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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE JURISDICTION

CIVIL APPEAL NOS. 9786-9799 OF 2018 (ARISING OUT OF SLP (C) NOS. 22057-22070 OF 2018)

AHMED  ABDULLA  AHMED  AL GHURAIR(THROUGH THEIR POWER OF ATTORNEY  HOLDER  MR. BARTHOLOMEW KAMYA) & ANR.

.....APPELLANT(S)

VERSUS

STAR HEALTH AND ALLIED INSURANCE COMPANY LIMITED & ORS.

.....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

This group of  thirteen appeals was heard together and is being

disposed of by this common judgment as an identical issue is involved

therein.

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

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appellants/plaintiffs,  it  is  Respondent  No.  2  which  has  the  beneficial

interest in those shares. In this behalf, the appellants/plaintiffs filed the

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

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  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

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

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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 its registered office in Dubai,

UAE. The remaining 66% shares in the same are held by Defendant

nos. 3 to 7.

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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.

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

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) 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, having

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its registered office in Dubai, UAE, which is a limited liability 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.

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

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

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

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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 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.

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

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Company seeking protection and declaration of its beneficial interest in

the shares available with the Indian Company standing in the names of

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,

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  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 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

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Mashreq Bank in Dubai to the Bank Account of the Indian Company 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

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  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 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 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

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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/- 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 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

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 no. 1 but held in the names of Defendant nos. 3 to 7.

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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

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

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

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 dated

June 01, 2017 to Defendant no. 8 — the Managing Director of the Indian

Company, protesting  that  the  investments  made  by Defendant  no.  2

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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 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 in

the suit shares, namely, 6.16% of shares of the Indian Company.

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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.

29) It was urged that in case such a sale was to happen, Defendant

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 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

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

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between the Plaintiff no. 2 and the Indian Company through Defendant

no. 10 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

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

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

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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 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 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 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

reversed by the Division Bench vide common judgment dated August

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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 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 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 of the shares held by the Defendant Nos. 3, 4, 5, 6 and 7 in 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 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 interest of Defendant No.2 but also

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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 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.  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 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 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  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

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belong to defendant No.2 company.  Since defendant No.2 did not 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

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

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

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,

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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 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 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  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,

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for which 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  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 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 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 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  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

20

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.

135.  I  hold  the  plaintiffs  cannot  be  non  suited  at  the threshold.  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.

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  knowledge  of  the  first, second,  third,  fourth and seventh defendants 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,  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 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.

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xx xx xx

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  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  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 to 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.

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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 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

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/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:

"Situs of the CGP share

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

1 (2012) 6 SCC 613

23

company”. According to the 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 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, 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 Others2

"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 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

2 (2016) 195 Comp Cas 434 (Cal)

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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  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 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  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

"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 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. 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.  The rule  however  has  been  subjected  to  more  than  one exceptions.  In (B.B.N. (UK) Limited  v. Janardan Mohandas

3 (2008) 6 Bom CR 499

25

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  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 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

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submitted  that  the  main  grievance  of  the  plaintiffs  pertained  to

deconsolidation, which was 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

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 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.

(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.”

(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,

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the courts at Chennai had no jurisdiction to 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 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:

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"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 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 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 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 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 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 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 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 we go by the averments in the plaint while eschewing the

29

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 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.

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.   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 would show that it started happening only from the date of deconsolidation.  Monies were sent by the defendant No.2 and  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  would vouch for  the fact  that  such things have happened involving the other entities of the ETA Group

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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  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 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, 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.”

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

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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 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

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 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 plaintiff

as well, it would become manifest that the dispute between the plaintiffs

32

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 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.

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

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

No.  2,  Defendant  Nos.  3  to  7  deny  the  same.   Interestingly,  even

Defendant 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,

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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 Company but does not

hold beneficial interest in such shares, he 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, it appears that court in India on the application of the aforesaid

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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 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

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 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

‘registered  owner’  being  the  trustee  of  the  property  or  the  asset  in

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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 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 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.

4 (1990) 1 FC 199

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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

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 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 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 and

cannot give a cause of action.  Even Defendant no. 2 cannot seek such

5 (2004) 6 SCC 254

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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 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  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. 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  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.

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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 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 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  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 the transfer and a different question might then have  arisen;  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 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 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 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

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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.

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 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  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 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 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

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of a foreign entity cannot be adjudicated here.  Be that as it may, certainly the remedy lies elsewhere.  We should also keep in mind 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 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.”

57) As a consequence,  we  do  not  find  any merit  in  these  appeals

which are, accordingly, dismissed.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; NOVEMBER 26, 2018.