Court orders Menengai Stores to pay Hong Kong-based company Sh44.5million

The Milimani Commercial and Tax Division Court has ordered Menengai Stores Limited to pay a Hong Kong- based company Ksh44.5million after failing to pay for goods supplied to it.

In the ruling that was delivered on Friday, Justice Freda Mugambi ordered Menengai to pay Ksh44,548,567 to Wiltex Limited together with interest from the date of filing of the suit until payment in full.

“I am inclined to believe that the amount due to the plaintiff is per the defendant’s calculations which is Ksh 44,548,567,” she ruled.

Justice Mugambi also directed both companies to furnish proof of tax compliance by settling the difference between the genuine and dummy invoices with their respective tax authorities.

The judge further awarded Witex 25 per cent of its legal costs for the successful portion of its claim corresponding to the admitted debt.

“Each party shall bear its own costs for the portion of the claim affected by illegality; as such the plaintiff is awarded 25 percent of its legal costs for the successful portion of its claim corresponding to the admitted debt of Ksh 44,548,567,” the judge ordered.

However, she directed that since the contract is severable, and in the interest of public policy, both parties must fulfil their tax obligations before benefitting from any relief granted by the court.

“Compliance with tax laws is a prerequisite for enforcement of any legitimate claim arising from the agreement.”

Wiltex Limited filed the suit averring that for the number of years it has served as the primary supplier for its business of general hardware and merchandise which included power tools, nuts, bolts, washers, sprayers, levels and other hardware items to Menengai.

On diverse dates between 2017 and 2018, the company said it exported various items for the respondent and they confirmed the orders where the plaintiff raised invoices totaling to Ksh 138,477,619 together with interest and costs.

However, Menengai disputed the claim, stating that the invoices issued by the plaintiff were tainted by illegalities and as per their calculations the remaining debt to Witex stand at Ksh 44,548,567.

It submitted that it was willing to pay through regular instalments but the significant discrepancy has hindered them to resolve the outstanding debt amicably despite the numerous communications between them.

During the hearing, Witex’s Managing Director Bupesh Khatri  stated that there was informal agreement between the parties for charging interest and it has been ongoing for 25 years without any dispute a fact which Menengai disregarded.

On his part, Menengai General Manager Vikas Gudka stated that they did business with Witex due to  reduced value invoices and it benefitted by getting sales of between Ksh 194 million and Ksh 250 million.

He denied that they had agreed on the interest of 12 percent charged by Witex in the invoices.

From the pleadings and evidence that was produced the court relied on the issue for determination “as whether the respondent is indebted to the plaintiff Ksh 138,477,619 or whether the contract between the parties was tainted with illegalities or that the respondent is only indebted to the plaintiff Ksh 44,548,567 or not at all.”

Justice Mugambi referred a Court of Appeal decision in James Muniu Mucheru Versus National Bank of Kenya Ltd (2019) where the appelate court stated that “courts will make a finding based on which party’s version of the story is more believable.”

The judge noted that it was not in dispute that Witex supplied goods to Menengai and raised invoices amounting to Ksh 138,477,619. Also it was not in dispute that there were two sets of invoices reflecting the amounts payable which were higher and included interest charges.

Justice Mugambi said that the plaintiff claim is based on the true-value invoices rather than the dummy invoices, “this court cannot sanction or enforce an arrangement designed to circumvent tax obligations.”

On the issue of informal agreement of 12 percent between Menengai and Witex, the court did not find proof for that.