisions of Law
30. The 3rd Respondent submits that the Applicant's reliance on Sections 1002 and 1004 of the Companies Act and Orders 45 and 51 of the Civil Procedure Rules does not support the reliefs sought for summoning directors or piercing the corporate veil.
31. The Court has considered the 3rd Respondent’s argument that the application is not premised on the correct provisions of the law. While it is indeed correct that the more appropriate procedural basis would have been Order 22 Rule 35 of the Civil Procedure Rules, rather than the provisions cited by the Applicant, this technical defect is not fatal to the application. Procedural lapses, such as citing the wrong rule, should not defeat substantive justice. This position is supported by the decision in Muthoni Nduati v Wanyoike Kamau & 5 Others [2004] eKLR, where Fred A. Ochieng J (as he then was), citing Apaloo JA in Gatu v Muriuki [1986] KLR 211 at 212, observed:
“When passing his verdict on the judge’s decision to dismiss the application, Apaloo J.A. made the following pertinent conclusion;
“Although I am not now concerned with the merits, I cannot shut my eyes to the fact that the main ground on which the learned judge declined to exercise his discretion to set aside the judgment of dismissal was that in bringing the motion to relist, the applicant, in error, quoted the wrong order. That seems to me hardly a sound basis for dismissing the motion”.
I therefore find that the citation of the wrong procedural rule is not by itself fatal to the Defendants’ application.”
32. In any event, this Court remains mindful of its constitutional duty to prioritize substantive justice over procedural technicalities, as enshrined in Article 159(2) of the Constitution. This principle was aptly reiterated in Godfrey Kirimi v Catherine Makena [2021] eKLR, where the Court, when confronted with a situation similar to the present case, observed as follows:
“The correct provision of law to have brought his application under is Order 42 Rule 6 of the Civil Procedure Rules which provides for stay of execution pending appeal. It is therefore true that the Applicant’s application has been brought under the wrong provision of the law. This Court has however previously held that in the spirit of Article 159 (2) of the Constitution and Section 1 A and B of the Civil Procedure Act, failure to cite the correct provisions of law is not fatal and would not per se warrant a dismissal of the application. See Meru Misc Civil Application No. E007 of 2021 Purity Kagendo Anampiu & Another vs Nellie Mugambi & Another. See also Kenya Trypanosomiasis Research Institute v Anthony Kabimba Gusinjilu (Suing for and on behalf of 112 Plaintiffs) Civil Appeal No. 212 of 2015 [2019] eKLR. The Court will therefore go into the merits of the application.”
33. In the present case, this Court is of the view that the interests of justice require that the substantive merits of the application be examined, particularly in relation to the serious allegations of fraudulent conduct by the directors of the 2nd Judgment Debtor. These allegations, as set out in the affidavit of Leon Nyachae, a director and shareholder of the company, warrant judicial scrutiny and cannot be dismissed on procedural grounds alone.
34. Moreover, the failure of the 2nd Judgment Debtor and two of its directors to oppose or respond to the application is a material consideration. The company and its directors have neither admitted nor denied their liability to the Decree Holder. While the 3rd Respondent correctly submitted that the Applicant could have pursued insolvency proceedings against the 2nd Judgment Debtor, this Court finds that such an option does not preclude or bar the Applicant from pursuing the present proceedings.
Orders to issue
35. Although the Applicant has established a prima facie case warranting the examination of the directors, the Court is not satisfied, at this stage, that sufficient evidence has been presented to conclusively demonstrate that the 2nd Judgment Debtor was used as a vehicle for fraud, improper conduct, or criminal activity. Such a determination can only be made after a thorough examination of the company’s books of account and the directors themselves. Consequently, the prayers seeking to lift the corporate veil, as well as the requests for Mareva and Anton Piller injunctions, shall be held in abeyance pending the outcome of the examination process.
36. In the circumstances, I find that the Applicant/Decree Holder has only made out a sufficient case for the directors/Interested Parties to be summoned for examination before this Court.
37. Accordingly, I direct Michael Moragia Nyachae, Amin Mohammed Shamsudin Shamji, and Moez Ismail Jamal to attend court at the next hearing for examination as to whether the 2nd Judgment Debtor has the means to satisfy the decree. The said directors are required to produce all relevant books of account and other documentary evidence relating to the finances and assets of the 2nd Judgment Debtor.
38. In conclusion, the Notice of Motion application dated 12th November 2024 is determined as follows:
i. The prayer for summoning the 1st, 2nd, and 3rd Directors/Interested Parties for examination regarding the 2nd Judgment Debtor’s debts and assets, for purposes of satisfying the decretal sum, is allowed.
I direct Michael Moragia Nyachae, Amin Mohammed Shamsudin Shamji, and Moez Ismail Jamal to attend court at the next hearing for examination as to whether the 2nd Judgment Debtor has the means to satisfy the decree. The said directors are required to produce all relevant books of account and other documentary evidence relating to the finances and assets of the 2nd Judgment Debtor.
ii. The prayer for lifting the corporate veil is declined.
iii. The prayers for Mareva injunction and Anton Piller orders are denied.
iv. Costs of the application shall be borne by the 2nd Judgment-Debtor.
39. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
14TH DAY OF JULY 2025
ADO MOSES
JUDGE
In the Presence of
Moses C/A
Mutuku…………………………for the Decree Holder
James Owino h/b for Akello ……..for 1st Defendant
Kimani ……………………………for the 1st Respondent
1. This Ruling concerns a Notice of Motion application dated 12th November, 2024 filed by the Plaintiff/Decree Holder seeking orders for the lifting of the corporate veil of the 2nd Judgment Debtor, for its directors (specifically the 1st, 2nd, and 3rd Directors/Interested Parties) to be held personally liable for a judgment debt, and for ancillary orders including a Mareva injunction and an Anton Piller Order.
2. Specifically, the Plaintiff/Applicant seeks the following key reliefs in the Application:
i. That the corporate veil of the 2nd Judgment Debtor be pierced, and the 1st, 2nd, and 3rd Directors/Interested Parties be enjoined and held personally liable, jointly and severally, for the judgment debt.
ii. In the alternative, that the 1st, 2nd, and 3rd Directors/Interested Parties be summoned to show cause why they should not be held personally liable for the debts of the 2nd Judgment Debtor.
iii. That execution of the decree be ordered against the 1st, 2nd, and 3rd Directors/Interested Parties until full satisfaction.
iv. That a Mareva injunction be issued against the assets of the 3rd Director/Interested Party (specifically 401,620 Shares in Associated Motors Limited) pending the hearing and determination of the Application.
v. That an Anton Piller Order be issued against the bankers, accountants, and auditors of the 1st, 2nd, and 3rd Directors/Interested Parties and the 2nd Judgment Debtor to disclose dealings and financial transactions flowing from the 2nd Judgment Debtor's accounts to the Directors.
3. The Application is opposed by the 3rd Respondent, Moez Ismail Jamal, primarily on the grounds of sub judice and that the Applicant has not met the legal threshold for the orders sought.
4. The background of the dispute is that following a trial, judgment was entered in favour of the Plaintiff/Decree Holder in the sum of KShs. 3,100,000.00, which, as at the time of the instant Application, had arisen to approximately KShs. 5 million due to interest.
5. Attempts to execute the Decree against the 2nd Judgment Debtor proved futile as it had reportedly closed shop and ceased operations.
6. It emerged through pleadings filed in HCOMMISC E872/2024 that the closure of the 2nd Judgment Debtor was occasioned by alleged fraud perpetrated by its directors, who purportedly abused their positions to siphon funds for their personal benefit. A sworn affidavit in HCOMMISC E872/2024 from a shareholder, exhibit CNM-2, details this alleged fraud by the 1st, 2nd, and 3rd Directors/Interested Parties.
7. The Application was served upon the Company and its Directors, who, with the exception of the 3rd Respondent (Moez Ismail Jamal), chose not to file any response, rendering the application unopposed by the Company itself and the other two directors.
8. In his replying affidavit sworn on 28th March 2025, the 3rd Respondent, Moez Ismail Jamal, opposed the Decree Holder’s application on three primary grounds: first, that the instant application is sub judice Miscellaneous Application No. E872 of 2024: Eureka Holdings Limited vs Michael Nyachae & Others; second, that it has been brought under the wrong legal provisions; and third, that it fails to satisfy the threshold for the orders sought.
9. The matter was canvassed by way of written submissions. The Decree Holder/Applicant filed his submissions dated 20th March 2025, whilst the 3rd Respondent filed his submissions dated 25th March 2025.
Analysis and Determination
10. Upon considering the pleadings and rival submissions, the Court frames the following issues for determination: -
i. Whether the instant application is sub judice, Miscellaneous Application No. E872 of 2024.
ii. If not sub judice, whether the Applicant has satisfied the conditions for lifting the corporate veil of the 2nd Judgment Debtor and holding its directors personally liable.
iii. Whether the Applicant has anchored the Application on the correct provisions of law.
iv. What orders, if any, are appropriate in the circumstances.
Whether the Application is Sub Judice
11. The 3rd Respondent argued that the issues and facts in the present Application are live before Lady Justice J. Mong'are in Miscellaneous Application No. E872 of 2024 Eureka Holdings Limited-vs-Michael Nyachae & Others, with a ruling expected on 16th May, 2025 (now past). Mr. Jamal deponed that the Applicant in the present suit is a party to the proceedings before Lady Justice Mong'are.
12. Citing Section 6 of the Civil Procedure Act and the principles of sub judice as held in Seruji Limited v Savannah Cement Limited [2021] eKLR and Republic v Paul Kihara Kariuki, Attorney General & 2 others Ex parte Law Society of Kenya [2020] eKLR, the 3rd Respondent contends that this Court ought not to proceed to avoid conflicting decisions and multiplicity of proceedings.
13. The 3rd Respondent highlights that the application in Miscellaneous Application No. E872 of 2024, dated 25th October, 2024, seeks similar reliefs, particularly Orders Nos 5 and 6. Therefore, the current Application dated 12th November, 2024, filed after the other, is sub judice and an abuse of court process.
14. The doctrine of sub judice, codified under Section 6 of the Civil Procedure Act, prohibits a court from proceeding with the trial of any suit or proceeding where the matter in issue is directly and substantially in issue in a previously instituted suit or proceeding between the same parties, or parties claiming under them, litigating under the same title, and where such suit is pending in the same or any other court having jurisdiction to grant the relief claimed. The purpose is to prevent multiplicity of proceedings and conflicting decisions.
15. The Supreme Court in Kenya National Commission on Human Rights vs Attorney General; Independent Electoral & Boundaries Commission & 16 Others (Interested Parties) [2020] eKLR stated: -
“The term sub judice is defined in Black’s Law Dictionary 9th Edition as: “Before the Court or Judge for determination.” The purpose of the sub judice rule is to stop the filing of multiplicity of suits between the same parties or those claiming under them over the same subject matter so as to avoid abuse of the court process and diminish the chances of courts, with competent jurisdiction, issuing conflicting decisions over the same subject matter. This means that when two or more cases are filed between the same parties on the same subject matter before courts with jurisdiction, the matter that is filed later ought to be stayed in order to await the determination to be made in the earlier suit. A party that seeks to invoke the doctrine of sub judice must therefore establish that; there is more than one suit over the same subject matter, that one suit was instituted before the other; that both suits are pending before courts of competent jurisdiction and lastly; that the suits are between the same parties or their representatives.” [emphasis added].
16. Upon a careful review of the pleadings in this matter, as well as those in Miscellaneous Application No. E872 of 2024: Eureka Holdings Limited vs Michael Nyachae & Others—particularly the application dated 25th October 2024 and the subsequent Ruling referred to in the 3rd Interested Party’s affidavit—I find that the present application is not sub judice within the meaning of Section 6 of the Civil Procedure Act.
17. Firstly, contrary to the 3rd Respondent’s assertion, the dispute in Miscellaneous Application No. E872 of 2024 primarily concerns an internal dispute among the directors of the 2nd Judgment Debtor. It does not involve the Applicant herein in his capacity as Decree Holder, nor does it concern the enforcement of the decree against the company.
18. Secondly, I note from the Ruling ja on 13th June 2025, dismissed the said application of 25th October 2024, which had principally sought to refer the directors’ dispute to arbitration and to secure conservatory orders.
19. Paragraph 1 of Justice Mongare’s Ruling confirms that the application was brought by Eureka Holdings Limited under, among other provisions, Section 6 of the Arbitration Act. The application sought, inter alia, a stay of proceedings and referral of the dispute to arbitration. In dismissing the application, the Learned Judge stated that: -
“Conclusion and Disposition
In the upshot, I find no merit in EUREKA’s Originating Summons dated 25th October 2024 and the same is dismissed. For avoidance of doubt, the 1st Respondent’s application dated 6th November 2024 and Notice of Preliminary Objection dated 27th November 2024 are dismissed………. The parties are at liberty (to) pursue the consultation and arbitration mechanisms available to them in the 4th Nominal Respondent’s Memorandum and Articles of Association…”
20. From the said Ruling, it is clear that the Applicant herein was neither a party to nor involved in the proceedings leading to the ruling of 13th June 2025. Furthermore, there is no evidence that the issues raised in the present application were addressed in Miscellaneous Application No. E872 of 2024.
21. Accordingly, I reject the 3rd Respondent’s contention that the present application is sub judice. The objection in that regard fails.
Merits of Lifting the Corporate Veil:
22. The sub judice objection having failed, the next issue for consideration is whether the Decree Holder's application presents a strong prima facie case for the lifting of the corporate veil based on the alleged fraudulent conduct of the directors.
23. The Applicant contended that the 2nd Judgment Debtor has been used as a device to defraud creditors. The Decree Holder annexed to his application affidavits filed in HCOMMISC E872/2024, which, according to him, reveal that the Directors siphoned funds from the 2nd Judgment Debtor, rendering it a shell company. The Applicant relied on, among others, the case of Multichoice Kenya Ltd v Mainkam Ltd & Another [2013] eKLR in support of the argument that the veil of incorporation may be lifted where fraud or improper conduct is demonstrated.
24. The 3rd Respondent opposed the Applicant’s argument and submitted that the Applicant has failed to demonstrate any fraud, criminality, or improper conduct that would warrant lifting the veil and cited among others, the case of Lucy Mukembura Kimani v Nzuri Feeds Suppliers Ltd [2021] eKLR, in support of the argument. According to the 3rd Respondent, the inability to pay debts alone is not sufficient ground for piercing the corporate veil.
25. The 3rd Respondent argued that the Applicant has only relied on a shareholder affidavit from another case (Misc. E872/2024), before a court of concurrent jurisdiction, and no cogent evidence has been tendered in this matter to prove fraud. He argued that directors are generally not personally liable for company contracts if they acted with authority, and only the company is liable.
26. The doctrine of separate legal personality remains foundational in company law as pronounced in Salomon v Salomon & Co [1897] AC 22. However, courts have long recognized exceptions, particularly where the company is used to perpetrate fraud or defeat justice. In Multichoice Kenya Ltd v Mainkam Ltd & Another [2013] eKLR, Mabeya J held:
"Exceptions to the principle have been made where it is too flagrantly opposed to justice or convenience. Other instances include when a fraudulent and improper design by scheming directors or shareholders is imputed."
27. This Court acknowledges that the remedy of lifting the corporate veil is an extraordinary measure, reserved only for exceptional circumstances. It is not sufficient to merely demonstrate that a company is unable to meet its financial obligations. Rather, there must be proof, on a balance of probabilities, of fraud, abuse of the corporate form, or other improper conduct. This principle is well established, as reaffirmed in China Wu Yi Co Ltd v Edermann Property Ltd & 2 Others [2013] eKLR.
28. In the present case, the Applicant/Decree Holder has put forward serious allegations, supported by a sworn affidavit from Leon Nyachae, one of the directors of the 2nd Judgment Debtor, marked as exhibit CNM-2 in Miscellaneous Application No. E872 of 2024: Eureka Holdings Limited v Michael Nyachae & Others. In that affidavit, Leon Nyachae asserts that the other directors of the 2nd Judgment Debtor engaged in fraudulent conduct by siphoning company funds, resulting in the company’s closure and its subsequent inability to satisfy its financial obligations.
29. These allegations, which remain uncontroverted by the 2nd Judgment Debtor and the other two directors (save for the 3rd Respondent), provide a sufficient basis for this Court to initiate further inquiry into the affairs of the 2nd Judgment Debtor. I also find no merit in the 3rd Respondent’s contention that Leon Nyachae’s affidavit cannot form the basis for such an inquiry. On the contrary, the allegations therein warrant judicial scrutiny into the company’s financial dealings and the role of its directors.
Reliance on Incorrect Provisions of Law
30. The 3rd Respondent submits that the Applicant's reliance on Sections 1002 and 1004 of the Companies Act and Orders 45 and 51 of the Civil Procedure Rules does not support the reliefs sought for summoning directors or piercing the corporate veil.
31. The Court has considered the 3rd Respondent’s argument that the application is not premised on the correct provisions of the law. While it is indeed correct that the more appropriate procedural basis would have been Order 22 Rule 35 of the Civil Procedure Rules, rather than the provisions cited by the Applicant, this technical defect is not fatal to the application. Procedural lapses, such as citing the wrong rule, should not defeat substantive justice. This position is supported by the decision in Muthoni Nduati v Wanyoike Kamau & 5 Others [2004] eKLR, where Fred A. Ochieng J (as he then was), citing Apaloo JA in Gatu v Muriuki [1986] KLR 211 at 212, observed:
“When passing his verdict on the judge’s decision to dismiss the application, Apaloo J.A. made the following pertinent conclusion;
“Although I am not now concerned with the merits, I cannot shut my eyes to the fact that the main ground on which the learned judge declined to exercise his discretion to set aside the judgment of dismissal was that in bringing the motion to relist, the applicant, in error, quoted the wrong order. That seems to me hardly a sound basis for dismissing the motion”.
I therefore find that the citation of the wrong procedural rule is not by itself fatal to the Defendants’ application.”
32. In any event, this Court remains mindful of its constitutional duty to prioritize substantive justice over procedural technicalities, as enshrined in Article 159(2) of the Constitution. This principle was aptly reiterated in Godfrey Kirimi v Catherine Makena [2021] eKLR, where the Court, when confronted with a situation similar to the present case, observed as follows:
“The correct provision of law to have brought his application under is Order 42 Rule 6 of the Civil Procedure Rules which provides for stay of execution pending appeal. It is therefore true that the Applicant’s application has been brought under the wrong provision of the law. This Court has however previously held that in the spirit of Article 159 (2) of the Constitution and Section 1 A and B of the Civil Procedure Act, failure to cite the correct provisions of law is not fatal and would not per se warrant a dismissal of the application. See Meru Misc Civil Application No. E007 of 2021 Purity Kagendo Anampiu & Another vs Nellie Mugambi & Another. See also Kenya Trypanosomiasis Research Institute v Anthony Kabimba Gusinjilu (Suing for and on behalf of 112 Plaintiffs) Civil Appeal No. 212 of 2015 [2019] eKLR. The Court will therefore go into the merits of the application.”
33. In the present case, this Court is of the view that the interests of justice require that the substantive merits of the application be examined, particularly in relation to the serious allegations of fraudulent conduct by the directors of the 2nd Judgment Debtor. These allegations, as set out in the affidavit of Leon Nyachae, a director and shareholder of the company, warrant judicial scrutiny and cannot be dismissed on procedural grounds alone.
34. Moreover, the failure of the 2nd Judgment Debtor and two of its directors to oppose or respond to the application is a material consideration. The company and its directors have neither admitted nor denied their liability to the Decree Holder. While the 3rd Respondent correctly submitted that the Applicant could have pursued insolvency proceedings against the 2nd Judgment Debtor, this Court finds that such an option does not preclude or bar the Applicant from pursuing the present proceedings.
Orders to issue
35. Although the Applicant has established a prima facie case warranting the examination of the directors, the Court is not satisfied, at this stage, that sufficient evidence has been presented to conclusively demonstrate that the 2nd Judgment Debtor was used as a vehicle for fraud, improper conduct, or criminal activity. Such a determination can only be made after a thorough examination of the company’s books of account and the directors themselves. Consequently, the prayers seeking to lift the corporate veil, as well as the requests for Mareva and Anton Piller injunctions, shall be held in abeyance pending the outcome of the examination process.
36. In the circumstances, I find that the Applicant/Decree Holder has only made out a sufficient case for the directors/Interested Parties to be summoned for examination before this Court.
37. Accordingly, I direct Michael Moragia Nyachae, Amin Mohammed Shamsudin Shamji, and Moez Ismail Jamal to attend court at the next hearing for examination as to whether the 2nd Judgment Debtor has the means to satisfy the decree. The said directors are required to produce all relevant books of account and other documentary evidence relating to the finances and assets of the 2nd Judgment Debtor.
38. In conclusion, the Notice of Motion application dated 12th November 2024 is determined as follows:
i. The prayer for summoning the 1st, 2nd, and 3rd Directors/Interested Parties for examination regarding the 2nd Judgment Debtor’s debts and assets, for purposes of satisfying the decretal sum, is allowed.
I direct Michael Moragia Nyachae, Amin Mohammed Shamsudin Shamji, and Moez Ismail Jamal to attend court at the next hearing for examination as to whether the 2nd Judgment Debtor has the means to satisfy the decree. The said directors are required to produce all relevant books of account and other documentary evidence relating to the finances and assets of the 2nd Judgment Debtor.
ii. The prayer for lifting the corporate veil is declined.
iii. The prayers for Mareva injunction and Anton Piller orders are denied.
iv. Costs of the application shall be borne by the 2nd Judgment-Debtor.
39. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
14TH DAY OF JULY 2025
ADO MOSES
JUDGE
In the Presence of
Moses C/A
Mutuku…………………………for the Decree Holder
James Owino h/b for Akello ……..for 1st Defendant
Kimani ……………………………for the 1st Respondent