Civil Suit 102 of 2017

Ghelani Metals Limite & 3 others v Elesh Ghelani Natwarlal & another [2017] eKLR
REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA
MILIMANI LAW COURTS-NAIROBI
COMMERCIAL & TAX DIVISION
CIVIL SUIT NO. 102 OF 2017
GHELANI METALS LIMITED……….........................................1ST PLAINTIFF
GHELANI ENTERPRISES LIMITED…………...….………….2ND PLAINTIFF
TONONOKA FIREWORKS LIMITED…………………....…...3RD PLAINTIFF
JAYSHREE SUCHAK SANJIV……………….……………….4TH PLAINTIFF
VERSUS
ELESH GHELANI NATWARLAL………………..…………….DEFENDANT
AND
THE REGISTRAR OF COMPANIES…………..……..INTERESTED PARTY
RULING
Introduction
1. The suit is filed for derivative action by the 4th Plaintiff as a shareholder in the 2nd and 3rd Plaintiffs.
The shareholding structures involving the Plaintiffs (and the Defendant) as borne from the pleadings and
the arguments advanced during the course of hearing reveal a co-relation.
2. The 4th Plaintiff has also filed an intermediary Motion.
3. The 4th Plaintiff seeks to have the dispute referred to arbitration and in the meantime also asks for
various intermediary reliefs by her Motion dated 9 March 2017.
4. The 4th Plaintiff’s grievance, in brief, is that the Defendant has obtained 900 unissued ordinary shares
fraudulently, unlawfully and irregularly. The shares were obtained through an allotment. According to the
4th Plaintiff, 2nd Plaintiff was also unaware of the allotment. The Plaintiff asks that the allotment of the 900
ordinary shares in the 1st Plaintiff to the Defendant be voided. The Plaintiff (perhaps, in the alternative)
also asks that the instant dispute be referred to arbitration pursuant to the provisions of clause 32 of the
http://www.kenyalaw.org - Page 1/14

Articles of Association of the 1st Plaintiff.
5. In the meantime, she seeks an interim measure of protection. It is her position that the Defendant will
put to waste the assets of the Plaintiff companies unless the court intervenes and issues interlocutory
measures of protection.
Background
6. It is perhaps necessary to lay a brief background in context and for a better understanding of the
ruling.
7. The 1st Plaintiff (“GML”), the 2nd Plaintiff (“GEL”) and the 3rd Plaintiff (“TFL”) are private corporate
entities registered in accordance with the laws of Kenya. GML was incorporated on 6 March 2003 while
GEL and TFL were registered on 10 February 2003 and 20 July 2000 respectively. The Memorandum
and Articles of Association of the three companies reveal that they were all general merchant companies
with almost identical objects.
8. Both the 4th Plaintiff and the Defendant claim to have promoted the three companies. Their interests at
one point in time ran across the companies. GML also owns real property. There is no controversy that
both Land Reference No. 209/8536/5 (erroneously referred to in the Plaint as 209/8530/5) and Land
Reference No. 209/7794 are registered in favour of GML.
9. The shareholding structures in the three companies seem to have changed over time. The
controversy centres on GML when it is stated that the Defendant recently acquired 900 ordinary shares.
It is the acquisition of the 900 shares which generated the dispute herein, according to the 4th Plaintiff.
The 4th Plaintiff’s case
10. The claim may be retrieved from Plaint and the affidavits filed in support of the Motion, the subject of
this ruling.
11. The 4th Plaintiff claims to litigate on behalf of GML, GEL and TFL.
12. to the 4th Plaintiff she got alarmed when in early October 2016, the Defendant through counsel
formally offered the 4th Plaintiff legal ownership of Land Reference No. 209/8536/5 in consideration of
the 4th Plaintiff’s shares in GEL and TFL. The Defendant also sought the 4th Plaintiff’s resignation as a
member of the board of directors of GEL and TFL as well as the transfer of the 4th Plaintiff’s shares in
the TFL. The shares were to be transferred to GML. Effectively, the result of the transactions was to see
the Defendant control GML, GEL and TFL. The 4th Plaintiff contends that the offer was laced with an
emotive threat to evict the 4th Plaintiff from her residence. The 4th Plaintiff occupies House No 11 on LR
No 209/8536/5 which is owned by GML.
13. The 4th Plaintiff further contended that the Defendant had convened an extraordinary meeting of
GML on 10 July 2016 attended by the Defendant only and purportedly ratified the allotment of the shares
to himself. The 4th Plaintiff also complained that the Defendant replaced the appointed company
secretary, all with a view to controlling GML. The result according to the 4th Plaintiff is that the Defendant
now controls GML and such control was unlawfully, fraudulently and irregularly obtained, hence the need
to undo the process.
14. In the 4th Plaintiff’s view, as the Defendant controls GML, GEL and TFL, it is not possible for any of

the companies to initiate any action against the Defendant as the Defendant was unlikely to approve of
any action by the companies which seeks to undo the shares allotment.
The Defendant’s case
15. The Defendant’s case may be reprised from the prolix affidavit of the Defendant filed on 3 April
2017.
16. Whilst asserting that he is the chairperson of GML, GEL and TFL, the Defendant contends that he
conceptualized and promoted the three companies. The Defendant’s case is further that he is a
shareholder of all the three companies whilst the 4th Plaintiff is not.
17. With regard to GML the Defendant asserts that he holds 909 shares and that the contentions
allotment of 900 ordinary shares was made in 2012 but formal ratification took place in 2016 after the
Defendant discovered that the previous company secretary had never formalized the process at the
companies registry. According to the Defendant, the members of GML are only the GEL and the
Defendant, with the latter holding the controlling majority.
18. With regard to GEL, the Defendant states that both the 4th Plaintiff and the Defendant hold 50 shares
each, but GEL is a dormant company. Additionally, the Defendant states that the 4th Plaintiff has never
paid for her shares in GEL.
19. As far as TFL is concerned, the Defendant states that the 4th Plaintiff holds 5000 shares yet to be
paid for as well while the Defendant controls the majority shareholding with 45000 ordinary shares.
20. For her shares in both GEL and TFL, the 4th Plaintiff has never been issued with a share certificate
and it is contended that she cannot exercise any voting rights by virtue of the relevant provisions of the
Memorandum and Articles of Association. In consequence, the Defendant contended that he has solely
built and singularly seen to the success of GML, GEL and TFL with the 4th Plaintiff merely ‘watching’.
The Defendant however stated that the 4th Plaintiff is remunerated monthly and is indeed housed in the
GML’s property known as House No 11 on LR. No. 209/8536/5.
21. Further, it is the Defendant’s contention that there was no irregularity or illegality or fraud in the
allotment of 900 shares to the Defendant in GML. Whilst stating that he has held the said shares since
2012, the Defendant’s stand is that the 4th Plaintiff has always been aware of this share structure and
that in 2012 as well as 2013 there were even negotiations to transfer half of these shares to the 4th
Plaintiff.
22. Further, the Defendant faulted the 4th Plaintiff for not disclosing the 2012/2013 negotiations. The
Defendant also accused the 4th Plaintiff of not disclosing that in December 2013 the 4th Plaintiff had
voluntarily resigned from the directorships of GML and TFL. The Defendant availed an email trail of such
resignation, which resignation had been conditionally accepted. The Defendant also accused the 4th
Plaintiff of not disclosing a fact the Defendant deemed material: that the 4th Plaintiff had incorporated a
company- Jay Pyrotechnics Ltd- which was GML’s and TFL’s business competitor.
23. It was thus the Defendant’s contention that the 4th Plaintiff did not have any interest in the success of
GML, GEL and TFL and thus a derivative action could not stand.
24. For completeness, the Defendant contended that the application for leave to proceed with the
derivative action was not merited as the 4th Plaintiff was not a member of the GML and that there was no

relief sought on behalf of GEL and TFL. The 4th Plaintiff it was also contended had resigned as director
and member of TFL.
25. Finally, the Defendant contended that the reliefs sought are not for the benefit of any of the three
companies but are rather for the personal benefit of the 4th Plaintiff.
26. On the prayers for interim measures of protection, the Defendant contended that there is no
enforceable arbitration agreement binding on all the parties. Secondly, the Defendant averred that the 4th
Plaintiff has not shown that the subject matter may dissipate prior to the arbitration, if any, being
concluded.
Discussion and Determination
27. Only two issues turn for determination in the matter. Is the 4th Plaintiff entitled to permission to
continue the derivative action and, if so, on what terms" Secondly, is the 4th Plaintiff (on behalf of the
other Plaintiffs) entitled to an interim measure of protection pending reference of the dispute between the
parties to arbitration for disposal"
28. I must allude briefly to the submissions of the parties before proceeding with any analysis.
29. Mr. Victor Mailu, who appeared for the Plaintiffs, urged the court to allow the derivative suit and in the
meantime grant the interim measure of protection as the Defendant who now controlled GML was likely
to dispose of the properties to the detriment of GML and all other shareholders ( read the 4th Plaintiff).
Counsel stressed that the parties were bound by the Memorandum and Articles of Association and the
dispute which concerned the transfer of shares ought to be resolved through arbitration.
30. Counsel insisted that the 4th Plaintiff was acting in good faith and that all the evidence of previous
negotiations ought not be an influencing factor as the 4th Plaintiff was a member of both the GEL and
TFL who in turn held shares in GML.
31. Ms. Desma Nungo attorned for the Defendant.
32. Ms Nungo was very emphatic that the claim did not merit a derivative suit status. Placing reliance on
the cases of Nurcombe v Nurcombe [1984] All E R 65 and Isaiah Waweru Ngumi & 2 Others v
Muturi Ndungu [2016]eKLR , counsel submitted that the 4th Plaintiff was not acting in good faith and in
the interest of GML, GEL and TFL. Further, Ms. Nungo submitted that the 4th Plaintiff’s lack of candour
and disinterest in the success and affairs of GML and TFL were quite telling.
33. On whether the matter could be referred to arbitration, Ms Nungo contended that the dispute was
between members and there was no provision in such a case for reference to arbitration. According to
counsel, the relevant article in the Article of association of GML limited arbitrable disputes to those
involving the company and members.
34. Counsel then stressed that the interim measures of protection sought were to do with the real
property and bank accounts owned by the three companies, which were not the subject matter of the
dispute. The subject matter of the dispute was the 900 shares in GML allegedly allotted to the Defendant
in an irregular manner.
35. Ms Nungo urged the court not to allow a non deriving suit as a derivative claim.

Derivative actions: something old, something new and something borrowed
36. It may be apposite to spare a few paragraphs on derivative actions in view of the fact that the flight
path for such actions was diverted with the advent of the Companies Act, No 17 of 2015 ( “ the Act”).
37. Derivative actions are the pillars of corporate litigation. As I understand it, a derivative action is a
mechanism which allows shareholder(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: see Wallersteiner v Moir (No.2) [1975] 1 All ER 849.
38. Until 2015, in Kenya, the common law guided derivative actions in Kenya. Ordinarily under common
law , one had to fall under the exceptions to the rule in Foss –v- Harbottle [1843] 2 Hare 461 that “a
company is a separate legal personality and the company alone is the proper Plaintiff to sue on a wrong
suffered by it” :see also Hawes v Oakland 104 U.S 450 [1881]. The exceptions to the rule in Foss v
Harbottle were mainly where there was fraud on a minority caused by majority shareholder(s). The
action to be commenced had also to be in the best interest of the company and without any ulterior
motive: see Nurcombe v Nurcombe [1985] 1 All ER 65.
39. The rule in Foss v Harbottle along with its exceptions held sway locally as well: see Rai & Others v
Rai & Others [2002] 2 EA 537. A party seeking to ‘by-pass’ the company had, in limine, to show that
he fell within the exceptions to the rule: see Murii v Murii & Another [1999] 1 EA 212.
40. With the advent of the Act, the law fundamentally changed. The requirement to fall under the
exceptions to the rule in Foss v Harbottle was replaced with judicial discretion to grant permission to
continue a derivative action. Judicial approval of the action is what now counts and such approval is
based on broad judicial discretion and sound judgment without limit but with statutory guidance.
41. Part XI of the Act (ss. 238-241) deserves close reading. The Act stipulates as follows :
238.
Interpretation: Part XI
(1) In this Part, "derivative claim" means proceedings by a member of a company—
(a) in respect of a cause of action vested in the company; and
(b) seeking relief on behalf of the company.
(2) A derivative claim may be brought only—
(a) under this Part; or
(b) in accordance with an order of the Court in proceedings for protection of members against
unfair prejudice brought under this Act.
(3) A derivative claim under this Part may be brought only 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.
(4) A derivative claim may be brought against the director or another person, or both.
(5) It is immaterial whether the cause of action arose before or after the person seeking to bring
or continue the derivative claim became a member of the company.
(6) For the purposes of this Part—
(a) "director" includes a former director;
(b) a reference to a member of a company includes a person who is not a member but to whom
shares in the company have been transferred or transmitted by operation of law.
239.
Application for permission to continue derivative claim
(1) in order to continue a derivative claim brought under this Part by a member, the member has
to apply to the Court for permission to continue it.
(2) If satisfied that the application and the evidence adduced by the applicant in support of it do
not disclose a case for giving permission, the Court—
(a) shall dismiss the application; and
(b) may make any consequential order it considers appropriate,
(3) If the application is not dismissed under subsection (2), the Court—
(a) may give directions as to the evidence to be provided by the company; and
(b) may adjourn the proceedings to enable the evidence to be obtained.
(4) On hearing the application, the Court may—
(a) give permission to continue the claim on such terms as it considers appropriate;
(b) refuse permission and dismiss the claim; or
(c) adjourn the proceedings on the application and give such directions as it considers
appropriate.
42.
240.
Application to Court for permission to continue claim as a derivative claim: how disposed of
(1) If—

(a) a company has brought a claim; and
(b) the cause of action on which the claim is based could be pursued as a derivative clain under
this Part, a member of the company may apply to the Court for permission to continue the claim
as a derivative claim on the ground specified in subsection(2).
(2) The ground is that—
(a) the manner in which the company commenced or continued the claim amounts to an abuse of
the process of the Court;
(b) the company has failed to prosecute the claim diligently; and
(c) it is appropriate for the member to continue the claim as a derivative claim.
(3) If satisfied that the application and the evidence adduced by the applicant in support of it do
not disclose a case for giving permission, the Court—
(b) may make any consequential order that it considers appropriate.
(a) give permission to continue the claim as a derivative claim on such terms as it considers
appropriate;
(b) refuse permission and dismiss the application; or
appropriate.
241.
Application for permission to continue claim as a derivative action
(1) If a member of a company applies for permission under section 239 or 240, the Court shall
refuse permission if satisfied—
(a) that a person acting in accordance with section144 would not seek to continue the claim;
(b) if the cause of action arises from an act or omission that is yet to occur-that the act or
omission has been authorized by the company;

(c) if the cause of action arises from an act or omission that has already occurred — that the act or
omission—
(i) was authorised by the company before it occurred; or
(ii) has been ratified by the company since it occurred.
(2) In considering whether to give permission, the Court shall take into account the following
considerations:
(a) whether the member is acting in good faith in seeking to continue the claim;
(b) the importance that a person acting in accordance with section 143 would attach to
continuing it;
(c) if the cause of action results from an act or omission that is yet to occur, whether the act or
omission could be, and in the circumstances would be likely to be—
(i) authorised by the company before it occurs; or
(ii) ratified by the company after it occurs;
(d) if the cause of action arises from an act or omission that has already occurred-whether the
act or omission could be , and in the circumstances would be likely to be , ratified by the
company
(e) whether the company has decided not to pursue the claim;
(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of
action that the member could pursue in the member's own right rather than on behalf of the
company.
(3) In deciding whether to give permission, the Court shall have particular regard to any evidence
before it as to the views of members of the company who have no personal interest (direct or
indirect) in the matter.
43.
242.
Application for permission to continue derivative claim brought by another member
(1) If a derivative claim—
(a) has been brought by a member of a company;
(a) Was brought by a company and is continued by a member of the company as a derivative
claim; or
(c) has been continued by a member of the company as a derivative claim, another member of

the company may apply to the Court for permission to continue a derivative claim to which this
section applies on the ground specified in subsection (2).
(2), The ground is that—
(a) the manner in which the proceedings have been commenced or continued by the claimant
amounts to an abuse of the process of the Court;
(b) the claimant has failed to prosecute the claim diligently; and
(c) it is appropriate for the applicant to continue the claim as a derivative claim.
(3)If it appears to the Court that the application and the evidence provided by the applicant in
support of it does not disclose a case for giving permission or leave, the Court—
(b) may make any consequential order that it considers approptiate
(a) give permission to continue the claim on such terms as it considers appropriate;
(b) refuse permission and dismiss the application; and
appropriate.
44. Statutory procedure is now the exclusive method of pursuing derivative claims. The Act sets out what
sorts of company claims may be pursued and is also explicit that derivative claims may only be pursued
under the Act. The question must only be the factors the court ought to consider before approving a
derivative claim.
45. There appears, in my view, to exist a two stage process. The court must first satisfy itself that there is
a prima facie case on any of the causes of action noted under s.238(3). S.239(2) of the Act provides that
the application for permission will be dismissed if the evidence adduced in support “do not disclose a
case” for giving of permission. The essence of judicial approval under the Act is to screen out frivolous
claims. The court is only to allow meritorious claims. All that the applicant needs to establish, through
evidence, is a prima facie case without the need to show that it will succeed.
46. The second stage entails a consideration of statutory provisions and factors which ordinarily guide
judicial discretion albeit in the realm of derivative action.
47. I must point out that the exercise of discretion in the circumstances would be more than adjudication,

in view of the rather clear provisions of Part XI of the Act. I also observe that it is not feasible for the
legislature to draw an exhaustive list of factors to be considered in the exercise of judicial discretion. In
these respects, there must be something new through statute, something old through factors which
guided common law exceptions to the rule in Foss v Harbottle and something borrowed from various
decisions in the United Kingdom which have interpreted and applied the Companies Act 2006 (UK)
especially ss. 260-264 which are pari materia ss. 238-242 of the Act, 2015.
48. The statutory provisions to be met include the requirement under s. 238(3) of the Companies Act that
the derivative action be commenced only in respect of a cause of action arising from an actual or
proposed act or omission involving negligence, default, breach of duty, breach of trust by a director of
the company. It is also necessary to establish that the claimant is a member of the company.
49. The court then has the onus of determining whether the permission ought to be granted and on what
terms.
50. The court in Isaiah Waweru Njumi & 2 Others –v- Muturi Ndungu [2016]eKLR, captured some of
the factors to be considered as follows:
[21]…Among other things, the Court considers the following factors:
(a) Whether the Plaintiff has pleaded particularized facts which plausibly reveal a cause of action
against the proposed defendants. If the pleaded cause of action is against the directors, the
pleaded facts must be sufficiently particularized to create a reasonable doubt whether the board
of directors’ challenged actions or omissions deserve protection under the business judgment
rule in determining whether they breached their duty of care or loyalty;
(b) Whether the Plaintiff has made any efforts to bring about the action the Plaintiff desires from
the directors or from the shareholders. Our Courts have developed this into a demand or futility
requirement where a Plaintiff is required to either demonstrate that they made a demand on the
board of directors or such a demand is excused;
(c) Whether the Plaintiff fairly and adequately represents the interests of the shareholders
similarly situated or the corporation. Hence, a shareholder seeking to bring a derivative suit in
order to pursue a personal vendetta or private claim should not be granted leave. In the
American case of Recchion v Kirby 637 F. Supp. 1309 (W.D. Pa. 1986), for example, the Court
declined to let a derivative lawsuit proceed where there was evidence that it was brought for use
as leverage in plaintiff’s personal lawsuit;
(d) Whether the Plaintiff is acting in good faith;
(e) Whether the action taken by the Plaintiff is consistent with one a faithful director acting in
adherence to the duty to promote the success of the company would take;
(f) The extent to which the action complained against – if the complaint is one of lack of authority
by the shareholders or the company – is likely to be authorised or ratified by the company in the
future; and
(g) Whether the cause of action contemplated is one that the Plaintiff could bring as a direct as
opposed to a derivative action.

51. I would agree with the factors indexed in Isaiah Waweru Njumi & 2 Others v Muturi Ndungu
(supra) . They reflect factors outlined under s. 241(2) of the Act. They also capture the exceptions to the
rule in Foss v Harbottle as well as other relevant comparative principles.
52. Perhaps, I may add three factors.
53. Firstly, the court should always also consider the seriousness of the alleged wrong-doing by
conducting a cost-benefit analysis of the intended action. The court ought to satisfy itself that the
litigation will not disrupt the company business and additionally that the cost of the intended litigation is
not burden-some to the company. Likewise the court ought to reflect on the reputational damage, if any,
the company is likely to suffer in the event the claim fails.
54. Secondly, I would hasten to add that of critical import is also the factor that the derivative suit ought
to be allowed if it is in best interest of the company. This factor should be of the highest concern
especially when ss. 143 & 144 of the Act are read into context. Both sections advocate the duty of the
director to act in a way as to promote the success of the company for the benefit of its members.
55. Finally, the existence of alternative remedies and the view of independent members of the company
where the court has invited such evidence pursuant to s.239 (4) & (5) of the Act ought to also be
considered before granting or disallowing an application for permission to continue a derivative suit: see
also s. 241(3) of the Act.
56. In sum, the broadened statutory procedure for bringing a derivative action now appears exclusive.
The causes of action listed under s. 238(3) must be deemed the only ones. A director, including a former
director, as well as a third party may be sued by a member, who may himself not have been a member
when the cause of action accrued. The factors to be considered are infinite. There will however be
compulsory refusal of permission where the suit is not in the interest of or of benefit to the company.
Permission will also be denied where the proposed act has been authorized by the company or the
impugned act has been ratified by the company. The court, in my view, must however not be reluctant to
intervene in the company’s decision making process as wrong doing on the part of directors must be
checked if only to promote corporate governance.
The Illegally allotted shares in GML
57. In Casu, the 4th Plaintiff’s complaint focuses on some 900 shares in GML allotted to the Defendant.
The 4th Plaintiff would wish to have the issue of allotment addressed in the derivative claim. The
Plaintiffs, it is stated would wish to have the allegedly irregular, fraudulent and unlawful allotment of
shares interrogated and investigated. The 4th Plaintiff has leveled accusations against the Defendant
who is a director of the GML and also shareholder.
58. I have no doubt that until disposed of through an authorized allotment, shares form part of the assets
of a company. There is no doubt that directors of private companies not only control the process of share
transfers but also have the power to deal with and allot unissued shares.
59. The allotment must however not be whimsical but pursuant to legal provisions and also the
Memorandum and Articles of Association (“MemArt”) of the company. Where an allotment of shares is
undertaken contrary to the provisions of the law or the MemArt of the company, the directors would
actually be in breach of duty.
60. I take the view that the 4th Plaintiff has established a prima facie case when she questions how the

unissued shares in GML were allotted to the Defendant. I must however at this stage not hold a mini-trial
to ascertain which of the two parties should be vindicated as has been urged by the Defendant when he
contends that the allotment was above board and the 4th Plaintiff was always aware.
61. S.241(1)(i) of the Act, calls for compulsory refusal of permission to continue a derivative claim where
act or omission complained of has been ratified by the company. Ms. Nungo, for the Defendant,
submitted that in the instant case the alleged irregular allotment took place in 2012 and further that the
allotment had been ratified by the company on 4 July 2016.Accordingly, it was contended that the
allotment could not be the subject of a challenge by a member or by the company.
62. Two questions arise though. Could GML ratify the act of allotment" If so, was it regularly and properly
ratified"
63. As to the first question, the answer must be in the positive. Shareholders of a company at a general
meeting may ratify acts or omissions by directors including an unauthorized allotment of shares. The
meeting ratifying the act or omission must however be a properly convened meeting attended by the
shareholders.
64. On the affidavit evidence before me, I am not satisfied that there was a properly convened meeting
on 4 July 2016 which ratified the allotment of 900 shares in GML to the Defendant. The Defendant has
not availed the notice which convened the special meeting with a clear agenda in tow. The attendees
were also brought to question and this was not contested by the Defendant. I am not satisfied in the
circumstances, that the acts complained of were properly ratified to bring them within the ambit of
Section 241(1)(c) of the Act.
65. The Defendant also contested the 4th Plaintiff’s standing on the basis that the 4th Plaintiff is not a
member of GML and further that the Plaintiff is not a fully paid up member of GEL and TFL to allow him
to bring the derivative claim.
66. The Defendant appears in my view to impose an unnecessarily strict interpretation to the
requirement that the claimant in a derivative claim must be a member. My view is that a person
effectively need not be a registered member of the company to bring a derivative action. His name need
not be reflected in the register. He need not be holding a share certificate for that matter. It is sufficient if
it is shown that he is beneficially entitled to any shares. This view comports well with s.238(6)(b) of the
Act which is relatively clear that for purposes of derivative claims, a ‘member’ includes a person who is
not a member but to whom shares in the company have been transferred or transmitted by operation of
the law.
67. 4th Plaintiff is a member of the 2nd and 3rd Plaintiffs. She would most definitely be entitled to bring a
derivative action qua member. Her interest in the 1st Plaintiff should also not be in doubt but she is not a
member of GML.
68. The Defendant did also raise two important issues. It was contended that the 4th Plaintiff is not
interested in promoting the success of the company and additionally that the claim has not been brought
in good faith.
69. While I have not been able to identify evidence of mala fides on the part of the 4th Plaintiff there is a
pointer that the action herein may not have been engineered for the success of GML but rather for the
personal success of the 4th Plaintiff. The shares have been allotted, a reversal may, in the circumstances
of this case, not benefit GML. Instead it would simply entail involving the GML in litigation. The 4th

Plaintiff, in my view, appears to be a distant disgruntled beneficial shareholder who is not happy with the
way GML, GEL and TFL are being managed.
70. I would also state that the derivative action does not appear to be in the best interest of GML. The
cost of litigation and the prospect of success appear to override the simple right to commence and
continue the derivative suit. Even if the suit is ultimately successful there is a practical likelihood that the
same scenario will be repeated with the Defendant again causing albeit lawfully and regularly the
allotment of the shares in question.
71. It brings me to the question of the existence of alternative remedies.
72. It is clearly the 4th Plaintiff’s intention to secure her personal interest in GML which obtains through
GEL. There can evidently be laid a genuine complaint in the manner the Defendant has conducted the
business of the three companies GML, GEL and TFL. Meetings have been held without clear
notifications and pertinent decisions made.
73. The 4th Plaintiff is certainly within her rights to complain that the Defendant is acting oppressively. It
may be stated that the Defendant’s acts are unfairly prejudicial to the members of GML,GEL and TFL,
including the 4th Plaintiff who legitimately expects to be treated better. She would be entitled to seek
relief and also intervene on behalf of GEL where she is a shareholder and which in turn is a member of
GML. The 4th Plaintiff has a remedy under statute, in my view, in the circumstances of this case. Such
remedy would also be personal to her.
74. It may be appropriate if the 4th Plaintiff lodged an application under Section 780 of the Act, if the 4th
Plaintiff is of the view that there has been oppressive as well as unfairly prejudicial conduct on the part of
the Defendant. This would constitute an alternate efficacious remedy in the circumstances of this case. It
would give the court the leeway to direct and fashion appropriate reliefs: see Thomas v Dawson
[2015]EWCA 706. The remedies may include allowing the 4th Plaintiff to sue on behalf of GEL and TFL
as well as an order for re-valuation of shares allotted to the Defendant.
Conclusion and disposal
75. I come to the conclusion that the application for derivative suit is not merited. The orders sought by
the Plaintiffs relate more to the way the three companies are ran and managed. The suit should be
discontinued.
76. I would consequently deem it unnecessary to venture into the questions as to whether the dispute
ought to be referred to arbitration suffice to point out that, in the circumstances of this case, I would not
have been prepared to hold that a derivative action may be taken by way of initiating an arbitration. I
need not also answer the question whether the 4th Plaintiff is entitled to any interim reliefs or measures of
protection.
77. I decline to grant the 4th Plaintiff the permission to continue the derivative claim with the
consequence that the application dated 9 March 2017 fails with costs to the Defendant. I also
consequently strike out the suit with costs to the Defendant to be paid by the 4th Plaintiff.
Dated, signed and delivered at Nairobi this 9th day of June, 2017.
J.L.ONGUTO

JUDGE
Advocates
Victor Mailu instructed by Anjarwalla & Khanna Advocates for the Plaintiffs
Desma Nungo instructed by NOW Advocates LLP for the Defendant
While the design, structure and metadata of the Case Search database are licensed by Kenya Law under a Creative Commons
Attribution-ShareAlike 4.0 International, the texts of the judicial opinions contained in it are in the public domain and are free from any copyright restrictions.
Read our Privacy Policy | Disclaimer
Powered by TCPDF (www.tcpdf.org)

Civil Suit 102 of 2017

Uploaded by

Copyright:

Available Formats

Civil Suit 102 of 2017

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Civil Suit 102 of 2017

Uploaded by

Copyright:

Available Formats

Ghelani Metals Limite & 3 others v Elesh Ghelani Natwarlal & another [2017] eKLR

IN THE HIGH COURT OF KENYA

MILIMANI LAW COURTS-NAIROBI

COMMERCIAL & TAX DIVISION

CIVIL SUIT NO. 102 OF 2017

GHELANI METALS LIMITED……….........................................1ST PLAINTIFF

GHELANI ENTERPRISES LIMITED…………...….………….2ND PLAINTIFF

TONONOKA FIREWORKS LIMITED…………………....…...3RD PLAINTIFF

JAYSHREE SUCHAK SANJIV……………….……………….4TH PLAINTIFF

ELESH GHELANI NATWARLAL………………..…………….DEFENDANT

THE REGISTRAR OF COMPANIES…………..……..INTERESTED PARTY

2. The 4th Plaintiff has also filed an intermediary Motion.

http://www.kenyalaw.org - Page 1/14

Articles of Association of the 1st Plaintiff.

The 4th Plaintiff’s case

http://www.kenyalaw.org - Page 2/14

The Defendant’s case

http://www.kenyalaw.org - Page 3/14

Discussion and Determination

31. Ms. Desma Nungo attorned for the Defendant.

http://www.kenyalaw.org - Page 4/14

Derivative actions: something old, something new and something borrowed

(1) In this Part, "derivative claim" means proceedings by a member of a company—

(a) in respect of a cause of action vested in the company; and

(b) seeking relief on behalf of the company.

(2) A derivative claim may be brought only—

(a) under this Part; or

http://www.kenyalaw.org - Page 5/14

breach of trust by a director of the company.

(6) For the purposes of this Part—

(a) "director" includes a former director;

Application for permission to continue derivative claim

(a) shall dismiss the application; and

(b) may make any consequential order it considers appropriate,

(b) may adjourn the proceedings to enable the evidence to be obtained.

(4) On hearing the application, the Court may—

(b) refuse permission and dismiss the claim; or

http://www.kenyalaw.org - Page 6/14

(a) a company has brought a claim; and

(2) The ground is that—

(a) shall dismiss the application; and

(b) may make any consequential order that it considers appropriate.

(b) may adjourn the proceedings to enable the evidence to be obtained.

(5) On hearing the application, the Court may—

(b) refuse permission and dismiss the application; or

Application for permission to continue claim as a derivative action

http://www.kenyalaw.org - Page 7/14

(i) was authorised by the company before it occurred; or

(ii) has been ratified by the company since it occurred.

(i) authorised by the company before it occurs; or

(ii) ratified by the company after it occurs;

Application for permission to continue derivative claim brought by another member

(1) If a derivative claim—

(a) has been brought by a member of a company;

http://www.kenyalaw.org - Page 8/14

(2), The ground is that—

(a) shall dismiss the application; and

(b) may make any consequential order that it considers approptiate

(b) may adjourn the proceedings to enable the evidence to be obtained.