Success Electronics and Transformer Manufacturer Limit v Kilewah Electro Hard & Electronics Limited

NIKKON LEDXION Luminaire described as 125W KO9121 NIKKON 5433 (“ the consignment”). Success Electronics states that Kilewah received the consignment in August 2017 but has failed to pay the outstanding amount, despite multiple assurances, for over two years. That on 27th June 2019, Success Electronics served a statutory demand on the Respondent for payment of the outstanding amount but Kilewah has neither paid the amount nor complied with the demand. 2. Kilewah responded to the Petition through the affidavit of its Managing Director, George Kimani Kariuki, sworn on 9 th November 2020. He claims the statutory demand dated 27th June 2019 was never served on the company or its directors and that he only became aware of it after being served with the petition and upon perusal of the court file by his advocates. Any alleged service on an employee is denied, as Kilewah avers that the employee is not conversant with court processes and may have misplaced or ignored the document. 3. Kilewah denies entering into any supply contract with Success Electronics, specifically the agreement dated 18th May 2017 for the supply of the consignment and it also denies ever receiving the consignment in August 2017 or at any other time. That no assurances, verbal or written, were ever given regarding 2|Page

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settlement of the purported debt and Kilewah asserts that the debt claim is absurd, misplaced, and/or misdirected and that the statutory demand arising from it is a nullity ab initio. 4. Kilewah seeks to have the statutory demand struck out or set aside and the petition dismissed with costs and it asserts that the petition is a choreographed move by Success Electronics to tarnish Kilewah’s good corporate image and drive it out of business. It claims to be a reputable company with high credit ratings and government contracts and as such prays that the petition be dismissed with costs for being malicious, an abuse of court process and offending the provisions of the Insolvency Act. 5. The Third Parties(“Hyperteck” and “Mr. Mwangi”) responded to the Petition through the affidavit of Mr.Mwangi sworn on 1st March 2024. They depone that the agreement dated 18th May 2017 was for the supply of the consignment and that its total value was USD 248,100 and it was to be imported by Hyperteck and stored in Kenya. That the contract expressly stated that consignment would not be dispatched until full payment was made by Hyperteck 6. Hyperteck claims that it incurred significant costs in importing the consignment including Kshs.3,500,000.00/= being clearing and forwarding costs, Kshs.2,248,000/= being the deposit before shipment from Malaysia, USD 5,300 being shipping and inspection 3|Page

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charges and USD 10,000 being costs for a 20-foot container and that the total costs incurred was approximately Kshs.7,278,000.00/=. That the Third Parties were able to deliver and sell 839 units, valued at USD 142,630 and the remaining 591 units, valued at USD 100,470 are still unsold and stored at the Third Parties' yard. The Third Parties aver that Succes Electronics through its director acknowledged the unsold units in an email dated 5th December 2018 and that the Petitioner is at liberty to collect the remaining 591 units from their warehouse. 7. The Third Parties state that the alleged debt is misleading and disputed on bona fide and substantial grounds and that Success Electronics has not exhausted other remedies, such as filing a suit for recovery of the money. Hyperteck states that it is financially sound, with substantial tenders and ongoing performance for various clients. As such, the Third Parties urge the court to strike out the petition. 8. The parties have also supplemented their arguments by filing written submissions which I have considered and I will be making relevant references to the same in my analysis and determination below. Analysis and Determination 4|Page

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9. From the parties’ submissions, the following issues fall for the court’s determination: a) Whether there is a debtor- creditor relationship between Success Electronics and Kilewah b) Whether the Statutory Demand issued by Success Electronics was properly served upon Kilewah accordance with section 384(1) (a) of in the Insolvency Act c) Has Kilewah established existence of genuine dispute in respect to the debt? Existence of a creditor-debtor relationship 10.Success Electronics stated and submitted that a valid debtorcreditor relationship exists and it relied on the agreement dated 18th May 2017 and it pointed to Delivery Orders and Bill of Lading showing Kilewah as consignee and Success Electronics as shipper/exporter. It further relied on the letter dated 3rd July 2017 from Kilewah authorizing clearance agents and it invoked the court's ruling of 11th June 2020 which found a nexus between the parties. Success Electronics submitted that Mr. Mwangi had ostensible authority to bind Hypeteck under the Turquand's Rule and section 34 of the Companies Act and it contended Kilewah has not provided reasonable grounds to dispute the debt. 11.In response, Kilewah submitted that no debtor-creditor relationship exists as the agreement was executed by Hyperteck and not 5|Page

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Kilewah as the stamp on the document belongs to the former. That the signatory, Mr. Mwangi, Kilewah and all is not a director or shareholder of email correspondence was through @hyper*****.com and not Kilewah’s domain. Kilewah averred that it never ordered, received, or authorized the consignment and it accused Success Electronics of forgery of its signatures and official stamp on the authorization letter and that Kilewah is a separate legal entity and cannot be held liable for its contracts. 12.I have gone through the pleadings, evidence and submissions on this issue. The evidence indicates that the stamp on the contract dated 18th May 2017 belongs to Hyperteck Electrical Services Limited and not Kilewah. It has not been disputed that the signatory, Mr. Mwangi, is not a director of Kilewah and that the email domain@hyper******.com is that of Hyperteck and not Kilewah. The SWIFT payment shows that it is made by Hyperteck to Success Electronics in Malaysia. Hyperteck also asserted and it was disputed that it imported the consignment and incurred costs and the CR 12 annexed by Success Electronics indicates that its directors are George Kimani Kariuki and Leah Wanjiku Gateru and Mr. Mwangi is not listed therein. I find that these evidence supports Kilewah’s and the Third Parties’ position that there does not exist a 6|Page

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creditor-debtor relationship between Success Electronics and Kilewah. 13.Whereas the court's ruling of 11th June 2020 found that there exists a nexus or Debtor/Creditor relationship between the Petitioner and the Respondent, it should not be lost that this ruling was preliminary and interlocutory and it merely found a prima facie nexus sufficient to avoid striking out the petition. It was not a definitive determination of liability. Further, I agree with Success Electronics that third parties dealing with a company in good faith are not required to inquire into the regularity of internal proceedings and that a person dealing with a company is entitled to assume, in the absence of circumstances putting them on inquiry, that there has been due compliance with all matters of internal management of the company (see Royal British Bank v Turquand 1856 A 11 ER. 886; “the Rule in Turquand” and Samuel Mureithi Murioki &another; v Kamahuha Limited [2018] KECA 38 (KLR). However, this argument fails for Succes Electronics because a reasonable party would have been put on notice that they were dealing with Hyperteck and not Kilewah since the evidence as stated above shows that there was a different stamp,email domain and signatory. Success Electronics also 7|Page

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had direct dealings with Hyperteck as evidenced by the SWIFT payment from Hyperteck. 14.I therefore reiterate that there is no clear debtor-creditor relationship between the Success Electronics and Kilewah and that the contract appears to have been made with Hyperteck. Service of the Statutory Demand 15. Success Electronics stated that service of the Statutory Demand was properly effected in compliance with section 384(1)(a) of the Insolvency Act and it relies on the court's ruling of 11th June 2020 which found that service was done on 28th June 2019 and that Kilewah did not controvert this fact. 16. In response, Kilewah stated that service was not properly effected as the Statutory Demand was never served on the Respondent or its directors, that any alleged service on an employee is denied as the employee is not conversant with court processes and may have treated it as ordinary correspondence and that the Respondent only became aware of the demand after being served with the petition and perusing the court file. 17. I find that Kilewah is repeating the same arguments it made before and that nothing has changed since the court’s finding on 11th June 2020. Service was effected at Kilewah’s registered office which is 8|Page

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the requirement under section 384(1)(a) of the Insolvency Act which provides that “if a creditor (by assignment or otherwise) to whom the company is indebted for hundred thousand shillings or more has served on the company, by leaving it at the company's registered office, a written demand requiring the company to pay the debt and the company has for twenty—one days afterwards failed to pay the debt or to secure or compound for it to the reasonable satisfaction of the creditor;” Personal service on directors is not required because service at the registered office is sufficient and Kilewah cannot defeat service by claiming an employee misplaced the document. 18. It is therefore my finding that the statutory demand was properly served on Kilewah at its registered office on 28th June 2019. Dispute on the debt 19.Success Electronics submitted that the debt is not genuinely disputed and that Kilewah has merely made bare assertions and mere denials without providing reasonable grounds as it has not provided any evidence to disprove the contract, the delivery, or the indebtedness. Further, that Kilewah’s allegations of forgery are unsupported by material evidence. In response, Kilewah avers that the debt is genuinely disputed on substantial 9|Page

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grounds as the contract was executed by Hyperteck a separate legal entity, that Mr. Mwangi is not an agent or director of Kilewah, that Kilewah has never ordered or received the goods and it accuses the Success Electronics of forgery of signatures and stamps. It also stated that Hyperteck and Mr. Mwangi have admitted the transaction confirming the dispute involves them, not Kilewah. 20.In re Mugoya Construction & Engineering Company Limited [2015] KEHC 2023 (KLR), the court (Gikonyo J.,) restated that ‘It is not sufficient for a company to say ‘we dispute the debt’; they must show some reasonable ground for doing so.’ Kilewah relies on the case of Flower City Limited v Polytanks & Containers Limited (Insolvency Cause 033 of 2020) [2021] KEHC 34 (KLR) where Mativo J., ( as he was then) held as follows in respect of the provisions of setting aside a statutory demand:A reading of the above provision leaves no doubt that the existence of a genuine dispute regarding the debt is a sufficient ground for the Court to set aside a statutory demand. The policy underlying this provision is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. Put differently, the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. The Court must be satisfied that 10 | P a g e

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there is a claim that may have some substance. Talking about a claim that has substance, it is important to mention that it is often possible to discern the spurious, and to identify mere bluster or assertion. A dispute that has substance should have a sufficient objective and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. When a Debtor claims to have a counter-claim within the meaning the above regulation, the Court will normally set aside the Stationary Demand if, in its opinion, on the evidence there is a genuine triable issue. The function of the bankruptcy Court, on the hearing of an application brought under Regulation 17(6) is not to conduct a full hearing of the putative claim. Rather, it is simply to determine whether the claim in question, after having regard to “all the circumstances,” raised a ‘genuine triable issue.’ (Emphasis added). 21.Having gone through the pleadings and evidence, I am inclined to agree with Kilewah that dispute is disputed on genuine and reasonable grounds because as I have found, the contract appears to have been between Success Electronics and Hypteck as opposed to Kilewah. The Third Parties themselves have acknowledged the transaction and they admitted to receiving the consignment but claim a significant portion remains unsold in their yard and they 11 | P a g e

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invited Success Electronics to collect them. Whereas this narrative directly contradicts Kilewah’s claim of having no connection to the transaction, it nonetheless confirms that the debt is not straightforward or undisputed. It is therefore my finding that the debt is genuinely disputed on substantial grounds and that this is not a mere denial but a substantive dispute involving a different legal entity, a different signatory and serious allegations of forgery. 22.It is therefore my finding that while Success Electronics has satisfied the technical requirements of section 384 of the Insolvency Act, including demonstrating proper service of the statutory demand, the existence of these substantial factual disputes means the liquidation petition is not the appropriate remedy. It should not be lost that the purpose of insolvency is not to decide contested commercial disputes but to deal with companies that are clearly and undisputedly insolvent. The Court of Appeal noted as much when it held as follows in Kevian Kenya Limited v Hipora Business East Africa Limited [2025] KECA 1195 (KLR): 35. It is trite law that insolvency proceedings are not to be used to resolve substantial factual disputes or contested debts. The applicable principle, as articulated in Re Africa Safari Club Limited and restated in numerous authorities, is 12 | P a g e

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that a petition for liquidation will not be entertained where the debt is bona fide disputed on substantial grounds. 23. This court (Mwita J., as he was then), in Elmarak Limited v Afrikon Limited [2023] KEHC 300 (KLR) cited the decision of Mohammed Amin Brothers Ltd v Dominion of India & others AIR 1952 Cal 323, 54 COWN 514, where Harris, CJ stated:A winding up petition is perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the court gives to a creditor against a company unable to pay its debts…A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bonafide disputed by the company. 24.Therefore, the proper course of action would be for Success Electronics to pursue its claim for the outstanding sum through a civil suit, where the factual disputes regarding the contract, the parties involved, and the alleged forgery can be properly examined and determined. Until the debt is established by a court of competent jurisdiction, it cannot form a valid basis for a liquidation order. Conclusion and Disposition 13 | P a g e

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25.In the foregoing, the petition dated 2nd September 2019 is dismissed with costs to the Respondent and the Third Parties to be borne by the Petitioner. DATED SIGNED and DELIVERED virtually at MACHAKOS this 30TH DAY OF JULY 2026 ............................................................................ J.W.W. MONGARE JUDGE IN THE PRESENCE OF 1. Ms. Wameyo holding brief for Mr. Kuyo for the Petitioner. 2. N/A for the Respondents. 3. Mr. Orenge for the Interested Parties. 4. Amos/Godfrey - Court Assistant 14 | P a g e

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