REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA
AT MILIMANI NAIROBI
COMMERCIAL & ADMIRALTY DIVISION
CIVIL CASE NO 802 OF 2010
ARUN .C. SHARMA…………………............………………………………………………PLAINTIFF
Versus
ASHANA RAIKUNDALIA ............................................................................................1ST DEFENDANT
NISHIT RAIKUNDALIA………................……………….……………………………..2ND DEFENDANT
SAPPHIRE TRADING &
MARKETING LTD.............................................................................................................3RD DEFENDANT
AND
ASL CREDIT LIMITED..................................................................................................1ST OBJECTORS
VINODCHANDRA GIVAN DEVJI RAIKUNDALIA
MRADULABEN VINODCHANDRA GIVAN DEVJI RAIKUNDALIA....................……2nd OBJECTORS
MORAN AUCTIONEERS…..………………….......……...............……………….INTERESTED PARTY
RULING
Declare the decree has been satisfied
[1] The Motion before me is dated 22nd December 2014. It has been made by the 3rd Defendant and seeks a declaration by this court that it has satisfied the decree as passed by the court against him.
Brief Facts of the Case
[2] Upon hearing the Plaintiff’s application dated 24th January 2011, Kimondo J delivered a ruling on the 8th December 2011 striking out the joint Defence and entered judgement against the Defendants. In the ruling the learned Judge stated:-
“I enter judgement against the 1st and 2nd Defendants for Kshs. 7,045,000.00. I enter judgement against the 3rd Defendant to the extent of Kshs. 500,000.00 being the guaranteed sum as pleaded at prayer (b) of the plaint.”
Therefore, judgement entered against the 3rd Defendant was for the sum of Kshs. 500,000.00 only, plus interests at court’s rates from the date of decree until payment in full. A decree was extracted and issued from the judgement against the Defendants. The 3rd Defendant had the burden of satisfying the decree only to the extent of the judgment as entered against it. Any execution against the 3rd Defendant should only be for the sum of Kshs. 500,000.00 plus interests as adjudged by the court. No more and no less.
[3] The 3rd Defendant submitted that, the 2nd Respondent in execution of the decree herein proceeded to the place of business of the 3rd Defendant and made proclamation of certain goods within the premises of the 3rd Defendant in accordance with the decree against the 3rd Defendant. See annexure VR-2. The 2nd Defendant, who is also a director of the 3rd Defendant, was within the precincts of the 3rd Defendant’s premises at the time of the execution/proclamation. The 2nd Defendant therefore, in his capacity as the 3rd Defendant/Applicant’s director, and in order to avert the carrying away of the properties of the 3rd Defendant/Applicant and which would have interfered with the business operations of the 3rd Defendant gave over the possession of vehicles registration numbers KBQ 774R and KBC 268F (the vehicles) to the 2nd Respondent (see annexure VR-2). These vehicles were given towards the decretal sum due from the 3rd Defendant. On payment of the decretal sum due from the 3rd Defendant, there is expectation that the vehicles were to be released to the 3rd Defendant. This was not to be despite the fact that the 3rd Defendant has satisfied the decretal sum against itself, including the interests and other incidentals, which payment has been acknowledged by the Respondents (see annexure VR-4). The 3rd Defendant views any continued retention of these vehicle by the Plaintiff to be contrary to law. It sought their release immediately.
[4] They cited that law that the 3rd Defendant is a limited liability company and has a separate legal personality, able to own property such as the vehicles. The 2nd Defendant gave out its vehicles as an alternative to the attachment of its other property which had been proclaimed. Its debt is repaid and vehicle should be released. Order 22 Rule 49 of the Civil Procedure Rules, 2010 provides that where the amount decreed with costs and all charges and expenses resulting from the attachment of any property are paid into court, or satisfaction of the decree is otherwise made through the court or is certified by the court the attachment shall be deemed to be withdrawn. Attachment is deemed withdrawn here as the 3rd Defendant paid the decretal amount with costs and all charges and expenses of execution. There is thus no claim against the 3rd Defendant by the Plaintiff and the attachment against its property, the vehicles, ought to be withdrawn and the vehicles released to the 3rd Defendant/Applicant. However contrary to the law and facts, the Respondents have refused, failed or willfully refused to release the vehicles to the 3rd Defendant on the erroneous assumption that execution is to be levied on the vehicles so as to realize the judgement debts against the 1st and 2nd Defendants. The company cannot be liable for personal debts of directors. They also submitted that the judgement against the Defendants was not entered jointly and severally. It was entered severally. The Plaintiff cannot seek to recover the judgement entered against the 1st and 2nd Defendants from the 3rd Defendant/Applicant. See Dubai Electronics vs. Total Kenya & 2 Others High Court (Milimani Commercial and Admiralty Division) Civil Case No. 870 OF 1998 and Republic v Permanent Secretary in Charge of Internal Security – Office of the President & another ex-parte Joshua Mutua Paul [2013] Eklr.
[5] They also discussed the subject of lifting of the corporate veil by citing Paragraph 90 of Halsbury’s Laws of England 4th Edition (supra) that:
90. Piercing the corporate veil.
Notwithstanding the effect of a company’s incorporation, in some cases the court will ‘pierce the corporate veil’ in order to enable it to do justice by treating a particular company, for the purpose of the litigation before it, as identical with the person or persons who control that company. This will be done not only where there is fraud or improper conduct but in all cases where the character of the company, or the nature of the persons who control it, is a relevant feature. In such case the court will go behind the mere status of the company as a separate legal entity distinct from its shareholders, and will consider who are the persons, as shareholders or even as agents, directing and controlling the activities of the company. However, where this is not the position, even though an individual’s connection with a company may cause a transaction with that company to be subjected to strict scrutiny, the corporate veil will not be pierced.
And the holding of the court in the case of Kolaba Enterprises Ltd vs. Shamsudin Hussein Varvani & Ano (2014) eKLR that:
It should be appreciated that the separate corporate personality is the best legal innovation ever in company law. See the famous case of SALOMON & CO LTD v SALOMON [1897] A.C. 22 H.L that a company is different person altogether from its subscribers and directors. Although it is a fiction of the law, it still is as important for all purposes and intents in any proceedings where a company is involved. Needless to say, that separate legal personality of a company can never be departed from except in instances where the statute or the law provides for the lifting or piercing of the corporate veil, say when the directors or members of the company are using the company as a vehicle to commit fraud or other criminal activities.
The 3rd Defendant sated that there is no fraud that has been imputed on the 3rd Defendant. The vehicles are the property of the 3rd Defendant. The Respondents are merely purporting that the 2nd Defendant handed over the vehicles in order to avert the execution of the decree against the 1st and 2nd Defendant. This argument does not hold for the reasons outlined above. For the foregoing reasons, the 3rd Defendant/Applicant prays that the Notice of Motion dated 22nd December 2014 be allowed as prayed.
The Plaintiff says vehicles be sold in execution
[6] The plaintiff and the interested party have filed Replying Affidavits sworn on 14th January, 2015 in opposition to the Application. They submitted that a proclamation was done by Moran Auctioneers on the properties of the 1st and 2nd defendants/ judgment debtors in execution of the decree of the court herein. During the execution process against the 1st and 2nd defendants at their home premises, which process this honourable court pronounced legitimate in its ruling of 26Th November, 2014 at paragraph 17, page 17 thereof, the second defendant NISHIT RAIKUNDALIA voluntarily gave away the two motor vehicles KBC 268F and KBQ 774R in lieu of the attached goods. The second defendant in his own handwriting stated as follows behind the notification of sale of moveable properties (which had been attached);
“I, NISHIT RAIKUNDALIA of ID NO.130574471 am giving possession of motor vehicles numbers KBC 268F, A TOYOTA MARK II and KBQ 774R, AUDI A6, to Moran Auctioneers instead of the attached goods. Meanwhile we look for the best way to sort this matter out”
[7] According to the Plaintiff, the matters being raised are res judicata in terms of section 7 of the civil procedure Act and abuse of court process. They should not be reconsidered for a second time. The issues for determination in the application before this court have already been addressed and decided in the ruling delivered on 26th November, 2014. In that ruling in respect of the first objector’s application, the court was trying to establish whether ASL CREDIT LIMITED had any legal or equitable interests over the said motor vehicles. There was material disclosure by the plaintiff/decree holder as well as by the said objector that the 3rd defendant had settled in full its decretal sum on 1st September, 2014. See affidavit of PARAPIK PATEL sworn on 21st October, 2014 at paragraph 11 and the affidavit of the auctioneer JOVAN KARIUKI sworn on 5th September, 2014 at paragraph 23. There is absolutely nothing that stopped the 3rd defendant from staking out a claim for the vehicles as from 1st September, 2014 when they settled the decretal amount. It could not do so because the vehicles were not given in settlement of the claims against the 3rd defendant but for 1st and 2nd defendants claim. The court in the ruling above captured the issue at paragraph 7 stating inter alia as follows;
“......the defendants were in possession of and gave out the vehicle to the auctioneers; the registered owner has not objected to the attachment of the said vehicle; therefore, there is no superior claim over the possessory rights of the vehicle by the judgment-debtors herein which has been established. In light thereof, there is no basis on which the court can raise the attachment of the said vehicle. The auctioneer received the said vehicle from voluntary surrender by the judgment-debtor and in the process of execution of the decree of the court in this suit. It shall, therefore, remain liable to and dealt with in execution of the decree herein.”
Clearly the defendants or 3rd defendant want this court to overturn that finding. The matter has been litigated and laid to rest.
[8] See the decision by the Court of Appeal NRB Civil Appeal 243 of 2001 Ukay Estates Ltd & Nakumatt Holdings vs. Shah Hirji Manek & Others JA Deverell stated as follows while citing the Superior court in the cases of T. Horne vs. J. Usher Jones (1914) AC 157, Henderson v. Henderson (1843) All E R 378 and Talbot v. Berkshire... (1993)4 All ER 9 that:-
“In trying this question I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject matter of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence...........”
Again, the two vehicles were never given by the 3rd defendant. The application is apparently made by all the defendants albeit in between it is stated that the 3rd defendant is the applicant. The advocates have taken up the matter on behalf of all defendants. The defendants are not straight forward or candid in their submissions. The prayers they have sought in this application are meant to benefit all defendants.
[9] The 2nd defendant is also a director of the 3rd defendant and it has not been demonstrated at all that he was out of order or acted ultra vires in giving the said vehicles in settlement of his debt. The affidavit of the 2nd defendant sworn on 30th June, 2014 and filed together with the application of even date is very critical in determining the current application. In that affidavit the 2nd defendant states at paragraph 2 that he is a director of the 3rd defendant and fully authorized. In the same affidavit he narrates how the auctioneer went to his house to effect the attachment and how the vehicles were taken away. He verily appreciates and acknowledges that this was execution against him as person and not as against the company 3rd defendant. In fact in the same affidavit, at paragraph 19 he recounts how the auctioneers thereafter on 30th June, 2014 went to the business premises of the 3rd defendant. Clearly the auctioneer executed the two warrants distinctively and exclusively of each other. At paragraph 22 he acknowledges that the debt of the 3rd defendant was Kshs 500,000. But it is paragraph 25 that is clear that the vehicles were given on his account for the debt owed by 1st and 2nd defendants. He states;
“...i swear this affidavit in support of an application for stay of execution stay of proceeding in Nairobi HCC No. 802 of 2010 and in restraining sale of and ordering return of Motor Vehicles registration number KBQ 774R,Audi saloon and KBC 268F Toyota Mark II, on my behalf and on behalf of the 3rd respondent”
The 2nd defendant has not sworn any affidavit to recant his own undertaking giving the vehicles in lieu of attached goods. The applicants are aware of this undertaking and unequivocally admitted the same.
[10] The Plaintiff resorted to the court record which they stated demonstrates the many twists and turns that the defendants have taken them through and the frustrations they have meted on the execution process herein. The defendants have no regard for justice and fairness. They have severally moved the court and obtain stay of execution including a conditional stay that they deposit the decretal amount in court which they ignored or absconded. The alleged appeal is non-starter and a forgotten story since they have already paid part of the decretal amount. The application dated 10th December, 2014 was unilaterally withdrawn after the decree holder had replied to the same and after the court discharged the stay orders it had given after realizing it was grossly misled. The defendants having failed to fulfill the obligation placed on them by the court vide ruling of 16th October, 2014, are in contempt and totally undeserving of any other orders of stay of execution.
[11] According to the Plaintiff, submissions on the subject of joint and several liability is completely missing the point and a venture on irrelevancies. They were of similar view on matters of separate corporate personality of a company as those are matters not before the court for determination. The views expressed by the applicants in the submissions have no legal bearing to the application and the court cannot derive any substance useful to the determination of the application. The authorities cited are not relevant. The 3rd defendant can pursue other remedies against its director 2nd defendant for giving away the vehicles for his personal debts. In any event the 2nd defendant is not complaining. The conditions for granting mandatory injunctions were espoused in Mombasa HCCC 83 of 2003; Qualitronic Ltd Vs Shaban Swedi, as cited in Deepak Ashwinkumar Maru vs Rahemat Essa Dosani & another [2013] eKLR where the court stated that the same can only be granted in special circumstances. It stated,
“A Mandatory Injunction can be granted on an Interlocutory application as well as at the hearing, but in the absence of special circumstances, it will not normally be granted. However, if the case is clear and one which the court thinks it ought to be decided at once, or if the act done is a simple and summary one which can be easily remedied or if the Defendant attempted to steal a march on the Plaintiff mandatory Injunction will be granted on an interlocutory application.”
There are no such circumstances in this case to warrant the grant of the same and it should be refused.
DETERMINATION
Issues
[12] The major issue for determination is whether motor vehicles registration number KBQ 774R, Audi saloon and KBC 268F Toyota Mark II are properly attached for the debt owed by the 2nd Defendant. The 3rd Defendant is a limited liability company and claims ownership of these vehicles. The vehicles were, however, given by the 2nd Defendant, the director of the 3rd Defendant in lieu of the 1st and 2nd Defendants properties which had been attached in execution of the decree herein.. And, therefore, contrary to the submissions by the Plaintiff, the legal arguments on separate corporate personality of the company are useful. Those on lifting the corporate veil may not be directly and strictly relevant, but they offer an important appreciation on the channel the court will take especially on the character of the company, the conduct and the nature of the persons who control the 3rd Defendant as a relevant feature in the discourse. Also, the arguments on joint and several liabilities are useful here and will be analyzed to see whether they will offer relief in respect of the attached vehicles. I will, however, treat it as the last issue to deal with. Let me wrestle arguments on separate corporate personality and lifting of corporate veil.
Separate Corporate Personality
[13] This is a very important subject in company law as I stated in Kolaba Enterprises Ltd vs. Shamsudin Hussein Varvani & Ano (2014) eKLR that:
It should be appreciated that the separate corporate personality is the best legal innovation ever in company law. See the famous case of SALOMON & CO LTD v SALOMON [1897] A.C. 22 H.L that a company is different person altogether from its subscribers and directors. Although it is a fiction of the law, it still is as important for all purposes and intents in any proceedings where a company is involved.
[14] The above formulation is correct but the following is also correct.
Lifting or piercing the corporate veil
[15] The artificial person ‘’created’’ in Salomon v Salomon exists only in contemplation of law and does not possess the body of natural person. It has had to act and acts through human persons, namely, the directors, officers, shareholders, and corporate managers, etc. And as time passed by, there were other developments in law in the nature of lifting or piercing the corporate veil which entails going behind the veil of incorporation of the company to identify the individuals who are the real beneficiaries of the corporate advantages; see Gallaghar v. Germania Brewing Company that,
‘...for, while, by fiction of law, a corporation is a distinct entity, yet in reality, it is an association of persons who are in fact the beneficiaries of corporate property’.
The statute law and judicial interpretation has developed instances when corporate veil will be lifted for purposes of doing justice. See para 90 of Halsbury’s Laws of England 4th Edition (supra) that:
Notwithstanding the effect of a company’s incorporation, in some cases the court will ‘pierce the corporate veil’ in order to enable it to do justice by treating a particular company, for the purpose of the litigation before it, as identical with the person or persons who control that company.
And the instances when corporate veil will be lifted are not limited to fraud or improper conduct of the directors but also include all cases where the character of the company, or the nature of the persons who control it, is a relevant feature. See again para 90 of Halsbury’s Laws of England 4th Edition that:-
This will be done not only where there is fraud or improper conduct but in all cases where the character of the company, or the nature of the persons who control it, is a relevant feature.
[16] I am aware that the corporate veil may be lifted...Where the private company is founded on personal relationship between the members. See the case of Mugenyi & Company Advocates vs. The Attorney General [1999] 2 EA 199 on the listing in Palmers Company Law Vol. 1 (22 ed).
[17] With the above grounding in the law, I will turn to the facts of the case. The 3rd Defendant is a judgment debtor. It paid all its debt under the decree. That is not in issue. The issue is that its vehicles were given by its director, the 2nd Defendant, in lieu of the attached properties of the 1st and 2nd Defendants. It is not denied that the 2nd Defendant is a director of the 3rd Defendant. The personal relationship between the company and the 2nd Defendant is not in doubt given the history of this case and the debt thereof. The giving of the vehicle in question by the 2nd Defendant in lieu of his attached properties is a perfect manifestation of the 2nd Defendant as the alter ego of the company; the controlling mind of the company. The 2ND defendant in his own handwriting with sheer clarity of absolute authority stated as follows behind the notification of sale of moveable properties (which had been attached) giving away the vehicles in question;
“I, NISHIT RAIKUNDALIA of ID NO.130574471 am giving possession of motor vehicles numbers KBC 268F, A TOYOTA MARK II and KBQ 774R, AUDI A6, to Moran Auctioneers instead of the attached goods. Meanwhile we look for the best way to sort this matter out”
Such relationship between the company and the controlling mind of the company is not new or abnormal, and such directors are known to guarantee personal debt using the company. The entire conduct of the judgment debtors including the 3rd Defendant in handling the decree herein has not been proper or bona fides. At one point or other, the judgment debtors including the 3rd Defendant have resorted to all tricks in the book to defeat execution of the decree; see the objection proceedings; applications to set aside execution; stay applications and now this application. The character of the company, the conduct and nature of the persons in control of the company ultimately becomes a relevant factor in this application. It is of great importance to note that, in the objection application dated 4th July 2014, the objector ASL CREDIT LTD claimed legal and equitable ownership of motor vehicles registration numbers KBQ 774R and KBC 268F and had asked the court to declare the attachment of the said motor vehicles unlawful, raise it and return the vehicles to the objector. They attached copies of log books to the two as annexure PP4 and PP5 as evidence of their legal and equitable ownership in motor vehicle KBQ 774R. A letter from the objector forwarding copies of the logbooks to ‘’whom it may concern’’ which also suggests that they hold the logbooks on a hire purchase agreement was also attached. They also annexed some form of hire purchase agreement to show they financed the purchase of the two vehicles and had legal and equitable ownership of these vehicles. The 3rd Defendant and the 2nd Defendant or any other director of the 3rd Defendant did not oppose the objection proceedings which were laying claims of ownership on the vehicles; and those claims were obviously adverse to the ownership now being claimed by the 3rd Defendant on the vehicles. Nonetheless, the said objection proceedings failed. The Plaintiff, throughout the previous applications kept on insisting that the 2nd Defendant filed or caused the filing of the objection proceedings in a bid to defeat the execution of the decree herein. The court resisted very much to express any opinion or make any finding on that submission and averments by the Plaintiff. What is surprising is that, after the court noted in passing that the 3rd Defendant was not complaining, the 2nd Defendant has seen yet another opportunity to apply through the corporate vehicle embodied in the 3rd Defendant. It has now become apparent there is intimate inextricable relationship between the 3rd Defendant and the 2nd Defendant. The ragged history of this matter and the abundant record is apt to draw an inference on those facts apparent on the record that it is the 2nd Defendant who is using the corporate vehicle to defeat execution of the decree herein. The inference is properly grounded; it is not baseless. And, in the circumstances, the issue is not whether the vehicles are owned by the 3rd Defendant or whether the judgment herein was several and jointly, but whether the vehicle are properly attached to answer the decree herein. I find and hold that vehicles registration numbers KBQ 774R and KBC 268F are properly attached to answer the decree against the 1st and 2nd Defendant. They were given by the 2nd Defendant who is the controlling mind of the 3rd Defendant, conscientiously aware they were to be attached to satisfy the outstanding decree against the 1st and 2nd Defendants. I admit that the justice of each case depends on the facts and circumstances of each case, which invariably will vary from case to case. I am prompted by a higher constitutional calling to serve justice fearlessly and without favour. The circumstances of this case demands that the court should put to an end the apparent abuse of the court process by the defendants. The upshot is that I dismiss the application dated 22nd December 2014 in its entirety. Costs of the application go to the plaintiff. It is so ordered.
Dated, signed and delivered in court at Nairobi this 22nd day of April 2015
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F. GIKONYO
JUDGE