CIV/APN/23/2005

IN THE HIGH COURT OF LESOTHO

HELD AT MASERU

In the Matter Between:-

THABISO THAKASO 1st APPLICANT

JOBO MAKHALANYANE 2nd APPLICANT

And

LEBOHANG SEPEPANA 1st RESPONDENT

M.A. SELEPE 2nd RESPONDENT

STANDARD BANK OF LESOTHO 3rd RESPONDENT

TROPICAL INFOTECH SOLUTIONS (Pty) Ltd 4th RESPONDENT

FRED ISHWU 5th RESPONDENT

REGISTRAR OF COMPANIES 6th RESPONDENT

ATTORNEY GENERAL 7th RESPONDENT

JUDGMENT

Delivered by the Honourable Madam Justice N. Majara on 9th August 2005

Applicants herein approached this court on an urgent basis seeking an order in the following terms:

1. Dispensing with the periods and modes of service of this Honourable Court on account of urgency.

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2. A Rule Nisi be and is hereby issued calling upon respondents to show cause (if any) on a date to be determined by this Court why:

1. 1st and 2nd Respondents shall not be interdicted from signing any documents under the style of Tropical Info Tech Solutions (PTY) LTD.

2. Interdicting 1st and 2nd Respondents from transacting any business under the style of Tropical Info Tech Solutions (Pty) LTD.

3. Interdicting 1st and 2nd Respondents from effecting any changes to the name Tropical Info Tech Solutions pending finalization of this application.

4. Directing 1st and 2nd respondents from representing themselves as signatories to Bank account of Tropical Info Tech Solutions with third Respondent.

5. Directing 3 rd Respondent not to honour cheque and a transaction of Tropical Info Tech Solutions (PTY) LTD account signed and authorized by 1st and 2nd Respondents.

6. Directing 4th Respondent to expunge the name of 2nd Respondent as Director of Tropical Info Tech Solutions.

7. Declaring the purported change of directors in Tropical Info Tech Solutions null and void.

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8. Reinstating 1st and 2nd Applicants as directors of Tropical Info Tech Solutions,

9. Declaring purported meeting of 11th November if there had been any meeting at all null and void.

3. Costs of suit on Attorney and clients scale against 1st and 2nd Respondents and ordinary costs against 3rd, 4th and 5th Respondents in the event of opposition.

3. Prayers 1, 2, (a) - (e) to operate with immediate effect as interim orders.

On the 17th January, 2005 applicants were granted the Interim Order by my brother Peete J and the rule was made returnable on the 20th January 2005. On the return date the rule was extended and this happened for several times until the 2nd May when Counsel for applicants, Mr. Metlae moved an application before this court to go and restructure his answering affidavit. On the same date Mr Nathane, counsel for respondents moved an application for this court to set aside applicants' notice to discover and to award respondents costs as he contended that the former had taken an improper step. I however ruled in favour of

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applicants and gave my reasons thereof. The matter was then postponed to the 13th May for hearing and on the date it duly proceeded before me.

In their answer to Applicants' claim as stated in the Notice of Motion, and per 1st Respondent's answering affidavit, Respondents raised some points in limine and these were;

1. That applicants herein have no locus standi in judicio to bring the present proceedings inasmuch as they were not members of the 4th respondent in terms of Section 27 (1) and (2) of the Companies Act No 25 of 1967.

2. That applicants further lack locus standi in judicio in that even if they are assumed to be Directors of the 4th Respondent herein, 4th Respondent has not resolved to authorize them to institute the present proceedings.

3. Applicants herein are not shareholders in the 4th Respondent inasmuch as no shares have been allotted to them in accordance with the provisions of Sections 51 to 56 of the Companies Act No 25 of 1967 and thus, lack the necessary authority even on this facet, to institute these proceedings.

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In his replying affidavit, 1st Applicant denied that he has no locus standi because as he alleged, after 1st Respondent invited him to join 4th Respondent as a shareholder, he agreed as per Annexure A and he thus became a shareholder. The said annexure which was attached in the court file evidences the disposal of shares by 2nd and 5th respondents as well as an agreement allocating shares to 1st Applicant. These averments were acknowledged by 1st Respondent in his Answering Affidavit. 1st Applicant added that he did not need authorization from 4th Respondent because the present proceedings were not instituted on its behalf hence why it was cited as a co- Respondent herein.

It was also 1st Applicant's case that 1st Respondent had also not purchased any shares in 4th Respondent because as the latter readily admitted, he did not have to purchase any shares as he was contributing his skills to the company. It was Applicants' contention that per the provisions of the Companies Act, no shares can be purchased by discount and that contribution of skills amounts to purchasing shares by discount.

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I now proceed to deal with the points raised by both Applicants and Respondents respectively. I may however add that some of the points that Applicants raised also touched on the actual merits of this application.

Lack of Locus standi in Judicio.

In my humble opinion, in casu, applicants would have locus standi if they were either members and/or directors of 4th Respondent. A member is described under Section 27

(1) and (2) of the Companied Act No 25 of 1967 in the following terms;

"The subscribers to the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members.

Every other person who agrees to become a member of a company, and whose name is entered in its register of members, shall be a member of the company"

On the question of directorship, Section 140 in turn provides that;

"Every company not being a private company shall have at least two directors and every private company at least one director, and every company shall have a secretary."

Bearing the above provisions in mind, in the court file, there are inter alia two documents, Annexures A and B respectively. The former is a document titled Memorandum of Agreement For Disposal of Shares in which 5^th

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and 2nd Respondents signed to offer and dispose of their entire shareholding in 4th Respondent and 1st Applicant and 1st Respondent acquired shares to the value of M500.00 each. This document was signed on the 15th September 2003. I however found that there was no properly effected subscription nor registration in accordance with the provisions of Section 27 (!) and (2) as cited above. Because of these reasons I find that Applicants herein are not lawful members of 4th Respondent.

Annexure B in turn is titled Tropical Info Tech Solutions (Proprietary) Ltd Reg. 03/364 Register of Directors, Managers and Secretaries. It is adocument styled in pursuance of Section 158 of the Companies Act. Per the contents of this document, 1st Respondent, and the two applicants herein were appointed on the 29th September 2003 whilst both 5th and 2nd Respondents resigned on the same day. On the face of it, this document appears to have been registered with the Registrar of Companies as per the attached date stamp of the 13th October 2003.

The way I see it, Annexure B is proof that Applicants herein were appointed as Directors and/or managers of 4th Respondent. This however does not mean that where one is a director, one is necessarily a shareholder. It

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happens all the time that companies appoint non-members to become directors of their companies, sometimes for administrative and other purposes, especially where the shareholders themselves do not possess the know-how to run a company. Even 1st Respondent acknowledged this fact i.e. that applicants are at best Directors, as per the contents of paragraph 10 of his answering affidavit. This is further reinforced by the provisions of Section 141 of the Act viz; "the acts of a director or manager shall be valid notwithstanding any defect that may afterwards be discovered in his appointment (my underlining) or qualification."

However where a person has been appointed as a director but is not a shareholder, my understanding is that he can only possess the locus standi to bring legal proceedings concerning the business of the company if he has been so duly authorized by the company. With regard to the contention that Applicants had not been authorized to institute these proceedings by 4 Respondent and as such have no locus standi, I agree with Applicants that they did not need any authority from 4th Respondent to cite him as one of the Respondents. However, I find that as non-members, they still do not have the locus standi to bring proceedings whereby they are seeking the prayers as stated in the Notice of Motion.

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In addition, as was conceded by 1st Applicant, there was never any call up by 1st Respondent for them to purchase the shares after the initial agreement as per the contents of Annexure A. As a result, no shares were allotted to them in accordance with the provisions of Sections 51 to 56 of the Act.

Furthermore, upon perusal of the court file, nowhere did 1 find copies of shares certificates as proof that any of the people whose names appear in the two Annexures but for 1st Respondent, are shareholders. Only his share certificate has been attached in the court file albeit bearing the date of 17th September 2004, which was after about a year since Applicants herein came on board and conflicts had already started within the company. The issue of the said conflicts is evidenced by Annexure C which is a letter from 1st Respondent's Counsel, dated the 6th April 2004 wherein 1st Respondent was opting to withdraw from the company on certain conditions as a result of the said misunderstandings.

At any rate, most of the facts herein are common cause in so far as the invitation to and acceptance by Applicants to join the company, the registration of Applicants as directors and the disposal of shares by 5th and

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2nd Respondents are concerned. What seems to be the bone of contention aside from the allegations of mismanagement of funds leveled against 2nd Respondent, is the issue of whether in law, applicants are shareholders of the 4th Respondent which in turn would entitle them to seek the prayers as stated in the Notice of Motion.

In his Answering affidavit, paragraph 14 thereof, lst Respondent averred that lst Applicant never bought any shares in the 4 Respondent and thus, never lawfully acquired any shareholding in the 4 Respondent. He went on to state;

...moreso when he admittedly never had any technical expertise which he could offer in means of payment for the aforesaid shares. On the other hand, my shareholding in the Fourth Respondent herein was secured by my technical expertise, something which is well within the ambit of the Companies Act."

Further, in paragraph 30 of his answering affidavit, 1st Respondent averred that Applicants cannot be declared as shareholders and directors respectively because as per his contention, this court has no power to sanction illegalities.

Without necessarily giving a detailed account of the averments as they appear in all the affidavits which have been filed herein, suffice is to say that

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at the time that the Company was purportedly formed and the subsequent change in shareholding effected, there never was any compliance with the provisions of the Companies Act in so far as subscription and/or purchase of shares is concerned by all the parties cited herein. Even the share certificates which have been annexed came into being long after the fact and for that reason this court does not accept them as legitimate proof of compliance at the material time. Their issuance clearly did not comply with the requirements of Section 78 (1) of the Companies Act as far as the time limits are concerned. In other words, I find that 4th Respondent does not exist as a legal entity at all.

Over and above this, on the one hand, 1st Applicant acknowledged that he never paid for the shares because lst Respondent never called up for same. On the other hand 1st Respondent also acknowledged that he only contributed his expertise towards the shareholding in the 4th Respondent. Although 1st Responded contended that this is sanctioned by the Companies Act, nowhere did I find a provision allowing a person to purchase shares through contributing his expertise. Furthermore, 1st Applicant contended that at any rate 2nd and 5th Respondents could not in law dispose of their shareholding in 4th Respondent since at the time that Annexure A came into

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being they had not yet purchased any shares and therefore could not have owned any in 4th Respondent.

Interestingly enough, even Counsel for 1st Respondent acknowledged in court during argument that none of the parties have the locus standi because none of them are lawful shareholders. In their heads of argument, Applicants also raised the point that 4th Respondent has not opposed these proceedings and 1st Respondent has not been authorized to depose to these proceedings as evidenced by the absence of any record of intention to oppose by 4th Respondent although he purported to have been deposing to the Answering Affidavit in his capacity as Director of the 4th Respondent. Secondly, that there is no resolution of the 4th Respondent authorizing 1st Respondent to depose to this affidavit. In addition, even 1st Respondent himself did not even attach a copy of the resolution by 4th Respondent to oppose this application on its behalf as proof that he has been duly authorized to so oppose it which would give him the requisite locus standi. See the case of Mall (Cape) (Pty) (Ltd) v Merion Ko-operasie Beperk 1957 (2) SA 347.

However, even if such a resolution were attached, this court would still reject if for the simple reason that 4th Respondent is not a lawfully

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incorporated company. As such, I find that none of the parties lawfully purchased shares in compliance with the requirements of Sections 51 - 56 of the Companies Act

This, my finding is also reinforced by 5th Respondent's supporting affidavit to 1st Applicant's Replying affidavit. When one would have thought that he would file an affidavit in support of 1st Respondent since he was cited as a co-Respondent, 5th Respondent acted to the contrary and filed one in support of 1st Applicant. In that affidavit, he denied most of the averments made by 1st Respondent especially as far as they relate to him ever having been a shareholder in the 4th Respondent. The only contribution which he said he made was a computer and a table. He further denied having signed any of the attached Annexures which purportedly bear his signature but for the Memorandum of Association. I found no reason to disbelief 5 Respondent.

Needless to say, a lot of illegalities and/or non-compliance with the provisions of the law seem to have occurred at the time 4th Respondent purportedly became incorporated. For the reasons as shown above, I indeed agree with the contention that none of the parties herein are legitimate shareholders of 4th Respondent (being a non-existent entity) as is required by

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the law and as a result I find that all of them have no locus standi as parties herein.

I however wish to note that from the contents of the affidavits, and upon perusal of the entire court file, 1st Respondent appears to be a dishonest person who is more than willing to take advantage of gullible people for his own self-aggrandizement. I have no doubt that on a balance of probabilities applicants herein, as well as 5th Respondent sincerely believed that when agreeing to become members of 4th Respondent respectively, they were entering into a bona fide arrangement with 1st Respondent, only for them to find out the hard way that he is an untrustworthy individual. He even had no shame admitting that despite having asked people to join him as shareholding members in 4 Respondent, he took no measures to ensure that it was lawfully incorporated yet he wants to use the fact of his non­performance to his advantage. That cannot be sanctioned by this court.

However, at this stage and like I already said, under these circumstances, this court needs only to determine whether Applicants herein are entitled to the prayers as stated in the Notice of Motion. Unfortunately, I find that the answer must be in the negative for the simple reason that from the onset,

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there was never a legally established company in the nature of 4th Respondent. But be that as it may, it is my profound belief that in the interests of real and substantial justice, 1st Respondent cannot be allowed to benefit from his fraudulent/dishonest conduct by this court finding in his favour either.

For these reasons, I grant absolution from the instance. Applicants and 5th Respondent are however free to institute proceedings against 1st Respondent and claim damages for any loss they have suffered since they purportedly joined him as co-shareholders in 4th Respondent.

There is no order as to costs.

N Majara

Judge

For Applicants : Mr Metlae

For Respondents : Mr Nathane

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