The three moved to court after they were hit with penalties by the CMA for their alleged roles in conning investors through a flawed Uchumi rights issue floated in 2014.
Other former directors and managers of the troubled retail chain, including disgraced chief executive Jonathan Ciano, also faced varied CMA sanctions for their alleged roles in the fraud scheme.
The directors were banned from holding office in any publicly listed company.
Three former directors of Uchumi Supermarkets #ticker:UCHM have been cleared of fraud charges over a flawed Sh895 million rights issue in 2014.
Justice George Odunga last week ruled that James Murigu, Bartholomew Ragalo and Joyce Ogundo were charged with an illegality that did not exist in the Capital Markets Authority (CMA) Act.
The three moved to court after they were hit with penalties by the CMA for their alleged roles in conning investors through a flawed Uchumi rights issue floated in 2014.
Other former directors and managers of the troubled retail chain, including disgraced chief executive Jonathan Ciano, also faced varied CMA sanctions for their alleged roles in the fraud scheme.
Mr Murigu was fined Sh660,000, being the pay he received as a director of Uchumi, while Mr Ragalo was ordered to pay the Sh855,000 he earned as board member.
The directors were also banned from holding office in any publicly listed company.
Justice Odunga, while declining to delve into details of the decision of the CMA, said charging the directors based on a non-existent offence negated the whole process.
“It’s therefore clear that whereas the actions of the applicants may well have constituted an offence under other statutes or provisions of the law, they were certainly not candidates for a charge pursuant to which they were required to show cause,” said Justice Odunga in a judgment delivered on Tuesday.
The trio were charged with the offence of ‘facilitating or omitting to prevent the provisions of misleading or deceptive statements in the information memorandum.”
The judge, however, said the Act “prohibits a person from making, furnishing or publishing information or returns the content which are known to be untrue.”
The directors had pleaded in their petition that they did not attend some board meetings, arguing that some decisions that led to their punishment were made by previous directors. They further claimed that the CMA discriminated against them since some of the board members were never punished.
They further argued that the sanctions imposed were based on contravening a repealed ‘Guidelines on Corporate Governance Practices by public Listed companies in Kenya of 2002’, which they said was in itself illegal.
The former directors submitted that they had already left the Uchumi board at the time the sanctions were imposed and that the CMA’s actions were therefore illegal.
Ms Ogundo had argued that as an alternate director to the principal secretary and as a civil servant, she was not a substantive director who the CMA had jurisdiction to make adverse findings against.
The CMA in its response said all directors were subjected to the same process, which the judge agreed, noting the applicants had not presented any evidence to show they had been discriminated against.
In his judgment, Justice Odunga said the function of the court in a judicial review case is not to delve into the merits of the decision of the authority but to determine if the applicants had been subjected to a fair process.
He said he could only interfere with the CMA’s decision if it was made outside the band of reasonableness, noting that the regulator’s decision did not meet such threshold. The court agreed with the CMA’s submission that the corporate governance guidelines were still in force when the alleged breaches were committed since the new regulations were gazzeted in March 2016.
Former directors culpable
He also rejected the argument that the former directors had already left the board when they were charged, noting that former directors are culpable of what occurred on their watch.
The judge further found that the CMA Act empowers the regulator to impose sanctions for breach of the provisions but said it’s not within the confines of judicial review to determine its constitutionality.
The CMA in 2016 also barred Faida Investment Bank from carrying out any advisory services for six months for acting as lead transaction adviser and sponsoring stock broker for the ill-fated Sh895 million Uchumi cash call.
The regulator claimed that the published Uchumi rights issue information memorandum was established not to have been updated with material developments at Uchumi necessary to give investors the full picture of the impact of the funds raised through the rights issue.
The former chief executive, Mr Ciano, was handed a cash fine of Sh5 million. A forensic audit by KPMG established that Mr Ciano and his wife were among Uchumi’s largest vegetable suppliers.
