RUTH KALONDU MWILU (suing as a share holder and director of MIKULULO RANCHING DIRECTED AGRICULTURE COMPANY LIMITED) VS THE REGISTRRAR OF COMPANIES AND WILSON NDUULU KANGI AND 5 Others

1. The  plaintiff   is  a  shareholder  and director of   Mikululo  Ranching   (Directed  Agriculture)   Company  Ltd -  (the  company)
2. Wilson  Nduulu  Kiangi  - the  3^rd   Defendant is one of the directors  of  the  company   vide  a  power  of  attorney dated  17/1/2022 ,  where he   appointed  the  4^th  and  5^th  defendants  as  his  attorneys,   with  respect to  all his   powers    and actions  with  respect  to  the   company. 
3. These  defendants proceeded  to  change the company  secretary  without  the  involvement  of  shareholders   or the plaintiff. The plaintiff felt aggrieved and brought this  suit.   She is apprehensive that this act by the 3^rd, 4^th and 5^th   defendants is a harbinger of other illegal actions that will affect her status and that of other shareholders in the company and seeks this court’s intervention through the following prayers;  
4. An order of permanent     do issue    restraining     the   3^rd, 4^th 5^th    defendants and the 1^st   interested   party either by themselves, agents and/or any other person acting under their instructions   from dealing in any manner with the affairs of the company known as Mikululo Ranching (Directed    Agriculture) Company   Limited   until the company holds an annual general meeting to elect new directors and company secretary. 
5. An  order  of permanent  injunction do issue  restraining  the 1^st  defendant   from making  any  changes  to  the records  of  the company   known  as  Mikululo   Ranching (Directed  Agriculture)  Company   Limited    at the   behest  of  or  a  request  of  the 3^rd, 4^th,  5^th defendants  and the  1^st  interested  party  and/or any of their  agents  and/or  any person  acting  under  their  instructions  until  the company holds  an annual  general  meeting  to elect new directors  and company secretary.
6. An order of declaration does issue declaring that the 2^nd interested party is the property appointed CPS of the company known as Mikululo Ranching (Directed Agriculture) Company Limited and further direct the 1^st defendant to have his name entered in the records as the CPS for said company up to and until any changes shall be made properly through a resolution of the company at an AGM where the shareholders shall be invited. 
7. That an order of this honourable court do issue directing the 1^st defendant herein to delete the name of the 1^st interested party from the records of the company as the CPS for the company. 
8. An order of this honourable court declaring   that the 4^th and 5^th defendants are not directors of the company known as Mikululo Ranching (Directed Agriculture) Company Limited and that they should   not held   themselves as such and bar them from being directors of the company   in future and make a finding that the directorship of a company especially a public   company cannot be delegated as purportedly done by the 3^rd defendant. 
9. An order of declaration does issue   declaring   that the 3^rd defendant   herein is unworthy to be a director of a public company and his name be removed as such from the records of the   company known as Mikululo Ranching (Directed Agriculture) Company Limited   and the same be effected   by the 1^st defendant.
10. That an order of this honourable court do issue directing that an AGM for the company known as Mikululo Ranching (Directed Agriculture) Company Limited be held within the time frame that the honourable court shall deem fit.
11. Together with the plaint she filed Notice of Motion dated 28^th April 2023 under section 244 of the Companies Act 2015, Order 51 of the CPR and s. 3A of the CPA seeking orders;
12. That    this application be certified   urgent and service be dispensed off with and be heard ex-parte in the 1^st instance. 
13. That pending the hearing of this application inter-partes, the 3^rd – 5^th respondents and the 1^st interested party/respondent be restrained either by themselves, agents and/or any other person acting under their instructions by an order of this   honourable   court from dealing in any manner with the affairs of the company known as Mikululo Ranching (Directed Agriculture) Company   Limited. 
14. That pending   the hearing of this application    inter-partes, the 1^st interested party, respondent be restrained by an   order of this   court from discharging   the duties of the Company Secretary of Mikululo Ranching (Directed   Agriculture) Company Limited until the company hold an annual General meeting   to appoint new directors and company secretary.
15. That pending the hearing of this application the 2^nd   interested party /respondent   be reinstated and continue discharging    the duties   of the company secretary   by an order of the court and continue discharging the duties of the Company Secretary of Mikululo Ranching (Directed    Agriculture) Company   Limited   pending   the company   conducting   an annual   general     meeting to appoint new directors and company   secretary.
16. That an order of this honourable court do issue restraining the 1^st respondent from making any changes to the records of the company known as Mikululo Ranching (Directed Agriculture) Company Limited at the behest of or    a request of the 3^rd   to 5^th respondents and the 1^st interested party/respondent   and or any of their   agents and/or   any person acting   under their instructions pending the hearing of this application inter-partes. 
17. That an order of this honourable   court do issue directing   the 1^st   respondent herein to reinstate the 2^nd interested party/respondent as the certified Company Secretary (CPS) for   the company    known as Mikululo Ranking (Directed Agriculture) Company Limited   and the name of the 1^st   interested    Party/respondent be deleted from     the records   of the company   as the CPS   for   the company pending the hearing   of this application inter-partes. 
18. That pending the hearing and determination   of this suit the 1^st interested party/respondent be restrained   by an order of this    court from discharging the duties of the Company Secretary of Mikululo Ranching (Directed   Agriculture) Company Limited until   the Company hold an annual general   meeting. 
19. That    pending   the hearing of this suit the 2^nd interested party/respondent be reinstated and   continue discharging the duties of the company secretary by an order of this court and continue discharging   the duties of the company secretary of Mikululo Ranching (Directed   Agriculture) Company Limited pending the company conducting an annual general meeting. 
20. That pending    the hearing   and determination of this suit, the 3^rd - 5^th respondents and the 1^st interested   party/respondent   be restrained either   by themselves, agents and/or   any other person acting under their instructions by an order of this honourable court from dealing in any manner with the affairs of the company known as Mikululo Ranching (Directed Agriculture) Company Limited.
21. That an order of this honourable court do issue restraining the 1^st respondent from making any changes to the records of the company known as   Mikululo Ranching (Directed Agriculture) Company Limited   at the behest of or a request of the 3^rd   to 5^th   respondents and the 1^st interested party /respondent and or any of their agents and/or any person acting under their instructions pending the hearing    and determination of the suit.  
22. That an order of this honourable court do issue directing the 1^st respondent herein to reinstate the 2^nd   interested party/respondent as the certified    Company Secretary (CPS) for the company   known as Mikululo Ranching (Directed Agriculture) Company Limited and the name of the 1^st Interested Party/respondent be deleted from the records of the company   as the CPS for the company pending the hearing   and determination   of the suit.
23. That the costs of this application be provided for. 
24. The application is brought on grounds similar to those   for the suit   and supported by the affidavit sworn by herself.
25. A Defence was filed   by the 4^th defendant   and the 1^st interested party denying all the allegations   in the plaint -  putting the plaintiff to strict proof, contending   that   the suit is an abuse   of the process of court and notifying the plaintiff of their    preliminary objection     on the grounds of defect for   want of    a resolution to file the suit, and violation of Section   238, 239 of the Companies Act. They proceeded to file preliminary   objection on 2 grounds;
26. No    resolution was passed by the board of directors or through an AGM authorising the filing of this application or suit. 
27. That the court lacks jurisdiction to entertain the application and the suit in view of Section 238 and 239 and 240 of the Companies Act Number 17 of 2015 since this is not a derivative claim.
28. Because   the preliminary objection raised the issue of jurisdiction it was only imperative that the preliminary objection   be determined on priority.
29. The record will show that    at some point earlier in the matter parties were said to be negotiating a settlement but that came to nought.
30. Parties took directions to address the preliminary   objection by way of written submissions. 
31. I have read   through     the submissions and the authorities cited, I find it unnecessary    to reiterate the submission of each party here save or these;
32. That a preliminary   objection if successful will dispose of the suit.  It will result in the summary dismissal   of the suit    on the point of law raised; It is defined in Mucosa Biscuits Manufacturing Ltd vs West End Distributors (1969) EA 696

thus:

“…  a preliminary  objection consists  of  a point of law  which has  been pleaded,  or  which  arises  by clear  implication out  of  pleadings,  and which if  argued  as  a preliminary  point  may dispose of the suit.  Examples are an objection to the jurisdiction of the court or a plea of limitation or a submission that the parties are bound by a contract giving rise to the suit to refer he dispute to arbitration.” (emphasis added)

1. The proponents of the preliminary   object set out 2 issues   for determination -  

Whether    there was   a resolution to file the suit and whether the suit is a derivative   suit.

1. On  the  1^st  issue  it  is  submitted  that  the law  is  settled  that  for  a suit  to be filed  on behalf  of  a  company,  a  resolution  has  to  be  passed  to that  effect - otherwise  the  suit  must  be struck  out.  This court was referred to Kenya   Commercial Bank Ltd V Stage Coach Management   Ltd [2014] eKLR where the court dismissed the suit   while   citing   East African Portland Cement   v Capital Markers Authority & 5 others Petition 600/2013.   In that case the court   also cited Leo  Investments  Ltd  v   Trident    Insurance  Co. Ltd  where  the  same      position   was held -  that  without    a  resolution,  a  suit     on behalf   of  a company  was dead  on   arrival.
2. For the   plaintiff - the   preliminary    objection   is opposed   on the ground that  a party  who  comes before  the court is  entitled   to  a  hearing  -  without     due regard  to  technicality  See    Articles 50(1)  & 159 of  the Katiba.
3. On the 1^st   issue the plaintiff   cites   Livestock  Research Organisation  v Okoko  &  another   [2022] KEHC 3302  (KLR)  where      the court  cites  the  Court  of  Appeal  decision in  Makupa Transit   Shade  Ltd  and  another   v  Kenya Port  Authority to  the  effect  that the  absence of  resolution is  not   fatal to such  a suit as this; Arthi Highway   Developers Ltd v  West  End  Butchery  Ltd  &  6 others -  [2015]  eKLR where  the  Court  of  Appeal    states  that  

“  It  was  now  settled,  as the law  that, it  does  not  require   a board  of  directors   or even  general   meeting of  members,  to  sit  and resolve  to  instruct counsel  to  file  proceedings  on behalf of  and  in the names  of  the company,  Any director  who  is  authorised   to  act  on behalf of the company   unless   the  contrary  is  shown ,  has  the powers  of  the board   to  act on behalf   of   the company”

And Faith   and  Hope   Properties  Kenya  Ltd   v  James  Muchuri    Waweru   & another  [2021]  eKLR  where  a  similar  holding  was made. 

1. From the foregoing there is authority that failure to  have  a resolution   to  file  a  suit  is   not  fatal  to the suit  and I  would agree  -  that    the courts  discretion ought to be  exercised    in the manner that  will enhance  the  right  of a  party approaching the court   by  giving   them  the opportunity  to be heard.
2. In any event, it appears to me that the plaintiff would not have been in the position to get the resolution  -  as  on the face of  the   pleadings - It is one   against    3 others  who  are not  on the same  page   with her. Allowing that technicality would not allow the     resolution of the real dispute in issue; which include the 3^rd defendants delegating his powers, privileges and rights in the company to the 4^th and the 5^th defendants, these defendant’s actions contra her own rights and privileges within the company among others.
3. The 2^nd   issue   is whether this is a derivative suit; I note   that from the outset the   Notice of preliminary objection clearly states on its face that this is not derivative suit. The proponent of the   preliminary objection goes  on the demonstrate   how  this  is  not  a  derivative  suit -   as per the provisions  of  Section    238  and 239 of  the  Companies  Act. It is argued that because   it is not   a derivative suit, the court has no jurisdiction.  It is submitted – and I quote

Derivative actions   are the pillars    of corporate litigation.  As  we  understand it, a  derivative  action is  a mechanism  which allows  shareholders(s)  to litigate  on behalf   of the corporation often against  an insider(whether a director,  majority  shareholder  or  other officer)   or  a third   party,  whose  action has  allegedly  injured   the corporation.  The action is designed as a tool of accountability to ensure    redress is  obtained  against all  wrongdoers,  in the form of a  representative  suit   filed  by   a shareholder  on behalf  of  the corporation. 

And reliance is made on Joseph  Munyoki   v  Raindrops   Ltd  & 2 others  [2019] eKLR on the qualifiers   of a derivative suit,

1. He must   be a member of the company.
2. The proceedings   must be in respect to a cause  of  action  vested in the company. 
3. The applicant must seek leave   to act  on behalf  of  the company.
4. The proceedings must be for protection   of  members  against unfair  prejudice brought under the companies  Act;  and 
5. The proceedings are in respect of a cause of action arising from an actual or proposed  act or  omission involving    negligence, default  breach of  duty or  breach  of  trust  by  a director  of the company.

It is submitted   that    the plaintiff   has  failed   to  satisfy the set  out  requirements, and more importantly failed in not following the steps, which include obtaining permission from the court to file the suit as required by s. 239 of the Act.  That due to that failure then the suit cannot be a derivative suit.

1. On her part the plaintiff   relies on Samson  Mukeku  Mutuku  V  David  Kioko  Musau [2020]eKLR  and submits  that  indeed   this  is  not  a derivative  suit   as  defined  by the case; that

“A derivative action is an action commenced by  a shareholder   and is  an exception  to the general  rule  laid  out  in Foss vs.  Harbottle (1843) 2 Hare 461 that a company   is  the only proper plaintiff  to sue  for  wrongs, done to it.  The court will not  ordinarily  intervene  in a matter  which  the company can  settle  through its internal  mechanism i.e  in case of  an irregularity  it can ratify  or condone  the matter through  its  internal  mechanism.  Where  it  is  alleged  that  a wrong has been done to a company,  prima facie  the only proper  plaintiff  is  the company itself. members /shareholders of  a  company  have   a limited  right  to bring a derivative   action  on the Plaintiffs  own  behalf  and on behalf   of  the company.”

and Section   238 of the Act which states

1. In this part, “derivative   claim” means proceedings by a member of company  -
2. in respect of a cause of action vested in the company and
3. Seeking relief on behalf of the company.”                                                   
4. It is submitted that    from the facts   set out on  the  face  of  plaint  at paragraphs   10,11 and 12  the plaintiff’s  position is  that  a  fraudulent act  was  committed  when the CPS  was  removed  without    her  knowledge /consent   as  a director/shareholder,  without   the participation   of  other  shareholders -  hence the rule    about obtaining  leave  from court   does  not apply. She cites Simon Mukeku above ;

“(3) there   is  no  room     for the  operation   of  the rule   if the alleged  wrong   complained   of is ultra vires  the corporation, because the  majority members  cannot  confirm  the  transaction (4) there is  also  no room for the operation of the rule  if the transaction  complained  of  could  be validly  sanctioned  only  by a special resolution or the like  because  a simple  majority  cannot  confront   a  transaction    which  requires  the concurrence of a greater majority (5)  there  is an exception  to the rule  where  what  has  been done  amounts  to fraud and  the wrong doer are themselves in control of  the company.  In this  case the rule  is  relaxed  in favour  of  the   aggrieved minority,  who  are  allowed  to  bring  a minority  shareholders  action on behalf    of  themselves   and all others.  The reason for  this  is that, if they were  denied  that right,  their  grievance could  never  reach the court  because  the wrong doers themselves,  being in control, would  not allow  the company to sue.” 

1. It is argued further that the fact of this case place it in the exceptions- as seen in  Rai & Others v Rai & Other [2002] 2 EA 537 and Sultan  Hasham  Lalji  & 2 others  v Ahmed  Hasham  Lalji &  4  others  [2014]  eKLR  as  considered   by the court  in  Wilmot    Mwadilo, Edwin  Mwakaya, Amos  Nyatta &  Patrick   Mbinga v Eliud  Timothy  Mwamunga  &  Sagalla   Ranchers  Limited  [2017] eKLR  where it was   stated ;

“It  is  the minority  not  the majority  shareholder  that  are availed  the protection by    the  exceptions  since  generally   majority    shareholders  exercise  powers  of the  company  and  control its  affairs.”

1. I am   persuaded that indeed, just as   it is   conceded by the defendant, and submitted by the plaintiff -  this is not a derivative   action, and therefore there was no need for the plaintiff to apply for leave.
2. In the totality of these circumstances and my analysis, the preliminary objection is not sustainable, and is dismissed with costs to the plaintiff.
3. Pursuant to my Constitutional mandate under Article 159(2) (c) I remind the parties of the availability of the Court Annexed Mediation services for purposes of an out of Court Settlement.
4. Orders accordingly