Background
1. The plaintiffs instituted the present suit by way of a plaint dated 18th September 2023 and amended on 12th October 2023. The suit relates to the management and control of the 3rd defendant company. The plaintiffs accuse the defendants of unlawfully manipulating the shareholding in the 3rd defendant, in breach of Articles 5 and 9 of the 3rd defendant’s Articles of Association. The breach is alleged to have occurred since May 1995. The plaintiffs also take issue with the manipulation of the bank mandate in respect to the 3rd defendant.
2. Consequently, the plaintiffs prayed for the following orders against the defendants: -
i. A declaration that the allocations made on 5th May 1995 and 11th June 1998 as well as the transfer by Mr. Tarlochan Singh Rai to the 1st defendant on 18th June 1999 were ultra vires the Articles of Association of the 3rd defendant and therefore null and void;
ii. An order directing that the additional shares allocated on 5th May 1995 and 11th June 1998 be reallocated in terms of each shareholders respective shareholding prior to 5th May 1995 as per Articles of the 3rd defendant's Articles of Association
iii. An order that accounts be taken in respect to the dividends paid to the 1st and 2nd defendants for the unlawful shares allotted and held by him.
iv. An order of injunction restraining the 1st defendant from running the 4th defendant, including its bank accounts to the exclusion of the other directors of the 3rd defendant
v. Costs of and occasioned by this suit.
3. The 1st and 2nd defendants separately raised preliminary objections dated 17th October 2023 on the following grounds: -
i. The plaint discloses no cause of action against the 2nd defendant who was neither a director nor an officer of the 3rd defendant
ii. That the claim of allotment of shares to the 3rd defendant is time barred
iii. That the estate of the late Tarlochan Singh Rai is not joined to the suit.
iv. That the prayer for interlocutory injunction has already been granted in HCCC No. E404 of 2023 Iqbal Singh Rai v ABSA Bank (K) Ltd & Rai Investments Ltd
4. Pursuant to the directions of this Court parties were directed to file written submissions on the preliminary objections. The court has considered the totality of the pleadings, submissions, and authorities as presented by the parties.
Analysis and determination
5. In my view there are two issues for determination by this Court, being when the cause of action arose and secondly whether the intended suit by the plaintiffs is statute barred.
Accrual of the cause of action and the Limitation of Actions Act:
6. The interested party argues that the cause of action herein accrued on 12th May 2022 when the plaintiffs received the minutes of meetings and allotment letters with respect to the 3rd defendant. The Halsbury’s Laws of England Vol at paragraph 920 provides as follows: -
A cause of action normally accrues when there is in existence a person who can sue and another who can be sued and when there are present all the facts which are material to be proved to entitle the claimant to succeed
7. On account of this, the fact of the ultra vires allotments took place in 1995 and 1998. That was the point when the plaintiffs became entitled to seek redress from the defendants for the ultra vires act. To answer the question, the cause of action accrued on 11th June 1998, being the subsequent date of the action claimed of.
8. The Limitation of Actions Act provides an exception to this general rule under section 26(1)(a) and (b) in the following terms:-
Where, in the case of an action for which a period of limitation is prescribed, either—
(a) the action is based upon the fraud of the defendant or his agent, or of any person through whom he claims or his agent; or 15 CAP. 22 Limitation of Actions [Rev. 2022]
(b) the right of action is concealed by the fraud of any such person as aforesaid; or
(c) the action is for relief from the consequences of a mistake,
the period of limitation does not begin to run until the plaintiff has discovered the fraud or the mistake or could with reasonable diligence have discovered it. (emphasis mine).
9. For the plaintiffs to rely on this provision, they ought to have a claim based on fraud. It is a well settled point of jurisprudence and law that to succeed in such a claim, a plaintiff not only needs to plead but also particularize the fraud. I am guided by judicial pronouncements including the Court of Appeal’s decision in Kuria Kiarie & 2 Others v Sammy Magera [2018] eKLR in which the case of Vijay Morjaria v Nansingh Madhusingh Darbar & Another [2000] eKLR (Tunoi, JA (as he then was) was cited with approval.
10. The Court held as follows: -
“It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must, of course, be set out, and then it should be stated that these acts were done fraudulently.”
11. A cursory look at the amended plaint clearly shows no averment or particulars of fraud. The cause of action complained of is based on alleged ultra vires actions by the defendants which is not the same thing as fraud. Ultra vires actions may be outside the scope of a company but they are not necessarily fraudulent.
12. Having held that the exceptions under section 26(1)(a) and (b) section of the Act do not apply in the present circumstances, it follows that the matter before court would therefore fall under section 4(1) of the Act which in turn provides as follows: -
4(1) The following actions may not be brought after the end of six years from the date on which the cause of action accrued—
(e) actions, including actions claiming equitable relief, for which no other period of limitation is provided by this Act or by any other written law. (emphasis mine)
13. I believe that I have said enough to demonstrate that the suit is statute barred under the Limitation of Actions Act and that this Court is bereft of jurisdiction to entertain the suit.
Section 340 of the Companies Act, 2015
14. Even while I retain the position that even before the Companies Act 2015 came into force the suit was already statute barred by dint of the Limitation of Actions Act, for finality I shall also consider the arguments raised under the provisions of the Company’s Act, 2015.
15. Section 1(3) of the Companies Act provides that: -
The Cabinet Secretary shall, by notice published in the Gazette, bring into operation the remaining provisions of this Act on such date or such different dates as the Cabinet Secretary appoint.
16. In light of this provision, section 340 of the Companies Act that came into force on 6th December 2015 following Gazette Notice No. 233 of 2015. Sections 338-340 of the Act are relevant in as far as they relate to pre-emption rights of shareholders. For the avoidance of doubt, section 340 of the Companies Act 2015 provides as follows: -
If a company contravenes section 338 or 339, the company and each officer of the company who is in default, are jointly and severally liable to compensate any person to whom an offer should have been made in accordance with those sections for any loss, damage or expenses that the person has sustained or incurred because of the contravention.
Proceedings to recover any such loss, damage, costs or expenses may not be commenced after the end of three years— from the date on which the return of allotment was lodged with the Registrar for registration; … (emphasis mine)
17. The plaintiffs submit that section 340 of the Companies Act was not applicable to the circumstances and transactions that pre-date the 2015 Act and should not be interpreted in a retrospective but retroactive manner from 2015 onwards. This position is denied by the respondents.
18. The court notes that while the 2015 Act contains specific savings and transitional provisions, upon careful consideration of these, no provisions in the 2015 Act or the schedule thereof specifically affect the coming into effect of section 340 of the 2015 Act. If there had been any such intention by parliament, nothing would have been easier than to provide so, alongside the other transitional provisions as it had done.
19. In the absence of any such specific provision, this court takes the view that section 340 took effect immediately upon becoming law, from 6th December 2015 so that by the time when this suit was filed on18th September 2023 and amended on 12th October 2023, the law pertaining to wrongful allotment of shares was as contained in section 340 of the 2015 Companies Act.
20. That being the case, in light of section 340 of the Companies Act, is clear that the 3-year time period begins running from the date when the return of allotment was lodged with the Registrar for registration and not from the date that the section came into force.
21. The fact that the allotments were made in 1995 and 1998 is not controverted. The plaintiff’s documents confirm the existence of Form 213, Return on Allotments dated 5th May 1995 and 11th June 1998. The suit ought to have been filed by June of 2001. The cause of action is therefore 23 years’ time barred.
Disposition
22. In conclusion, the preliminary objections dated 17th October 2023 raised by the 1st and 2nd defendants are successful. The plaint dated 18th September 2023 and amended on 12th October 2023 is hereby struck out for being time barred. I make no orders as to costs with the consequence that each party shall bear their own costs.
1. The plaintiffs instituted the present suit by way of a plaint dated 18th September 2023 and amended on 12th October 2023. The suit relates to the management and control of the 3rd defendant company. The plaintiffs accuse the defendants of unlawfully manipulating the shareholding in the 3rd defendant, in breach of Articles 5 and 9 of the 3rd defendant’s Articles of Association. The breach is alleged to have occurred since May 1995. The plaintiffs also take issue with the manipulation of the bank mandate in respect to the 3rd defendant.
2. Consequently, the plaintiffs prayed for the following orders against the defendants: -
i. A declaration that the allocations made on 5th May 1995 and 11th June 1998 as well as the transfer by Mr. Tarlochan Singh Rai to the 1st defendant on 18th June 1999 were ultra vires the Articles of Association of the 3rd defendant and therefore null and void;
ii. An order directing that the additional shares allocated on 5th May 1995 and 11th June 1998 be reallocated in terms of each shareholders respective shareholding prior to 5th May 1995 as per Articles of the 3rd defendant's Articles of Association
iii. An order that accounts be taken in respect to the dividends paid to the 1st and 2nd defendants for the unlawful shares allotted and held by him.
iv. An order of injunction restraining the 1st defendant from running the 4th defendant, including its bank accounts to the exclusion of the other directors of the 3rd defendant
v. Costs of and occasioned by this suit.
3. The 1st and 2nd defendants separately raised preliminary objections dated 17th October 2023 on the following grounds: -
i. The plaint discloses no cause of action against the 2nd defendant who was neither a director nor an officer of the 3rd defendant
ii. That the claim of allotment of shares to the 3rd defendant is time barred
iii. That the estate of the late Tarlochan Singh Rai is not joined to the suit.
iv. That the prayer for interlocutory injunction has already been granted in HCCC No. E404 of 2023 Iqbal Singh Rai v ABSA Bank (K) Ltd & Rai Investments Ltd
4. Pursuant to the directions of this Court parties were directed to file written submissions on the preliminary objections. The court has considered the totality of the pleadings, submissions, and authorities as presented by the parties.
Analysis and determination
5. In my view there are two issues for determination by this Court, being when the cause of action arose and secondly whether the intended suit by the plaintiffs is statute barred.
Accrual of the cause of action and the Limitation of Actions Act:
6. The interested party argues that the cause of action herein accrued on 12th May 2022 when the plaintiffs received the minutes of meetings and allotment letters with respect to the 3rd defendant. The Halsbury’s Laws of England Vol at paragraph 920 provides as follows: -
A cause of action normally accrues when there is in existence a person who can sue and another who can be sued and when there are present all the facts which are material to be proved to entitle the claimant to succeed
7. On account of this, the fact of the ultra vires allotments took place in 1995 and 1998. That was the point when the plaintiffs became entitled to seek redress from the defendants for the ultra vires act. To answer the question, the cause of action accrued on 11th June 1998, being the subsequent date of the action claimed of.
8. The Limitation of Actions Act provides an exception to this general rule under section 26(1)(a) and (b) in the following terms:-
Where, in the case of an action for which a period of limitation is prescribed, either—
(a) the action is based upon the fraud of the defendant or his agent, or of any person through whom he claims or his agent; or 15 CAP. 22 Limitation of Actions [Rev. 2022]
(b) the right of action is concealed by the fraud of any such person as aforesaid; or
(c) the action is for relief from the consequences of a mistake,
the period of limitation does not begin to run until the plaintiff has discovered the fraud or the mistake or could with reasonable diligence have discovered it. (emphasis mine).
9. For the plaintiffs to rely on this provision, they ought to have a claim based on fraud. It is a well settled point of jurisprudence and law that to succeed in such a claim, a plaintiff not only needs to plead but also particularize the fraud. I am guided by judicial pronouncements including the Court of Appeal’s decision in Kuria Kiarie & 2 Others v Sammy Magera [2018] eKLR in which the case of Vijay Morjaria v Nansingh Madhusingh Darbar & Another [2000] eKLR (Tunoi, JA (as he then was) was cited with approval.
10. The Court held as follows: -
“It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must, of course, be set out, and then it should be stated that these acts were done fraudulently.”
11. A cursory look at the amended plaint clearly shows no averment or particulars of fraud. The cause of action complained of is based on alleged ultra vires actions by the defendants which is not the same thing as fraud. Ultra vires actions may be outside the scope of a company but they are not necessarily fraudulent.
12. Having held that the exceptions under section 26(1)(a) and (b) section of the Act do not apply in the present circumstances, it follows that the matter before court would therefore fall under section 4(1) of the Act which in turn provides as follows: -
4(1) The following actions may not be brought after the end of six years from the date on which the cause of action accrued—
(e) actions, including actions claiming equitable relief, for which no other period of limitation is provided by this Act or by any other written law. (emphasis mine)
13. I believe that I have said enough to demonstrate that the suit is statute barred under the Limitation of Actions Act and that this Court is bereft of jurisdiction to entertain the suit.
Section 340 of the Companies Act, 2015
14. Even while I retain the position that even before the Companies Act 2015 came into force the suit was already statute barred by dint of the Limitation of Actions Act, for finality I shall also consider the arguments raised under the provisions of the Company’s Act, 2015.
15. Section 1(3) of the Companies Act provides that: -
The Cabinet Secretary shall, by notice published in the Gazette, bring into operation the remaining provisions of this Act on such date or such different dates as the Cabinet Secretary appoint.
16. In light of this provision, section 340 of the Companies Act that came into force on 6th December 2015 following Gazette Notice No. 233 of 2015. Sections 338-340 of the Act are relevant in as far as they relate to pre-emption rights of shareholders. For the avoidance of doubt, section 340 of the Companies Act 2015 provides as follows: -
If a company contravenes section 338 or 339, the company and each officer of the company who is in default, are jointly and severally liable to compensate any person to whom an offer should have been made in accordance with those sections for any loss, damage or expenses that the person has sustained or incurred because of the contravention.
Proceedings to recover any such loss, damage, costs or expenses may not be commenced after the end of three years— from the date on which the return of allotment was lodged with the Registrar for registration; … (emphasis mine)
17. The plaintiffs submit that section 340 of the Companies Act was not applicable to the circumstances and transactions that pre-date the 2015 Act and should not be interpreted in a retrospective but retroactive manner from 2015 onwards. This position is denied by the respondents.
18. The court notes that while the 2015 Act contains specific savings and transitional provisions, upon careful consideration of these, no provisions in the 2015 Act or the schedule thereof specifically affect the coming into effect of section 340 of the 2015 Act. If there had been any such intention by parliament, nothing would have been easier than to provide so, alongside the other transitional provisions as it had done.
19. In the absence of any such specific provision, this court takes the view that section 340 took effect immediately upon becoming law, from 6th December 2015 so that by the time when this suit was filed on18th September 2023 and amended on 12th October 2023, the law pertaining to wrongful allotment of shares was as contained in section 340 of the 2015 Companies Act.
20. That being the case, in light of section 340 of the Companies Act, is clear that the 3-year time period begins running from the date when the return of allotment was lodged with the Registrar for registration and not from the date that the section came into force.
21. The fact that the allotments were made in 1995 and 1998 is not controverted. The plaintiff’s documents confirm the existence of Form 213, Return on Allotments dated 5th May 1995 and 11th June 1998. The suit ought to have been filed by June of 2001. The cause of action is therefore 23 years’ time barred.
Disposition
22. In conclusion, the preliminary objections dated 17th October 2023 raised by the 1st and 2nd defendants are successful. The plaint dated 18th September 2023 and amended on 12th October 2023 is hereby struck out for being time barred. I make no orders as to costs with the consequence that each party shall bear their own costs.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 31st DAY OF May 2024.
F. MUGAMBI
JUDGE