Background and Introduction
1. Before the Court is a Notice of Motion application dated 10th January 2025, brought by the respondent/applicant. The applicant seeks an order for stay of the present insolvency proceedings pending the hearing and determination of an appeal filed against the judgment and decree upon which these proceedings are premised.
2. The background to the application is that these bankruptcy proceedings were instituted by way of a creditor’s petition dated 20th January 2023. The petitioner seeks to have the respondent declared bankrupt over a debt of Kshs. 19,175,654.71 arising from a judgment delivered on 22nd February 2021 and a consequent decree issued on 29th March 2022 in Milimani Chief Magistrate’s Commercial Suit No. E485 of 2021.
3. The applicant contends that he has since filed an appeal being HCCOMMA E365 of 2024, challenging the said judgment on the principal ground that the trial court lacked the pecuniary jurisdiction to entertain the matter. The Memorandum of Appeal dated 4th December 2024 raises, inter alia, the issue that the claim exceeded the statutory monetary limit of the Magistrates’ Court as set out in the Magistrates’ Courts Act and the Civil Procedure Rules.
4. It is the applicant’s contention that the debt is not final or conclusive in view of the pending appeal, and that to allow the insolvency proceedings to proceed while the appeal is unresolved would risk contradictory decisions from courts of concurrent jurisdiction and occasion irreparable prejudice.
5. The application is opposed through a replying affidavit sworn on 21st February 2025. The petitioner argues that the debt is a liquidated and enforceable judgment debt which remains unpaid, and that the amount of Kshs. 19,175,654.71 exceeds the prescribed bankruptcy level under Section 17(a) of the Insolvency Act. The respondent also contends that the application does not meet the threshold for stay under Sections 26 and 30 of the Act.
Analysis and Determination
6. The sole issue for determination is whether the pendency of an appeal against the judgment debt upon which the bankruptcy petition is founded warrants a stay of these proceedings.
7. The applicant relies on Section 26 of the Insolvency Act, which provides:
‘The Court may, at any time, stay an application by a creditor for bankruptcy on such terms, and for such period, as the Court considers appropriate’.
8. Section 30 of the Insolvency Act also provides that when a debtor appears in court to oppose a creditor’s bankruptcy application and asserts either that they do not owe the claimed debt at all, or that the amount owed is less than the prescribed bankruptcy threshold, the court has discretion to stay the proceedings instead of outright dismissing them. This stay allows for the disputed debt or the amount in question to be determined through a trial. However, as a condition for granting the stay, the court may require the debtor to provide security, both for any debt that may eventually be found due and for the costs incurred in establishing the debt.
9. It is well settled that bankruptcy proceedings ought not to be pursued where there exists a real and bona fide dispute as to the existence or amount of the debt. This is because the insolvency framework is not intended to serve as an alternative means of debt collection in cases involving genuinely contested claims. Where the alleged debt is subject to a legitimate dispute, the court ought not to allow the insolvency process to proceed.
10. I have perused the Memorandum of Appeal dated 4th December 2024. In my view, it raises arguable issues, including the question of whether the trial court had the requisite pecuniary jurisdiction to adopt the consent as a judgment of the Court. While the petitioner contends that the appeal is incompetent, that is not a matter for this Court, sitting as an insolvency court, to determine. The question of the competence or propriety of the appeal lies within the purview of the appellate forum before which it is pending, and ought to be raised and determined therein.
11. That said, jurisdiction is a fundamental issue of law, and if the appellate court were to find that the trial court lacked jurisdiction to do everything that it did, then the judgment and decree would be rendered null and void. That outcome would also extinguish the substratum of the debt upon which this bankruptcy petition is anchored.
12. Indeed, I concur with the petitioner that the existence of a judgment or decree is not the sole basis upon which a bankruptcy petition may be founded. However, it is equally true that parties are bound by their pleadings, and it is the petition that serves to inform the respondent of the grounds upon which it has been brought. It is to those pleaded grounds that the respondent is expected to respond, and the Court is similarly confined to determining the issues as framed in the petition.
13. On that note, contrary to the submissions made by Counsel, upon consideration of the petition, it is clear that the same is premised on the judgment and decree in E485 of 2021 and no other ground. Paragraph 2 of the Petition reads:
The said GEORGE ALADWA OMWERA is truly indebted to me in the aggregate in the sum of Kshs 19,175,654.71…being the amount due on a final judgment delivered on 22nd February 2021 and the consequent decree issued on 29th March 2022 in Milimani Magistrates Commercial Suit No. E485 of 2021…
14. While it is true that there is no express provision in the Insolvency Act requiring automatic stay upon appeal, the court retains inherent jurisdiction to prevent abuse of process and to ensure orderly administration of justice. The guiding principle is whether there exists a genuine and substantial dispute. In my view, the jurisdictional challenge raised in the appeal is both genuine and weighty.
15. Proceeding with the petition while the debt remains the subject of a live dispute risks rendering the appeal nugatory and would potentially result in inconsistent findings. This would undermine the integrity of the judicial process.
Disposition
Accordingly, I make the following final orders;
i. The application dated 10th January 2025 is allowed.
ii. Consequently, the bankruptcy petition dated 20th January 2023 and bankruptcy proceedings are hereby stayed pending the hearing and determination of the appeal filed in HCCOMMA E365 of 2024.
iii. The costs of the application shall be in the cause.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 4th DAY OF JUNE 2025.
F. MUGAMBI
JUDGE
1. Before the Court is a Notice of Motion application dated 10th January 2025, brought by the respondent/applicant. The applicant seeks an order for stay of the present insolvency proceedings pending the hearing and determination of an appeal filed against the judgment and decree upon which these proceedings are premised.
2. The background to the application is that these bankruptcy proceedings were instituted by way of a creditor’s petition dated 20th January 2023. The petitioner seeks to have the respondent declared bankrupt over a debt of Kshs. 19,175,654.71 arising from a judgment delivered on 22nd February 2021 and a consequent decree issued on 29th March 2022 in Milimani Chief Magistrate’s Commercial Suit No. E485 of 2021.
3. The applicant contends that he has since filed an appeal being HCCOMMA E365 of 2024, challenging the said judgment on the principal ground that the trial court lacked the pecuniary jurisdiction to entertain the matter. The Memorandum of Appeal dated 4th December 2024 raises, inter alia, the issue that the claim exceeded the statutory monetary limit of the Magistrates’ Court as set out in the Magistrates’ Courts Act and the Civil Procedure Rules.
4. It is the applicant’s contention that the debt is not final or conclusive in view of the pending appeal, and that to allow the insolvency proceedings to proceed while the appeal is unresolved would risk contradictory decisions from courts of concurrent jurisdiction and occasion irreparable prejudice.
5. The application is opposed through a replying affidavit sworn on 21st February 2025. The petitioner argues that the debt is a liquidated and enforceable judgment debt which remains unpaid, and that the amount of Kshs. 19,175,654.71 exceeds the prescribed bankruptcy level under Section 17(a) of the Insolvency Act. The respondent also contends that the application does not meet the threshold for stay under Sections 26 and 30 of the Act.
Analysis and Determination
6. The sole issue for determination is whether the pendency of an appeal against the judgment debt upon which the bankruptcy petition is founded warrants a stay of these proceedings.
7. The applicant relies on Section 26 of the Insolvency Act, which provides:
‘The Court may, at any time, stay an application by a creditor for bankruptcy on such terms, and for such period, as the Court considers appropriate’.
8. Section 30 of the Insolvency Act also provides that when a debtor appears in court to oppose a creditor’s bankruptcy application and asserts either that they do not owe the claimed debt at all, or that the amount owed is less than the prescribed bankruptcy threshold, the court has discretion to stay the proceedings instead of outright dismissing them. This stay allows for the disputed debt or the amount in question to be determined through a trial. However, as a condition for granting the stay, the court may require the debtor to provide security, both for any debt that may eventually be found due and for the costs incurred in establishing the debt.
9. It is well settled that bankruptcy proceedings ought not to be pursued where there exists a real and bona fide dispute as to the existence or amount of the debt. This is because the insolvency framework is not intended to serve as an alternative means of debt collection in cases involving genuinely contested claims. Where the alleged debt is subject to a legitimate dispute, the court ought not to allow the insolvency process to proceed.
10. I have perused the Memorandum of Appeal dated 4th December 2024. In my view, it raises arguable issues, including the question of whether the trial court had the requisite pecuniary jurisdiction to adopt the consent as a judgment of the Court. While the petitioner contends that the appeal is incompetent, that is not a matter for this Court, sitting as an insolvency court, to determine. The question of the competence or propriety of the appeal lies within the purview of the appellate forum before which it is pending, and ought to be raised and determined therein.
11. That said, jurisdiction is a fundamental issue of law, and if the appellate court were to find that the trial court lacked jurisdiction to do everything that it did, then the judgment and decree would be rendered null and void. That outcome would also extinguish the substratum of the debt upon which this bankruptcy petition is anchored.
12. Indeed, I concur with the petitioner that the existence of a judgment or decree is not the sole basis upon which a bankruptcy petition may be founded. However, it is equally true that parties are bound by their pleadings, and it is the petition that serves to inform the respondent of the grounds upon which it has been brought. It is to those pleaded grounds that the respondent is expected to respond, and the Court is similarly confined to determining the issues as framed in the petition.
13. On that note, contrary to the submissions made by Counsel, upon consideration of the petition, it is clear that the same is premised on the judgment and decree in E485 of 2021 and no other ground. Paragraph 2 of the Petition reads:
The said GEORGE ALADWA OMWERA is truly indebted to me in the aggregate in the sum of Kshs 19,175,654.71…being the amount due on a final judgment delivered on 22nd February 2021 and the consequent decree issued on 29th March 2022 in Milimani Magistrates Commercial Suit No. E485 of 2021…
14. While it is true that there is no express provision in the Insolvency Act requiring automatic stay upon appeal, the court retains inherent jurisdiction to prevent abuse of process and to ensure orderly administration of justice. The guiding principle is whether there exists a genuine and substantial dispute. In my view, the jurisdictional challenge raised in the appeal is both genuine and weighty.
15. Proceeding with the petition while the debt remains the subject of a live dispute risks rendering the appeal nugatory and would potentially result in inconsistent findings. This would undermine the integrity of the judicial process.
Disposition
Accordingly, I make the following final orders;
i. The application dated 10th January 2025 is allowed.
ii. Consequently, the bankruptcy petition dated 20th January 2023 and bankruptcy proceedings are hereby stayed pending the hearing and determination of the appeal filed in HCCOMMA E365 of 2024.
iii. The costs of the application shall be in the cause.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 4th DAY OF JUNE 2025.
F. MUGAMBI
JUDGE