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High CourtStruck OutWinding Up Petition dated 11/3/2010

OMAR SALEH SAID v KILINDINI WAREHOUSE K LIMITED & another

High Court of Kenya
16 November 2018
POP.J.O. Otieno
5,061 words in judgment
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The bottom line

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A court cannot allow an administrative error to retroactively grant you the legal right to sue.

What this practically means

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Executive summary

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The petitioner filed a winding up petition in 2010 under the repealed Companies Act, Cap 486 (preserved by Section 734(2) of the Insolvency Act), alleging that the 2nd Respondent, as managing director, fraudulently falsified company records and minutes, backdated returns to the Registrar of Companies, increased the share capital from 1,000 to 40,000 shares, removed the petitioner and a deceased director from directorship, and excluded them from the company's affairs. The respondents denied fraud, contending the changes were properly effected and that the petitioner had ceased to be a director and shareholder in 1999/2000, and raised locus standi. Four issues were agreed, the first being whether the petitioner was a shareholder with locus to institute the petition. The court treated this as foundational. It found that the register as at 2010 showed the petitioner was not a member, and that the Registrar of Companies' later reversal of the entries - restoring the petitioner - was done without statutory mandate, since Section 118 of the repealed Act vests rectification power exclusively in the court. The reversal was also effected without hearing the company or the affected allottees, breaching natural justice and Article 40 property rights, and was done while the suit was pending solely to give the petitioner standing. Applying Mcfoy v United Africa Co Ltd, the court held the purported rectification a nullity incapable of conferring standing retrospectively. The petition was struck out with costs to the respondents; the oppression and winding up issues were not reached.

Key legal issues

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01

Whether the Registrar of Companies could lawfully reverse entries in the register of members

Holding

The Registrar had no statutory power to rectify the register; only the court may do so under Section 118 of the repealed Companies Act. The purported rectification was a nullity and also violated natural justice and Article 40 property rights.

Reasoning

Section 118 of the repealed Companies Act vests rectification power exclusively in the court. The Registrar acted unilaterally on the petitioner's complaint without hearing the company, the 2nd Respondent or Swaleh Awadh Saleh, divesting them of allotted shares without a hearing. Applying Mcfoy v United Africa Co Ltd, an act without legal mandate is void ab initio and cannot stand or found a cause of action.

p. 6
02

Whether the petitioner had locus standi to maintain the winding up petition

Holding

The petitioner was not a member or shareholder at the date of filing the petition in 2010; the Registrar's later reinstatement was a nullity and could not retrospectively confer standing. The petition was struck out.

Reasoning

The register as at 2010 showed the petitioner had ceased to be a director and shareholder following the 2000 returns. The 2015 reversal by the Registrar was ultra vires and done while the suit was pending solely to give the petitioner a pedestal to maintain the petition. Standing could not be erected retrospectively, so the foundational issue disposed of the petition without reaching the oppression and winding up questions.

p. 6

Legal principles established

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  • Only the court, not the Registrar of Companies, has power to rectify the register of members under Section 118 of the repealed Companies Act
  • An action done without legal mandate is a nullity that confers no rights and imposes no obligations

Court orders

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  1. 1.The petition is struck out
  2. 2.Costs of the petition to be paid by the petitioner

Authorities

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Legislation

  • Companies Act (repealed), Cap 486Section 118
  • Companies Act (repealed), Cap 486Section 211
  • Companies Act (repealed), Cap 486Section 28
  • Insolvency Act, 2015Section 734(2)
  • Insolvency Act, 2015Section 424(1)
  • Constitution of Kenya, 2010Article 40

Cases cited (8)

  • Madhupaper International Ltd
    [2006] eKLR

    Just and equitable winding up where accounts lacking and breakdown in communication between contributories

  • Njuguna Kuria vs Nuclear Investments Ltd & 7 Others
    [2014] eKLR

    Oppressive conduct must be by majority against minority and be harsh, burdensome and wrongful

  • Re Abbey Leisure Ltd
    [1990] BCLC 342

    Winding up ought not be granted where petitioner has an alternative remedy

  • Re A Company (No. 004415 of 1996)
    [1997] IBCLC 479

    Winding up is a harsh remedy of last resort

  • Brahmbhatt vs Dynamic Engineering Ltd
    Civil Appeal No. 92 of 1983

    Winding up not granted where alternative remedies exist

  • Mcfoy vs United Africa Co. Ltd
    [1967] 3 ALL ER 1169

    An action that is void is a nullity, incurably bad, and needs no court order to set aside

  • Omega Enterprises Ltd (K) Ltd vs Kenya Tourist Development Corporation Ltd
    [1998] eKLR

    Approval of Mcfoy on orders obtained in breach of natural justice being set aside ex debito justitiae

  • Stephen R Karunditu vs Canvass Manufacturers Ltd
    [1991] KLR

    Legal rights may be subjected to equitable considerations

Jurisdiction invoked
Section 211 of the repealed Companies Act, Cap 486, preserved by Section 734(2) of the Insolvency Act, 2015

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "OMAR SALEH SAID v KILINDINI WAREHOUSE K LIMITED & another", Case Analysis (2018). Winding Up Petition dated 11/3/2010. Source:

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.