EAST AFRICAN DEVELOPMENT BANK v GODES LIMITED 1989 TLR 122 (HC)

 

EAST AFRICAN DEVELOPMENT BANK v GODES LIMITED 1989 TLR 122 (HC)

Court High Court of Tanzania- Dar Es Salaam

Judge Bahati J

20 July, l989 G

Flynote

Company Law - Winding-up proceedings - Proceedings based solely on a disputed

debt - H Whether petitioner is a creditor - Whether petitioner has a locus standi.

Company Law - Winding-up proceedings - Failure of respondent to file affidavit in

opposition within the prescribed time - Whether court has discretion to extend the

time to file affidavit in opposition - Rule 35 of the English Companies (Winding-up)

Rules, 1929, I s.248 of the Companies Ordinance, Cap. 212.

1989 TLR p123

BAHATI J

-Headnote

While counsel for the petitioner argued that the respondent had no locus standi

because A of failure to file an affidavit in opposition within the prescribed period

and that the court had no power to enlarge that time, counsel for the respondent

charged that the petitioner had no locus standi because the sole basis of the

proceedings was a disputed debt which did not make the petitioner qualify as

creditor. B

Held: (i) Although the provision of rule 35(1) of the Winding-up Rules, 1929 do not

confer upon the court discretion to enlarge time for filing of affidavit in opposition to

petition, the second proviso to section 348 of the Companies Ordinance, when C

interpreted liberally allows such discretion;

(ii) the order of the Registrar giving more time to file the affidavit was

perfectly in order and the respondent has a locus standi to appear and defend the

petition;

(iii) since the petition is based solely on a disputed debt the petitioner has no

D locus stand in this matter since he is not a creditor within the meaning of section

169 of the Companies Ordinance.

Case Information

Petition dismissed. E

Mkono, for petitioner

Mkatte, for respondent

[zJDz]Judgment

Bahati, J.: Mr. Mkono learned counsel for the petitioner submitted that he had a

preliminary objection to make. He then went on to present his objection which was

to F the effect that in as much as the respondents failed to file their affidavit in

opposition to the petition within 7 days of the date on which the affidavit verifying

the petition was filed, then they cannot file it at any other time after that. Mr. Mkono

referred to Rule G 35(1) of the English Companies (Winding-Up) Rules, 1929 which

are made applicable to Tanganyika by section 348 of the Companies Ordinance, Cap.

212. He argued further that since we are dealing with applied law the rules are

mandatory. Mr. Mkono revisited the facts in this case which were that the affidavit

was ordered to be filed on H 7/6/89 when the respondents had been served on

6/5/89. This would be 24 days after the last day in which they could file their affidavit

in opposition and that as such they were completely barred from appearing in court

or to do anything in relation to this winding up. Mr. Mkono submitted further that

there was no provision in the law for an I extension of time to file an affidavit in

opposition to a petition for

1989 TLR p124

BAHATI J

winding up. He referred to section 2 of the Civil Procedure Code and submitted that

the A Civil Procedure Code was inapplicable because there was specific provision on

winding up proceedings namely the Winding Up Rules. He submitted also that

because the affidavit in opposition to the petition was not made in time he found no

cause to B answer it within 3 days as rule 35(2) of the Winding-Up Rules requires.

Mr. Mkono submitted that because of what he had said above, there was no affidavit

in opposition to the petition and therefore the respondents were strangers to the

petition and they cannot plead anything as the petition remains undefended. He

prayed that the liquidator be C appointed. He concluded that in case the court ruled

otherwise then he would ask for leave to file a reply to the affidavit in opposition to

the petition.

In reply Mr. Mkatte, learned counsel for the respondent company submitted that the

D preliminary objection was misconceived. He argued that after the petition was

filed on 6/5/89, there was a notice given to the respondent dated 6/5/89, requiring the

respondent to appear before the Registrar on 13/5/89. Mr. Mkatte appeared on that

date and it was agreed that the reply to the petition be filed by 9/6/89. Mr. Mkatte E

submitted further that the Court in its inherent jurisdiction made the order as to

when the reply to the petition should be filed. He went on to submit that meanwhile

a chamber application had been filed for appointment of a liquidator and the hearing

of it was to be F on 16/6/89. On 16/6/89 Mr. Mkatte sought leave to file a counter

affidavit to the application for appointment of a liquidator and leave was granted

without any opposition and the petitioner's advocate applied to file a reply to the

counter affidavit which was yet to be filed first. Then the matter came for hearing.

Mr. Mkatte submitted that he agreed with the rules of the Companies (Winding-Up)

G Rules 1929, but he invited the court to look at the proviso to section 348 of the

Companies Ordinance Cap. 212. He contended that what was done by the court in

this case was not inconsistent with the provisions of Cap. 212. He therefore submitted

that he was properly and competently before the court. As for Mr. Mkono's prayer for

leave H to file a reply, Mr. Mkatte contended that he should not be granted leave

because he had been given more than 3 days to do so.

Mr. Mkatte then went on to argue his own preliminary point which is to the effect

that the petition is based on a guarantee given by the respondent, but that the

respondent is I contending that he is discharged from the guarantee by reason of

material variation of

1989 TLR p125

BAHATI J

the agreement. He submitted that it is arguable whether the respondent is liable on

the A guarantee or not, and under section 48 and 85 of the Law of Contract

Ordinance there are arguments to be resolved. Concerning the letter replied on in

para 10 of the petition, Mr. Mkatte contended that in the respondent's affidavit it was

averred that the letter was B obtained by undue influence and coercion. He

submitted that because of this it was not meet that a provisional liquidator be

appointed. He contended that such liquidator would have no locus standi unless the

two legal points raised above are resolved and that the dispute over the guarantee can

only be resolved in another way other than the petition, C because once a debt is

disputed then no proceedings for a petition based on the debt can be entertained and

should be dismissed. He said that the rationale for that was that the petitioner is not a

creditor in terms of section 169 of the Companies Ordinance and therefore he cannot

petition for a winding up of the company. D

Mr. Mkatte referred the Court to various authorities. The first authority was Re

Tanganyika Produce Agency Ltd. [1957] E.A. 241 which held that a disputed debt

cannot be used in winding up proceedings. Then he referred to case of Re Lympne

Investments Ltd [1972] 2 All ER 385 which held that: E

(i) it would be wrong to stand over a winding up petition in order that the

disputed issues might be resolved in other proceedings; F

(ii) when a debt was disputed on substantial grounds the petitioner was not

a creditor within the meaning of section 244 of the Companies Act who had a locus

standi to present a petition even if the company were insolvent; and G

(iii) the exercise of a dispute on substantial grounds as to the existence of a

debt defeated the contention that the company had "neglected" within the meaning

of section 223(a) of the Companies Act to pay the debt. H

The other authority was the case of Mann and Another v Goldstein and Another

[1968] 2 All ER 769 at 776i and 778c and f. It was held here that as the existence of

the debt on which each winding-up petition was founded was disputed on grounds

showing a substantial defence requiring investigation, the petitioner did not establish

that I he was a creditor and thus had the locus standi to

1989 TLR p126

BAHATI J

present the petition and the companies court was not the appropriate court to decide

the A dispute; accordingly, the presentation of the petitions was an abuse of the

process of the court, and injunctions would be granted restraining, until trial or

further order, the advertisement or prosecution of the winding-up petitions. B

Mr. Mkatte also referred to Palmer's Company Precedents 17th Edition at page 26. He

prayed for a ruling to the effect that the petitioner has no locus standi and the

petition to be dismissed with costs.

In reply, Mr. Mkono submitted that there was no way in which the winding up rules

C could be avoided and that even the inherent powers of the court could not be used

to override the express provisions of the law, and a violation of the rules could not be

good grounds for dispensing justice. He went on to argue that the petition did not

concern only the petitioner as there were another creditors who had joined this

petition. Mr Mkono D conceded however that where there is a dispute about the

debt there cannot be a winding up. Concerning the validity of the guarantee, Mr.

Mkono stated that issue was sub judice. He however reiterated his stand that the

petition was undefended as nothing E had been filed in answer to it in time. He even

stated that he was prepared to enter a consent judgment to the effect that as far as the

guarantee matters are concerned, they should be stayed.

Mr. Mkono further submitted that a provisional liquidator should be appointed

because the petition was undefended. He also said that the insolvency of the

respondent had not F been denied.

Mr. Mkatte was allowed to reply in connection with his preliminary point and he

elaborated on what was meant by section 169 of Cap. 212. He submitted that if the

petitioner has no locus standi there cannot be any question of a liquidator being

appointed. G

The points for consideration and decision in this case are not many. One of them is

with regard to the preliminary point of Mr. Mkono to the effect that since the

affidavit in answer to the petition was filed out of time the petition is undefended and

counsel for the respondent cannot appear in any manner in court. I can see the force

of the argument of H Mr. Mkono. It is quite correct to say that this court must apply

the Companies (Winding-up) Rules of 1929 in terms of section 348 of the Companies

Ordinance Cap. 212. It is also quite correct to say that rule 35(1) of those Rules which

are English Companies Rules, requires the affidavit in opposition to the petition for a

winding up to I be filed within 7 days of the date on which the affidavit verifying

the petition is filed. The respondent

1989 TLR p127

BAHATI J

did not file the affidavit in opposition within 7 days. According to rule 35(1) he was

out A of time. But that is not all. We have a rather peculiar situation. I will set out

the facts briefly because Mr. Mkatte did already refer to them in his submission.

When the petition was presented to the court, the Registrar issued a notice of a

petition for winding up to the respondent notifying the respondent of the

presentation of the petition and of B the date for the mention of the petition. The

petitioner was being required by that notice to appear in court for the mention of the

petition. The notice of the petition was directed to be sent to the respondent's

advocate and copy to the petitioner's advocate. The C appearance was to be seven

days from the date of the notice. On 13/5/89 both advocates appeared and it was

ordered that the affidavit in opposition should be filed by 9/6/89 and the case would

be mentioned on 10/6/89. Now, in view of the above facts, can it be said that the

respondent was time barred to present his affidavit in answer to D the petition?

According to rule 35(1), he was certainly out of time. But it is the court itself which

made an order that he should file his affidavit by 9/6/89 which would be over 30 days

since the affidavit verifying the petition had been filed. Mr. Mkono argues that even

the court cannot extend the time to file the affidavit in opposition once the E

prescribed time has passed because that would be a violation of the rule and that the

court had no inherent power to order an extension after the time had lapsed.

Mr. Mkatte thinks otherwise. His stand is that the respondent did everything in

obedience to the orders of the court. He cannot be said to have done anything wrong

F and that the court certainly had power to do what it ordered. I should add on the

record that the petitioner's counsel never objected to the order of 13/5/89 giving the

respondent time to file his affidavit by 9/6/89. It would appear that the provisions of

rule 35 were not in the contemplation of the petitioner's counsel or the Registrar of

the High Court. It G seems to me that the process set out on 13/5/89 cannot be

reversed. If the petitioner had any objection to what was being ordered by the court

on 13/5/89 he should have pointed out to the court about rule 35. The respondent was

led into believing that all was in order. The petitioner is now estopped to raise this

argument about the 7 days H limitation according to rule 35.

Whereas I can see nothing in rule 35 which gives power to the Court to extend the

time for the filing of an affidavit in opposition, I am unable in the circumstances of

this case to hold that the preliminary point of Mr. Mkono should be sustained because

such point I should have been raised at the first appearance in court.

1989 TLR p128

BAHATI J

Service on the respondent was on 6/5/89 and the parties appeared in court on 13/5/89

A and agreed to the affidavit in reply to be filed by 9/6/89. The petitioner cannot be

heard now to say that the affidavit in opposition was filed out of time when he

consented to the court making an order that it be filed after more than 7 days. It

would be inequitable to sustain the petitioner's objection in this case. B

In Miscellaneous Civil Case No. 128 of 1968 - In Matter of petition under section 163,

167, and 169 of the Companies Ordinance - In re African Marble Company Ltd

(unreported) Mapigano, J. made a ruling in connection with the non-compliance by

the C petitioner with rule 27 of the Companies (Winding-up) Rules 1929 and rule

29. These rules require the verification of the petition by an affidavit within 4 days

after the petition is presented (rule 29), and the advertisement of the petition seven

days before the hearing (rule 27). None of these matters had been done by the

petitioner. Mapigano, J. D observed in his ruling thus: "I should think that the noncompliance

in this matter was purely due to the ignorance of the rules on the part of

the petitioner and its advocate and not a deliberate one. I apply my discretion and

grant the petitioner 21 days from today to rectify the errors". E

A reading of rules 27 and 29 will show that no discretion for extension of time within

which to do what is required in the rules is provided in these rules; just like is the case

with rule 35(2). Yet the court in that case allowed the petitioner more time to do

what is required by these rules. With respect, I agree with the ruling of Mapigano, J.

which F exhibits good sense and equity. In our case, the position is similar. The

learned Registrar gave the respondent with the consent of the petitioner time to file

the affidavit in answer to the petition. I am of the view that the learned Registrar had

power

to do so. It seems to me that the second proviso to section 348 of the Companies G

Ordinance would appear to allow such a thing when interpreted liberally. The

interpretation of rules 27 and 29 by Mapigano, J. to include a discretion of the Court

to extend time for the doing of what the rules require, would appear to be based on

the liberal and wide interpretation of the second proviso to section 348, and I agree

with H such interpretation. I would therefore overrule Mr. Mkono's preliminary

point and hold that the affidavit in opposition to the petition is properly before the

court and that the respondent has a locus standi in these proceedings.

The other important point for consideration and decision concerns the preliminary

point I raised by Mr. Mkatte for the respondent to the effect that the petitioner has

no locus standi. I

1989 TLR p129

BAHATI J

have already set out the arguments for and against this point. The law on this point is

A very clear and it is as per the authorities cited by Mr. Mkatte namely that a

disputed debt cannot be used in a winding up proceedings (vide Re Tanganyika

Produce Agency Ltd supra). Then there is Re Lympne Investments cited above which

held: (i) it would be wrong to stand over a winding up petition in order that the

disputed issues B might be resolved in other proceedings; (ii) when a debt is disputed

on substantial grounds the petitioner was not a creditor within the meaning of section

244 of the Companies Act who had a locus standi to present a petition even if the

company were insolvent; (iii) the existence of a dispute on substantial grounds as to

the existence of a C debt defeated the contention that the company had "neglected"

within the meaning of section 223(a) of the Companies Act to pay the debt. With

respect, I entirely agree with the holding in the above cited cases. Indeed even Mr.

Mkono did not seriously disagree with the above holdings. He seemed to be

submitting that the petition should be stayed D to await the decision on the

guarantee liability. With respect to Mr. Mkono, that would not be possible and

indeed the cases just cited would appear to be against that.

In the answer to the petition the respondent annexed various documents showing

that the E debt in question is seriously disputed and that there are firm grounds for

the dispute.

Furthermore there is the case of Mann and another v Goldstein and another also cited

above which held that as the existence of the debt on which each winding up F

petition was founded was disputed on grounds showing a substantial defence

requiring investigation, the petitioner did not establish that he was a creditor and

thus had the locus standi to present the petition and the companies court was not the

appropriate court to decide the dispute; accordingly, the presentation of the petitions

was an abuse G of the process of the court, ...

Mr. Mkatte had equated the English Companies Act section 224 with out section 269

of the Companies Ordinance. I agree that the substance of these 2 section are the

same. Furthermore I also agree with the holding in Goldestain's case above. H

Now, in view of the above authorities and in view of what is contained in the answer

to the petition, since the petition is based solely on a disputed debt, I agree with Mr.

Mkatte that the petitioner has no locus standi in this matter since he is not a creditor

within the meaning of section 169 of the Companies Ordinance. I will I

1989 TLR p130

therefore sustain Mr. Mkatte's preliminary point and hold that the petitioner has no

locus A standi in this matter. I therefore dismiss the petition with costs.

Petition dismissed.

1989 TLR p130

B