CIV/APN/242/02

IN THE HIGH COURT OF LESOTHO

In the matter between:

JOHN CHING FANG LEU 1stApplicant

LESOTHO PRECIOUS GARMENTS

(PTY) LIMITED 2ndApplicant

PAIYUN-HSIA 3rdApplicant

TSAI CHUN HSIA 4thApplicant

AND

GRAHAM MAKHAMISE LETS'OARA 1stRespondent

DR. TSIU MAKAKOLE 2nd Respondent

SEBALA LETS'OARA 3rd Respondent

THULARE MORUTHANE 4th Respondent

DEPUTY SHERIFF FARO 5th Respondent

JUDGMENT

Delivered by Honourable Mr. Justice G. N. Mofolo On the 17th day of March. 2005

This matter commenced on 16 February, 2004 but was postponed to 25th February, 2004 as the instructing attorney Mr. Buys was desirous of instructing senior counsel. The matter was postponed with wasted costs to applicants.

On 25 February, appeared both Mr. Mda and Mr. Fischer who stated as there is a counter application it is the counter application that is before court in which applicants are seeking a declaratory.

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Mr. Mda had submitted applicants were seeking membership and directorship of the 2nd respondent, the declaratory relating to Ist and 2nd respondents. After Mr. Mda had taken a few preliminary points the court had decided because of the complexity of the case it was not possible to decide it on paper and it had been converted into a trial in particular relating to the validity or otherwise of share certificates. The matter had then been postponed to 27-30 April, 2004 for hearing on the understanding that potential witnesses would be those who have filed affidavits and should other witnesses be required, 14 days notice of such a requirement would be filed with the court.

On 29 April, '04 appeared Mr. Mda and Mr. Buys the one claiming matter on the roll and the other disclaiming this. It appeared however the crucial question was whether a witness intended to be called was ready to give evidence and appearing that she would not be available presently the matter had been postponed to 30 April, 2004.

Before the matter started Mr. Buys had drawn the courts attention to the fact that because of misunderstanding between himself and Mr. Fischer SC, the latter was not able to attend and he would stand in for him. Because of the unsatisfactory condition of transcription of the court,

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it was ordered that cassettes be made available to both counsel for transcription. Unfortunately until the drafting of this judgment, transcription has not been made available to court.

It was rather amusing to note how a witness called neither counsel was prepared to claim responsibility for calling her.

P. W. 1 'Mamocha Moruthane sworn and led by Mr. Mda had stated she is an advocate of the court and before her retirement from the civil service she was legal adviser to the Ministry of Finance and Adjudicator of the Public Service. She qualified in 1983. She had come across both applicants and 1st respondent, and what brought them together was formation of the company Lesotho Precious Garments (2nd respondent) a company registered by herself in October, 1988 whose shareholders were 1st respondent, 1st - 5th applicants who were subscribers and on company being registered became members with 100 shares each. Sometime in 1999 there were changes to the company regarding transfer of shares. Transferors had not signed any document. She prepared the documents to which there were no witnesses to the transferors. She says 1st respondent signed as transferee and this was witnessed The 3 witnesses were only witnesses. Tsai Chun-Hsia has not signed the document and

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she does not know who this Tsai Chun-Hsia is. It is to be noted that Tsai Chun-Hsia appears on p.39 of the Counter Application.

The witness has testified GML5 on p.40 is exactly the same as GML4 in relation to transferors and transferees for she did not know this Pai Yung Hsia the signature being that of 1st respondent who was forging the signatures. She says she had no authority from applicants to act as she did. She says she got involved with 1st respondent in process of training. She says the documents are fraudulent and share certificates were issued as a result of the transfers aforesaid. The signature on share certificates was hers as secretary. Now she says she was never secretary of the 2nd respondent and she falsely claimed to be secretary. She says the other signatures to annexures "B", "C" and "D" are hers. She has testified the signature of Director is 1st respondent's on all the annexures. She says "D" is 1st respondent's signature in English. She had no authority to sign the documents. She says she was undergoing training under 1st respondent and she was given a training allowance. As for GML6 on p.41, she does not even know people in the document as she was given the names and to sign the document. She says though it is shown directors resigned, they had no resigned, they had not resigned for the document is fraudulent. The newly appointed directors had not been properly appointed and to date had not met them. She had registered the

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document at the law office though it had not been made after the company's meeting.

There was never a meeting of shareholders to appoint 1st respondent as Managing Director. As for p. 42 GML7, being resolution of members, there never was such a resolution though it is a document she filed with the Registrar of Companies. She says the signatures are false being hers and 1st respondents. She has testified applicants never purported to sell their shares and divest themselves of the running of the company and the company is not defunct.

Cross-examined by Mr. Buys she says the company had certificate to commence business and this is in the record at p. 43 titled "Licence to Manufacture." She says this is a certificate. She says the licence does not say to commence business but the dates are 16 April, 1999 this is being the style adopted by those who issued the licence. Put to her annexure 8 is not authority to commence business in accordance with Company's Industrial Act of 1967, she says this is how it is styled by the Ministry of Trade. Put to her a licence to manufacture has nothing to do with a licence to trade, she says she has nothing to say though she is an advocate of this court and as advisor to the Ministry of Trade.

As for sec.87 (3) of the Companies Act, the company did not issue a prospectus. She says she has not come across a company which has not

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issued a prospectus. Asked whether the certificate was issued by the Registrar she says the only certificate issued is GML8 on p.43. As to whether there is a difference between a licence and a certificate she says she does not know and put to her there's a difference namely; licence to manufacture and certificate to trade she says she was given authority to apply for licence by applicants and 1st respondent. She says there was no minute book though there was a resolution to apply for a licence and minutes were taken by Mr. Lets'oara and the meeting was informal. She says there were no meetings in which resolutions were recorded.

Put to her she could not act for 2nd respondent without a resolution of company, she agrees. Put to her Lesotho Precious Garments and Precious Garments is not the same thing, she says it is the same. She says after registration a subscriber becomes a member automatically. She says there is no difference between a subscriber and a shareholder. She says share certificates issued are fraudulent. Apart from securing a share certificate members have to have meetings and there were no meetings to decide the issue of share certificates. She says along with 1st applicant they were being trained by Lesotho Hawk to gain experience in textile industry and production. She says she prepared the lists and the document was given her at the Registrar's office and she forged the signatures and signatories were purportedly signing as directors. She

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agrees the document is quite nonsensical though the intention was to defraud. She says the Court is not to ignore the probability that the document was to defraud other people. She says except the typing error on the document she made no changes. She says she has not seen second respondent's signature. She says signature by first respondent was made in her presence and knows first respondent from 1998-99 and she did not know if he knew company law though he said she was to prepare company documents and where to sign. She agrees there is no signature by transferors, something that is a requirement of the law. She says the document complies with the articles except that transferors have not signed. She says transferors were to sign but how could they because the documents were fictitious? She says she forged but to an extend as the whole process was against her conscience. She says 1st respondent instructed her what member of shares to transfer. She says the document wrong for transfer of fictitious shares not the same as member of shares transferred. Put to her she was expected to do certain things but did others she says she had a job and cannot deny that the building was previously occupied by Lesotho Hawk; 1st respondent was saying he would give her an allowance to cover her expenses since Lesotho Garments had not started operations. 1st respondent was prepared to provide the capital though it was to be strictly between her, the Chinese

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and 1st respondent who agreed to accommodate her. She says she acted as she did for she trusted 1st respondent.

She has testified how long the training would take it was not specified; also they were not able to secure sponsorship or guarantee. She had worked for Lesotho Hawk before it was liquidated and there was no requirement for purchase of assets and in any event the amount at the time was not available. In 1999 2nd respondent had neither assets or liabilities nor was there a share capital. The witness has testified 1st respondent had said he had a huge order from overseas but did not wish to register a new company and preferred to keep the name as it is. She says the things she did were surreptitious. 1st respondent had worked at Lesotho Hawk and then with 2nd respondent. She says she did what she did hoping I1st respondent would accommodate her and was prepared to lie to protect her interest.

Re-examined the witness has testified 1st respondent "got the money before us" and having done so "drove us out of the company". She has quoted section 232 of the Companies Act, 1967. She has testified she did the things she did at 1st respondent's behest and she made the documents to enable 1st respondent to cheat Basotho shareholders. As to whether there were minutes of the company, the witness has said there

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were times when they met informally. She says there were directors at the formation of the company and after subscribing to the Memorandum and Articles of Association there is nothing required of subscribers to become members. Applicants in the counterclaim had closed their case and respondents in the counter claim had done the same.

Counsel had then urged the Court to incorporate the viva voce evidence into the rest of the case including Heads of argument and to adjudicate first the counterclaim. The court had found, however, that treating the applications piecemeal would be a cumbersome exercise and that the best option was for the Court to decide the two applications together or as it were, pari passu. Be this as it may in their Founding papers applicants in the counterclaim and respondents in the counterclaim have taken certain points in limine. I have checked my record and Heads of Argument and find that in addressing me and in the Heads point in limine were not specifically pressed. However, mindful of the fact that counsel has urged the court to consider the applications as a whole, I am inclined to consider points in limine taken though not pressed. Mr. Buys for respondents in the counter claim took quite a number of points, namely:-

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IN LIMINE

4.1

There is no urgency in this matter and there are no allegations which support the speculative and argumentative reasons which are set out in the Founding Affidavit. As will more fully appear from this Affidavit, both the 1st and 5th Respondents have known, on their own Affidavits, that the 2nd Respondent was trading since at least June, 1999 and they were not involved in the trading activities of the 2nd Respondent. They took no action whatsoever.

4.2

There is no evidence of the nature and extent of the damages the Applicants stand to suffer.

4.3

The applicants are not entitled to a Declaratory Order as they have no future or contingent rights to rely on and there are no allegations to support an allegation that such rights exist.

4.4

The application is itself fatally defective in that none of the Applicants have any right in law to relief sought in the Application and there is no evidence to support such contention

4.5

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All the applicants are estopped from claiming to be either shareholders or directors of the 2nd Respondent or to be declared as such.

4.6

There are no allegations which could support the Order sought declaring the Applicants as directors or that they should be appointed as directors.

4.7

1st applicant failed to disclose vital information to this Honourable Court which may influence this court in coming to a fair decision.

4.8

The applicants have no clear right in law to the assets of the company.

4.9

The 5 applicant is coming to court with dirty hands on her own admission, and is not entitled to any relief

4.10

The applicants have misjoined the 5th applicant as a party to these proceedings. This applicant should have been jointed as a respondent.

4.11

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The application cannot be a Counter Application as the 5^th respondent is not an applicant in the main application.

I was at this stage a little confused by use of terms applicant and respondent which are used interchangeably in the main counter application even after the counter application. I am well aware though that times have changed in preference in favour of simple easier expression instead of clogging the mind with difficult terms and expressions; be this as it may, for the sake of convenience and better understanding, I choose to call applicants in the main application applicants-in-convention and respondents respondents-in-convention, while applicants in the counter application will be applicants-in-reconvention and applicants in the main application respondents-in-reconvention.

I do not think that points 4.1 to 4.9 have been properly taken; all of them except 4.1 are characterized by one common feature: although taken preliminarily, some are based on hard facts and law making it difficult for the court to decide them on a single perspective. They cannot be and have to be decided after evaluating and taking into account all the evidence in the application. My strong view is that they have come prematurely, except perhaps 4.10 and 4.11 which I will treat separately

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along with urgency. Otherwise I am of the view that points raised belong to the merits of this application. As to urgency, in so far as applicants-in-reconvention are concerned, I note, it does not appear that there is anything which calls for urgency on their part for the reason that it is common cause as I have observed above that except for subscribing to the Memorandum and Articles of Association, there has been no association with the 2nd respondent-in-reconvention regarding its growth and development. In fact by applicants-in-reconvention admission, they contributed nothing material to the welfare of 2nd respondent-in-reconvention and at this stage I fail to grasp what's there, exactly, that stands to be lost should the application not proceed urgently. Indeed except applicants-in-reconvention applying for funds and foiling, there was nothing else forthcoming from them save as a result of P.W. 1 and 5th applicant-in-reconvention's activities which actuated the four applicants-in-reconvention to act against the 1st, 2nd and other applicants-in-convention. Except for P.W. 1 and 5 applicant-in-reconvention' s activities which, by P.W.l's admission, involved forgery and fraud, the rest of applicants-in-reconvention seemed complaisant and satisfied with the state of affairs. I am not aware that should the application not proceed at urgent applicants-in-reconvention are likely to be prejudiced or suffer harm while, on the contrary, 1st respondent-in-reconvention who has associated himself with and financially supported

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and developed the company stands to suffer harm should the application not be expedited. On this basis it would seem this application could well be thrown out save that this court is not inclined to do so just yet.

the main application and whosoever was desirous of joining her to the proceedings is entitled to do so though I am of the view that such a step is to be with leave of court. I do not know on what basis 5th applicaut-in-reconvention was joined as such except perhaps that she was joined to bolster applicants-in-reconvention with an Answering and Supporting Affidavit and unless I am wrong, applicants-in-reconvention case has seemed to hinge on and revolve around 5th applicant-in-reconvention's evidence. Accordingly, I am inclined to dismiss 4.10. As for 4.11, I have already said that applicants-in-reconvention are entitled to co-join parties but with lea\e of court though, it would seem, if they are dependent on a particular party for the sustenance of their case, they are at large to join such a party. I am also inclined to dismiss 4.11.

Mr. Mda in the originating papers has also taken a couple of points in limine; they are:-

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4.1

"The applicants have irregularly approached this Honourable Court ex-parte and obtained an interdict without canvassing any jurisdictional facts for such drastic relief. Consequently, this application ought to be dismissed with costs on that ground alone."

I couldn't disagree more. 1st applicant-in-convention has a vested right in the 2nd applicant-in-convention. 1st Applicant-in-convention was apprehensive for, according to him, judgment by default was obtained against him in circumstances it should not have been obtained against him considering the defective service of summons. What has compounded the situation and increased 1st applicant-in-convention's apprehension is that, according to him, and a fact not denied by respondents-in-convention is that the same court file in respect of which judgment was granted by default is missing and though 1st applicant-in-convention is desirous of rescinding the judgment, as full facts are not available to 1st applicant-in-convention, he is not able to proceed with rescission of judgment and he fears, while the court file is at large respondents-in-convention may proceed with execution much to the prejudice of 1st applicant-in-convention. I cannot but dismiss this point in limine.

4.2

The applicant is guilty of non-disclosure of the following facts: That 1st respondents together with 1st applicant and 'Mamocha Moruthane were original members of 2nd applicant and subscribers

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of its memorandum and articles of association as clearly evidenced by copies of extracts of same annexed hereto and respectively marked G.M.L1 and G.M.L2. On that ground alone this application ought to be dismissed with costs.

Well, since there are several applicants I don't know who "the applicant is guilty of non-disclosure" is being referred to although we will give 1st respondent-in-convention credit and understand him as referring to 1st applicant.

In any event I don't think so for the parties mentioned are subscribers to the memorandum and articles of association and this is a notorious fact common to 1st applicant and respondents and since the fact is common knowledge it does not require to be disclosed for to do so would be to disclose the obvious. I have also scrutinized GML1 and GML2 (pages 65-68) and nowhere have I found the subscribers and first directors of the company designated as "members". This point also stands to be dismissed.

4.3

Non-Joinder

The applicant has irregularly omitted to join 'Mamocha Moruthane as a necessary party in these proceedings. Consequently this

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application is on this ground alone fatally defective and flawed and ought to be dismissed with costs.

I will, like I did supra, assume that 1st respondent-in-convention is referring to the 1st applicant-in-convention. In any event, I see no necessity for the 1st applicant-in-convention to have joined 'Mamocha Moruthane since she is not a necessary party in 1st applicant-in-convention's case and at no stage of the proceedings lave applicants-in-convention joined 'Mamocha Moruthane as one of them. There was no reason whatsoever and I don't think there was any justification to foist 'Mamocha Moruthane as one of applicants-in-convention's group. People who laid a claim against 1st to 4 applicants in convention were 1st to 4th respondents-in-convention who elected to join 'Mamocha Moruthane as a defendant in CrV7T/45/2002. That respondents-in-convention treated 'Mamocha as a defendant in no way obliged applicants-in-convention to treat her as such and this was testified to by applicants-in-convention omitting her in all their suits. Besides at no stage did 'Mamocha Moruthane lay a claim against the applicants-in-convention or align herself with applicants-in-convention. How, then, would applicants-in-convention treat 'Mamocha as one of them? It is the reason to dismiss this point.

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I come now to the merits of the counter application which reads as follows:-

That Rule Nisi be issued returnable on the date to be determined by the above Honourable Court calling upon 1st, 2nd, 3rd, 4th, 5th and 6th Respondents to show cause if any, why an order in the following terms shall not be made:-

1. That the rules of Court as to form and service be dispensed with on account of the urgency of this matter.

That 1st, 2nd, 3rd and 4th Applicants be declared as bona fide members of the Board of Directors on 2nd Respondent.

That 1st and 2nd, 3rd and 4th Respondents be restrained from interfering with Applicants exercise of rights as members and directors of the 2nd Respondent.

That 1st, 2nd 3rd and 4th Respondents be restrained from interfering with Applicants exercise of rights as members and directors of the 2nd Respondent.

That 1st, 2nd, 3rd and 4th Respondents and (or any relevant officials/employees of the 2nd Respondent be directed to account to Applicants/or Applicants authorized agent) for the amounts of money

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received and expended by them on behalf of the 2nd Respondent with effect from 1999 to date of judgment of this matter.

ALTERNATIVELY: Only in the event of the above Honourable Court rescinding the order in CIV/T/45/2002: 1st, 2nd, 3rd, and 4th Respondents be directed to give Applicants (or Applicants' authorized agent) access to 2nd Respondents' books of account, bank statements and all documents reflecting 2nd Respondents financial status and day to day transactions; on such dates and time as may mutually be agreed upon between the parties or appointed by the 5th Respondent in the event of the parties foiling to agree thereto pending the determination of CTV/T/45/2002.

That 1st, 2nd, 3rd and 4th Respondents be restrained and interdicted from removing and/or transferring any of the assets or documents of 2nd Respondent from the jurisdiction of this Honourable Court other than in the normal course of 2nd Respondents' business pending the determination of this application.

That 1 , 3rdand 4 Respondents be directed to pay costs of this application and 5 and 6 Respondents to pay costs only in the event of contesting the same.

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That Applicants be granted further and/or alternative relief.

2. That prayers 1(a) and (g) operate with immediate effect as an interim interdict.

As remarked above, I now wish to traverse the above application much as it seems to me applicants-in-reconvention have largely depended on P.W.I and 5th applicant 'Mamocha's testimony and evidence as a whole. This witness was to applicant-in-reconvention a kingpin, a battering ram so much so that, but for her, I doubt this application would have seen the light of day. As for her evidence, it was false, I found her to be liar, a cheat, a self-confessed forgerer, fraudster, manipulator, simulator, perfidious with machinations of a Cassius. I have not believed her evidence a whit and have thrown it out with the contempt it deserves.

Mr. Mda for the applicants-in-reconvention has submitted at least 1 applicant-in-convention should have been called to contradict P.W.I, 5th applicant-in-reconvention. He has also submitted applicants-in- . reconvention by virtue of having subscribed to the Memorandum and Articles of Association this made them full members and shareholders of the 2nd Respondent-in-reconvention and they needed do nothing more in terms of the Companies Act, 1967.

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Mr. Mda in his Heads of Argument and before me has contended that applicants-in-reconvention right to the membership and shareholding of the 2nd respondent-in-reconvention has not been disturbed and since they have a clear right, an injury actually committed or reasonably apprehended and having no other satisfactory remedy, that their counter application be granted as they are interested parties in the company, entitled to the administration, assets and dividends of the Company. He has also submitted there was no waiver by applicants-in-reconvention of their rights in the 2od respondent-in-reconvention.

In the first place, I must answer whether applicants-in-reconvention were deprived of their shareholding in 2nd respondent-in-reconvention. My answer to this is that they were not for I have not believed P.W.I 'Mamocha a liar, cheat and forger who, by her own admission, lied to protect own interest as she testified. I may add that not only applicants-in-reconvention were purportedly deprived of their alleged shareholding including P.W.I 'Mamocha, but that 1st respondent-in-reconvention was also purportedly deprived of his shareholding and have wondered how, in allegedly depriving others of their shareholding 1st respondent-in-reconvention can also turn on himself and deprive himself of his shareholding. This is the reason, amongst others, to reject P. W. 1

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and 5th applicant-in-reconvention's evidence that in her scheme she was in complicity with 1st respondent-in-reconvention for, instead, it is patently clear that P.W.I 'Mamocha engaged in the insidious exercise alone, lied and forged "to protect own interests" as she claimed in her evidence. I may add I do not comprehend how anybody could have been called upon to contradict a self-confessed liar. I am not repeating myself, this is for the sake of emphasis.

A cursory look at GML4 at p.39 of the record shows that not only was there an attempt to deprive applicants-in-reconvention of what shareholding they had, and attempt was also made to deprive 1st respondent-in-reconvention and P.W.I and 5th applicant, how could 1st respondent-in-reconvention submit to depriving his confidant (5th applicant) and himself of his shareholding? It's all spoof and P.W.l's and 5th applicant-in-reconvention's allegations against the 1st respondent-in-reconvention are rejected with the contempt they deserve. I also do not comprehend the relationship between P.W.I 'Mamocha and the applicants-in-reconvention. 1st applicant-in-reconvention does not say who provided or furnished him with information of 'Mamocha's and 1st respondent-in-reconvention's scheme to deprive them of their shareholding, and yet both P.W.I and 1st respondent-in-reconvention were reported to the police the result of which was applicants-in-

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reconvention (without 'Mamocha) issuing summons against respondents-in-reconvention and yet, by all accounts, had 'Mamocha not acted as she did, chances are the status quo regarding the 2nd respondent-in-reconvention vis-a-vis 1st respondent-in-reconvention could have been maintained. The question is also why did applicants-in-reconvention at first ignore 'Mamocha and suddenly accept her in their fold relying on her Answering Affidavit and Supporting Affidavit for the sustenance of their counter application? Why was the fact that 1st respondent-in-reconvention was being deprived of his shareholding gloated over making it look as if he was interested only in applicants-in-reconvention shareholding?

As for waiver, I have no doubt in my mind that applicants-in-reconvention had waived whatever interest or rights they had in the 2nd respondent-in-reconvention for from the time of registration and when applicants-in-reconvention failed to raise the capital sum required plus security they seem to have been inactive and passive their interest suddenly ignited by P.W.I and 'Mamocha's machinations, indeed but for her antics it does not appear that applicants-in-reconvention would have risen to the occasion as they did. It is this business of running with the hares and hunting with the hounds that surprises one in the relationship between P.W.I 'Mamocha and 1st respondent-in-

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reconvention on the one hand, and applicants-in-reconvention on the other.

I must now answer the crucial question whether applicants-in-reconvention are members, shareholders and directors of the 2nd respondent and entitled to the relief they seek. It is common cause that applicants-in-reconvention subscribed to a Memorandum of Association and Articles of Association. Mr. Mda has contended this entitles them not only to membership of the company but also to its shareholding and as they have a clear right, an injury committed or reasonably apprehended with no alternative satisfactory remedy, they are entitled to the relief they seek.

In forming the Company, applicants-in-reconvention including 1st respondent-in-reconvention subscribed to Memorandum and Articles of Association and the subscribers became, as is usually the case, first directors of the company. With respect, it does not appear that meetings of the company were held for official administration of the company save that applicants-in-reconvention sought capital for the development of the company. Actually after this failure applicants-in-reconvention seem to have disappeared from the scene in so far as their relationship with the 1st and 2nd respondents-in-reconvention is

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concerned. It has been represented on behalf of applicants-in- reconvention that as soon as 1st respondent-in-reconvention secured funds for the running of the 2nd respondent-in-reconvention, respondents-in-reconvention made things difficult for applicants-in-reconvention by sidelining them or kicking them out of the administration of the 2nd respondent-in-reconvention.

I cannot disagree more for if so applicants-in-reconvention should have appealed to the Registrar of Companies for resolution of their problem. I have said that applicants-in-reconvention claim to be both members and shareholders of the 2nd respondent-in-reconvention. It could well be they are members; but I doubt they are shareholders. Strange things appear to have taken place in the formation of the 2nd respondent-in-reconvention. To Memorandum of Association is annexed a document (page 34) showing subscribers and number of shares taken and against each subscriber appears "Number of shares taken by each subscriber" and they are 100 against each subscriber. I doubt the format. Normally in the formation of a company subscribers subscribe to Memorandum and Articles of Association by allotting themselves any number of shares to obviate registration of the company and once registration has been completed administrative requirements as envisaged by the Companies Act take place such as keeping a register of members

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and a minutes book. Members are reflected in the Register of Company, directors are chosen e.g. the Chairman, Managing Director and Secretary who is in charge of the minutes. It is in Company meetings that business of the company is transacted such as allocation of shares and payment of shares taken in cash or kind. All these do not appear to have featured in the business of the 2nd respondent-in-reconvention. Apart from this, shares are as a rule allotted as to number taken and the value thereof e.g. 10 shares of Rl each. The allottee would then prefer to pay the shares allotted for cash or only for a portion of the original allotted shares. If he does so, he is a shareholder in the proportion of shares paid for, otherwise he is not a shareholder. Shares in a company are not paper shares, they are debentures and stock denoting that it's so many shares of Rl each as the case may be. Shares are of value. The reason they are sold. You cannot sell or be deprived of something that is not of value in money terms in a company constituted as the 2nd respondent-in-reconvention.

The dictionary meaning of subscribe (Oxford Illustrated) is: "write (one's name) at foot of document, sign one's name to document, signify, assent or adhesion by signing ones name, put one's signature to in token of assent, approval; express one's agreement; enter one's name in list of contributors; make or promise a contribution, contribute

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(specified sum) to or to common fund, society, etc., or for common object, raise or guarantee raising of by subscription thus; subscribe to, undertake to buy (periodical) regularly." Subscription to Memorandum and Articles is no more than an agreement, and undertaking by subscribers to buy shares at some future time if they have not been purchased on subscribing to the Memorandum and Articles aforesaid. It has to be to augment capital of the company for if not how can a company operate and function without capital? In this application, it is the same subscriber who became first directors of the 2nd respondent-in-reconvention and it stands to reason that if they did not contribute a specified sum of money to the common fund or capital of the 2nd respondent-in-reconvention, they cannot be and are not shareholders of the 2nd respondent-in-reconvention.

The problem with applicants-in-reconvention's case is that the shares taken, not only were they of no value and not indicating the rate at the time of subscription to the Memorandum and Articles of Association, there was also no indication of when they became due. How could they be for applicants-in-reconvention simply subscribed to nameless and faceless 100 shares? As I have said above, the while applicants-in-reconvention subscribed to the Memorandum and Articles of Association, this was merely an agreement, "token of assent and

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approval to form a company with no shares offered as is contemplated by the Company's Act. It is hardly surprising applicants-in-reconvention names don't appear in the Register of Companies. The shares, if any, were never deprived nor were they transferred for the reason that, in my opinion, no such shares worthy of transfer were in existence. This is so because 100 shares is quite meaningless nor has the deficiency been cured by P.W. 1 'Mamocha's evidence who kept on referring to 100 shares.

Annexures GML4 and GML5 were a hopeless mess for the attempt was to transfer M600.00 to 3rd and 4th respondents-in-reconvention respectively and yet the so-called shares allocated (p.34 of the Counterclaim) applicants-in-reconvention and 1st respondent-in-reconvention were "600 shares". How could 600 alleged shares suddenly became 1,200 shares? In any event how can 100 shares in page 34 suddenly become M600.00 or "fully paid shares of M2 (two Maloti) when the founding document (p.34) made no reference to the value of shares taken? How can purely 600 shares (p.34) suddenly materialise into "M600.00 or fully paid shares of M2? When were these shares paid and where's the evidence that they were paid? In my view annexures GM4, GM5, and C have done nothing to cure the defect in the subscribers document on page 34 aforesaid. This court is not prepared to read in between lines or draw inferences for these cannot be drawn in

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circumstances where there should have been evidence or evidence is available. Contents of document on page 34 aforesaid and contents of annexures GML4, GML5, B and C are so conflicting, they are irreconcilable.

There is, indeed, authority for the proposition that, as Mr. Mda has correctly submitted, once a Memorandum and Articles of Association have been subscribed to and shares allotted that is all that is required for where subscribers have been allotted specific shares it could well be that they have paid these before the subscription aforesaid and not having paid them calls are made for payment and failing payment share are forfeited. In the instant case there were no specific identifiable shares issues for which calls could be made and no wonder P.W.I 'Mamocha engaged in her skewed feats of manipulation and deceit. I am of the view that while applicants-in-reconvention by virtue of signing the Memorandum and Articles of Association may be termed members of the 2nd respondent-in-reconvention, cautions of the concession as I am, they are nevertheless not shareholders of the 2nd respondent-in-reconvention at all. This decision would, it would seem, also count against the Is1 respondent-in-reconvention or does it? I don't think so for I am of the view that by reason of his capital injection in 2nd respondent he is to be treated as shareholder and director of 2nd respondent-in-reconvention (cf Ex parte

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Liquidators Curlewis Citrus Growers' Co-operative Co. Ltd., 1935 T.P.D. 389).

Even if I am wrong that by reason of applicants-in reconvention having merely subscribed to the Memorandum and Articles of Association while they are members of the 2nd respondent-in-reconvention they are not shareholders thereof, both Mr. Buys and Mr. Mda have prevailed on me to advert to Moosa v. Lallo and Another, 1957 (4) SA 207 O.P.D.) for a sound decision in this application. At first I was a little skeptical but having read the case I am to thank them because they could not have done me a better boon. According to the case, once shares have been allotted this is enough for they would have been paid before or become due. Caney, J. in the above case docs not seem to have been influenced by non-compliance with the Companies Act regarding the keeping of a register of allotments at its registered office for these considerations do not affect the existence or validity of the allotment or "issue of shares to the plaintiff (p.220). Further, it is normally contemplated that a shareholder will pay the price of his shares in cash upon allotment or before issue of certificate though all this is a matter of agreement between the parties. Moreover, there is a also need for a shareholder to pay to the company money to meet his subscription to the capital of the company (pp 220-221). It is, having regard to the judgment

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in Moosa's case above that in order to be a shareholder, it is a condition precedent that a shareholder will pay the price of his shares in cash upon allotment or before issue of certificate although this is a matter of agreement between the parties, between parties meaning, in my view, in a meeting of shareholders as I have indicated above. Applicants-in-reconvention, did not pay their "shares in cash" upon allotment nor were there meetings by shareholders to determine payment of shares quite apart from the fact that shares allotted applicants-in-reconvention were faceless and undeterminable; this, notwithstanding applicants-in-reconvention's case that payment of shares was not called for in terms of the Company's Act. I have already rejected this contention for reasons stated above. In the unlikely event applicants-in-reconvention paid their shares, the onus is on them to establish the fact and they failed to do so. And, according to Motor Fund Corporation (in Liquidation) v. Linden Bros., 1927 NPD 279 if a shareholder pays for some only in cash, to that extent he had, in any event, a shareholding in the company. It becomes potently clear that for one to be a shareholder in a company, he must pay his shares or some of them in cash and only then does he become a shareholder apart from the fact that by agreement of parties cash in kind i.e. services or property may act in lieu of cash payment None of these requirements are associated with applicants-in-reconvention for in their case having failed to raise capital or security it appears it was for them

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tools down expecting that as they had subscribed to the Memorandum and Articles of the 2nd respondent-in-reconvention they were, afterall, members and shareholders in 2nd respondent-in-reconventioa

According to authorities quoted by Caney J. onp.221 of Moosa's case above, entry on the register has to do with membership of a company and compliance with requirements of the Companies Act (a requisite with our Companies Act, 1967) though the act must be seen as no more than sheer formality for, what makes one a shareholder is payment of shares. On the same page, namely p.221, Caney J. returning to two cases quoted by Mr. Pretorius being Doornkop Sugar Estate Ltd. v. Maxwell and others, 1926 WLD, 127 and Nicol's case, 29 Ch. 421at pp.426 and 427 said as he understood the cases, entry on the register is required to make a person a member of the company. He has further said but he does not understand "allotment to him to be incomplete, nor that he is denied the rights inherent in his shares if in consequence of the allotment, he has paid what is due to them and the company has issued him with a share certificate —" (my emphasis).

I understand the learned Judge to say that entry in the register though a sheer formality, it is required to make one a member of the company though he does not understand the allotment to be incomplete

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nor is he, by so doing, denied rights inherent in his shares if in consequence of the allotment, he has paid his shares and been issued a share certificate so that it seems to me the first step is allotment of shares. Then comes entry into the register of members, payment of shares (if not already paid at time of registration of company) and last issuance of a share certificate.

The problem with applicants-in-reconvention is that I do not take "number of shares taken by each subscriber as 100" or anything to that effect as having taken shares in the 2 respondent-in-reconvention because nothing signals that such shares were taken since they are neither identifiable nor of value. My view is that at time of registration of the 2nd respondent-in-reconvention applicants-in-reconvention took no shares at all in the 2 respondent-in-reconvention. If applicants-in-reconvention took no shares in 2nd respondent-in-reconvention, how could they be entered into a register of members? Even if they took shares, there is no evidence that at any stage of 2nd respondent-in-reconvention they "paid what is due to them", the reason applicants-in-reconvention were not issued with and could never be issued with share certificates. It boggles the mind how applicants-in-reconvention having not paid their dues, not having been entered into the register of members of the 2nd respondent-in-reconvention and not issued with share certificates could transfer their

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shares to the 3rd and 4th respondent-in-reconvention or anybody else?

By their own admission though, applicants-in-reconvention have not paid so-called shares allotted them because this was not necessary; it follows that not only are they not members of the 2nd respondent-in-reconvention, they are not its shareholders either and consequently as was said in Randfontein Estates Ltd vs. the Master, 1909 T. S. 978 at pp. 981, 982 shares "are simply rights in action —jura in personam —entitling then-owner to a certain interest in the company, its assets and dividends."

As to applicants-in-reconvention including the 5th applicant-in-reconvention 'Mamocha Moruthane, as they have no right in action — jura in personam entitling them to any interest in tie 2 respondent-reconvention, its assets and dividends, I do not see how their declaratory order can be entertained for a declaratory as to ownership must show a clear sight on the part of an applicant and where such a clear right does not exist, the declaratory cannot but fail.

I come now to the Main Application or Application-in-convention in which applicants have approached this Court for an order in the following terms:

1. Directing that the Rules regulating service of process be dispensed with and that this Application be heard as an urgent application.

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2. Directing that any execution of an Order of this Honourable Court dated the 29th April, 2002 in CIV/T/45/2002 be stayed pending the outcome of this application, criminal proceedings instituted against the 1st Applicant and the outcome of an action the Applicants intent to institute against the Respondents in due course.

3. Interdicting and restraining all the Respondents from entering the business premises of the 2nd Applicant for any reason whatsoever and/or in any way to interfere with, obstruct or adversely influence the conduct of its business pending the outcome of this Application.

4. Interdicting and restraining any of the Respondents from exercising, executing or doing anything as alleged shareholders or directors of the 2nd Applicant, or to perform any act or duty or omit to do so as a director of the 2nd Applicant.

5. Directing that a Rule Nisi be issued calling upon the Respondents to show cause on a date to be determined by this Honourable Court why this Order should not be made a Final Order of Court and why the Respondents should not be ordered to pay the costs of this Application jointly and severally, the one to pay the others to be absolved.

6. Directing that paragraphs 2, 3 and 4 operate with immediate effect as an Interim pending the outcome of this Application.

7. Granting leave to the Applicants to approach this Honourable Court on the same papers, duly supplemented where necessary for an Order rescinding the defeult 2002 on the 15th April, 2002.

8. Granting leave to the Applicants to defend the action instituted in CIV/T/45/2002.

9. Granting such further and/or alternative relief as this Honourable Court may deem necessary in the circumstances.

In support of their case the Founding Affidavit of the 1st applicant-in convention was lodged in personal capacity of the 1st applicant-in-

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convention who has claimed at paragraph 3 that the affidavit is deposed to in his capacity as a director and duly authorized representative of the 2nd applicant his authority emanating from his position as Managing Director of the 2nd applicant to attend to day to day business affairs of the 2nd Applicant and "attending to legal matters of this nature."

At paragraph 4 he has said he was not able to convene a meeting of directors though he confirms such a meeting will be held within the next day or two for verification of his authority and a Resolution to the effect.

Whilst I am at this juncture, it does appear that a resolution of company was passed on 20 May, 2002 with reference to paragraph 4 above.

At paragraph 9 the deponent has deposed he conducts the business of 2nd applicant and is in charge of daily manufacturing process and complete business of the 2 Applicant and knows what transpires in the factory on a daily basis.

He was called to the CID office and there informed a case of fraud was being investigated against him. He had been told to report at Magistrates Court where he reported and was charged (paras. 10-12). On

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leaving court he had found a document at the factory of 2nd applicant, as document purported to be a court order. It surprised him. He had consulted his attorneys who informed him some process must have been served before the order could be granted. Action had been instituted against him and others in CIV/T/282/2001 and although he defended the action plaintiff had withdrawn the action and tendered costs which had not been paid and a Warrant of Execution had been issued for recovery of costs. He has claimed the dispute before court is the same as in CIV/T/282/2001 which was withdrawn and costs were outstanding and he is advised respondents cannot proceed with a new case before settling costs in a previous action and in any event has preferred "to leave the matter at that." I might at this juncture butt in to say it appears this is something the applicant is not disposed at present to have decided by this Court (see paras 13-17 of Founding Affidavit).

1st applicant has deposed when his legal representatives attempted to find the Court file they could not find it and to date the file is missing and applicants have not been able to peruse the file and establish on what basis the judgment was granted He had caused further investigations and a copy of the Summons and Return of Service was found. I will assume that reference here is to CIV/T/45/2002 (paras. 18-

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20). According to 1st applicant the Summons was not properly served for the reason that:

1. The return of service is defective and does not comply with Rules of Court.

2. Summons does not set out residential or business address of either 3rd or 4th respondents claiming the particulars to be unknown yet 5th respondent claiming to have served Summons at the registered office of 2nd applicant contrary to provisions of Rule 4 (a) and (b).

I will also assume that 3rd and 4th respondents is reference to 3rd and 4th applicants.

3. 1st applicant claims the Summons was not served personally on him but in terms of the Return of Service at the registered office of the 2nd Applicant.

3. The Return of Service does not allege service took place at 1st applicant's place of employment, place of business or residence of any person who is in charge of the premises at the time of delivery and apparently of sixteen years or over.

3. The alleged service on 2nd applicant is defective not having been effected by delivering a copy of process to some responsible employee at the registered head office of the 2nd applicant the

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Return of Service failing to identify the person upon whom service was effected (paras 21-22).

At paragraph 23 1st applicant alleges 3rd and 4th applicants were not in Lesotho and service could not have been on the reception or receptionist because 2nd applicant has neither of these.

At paragraph 25 1st applicant asks for rescission of judgment in that judgment was erroneously sought and granted in absence of applicants. Judgment a patent error and granted by a mistake common to both parties. At paragraph 26 because judgment a nullity it does not change the de facto control over the affairs of the 2nd applicant and Board of Directors and applicants not barred from taking decisions in respect of the business of the 2nd applicant.

At paragraph 27 the deponent has deposed there may be more information from the Court file once it is discovered and applicants may decide to approach Court with supplementary affidavits and apply for leave and are prejudiced by the fact that the court file is missing.

At paragraphs 28 and 29 1st applicant expresses the view that criminal proceedings are pending before court in respect of himself and

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'Mamocha and it may take time before the criminal case is heard and fete of the accused is decided and in the meantime respondents may attempt to levy the order which they obtained and take over the business of the 2nd applicant. At paragraph 30 he says 2nd applicant employs 4000 employees for the manufacture of clothing and other textile products for the export market and interruption with the business of 2nd applicant could cause much loss to shareholders and employees and paragraph 31 prays that execution be stayed pending the result of the present application and the criminal proceedings instituted He has said at paragraph 32 that balance of convenience favours applicants that execution be stayed as respondents cannot be prejudiced by stay of execution and that stay of execution also favours respondents. So far as rescission of judgment is concerned, it could seem applicant is disposed to have the matter heard not now but in due course.

I have already dealt with preliminary objections and at paragraph 8.1 the deponent Makhamisa G. Lets'oara says there was proper service in CIV/T/45/2002. All I have to decide in this application is in my considered opinion whether in CIV/T/45/2002 there was proper service on defendants for if the service was proper I have no reason to grant orders prayed for; on the other hand if service is irregular there is reason to grant the application as in the application for rescission of judgment applicants may well succeed

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What is disturbing though is pagination in this application. It is of the utmost importance that original documents be filed together and copies together. More often than not original papers are not filed at all. The problem is where this happens the court may inadventurously deal with copies with little information as to precise information as contained in original documents. Perhaps the problem in the instant application is that some documents were unearthed when a paginated record had been compiled; even so, an effort is to me made to ensure that original documents are incorporated The result could have been shattering had the court not fortuitously stumbled on the original Return of Service, for otherwise the Court would have depended, for its judgment, on a copy of the return of service instead of the original return. Moreover, what appears to be copy of the Return of Service is filed with the paginated record in the main Application and original Return of Service is not paginated but filed with summons in CIV/T/45/2002 and the Court Order. The original Return of Service should have been filed with the paginated record as I have said. The original is endorsed at the back, writing on both the original and copy appears to be the same though for my inquiries I will prefer to depend on the original copy which reads: I served 1st, 2nd, 3rd and 5th defendants by delivering summons upon the receptionist at their respective work place on the registered offices of the

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applicant on behalf of the rest of the applicants (defendants therein. At paragraph 3(b) he says on the 14 February, 2002 accompanied by 1st respondent he had proceeded to premises of 2nd applicant to effect service in CIV/T/45/2002 and they were escorted to the registered office of 2nd applicant where a Chinese lady was in control of the office and on the basis of 1st applicant's explanation as to their relationship with 2nd applicant coupled with the fact that the Chinese lady (receptionist) was in control of the office he served the summons on her on behalf of 1st to 4th applicants. I cannot accept this mumbo jumbo, it's if anything, farcical. Why did he not serve the summons on 1st applicant as he had done in presence of Leraisa? In any event what's mysterious or unacceptable about mentioning the name of the Chinese lady he served the process on? The law requires the name and age of the person on whom process is served for the reason that should there be a squabble about the individual on whom process was served, he or she can always be called to testify. The only reason Ts'olo Faro withholds or withheld the name of the so-called Chinese receptionist is because there is no such Chinese receptionist at premises of the 2nd applicant. On this ground alone I reject the contention that service was effected on 1st, 2nd, 3rd and 5th defendants.

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5th defendant situated at site. The date is 14 February, 2002 and the Return of Service is signed 12/03/02. The endorsement at the back of the Return of Service reads:-

"Whereas I served 6th and 7th defendants at their respective offices, I served 4th defendant by delivering process upon 'Mamating an adult who resides in same premises as 4 defendant at Lower Tharnae urban area"

I have no quarrel with the later service for it appears proper and in accordance with rules appertaining to service of process. As for face of the Return of Service, I am wondering why service in respect of 1st, 2nd 3rd and 5th defendants was on the undisclosed receptionist and why, unlike service at the back of the Return of Service T. Faro the Deputy Sheriff did no record on whom service was effected and his/her age was not shown as he did in respect of service to 4 , 6 and 7th defendants. In any event, if defendants were present, why was service not effect on them personally instead of substituted service? It is resorted to where the whereabouts of defendants or parties is unknown or cannot be found. And yet in his Supporting Affidavit the Deputy Sheriff Ts'olo Faro has deposed at paragraph 3(a) that on 30 July, 2001 he was in company of his colleague T. Leraisa who had gone to serve a process on applicants and were escorted from the gate of 2nd respondent's premises to the latter's registered office manned by an adult Chinese lady and having explained purpose of their visit she called 1st applicant from some office. After some explanations Leraisa had served summons upon the 1st

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In so far as the counter application is concerned, I have already said that it is not a question of subscription to the Memorandum and Articles of Association and allotment of shares that make one a shareholder in a company but payment of a specific number of shares that make one a shareholder. As I have already remarked, 1 wonder what sort of certificate would be issued applicants-in-reconvention since they have not purchased shares entitling them to the issuance of a share certificate?

I repeat, in Randfontein Estates Ltd. vs. The Maser, 1909 TS 978 pp. 981 982 Innes, CJ, as shown above, is said to have found

"shares" are simply rights of action -jura in personam-----entitling their owner to a certain interest in the company its assets and dividends. Since applicants-in-reconvention namely Graham Makhamisa Lets'oara, Dr. Ts'iu Makakole, Sebala Lets'oara, Thulare Moruthane and 'Mamocha Moruthane have not paid their shares, they have no rights of action jura personam entitling them to certain interest in the 2nd applicant-in-convention (2nd respondent-in-reconvention), its assets and dividends and accordingly the counter application is dismissed with costs to the 1st and 2nd applicants-in-convention (respondents-in-reconvention respectively). The main Application or Application in-convention is granted with costs though such costs are to be costs in the counter application.

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G.N.MOFOLO

JUDGE

For the Applicants : Mr. Buys

For the Respondents : Mr. Mda