Infinity Industrial Park Limited v Bank of Baroda (kenya) Limited & 2 others

the appointment of the Administrators was lawful in the first place. The Company relies on Mukisa Biscuit Manufacturing Co Ltd V West End Distributors Ltd, [1969] EA 696 for the proposition that a preliminary objection must be capable of disposal on assumed facts, without embarking on disputed questions of fact or merit. 3. This Court had occasion to consider the proper confines of a preliminary objection on comparable arguments in Glee Hotel Limited (Under Administration) V Equity Bank (Kenya) Limited & Kamal Anantroy Bhatt, IC No. E045 of 2026. The observations made there bear directly on the present Objection, and I reiterate them as follows: “ It is my considered view that neither Mukisa Biscuit Manufacturing Co. Ltd V West End Distributors [1969] EA 696 nor Oraro V Mbaja [2005] 1 KLR 141 stands as authority for the proposition that a preliminary objection is barred merely because the Court is called upon to have regard to some facts. Every point of law properly so called, including questions of jurisdiction or limitation, both of which were cited in Mukisa Biscuits as paradigm examples of pure points of law, necessarily requires that much. What is barred, rather, is an objection that is obscured by, or entangled with, contested factual details that fall to be established through the ordinary processes of evidence.” 4. Turning to the matter before me, certain matters are not disputed as to their occurrence, whatever dispute exists as to their legal consequence. These are that an appointment of the Administrators was purportedly made under section 534 of the Insolvency Act, that a notice of appointment, together with supporting documentation, was lodged with the Court on 11th August 2026, as confirmed by the CTS, that the said order has not been stayed or set aside, that the Notice of Motion dated 12th August 2026 was filed seeking to challenge the appointment of the Administrators thereafter, in the name of the Company instituted by the directors and supported by the affidavit of Ashok Shah. 5. The Company does not deny that any of these facts occurred. What it disputes is their legal consequence. At paragraphs 30 to 33 of its submissions, the Company contends that the documentation lodged in support of the appointment may not have complied with the requirements of section 537 of the Act. At paragraph 41, it goes further and contends that the appointment of the Administrators was, on that account, not lawfully made. Neither contention is a denial of the facts of the occurrence of events. They are, properly understood, challenges to the validity of what occurred. Since the matters set out above are advanced by the Company only as unlawful, and not as untrue, they remain undisputed as facts, and it is on that undisputed footing that this Objection falls to be determined. 6. The Company’s challenge to the underlying regularity of the appointment and issues as to whether the Debenture satisfies section 534(2), whether the charge was enforceable under section 536 and whether the statutory declaration under section 537 was accurate remains fully open to be litigated, but it is not a precondition to the appointment having taken formal effect on 11th August 2026, and it need not be resolved by this Court in order to dispose of the present Objection. 7. I agree with the submission made by the Bank and the Administrators that the Court is not required to make any finding on that question in disposing of this Objection. That question remains reserved, in its entirety, for determination on its merits, if at all, and I do find that the objection is properly before the Court. 8. Turning to the substance of the arguments, section 538 of the Insolvency Act provides that the appointment of an administrator under section 534 ‘takes effect when the requirements of section 537 are satisfied’. Section 537, in turn, prescribes the formal steps by which such an appointment https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13135/eng@2026-08-25 2

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is perfected, through the lodging with this Court of a notice of appointment, accompanied by a statutory declaration attesting to the appointor's status as holder of a qualifying floating charge, to the enforceability of that charge, and to compliance with the Part, together with a statement of consent and opinion from the administrator so appointed. 9. It is the satisfaction of these formal requirements and not any independent proof of the matters attested to in the declaration, that the Act identifies as the trigger for the appointment to take effect. In other words, there is a rebuttable presumption created under section 538 of the Act that the requirements of section 537 have been complied with and that the appointment is valid. In my view, it is not difficult to discern Parliament's intention in this regard. It is designed, firstly, to avoid any ambiguity as to precisely when an administration begins. Ambiguity that would otherwise leave company management in limbo and, secondly, to avoid a flood of applications that would undermine the ability of debenture holders to effectively exercise their rights following default, while still preserving an avenue for the Court to determine any legitimate issues that arise. 10. This position was confirmed in In re Arvind Engineering Limited, [2019] KEHC 12266 (KLR) where the Court held: “ Unlike a person who has applied to Court for an Administration order, the appointment of an administrator by the holder of a qualifying floating charge is achieved by compliance of the provisions of section 537 in conjunction with those of Regulation 102. Once there is compliance then the Administration takes effect (section 538). No fuss, no need for Court approval! It is indeed an out of Court appointment of an administrator.” 11. It was equally reiterated in Glee Hotel Limited (supra) in the following words: “ The appointing holder is required, pursuant to Section 537 of the Act, to lodge with the Court a notice of appointment, accompanied by a statutory declaration in the prescribed form. It is upon compliance with the requirements of Section 537 that the appointment takes effect, in terms of Section 538, without need for further sanction of the Court, and is, in that sense, extra-judicial in character. ... This notwithstanding, the Act reserves to the Court distinct and important powers of intervention, exercisable both in respect of the validity of the appointment so made and in respect of its continuance thereafter. These reserved powers ensure that, notwithstanding the extra-judicial character of the appointment, it does not thereby escape the reach of judicial scrutiny in a proper case.” 12. Applying that approach here, the appointment of the Administrators took legal effect, for the purposes of section 538, upon the lodging of the notice on 11th August 2026. The Company was, from that date, "under administration" within the meaning of section 521 of the Act. 13. The consequence of this is that Section 581 of the Act took effect. It provides that: “ (1) A company under administration, or an officer of a company under administration, shall not perform or exercise a management function without the consent of the administrator. (2) For the purpose of subsection (1)— a. "management function" means a function or power that could be performed or exercised so as to interfere with the exercise of the administrator's functions; and https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13135/eng@2026-08-25 3

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b. consent may be general or specific." 14. The question is whether the institution of the Notice of Motion dated 12th August 2026, in the name of the Applicant company, by its directors, constitutes the performance or exercise of a “management function” within section 581(2)(a). This Court has already had occasion to consider this precise question. In In re Agro Irrigation and Pump Services Limited (Insolvency Cause E025 of 2023) [2024] KEHC 13790, a preliminary objection was raised in materially identical terms, that a director's application challenging an administration had been filed in violation of section 581, by instructing an advocate without the administrator's consent. 15. The Court in that matter (Mabeya, J), drew a clear distinction. It held that the mere act of appointing an advocate to bring an application challenging the administration does not, of itself, violate section 581 as that step alone does not interfere with the exercise of the administrator's functions. The defect identified by the Court in that case was more specific. The Court noted that the application had been “purported to be made on behalf of the company”, when “it should have been made for and on behalf of” the directors in their personal capacity. It was the fact of instituting the matter in the Company's own name and standing, rather than the personal standing of the directors, that the Court treated as the operative problem. 16. That position is applicable here, and it resolves against the Company. This is not a case in which the directors instructed advocates to challenge the administration in their own names. The affidavit evidence on record clearly indicates that the Notice of Motion dated 12th August 2026 was filed, and has at all times been prosecuted, in the name of the Company itself. That is precisely what In re Agro Irrigation identified as exceeding the bounds of what a director may do unilaterally once a company is under administration. That is because it is a function that, if exercised without consent, is capable of interfering with the Administrators' conduct of the administration. 17. Locus standi is not a mere technicality that can be cured in the course of hearing a substantive application. It goes to the very root of the Company's capacity to have moved this Court at all. Where that capacity is wanting, the application cannot be said to be properly before the Court, however meritorious its underlying grounds may ultimately prove to be, if at all. It is on this ground alone and without need to venture into the disputed question of the appointment's validity, that the Preliminary Objection succeeds. 18. For the sake of finality, I also address a further issue raised in the objection, namely, that no evidence was produced to show that Ashok Shah had authority to institute these proceedings on behalf of the Company. I do not find this ground fatal to the application. It is now well settled that a defect of this nature is a curable procedural defect. Proceedings instituted without such proof may be ratified, and a board resolution establishing the requisite authority may be filed at any time before a matter is set down for hearing, without invalidating either the suit or the affidavit filed in the interim. This approach is consistent with the position taken in Peeraj General Trading & Contracting Company Limited, Kenya & Another V Mumias Sugar Company Limited [2018] KEHC 10055 (KLR) and in Kaiser Investments Limited V Hua Run Company Limited & 3 Others [2021] KEHC 6598. 19. Finally, I consider it necessary to address one further issue that was raised by the 1st Respondent, albeit only in written submissions, again for the sake of finality. The 1st Respondent contends that the Company’s Notice of Motion is fatally defective, on the basis that the proceedings ought to have been instituted by way of a Plaint or Summons. https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13135/eng@2026-08-25 4

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20. I reiterate, once more, the decision in Glee Hotel, as follows: “ It is my considered view that the Insolvency Act does not simply adopt the procedural framework of the Civil Procedure Rules by way of silent incorporation, but rather establishes its own, self-contained procedural universe through the operation of sections 591, 592 and 604 thereof. Of particular significance is section 692, which independently empowers the Court to grant injunctions in certain specified circumstances. That power is not couched in terms ancillary to a pending suit at all. Rather, it is engaged wherever the Court is satisfied that a person has engaged, or is threatening to engage, in conduct constituting a contravention of, or a failure to comply with, the provisions of the Act. I make this observation because it seems to me that the character of an insolvency cause of this kind cannot be properly appreciated if one insists on measuring it against the template of an ordinary civil suit. A suit, in the conventional sense, is litigation from its very first breath. An insolvency cause commenced by notification under sections 534 and 537 is nothing of the sort. It does not open as an adversarial proceeding at all. It opens, quite literally, as a notice to the Court that a state of affairs has changed and that an administrator has been appointed over a company. At that point there is no plaintiff, no defendant, and no dispute for the Court to try. The cause is, in that sense, dormant. It exists as a docket under a single cause number, but it carries no litigious content of its own until something happens within it. It is only when a party such as the company, the administrator, a creditor, or any other person with a recognized interest invokes one of the powers the Act reserves to the Court, that the cause acquires an adversarial character for the first time. Mayaka (supra), is directly instructive in this regard. That decision established that an injunction sought under the Insolvency Act's own framework is not the same juridical creature as an Order 40 injunction, and is not parasitic on a conventional suit. I agree with the approach taken by the Court (Mabeya J) in which the Court struck out a plaint and an application for injunctive relief arising from insolvency proceedings holding instead that the plaintiffs should have instituted the current proceedings within Insolvency Cause No. HCCOMMIP E009 of 2021 In the Matter of General Printers Ltd. I therefore do not accept that the absence of a suit is fatal to the competence of an injunction sought under the insolvency framework.” 21. I adopt that reasoning in this case and do find and hold that the proceedings as instituted by the Company, subject to all the other observations made, is not necessarily fatal for this reason. Disposition and Final Orders 22. Having said all this, I ask myself, what, then, is the proper order to issue? I have declined to deal with the substantive issues raised in the application dated 12th August 2026, but it remains common ground that the application seeks to reverse the impugned appointment. This is a commercial court, and commercial disputes are best resolved within a commercially viable environment, one that favours substance over form, and finality over procedural attrition. 23. The justice of this matter requires a measured response. While the preliminary objection must be upheld, to strike out the application altogether would be a drastic and disproportionate outcome, particularly where the underlying dispute remains untested on its merits. Fairness demands that the Company be given the opportunity to have its grievance heard properly. I will therefore extend a lifeline https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13135/eng@2026-08-25 5

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to the Company. It may withdraw the present application and file a proper one, correctly instituted, within 14 days. 24. As to costs, notwithstanding these mixed determinations, the Preliminary Objection is substantially upheld, and it is only fair that costs follow that outcome. Costs of this Preliminary Objection are accordingly awarded to the 1st Respondent, to be paid not by the Company itself, but by the persons who caused the Notice of Motion to be filed in its name. DATED, SIGNED AND DELIVERED AT NAIROBI THIS 25TH DAY OF AUGUST 2026. F. MUGAMBI JUDGE https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13135/eng@2026-08-25 6

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