Midland Hauliers Limited (Under Administration) v Rao (Administrator of Midland Hauliers Limited) & another (Insolvency Petition E012 of 2019) [2025] KEHC 15662 (KLR) (Commercial and Tax) (30 October 2025) (Ruling)
Neutral citation:
[2025] KEHC 15662 (KLR)
Republic of Kenya
Insolvency Petition E012 of 2019
JWW Mong'are, J
October 30, 2025
IN THE MATTER OF MIDLAND HAULIERS LIMITED (Under Administration)
AND
IN THE MATTER OF THE INSOLVENCY ACT(CHAPTER 49 OF THE LAWS OF KENYA)
Between
Midland Hauliers Limited (Under Administration)
Petitioner
and
Ponangipalli Venkata Ramana Rao (Administrator of Midland Hauliers Limited)
1st Respondent
Prime Bank Limited
2nd Respondent
Ruling
1.By way of a Notice of Motion dated 21st July 2021, the Petitioner seeks the leave of the Court to amend its initial petition as shown in a draft annexed to the application and have the amended Petition considered as officially filed and served. The application is supported by the affidavit of the Petitioner’s director, Jayesh P. Kotecha, sworn on 21st July 2021 and opposed by the Respondents through the affidavits of Alka Shahi, the Assistant General Manager in the Credit Department of the 2nd Respondent, sworn on 10th December 2021 and 8th March 2024. The parties have also supplemented their positions by filing written submissions which I have considered and I will be making relevant references to the same in my analysis and determination below.
2.I am in agreement with the Petitioner’s submission that the Civil Procedure Rules grants the Court discretionary power to allow amendment of pleadings as follows under Order 8 Rule 3(2) and (5) and Rule 5:
3.The Court of Appeal, in Elijah Kipngeno Arap Bii v Kenya Commercial Bank Limited [2013] KECA 345 (KLR) held as follows in respect of amendment of pleadings:
4.The Petitioner states and submits that the reason for the amendment is to include a newly obtained independent forensic audit report, to rectify a previous mistake regarding the Company's account status with the Bank, which the Petitioner claims it could not ascertain earlier because the bank refused to provide a proper statement and that the Petitioner contends that the Bank will not be unfairly disadvantaged by the amendment, as it will have the right to reply. That allowing the amendment is in the interest of justice.
5.In response, the Respondents stated that the Petitioner lacks the legal standing to make claims while under administration and that such claims can only be made after the administration process concludes. They state that the application to amend the petition to include claims for damages and accounts is inappropriate as these should be pursued in a separate civil suit, not in insolvency proceedings. Further, that the petition and the 1st Respondent’s (Administrator’s) application are already scheduled for hearing and it is too late to convert the matter into a full trial.
6.The Respondents accuse the Petitioner’s directors of refusing to surrender Company assets, failing to provide a Statement of Affairs, withdrawing Company funds without consent and selling/disposing of assets under administration and that one director has been criminally charged for fraudulent disposal of assets. The Respondents contend that the Petitioner’s director previously admitted indebtedness to the Bank though he disputed the amount in debt and that the Bank is owed over USD 6.6 million and Kshs 6.8 million as of September 2021. They depone that the Petitioner’s auditor’s report claims the Bank owes the Company money, which contradicts the director’s sworn affidavit admitting indebtedness to the Bank.
7.The Respondents see the amendment as a tactic to delay and obstruct the administration process, which has already been pending for over two years and that a related civil suit, HCCC No. E399 of 2020 has already addressed many of the issues the Petitioner now seeks to introduce via amendment. The Court (the late Majanja J.,) in that case ruled that the Bank did disburse funds and that the indebtedness exists. As such, the Respondents urge the Court to dismiss the Petitioner’s application.
8.I have gone through the application, the Respondents’ responses and the submissions and I decline the prayer for the amendment for a number of reasons. First, going through the annexed the draft petition, I am inclined to agree with the Respondents that the proposed amendments seek to fundamentally alter the character of the insolvency Petition by introducing substantive claims for damages, declaratory reliefs, allegations of unlawful conduct, tort, and commercial disputes. These new claims, fall outside the scope of insolvency proceedings and properly belong in a separate civil suit, as they involve contested facts, fraud, and commercial loss, which require viva voce evidence and cross-examination. Indeed, allowing the amendment would convert the administration process into a civil suit, contradicting the objectives of administration set out in section 522 of the Insolvency Act, which focuses on managing the Company for the creditors' benefit and protecting it from harassment or uncoordinated disposal of assets.
9.It should not be lost that an administration petition under the Insolvency Act is, by its nature, a proceeding initiated by or against a Company that is, or is likely to become, unable to pay its debts. It is a collective proceeding for the rescue of the Company or the orderly distribution of its assets among creditors. The original Petition was founded on a debtor-creditor relationship where the Petitioner was presumed to be the debtor. The proposed amendments, however, seek to turn this premise on its head. By asserting that the Bank is, in fact, the debtor, the Petitioner is no longer seeking the reliefs contemplated by the Insolvency Act. Instead, it is attempting to convert an insolvency petition into a declaratory suit for a liquidated sum, a cause of action completely foreign to the statutory framework of insolvency. The Insolvency Act provides a specific and self-contained regime. It is not a substitute for a general civil suit for the recovery of a debt. Allowing such a radical transformation of the petition would be an abuse of the Court's insolvency process and would be contrary to the specific objectives and procedures laid down in the Act.
10.Second, I agree with the Respondents and I take judicial notice that the issues in the amendments sought to be introduced by the Petitioner including its indebtedness to the Bank are the subject of determination in Midland Investments (KSM) Limited v Prime Bank Limited & 2 others [2021] KEHC 12763 (KLR). The late Justice Majanja, in a ruling dated 26th March 2021 found on a prima facie basis that that the Bank disbursed funds to the Petitioner and that there was an express admission in this suit in the deposition by Jayesh Kotecha, sworn on 2nd May 2019, that the Petitioner is indebted to an amount of Kshs.610,835,497.29/= to various creditors and that, “it is also indebted to Prime Bank Limited (Secured Creditor) for a disputed outstanding Loan of Kshs. 522,236,743.00/= anchored upon various Charge Instruments and registered in favour of the Secured Creditor.” On the production of accounts, the Court also found that the Bank had detailed and annexed to its deposition statements of account, furnished an account of all securities and fixed deposit receipts in respect of all the advances and that whether the statements of account are correct was a matter for discovery and trial in due course.
11.It therefore follows that the issues of the Petitioner’s level of indebtedness and the correctness and/or production of the statements is sub judice Midland Investments (KSM) Limited v Prime Bank Limited & 2 others(supra). The Petitioner cannot be permitted to use an amendment to an insolvency petition as a backdoor to litigate matters that are directly and substantially in issue in a separately filed and pending suit. To allow the amendment would be to encourage multiplicity of suits and conflict of findings, which is precisely what the sub judice rule seeks to prevent. The proper forum for ventilating the claims of fraud and erroneous accounting is the already instituted suit, Midland Investments (KSM) Limited v Prime Bank Limited & 2 others(supra).
12.I think I have now said enough to dismiss the Petitioner’s application dated 21st July 2021. On costs, I direct that each party bear its own costs as this is matter that is between a company and its directors and or managers.
DATED SIGNED AND DELIVERED VIRTUALLY THIS 30TH DAY OF OCTOBER 2025..................J.W.W. MONGAREJUDGEIn the Presence of1. Ms. Gitonga holding brief for Mr. Kelvin Mogeni for the Petitioner/ Applicant.2. Mr. Mwangi and Mr. Wanyoike for the Respondents- Administrator and the Bank.3. Amos - Court Assistant