Supreme Court of India
AHMED ABDULLA AHMED AL GHURAIR (THROUGH THEIR POWER OF ATTORNEY HOLDER MR. BARTHOLOMEW KAMYA) & ANR.versusSTAR HEALTH AND ALLIED INSURANCE COMPANY LIMITED & ORS.
- Citation
- 2018 INSC 1100
- Decided
- 26 November 2018
- Disposal
- Dismissed
- Bench
- A K SIKRI
Holding
The Madras High Court lacks jurisdiction to entertain the derivative suit; the dispute must be decided in Dubai, and the appeals are dismissed.
Summary
The plaintiffs, Dubai nationals and shareholders of a Dubai‑incorporated company (Defendant No.2), filed a derivative suit in the Madras High Court seeking a declaration that Defendant No.2 held the beneficial interest in 6.16% of the shares of an Indian company (Defendant No.1) that were registered in the names of other Dubai shareholders (Defendant Nos.3‑7). The High Court Single Judge allowed the suit, but the Division Bench set aside that order, holding the court lacked territorial jurisdiction. The Supreme Court held that the dispute was essentially between parties resident in Dubai and concerned a foreign beneficial owner, so the cause of action did not arise in Chennai; the mere presence of the Indian company’s registered office in Chennai was insufficient to confer jurisdiction. Accordingly, the suit should be heard in Dubai, and the appeals were dismissed.
Issues considered
- When does a High Court in India have territorial jurisdiction over a derivative action concerning beneficial interest in shares of an Indian company?
- Whether the existence of the Indian company's registered office in Chennai suffices to confer jurisdiction.
- Whether Section 89 of the Companies Act, 2013 bars a suit for declaration of beneficial interest.
- Whether Clause 12 of the Letters Patent (leave to sue) can be invoked when the substantive cause of action lies abroad.
Legislation cited
- Code of Civil Procedure, 1908s. Order VII Rule 11, s. Section 13
- Companies Act, 1956s. 187(c)
- Companies Act, 2013s. 89
- Indian Trust Act, 1882s. 3
- Letters Patent (Madras High Court)s. Clause 12
- Specific Relief Acts. 34
Subjects
territorial jurisdictionderivative actionbeneficial interestshareholdingforeign companyforum conveniensMadras High CourtCompanies Act 2013Section 89Letters Patent Clause 12
Judgment
670 [2018] REPORTS
SUPREME COURT 13 S.C.R. 670 [2018] 13 S.C.R.
A AHMED ABDULLA AHMED AL GHURAIR (THROUGH THEIR
POWER OF ATTORNEY HOLDER MR. BARTHOLOMEW
KAMYA) & ANR.
v.
STAR HEALTH AND ALLIED INSURANCE COMPANY
B LIMITED & ORS.
(Civil Appeal Nos. 9786-9799 of 2018)
NOVEMBER 26, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
C
Jurisdiction: Territorial jurisdiction – Territorial jurisdiction
of High Court to entertain the suit – Plaintiffs-resident nationals of
Dubai, have share holding in defendant No. 2 Company,
incorporated in Dubai – Plaintiffs holding 34% of shares and
defendant Nos. 3,4 and 7 holding 66% shares in the defendant No.
D 2 Company – Defendant Nos. 3-7 also subscribers to 6.16% share
capital of defendant No. 1/Indian Company – Plaintiffs filed suit
for declaration in the High Court of Madras, as a derivative action
on behalf of defendant No. 2, purportedly to protect and declare
the beneficial interest in the shares available with defendant no. 1
standing in the name of defendant Nos. 3-7 – Single Judge of the
E
High Court held that the High Court had the jurisdiction to entertain
the suit, however, the Division Bench held that the suit in the High
Court of Madras was not maintainable – On appeal, held: When a
dispute is between the shareholder and the company with respect to
the shares held in another, the mere existence of registered office of
F the subsequent company is not a factor to clothe jurisdiction – In
reality, the dispute is between the plaintiffs and defendant nos. 3-7,
all residents of Dubai – Even defendant No. 2 whose beneficial
interest is claimed was incorporated in Dubai – Merely, because
the dispute is about those shares issued by Indian Company, would
not lead to the conclusion that cause of action has arisen in India –
G
Defendant No. 1 has nothing to do with the dispute – Relief of
declaration sought is that defendant Nos. 3-7 are not the real owners
of such shares and its beneficial owner is defendant No. 2 – Such a
dispute would not bring jurisdiction of Chennai courts simply
because defendant No. 1 has its registered office in Chennai – While
H
670
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 671
AND ALLIED INSUR. COMPANY LTD.
considering the territorial jurisdiction over a suit initiated to protect A
the beneficial interest, the issue qua the existence of such an interest
can only be decided on the condition that the same is amenable to
such a jurisdiction – Defendant no. 2 is not amenable to the
jurisdiction of the Madras High Court – Furthermore, the court in
Dubai would be more convenient forum to decide the dispute between
B
the parties who are residents of Dubai and which revolves around
defendant no. 2, Company registered in Dubai – Suit – Cause of
action.
Dismissing the appeals, the Court
HELD: 1.1 The High Court rightly held that when a dispute C
arose against the company, which issued the shares, then the
situs would be its registered office, however, when the dispute is
between the shareholder and the company with respect to the
shares held in another, the mere existence of registered office of
the subsequent company is not a factor to clothe jurisdiction.
[Para 56][699-G] D
1.2 On going through the real dispute between the parties,
which emerges out of the plaintiff as well, it would become
manifest that the dispute between the plaintiffs on the one hand
and Defendant Nos. 3 to 7 on the other hand pertains to the affairs
of the Defendant no. 2 Company and in respect of which cause of E
action has not arisen in Chennai and such a dispute has to be
sorted out by the parties between themselves by filing appropriate
proceedings in Dubai, UAE only. [Para 46][698-E-F]
1.3 While making the averments qua the cause of action
and territorial jurisdiction, it becomes apparent that the plaintiffs F
got aggrieved by the draft Consolidated Financial Statement of
Defendant No. 11 (which is again a Dubai company and a parent
company) and this statement records deconsolidation of its
account with those of Defendant No. 2. The real dispute, thus, is
whether Defendant Nos. 3 to 7 in whose name shares to the extent G
of 6.16% of Indian Company stand, are the real owners or it is
Defendant no. 2 Company which has the beneficial interest in the
said shares. Though, the plaintiffs claim beneficial interest of
Defendant No. 2, Defendant Nos. 3 to 7 deny the same.
Interestingly, even Defendant No. 2 Company, whose beneficial
H
672 SUPREME COURT REPORTS [2018] 13 S.C.R.
A interest in these shares is claimed by the plaintiffs, refutes such
a claim of the plaintiffs. Thus, in reality, it is the dispute between
the plaintiffs and Defendant nos. 3 to 7 who are all residents of
Dubai. 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
B
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 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
C 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 said nature is given by the said court, Defendant No. 1 can
D
always act thereupon. [Para 47][696-F-H; 697-A-D]
1.4 As per sub-section (1) of Section 89 of the Companies
Act, 2013 a person whose name is entered in the register of
Members of the Company as the holders of shares in that
Company but does not hold beneficial interest in such shares, he
E shall make declaration within the prescribed time to the Company
specifying the name and address of the person who hold the
beneficial interest. Sub-section (8) provides that if such a
declaration is not made right in this behalf cannot be enforced by
other person claiming through the beneficial owner. Prima facie,
F it appears that court in India on the application of the said
provision would not be in a position to give any relief to the
plaintiffs in the instant suit. The High Court has discussed the
nature of derivative action as well as the meaning that is to be
ascribed to the term ‘beneficial interest’. The suit for derivative
action is an exception to the general principle of locus. It can be
G claimed only in a particular situation. Such a situation has to be
seen contextually from the point of view of the entity, on whose
behalf the suit is filed. Incidentally, the inter se relationship
between the plaintiffs and the beneficial owner, which may be a
company is also of relevance. It may involve a case of deceit,
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 673
AND ALLIED INSUR. COMPANY LTD.
fraud, inability or incapacity. However, the fundamental factor to A
be considered is the relationship between the plaintiff and the
party, which the plaintiff seeks to represent. [Para 48][698-D-H;
699-A]
1.5 The term ‘Beneficial interest’ is defined under Section
3 of the Trust Act, 1882. As it can be discerned from the definition B
of ‘Beneficial interest’; there are two parties involved in an issue
governing beneficial interest. One is a beneficiary named as
‘beneficial owner’ and the other is the owner named as ‘registered
owner’ being the trustee of the property or the asset in question.
Thus, one can deduce the underlining principle that the ownership
is nonetheless legal over the trust property, which vests on him C
but he also acts as a trustee of the beneficiary. A beneficial owner
may include a person who stands behind the registered owner
when he acts like a trustee, legal representative or an agent.
[Paras 49, 50][699-A-D]
1.6 The High Court is right in its observation that for D
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 E
situation. While considering the territorial jurisdiction over a suit
initiated to protect the beneficial interest, the issue qua the
existence of such an interest can only be decided on the condition
that the same is amenable to such a jurisdiction. Defendant no. 2
is admittedly not amenable to the jurisdiction of the Madras High
Court. [Para 52-53][698-G-H; 699-A-B] F
1.7 The High Court in the impugned judgment discussed
in detail the meaning and scope of ‘cause of action’. It also
considered the scope of Clause 12 of the Letters Patent which is
peculiar to Madras High Court, where a leave is required to be
obtained when part of cause of action arises within the territorial G
jurisdiction of the said court. In such a situation, the principles of
forum convenience would become applicable. The 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. H
674 SUPREME COURT REPORTS [2018] 13 S.C.R.
A The High Court also appears to be right in holding that the relief
sought for against Indian Company, at best, is a consequential
one and cannot give a cause of action. Even Defendant no. 2 cannot
seek such a relief without resolving its dispute as against
Defendant nos. 3 to 7. Such a dispute can only be dealt with by
competent forum in Dubai as per the law prevailing in Dubai,
B
UAE. [Paras 54, 55][699-B-F]
Vodafone International Holdings BV v. Union of India
and Another (2012) 6 SCC 613 : [2012] 1 SCR 573;
Starlight Real Estate (Ascot) Mauritius Ltd. and Another
v. Jagrati Trade Services P. Ltd. and Others (2016) 195
C Comp Cas 434 (Cal); Nirad Amilal Mehta v. Genelec
Limited & Others (2008) 6 Bom CR 499; Kusum Ingots
and Alloys Ltd. v. Union of India and Another (2004) 6
SCC 254 : [2004] 1 Suppl. SCR 841 – referred to.
Mount Royal/Walsh Inc. v. Jensen Star, the Ship (1990)
D 1 FC 199 – referred to.
Case Law Reference
[2012] 1 SCR 573 referred to Para 40
(2016) 195 Comp Cas 434 (Cal) referred to Para 41
E
(2008) 6 Bom CR 499 referred to Para 41
[2004] 1 Suppl. SCR 841 referred to Para 54
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 9786-
9799 of 2018.
F From the Judgment and Order dated 03.08.2018 of the High Court
of Judicature at Madras in Original Side Appeal Nos. 220, 221, 222, 223,
227, 228, 230, 231, 232, 233, 234, 235, 236, 237 of 2018.
C. A. Sundaram, Neeraj Kishan Kaul, V. Giri, C. U. Singh, Sr.
Advs., Ms. Ritu Bhalla, Raghav Gupta, Yajur Mittal, Zaffar, Ms. Chanan
G Parwani, Raghavendra M. Bajaj, Ms. Svadha Shankar, Ms. Ila Sheel, S.
S. Shroff, Advs. for the appellants.
Mukul Rohatgi, Dr. Abhishek Manu Singhvi, Shyam Divan, Gopal
Subramaniam, Sr. Advs., Ms. Shalini Kaul, Ms. Priyanka Shetty, Ms.
Ashwini Vaidialingam, Chaman Lal, J. Sivanand Raaj, P. B. Suresh, Vipin
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 675
AND ALLIED INSUR. COMPANY LTD.
Nair, N. Vijayaraghavan, Vijay Kumar, Karthik Jayashankar, Anshumaan A
Bahadur, Pawan Bhushan, Vikrant Yadav, Advs. for the respondents.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. This group of thirteen appeals was heard
together and is being disposed of by this common judgment as an identical
issue is involved therein. B
2. At the outset, we may mention that the dispute between the
parties pertain to the shares of Respondent No.1, Star Health Insurance
Company, standing in the name of the Respondent Nos. 3-7. As per the
appellants/plaintiffs, it is Respondent No. 2 which has the beneficial
interest in those shares. In this behalf, the appellants/plaintiffs filed the C
suit through their Power of Attorney holder (C.S. No. 33 of 2018) before
the High Court of Madras seeking, inter alia, the relief of declaration of
beneficial interest of Respondent no. 2 herein in the shares which are in
the names of Respondent nos. 3 to 7. These constitute a total of 6.16%
of the share holding of Respondent No. 1. However, issue before this D
Court is very limited which pertains to the territorial jurisdiction, viz.,
whether High Court of Madras has the territorial jurisdiction to entertain
the suit filed by the appellants herein?
3. As per Clause 12 of the Letters Patent, along with the suit the
plaintiffs also filed application for seeking leave to sue on the ground E
that a substantial part of cause of action had arisen within its jurisdiction.
This application was allowed by the High Court vide its order dated
January 12, 2018. After the service of summons in that suit, Respondent
no. 1 herein (Defendant no. 1 in the suit) filed applications for revoking
leave to institute the suit within the jurisdiction of Madras High Court on
the ground that it lacked territorial jurisdiction to decide the suit. Similar F
applications were filed by Respondent nos. 2 and 3 as well. Respondent
nos. 4,6,and 7 filed Memos supporting these applications. The learned
Single Judge of the High Court dismissed these applications holding that
High Court had the jurisdiction to entertain the suit. Appeals against this
order were filed by Respondent nos. 1 to 9. The Division Bench has G
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.
H
676 SUPREME COURT REPORTS [2018] 13 S.C.R.
A 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.
B 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
C 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 its registered office
in Dubai, UAE. The remaining 66% shares in the same are held by
Defendant nos. 3 to 7.
D 6. The Defendant no. 1, Star Health Insurance Company
(hereinafter “Indian Company”), a Company registered under the
Companies Act, 1956 having its registered office in Chennai, Tamil Nadu,
India was incorporated on 17.06.2005. It is engaged in the Health
Insurance business in India, having an authorised share capital of Rs.600
Crores and issued and subscribed capital of Rs. 455.57 Crores.
E
7. Defendant nos. 3 and 5 to 7 belong to the same family, viz., the
“Buhary Family”. The Defendant no. 3, Mr. Syed Mohamed Salahuddin
holds 2.98% of shares in Defendant no. 1/Indian Company. Defendant
nos. 5 to 7, sons of Defendant no. 3 and Mr. Arif Buhary respectively, all
national and residents of Dubai, UAE hold 0.002% share each in the
F Indian Company.
8. Defendant no. 4, Mr. Essa Abdulla Ahmed Al Ghurair, a resident
of Dubai, UAE, and the brother of the plaintiffs, holds a 3.18% share in
Defendant no. 1/Indian Company.
9. Consequently, Defendant nos. 3 to 7 (i.e. the Buhary Family)
G
along with Defendant no. 4 (who is the brother of the plaintiffs and all
resident nationals of Dubai) jointly own 6.16% shares in the Indian
Company.
10. All the share certificates regarding these 6.16% shares are
held with the Proforma Defendant no. 11, viz., ETA Star Holding LLC,
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 677
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
having its registered office in Dubai, UAE, which is a limited liability A
company incorporated in the Emirates of Dubai, UAE under UAE Federal
Law No. 8 and is the 100% beneficial owner of the Indian Company.
11. The Contesting Defendant no. 8, Mr. V. Jagannathan, a resident
of Chennai, Tamil Nadu India was the Manging Director of Defendant
no. 1/Indian Company at the time of institution of the Suit. B
12. The Contesting Defendant no. 9, Mr. V.P. Nagarajan, a resident
of Chennai, Tamil Nadu India was the Managing Personnel of Defendant
no. 2 (incorporated in Dubai) at the time of institution of the Suit.
13. The Contesting Defendant no. 10, Mr. C.M. Kannan Unni, a
resident of Chennai, Tamil Nadu India was the Joint Executive director C
and Company Secretary of Defendant no. 1 at the time of institution of
the Suit.
14. The Proforma Defendant no. 12, Emirates Trading Agency is
having its registered office in Dubai, UAE. It has 52% share held by the
plaintiffs and 48% share held by the Defendant nos. 3 and 5 to 7. It had D
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. E
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, F
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
G
to assert that it was having a beneficial interest in the shares of the
Indian Company, though allotted in the names of Defendant nos. 3 to 7.
However, the majority shareholders, namely, Defendant nos. 3 to 7, who
held 66% of the shares of the Indian Company, did not take any steps,
thereby causing prejudice to the Indian Company.
H
678 SUPREME COURT REPORTS [2018] 13 S.C.R.
A 17. In these circumstances, the minority shareholders, namely,
the plaintiffs, who together hold 34% in the shares of the Indian Company,
initiated the Suit, i.e., C.S. No. 33 of 2018 in the High Court of Judicature
at Madras, in the nature of derivative action on behalf of the Indian
Company seeking protection and declaration of its beneficial interest in
the shares available with the Indian Company standing in the names of
B
Defendant nos. 3 to 7.
18. It is the claim of the plaintiffs that even the pre-incorporation
expenses of the Indian Company were met by the funds remitted by
Defendant no. 12. Defendant nos. 11 and 12 are further, part of the
ETA Group of Companies in Dubai, UAE. According to the plaintiffs,
C Defendant no. 12 had remitted a total sum of Rs.1,43,00,000/- towards
pre-incorporation expenses of the Indian Company between April 2005
and October 2005. The same have been recorded in the books of account
of Defendant no. 2. The plaintiffs have further claimed that four share
certificates for a total of 33,200 shares were issued on July 11, 2005 in
D favour of Defendant nos. 3, 5 and 7, who are shown as subscribers to
the Memorandum of Association of Indian Company. The outstanding
call amounts on these shares were satisfied from the remittance made
in March 2006 by Defendant no. 12. These share certificates are in the
custody of Defendant no. 11 in its capacity as beneficial interest holder
of Defendant no. 2. Defendant nos. 3, 5 and 7 have also made
E declarations acknowledging the beneficial interest of Defendant no. 2 in
these shares.
19. It was further stated that on December 21, 2005 a sum of
Rs.50/- lakhs was remitted by the Defendant no. 12 through bank transfer
from Mashreq Bank in Dubai to the Bank Account of the Indian Company
F in Andhra Bank, Chennai, Main Branch and share certificates were
issued in favour of the Defendant no. 3, which has also been recorded in
the books of accounts of the Indian Company.
20. Thereafter, on January 16, 2006, the Indian Company issued
payment instructions to HSBC Bank, Dubai, for an amount of
G Rs.16,25,00,000/- to be deposited in the account of the Defendant no. 1
in Andhra Bank, Chennai. According to the plaintiffs, contribution was
towards equity share capital held by Defendant nos. 3 and 4. Share
certificates were also issued and recorded as having beneficial interest
by the ETA Group.
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 679
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
21. Later, on March 06, 2006 the Indian Company received further A
investment through four demand drafts amounting to Rs.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 Rs.16,78,32,000/- had been received by the Indian
B
Company from Defendant nos. 12 and 2 towards issue/allotment of
shares. On June 25, 2009, Defendant no. 3, issued a personal cheque of
Rs.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 Rs.2,14,00,000/ C
- through payment instructions to Emirates Bank to debit the same, which
was actually credited on July 01, 2009. In 2011, two investments were
made on December 26, 2011 to the tune of Rs.17,70,00,000/- by payment
instructions to Bank of Baroda, debiting the account of Defendant no.
12 and crediting the account of the Indian Company. Thereafter, share
D
certificates in the names of the Defendant nos. 3 and 4 were issued by
the Defendant no. 1 around February 10, 2012.
22. The plaintiffs also stated that Defendant nos. 3 to 7 admitted
and acknowledged that Defendant no. 2 had a beneficial interest in the
share certificates of the India Company issued in their names. Defendant
nos. 3 to 7, however, do not have physical possession of these 2,72,20,448 E
shares, the same being held by Defendant no. 11. It was also contended
in the Plaint that Defendant nos. 3, 4, 5 and 7 had signed blank share
transfer forms with respect to the shares of the Indian Company in
favour of the Defendant nos. 2 and 11. Accordingly, it was urged that
Defendant no. 2 has a beneficial interest over the shares of the Defendant F
no. 1 but held in the names of Defendant nos. 3 to 7.
23. It was further urged in the plaint that deconsolidation of the
accounts and businesses of Defendant no. 2 with that of Defendant no.
11 was effected in 2016 with retrospective effect from 2014. The same
was on account of Defendant nos. 3, 4 and 7 to sign the financial G
statements of Defendant no. 2. It was also urged that till the time the
Indian Company had requirements for funds, the interest of Defendant
no. 2 was acknowledged and it was stopped subsequently. It was further
urged that the entire remittance towards the suit shares of 6.16% of the
Indian Company, were by the funds provided by Defendant no. 12 or
H
680 SUPREME COURT REPORTS [2018] 13 S.C.R.
A Defendant no. 2 and no part of the funds came from the personal accounts
of Defendant nos. 3 to 7. It was further urged by the plaintiffs that
Defendant nos. 8 to 10 had direct knowledge of these facts.
24. It is pertinent to mention here that there is no dispute regarding
the fact that the decision of the Board of Directors of the Group General
B Body followed by Defendant no. 11 through the draft financial statement
would impact the beneficial interest of Defendant no. 2 in the shares
held by in the names of Defendant nos. 3 to 7, which was the subject
matter of the suit.
25. Plaintiff no. 2, under these circumstances, wrote the letter
C dated June 01, 2017 to Defendant no. 8 — the Managing Director of the
Indian Company, protesting 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
D 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
E 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
F 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 further claim that Defendant
nos. 8 to 10 were in active collusion with Defendant nos. 3 to 7 and that
they have joined hands to deprive Defendant no. 2 of its beneficial interest
G in the suit shares, namely, 6.16% of shares of the Indian Company.
28. The plaintiffs have further stated that they came to know
from Newspaper reports that the equity of Defendant no. 1 was to be
sold to private equity investors through a bidding process and that
Defendant nos. 3 to 7 along with Defendant nos. 8 to 9 were attempting
to sell their investments in the Indian Company.
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 681
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
29. It was urged that in case such a sale was to happen, Defendant A
no. 2, which had financed the purchase of such shares would be put to
loss if its beneficial interest was not recorded in the books of the Indian
Company.
30. While filing the suit, the plaintiffs had filed application no. 292
of 2018 seeking leave to institute the suit within the jurisdiction of the B
High Court of Judicature at Madras. In the affidavit filed in support of
that application, the plaintiffs had stated that they had sought a declaration
that Defendant no. 2 had a beneficial interest over 6.16% of shares of
the Indian Company. However, the shares might be alienated. It was
further stated that substantial part of cause of action arose within the
jurisdiction of the Court where the registered office of the first defendant C
was located and where it carried on business. Further, the entire subject
matter of the suit was the shares of the Indian Company, which are held
by Defendant nos. 3 to 7 and that Defendant nos. 3, 5, 6 and 7 normally
reside in Chennai. It was further stated that the correspondences between
the Plaintiff no. 2 and the Indian Company through Defendant no. 10 D
also took place in Chennai. Claiming on this basis that substantial part of
cause of action arose within the jurisdiction of the High Court, leave to
institute the suit was sought. The Single Judge Court granted leave.
31. As noted above, the contested defendants filed applications
for revocation of the order granting leave to the plaintiffs. The Indian E
Company in the affidavit filed in support of A. No. 1387 of 2018, stated
that Defendant no. 2 is a body corporate situated in Dubai and any
dispute regarding the same could not be adjudicated by Courts in India.
It was urged that order granting leave should be revoked on this ground
itself. It was further stated that there are no disputes with respect to the
ownership or management or shareholding of the Indian Company. It F
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 G
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
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682 SUPREME COURT REPORTS [2018] 13 S.C.R.
A 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
B it was not interested in seeking the relief claimed in the plaint, viz.,
Defendant no. 2 is the beneficial interest holder of 6.16% of shares of
the Indian Company.
33. Counter affidavits were filed by the plaintiffs with respect to
these applications reiterating that they had the locus; that the suit is
C within the period of limitation; that the Court had jurisdiction to adjudicate
the issues; and that the suit had been filed with bona fide intent.
34. The learned Single Judge dismissed the applications filed by
the defendants seeking to revoke the leave granted to institute the suit
and to reject the plaint inter alia holding that the allegations pertaining
D to fraud would have to be decided in the suit. He further observed that
there were factual issues that were to be gone into and Sections 187C
and 89 of the Companies Act, 1956/2013 which may bar the reliefs but
would not bar the suit.
35. The aforesaid order of the learned Single Judge has been
E reversed by the Division Bench vide common judgment dated August
03, 2018. It has allowed the appeals filed by the contesting defendants
and set aside the common order of the Single Judge, thereby revoking
the leave granted by the Single Judge.
36. To recapitulate in brief the controversy, the suit filed by the
F plaintiffs was in the nature of a derivative action on behalf of defendant
No.2 to protect and declare its beneficial interest (i.e. beneficial interest
of defendant No.2) in the shares available with the Indian company,
which stand in the name of defendant Nos. 3 to 7. According to the
plaintiffs, defendant No.2 is the beneficial owner and defendant Nos. 3
to 7, in collusion with defendant Nos. 1, 8 and 9, are acting against the
G interests of defendant No.2. In the plaint the averments regarding cause
of action and Chennai having territorial jurisdiction were mentioned in
paragraph Nos. 54 and 55, which are as under:
“54. The Plaintiffs submit that the present lis relates to the denial
and non-recognition of the beneficial interest of Defendant No.2
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 683
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
of the shares held by the Defendant Nos. 3, 4, 5, 6 and 7 in A
Defendant No.1. The cause of action arose on 31.12.2016 when
the draft consolidated financial statement of Defendant No.11
records deconsolidation of its accounts with those of Defendant
No.2 (refer to Para 42 supra) for the reason that there is “absence
of confirmation of beneficial ownership from the legally registered
B
shareholders of the entities” (which inter alia includes 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 C
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
D
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 E
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 the Defendant Nos. 3 to 7
along with Defendant Nos. 8 and 9 are attempting to sell their
investments in the Defendant No.1 and exit the health insurer.
F
The cause of action further arose on 21.12.2017 when newspaper
articles of the Economic Times, being in public knowledge
suggested that the five (5) companies have been shortlisted to
purchase the Defendant No.1 and that the floor price if INR 5,500
crore has been put for the sale. The article further suggested that
the sale of the Defendant No.2 will help ETA Trading to exit the G
Defendant No.1, as the beneficial interest of Defendant No.2 has
been negated and continues to be negated the cause of action has
and is continuing to arise.
55. Since the registered office of Defendant No.1 is in Chennai,
the investments made by Defendant No.2 were also made in H
684 SUPREME COURT REPORTS [2018] 13 S.C.R.
A Defendant No.1 in Chennai, this Hon’ble Court will exercise
jurisdiction over the present dispute. Furthermore, the recent
correspondence/letters were also exchanged between the Plaintiff
No.2 and Defendant No.1 and 10 in Chennai. Therefore, it is
clear that a substantial part of the cause of action has arisen within
the territorial jurisdiction of this Hon’ble Court. Leave is being
B
craved to sue the Defendants who are outside the jurisdiction of
this Hon’ble Court.”
37. The plaintiffs, thus, wanted a declaration to the effect that
shares in the Indian company which are held by defendant Nos. 3 to 7 in
fact belong to defendant No.2 company. Since defendant No.2 did not
C come forward to make the said claim, derivative action was filed by the
plaintiffs on its behalf to the aforesaid effect. As per the plaintiffs, the
High Court of Madras, at Chennai, had the jurisdiction to entertain the
same inasmuch as: (a) Registered Office of the Indian company is in
Chennai; (b) the investments made by defendant No.2 were made in the
D Indian company in Chennai; and (c) substantial part of cause of action,
as reflected in the correspondence/letters exchanged between plaintiff
No.2 and defendant Nos. 1 and 10 arose in Chennai.
38. The contesting defendants questioned the territorial jurisdiction
of the Madras High Court to entertain the said suit on the ground that no
E cause of action available to the plaintiffs to maintain the suit arose within
the jurisdiction of the said Court. In substance, the plaintiffs were
attempting to resolve the dispute between the shareholders 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
F 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
G 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.
H Singh, learned senior counsel appeared for the plaintiffs. In substance,
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 685
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
their argument was that the learned Single Judge of the Madras High A
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 was a derivative action taken out by the
plaintiffs on behalf of defendant No.2. It was highlighted that even if
defendant No.2 was a Dubai company, of which plaintiffs and defendant
B
Nos. 3 to 7 were the shareholders, dispute was in respect of shares in
defendant No.1 which was an Indian company having its Registered
Office in Chennai. Moreover, defendant Nos. 3 to 7 were also having
their residence in Chennai even though they are NRIs residing in Dubai.
Attention of this Court was specifically drawn to the following discussion
in the order of the learned Single Judge, which was adopted as their C
arguments in support of the plea that the suit was validly instituted in
Chennai:
“130. It had been further argued on behalf of the defendants that
under Section 34 of the Specific Relief Act, the plaintiffs must
have a direct interest and entitlement over the property, for which D
the declaration is sought. Section 34 of the Specific Relief Act is
as follows:
“34. Discretion of court as to declaration of status or right. - Any
person entitled to any legal character, or to any right as to any
property, may institute a suit against any person denying, or E
interested to deny, his title to such character or right, and the
court may in its discretion make therein a declaration that he is so
entitled, and the plaintiff need not in such suit ask for any further
relief:
Provided that no court shall make any such declaration where the F
plaintiff, being able to seek further relief than a mere declaration
of title, omits to do so.”
131. In the present case, the plaintiffs are not seeking a declaration
that they have a beneficial interest. A derivative action is sought
only for the beneficial interest of the second defendant. The second G
defendant has however abjured such interest. Whether such
disclaimer or abjuration is the result or effect of collusion or fraud
are further aspects to be examined. Such abjuration has to be
weighed with the flow of funds through the second defendant to
the first defendant, leading to the allotment of shares to the third
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686 SUPREME COURT REPORTS [2018] 13 S.C.R.
A to the seventh defendants. Examining all these aspects can only
be through advancing oral and documentary evidence. This would
further imply that the suit has to be retained on file.
132. It had been further contended that the suit relief is barred
under Section 187C of the Companies Act, 1956. It had been
B 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
C 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
D 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.
E 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.
135. I hold the plaintiffs cannot be non suited at the threshold.
F The suit is only at its nascent stage. It still has a rough course to
meander. The reliefs sought may be superfluous but if the plaint
discloses a cause of action and if the plaintiffs are prepared to
battle out the issues at the time of recording the evidence, then
again they must be afforded such opportunity.
G 136. At this stage, the plaintiffs have come to Court primarily
claiming a declaration as against the first defendant. Whether
the third, fourth and seventh defendants on the one hand and the
second defendant on the other hand have made declarations in
accordance with the provisions of either Section 187C or Section
89 of the Companies Act 1956 or 2013 are facts to the exclusive
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 687
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
knowledge of the first, second, third, fourth and seventh defendants A
and also the eighth defendant. The plaintiffs could never have
had access to the records of the first defendant. The queries
raised in the pre-suit notices have not been answered.
Consequently, they have sought a declaration only against the first
defendant. This declaration is sought because in Dubai, the third,
B
fourth and seventh defendants had made similar declarations and
in the plaint, the plaintiffs have stated that they believed that similar
declarations had been made in the books of the first defendant.
This statement of the plaintiffs has to be tested further through
oral and documentary evidence. Consequently, I am not in
agreement with this contention raised by the defendants. Trial is C
the answer to settle facts. At this stage, the plaint averments hold
the sway and a reading makes it obvious that the first defendant
has to open up its records for scrutiny, and that can be done only
during trial.
xx xx xx D
139. To sum up, the allegations raised in the plaint have to be
examined at Chennai since, the first defendant is registered in
Chennai. During its pre-incorporation, incorporation and post
corporation stages, substantial amounts of money had flowed to
it. It is only with examination of the books of the first defendant E
that the source of the funds can be determined. This is because
the third to seventh defendants, who are said to have benefited by
allotment of shares in view of the flow of funds have denied the
contention of the plaintiffs. The eighth, ninth and tenth defendants,
who were in management have not filed any affidavit disclosing
facts to their knowledge. The eleventh and twelth defendants F
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 G
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
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688 SUPREME COURT REPORTS [2018] 13 S.C.R.
A 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
B 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 to
C tender evidence, they would not be inconvenienced. The seventh
defendant is also a resident of Chennai. These defendants also
appear to tag the line of the third defendant, and consequently
they would never be prejudiced by the suit being continued in
Chennai.
D 144. The main evidence on behalf of the defendants would be on
behalf of the first defendant and by the third defendant and by the
eighth, ninth and tenth defendants. The records of the first
defendant are in Chennai. These defendants are all in Chennai.
The cause of action arose within Chennai. In view of all these
E reasons, I hold that the applications seeking revocation of the leave
have to be dismissed.”
40. Attention of this Court was also drawn to the averments made
in various paragraphs of the plaint as well as documents annexed with
the plaint which, according to them, were taken note of by the learned
F Single Judge in forming the opinion about the jurisdiction. It was submitted
that the Division Bench has misdirected itself by ignoring the aforesaid
vital discussion by the Single Judge and committed an error in treating it
to be a dispute between the shareholders of defendant No.2. It was
specifically argued that paragraph 54 of the plaint would reflect that the
dispute raised by the plaintiffs pertained to the shares in defendant No.1/
G Indian company, which would mean that situs of the shares, namely, the
place where company is located, would be the determinative factor, as
held in Vodafone International Holdings BV v. Union of India and
Another1 in the following words:
1
(2012) 6 SCC 613
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 689
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
“Situs of the CGP share A
139. Before concluding, one more aspect needs to be addressed.
It concerns the situs of the CGP share. According to the Revenue,
under the Companies Law of the Cayman Islands, an exempted
company was not entitled to conduct business in the Cayman
Islands. CGP was an “exempted company”. According to the B
Revenue, since CGP was a mere holding company and since it
could not conduct business in the Cayman Islands, the situs of the
CGP share existed where the “underlying assets are situated”,
that is to say, India. That, since CGP as an exempted company
conducts no business either in the Cayman Islands or elsewhere
and since its sole purpose is to hold shares in a subsidiary company C
situated outside the Cayman Islands, the situs of the CGP share,
in the present case, existed “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, D
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 E
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.” F
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 Others2 G
“38. The plaintiffs as shareholders of the proforma defendant
neither could have initiated an arbitration proceeding in their own
name, nor the said plaintiffs would be entitled to initiate arbitration
2
(2016) 195 Comp Cas 434 (Cal)
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690 SUPREME COURT REPORTS [2018] 13 S.C.R.
A proceedings and claim any relief on behalf of the company. No
shareholder can say that because the company is a party to the
arbitration agreement, he should be allowed to initiate arbitration
proceedings and claim any relief in the said proceeding. It is the
company who alone can initiate and/or defend such proceeding.
A third party is no way concerned with the inter se disputes between
B
the shareholders of the company. However if the said third party
is a party to a fraud in an action in which a decree or an award is
passed affecting the valuable right of the company and is prejudicial
to the interest of the company, the shareholder can sue the
miscreant directors and the persons and/or entities connected with
C the fraud on behalf of himself and other shareholders and in the
name of the company to prevent any wrong being perpetrated on
the company. In such a situation, the complainant-shareholder
would be seeking to enforce a cause of action which is available
and belongs to the company and not to the shareholder personally.
The essential purpose of such an action is to remedy a wrong
D
done to the company and if the suit ultimately succeeds, the
judgment is given in favour of the company, so that the complainant-
shareholder obtains no direct personal benefit therefrom.”
(ii) Nirad Amilal Mehta v. Genelec Limited & Others3
E “Regarding derivative action by a shareholder.
6. The sale of the suit property was effected in the name of
defendant No.1 company by defendant Nos. 2, 3 and 4 in the
capacity as its directors. It is alleged that the sale being contrary
to the provisions to section 293 of the Companies Act is void. If
F the said is void, the person aggrieved is the company. The suit
should therefore normally be filed by the company for setting aside
the alienation. The plaintiff who is only a shareholder of the
company would not normally have a right to file a suit on behalf of
the company as the person aggrieved is the company and not a
shareholder. More than one and a half century ago, in (Foss v.
G Harbottle), (1843) 2 Hare 461, the Court laid down the rule that
normally an individual shareholder would not be entitled to bring
an action for a wrong allegedly done to the company. It is the
company who alone can bring an action for a wrong done to it.
3
(2008) 6 Bom CR 499
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 691
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
The rule however has been subjected to more than one exceptions. A
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
B
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. C
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 D
warranted imprimatur by this Court as well. They paraphrased their
submissions in the following manner:
(a) In the first instance, it was submitted that undoubtedly the suit
of the plaintiffs was for a derivative action which means it was
filed by them on behalf of defendant No.2. Such a suit, even as E
per the plaintiffs, was in the interest of defendant No.2 company.
This company was a Dubai company incorporated under the laws
of that country. Defendant No. 11 is the holding company which
is also a Dubai company. It was further submitted that the main
grievance of the plaintiffs pertained to deconsolidation, which was F
admitted in paragraph 48 of the plaint that this deconsolidation
was by defendant Nos. 11 and 2, both Dubai companies. It was
argued that shares were held by defendant Nos. 3 to 7 in the
Indian company, which fact was not in dispute. Since the plaintiffs
were seeking declaration in respect of beneficial interest in these
shares, the governing provision was Section 89(2) of the G
Companies Act, 2013, which clearly barred the institution of such
a suit. Section 89(1) and (2) are as under:
“89. Declaration in respect of beneficial interest in any
share. – (1) Where the name of a person is entered in the
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692 SUPREME COURT REPORTS [2018] 13 S.C.R.
A register of members of a company as the holder of shares in
that company but who does not hold the beneficial interest in
such shares, such person shall make a declaration within such
time and in such form as may be prescribed to the company
specifying the name and other particulars of the person who
holds the beneficial interest in such shares.
B
(2) Every person who holds or acquires a beneficial interest in
share of a company shall make a declaration to the company
specifying the nature of his interest, particulars of the person
in whose name the shares stand registered in the books of the
company and such other particulars as may be prescribed.”
C
(b) Though the action was brought by the plaintiffs on behalf of
defendant No.2 as a derivative action, defendant No.2 had
specifically opposed this action. It, therefore, became a dispute
between the shareholders of defendant No.2, which is a Dubai
company. Therefore, the courts at Chennai had no jurisdiction to
D deal with such a dispute.
(c) In the instant case the question was about the correctness of
the order granting leave to the plaintiffs permitting them to institute
the suit in Chennai, under Clause 12 of the Letters Patent. The
contesting defendants had filed the applications for revocation of
E 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 the form of Clause 12 of the Letters Patent
was made, in supersession of Section 20 of the CPC. Grant of
F 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
G 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
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 693
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
well. These contentions were accepted by the Division Bench, A
inter alia, with the following discussion:
“6.12 Keeping in view of the abovesaid principles of law, let
us consider the issues raised before us. Admittedly, the
defendant No.2 is a foreign entity governed by the laws of
Dubai. The Plaintiffs are its shareholders. Therefore, any B
dispute between them will have to be resolved under the laws
of Dubai. Hence, the contention of the learned Senior Counsel
appearing for the plaintiffs that they are stepping into the shoes
of the defendant No.2 seeking a relief against the defendant
No. 1 cannot be countenanced. This is also for the reason that
there must be a declaration in clear terms qua the status of a C
beneficial interest holder before seeking a relief against the
defendant No.1. More so, when defendant No.2 itself denies
it.
6.13 In the case on hand, the fundamental and core facts are
not in dispute. They are with respect to the consolidation and D
deconsolidation of defendant No.2 by 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 E
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 F
trustees of the holders of 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 G
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 ETA Group followed by its draft
financial statement. If we see the cause of action as recorded
above, it is abundantly clear that what has triggered the present
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694 SUPREME COURT REPORTS [2018] 13 S.C.R.
A suit is the aforesaid facts.
6.14 The decision of the ETA Group, which consists of
numerous entities, applies to every shareholder of the Group.
Accordingly, the status of a registered owner would get
transferred into one of absolute ownership. Therefore, even if
B 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
C 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
D 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
E statement. After all, the relief that is sought against the
defendant No.1 is a mere consequential one. When once the
plaintiffs succeed against defendant Nos. 2 to 7 then defendant
No.1 is bound to give effect to it. For doing so, the remedy for
the plaintiffs against defendants Nos.2 to 7 lies elsewhere.
F 6.15 When the status of defendant No.2 being the foreign
company is not in dispute, no relief either direct or indirect can
be sought against it under the Indian Law. We are not
concerned with the ultimate relief but the issues leading to it.
What we are dealing is nothing but a fight between two groups.
G Defendant No.2 is controlled by defendant Nos.3 and 5 to 7
whereas, defendant No.11 is by the plaintiffs. This explains
the letter sent by the defendant No.11 though the plaintiff No.2
to the defendant No.1 dated 01.06.2017.
6.16 A perusal of the cause of action as indicate in the plaint
H would show that it started happening only from the date of
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 695
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
deconsolidation. Monies were sent by the defendant No.2 and A
on its behalf by defendant No.12 at least till 2011. Though
prima facie, the payment made was not in dispute, the entity
from which it emerged actually cannot be decided here. The
very fact that payments were made by defendant No. 12 on
behalf of defendant No.2 followed by book adjustment itself
B
would vouch for the fact that such things have happened
involving the other entities of the ETA Group as well and at
least defendant No.2 and its subsidiaries. These issues also
cannot be looked into by this Court.
6.17 In the plaint, the plaintiffs have not stated anything about
the derivative action available to a shareholder on behalf of C
the company in Dubai. We also note that the Indian Companies
Act, 1956/2013 do not have an application to a foreign entity.
Even assuming it to be so, Section 187(c) read with 89(8) of
the Companies Act, 1956/2013 would disentitle the plaintiffs
from getting the relief, when once, the reliefs cannot be granted D
through a statutory bar, a suit filed claiming it also would be
barred. After all, a Court is required to grant a relief, which
parties are entitled to in law. Similarly, there is no corresponding
duty fixed on the defendant No.1 to seek the declaration from
defendants 3 to 7 in favour of defendant No.2. Suffice it is to
state that the plaintiffs do not raise any such issue till 2016, E
though share certificates were issued in the year 2012 itself.
Though the limitation is a mixed question of law and fact, when
facts are not in dispute, certainly it would apply. A Civil Court
is mandated to check its jurisdiction to deal with a lis qua the
limitation.” F
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 G
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 H
696 SUPREME COURT REPORTS [2018] 13 S.C.R.
A 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.
B 45. Defendant Nos. 3 to 7 are also subscribers to the share capital
of Defendant No. 1/Indian Company. It is to the extent of approximately
6.16% of the share holding of the Indian Company when all the shares
held by Defendant Nos. 3 to 7 are put together. According to the
plaintiffs, these shares actually belonged to Defendant No. 2 which has
the beneficial interest therein. It is for this reason, the plaintiffs filed suit
C for declaration, as a derivative action on behalf of Defendant No. 2,
purportedly to protect and declare the beneficial interest in the shares
available to Defendant no. 1 standing in the name of Defendant Nos. 3
to 7.
46. Since Defendant No. 1 is an Indian Company incorporated in
D the Indian laws having its registered office at Chennai, in the first blush,
arguments of the plaintiff may appear to be sound that for such a
declaration the suit can be filed in Chennai. However, on going through
the real dispute between the parties, which emerges out of the plaint as
well, it would become manifest that the dispute between the plaintiffs on
E the one hand and Defendant Nos. 3 to 7 on the other hand pertains to
the affairs of the Defendant no. 2 Company and in respect of which
cause of action has not arisen in Chennai and such a dispute has to be
sorted out by the parties between themselves by filing appropriate
proceedings in Dubai, UAE only.
F 47. From the material facts in this behalf, as mentioned in the
plaint itself, specifically in paragraphs 54 and 55 of the plaint, while making
the averments qua the cause of action and territorial jurisdiction, it
becomes apparent that the plaintiffs got aggrieved by the draft
Consolidated Financial Statement of Defendant No. 11 (which is again a
Dubai company and a parent company) and this statement records
G deconsolidation of its account with those of Defendant No. 2. The real
dispute, thus, is whether Defendant Nos. 3 to 7 in whose name shares to
the extent of 6.16% of Indian Company stand, are the real owners or it
is Defendant no. 2 Company which has the beneficial interest in the said
shares. Though, the plaintiffs claim beneficial interest of Defendant
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 697
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
No. 2, Defendant Nos. 3 to 7 deny the same. Interestingly, even Defendant A
No. 2 Company, whose beneficial interest in these shares is claimed by
the plaintiffs, refutes such a claim of the plaintiffs. Thus, in reality, it is
the dispute between the plaintiffs and Defendant nos. 3 to 7 who are all
residents of Dubai. Even Defendant No. 2 whose beneficial interest is
claimed by the plaintiffs is a Company incorporated in Dubai, UAE.
B
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 C
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
D
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 Company but
does not hold beneficial interest in such shares, he shall make declaration E
within the prescribed time to the Company specifying the name and
address of the person who hold the beneficial interest. Sub-section (8)
provides that if such a declaration is not made right in this behalf cannot
be enforced by other person claiming through the beneficial owner. Prima
facie, it appears that court in India on the application of the aforesaid F
provision would not be in a position to give any relief to the plaintiffs in
the instant suit. The High Court has discussed in detail the nature of
derivative action as well as the meaning that is to be ascribed to the term
‘beneficial interest’. It is rightly pointed out that the suit for derivative
action is an exception to the general principle of locus. It can be claimed
only in a particular situation. Such a situation has to be seen contextually G
from the point of view of the entity, on whose behalf the suit is filed.
Incidentally, the inter se relationship between the plaintiffs and the
beneficial owner, which may be a company is also of relevance. It may
involve a case of deceit, fraud, inability or incapacity. However, the
H
698 SUPREME COURT REPORTS [2018] 13 S.C.R.
A fundamental factor to be considered is the relationship between the
plaintiff and the party, which the plaintiff seeks to represent.
49. The term ‘Beneficial interest’ is defined under Section 3 of
the Indian Trust Act, 1882 which is reproduced hereunder:
“Beneficial interest” or “interest of the beneficiary is his right
B against the trustee as owner of the trust property.”
50. As it can be discerned from the definition of ‘Beneficial interest’
provided in Section 3 of the Indian Trust Act, 1882, there are two parties
involved in an issue governing beneficial interest. One is a beneficiary
named as ‘beneficial owner’ and the other is the owner named as
C ‘registered owner’ being the trustee of the property or the asset in question.
Thus, one can deduce the underlining principle that the ownership is
nonetheless legal over the trust property, which vests on him but he also
acts as a trustee of the beneficiary. A beneficial owner may include a
person who stands behind the registered owner when he acts like a
D trustee, legal representative or an agent.
51. In Mount Royal/Walsh Inc. vs. Jensen Star, the Ship4,
Federal Court of Appeal in Canada explained the meaning of ‘beneficial
owner’ in the following words:
“In my view, the expression ‘beneficial owner’ was chosen to
E 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
F 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.”
G
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
4
H (1990) 1 FC 199
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 699
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
interest which can be enforced in India especially when there are A
provisions dealing with such a situation.
53. While considering the territorial jurisdiction over a suit initiated
to protect the beneficial interest, the issue qua the existence of such an
interest can only be decided on the condition that the same is amenable
to such a jurisdiction. Defendant no. 2 is admittedly not amenable to the B
jurisdiction of Madras High Court.
54. The High Court in the impugned judgment has also discussed
in detail the meaning and scope of ‘cause of action’ by referring to
various judgments including A.B.C. Laminart (Pvt.) Ltd. and Another
vs. A.P. Agencies, Salem. It has also considered the scope of Clause C
12 of the Letters Patent which is peculiar to Madras High Court, where
a leave is required to be obtained when part of cause of action arises
within the territorial jurisdiction of the said court. In such a situation, as
rightly contended by Mr. Mukul Rohatgi, the principles of forum
convenience would become applicable as laid down in the case of Kusum
Ingots and Alloys Ltd. vs. Union of India and Another5. We find that D
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.
55. The High Court also appears to be right in holding that the
relief sought for against Indian Company, at best, is a consequential one E
and cannot give a cause of action. Even Defendant no. 2 cannot seek
such a relief without resolving its dispute as against Defendant nos. 3 to
7. Such a dispute can only be dealt with by competent forum in Dubai
as per the law prevailing in Dubai, UAE.
56. We would also like to reproduce the following discussion from F
the impugned judgment, with which we concur:
“6.11 When a dispute arose against the company, which issued
the shares, then the situs would be its registered office. However,
when the dispute is between the shareholder and the company
with respect to the shares held in another, the mere existence of G
registered office of the subsequent company is not a factor to
clothe jurisdiction. In this connection, it is apposite to refer the
following paragraphs of the judgment of the Apex Court in R.
5
(2004) 6 SCC 254
H
700 SUPREME COURT REPORTS [2018] 13 S.C.R.
A Viswanathan and others v. Rukn-Ul-Mulk Syed Abdul Wajid Since
Deceased and others (Air 1963 Supreme Court 1).
“Per J.C. Shah, J. (Majority) : The situs of the shares in any
question between the Company and the holders thereof was
the registered office of the Company in Bellary (outside the
B 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
C 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:
D 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
E argument in relation to the shares of the Indian Sugars and
Refineries Ltd. It was contended that the shares must be
deemed to be situated where they could be effectively dealt
with and that was Madras, where the Head Office of the
Company was situated. Learned counsel relied upon some
English cases in support of his contention. It is not necessary
F to refer to those cases. The situs of shares between the
Company and the shareholders is undoubtedly in the country
where the business is situated. But in a dispute between rival
claimants both within the jurisdiction of a court over shares the
court has jurisdiction over the parties and the share scrips which
G are before the court. The Mysore court was in this position.
Between the rival claimants the Mysore High Court could order
the share scrips to be handed over to the successful party and
if necessary could order transfer of the shares between them
and enforce that order by the coercive process of the law. It
would be a different matter if the Company refused to register
H
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH 701
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
the transfer and a different question might then have arisen; A
but we are told that the Company has obeyed the decision and
accepted the executors as the shareholders. The judgment of
the Mysore courts on the ownership of the shares is ancillary
to the main decision. It is therefore not necessary for me to
consider the argument of Mr Desai that jurisdiction attaches
B
on the principle of effectiveness propounded by Dicey, but
which has been criticised by the present editors of his book
and by Cheshire. In my opinion, this controversy does not arise
in this case, which must be decided on the plain words of
Section 13 of the Code of Civil Procedure.”
6.12 Keeping in view of the abovesaid principles of law,let us C
consider the issues raised before us. Admittedly, the defendant
no. 2 is a foreign entity governed by the laws of Dubai. The
Plaintiffs are its shareholders. Therefore, any dispute between
them will have to be resolved under the laws of Dubai. Hence,
the contention of the learned Senior Counsel appearing for the D
plaintiffs that they are stepping into the shoes of the defendant
no. 2 seeking a relief against the defendant no. 1 cannot be
countenanced. This is also for the reason that there must be
declaration in clear terms qua the status of a beneficial interest
holder before seeking a relief against the defendant no. 1. More
so, when defendant no. 2 itself denies it. E
6.13 In the case on hand, the fundamental and core facts are not
in dispute. They 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 F
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 G
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
H
702 SUPREME COURT REPORTS [2018] 13 S.C.R.
A 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 ETA Group followed
by its draft financial statement. If we see the cause of action as
B
recorded above, it is abundantly clear that what has triggered the
present suit is the aforesaid facts.
6.14 The decision of the ETA Group, which consists of numerous
entities, applies to every shareholder of the Group. Accordingly,
the status of a registered owner would get transferred into one of
C absolute 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
D 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
E the 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
F 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 against
defendant Nos. 2 to 7 then defendant No. 1 is bound to give effect
to it. For doing so, the remedy for the plaintiffs against defendants
Nos. 2 to 7 lies elsewhere.”
G
57. As a consequence, we do not find any merit in these appeals
which are, accordingly, dismissed.
Nidhi Jain Appeals dismissed.
H
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