Introduction and Background
1. The Plaintiffs instituted the present proceedings by way of a Plaint dated 28th March 2025. They aver that the Defendant is a public company limited by liability, duly incorporated in Kenya under the provisions of the Companies Act, 2015. They further confirm that the 1st to 7th Interested Parties are the current directors of the Defendant Company. The Plaintiffs seek injunctive relief to restrain the Interested Parties from convening an Annual General Meeting of the Defendant scheduled for 23rd March 2024.
2. The Defendant and the Interested Parties have raised a Preliminary Objection dated 28th May 2025, contending that the Plaintiffs lack locus standi to institute the present suit and that the suit is fatally defective as they failed to obtain leave of the Court prior to filing the derivative claim.
Analysis and Determination
3. On the first issue of locus standi, Section 238(1) of the Companies Act defines a derivative claim as one brought by a member on behalf of the company, in respect of a cause of action vested in the company, and seeking relief for the benefit of the company. Upon consideration of the Plaint and the prayers sought, it is evident that the dispute is intended to benefit the company, as it challenges the propriety and transparency of a meeting convened by its directors.
4. The law recognizes that a company, as a legal person, cannot correct the inadequacies of those who manage it, and thus derivative proceedings exist to safeguard its interests. Importantly, the Act does not distinguish between private and public companies in this regard.
5. As to who may bring such a claim, Section 239(1) provides that a derivative suit may be instituted by a member of the company, whether a director or shareholder.
6. The Plaintiffs assert that they are members of the Defendant Company. Their membership certificates number 801 and 976 respectively both dated 31st March 2017, have been produced and remain uncontroverted. These documents confirm their membership and confer locus standi to present the matter before this Court.
7. Turning to the second issue, having determined that the matter before me constitutes a derivative claim, it follows that leave of the Court is required for its institution. Section 239(1) is explicit that a member must apply for permission to continue such proceedings. Judicial pronouncements, by this Court, including Ghelani Metals Limited & Others V Elesh Ghelani Natwarlal & Another, [2017] KEHC 4629 (KLR), Wilmot Mwadilo & 3 Others V Eliud Timothy Mwamunga & 2 Others, [2017] eKLR and Ghela Somji V Harji Meghji Mandavia & 3 Others, [2021] eKLR, have underscored that the requirement for leave serves to ensure that the claim discloses a substantive dispute, is brought in good faith, and is for the benefit of the company.
8. The question then arises: what is the effect of failure to obtain such leave? Does it render the suit fatally defective? I am not persuaded that it does. Sections 239(2) and (3) provide that if the Court is not satisfied with the application (for such leave) and supporting evidence, it may dismiss the application or issue directions as to further evidence. The jurisprudence in Wilmot Mwadilo (supra) is instructive, where the Court cautioned against dismissing such suits in limine, noting that doing so would deny the Court the opportunity to hear and determine the substantive issues in controversy. The Court emphasized that whether the Plaintiffs have a cause of action and whether they can sustain it ought to be considered at the stage of determining leave, not at the preliminary stage.
9. I am in full agreement with that reasoning. To uphold the Preliminary Objection at this juncture would be draconian, as there are substantive issues requiring adjudication.
Disposition
i. Accordingly, the Notice of Preliminary Objection dated 28th May 2025 is without merit and is hereby dismissed.
ii. The Plaintiffs shall, within 14 days from the date hereof, file and serve a formal application for leave to continue with the derivative claim in accordance with Section 239 of the Companies Act, 2015.
iii. The Defendant and Interested Parties shall have 14 days from the date of service to file and serve their responses thereto.
iv. Costs of the Preliminary Objection shall be in the cause.
DATED, SIGNED AND DELIVERED AT NAIROBI
THIS 12TH DAY OF JUNE 2025.
F. MUGAMBI
JUDGE
1. The Plaintiffs instituted the present proceedings by way of a Plaint dated 28th March 2025. They aver that the Defendant is a public company limited by liability, duly incorporated in Kenya under the provisions of the Companies Act, 2015. They further confirm that the 1st to 7th Interested Parties are the current directors of the Defendant Company. The Plaintiffs seek injunctive relief to restrain the Interested Parties from convening an Annual General Meeting of the Defendant scheduled for 23rd March 2024.
2. The Defendant and the Interested Parties have raised a Preliminary Objection dated 28th May 2025, contending that the Plaintiffs lack locus standi to institute the present suit and that the suit is fatally defective as they failed to obtain leave of the Court prior to filing the derivative claim.
Analysis and Determination
3. On the first issue of locus standi, Section 238(1) of the Companies Act defines a derivative claim as one brought by a member on behalf of the company, in respect of a cause of action vested in the company, and seeking relief for the benefit of the company. Upon consideration of the Plaint and the prayers sought, it is evident that the dispute is intended to benefit the company, as it challenges the propriety and transparency of a meeting convened by its directors.
4. The law recognizes that a company, as a legal person, cannot correct the inadequacies of those who manage it, and thus derivative proceedings exist to safeguard its interests. Importantly, the Act does not distinguish between private and public companies in this regard.
5. As to who may bring such a claim, Section 239(1) provides that a derivative suit may be instituted by a member of the company, whether a director or shareholder.
6. The Plaintiffs assert that they are members of the Defendant Company. Their membership certificates number 801 and 976 respectively both dated 31st March 2017, have been produced and remain uncontroverted. These documents confirm their membership and confer locus standi to present the matter before this Court.
7. Turning to the second issue, having determined that the matter before me constitutes a derivative claim, it follows that leave of the Court is required for its institution. Section 239(1) is explicit that a member must apply for permission to continue such proceedings. Judicial pronouncements, by this Court, including Ghelani Metals Limited & Others V Elesh Ghelani Natwarlal & Another, [2017] KEHC 4629 (KLR), Wilmot Mwadilo & 3 Others V Eliud Timothy Mwamunga & 2 Others, [2017] eKLR and Ghela Somji V Harji Meghji Mandavia & 3 Others, [2021] eKLR, have underscored that the requirement for leave serves to ensure that the claim discloses a substantive dispute, is brought in good faith, and is for the benefit of the company.
8. The question then arises: what is the effect of failure to obtain such leave? Does it render the suit fatally defective? I am not persuaded that it does. Sections 239(2) and (3) provide that if the Court is not satisfied with the application (for such leave) and supporting evidence, it may dismiss the application or issue directions as to further evidence. The jurisprudence in Wilmot Mwadilo (supra) is instructive, where the Court cautioned against dismissing such suits in limine, noting that doing so would deny the Court the opportunity to hear and determine the substantive issues in controversy. The Court emphasized that whether the Plaintiffs have a cause of action and whether they can sustain it ought to be considered at the stage of determining leave, not at the preliminary stage.
9. I am in full agreement with that reasoning. To uphold the Preliminary Objection at this juncture would be draconian, as there are substantive issues requiring adjudication.
Disposition
i. Accordingly, the Notice of Preliminary Objection dated 28th May 2025 is without merit and is hereby dismissed.
ii. The Plaintiffs shall, within 14 days from the date hereof, file and serve a formal application for leave to continue with the derivative claim in accordance with Section 239 of the Companies Act, 2015.
iii. The Defendant and Interested Parties shall have 14 days from the date of service to file and serve their responses thereto.
iv. Costs of the Preliminary Objection shall be in the cause.
DATED, SIGNED AND DELIVERED AT NAIROBI
THIS 12TH DAY OF JUNE 2025.
F. MUGAMBI
JUDGE