11 April 2014

Kenya: Kericho Tea Audit Blocked

Two prominent Mombasa based businessmen suffered a blow yesterday when the High Court sitting Kericho stopped them from conducting a forensic audit of a private tea factory in Kericho County.

Kericho Resident Judge Justice Joseph Sergon set a side orders issued to David Langat and Ismail Gulamali to appoint auditors to investigate the financial affairs of Kapchebet Tea factory Company Limited in Kericho West district in the county.

This brings to a halt the forensic audit exercise which the two businessmen have been conducting for the last one month. They had appointed Mokua Onwonga and Associates to investigate the financial status of the tea factory.

While setting the orders a side, Justice Sergon observed that the two businessmen who are the majority shareholders of the tea factory arrogated themselves the power of appointing investigators and or inspectors contrary to section 165 and 166 of the Companies Act.

The judge said he was convinced by the respondents submission that Section 165 and 166 of the Companies Act only gives powers to the court to appoint auditors, inspectors or investigators on the request of the members to investigate or inspect the affairs of the company.

Justice Sergon said the private auditors appointed by the applicants will not be under the control and direction of the court and concurred with the respondents that the orders were being executed by people who are strangers to the court.

"I have considered the respondent's submission that the orders were executed by people who are strangers to the court and may not be under the control and direction of the court," Justice Sergon observed.

The five who includes the chairman of the tea factory Mr. Stephen Kenduiywa together with Joel Sang, Joseph Ngetich and Roderick Kenduiywa have been named as respondents while Jonah Keter, also a director has been enjoined in the case as an interested party.

The two businessmen had in February this year obtained interim orders to appoint auditors to conduct a forensic audit of the company's financial status and avail a report of their findings within 60 days.

Justice Sergon had also compelled the five respondents, company auditors, bankers, suppliers, corporate secretaries and staff to cooperate and assist the said auditors with documents and information to facilitate the forensic audit.

The duo who are represented by Mombasa based lawyer Sheila Muthee claimed in the suit that their fellow directors and core-shareholders have excluded them from running the affairs of the company and that they were not aware of the company's financial status.

They have filed a suit against their fellow directors and co-shareholders of the tea company seeking orders to appoint auditors to inspect and investigate the affairs of the company and more particularly conduct a forensic audit of the company's financial status.

However, the respondents through their lawyers Charles Opulu and Enock Miruka filed an objection in court seeking a stay of execution of the exparte orders and stop the forensic audit.

Lawyer Opulu had told the court that section 165 to 172 of the Companies Act do not give powers to the applicants to investigate their fellow directors saying the jurisdiction to appoint auditors and inspectors is vested with the court.

On her part Muthee for the applicants defended the manner in which his clients used to obtain the orders citing that the provision of section 211 of the Companies Act permitted them to file the suit.

Opulu had pointed out to the court that the applicants used the exparte orders to paralyze the business and operations of the tea factory claiming and yet the tea factory was not a party to the suit.

Yesterday, Justice Sergon noted that the respondents through their counsels argued that the order could not be executed against the company as it was never directed at the tea factory.

In his ruling, the judge said that issues raised by the respondents are pertinent in the administration of the company affairs that they should not be taken lightly.

"In my view, the dispute before this court is basically that involving directors /shareholders of the company.

The orders sought and issued have obviously affected the company which is not a party to these proceedings," Justice Sergon noted.

Justice Sergon, however ruled that the main application which is pending before court which was filed by the two businessmen seeking orders to restrain the respondents from running the affairs of the factory will proceed to full hearing.

The trial judge set the case to be mentioned on 28th May 2014 to confirm compliance and set a hearing date.

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