Tess Mining Group Limited v Okwanyo & 13 others

RULING 1. This ruling arises from the oral application dated 10th September 2025 where the Plainti sought to have this suit to proceed as a derivative suit. The Application was premised on the provisions of Section 242 of the Companies Act which counsel urged that permits the court to grant orders to continue with the suit as a derivative suit. Counsel cited Civil Suit 102 of 2017 – Gelani Metals Ltd & 3 Others vs Eles Gelani & Another eKLR and placed reliance on the contents of the adavit led in support of the application dated 25th August 2025. 2. He urged that the suit property was leased to the company and, that the other directors of the company had not taken measures to protect it from the recent invasions and vandalism by the alleged defendants. Counsel placed reliance on the decision in Kitale ELCC 74 of 2019 – Peter Wekesa Fwamba vs Peter Simiyu Wekesa & Others (sic) in support of the submission that this court should grant the prayer sought. 3. Counsel for the respondents opposed the application and urged that decisions of a company are made through resolutions. Further, that there were two resolutions on record and no modication of the Articles of Association as alleged by the applicant. He pointed out that the resolutions led were made by a meeting of two directors which did not meet the quorum for a majority of directors. He submitted that the procedure for bringing a derivative suit is known and further, that the applicant had not followed the same. 4. Counsel cited the case of Nextgen Oce Suites Limited & Anor vs Net Com Investment Limited and urged that the tests for merit of an application for a suit to proceed as a derivative action were that one must establish good faith and come with clean hands. He submitted that the suit was brought to the court while material facts had been concealed and additionally, that section 780 of the Companies Act grants the remedy for any aggrieved parties. He urged that derivative suits should not be used to litigate for individual interests and urged the court to dismiss the same. 5. There was a replying adavit on record, sworn by Qui Hengson, a director in the Plainti Company, dated 30th September 2025 pursuant to the leave of the court granted on 19th September 2025. 6. He deponed that pursuant to a resolution of the company’s majority shareholders on 30th April 2025, the company resolved to transfer all its mining rights to Mining R US Limited and ceased to hold or control the suit property. He annexed and marked as QH-3 a copy of the said agreement. Further, that the transfer of the mining rights did not extinguish the shares and rights of the minority shareholders. He urged that the shareholders who instituted the suit have been implicated in acts of gross mismanagement and misappropriation of the company’s assets. He urged that the application to proceed with the suit as a derivative suit is in bad faith and further, that the actions complained of have already been undertaken lawfully by the company under resolutions of the shareholders. 7. The deponent averred that the suit discloses no plausible cause of action and that allowing this suit to proceed as a derivative action would be an abuse of the court process. He prayed that the court dismiss the application. Analysis and Determination 8. The running thread throughout the submissions and pleadings in this application and proceedings is that the ling of this suit was done through wrongful means hence it was improperly instituted. When the court enquired from the parties about the resolution to institute the suit, the resolutions produced https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18595/eng@2025-12-16 2

page 2 of 4

were of sets of two meetings of two sets of directors: on the one part, that of a majority (being ve) in number and on the other, that of a minority (being two in number). When asked to produce the Memorandum of Articles of association, the applicant intimated to the court that the same had been modied but failed to produce said modied Articles. It emerged, from the facts and the submissions of learned counsel for the two sides of the contending company directors that the Plainti Company had adopted the Articles of Association from the act. It further follows that the provisions of the Articles of Association as provided for in the Companies’ Act, the law which was operational at the time of incorporation of the Company are the ones applicable. 9. Section 256 of the Companies Act provides as follows; 1. 10. A resolution is an ordinary resolution of the members (or of a class of members) of a company if it is passed by a simple majority. Order 4 Rule 1 (4) of the Civil Procedure Rules provides as follows: ‘Where the Plainti is a corporation, the verifying adavit shall be sworn by an ocer of the company duly authorized under the seal of the company to do so.’ 11. The Court of Appeal in the case of Spire Bank Limited – Versus – Land Registrar & 2 others [2019] eKLR stated as follows:“ ……..It is essential to appreciate that the intention behind Order 4 Rule 1 (4) was to safeguard the corporate entity by ensuring that only an authorized ocer could institute proceedings on its behalf. This was to address the mischief of unauthorized persons instituting proceedings on behalf of corporations, and obtaining fraudulent or unwarranted orders from the court. The company’s seal that is axed under the hand of the directors ensured that they were aware of, and had authorized such proceedings together with the persons enlisted to conduct them. And where evidence was produced to demonstrate that a person was unauthorized, the burden shifted to such ocer to demonstrate that they were authorized under the company seal. With this in mind, we dare say that the provision was not intended to be utilized as a procedural technicality to strike out suits, particularly where no evidence was produced to demonstrate that the ocer was unauthorized.” 12. The ‘plainti’ herein, that is to say, the set of directors who instituted the suit, was granted an opportunity to demonstrate that there was a Resolution passed by a simple majority to institute the suit which they failed to do to show that, indeed, it was the company that instituted the suit. The plainti now seeks to cure that illegality by having the court allow the suit proceed as a derivative suit. 13. Given that the suit was led without authority of the Company through a Resolution as required by the law, it follows that the same is unauthorised. Therefore, the court has no option but to strike it out since it was unlawfully brought. The proper procedure should have been that if, indeed, the minority directors were aggrieved by the decision of the majority in not instituting a suit, they should have moved the court rst for leave to institute a derivative suit. After the leave was granted then they would have led a suit as a derivative one. 14. The instant process, as prayed for by the minority directors is totally dierent from that which was in the case of Kitale ELCC 74 of 2019 – Peter Wekesa Fwamba vs Peter Simiyu Wekesa & Others (supra). 15. For this court to grant the application and order that the suit proceeds as a derivative action would be to rubberstamp an illegality, an action which this court shall not be complicit in. That which is illegal https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18595/eng@2025-12-16 3

page 3 of 4

remains illegal and a nullity and cannot be revived by retrospectivity. In the words of Lord Denning MR in the case of McFoy vs. United Africa Co. Ltd (1961) 3 All ER 1169: ”… If an act is void, then it is in law a nullity. It is not only bad, but incurably bad. There is no need for an order of the court to set it aside. It is automatically null and void without more ado, though it is sometimes convenient to have the court declare it to be so. And every proceeding which is founded on it is also bad and incurably bad. You cannot put something on nothing and expect it to stay here. It will collapse.” 16. The step taken by the minority directors herein is a fundamental aw that cannot be cured even by viewing the same as a technicality under Article 159(2)(d) of the Constitution 2010 or any other. 17. In the premises, the application is dismissed and the entire suit having been incompletely instituted is struck out with costs to the Respondents. The costs to be borne personally by the Directors who instituted the suit and not the company itself. RULING DATED SIGNED AND DELIVERED VIRTUALLY VIA THE TEAMS PLATFORM THIS 16TH DAY OF DECEMBER 2025. HON. DR. IUR NYAGAKA JUDGE From 1:58 PM, in the presence of, Mr. Muriungi Advocate for Plainti/Respondent Mr. Wandera holding brief for Mwangi Advocate for Plainti/Applicant Mr. Oywer for Defendant/Respondents https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18595/eng@2025-12-16 4

page 4 of 4