1

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

2

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

3

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.

4

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

5

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

6

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

7

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

8

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 and 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

9

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.

10

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

11

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.

12

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

13

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

14

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

15

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

16

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

17

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,

18

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,

19

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.

21

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.

22

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 Another

1

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 Others

2

"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)

24

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 & Others

3

"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

26

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,

27

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 the 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:

28

"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.

6.14The 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.

6.15When 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.

6.16A 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

30

as well and at least defendant No.2 and its subsidiaries.

These issues also cannot be looked into by this Court.

6.17In 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

31

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 plaint as

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

32

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,

33

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

34

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

35

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 Ship

4

, 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

36

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 Another

5

. 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

37

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.

38

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.”

6.12Keeping 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

39

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.

6.13In 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.

6.14The 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

40

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.