The High Court has dismissed a request to jail six directors of financially troubled retailer Ukwala supermarkets over their alleged failure to refund Sh5 million they received from two investors.
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Court dismisses bid to jail Ukwala directors in failed store sale
The High Court has dismissed a request to jail six directors of financially troubled retailer Ukwala supermarkets over their alleged failure to refund Sh5 million they received from two investors.
The investors, Jaideep Shah and Kamal Shah, had wanted to buy an Ukwala outlet but the deal failed. The money was paid in August 2012.
The amount has now increased to Sh8,721,526 due to interest and the costs of the court case. The two wanted the court to lift the corporate veil of Ukwala Supermarkets Ltd.
Their request was based on a court order dated October 1, 2019 in which the retail chain was directed to refund the money paid by the pair as a deposit for the sale of a business named “Ukwala C".
They argued that they stood to suffer irreparable loss because the directors had begun transferring and disposing of the company’s properties to third parties and companies affiliated to them.
Auctioneers instructed by the two investors had sold some of the attached properties and had only earned Sh551,383 from the sale.
The two said the directors were intending to defraud them.
No evidence
But Justice Reuben Nyakundi ruled that there was no evidence to prove the allegation that the Ukwala directors were selling their known assets with the intention of defrauding the investors.
"There is no demonstration at all of the alleged fraudulent intent by the directors of Ukwala. It was incumbent upon the applicants to provide such evidence in order to benefit from this relief. Without this evidence, the application cannot succeed," said the judge, adding that piercing the corporate veil is an equitable remedy.
Court papers show that the dispute stemmed from an aborted transaction in which the investors were to take up the business within two months including furniture, fixtures and business exclusive of stock. The agreed price was Sh20 million and a monthly rent of Sh750,000.
The directors are listed as Shah Rohit Maganlal, Anikumar Khimji Haria, Sandeep Kumar Nemchand Shah, Mansukh Premchand Shah, Dodhia Vijay Jayntilal and Manish Nemchand Shah.
Court papers show that Mr Haria, a businessman operating Ukwala-Eldoret since 1999, entered into a contract on August 28, 2012 with the two investors for the sale of the business “Ukwala C” to them.
Sh5 million deposit
They paid a deposit of Sh5 million and the balance of Sh15 million was payable within 12 months. The investors were to take over the branch by the end of October but they did not do so because Ukwala sold the property to Eldoret Mattresses Ltd in February 2013.
Evidence showed that Ukwala sold the building together with the fixtures, fittings and furniture to Eldoret Mattresses for Sh5.8 million without involving the two investors.
"Before the 12 months had lapsed by which the two investors were to have cleared the balance of Sh15 million Ukwala had already sold the premises to Eldoret Mattresses Limited," said Judge Stephen Githinji in the 2019 judgment.
He continued: "No claim or demand had been made to the two buyers of which they had failed to meet in relation to the contract. They were not given notice about the said sale. Part of furniture and fixtures they had bought were sold to Eldoret Mattresses Limited".
He found that Ukwala had breached the contract. It had sold the fixtures and furniture twice.
