Annah Gathoni Karagu v Munyaka Kuna Co Ltd & 7 others

3. An injunction to restrain the 2nd to 8th defendants from changing, altering or in any way interfering with the shareholding and records of the company as currently held with the Registrar of Companies. 4. An order to compel the 2nd to 8th defendants to produce the company’s books of records, banking slips, audited financial accounts, bank statements from 2014 to date that are in their custody. 5. Appointment of a Certified Public Accountant and/ or Certified Fraud Examiner or other competent inspector to inspect the company’s affairs and to report on its legal and financial standing. 2. The application is supported by the affidavits sworn by the plaintiff on 21.11.2024 and 15.03.2025 and written submissions dated 22.5.2025. 3. The defendants opposed the application through a replying affidavit sworn by the 2nd defendant on 28.1.2025. Applicant’s case 4. The applicant’s case is that she is a majority shareholder in the company and that the 2nd to 8th defendants have been mismanaging the company. She accuses the defendants for operating the company in an opaque and clandestine manner. She also faults them for concealing the company’s records and titles of assets, bank accounts, failing to disclose the company’s staff and their pay; drawing hefty allowances without the shareholders’ approval, colluding with the auditor in preparation of audit reports to conceal the company’s actual financial position and borrowing a loan of Kshs. 46,000,000/without members’ approval. 5. The applicant contends that the 2nd to 8th defendants have fraudulently and un procedurally ousted her as a director and interfered with the shareholding structure to gain an unfair advantage over other shareholders. She also contends that they have legitimized unqualified shareholders to become members of the company. She referred to the CR12 which encompasses three additional directors to the minimum of seven. 6. The applicant argues that the 2nd to 8th respondents’ actions have only served to injure the company. That the instant application is meant to establish accountability and transparency in the way the company is managed to the benefit of all shareholders. That it is only fair, just and reasonable that the court exercises judicial discretion in the applicant’s favour. 7. The applicant relied on Ghelani Metals Limited & 3 Others v Elesh Ghelani Natwaral & Another, [2017] eKLR on the objective of derivative claims. The applicant cited Isaiah Waweru Njumi & 2 others Muturi Ndungu, [2016] eKLR on the factors to be considered in such an application. 8. The applicant asserted that she has met the requirement for seeking leave to continue the suit and that she has demonstrated a prima facie case. In support, she relied on Amin Akberali Manji & 2 Others v Atlaf Abdulrasul Dadani [2015] eKLR, Kebenei v African Grain Equipment Limited & 2 Others (Misc Civil App E183 of 2022) [2024] KEHC 6193 (KLR), Giella v Cassman Brwon and Co. Ltd 1973 EA 360 and Mrao v First American Bank of Kenya Ltd and 2 others [2003] KLR 125. 9. The applicant relied on Hermant Devji Jethwa v African Boot Company Limited [2020] eKLR on the issuance of books of records and inspection of a company’s affairs. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1153/eng@2026-01-29 2

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Response 10. The 2nd to 8th respondents denied that the applicant is a majority shareholder in the company. The respondents also denied her allegations of opaqueness, negligence, default or breach of duty on their part that warrant the prayers sought. 11. The respondents stated that they have been in office since July 2022 apart from the Board’s Chair who was elected in 2019. They also indicated that they have weeded out illegalities of the past directors including the applicant whose tenure as director was tainted with misappropriation of company funds obtained through a loan. 12. The respondents highlighted that the applicant served as a director of the company between 30.7.2016 and 30.7.2022 and that on 30.7.2022 she lost re-election as a director. That she was then elected as a member of an ad-hoc committee mandated to investigate the company’s past affairs. That the committee found that former directors illegally awarded themselves shares whose purported owners were not known to the company or shares forfeited. 13. The respondents asserted that the applicant’s diminished dividends from Kshs. 555,000/- in 2018, Kshs. 389,900/- in 2022 and Kshs. 184,800/- in 2023 was due to an adjustment of her actual correct shareholding in the company following the report by the ad-hoc committee which she was a part of. 14. The respondents argued that as a shareholder and a former director, the applicant is aware and has information about the company’s real properties and other assets, declared during Annual General Meetings (AGMs). 15. The respondents indicated that the company’s bank account details, signatories and books of accounts are well kept, audited and provided to shareholders during the AGM’s. They also stated that staff members’ details and their remuneration is also disclosed to shareholders. That dividends are computed by the company’s accountants. That the 3 additional directors in the CR12 were erroneously listed and the error has been rectified. Analysis and Determination 16. The questions before the court are; whether the leave to continue the derivative action and the injunctive reliefs sought should be granted. 17. As a general rule, the company is the proper entity to sue for a wrong committed against it. Foss v Harbottle [1843] 2 Hare 461 18. However, one of the exceptions to the rule in Foss v Harbottle [supra] is a derivative claim brought under section 238 of the Companies Act by a member of a Company in respect of a cause of action vested in the Company, seeking relief on behalf of the Company. 19. The applicant ought to establish that she is a member of the company; that the action is vested in the company and that the reliefs is sought on behalf of the company for its own benefit and not for personal gain or benefit. 20. But, the member of a company making the application ought to seek permission of the court to commence or continue with a derivative claim. Section 239 (1) of the Companies Act. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1153/eng@2026-01-29 3

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21. The principles for consideration by the court in determining this were well captured in the Issaiah Waweru case [supra] as follows: “ …the Court is guided by the considerations stipulated in section 241(2) of the Companies Act. 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.” 22. I have considered the evidence presented. The respondents exhibited a copy of the minutes of the AGM held on 20.07.2022 showing that the applicant was elected as part of the ad hoc committee. The ad hoc committee’s report dated 29.07.2023 shows that former directors illegally awarded themselves shares; that the applicant was involved in the Kshs. 46,000,000/- borrowed without the members’ approval. A decision was taken to suspend all the directors involved including the applicant. By a letter dated 29.02.2024, the company informed the applicant that a decision was made to terminate her directorship at an AGM held on 30.7.2024. 23. The applicant claimed that she was removed as a member of the company. However, I note that the respondents did not challenge the applicant’s membership but challenged the claim that she was a majority shareholder. The respondents explained that the applicant’s shareholding was traceable to her late father in law, Kariuki Muchubi alias Ishumael Kariuki. The respondents exhibited a CR12 https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1153/eng@2026-01-29 4

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showing that the estate of Kariuki Muchubi was a shareholder. The respondents explained that the reason that the applicant’s dividends were reduced was due to the finding that the former directors illegally awarded themselves shares. 24. The respondents exhibited the chairman’s/ director’s reports of 27.07.2024 and the minutes of the AGM held on the same date showing updates of company’s assets and annual audit reports for year ended 31.12.2022 and 31.12.2023. 25. The applicant complained of three (3) illegal additional shareholders. The respondents exhibited a CR12 dated 6.11.2024 showing the correct 7 directors who currently hold office. The respondents stated that the 3 additional directors in the CR12 were erroneously listed and the error has been rectified. The applicant’s assertion was therefore truthful. Nevertheless, as the ‘error’ has been corrected, there may be no need for any intervention by the court. The alleged ‘error’ should also be explained to the members in a formal sitting of the members. For now, I hope such ‘error’ will not occur again for it is prejudicial and expensive to afford in an enterprise for it is a downright deprivation of property and violation of the law and the constituting instruments of the company. 26. In light of the facts of the case, before I close, I should state in passing that, matters complained of may be resolved in the first instance, through the internal mechanisms of the company properly convened with due notice to all members of the company including the applicant. Others may be resolved through the power vested in the registrar or through private action. The applicant should engage those processes formally. 27. For example, the applicant should formally request the company ‘to provide the member with a copy of the directors' statement or auditor's report,’ and the company is obligated ‘to comply with the request within seven days after receiving the request, subject to payment of the prescribed fee (if any)’. Section 768(5) of the Companies Act. 28. No member should be vanquished or made a persona non grata in the company and company affairs. Dividend, alteration of shareholding, membership and running of the affairs of the company must be in accordance with the law and the constituting instruments of the company. The asset profile or portfolio of the company is not a personal information to be kept secret from the members of the company. Such must always be provided to the members as required in law. The respondents must ensure compliance with the law to avoid future litigation for derivative suit such as this or protection from oppressive or prejudicial conduct. 29. Be that as it may, on the basis of the material presented, I am not satisfied that, on the material presented before the court, the applicant has established a prima facie case for grant of permission to commence or continue with a derivative action. As a consequence, I find that the applicant has not met the threshold for the grant of permission under section 239 (1) of the Companies Act. 30. I decline to grant the applicant permission to pursue the case as a derivative claim. 31. Once permission is declined, the other reliefs for injunction sought fall by the wayside. In this eventuality, it may not be possible to find that the applicant has established a prima facie case for the grant of injunction. Giella case [supra]. 32. The relief for inspection of company books or investigations of company affairs was not properly laid out or proved as required in law. The relief therefore, also fails. 33. Given the circumstances of this case, each party shall bear own costs. DATED, SIGNED AND DELIVERED THROUGH APPLICATION THIS 29TH DAY OF JANUARY, 2026 MICROSOFT https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1153/eng@2026-01-29 TEAMS ONLINE 5

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........................ F. GIKONYO M JUDGE In the presence of: Muriuki for plaintiff Kimani Kinoti for defendants Absent CA - Kinyua https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/1153/eng@2026-01-29 6

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