Tropical Commodities Ltd v. The cashew nut board of Tanzania and another, (Commercial No. 82 of 2006)

IN THE HIGH COURT OF TANZANIA

(COMMERCIAL DIVISION)

AT DAR ES SALAAM

Commercial No. 82 of 2006

TROPICAL COMMODITIES LTD ……………………….…PLAINTIFF

VERSUS

THE CASHEW NUT BOARD OF TANZANIA …….…1^st DEFENDANT

THE PRESIDENTIAL PARATASTAL SECTOR REFORM COMMISSION..2^nd DEFENDANT

RULING

LUANDA, J

        This is a Ruling in respect of three preliminary points raised by the 2^nd defendant. It will be helpful to give a brief background to the matter.

        The above named plaintiff instituted this suit in this Court after obtaining leave to sue the 1^st defendant. The 1^st defendant is a specified public corporation. By virtue of Section 9 (1) (2) of the Bankruptcy Act, Cap 25 (1) the 2^nd defendant has been joined as the official receiver of the 1^st defendant. Leave was granted by the High Court, Dar es Salaam Registry. This was challenged by the 2^nd defendant contending that that was not proper. It was submitted on behalf of the 2^nd defendant that leave ought to have been asked in this Court (Commercial Division).

        With due respect, that argument does not hold. This is a division of the High Court; meaning it is part and parcel of the High Court; it is not a separate Court. The application for leave to sue which was granted was properly made in that Registry.

        Be that as it may, the three points raised in the 2^nd defendant’s written state ment of defence are:-

(i)                  The suit against the 2^nd defendant is premature or has abated for want of compliance with the provisions of Section 37 of the Bankruptcy Act, Cap. 25 read together with rules 1,2,3 and 4 in the Second Schedule to  the said Act.

(ii)                 The Court lack original jurisdiction to entertain and determine the matter.

(iii)                No cause of action has been disclosed as against the 2^nd defendant.  

On the available facts disclosed in the pleadings, I think the last point could be disposed of right away. Paragraph 3 of the plaint clearly states that the 2^nd defendant is joined as an official receiver of the 1^st defendant - a specified public Corporation. And in their written statement of defence the 2^nd defendant did not challenge or oppose that averment. The 2^nd defendant cannot now be allowed to challenge the same at this stage as that goes contrary to one of the cardinal principles in pleadings namely, parties are bound by their pleadings. The same is dismissed. I will thus discuss the two remaining points. In this matter Mr. Lutema learned counsel represented the Plaintiff; whereas Mr. Fungamtama advocated for the 2^nd defendant. And the parties were ordered to argue the matter by way of written submissions which they complied with.

        In his opening remarks Mr. Fungamtama comment on the failure on the part of the plaintiff to reply to para 7 of their written statement of defence in that the plaintiff did not register their debt with them as stated in the Daily News paper of 27^th May, 1997. He submitted that that should be taken as admission.

        In reply to this ground Mr. Lutema said that the Court should not consider that ground at his juncture. The matter should be considered at the trial. I join hands with Mr. Lutema. First, the matter was not raised as one of the preliminary point in the pleadings. Second, even if it was raised in the pleadings, the question raised is not one of law which is capable of disposing of the entire case. The point raised doesnot fall within the ambit of preliminary point. In Mukisa Biscuit Manufacturing Co. Ltd Vs West End Distributors Ltd [1969] EA 696 the Court of Appeal for Eastern Africa observed, at page 700 thus:-

“ So far as I am aware, a preliminary objection consists of a point of law which has been pleaded or which arise by clear implication out of the pleadings, and which if argued as a preliminary point may dispose of the suit. Example are an objection to the jurisdiction of the Court ……..”

[Emphasis Mine]

I now move to discuss the remaining points raised. Mr. Fungamtama argued the two points together. Basically Mr. Fungamtama argued that debts against a specified public corporation must first be submitted to the official receiver; in our case the 2^nd defendant for proof by way of an affidavit. This is a condition precedent. In case this condition is not complied with, anyone who rush to the Court of law without first submitted his claim to the official receiver has no cause of action and the Court has no jurisdiction to adjudicate the same. To buttress up his case Mr. Fungamtama cited Section 37 of the Bankruptcy Act, Cap. 25 and Sub – rules (1), (2), (3) and (4) of Rule 1 in the Second schedule to the said Act. He also cited the following cases (i) William Kimaro and 475 others Vs Coppers and  Lybrand and Another [1996] TLR  252 and (2) John Paulo V National Milling Corporation and PSRC Civil Case No. 105 / 2003 High Court ( DSM Registry – Unreported) and (3) Hamisi Salum and another Vs Kilimanjaro Hotels Ltd and PRSC . Misc. Civil Appeal No. 309/ 2002 High Court (DSM Registry – Unreported)

Responding, Mr. Lutema submitted that the objections raised have no merits and they should be dismissed. He gave three reasons. First, the requirement to prove claims by way of affidavit is applicable to companies which are under liquidation (or winding up) or to individuals who are under bankruptcy proceedings under the supervision of an official receiver. The requirement doesnot apply to specified public Corporations as they are neither bankrupt nor insolvent. Second, the receivership by the 2^nd defendant is not automatic but is only exercisable when it is performing liquidation proceedings against a specified public corporation which is insolvent. Third, the procedure of proving debts in bankruptcy is different from the procedure of proving debts in liquidation (winding up) of insolvent companies.

        As regards the decisions of William Kimaro and John Paul cases cited supra, Mr. Lutema said the cases cited are not relevant because the corporation which is not a company is not undergoing winding up processes. And so the Company Act, Cap. 212 and its rules are not applicable. Basically those were the reasons for and against the preliminary points raised.

        Like Mr. Fungamtama, I will discuss the two remaining preliminary points together. Section 37 of the Bankruptcy Act, Cap. 25 reads.

37. With respect to the mode of proving debts, the right of proof by secured and other creditors, the admission and rejection of proof and the other matter referred to in the Second Schedule to this Act, the rules in that Schedule shall be observed.

It is Mr. Fungamtama’s contention that the word “shall” is mandatory. And So Rule 1 (1) to (4) in the Second Schedule should be followed. The Rule provides:-

1.   (1) Every Creditor shall prove his debt as soon as may be after the making of a receiving order

(2) A debt may be proved by delivering or sending through the post in a prepaid letter to the Officer Receiver, or, if a trustee has been appointed to the trustee, an affidavit verifying the debt.

(3) The affidavit may be made by the Creditor himself, or by some person authorized by or on behalf of the creditor. If made by a person so authorized it shall state his authority and means of knowledge.

(4) The affidavit shall contain or refer to a statement of account showing particulars of the debt, and shall specify the vouchers, if any, by which the same can be substantiated. The Official receiver or trustee may at any time call for the production of the vouchers.

I have carefully read the above law as well as powerful submissions made by both learned counsel. Let me confess that the matter has taxed my mind a great deal. But all the same I am duty bound to hand down a decision.

        After a public corporation has been declared a specified public corporation which is taken as insolvent, in terms of Section 43 (1) (b) of the Public Corporation Act, Cap. 257 R.E. the Presidential Parastatal Sector Reform Commission (hereinafter referred to as the Commission) has power and all the rights of an Official receiver appointed in accordance with or pursuant to the Bankruptcy Act, Cap. 25. But what is the status of an official receiver? The answer is provided under Section 75 of the said Act. The Section reads:-

75 (1) The duties of the official receiver shall have relation both to the conduct of the debtor and to the administration of his estate.

(2) The official receiver may, for the purposes of affidavits verifying proofs, petitions or other proceedings under this Act.

(3) All provisions in this or any other Act, referring to the trustee in a bankruptcy shall, unless the context requires otherwise, or the Act provides otherwise, include the official receiver when acting as trustee.

(4) The trustee shall supply the official receiver with such information, and give him such access to and facilities for inspecting the bankruptcy books and documents, and generally shall give him such aid, as may be requisite for enabling the official receiver perform his duties under this Act.

The question which taxed may mind is whether the entire Bankruptcy Act, Cap. 25 is applicable to a specified Public Corporation. Indeed that is the crux of the matter. But before I answer that question, I think it is appropriate at this stage to cite Section 43 (2) (a) of the Public Corporation Act, Cap. 257 so as to see the intention of the Parliament. The Section reads:-

43 (2) Without prejudice to sub-section (1) of this Section the Commission shall (a) in relation to a specified public corporation which is insolvent.

(i) have power to liquidate a specified public corporation in accordance with the companies Act.

(ii) have power to determine an alternative restructuring option.

My understanding of the above Section is that in case a specified public corporation is insolvent, the Commission have power either to liquidate in accordance with the Company Act or have power to determine an alternative restructuring option. The Commission cannot do both at the same time.

        Indeed, on a careful reading of that provision I think the Parliament did not intend the law of bankruptcy to apply when it deals with an insolvent specified public Corporation though the same is applicable at the declaration stage of such corporation.  The Parliament intended the law of bankruptcy to apply to a specified public corporation at a declaration stage only. And the reason behind that is not far to seek – to protect the assets of that Corporation from its Creditors. Of course, even the applicability of that law of bankruptcy to specified Public Corporation is a misnomer as that the law deals with individual natural person and not a corporate body. I am fortified with this view by the definition of what bankruptcy proceedings are all about. The Osborne Concise Law Dictionary 6^th Edition defines thus – Proceedings in the High Court (or certain County Courts) for the distribution of the property of an insolvent person among his creditors and to relieve him of the unpaid balance of his liabilities.  Be that as it may, I am of the settled mind that save the declaration stage, the entire law of bankruptcy do not apply to insolvent specified public Corporation. The appropriate law is the Companies Act, Cap. 212. I agree with Mr. Lutema on this point.

        In our case the Commission did not indicate by words or conduct to have intended to liquidate the said Corporation. It is clear that the question of liquidation is out of place. On the contrary the notice published to the general public in the Daily News of 27/5/1997 which is annexed in the 2^nd defendant’s written statement of defence is very clear. The notice reads in part as follows:-

“…….the PSRC is now fully responsible for the devising and implementing divestiture of these companies. No action would be executed on the assets of the companies without the knowledge or/ and prior approval of the PSRC. The PSRC will ensure orderly privatization of those Companies and Secure the interests of all the creditors and all other parties concerned with the law”.    

From above the case of William Kimaro is distinguishable with this one. In that case one of the issue discussed was how to prove a debt involving a company which was undergoing liquidation. The Court of Appeal of Tanzania held, inter alia, that such debt must be proved by affidavit as required by the Companies (Winding up) Rules, 1929. In our case we have seen the company (corporation) is not undergoing liquidation processes. It is being restructured or privatized. The Winding up Rules, 1929 do not apply.

        As regards the cases of John Paul and Kilimanjaro Hotel cited supra I have the following to say. In those cases the High Court (DSM Registry) held that once a corporation is declared a specified public corporation then the Companies (Winding up) Rules, 1929 come to play no matter whether at later stage it will undergo liquidation or privatization. I think we have seen the Rules are only applicable when a corporation is undergoing liquidation and not when it is privatized. They do not apply.  

        In sum, the preliminary points raised have no merits. The same are dismissed with costs.

B. M. Luanda

JUDGE

28^th May, 2008

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