George Aruru Momanyi v Stephen Kyalo Nzioki & 2 others

Group Ltd covering East Africa. He contended that between 2017 & 2019, the 2nd defendant invested Kshs.30,000,000/= in Dreamliner Energies Ltd, in collaboration with Set and Sit Contractors Ltd. Mr. Momanyi averred that thereafter, a mutual agreement led to him relocating to Samburu in June 2020 to manage Set and Sit Contractors Ltd, where he remained until February 2022, while the 1st defendant managed the 2nd defendant in Nairobi. 3. Mr. Momanyi stated that upon his return to Nairobi, he discovered forged filings with the Registrar of Companies falsely indicating that he had resigned as a Director of the 2nd defendant and that he had surrendered his shares, and that the 1st defendant had used the forged documents to remove the plaintiff as a signatory from the 2nd defendant’s bank accounts and to obtain loans from Kenya Commercial Bank. Mr. Momanyi asserted that he suspects that further forgeries and irregularities are being and or have been committed. He averred that he has since filed a report with the DCI Kiambu, but no preservation action has been taken regarding the subject accounts. He contended that the 1st defendant is fraudulently attempting to assume ownership of the 2nd defendant and since only the 2013–2014 accounts were audited showing shareholders’ equity of Kshs.31,829,72.00 a comprehensive audit is needed to assess the 2nd defendant’s financial health and shareholder returns. 4. In opposition to the instant application, the 1st defendant filed a replying affidavit sworn on 15th September 2024 by Mr. Stephen Nzioki Kyalo, the 1st defendant herein. He averred that he was served with the instant application on 11th April 2024, contrary to the Court’s order requiring service by 28th February 2024, which delay was not only intentional but was meant to delay justice. Mr. Kyalo accused the plaintiff of acting in bad faith and being in contempt of Court, and urged for the application herein and this suit to be dismissed. Mr. Kyalo stated that he incorporated the 2nd defendant in 2012 using two proxy Directors being his brother and cousin, each holding one share. That in 2014, he transferred one share to the plaintiff after they became business partners. He stated that a USD 1,600,000.00 contract with Mare Nostrum Limited and Set and Sit Contractors Limited failed due to mismanagement by the plaintiff. 5. Mr. Kyalo averred that in 2015, they secured a USD 415,000.00 loan from Bank of Africa using his own property as security, and that the said loan was to be applied as working capital for the logistics business conducted under the 2nd defendant and part of it went to fund Hama Homes Ltd, a construction company of affordable housing co-owned with the plaintiff. He contended that the projects handled by the construction company failed under the plaintiff’s management, making it difficult for them to repay the loan facilities. He asserted that the plaintiff voluntarily resigned from the 2nd defendant on 8th December 2020 and fled from Nairobi and thereafter, he served the 2nd defendant’s current CR-12 upon the banks to have the plaintiff removed as a signatory. 6. Mr. Kyalo denied any misuse of the plaintiff’s personal property or obtaining loans for personal gain. He confirmed that he was summoned by officers from the DCI, he cooperated with them, but was not arrested. He challenged the plaintiff to provide documentary evidence in respect to transactions between him, any of the companies affiliated with him and Wananchi Group Limited, his purported Kshs.30,000,000/= investment to Dreamliner Energies Limited, and existence of any alleged meetings or resolutions. It was stated by Mr. Kyalo that Set and Sit Contractors Ltd’s licence from the National Construction Authority expired on 30th June 2016. He deposed that since the plaintiff resigned from the 2nd defendant in the year 2020, he lacks the requisite locus standi to seek preservation orders. 7. The 1st defendant also filed a Notice of Preliminary Objection dated 19th August 2024 raising the following grounds- https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 2

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i. That the Notice of Motion dated the 26th February, 2024 is fatally defective as it utterly offends the mandatory provisions enshrined under Order 51 Rule 13(2) of the Civil Procedure Rules, 2010; ii. That the Notice of Motion dated the 26th February, 2024 is a sham, a cloak and a mere academic exercise as the prayers sought herein are not premised under the correct and/or relevant legal provision to wit Order 40 of the Civil Procedure Rules, 2010, as well as Sections 709, 710, 717 & 787 of the Companies Act, 2015; iii. That the plaintiff/applicant herein is in blatant breach of the Honourable Court Order issued on the 27th day of February 2024 and the Penal Notice enshrined thereon on the said order, and the Notice of Motion must be dismissed for contempt of the said Court order; and iv. That the Notice of Motion dated the 26th February 2024 is obviously scandalous, frivolous and vexatious before the eyes of the law and ought to be dismissed with costs. 8. In response to the 1st defendant’s replying affidavit, the plaintiff filed a response in an affidavit sworn on 4th September 2024 by Mr. George Aruru Momanyi, the plaintiff herein. He averred that Order 51 Rule 13(2) of the Civil Procedure Rules is not mandatory, thus failure to cite or misquote legal provisions does not invalidate an application. He referred to the provisions of Article 159 of the Constitution and emphasized the need for Courts to prioritize substantive justice over procedural technicalities. He denied having violated Court Orders of 26th February 2024. He asserted that this Court has jurisdiction pursuant to the provisions of Order 40 Rule 10 of the Civil Procedure Rules, 2010, to issue injunctive relief. 9. The application herein was canvassed by way of written submissions. The plaintiff’s submissions were filed by the law firm of Elkana Mogaka & Associates Advocates on 2nd September 2024, while the 1st defendant’s submissions were filed on 13th December 2024 by the law firm of Kalii & Company Advocates. The 2nd & 3rd defendants did not file any responses and submissions in opposition to the application herein. 10. Mr. Mogaka, learned Counsel for the plaintiff relied on the Court of Appeal case of Ajay Shah v Deposit Protection Fund Board as Liquidator of Trust Bank Limited (In Liquidation) [2016] eKLR and the provisions of Section 142 of the Companies Act. He submitted that the 1st defendant breached his fiduciary duty by falsely filing records with the Registrar of Companies, claiming that the plaintiff had resigned as a Director of the 2nd defendant and that he had surrendered his shares, used forged documents to unlawfully remove the plaintiff as a bank signatory, secured loans from Kenya Commercial Bank, and fraudulently ousted the plaintiff from the 2nd defendant’s directorship without following the procedures set out in the Companies Act. Counsel contended that the 1st defendant did not comply with the provisions of Section 139 of the Companies Act, rendering his actions illegal and fraudulent. 11. Mr. Mogaka cited the case of Ukwala Supermarket v Jaideep Shah & another [2022] eKLR and stated that Courts may pierce a company’s corporate veil to do justice by treating a company as one with those controlling it. He argued that the plaintiff having filed a complaint with the DCI over the 1st defendant’s alleged fraudulent actions, is evidence that the 1st defendant is using the 2nd defendant as a shield to mask his misconduct, thus the plaintiff has demonstrated a strong case to warrant the lifting of the 2nd defendant’s corporate veil to hold the 1st defendant personally accountable and ensure justice is served. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 3

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12. He cited the case of Giella v Cassman Brown [1973] EA 358 and submitted that the 1st defendant’s actions are illegal and fraudulent, thus establishing a prima facie case with a high probability of success. He contended that damages would be inadequate to remedy the harm suffered, as the plaintiff owns 50% of the 2nd defendant’s assets and has been unlawfully excluded from the company since 2020. He submitted that the balance of convenience tilts in favour of the plaintiff. 13. Mr. Kalii, learned Counsel for the 1st defendant submitted that the 2nd defendant is a separate legal entity under the principle established by the Court in Salomon v Salomon Company Limited [1895-99] ALL ER 33, and only those with a legal interest in the company can act on its behalf. Counsel argued that since the plaintiff resigned as a Director of the 2nd defendant and transferred his shares, he ceased to have any role in the company. He cited the case of Christopher Mutiembu Machimbo & 3 others v County Surveyor, Trans-Nzoia & 4 others [2022] eKLR and asserted that the plaintiff has no locus standi to bring any claim on behalf of the 2nd defendant. He contended that this suit amounts to a derivative action under Part XI of the Companies Act, 2015, which can only be initiated by a member of the company and with permission from the Court, neither of which applies to the plaintiff. 14. Mr. Kalii submitted that under Section 709 of the Companies Act, 2015, it is the duty of Directors to ensure company financial statements are audited. Additionally, Section 710 provides that only members of a company can request an audit, and since the plaintiff is neither a Director nor a member of the 2nd defendant, as evidenced by its CR-12, he has no legal basis to request for an audit. He asserted that Courts can only order an audit in limited, specific circumstances, which the plaintiff has not met. Counsel relied on the case of FS v EZ [2019] eKLR and argued that the plaintiff is abusing the Court process by filing multiple suits across different Courts involving the same parties and subject matter, and seeking similar reliefs, which conduct amounts to forum shopping. Mr. Kalii referred to the case of Mugenyi & Company Advocates v The Attorney General [1999] 2 EA 199 and submitted that the plaintiff has not met the threshold to warrant being granted an order for piercing of the 2nd defendant’s corporate veil and requesting for information concerning the private details of the company. 15. He relied on the case of Paul Gitonga Wanjau v Gathuthis Tea Factory Company Ltd & 2 others [2016] eKLR, and submitted that the plaintiff’s suit lacks merits and has little chance of success. He contended that granting injunctive reliefs at this stage would prejudice and disrupt the 1st defendant’s livelihood, which depends on the 2nd defendant’s business operations. He stated that the 2nd defendant has existing business commitments, thus an injunction would lead to breaches and potential legal consequences. Counsel asserted that the plaintiff has not shown any harm that cannot be compensated by damages, hence there is no basis for granting an injunction. He referred to the provisions of Order 51 Rule 13(2) of the Civil Procedure Rules and asserted that the instant application is procedurally defective for failing to cite the correct legal provisions. Analysis and Determination. 16. I have considered the application filed herein, the grounds on the face of it and the affidavit filed in support thereof. I have also considered the Notice of Preliminary Objection and replying affidavit filed by the 1st defendant, the plaintiff’s further affidavit and the written submissions by Counsel for the parties. The issues that arise for determination arei. Whether the 1st defendant’s Notice of Preliminary Objection should be sustained; ii. Whether the instant application is fatally defective for being brought under the wrong provisions of the law; and iii. Whether the application herein is merited. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 4

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Whether the 1st defendant’s Notice of Preliminary Objection should be sustained. 17. What constitutes a valid Preliminary Objection was discussed by the Court in the case of Mukisa Biscuits Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696 as hereunder– So far as I am aware, a preliminary objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court, or a plea of limitation, or a submission that parties are bound by the contract giving rise to the suit to refer the dispute to arbitration. 18. In the said case, Sir Charles Newbold P., stated as follows… the first matter related to the increasing practice of raising points, which should be argued in the normal manner, quite improperly by way of preliminary objection. A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. The improper raising of points by way of preliminary objection does nothing but unnecessarily increase costs and, on occasion confuse issues. This improper practice should stop. 19. In the case of Omondi v National Bank of Kenya Ltd & others [2001] KLR 579; [2001] 1 EA 177, the Court gave guidance on what Courts should consider in determining the validity of Preliminary Objections in the following words… In determining (Preliminary Objections) the Court is perfectly at liberty to look at the pleadings and other relevant matter in its records and it is not necessary to file affidavit evidence on those matters…What is forbidden is for counsel to take, and the Court to purport to determine, a point of preliminary objection on contested facts or in the exercise of judicial discretion and therefore the contention that the suit is an abuse of the process of the Court for the reason that the defendant’s costs in an earlier suit have not been paid is not a true point of preliminary objection because to stay or not to stay a suit for such reason is not done ex debito justitiae (as of right) but as a matter of judicial discretion…. 20. In this instance, the 1st defendant filed a replying affidavit in opposition to the 1st defendant’s Notice of Preliminary Objection dated 19th August 2024. This on its own means that the allegations contained in the said Preliminary Objection are disputed. It is trite law that a Preliminary Objection must raise a pure point of law, it should be argued on the assumption that all the facts pleaded by the other side are true, and it cannot be raised where any fact requires proof or where the matter calls for the exercise of judicial discretion. 21. In addition to the foregoing, upon perusal of the 1st defendant’s Notice of Preliminary Objection dated 19th August 2024, the grounds raised thereunder contain disputed facts that call for this Court to interrogate evidence adduced for it to make a determination, thus it does not qualify as a valid Preliminary Objection. 22. This Court finds that the 1st defendant’s Notice of Preliminary Objection dated 19th August 2024 cannot be sustained. It is hereby dismissed. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 5

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Whether the instant application is fatally defective for being brought under the wrong provisions of the law. 23. The instant application has been brought pursuant to the provisions of Sections 141, 142, 143, 144, 145 & 148 of the Companies Act, 2015, Sections 1A, 1B & 3A of the Civil Procedure Act and all other enabling provisions of the law. Upon perusal of the provisions of Sections 141, 142, 143, 144, 145 & 148 of the Companies Act, 2015, it is evident that they provide for duties and rights of company Directors and the consequences of breach and/or threatened breach of the general duties of company Directors. The instant application however seeks injunctive reliefs, an order for disclosure of the 2nd defendant’s Directors, assets, accounts and liabilities since inception of the company, orders for preservation of the 2nd defendant’s funds in several bank accounts and its assets, and an order for audit of the 2nd defendant’s assets and accounts. 24. The 1st defendant contends that in view of the orders sought by the plaintiff, the application herein ought to have been brought under the provisions of Order 40 of the Civil Procedure Rules, 2010 which provide for temporary injunctions and interlocutory orders and Sections 709, 710, 717, & 787 of the Companies Act, 2015 which provides forauditing of company financial statements and investigation of a company's affairs. In the circumstances, save for the provisions under Sections 1A, 1B & 3A of the Civil Procedure Act, I am persuaded that the instant application has been brought under the wrong provisions of the law. 25. As to whether the instant application is fatally defective for being brought under the wrong provisions of the law, this Court refers to the provisions of Sections 1A and 1B of the Civil Procedure Act. The provisions thereunder require Courts to uphold substantive justice by giving effect to the overriding objective, which includes the just determination of proceedings, the efficient resolution of disputes, the effective use of judicial and administrative resources, and the timely and affordable disposal of cases. The effect of the overriding objective was considered by the Court of Appeal in Stephen Boro Gitiha v Family Finance Building Society & 3 others [2009] eKLR, as hereunder – The overriding objective overshadows all technicalities precedents, rules and actions which are in conflict with it and whatever is in conflict with it must give way... I must warn litigants and counsel that the courts are now on the driving seat of justice and the courts in my opinion have a new call to use the overriding objective to remove all the cobwebs hitherto experienced in the civil process and to weed out as far as it is practicable the scourge of the civil process starting with unacceptable levels of delay and cost in order to achieve resolution of disputes in a just, fair and expeditious manner. If the often talked of backlog of cases is littered with similar matters, the challenge to the courts is to use the new “broom” of overriding objective to bring cases to finality, by declining to hear unnecessary interlocutory applications and instead to adjudicate on the principal issues in a full hearing if possible. 26. Bound by the aforementioned decision, this Court finds that the fact that the instant application has been filed pursuant to the wrong provisions of the law affects its form rather than its substance. This is particularly so because the contents of the instant application would remain the same even if the plaintiff was to bring it under the correct legal provisions. 27. I am of the considered view that the issue raised is one of procedural technicality provided for under Article 159(2)(d) of the Constitution of Kenya, 2010, thus not a fatal error. Consequently, this Court finds that the instant application is not fatally defective. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 6

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Whether the application herein is merited. 28. The orders being sought by the plaintiff as framed in the instant application, are to remain in force only pending the hearing and determination of the application. That being the case, this Court is of the view that even if it was to find that the plaintiff has established a prima facie case to warrant being granted the orders being sought herein, such orders cannot be issued as they will effectively lapse upon the delivery of this Ruling. 29. To this end, I concur with the Court’s holding in the case of Catherine Njeri Macharia v Macharia Kagio & Another [2013] eKLR, where the Court when faced with a similar situation made the following observation I accept and approve the holding by Hon. Justice Lesiit in HCCC No. 329 of 2003 Ano Shariff Mohammed Vs. Abdulkadir Shariff Abdirahim and Hon. Justice Fred Ochieng in HCCC No. 2047 of 2000 Wilfred O. Musingo VS. Habo Agencies Ltd where my colleague judges were faced with applications seeking prayers similar in wording as in the instant application by the plaintiff. Justice Lesiit rendered herself as follows in the case referred to: The prayer seeks a stay of execution of decree pending the hearing and determination of this application. The issue is that once the application is heard and determined then what. I do not think the prayer is worded correctly as the stay of execution should be prayed pending something other than the application itself. Considering this prayer and the manner it is worded, it is my view that the entire application is spent and that there remains nothing for me to stay. For his part Hon. Justice Ochieng (as he then was) rendered himself thus: Now I revert to the orders sought by the Defendant. First it seeks an order of stay of execution pending the hearing and determination of this application. In other words, the very moment the court will have heard and determined the application dated 27thSeptember, 2005 there would be no orders for stay of execution. Therefore, even if I were to grant prayer 2 as prayed, it would lapse as soon as I finish reading this ruling. As on 28th October, 2005, I had already given an order staying execution until today. I hold that there is no need for the court to grant another order whose purport and effect would be the same as that which has already been given. 30. Given the wording of the prayers being sought in the instant application, there will be no orders remaining for this Court to grant or not to grant once this Ruling is delivered. 31. In the circumstances, this Court finds that the instant application is defective for not having been properly drafted. It is hereby struck out. Costs are awarded to the 1st defendant. It is so ordered. DATED, SIGNED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF SEPTEMBER 2025. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM. NJOKI MWANGI JUDGE In the presence of: https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 7

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Mr. Mogaka for the plaintiff/applicant Ms Mwangi h/b for Mr. Kalii for the 1st defendant/respondent No appearance for the 2nd & 3rd defendants/respondents Ms B. Wokabi – Court Assistant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/13874/eng@2025-09-26 8

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