TMI Blog2018 (11) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... erest is claimed by the plaintiffs is a Company incorporated in Dubai, UAE. Merely, because the dispute is about those shares which are issued by Indian Company would not lead to the conclusion that cause of action has arisen in India. It is obvious that insofar as Defendant No. 1/Indian Company is concerned it has nothing to do with the dispute. The relief of declaration which is sought is that Defendant Nos. 3 to 7 are not the real owners of such shares and its actual/beneficial owner is Defendant No. 2. Such a dispute would not bring jurisdiction of Chennai courts simply because Defendant No. 1/Indian Company has its registered office in Chennai. Even if it is presumed that the plaintiffs ultimately succeed in their action, when brought in a competent court in Dubai, and a declaration of the aforesaid nature is given by the said court, Defendant No. 1 can always act thereupon. We find that court in Dubai would be more convenient forum to decide the dispute between the parties who are residents of Dubai and which revolves around Defendant no. 2, again a Company registered and situate in Dubai. The High Court also appears to be right in holding that the relief sought for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suit. Appeals against this order were filed by Respondent nos. 1 to 9. The Division Bench has allowed these appeals by the common judgment dated August 03, 2018, thereby rejecting the plaint on the ground that suit in the High Court of Madras was not maintainable due to lack of territorial jurisdiction. This order is impugned in the instant appeals. 4) The brief facts leading to the case may be stated at this stage. It may be mentioned that only those facts which are essential to decide the controversy regarding jurisdictional issue are taken note of. Also, for the sake of clarity and convenience, the parties are addressed as plaintiffs and defendants, on the basis of memo of the parties in the suit. Since there are multiple parties to the litigations-contesting as well as proforma we start with the description of these parties, which is as under: 5) Plaintiff No. 1 - Ahmed Abdulla Al Ghurair and Plaintiff no. 2, Ibrahim Abdulla Al Ghurair are brothers. They are residents and nationals of Dubai, UAE and are minority shareholders with 34% shares in defendant No. 2, ETA Star Holdings Ltd., a Company incorporated under the laws of Jebel Ali Free Zone Authority and having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Defendant nos. 3 and 5 to 7. It had provided funds for and on behalf of the Defendant no. 2 towards the shares held by the Defendant nos. 3 to 7 in the Indian Company. 15) It is the case of the plaintiffs that the Defendant nos. 3 to 7 had made declarations that the shares of the Indian Company in their name were actually held by them for and on behalf of Defendant no. 2. Conversely, they acknowledged that Defendant no. 2 had a beneficial interest in the shares of the Indian Company, though the shares were in their names. Since the Defendant no. 2 had a beneficial interest in the shares in the names of Defendant nos. 3 to 7, the actual share certificates were in the possession of Defendant no. 11, ETA Star Holding LLC, who in turn had a 100% beneficial holding over the Respondent No. 2. This declaration by Defendant nos. 3 to 7 was discontinued after the de-consolidation of accounts between Defendant nos. 2 and 11. 16) The case of the plaintiffs was that the majority group of shareholders of Defendant no. 2 should have taken some steps in order to assert that it was having a beneficial interest in the shares of the Indian Company, though allotted in the names of Defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk, Chennai. According to the plaintiffs, contribution was towards equity share capital held by Defendant nos. 3 ad 4. Share certificates were also issued and recorded as having beneficial interest by the ETA Group. 21) Later, on March 06, 2006 the Indian Company received further investment through four demand drafts amounting to ₹ 3,32,000/- from Defendant no. 12, which was recorded as beneficial interest of the Defendant no. 2. Defendant no. 11 is in possession of these shares as well. It has been further stated that between December, 2005 and March, 2006, a total sum of ₹ 16,78,32,000/- had been received by the Indian Company from Defendant nos. 12 and 2 towards issue/allotment of shares. On June 25, 2009, Defendant no. 3, issued a personal cheque of ₹ 2,13,00,000/- which was honoured on July 07, 2009 in the accounts of Defendant no. 2, and reflected that the investment was made in the Indian Company. On June 28, 2009, a further investment was made in the Indian Company by Defendant no. 12 to the tune of ₹ 2,14,00,000/- through payment instructions to Emirates Bank to debit the same, which was actually credited on July 01, 2009. In 2011, two investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rotesting that the investments made by Defendant no. 2 were denied. Defendant no. 1, through its letter dated June 07, 2017 refused to take notice of the claim asserted by the ETA Group. Plaintiff no. 2, thereafter, sent another letter dated June 12, 2017 to the Indian Company, addressed to the Managing Director of the Indian Company, giving details in support of the claim of the ETA Group. He also called for a meeting in person. However, Defendant nos. 8 and 9 along with other Directors of the Indian Company failed to attend the meeting proposed by Plaintiff no. 2. However, they sent a letter dated June 27, 2017 stating that they had earlier replied on June 07, 2017 itself and had nothing further to state. Plaintiff no. 2 sent another letter dated July 09, 2017 reiterating his original stand. The Indian Company responded through letter dated July 27, 2017, stating that they were not obliged to offer any clarification to the same. 26) It was under these circumstances that the plaintiffs filed the Suit, C.S. No. 33 of 2018 at the High Court of Judicature at Madras. 27) The plaintiffs claim that the Indian Defendant no. 2 Company is under the control of wrong doers. They furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther stated that there are no disputes with respect to the ownership or management or shareholding of the Indian Company. It also took the stand that the plaintiffs are neither the shareholders nor the Directors of the Indian Company, and, therefore, they had no right to sue and consequently, the suit itself is not maintainable. It also averred that the disputes between the plaintiffs and Defendant nos. 3 to 7 arose around 2013 and the suit had only been filed in the year 2018 and consequently, the suit was barred by limitation. Another objection was that the plaintiffs had filed the suit when private equity investors had shown interest in purchasing shares of the Indian Company and the same was an abuse of process of law. Maintainability of the suit was also questioned on the ground that it was barred by Section 89 of the Companies Act 2013 and Section 187(C) of the Companies Act 1956. 32) Somewhat similar stand was taken by other contesting defendants in support of the prayer for revoking the leave and to rejecting the plaint in C.S. No. 33 of 2018. Defendant no. 2 also took the plea that it was not interested in seeking the relief claimed in the plaint, viz., Defendant no. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Defendant No.2). Thus on 31.12.2016 it became manifested that the recordal of declaration of beneficial interest of the Defendant No.2 would no longer be caused to be made by those in control of Defendant No.2 and its affairs namely Defendant Nos. 3, 4 and 7 and which hostile action led to not only the denial of the recording of beneficial interest of Defendant No.2 but also to deconsolidation with retrospective effect of its accounts with Defendant No.11. With the deconsolidation of accounts it became clear that a hostile action denying the beneficial interest of Defendant No.2 stood taken by Defendant Nos. 3, 4 and 7. The cause of action further arose on 07.06.2017 when Defendant No.1 refused to acknowledge the beneficial interest in the suit shares. The cause of action further arose when Defendant No.1 through Defendant No.10 on 27.06.2017 once again refused to acknowledge the beneficial interest in the suit shares. The cause of action further arose on 12.11.2017 and 24.11.2017 when newspaper articles, being in public knowledge suggested that the equity of the Defendant No.1 is being sold to private equity investors through a bidding process and the present investors including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders of the company though all these shareholders are residents and nationals of Dubai. Moreover, they are claiming that though shares are in the names of defendants Nos. 3 to 7, it is defendant No.2 which has the beneficial interest therein and even defendant No.2 is a foreign entity which is covered by the foreign law. Likewise, the inter se relationship between defendant No.2 and the plaintiffs is also covered by the foreign law. It was additionally contended that the claims made by the plaintiffs are not enforceable even under the Companies Act, 1956 or the Companies Act, 2013. As far as inter se disputes between the plaintiffs and the contesting defendants, who are all shareholders of defendant No.2, are concerned, they have arisen in Dubai which is outside the territorial jurisdiction of Chennai. 39) M/s. C.A. Sundaram, Neeraj Kishan Kaul, V. Giri and C.U. Singh, learned senior counsel appeared for the plaintiffs. In substance, their argument was that the learned Single Judge of the Madras High Court had rightly allowed the application for leave to file the suit after satisfying that the Court at Chennai had the territorial jurisdiction to entertain such a suit which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en contended that primarily the third, fourth and seventh defendants should first make a declaration that though the shares are in their names, a beneficial interest had accrued to the second defendant. Similarly, the second defendant has to make a declaration that they are the beneficial interest holders of the said shares. It has been contended that in the absence of the above declarations seeking a declaration against the first defendant would be akin to putting the cart before the horse. xx xx xx 134. I hold that the declarations made or not made in the books of the first defendant would be to the exclusive knowledge of the first defendant alone and those in charge of management of the first defendant. In this context, the eighth to tenth defendants have a vital role to play. Evidence is necessary from their end to disclose facts and to subject themselves to cross examination on all these aspects. The plaintiffs have pleaded the facts to their knowledge. It must also be kept in mind that except the third defendant, no other defendant had sworn to an affidavit. Questions raised by the plaintiffs remain unanswered and trial is the answer to determine the actual facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not filed any affidavit disclosing facts to their knowledge. The eleventh and twelth defendants have chosen not to participate in these proceedings. The first, third, eighth, ninth and tenth defendants are in Chennai. They are privity to the relevant records and to the facts in issue in this case. I hold that since the plaint discloses cause of action, and substantial cause of action had arisen in Chennai, and since the suit is nor barred by any statute, the issues raised in the suit can be determined in this Court and by this Court. 140. Moreover, the eighth, ninth and tenth defendants, who were in management of the first and second defendants are residents at Chennai and it would be to their convenience if the suit is litigated in Chennai. Their evidence would be crucial. In the plaint, fraud has been alleged against them and they will have to withstand cross examination on such specific aspects. 141. The third defendant, who appears to fight his own cause and also the cause of the second defendant, has his residence at Chennai. xx xx xx 143. The fifth and sixth defendants are the sons of the third defendant. They have residence in Chennai, and if required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted where the underlying assets stood situated (India). We find no merit in these arguments. 140. At the outset, we do not wish to pronounce authoritatively on the Companies Law of the Cayman Islands. Be that as it may, under the Indian Companies Act, 1956, the situs of the shares would be where the company is incorporated and where its shares can be transferred. In the present case, it has been asserted by VIH that the transfer of the CGP share was recorded in the Cayman Islands, where the register of members of CGP is maintained. This assertion has neither been rebutted in the impugned order of the Department dated 31-5-2010 nor traversed in the pleadings filed by the Revenue nor controverted before us. In the circumstances, we are not inclined to accept the arguments of the Revenue that the situs of the CGP share was situated in the place (India) where the underlying assets stood situated. 41) The appellants also relied upon the following two judgments of the Calcutta and Bombay High Courts respectively: (i) Starlight Real Estate (Ascot) Mauritius Ltd. and Another v. Jagrati Trade Services P. Ltd. and Others (2016) 195 Comp Cas 434 (Cal). 38. The plaintiffs as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng allegedly done to the company. It is the company who alone can bring an action for a wrong done to it. The rule however has been subjected to more than one exceptions. In (B.B.N. (UK) Limited v. Janardan Mohandas Rajan Pillai), 1993 (3) Bom. C.R. 228, this Court while upholding the rule that it is the company who is entitled to maintain an action for wrong allegedly done to it and a shareholder has no locus standi to maintain the suit, affirmed one of the exceptions to the aforesaid rule that where a shareholder can show that the wrong doers are in control of the defendant company and hence the company would be unable to maintain the action, he can maintain an action. It was submitted that the present case is covered by the exception carved out by the Calcutta and Bombay High Courts in the aforesaid judgments. 42) M/s. Gopal Subramanium, Mukul Rohatgi, Dr. Abhishek Manu Singhvi and Shyam Divan, learned senior counsel appeared for defendant Nos.1, 2, 3 and 4 respectively. They strongly refuted the aforesaid submissions of the appellants/plaintiffs and submitted that the approach of the Division Bench of the High Court was without any blemish which warranted imprimatur by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the Letters Patent. The contesting defendants had filed the applications for revocation of the said order of grant of leave and, therefore, the parameters of Order VII Rule 11 of the CPC could not be applied. It was submitted that as far as the High Court of Madras is concerned, specific provision in th form of Clause 12 of the Letters Patent was made, in supersession of Section 20 of the CPC. Grant of leave is discretionary and for granting leave the Court is governed by the principle of forum conveniens. In the instant case, having regard to the fact that the holding company (defendant No.11) as well as the company on whose behalf the suit was filed (defendant No.2) were situated in Dubai and the shareholders of defendant No.2 were having disputes inter se, who were also residents of Dubai, the Courts in Dubai were better equipped to deal with such a dispute. (d) In any case, the defendants application was also under Order VII Rule 11 of the CPC raising the plea that no cause of action had arisen in Chennai and also that the suit was barred by law as well. These contentions were accepted by the Division Bench, inter alia, with the following discussion: 6.12 Keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te ownership. Therefore, even if we go by the averments in the plaint while eschewing the defence of the defendant No.2, no relief can be claimed before this Court. It is an indirect way of challenging the decision of the ETA Group, in which, the plaintiffs were also parties. Any adjudication on this though indirectly, will have a serious spiralling effect, as settled things would get unsettled for the reason that it might have an adverse impact on other shareholders of other entities coming under the umbrella of the ETA Group. The logic and rationale behind the decision of a foreign entity cannot be adjudicated here. Be that as it may, certainly the remedy lies elsewhere. We should also keep in mind defendants 2 and 11 are admittedly situated outside the jurisdiction of the Court though the plaintiffs contend that defendants 3 to 7, despite being non resident Indians are permanent residents of Chennai. This is nothing but an attempt to review the decision made already by the ETA Group as acknowledged by the defendant No.11 in the draft financial statement. After all, the relief that is sought against the defendant No.1 is a mere consequential one. When once the plaintiffs succeed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly it would apply. A Civil Court is mandated to check its jurisdiction to deal with a lis qua the limitation. 43) We have deliberated on the respective arguments raised by both sides with reference to the records of the case. 44) In order to appreciate the respective contentions, we may have to capture the real essence of the dispute between the parties. As noted earlier, the suit which was filed by the plaintiffs in the High Court of Madras is derivative action on behalf of Defendant No. 2. Defendant No. 2 is a Company incorporated in Dubai, UAE. Plaintiff Nos. 1 and 2 were also resident nationals of Dubai, UAE have share holding in Defendant No. 2 Company. Together they hold 34% of shares in this Company. Defendant Nos. 3,4 and 7 are also share holders in Defendant No. 2 Company. They hold 66% shares in Defendant no. 2 Company. In this way, plaintiffs on the one hand hold 34% of the shares in Defendant No. 2 Company, whereas Defendant Nos. 3, 4 and 7 have share holding of 66%. There are certain disputes between these two groups of share holders insofar as affairs of Defendant No. 2 are concerned. 45) Defendant Nos. 3 to 7 are also subscribers to the share capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubai. Even Defendant No. 2 whose beneficial interest is claimed by the plaintiffs is a Company incorporated in Dubai, UAE. Merely, because the dispute is about those shares which are issued by Indian Company would not lead to the conclusion that cause of action has arisen in India. It is obvious that insofar as Defendant No. 1/Indian Company is concerned it has nothing to do with the dispute. The relief of declaration which is sought is that Defendant Nos. 3 to 7 are not the real owners of such shares and its actual/beneficial owner is Defendant No. 2. Such a dispute would not bring jurisdiction of Chennai courts simply because Defendant No. 1/Indian Company has its registered office in Chennai. Even if it is presumed that the plaintiffs ultimately succeed in their action, when brought in a competent court in Dubai, and a declaration of the aforesaid nature is given by the said court, Defendant No. 1 can always act thereupon. 48) Mr. Gopal Subramanium, had referred to the provisions of Section 89(1) and (8) of the Companies Act, 2013. As per sub-section (1) of Section 89, a person whose name is entered in the register of Members of the Company as the holders of shares in that Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficial owner in the following words: In my view, the expression beneficial owner was chosen to serve as an instruction, in a system of registration of ownership rights, to look beyond the register in searching for the relevant person. But such search cannot go so far as to encompass a demise charterer who has no equitable or proprietary interest which burden the title of the registered owner of the registered owner. As I see it, the expression beneficial owner serves to include someone who stands behind the registered owner in situations where the latter functions merely as an intermediary, like a trustee, a legal 25[1990] 1 F.C. 199 representative or an agent. The French corresponding expression veritable proprietaire leaves no doubt to that effect. 52) The High Court is also right in its observation that for applying the principles governing a derivative action one fundamental test has to be passed, viz., such an action will necessary have the sanction of law and this shall have no obligation to a foreign entity having beneficial interest which can be enforced in India especially when there are provisions dealing with such a situation. 53) While considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holders thereof was the registered office of the Company in Bellary (outside the State of Mysore), but the share certificates must, on the case of the plaintiffs as set out in the plaint, be deemed to be with the executors and compliance with the decree, if any, passed against the executors for an order of retransfer could be obtained under the Code of Civil Procedure (see Order 21, Rules 31 and 32 Mysore Civil Procedure Code). There is no rule of private international law recognised by the courts in India which renders the Bangalore Court incompetent to grant a decree directing retransfer of the shares merely because the shares have a situs in a dispute between the Company and the shareholders outside the jurisdiction of the foreign court: Counsel for the plaintiffs submitted that the Mysore Court was incompetent to deliver an effective judgment in respect of the shares. But by personal compliance with an order for retransfer judgment in favour of the plaintiffs could be rendered effective. Per Hidayatullah, J (Minority) : It only remains to consider the argument in relation to the shares of the Indian Sugars and Refineries Ltd. It was contended that the shares must be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are with respect to the consolidation and deconsolidation of defendant No. 2 by the defendant No. 11. Similarly a decision of the general body of a ETA Group, the Board of Directors and the participation of the plaintiffs in that are also not in dispute. These undisputed happenings lead to the draft financial statement of the defendant No. 11. This draft financial statement confirms two things. One is with respect to the deconsolidation and the other is removal of status over the shares held by the individuals. The decision was to implement it with retrospective effect from 10.01.2014. It is an admitted case that the decision of the ETA Group and the draft financial statement of defendant No. 11 would make the trustees of the holders f the respective shares involving beneficial interest as absolute owners. The plaintiffs may have grievance over this, but their remedy will lie elsewhere. That is the reason why one of the plaintiffs after issuing notice on behalf of the defendant No. 11 to defendant No. 1, has chosen to file the suit along with the other in the status of shareholders. May be it is also for the reason that the defendant No. 11 cannot wriggle out of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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