Dharmesh Bhikha and 3 Others v Philiph Ndlovu N.O and 2 Others

### Preamble
1
HB 45/22
HC 392/21
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DHARMESH BHIKHA

And

HIMMETTLAL PARSHOTAM BHIKHA

And

LAXMIBEN HIMMETTLAL BHIKHA

And

ILESH BHIKHA

Versus

PHILIPH NDLOVU N.O

And

MASTER OF THE HIGH COURT N.O

And

H BHIKHA ENTERPRISES PRIVATE LIMITED

IN THE HIGH COURT OF ZIMBABWE

TAKUVA J

BULAWAYO 7 JULY 2021 AND 24 FEBRUARY 2022

Opposed Application

N. Sibanda, for the applicants

G. Nyoni, for the respondents

TAKUVA J: 	Applicants filed what they term “Chamber Application For The Removal Of H. Bhikha Enterprises Pvt Ltd Trading As Tilus From Judicial Management.”   According to the 1st applicant’s Founding Affidavit, the basis of the application is that;

“1.	H. Bhikha Enterprises Pvt Ltd has paid all its approved creditors.

2.	H. Bhikha Enterprises Pvt Ltd is now a going concern.  Its liabilities are no longer exceeding its assets.

3.	The court order that is order No. HC 3343/17 has been fulfilled and consequently H. Bhikha Enterprises Pvt Ltd trading as Tilus Supermarket must be discharged from Judicial Management.”

In that regard, the applicants sought the following relief:

“1.	3rd respondent being H. Bhikha Enterprises Trading as Tilus Supermarket be and is hereby discharged from Judicial Management.

2.	There be no order as to costs.”

BACKGROUND FACTS

On 24 January 2018, the 3rd respondent being represented by Dharmesh Bhikha, its erstwhile Managing Director applied for a provisional judicial management order.  The order was granted as prayed for.  Later, on 19 July 2018, this Court under HC 3343/17 confirmed the provisional order in the following terms;

“…1. 	The Provisional Order for Provisional Judicial Management of the applicant company granted on the 24th of January 2018 be and is hereby confirmed.

2.	Mr Philip Ndlovu of PNA Chartered Accountants be and is hereby appointed the Judicial Manager of the applicant company with powers as set out in the Companies Act (Chapter 24:03).

3.	The costs of this application shall be the costs of Judicial Management.”

The 1st respondent then took control of the 3rd respondent in terms of the Companies Act.  He worked with the 1st applicant as the shareholders’ representative in running the 3rd respondent.  The liason worked until 31st December 2020 when 1st applicant wrote a letter to the 2nd respondent complaining about the manner in which 1st respondent is running the 3rd respondent.  He accused 1st respondent of working against the interests of the 3rd respondent by allowing a supplier of goods to the 3rd respondent to run the financial affairs of the 3rd respondent.  The 1st respondent was also accused of “asset stripping” and the 1st applicant called for investigations to be carried out by the 2nd respondent.  However there is no indication of what became of those “investigations.”

What is crystal clear is that the applicants did not end there but filed an urgent chamber application under HC 13/21 against the 1st respondent alleging that he was perpetrating some illegalities and it was dismissed with costs at an attorney and client scale in January 2021.  On 14 April 2021 they filed another chamber application under HC 336/21.  The allegation is that the 1st respondent was looting the 3rd respondent’s property and needed to be interdicted.  Judgment in that matter is pending.  This chamber application HC 392/21 was then filed on 23rd of April 2021 seeking “to remove the company from judicial management.”  Later, and on 26 May 2021, they filed another urgent chamber application under HC 621/21 seeking to have this case heard on an urgent basis.  The matter was struck off the roll of urgent matters.

APPLICANTS’ CASE

Applicants contend that the 3rd respondent should be removed from judicial management because the fundamental and foundational basis upon which it was grounded has been satisfied.  This is so because the 1st respondent had admitted that he has paid all the creditors that caused the listing of the 3rd respondent into judicial management and further that the company has made in excess of over seventeen million in profits.  Applicants relied on a letter penned by the 1st respondent following the 31st December letter to the 2nd respondent.  According to the applicants, the evidence of this letter and the fact that the 3% that the 1st respondent is billing as monthly income which is equivalent to more than a million and three hundred thousand dollars of the gross sales is a “clear indication that the company is now a profitable concern.”  It was further contended by the applicants that they were never furnished with financial statements by the 1st respondent whom they accuse of failing to comply with the provisions of the Companies Act requiring the holding of statutory meetings.  The applicants complained bitterly that the 1st respondent was not running the enterprise transparently.

The other reason why applicants want the judicial management order cancelled is that applicants have “secured investors who have opened lines of credit of over ZWL$15 million” who are keen on putting up stock so as to allow the business to operate profitably again.  The 1st respondent is listed by applicants as the “biggest hinderance” to this form of “investment”.  Applicants further relied on what they term a “fundamental breach” of a term agreed to by the parties to the judicial management arrangement.  The contract between the parties was that it shall end upon 1st respondent returning the company to viability which has happened and the court must intervene and end the judicial management.  Finally it was submitted that the evidence that has been pleaded before the court is sufficient to make a finding that the 3rd respondent is now a “going and profitable concern.”

THE 1ST RESPONDENT’S CASE

The 1st respondent opposed the application on a number of grounds.  He took three points in limine and later opposed the matter on the merits.  The 1st point in limine is that the application is improperly before the court in that applicants filed a “Chamber application” instead of a “court application” as required by section 314 of the Companies Act (Chapter 24:03).

Further it was contended that any litigant served with a Chamber Application drafted and filed in terms of the proviso to rule 241 (1) of this court’s rules has ten days (10) within which to file its opposing papers unless it has been granted leave to give a lesser dies induciae to its opponent.  See also rule 232.  In casu, applicants gave the 1st respondent five (5) days to file a notice of opposition.

Second point in limine is that the 3rd respondent has not been properly cited and not served in that the fact that the company is under judicial management has not been disclosed.  The 3rd respondent as cited is not under judicial management and an order sought against it cannot be granted.  Reliance was placed on Tetrad Investments Bank v Bindura University of Science Technology & Anor SC 5-2019.

Thirdly, 1st respondent argued that in their papers, applicants have cited the 1st respondent only for purposes of his removal as a judicial manager.  This is not consistent with the relief that they are seeking.  Therefore, so the argument goes, they cannot attain relief where they have cited the judicial manager for a different cause of action.  Reliance was placed on Medlog Zim (Pvt) Ltd v Cost Benefit Holdings (Pvt) Ltd SC 24-18 and Courtney – Clarke v Bassingthwaghte 1991 (1) 8A 684.

On the merits the 1st respondent contended that applicants have not placed as a matter of law relevant evidence of a probative value to establish the basis of their application.  The fact that the 3rd respondent has since paid its creditors is not decisive on its own.  The company should also be in a position where it can be said to be now viable.  In other words, it must return to profitability.  Millman N.O v Swart Land Huis Meaubeleerders (EDMS) BBR: Repfin Acceptances Ltd (Interveriing) 1972 (1) 8A741 (C) at 744 B, Makhuva & Ors v Lukhoto Bust Service (Pty) Ltd & Ors 1987 (3) 8A 376.

According to the Judicial Manager (1st respondent), the debts that have been paid related to the pre-judicial management creditors.  There are “new” creditors some of whom have been and continue to supply goods to the 3rd respondent on credit.  It is therefore imperative that the court hears the Judicial Manager’s evidence on the 3rd respondent’s financial status before removing it from judicial management.  Further, 1st respondent submitted that applicants simply want the company to be removed from judicial management on a promise of credit since they have not secured any capital.

Commenting on the letter 1st respondent wrote making reference to seventeen (17) million dollars (ZWL$17 million) in cumulative profits, the 3rd respondent explained that it is profit made by the company over a period of time.  He also indicated that this is the money that was used to pay off the pre-judicial management debts.  This was made possible, not because the company was able to stand on its own or that it had its own capital but because Pintail was supplying it as it is doing now on consignment basis.

As regards applicants’ submission that they have secured “partners”, 1st respondent argued firstly that this demonstrates to the court that the 3rd respondent cannot stand on its own and secondly that it is not profitable at all.  First respondent also dealt with 1st applicant’s allegation that the Judicial Manager was making major decisions without consulting the “management of the company.”  According to his notice of opposition, 1st applicant has always been involved in the running of the company and proof of that fact has been attached.

Finally, the 1st respondent contended that the company could not have shown signs of life had the Judicial Manager not properly managed it with skill and hardwork.

I now deal with the points in limine.  I must point out that these points do not dispose of the matter at hand.  The 1st point in limine namely that the application is improperly before the court because it was made to a Judge in chambers and not to the court has no merit in my view.  Firstly, section 314 of the Act does not specify what type of application must be made.  Secondly, although the reference to a “Court” may strongly suggest that the application must be a “Court Application,” and not a “Chamber Application”, in casu the 1st respondent understood the application to be a court application and he proceeded accordingly.  The matter was set down as an opposed court application with the parties arguing their respective cases in open court.  I believe the nomenclature has not prejudiced the 1st respondent despite being given 5 days instead of the usual 10 days within which to respond.  I would therefore dismiss this point in limine.

The 2nd and 3rd points in limine are interwoven with the main issue in casu.  Accordingly, reference will be made to them in the assessment of the application on the merits.

The object of a judicial management order is to avoid the drastic remedy of winding up when a company is in financial difficulties due to mismanagement or some other cause, but there is a reasonable probability that under more carefully controlled management it will surmount its difficulties.  This process is a legislative intervention.  Section 299 of the Act provides;

“CIRCUMSTANCES IN WHICH PROVISIONAL JUDICIAL MANAGEMENT ORDER MAY BE OBTAINED

(1)	Subject to section three hundred, the court may –

(a)	on an application being made to it for such an order by any person who would be entitled to apply for the winding up of the company, grant a provisional judicial management order.

(b)	…

(2)	Before an application referred to in paragraph (a) of subsection (1) is filed with the court, a copy of the application, including the supporting affidavits and other documents, shall be lodged with the Master who may report to the court on any circumstances which appear to him to justify the court in postponing or dismissing the application and in such event the Master shall transmit a copy of this report to the applicant.”

In section 300 (1) of the Companies Act, the legislature provided the reasons why companies are put under judicial management.  It provides that;

“The court may grant a provisional judicial management order in respect of a company

on an application referred to in paragraph (a) of subsection (1) of section two hundred and ninety nine, if it appears  to the court –

that by reason of mismanagement or for any other cause the company is unable to pay its debts or is probably unable to pay its debts and has not become or is prevented from becoming a successful concern; and

that there is a reasonable probability that if the company is placed under judicial management it will be enabled to pay its debts or meet its obligations and become a successful concern; and

that it would be just and equitable to do so; or

on an application referred to in paragraph (b) of subsection (i) of section two hundred and ninety nine, it appears to the court that –

if the company is placed under judicial management the grounds for its winding up may be removed and that it will become a successful concern; and

that it would be just and equitable to do so.” (my emphasis)

From the above, it is clear that a company is placed under provisional judicial management on evidence being adduced demonstrating that;

It is being mismanaged and/or

It is unable to pay its debts or is probably unable to pay its debts and

There is a reasonable probability that if placed under judicial management it will be able to pay its debts and be a profitable concern.

The factors that a court must consider before issuing a final judicial management order are listed in section 305 of the Act which provides;

“305 Return day of provisional judicial management order

On the return day fixed in the provisional judicial management order, or on the day to which the court or a Judge may have extended it, the court after considering –

the opinion and wishes of the creditors and members of the company; and

the report of the provisional judicial manager prepared in terms of section three hundred and three; and

the number of creditors who did not prove claims at the 1st meeting of creditors and the amounts and nature of their claims; and

the report of the Master; and

the report of the Registrar;

may grant the final judicial management order if, it appears to the court that there is a reasonable probability that the company concerned, if placed under judicial management will be enabled to become a successful concern and that it is just and equitable to grant such an order, or it may discharge the provisional judicial management order or make any other order that it thinks just.”

What is noteworthy is that before a final judicial management order is granted, the court must receive and consider reports from the Master, the Registrar, the Provisional Judicial Manager on the state of affairs of the company.  It is this evidence together with financial statements and other accounting documents that the court considers before it grants a final judicial management order.  The involvement of outsiders demonstrates the legislature’s desire to protect creditors.

The purpose of judicial management as shown in section 299 above is to enable companies suffering from temporary set back due to mismanagement or other special circumstances to become successful concerns.  In Silverman v Doornhoek Mines Ltd 1955 TPD 353, judicial management was referred to as;

“An extra ordinary procedure the purpose of which is to obviate a company being placed in liquidation whereby proper management or by proper conservation of its resources it will be able to meet its obligations, remove any occasion for winding up and become a successful concern.”

Cancellation of the judicial management order is provided for in section 314 (1) of the Act which reads as follows;

“314 CANCELLATION OF FINAL JUDICIAL MANAGEMENT ORDER

If at any time, on application by the final judicial manager or any person having an interest in a company under judicial management, it appears to the court that the purpose of the final judicial management order has been fulfilled or that for any reason it is undesirable that the order should remain in force, the court may cancel such order and thereupon the final judicial manager shall be divested of his functions.

………..”

APPLICANT’S CASE

The 1st applicant is a shareholder of the 3rd respondent which is under judicial management through an order of this Court under cover HC 3343/17.  The applicants contended that the court order under HC 3343/17 has been fulfilled in that the 3rd respondent has paid all the creditors that caused the listing of the 3rd respondent under judicial management.  Secondly the 1st respondent admitted in writing that the 3rd respondent has made profits in the sum of seventeen million dollars.  Applicants contended that the admission on its own is sufficient cause why the 3rd respondent ought to be removed from judicial management.

Thirdly, applicants have not placed financial statements before the court because these were never supplied to them by the 1st respondent.  Fourthly, the 1st respondent (Judicial Manager) has never held a single statutory meeting as prescribed by the provisions of the Companies Act.  Finally, applicants argued that they have now secured investors who have now opened lines of credit of over 15 million RTGS dollars and are keen on putting up stock as to allow the business to operate profitably again.

Applicants relied on a letter penned by the (Judicial Manager) 1st respondent addressed to the applicants.  It is common cause that that letter was a response to complaints that, had been made to the Master of this Court.  In that letter dated 28 December 2020 applicants raise numerous grievances against the 1st respondent.  Chief among these are the following;

Despite paying all its listed creditors by 20 May 2020, the 3rd respondent remained under judicial management to date.

The Judicial Manager is abusing his office.

There is no evidence that the ZIMRA Quarterly Payments Dates and relevant receipts and returns have been obtained as evidence that tax liabilities in 3rd respondent’s name are being discharged in compliance with the law.

The Judicial Manager is under the control of one “supplier” of goods who now runs the 3rd respondent’s affairs with the Judicial Manager’s acquiescence.

The Judicial Manager is stripping 3rd respondent’s assets in the Bakery.

The shareholders desire to see the return of control of the rehabilitated company to them as plans are underway to ensure that the company will be better managed this time around and a corporate culture will be introduced.

The applicants proposed the following as a remedy;

“(i)	Immediate removal of all Pintail Stocks up to and including the value of outstanding “invoices” and that limited to four (4) stores to be agreed with the shareholders towards final reduction of any and all outstanding amounts to Pintail on the consignment deliveries

The opening of a Trust Account in the normal course of business for IM accounts

A “stop” to all reversal of decisions by JM that will have been made and recorded as the way forward and then vetoed and torpedoed by the Consignor.

The Master is requested to carry out investigations and advise as to the way forward.”

Unfortunately, the Master did not file his response to the allegations stated above.  However, the 1st respondent responded through a letter addressed to the “shareholder’s representative of H. Bhikha Enterprises” in the following terms;

“….RE: RESPONSE TO LETTER WRITTEN TO MASTER OF THE HIGH COURT STAMPED 31 DECEMBER 2020

We noted your letter written to the Master of the High Court dated 31 December 2020.  Our mandate as per the High Court Order is turn (sic) this company into a viable operating company, protect the employment and create value for the shareholders.

We believe we have meet (sic) the requirements of the mandate to date and have managed to pay all the pre-judicial management creditors, retained all staff and managed to create value of close to ZWL 17 million (assets above liabilities) for the shareholders.

The issues raised do not aid our mandate or obscure what we have done to date.

We request the shareholders to formally make an application to the High Court with their detailed plan on how they intend to bring the company out of Judicial Management.

Prior to the cancellation of the Judicial Management Order we will continue to operate in a manner we believe will meet our mandate and request that you do not interfere in our work.  Please collect the H. Bhikha Judicial Management Order which outlines our duties.” (my emphasis)

This letter was signed by the Judicial Manager, one Philip Ndlovu and copied to the Master of the High Court, The Director of Pintail (Consignor) – Honourable Deputy Minister Industry and Commerce and the Finance Manager – Tilus.

It is against this backdrop that applicants approached this court for an order cancelling the final judicial management order in terms of section 314 (1) of the Companies Act.  From a reading of the above section, a litigant who approaches this court for an order for cancellation of a judicial management order has to prove the following essentialia;

that he has interest in the company under judicial management.

(ii)	The purpose of the final judicial management order has been fulfilled and

(iii)	that for any reason it is undesirable that the order should remain in force.

Mr Sibanda for the applicants argued that applicants as shareholders of the 3rd respondent have a direct interest in the affairs of the 3rd respondent.  Therefore, they are properly and fully clothed with powers to approach this court.  There can be no doubt in my mind that the applicants are interested parties in this matter.  In any event 3rd respondent is owned by family members namely two parents and their two sons as Directors.

Furthermore, in relation to the second requirement, quite evidently, the import of the 1st respondent’s letter to the Master is that the company is now a viable concern that has managed to do the following;

pay all its pre-judicial management creditors

generated profits amounting to ZWL $17 million.

Retained all staff

Also in that letter the 1st respondent actually requested the shareholders to “formally” apply to this court for an order removing the 3rd respondent from judicial management.  An invitation to bring their “detailed plan” on how they intend to operate was made.

I get the impression that the 1st respondent’s position was that the 3rd respondent is now out of the woods, for a company that is able to create value of close to ZWL$17 million cannot by any stretch of imagination be described as not viable.

I am not persuaded by 1st respondent’s argument on the status of $17 million and that the final judicial management order should not be cancelled because 3rd respondent’s post-judicial management creditors have not all been paid.  It was also his contention that 3rd respondent survives on “credit” not capital.  I take the view that it is an economic phenomenon that companies, big or small survive on credit.  In fact that is why we have commercial banks and other financial institutions offering loans to industry, commerce and private citizens.  The issue is not that one should not have creditors but that one should not fail to pay his or her creditors when the debts become due and owing.

In my view, the 1st respondent’s efforts to panel beat the full impact of his letter to the applicants do not take his case any further.  Equally unmerited is 1st respondent’s contention that applicants have not placed evidence in the form of financial statements before the court so as to allow the court to formulate a decision on whether or not the 3rd respondent had fulfilled the terms of the final order.  In fact under normal circumstances, it is the duty of the Judicial Manager to file a report stating the financial position of a company under judicial management.  Its genesis in terms of its income and expenditure, assets and liabilities including its liquidity generally, is the domain of a Judicial Manager.  Put differently the Judicial Manager should inform the court that whatever was sent to Intensive Care Unit has been attended to or not.

In casu, 1st respondent did so not in so many words in his letter.  True, the letter is not elegantly put in pure accounting format but its core message is crystal clear.  It is that the 3rd respondent is now a viable concern thereby justifying the cancellation of the final judicial management order.

As regards the 3rd requirement, I agree with the applicants’ contention that it is undesirable that the order should remain in force.  The legislature used the phrase “or for any reason, it is undesirable that the order should remain in force.” (my emphasis)  In casu the order has been in force since January 2018.  The relationship between the Judicial Manager and the applicants has become toxic.  The serious allegations raised against the 1st respondent have not been investigated by the Master.  While the 1st respondent is fully aware that the financial records of the company are required, he himself did not produce them on the ground that applicants “never asked for them.”  This proves the extent of the animosity between the parties.  It is also noteworthy that the applicants have attached a business plan they wish to implement post judicial management.  The plan speaks to a modern business model.

I am therefore satisfied that the applicants have proved on a balance of probabilities the essential features for the cancellation of the final judicial management order in terms of section 314 of the Act.

In the result it is ordered that;

1.	The 3rd respondent being H. Bhikha Enterprises Trading as Tilus Supermarket be and is hereby discharged from Judicial Management.

2.	There shall be no order as to costs.

Tanaka Law Chambers, applicants’ legal practitioners

Moyo and Nyoni, 1st respondent’s legal practitioners