AHMED ABDULLA AHMED AL GHURAIR (THROUGH THEIR POWER OF ATTORNEY HOLDER MR. BARTHOLOMEW KAMYA) & ANR. versus STAR HEALTH AND ALLIED INSURANCE COMPANY LIMITED & ORS. on 26 November 2018

SUPREME COURT REPORTS

[2018] 13 S.C.R.

AAHMED ABDULLA AHMED AL GHURAIR (THROUGH THEIRPOWER OF ATTORNEY HOLDER MR. BARTHOLOMEW

KAMYA) & ANR.

v.

STAR HEALTH AND ALLIED INSURANCE COMPANYBLIMITED & ORS.

(Civil Appeal Nos. 9786-9799 of 2018)

NOVEMBER 26, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

C

Jurisdiction: Territorial jurisdiction – Territorial jurisdictionof High Court to entertain the suit – Plaintiffs-resident nationals ofDubai, have share holding in defendant No. 2 Company,incorporated in Dubai – Plaintiffs holding 34% of shares anddefendant Nos. 3,4 and 7 holding 66% shares in the defendant No.D2 Company – Defendant Nos. 3-7 also subscribers to 6.16% sharecapital of defendant No. 1/Indian Company – Plaintiffs filed suitfor declaration in the High Court of Madras, as a derivative actionon behalf of defendant No. 2, purportedly to protect and declarethe beneficial interest in the shares available with defendant no. 1standing in the name of defendant Nos. 3-7 – Single Judge of theEHigh Court held that the High Court had the jurisdiction to entertainthe suit, however, the Division Bench held that the suit in the HighCourt of Madras was not maintainable – On appeal, held: When adispute is between the shareholder and the company with respect tothe shares held in another, the mere existence of registered office ofFthe subsequent company is not a factor to clothe jurisdiction – Inreality, the dispute is between the plaintiffs and defendant nos. 3-7,all residents of Dubai – Even defendant No. 2 whose beneficialinterest is claimed was incorporated in Dubai – Merely, becausethe dispute is about those shares issued by Indian Company, wouldnot lead to the conclusion that cause of action has arisen in India –GDefendant No. 1 has nothing to do with the dispute – Relief ofdeclaration sought is that defendant Nos. 3-7 are not the real ownersof such shares and its beneficial owner is defendant No. 2 – Such adispute would not bring jurisdiction of Chennai courts simplybecause defendant No. 1 has its registered office in Chennai – While H

considering the territorial jurisdiction over a suit initiated to protectthe beneficial interest, the issue qua the existence of such an interestcan only be decided on the condition that the same is amenable tosuch a jurisdiction – Defendant no. 2 is not amenable to thejurisdiction of the Madras High Court – Furthermore, the court inDubai would be more convenient forum to decide the dispute betweenthe parties who are residents of Dubai and which revolves arounddefendant no. 2, Company registered in Dubai – Suit – Cause ofaction.

Dismissing the appeals, the Court

HELD: 1.1 The High Court rightly held that when a disputearose against the company, which issued the shares, then thesitus would be its registered office, however, when the dispute isbetween the shareholder and the company with respect to theshares held in another, the mere existence of registered office ofthe subsequent company is not a factor to clothe jurisdiction.[Para 56][699-G]

1.2 On going through the real dispute between the parties,which emerges out of the plaintiff as well, it would becomemanifest that the dispute between the plaintiffs on the one handand Defendant Nos. 3 to 7 on the other hand pertains to the affairsof the Defendant no. 2 Company and in respect of which cause ofaction has not arisen in Chennai and such a dispute has to besorted out by the parties between themselves by filing appropriateproceedings in Dubai, UAE only. [Para 46][698-E-F]

1.3 While making the averments qua the cause of actionand territorial jurisdiction, it becomes apparent that the plaintiffsgot aggrieved by the draft Consolidated Financial Statement ofDefendant No. 11 (which is again a Dubai company and a parentcompany) and this statement records deconsolidation of itsaccount with those of Defendant No. 2. The real dispute, thus, iswhether Defendant Nos. 3 to 7 in whose name shares to the extentof 6.16% of Indian Company stand, are the real owners or it isDefendant no. 2 Company which has the beneficial interest in thesaid shares. Though, the plaintiffs claim beneficial interest ofDefendant No. 2, Defendant Nos. 3 to 7 deny the same.Interestingly, even Defendant No. 2 Company, whose beneficial A

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Ainterest in these shares is claimed by the plaintiffs, refutes sucha claim of the plaintiffs. Thus, in reality, it is the dispute betweenthe plaintiffs and Defendant nos. 3 to 7 who are all residents ofDubai. Even Defendant No. 2 whose beneficial interest is claimedby the plaintiffs is a Company incorporated in Dubai, UAE. Merely,because the dispute is about those shares which are issued byBIndian Company would not lead to the conclusion that cause ofaction has arisen in India. It is obvious that insofar as DefendantNo. 1 is concerned it has nothing to do with the dispute. Therelief of declaration which is sought is that Defendant Nos. 3 to 7are not the real owners of such shares and its actual/beneficialCowner is Defendant No. 2. Such a dispute would not bringjurisdiction of Chennai courts simply because Defendant No. 1/Indian Company has its registered office in Chennai. Even if it ispresumed that the plaintiffs ultimately succeed in their action,when brought in a competent court in Dubai, and a declaration of the said nature is given by the said court, Defendant No. 1 canDalways act thereupon. [Para 47][696-F-H; 697-A-D]

1.4 As per sub-section (1) of Section 89 of the CompaniesAct, 2013 a person whose name is entered in the register ofMembers of the Company as the holders of shares in thatCompany but does not hold beneficial interest in such shares, heEshall make declaration within the prescribed time to the Companyspecifying the name and address of the person who hold thebeneficial interest. Sub-section (8) provides that if such adeclaration is not made right in this behalf cannot be enforced byother person claiming through the beneficial owner. Prima facie,Fit appears that court in India on the application of the saidprovision would not be in a position to give any relief to theplaintiffs in the instant suit. The High Court has discussed thenature of derivative action as well as the meaning that is to beascribed to the term ‘beneficial interest’. The suit for derivative action is an exception to the general principle of locus. It can beGclaimed only in a particular situation. Such a situation has to beseen contextually from the point of view of the entity, on whosebehalf the suit is filed. Incidentally, the inter se relationshipbetween the plaintiffs and the beneficial owner, which may be acompany is also of relevance. It may involve a case of deceit,H

fraud, inability or incapacity. However, the fundamental factor tobe considered is the relationship between the plaintiff and theparty, which the plaintiff seeks to represent. [Para 48][698-D-H;699-A]

1.5 The term ‘Beneficial interest’ is defined under Section3 of the Trust Act, 1882. As it can be discerned from the definitionof ‘Beneficial interest’; there are two parties involved in an issuegoverning beneficial interest. One is a beneficiary named as‘beneficial owner’ and the other is the owner named as ‘registeredowner’ being the trustee of the property or the asset in question.Thus, one can deduce the underlining principle that the ownershipis nonetheless legal over the trust property, which vests on himbut he also acts as a trustee of the beneficiary. A beneficial ownermay include a person who stands behind the registered ownerwhen he acts like a trustee, legal representative or an agent.[Paras 49, 50][699-A-D]

1.6 The High Court is right in its observation that forapplying the principles governing a derivative action onefundamental test has to be passed, viz., such an action willnecessary have the sanction of law and this shall have no obligationto a foreign entity having beneficial interest which can be enforcedin India especially when there are provisions dealing with such asituation. While considering the territorial jurisdiction over a suitinitiated to protect the beneficial interest, the issue qua theexistence of such an interest can only be decided on the conditionthat the same is amenable to such a jurisdiction. Defendant no. 2is admittedly not amenable to the jurisdiction of the Madras HighCourt. [Para 52-53][698-G-H; 699-A-B]

1.7 The High Court in the impugned judgment discussedin detail the meaning and scope of ‘cause of action’. It alsoconsidered the scope of Clause 12 of the Letters Patent which ispeculiar to Madras High Court, where a leave is required to beobtained when part of cause of action arises within the territorialjurisdiction of the said court. In such a situation, the principles offorum convenience would become applicable. The court in Dubaiwould be more convenient forum to decide the dispute betweenthe parties who are residents of Dubai and which revolves aroundDefendant no. 2, again a Company registered and situate in Dubai.

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AThe High Court also appears to be right in holding that the reliefsought for against Indian Company, at best, is a consequentialone and cannot give a cause of action. Even Defendant no. 2 cannotseek such a relief without resolving its dispute as againstDefendant nos. 3 to 7. Such a dispute can only be dealt with bycompetent forum in Dubai as per the law prevailing in Dubai,BUAE. [Paras 54, 55][699-B-F]

Vodafone International Holdings BV v. Union of Indiaand Another (2012) 6 SCC 613 : [2012] 1 SCR 573;Starlight Real Estate (Ascot) Mauritius Ltd. and Anotherv. Jagrati Trade Services P. Ltd. and Others (2016) 195CComp Cas 434 (Cal); Nirad Amilal Mehta v. GenelecLimited & Others (2008) 6 Bom CR 499; Kusum Ingotsand Alloys Ltd. v. Union of India and Another (2004) 6SCC 254 : [2004] 1 Suppl. SCR 841 – referred to.

Mount Royal/Walsh Inc. v. Jensen Star, the Ship (1990)D1 FC 199 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 9786-9799 of 2018.

FFrom the Judgment and Order dated 03.08.2018 of the High Courtof Judicature at Madras in Original Side Appeal Nos. 220, 221, 222, 223,227, 228, 230, 231, 232, 233, 234, 235, 236, 237 of 2018.

C. A. Sundaram, Neeraj Kishan Kaul, V. Giri, C. U. Singh, Sr.Advs., Ms. Ritu Bhalla, Raghav Gupta, Yajur Mittal, Zaffar, Ms. ChananGParwani, Raghavendra M. Bajaj, Ms. Svadha Shankar, Ms. Ila Sheel, S.S. Shroff, Advs. for the appellants.

Mukul Rohatgi, Dr. Abhishek Manu Singhvi, Shyam Divan, GopalSubramaniam, Sr. Advs., Ms. Shalini Kaul, Ms. Priyanka Shetty, Ms.Ashwini Vaidialingam, Chaman Lal, J. Sivanand Raaj, P. B. Suresh, Vipin H

Nair, N. Vijayaraghavan, Vijay Kumar, Karthik Jayashankar, AnshumaanBahadur, Pawan Bhushan, Vikrant Yadav, Advs. for the respondents.

The Judgment of the Court was delivered by

A. K. SIKRI, J. 1. This group of thirteen appeals was heardtogether and is being disposed of by this common judgment as an identicalissue is involved therein.

2. At the outset, we may mention that the dispute between theparties pertain to the shares of Respondent No.1, Star Health InsuranceCompany, standing in the name of the Respondent Nos. 3-7. As per theappellants/plaintiffs, it is Respondent No. 2 which has the beneficialinterest in those shares. In this behalf, the appellants/plaintiffs filed thesuit through their Power of Attorney holder (C.S. No. 33 of 2018) beforethe High Court of Madras seeking, inter alia, the relief of declaration ofbeneficial interest of Respondent no. 2 herein in the shares which are inthe 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 thisCourt is very limited which pertains to the territorial jurisdiction, viz.,whether High Court of Madras has the territorial jurisdiction to entertainthe suit filed by the appellants herein?

3. As per Clause 12 of the Letters Patent, along with the suit theplaintiffs also filed application for seeking leave to sue on the groundthat a substantial part of cause of action had arisen within its jurisdiction.This application was allowed by the High Court vide its order datedJanuary 12, 2018. After the service of summons in that suit, Respondentno. 1 herein (Defendant no. 1 in the suit) filed applications for revokingleave to institute the suit within the jurisdiction of Madras High Court onthe ground that it lacked territorial jurisdiction to decide the suit. Similarapplications were filed by Respondent nos. 2 and 3 as well. Respondentnos. 4,6,and 7 filed Memos supporting these applications. The learnedSingle Judge of the High Court dismissed these applications holding thatHigh Court had the jurisdiction to entertain the suit. Appeals against thisorder were filed by Respondent nos. 1 to 9. The Division Bench hasallowed these appeals by the common judgment dated August 03, 2018,thereby rejecting the plaint on the ground that suit in the High Court ofMadras was not maintainable due to lack of territorial jurisdiction. Thisorder is impugned in the instant appeals.

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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 decidethe controversy regarding jurisdictional issue are taken note of. Also,for the sake of clarity and convenience, the parties are addressed asplaintiffs and defendants, on the basis of memo of the parties in the suit.

BSince there are multiple parties to the litigations—contesting aswell as proforma – we start with the description of these parties, whichis as under:

5. Plaintiff No. 1 — Ahmed Abdulla Al Ghurair and Plaintiff no. 2,Ibrahim Abdulla Al Ghurair are brothers. They are residents and nationalsCof Dubai, UAE and are minority shareholders with 34% shares indefendant No. 2, ETA Star Holdings Ltd., a Company incorporated underthe laws of Jebel Ali Free Zone Authority and having its registered officein Dubai, UAE. The remaining 66% shares in the same are held byDefendant nos. 3 to 7.

6. The Defendant no. 1, Star Health Insurance Company(hereinafter “Indian Company”), a Company registered under theCompanies Act, 1956 having its registered office in Chennai, Tamil Nadu,India was incorporated on 17.06.2005. It is engaged in the HealthInsurance business in India, having an authorised share capital of Rs.600Crores and issued and subscribed capital of Rs. 455.57 Crores.

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7. Defendant nos. 3 and 5 to 7 belong to the same family, viz., the“Buhary Family”. The Defendant no. 3, Mr. Syed Mohamed Salahuddinholds 2.98% of shares in Defendant no. 1/Indian Company. Defendantnos. 5 to 7, sons of Defendant no. 3 and Mr. Arif Buhary respectively, allnational and residents of Dubai, UAE hold 0.002% share each in theFIndian Company.

8. Defendant no. 4, Mr. Essa Abdulla Ahmed Al Ghurair, a residentof Dubai, UAE, and the brother of the plaintiffs, holds a 3.18% share inDefendant 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 allresident nationals of Dubai) jointly own 6.16% shares in the IndianCompany.

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10. All the share certificates regarding these 6.16% shares areheld with the Proforma Defendant no. 11, viz., ETA Star Holding LLC, H

having its registered office in Dubai, UAE, which is a limited liabilitycompany incorporated in the Emirates of Dubai, UAE under UAE FederalLaw No. 8 and is the 100% beneficial owner of the Indian Company.

11. The Contesting Defendant no. 8, Mr. V. Jagannathan, a residentof Chennai, Tamil Nadu India was the Manging Director of Defendantno. 1/Indian Company at the time of institution of the Suit.

12. The Contesting Defendant no. 9, Mr. V.P. Nagarajan, a residentof Chennai, Tamil Nadu India was the Managing Personnel of Defendantno. 2 (incorporated in Dubai) at the time of institution of the Suit.

13. The Contesting Defendant no. 10, Mr. C.M. Kannan Unni, aresident of Chennai, Tamil Nadu India was the Joint Executive directorand Company Secretary of Defendant no. 1 at the time of institution ofthe Suit.

14. The Proforma Defendant no. 12, Emirates Trading Agency ishaving its registered office in Dubai, UAE. It has 52% share held by theplaintiffs and 48% share held by the Defendant nos. 3 and 5 to 7. It hadprovided funds for and on behalf of the Defendant no. 2 towards theshares 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 7had made declarations that the shares of the Indian Company in theirname were actually held by them for and on behalf of Defendant no. 2.Conversely, they acknowledged that Defendant no. 2 had a beneficialinterest in the shares of the Indian Company, though the shares were intheir names. Since the Defendant no. 2 had a beneficial interest in theshares in the names of Defendant nos. 3 to 7, the actual share certificateswere 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 ofshareholders of Defendant no. 2 should have taken some steps in orderto assert that it was having a beneficial interest in the shares of theIndian Company, though allotted in the names of Defendant nos. 3 to 7.However, the majority shareholders, namely, Defendant nos. 3 to 7, whoheld 66% of the shares of the Indian Company, did not take any steps,thereby causing prejudice to the Indian Company.

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A17. 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 Judicatureat Madras, in the nature of derivative action on behalf of the IndianCompany seeking protection and declaration of its beneficial interest inthe shares available with the Indian Company standing in the names ofBDefendant nos. 3 to 7.

18. It is the claim of the plaintiffs that even the pre-incorporationexpenses of the Indian Company were met by the funds remitted byDefendant no. 12. Defendant nos. 11 and 12 are further, part of theETA Group of Companies in Dubai, UAE. According to the plaintiffs,CDefendant no. 12 had remitted a total sum of Rs.1,43,00,000/- towardspre-incorporation expenses of the Indian Company between April 2005and October 2005. The same have been recorded in the books of accountof Defendant no. 2. The plaintiffs have further claimed that four sharecertificates for a total of 33,200 shares were issued on July 11, 2005 inDfavour of Defendant nos. 3, 5 and 7, who are shown as subscribers tothe Memorandum of Association of Indian Company. The outstandingcall amounts on these shares were satisfied from the remittance madein March 2006 by Defendant no. 12. These share certificates are in thecustody of Defendant no. 11 in its capacity as beneficial interest holderof Defendant no. 2. Defendant nos. 3, 5 and 7 have also madeEdeclarations acknowledging the beneficial interest of Defendant no. 2 inthese shares.

19. It was further stated that on December 21, 2005 a sum ofRs.50/- lakhs was remitted by the Defendant no. 12 through bank transferfrom Mashreq Bank in Dubai to the Bank Account of the Indian CompanyFin Andhra Bank, Chennai, Main Branch and share certificates wereissued in favour of the Defendant no. 3, which has also been recorded inthe books of accounts of the Indian Company.

20. Thereafter, on January 16, 2006, the Indian Company issuedpayment instructions to HSBC Bank, Dubai, for an amount ofGRs.16,25,00,000/- to be deposited in the account of the Defendant no. 1in Andhra Bank, Chennai. According to the plaintiffs, contribution wastowards equity share capital held by Defendant nos. 3 and 4. Sharecertificates were also issued and recorded as having beneficial interestby the ETA Group.

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21. Later, on March 06, 2006 the Indian Company received furtherinvestment through four demand drafts amounting to Rs.3,32,000/- fromDefendant no. 12, which was recorded as beneficial interest of theDefendant no. 2. Defendant no. 11 is in possession of these shares aswell. 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 IndianCompany from Defendant nos. 12 and 2 towards issue/allotment ofshares. On June 25, 2009, Defendant no. 3, issued a personal cheque ofRs.2,13,00,000/- which was honoured on July 07, 2009 in the accountsof Defendant no. 2, and reflected that the investment was made in theIndian Company. On June 28, 2009, a further investment was made inthe 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, whichwas actually credited on July 01, 2009. In 2011, two investments weremade on December 26, 2011 to the tune of Rs.17,70,00,000/- by paymentinstructions to Bank of Baroda, debiting the account of Defendant no.12 and crediting the account of the Indian Company. Thereafter, sharecertificates in the names of the Defendant nos. 3 and 4 were issued bythe Defendant no. 1 around February 10, 2012.

22. The plaintiffs also stated that Defendant nos. 3 to 7 admittedand acknowledged that Defendant no. 2 had a beneficial interest in theshare certificates of the India Company issued in their names. Defendantnos. 3 to 7, however, do not have physical possession of these 2,72,20,448shares, the same being held by Defendant no. 11. It was also contendedin the Plaint that Defendant nos. 3, 4, 5 and 7 had signed blank sharetransfer forms with respect to the shares of the Indian Company infavour of the Defendant nos. 2 and 11. Accordingly, it was urged thatDefendant no. 2 has a beneficial interest over the shares of the Defendantno. 1 but held in the names of Defendant nos. 3 to 7.

23. It was further urged in the plaint that deconsolidation of theaccounts and businesses of Defendant no. 2 with that of Defendant no.11 was effected in 2016 with retrospective effect from 2014. The samewas on account of Defendant nos. 3, 4 and 7 to sign the financialstatements of Defendant no. 2. It was also urged that till the time theIndian Company had requirements for funds, the interest of Defendantno. 2 was acknowledged and it was stopped subsequently. It was furtherurged that the entire remittance towards the suit shares of 6.16% of theIndian Company, were by the funds provided by Defendant no. 12 or AB

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ADefendant no. 2 and no part of the funds came from the personal accountsof Defendant nos. 3 to 7. It was further urged by the plaintiffs thatDefendant nos. 8 to 10 had direct knowledge of these facts.

24. It is pertinent to mention here that there is no dispute regardingthe fact that the decision of the Board of Directors of the Group GeneralBBody followed by Defendant no. 11 through the draft financial statementwould impact the beneficial interest of Defendant no. 2 in the sharesheld by in the names of Defendant nos. 3 to 7, which was the subjectmatter of the suit.

25. Plaintiff no. 2, under these circumstances, wrote the letterCdated June 01, 2017 to Defendant no. 8 — the Managing Director of theIndian Company, protesting that the investments made by Defendantno. 2 were denied. Defendant no. 1, through its letter dated June 07,2017 refused to take notice of the claim asserted by the ETA Group.Plaintiff no. 2, thereafter, sent another letter dated June 12, 2017 to theIndian Company, addressed to the Managing Director of the IndianDCompany, giving details in support of the claim of the ETA Group. Healso called for a meeting in person. However, Defendant nos. 8 and 9along with other Directors of the Indian Company failed to attend themeeting proposed by Plaintiff no. 2. However, they sent a letter datedJune 27, 2017 stating that they had earlier replied on June 07, 2017 itselfEand had nothing further to state. Plaintiff no. 2 sent another letter datedJuly 09, 2017 reiterating his original stand. The Indian Company respondedthrough letter dated July 27, 2017, stating that they were not obliged tooffer any clarification to the same.

26. It was under these circumstances that the plaintiffs filed theFSuit, C.S. No. 33 of 2018 at the High Court of Judicature at Madras.

27. The plaintiffs claim that the Indian Defendant no. 2 Companyis under the control of wrong doers. They further claim that Defendantnos. 8 to 10 were in active collusion with Defendant nos. 3 to 7 and thatthey have joined hands to deprive Defendant no. 2 of its beneficial interestGin the suit shares, namely, 6.16% of shares of the Indian Company.

28. The plaintiffs have further stated that they came to knowfrom Newspaper reports that the equity of Defendant no. 1 was to besold to private equity investors through a bidding process and thatDefendant nos. 3 to 7 along with Defendant nos. 8 to 9 were attemptingto sell their investments in the Indian Company.H

29. It was urged that in case such a sale was to happen, Defendantno. 2, which had financed the purchase of such shares would be put toloss if its beneficial interest was not recorded in the books of the IndianCompany.

30. While filing the suit, the plaintiffs had filed application no. 292of 2018 seeking leave to institute the suit within the jurisdiction of theHigh Court of Judicature at Madras. In the affidavit filed in support ofthat application, the plaintiffs had stated that they had sought a declarationthat Defendant no. 2 had a beneficial interest over 6.16% of shares ofthe Indian Company. However, the shares might be alienated. It wasfurther stated that substantial part of cause of action arose within thejurisdiction of the Court where the registered office of the first defendantwas located and where it carried on business. Further, the entire subjectmatter of the suit was the shares of the Indian Company, which are heldby Defendant nos. 3 to 7 and that Defendant nos. 3, 5, 6 and 7 normallyreside in Chennai. It was further stated that the correspondences betweenthe Plaintiff no. 2 and the Indian Company through Defendant no. 10also took place in Chennai. Claiming on this basis that substantial part ofcause of action arose within the jurisdiction of the High Court, leave toinstitute the suit was sought. The Single Judge Court granted leave.

31. As noted above, the contested defendants filed applicationsfor revocation of the order granting leave to the plaintiffs. The IndianCompany in the affidavit filed in support of A. No. 1387 of 2018, statedthat Defendant no. 2 is a body corporate situated in Dubai and anydispute regarding the same could not be adjudicated by Courts in India.It was urged that order granting leave should be revoked on this grounditself. It was further stated that there are no disputes with respect to theownership or management or shareholding of the Indian Company. Italso took the stand that the plaintiffs are neither the shareholders nor theDirectors of the Indian Company, and, therefore, they had no right tosue and consequently, the suit itself is not maintainable. It also averredthat the disputes between the plaintiffs and Defendant nos. 3 to 7 arosearound 2013 and the suit had only been filed in the year 2018 andconsequently, the suit was barred by limitation. Another objection wasthat the plaintiffs had filed the suit when private equity investors hadshown interest in purchasing shares of the Indian Company and thesame was an abuse of process of law. Maintainability of the suit was A

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Aalso questioned on the ground that it was barred by Section 89 of theCompanies Act 2013 and Section 187(C) of the Companies Act 1956.

32. Somewhat similar stand was taken by other contestingdefendants in support of the prayer for revoking the leave and to rejectingthe plaint in C.S. No. 33 of 2018. Defendant no. 2 also took the plea thatBit 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 ofthe Indian Company.

33. Counter affidavits were filed by the plaintiffs with respect tothese applications reiterating that they had the locus; that the suit isCwithin the period of limitation; that the Court had jurisdiction to adjudicatethe issues; and that the suit had been filed with bona fide intent.

34. The learned Single Judge dismissed the applications filed bythe defendants seeking to revoke the leave granted to institute the suitand to reject the plaint inter alia holding that the allegations pertainingto fraud would have to be decided in the suit. He further observed thatDthere were factual issues that were to be gone into and Sections 187Cand 89 of the Companies Act, 1956/2013 which may bar the reliefs butwould not bar the suit.

35. The aforesaid order of the learned Single Judge has beenEreversed by the Division Bench vide common judgment dated August03, 2018. It has allowed the appeals filed by the contesting defendantsand set aside the common order of the Single Judge, thereby revokingthe leave granted by the Single Judge.

36. To recapitulate in brief the controversy, the suit filed by theplaintiffs was in the nature of a derivative action on behalf of defendantFNo.2 to protect and declare its beneficial interest (i.e. beneficial interestof defendant No.2) in the shares available with the Indian company,which stand in the name of defendant Nos. 3 to 7. According to theplaintiffs, defendant No.2 is the beneficial owner and defendant Nos. 3to 7, in collusion with defendant Nos. 1, 8 and 9, are acting against theGinterests of defendant No.2. In the plaint the averments regarding causeof action and Chennai having territorial jurisdiction were mentioned inparagraph Nos. 54 and 55, which are as under:

“54. The Plaintiffs submit that the present lis relates to the denialand non-recognition of the beneficial interest of Defendant No.2

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of the shares held by the Defendant Nos. 3, 4, 5, 6 and 7 inDefendant No.1. The cause of action arose on 31.12.2016 whenthe draft consolidated financial statement of Defendant No.11records deconsolidation of its accounts with those of DefendantNo.2 (refer to Para 42 supra) for the reason that there is “absenceof confirmation of beneficial ownership from the legally registeredshareholders of the entities” (which inter alia includes DefendantNo.2). Thus on 31.12.2016 it became manifested that the recordalof declaration of beneficial interest of the Defendant No.2 wouldno longer be caused to be made by those in control of DefendantNo.2 and its affairs namely Defendant Nos. 3, 4 and 7 and whichhostile action led to not only the denial of the recording of beneficialinterest of Defendant No.2 but also to deconsolidation withretrospective effect of its accounts with Defendant No.11. Withthe deconsolidation of accounts it became clear that a hostile actiondenying the beneficial interest of Defendant No.2 stood taken byDefendant Nos. 3, 4 and 7. The cause of action further arose on07.06.2017 when Defendant No.1 refused to acknowledge thebeneficial interest in the suit shares. The cause of action furtherarose when Defendant No.1 through Defendant No.10 on27.06.2017 once again refused to acknowledge the beneficialinterest in the suit shares. The cause of action further arose on12.11.2017 and 24.11.2017 when newspaper articles, being in publicknowledge suggested that the equity of the Defendant No.1 isbeing sold to private equity investors through a bidding processand the present investors including the Defendant Nos. 3 to 7along with Defendant Nos. 8 and 9 are attempting to sell theirinvestments in the Defendant No.1 and exit the health insurer.The cause of action further arose on 21.12.2017 when newspaperarticles of the Economic Times, being in public knowledgesuggested that the five (5) companies have been shortlisted topurchase the Defendant No.1 and that the floor price if INR 5,500crore has been put for the sale. The article further suggested thatthe sale of the Defendant No.2 will help ETA Trading to exit theDefendant No.1, as the beneficial interest of Defendant No.2 hasbeen negated and continues to be negated the cause of action hasand 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 ABC

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ADefendant No.1 in Chennai, this Hon’ble Court will exercisejurisdiction over the present dispute. Furthermore, the recentcorrespondence/letters were also exchanged between the PlaintiffNo.2 and Defendant No.1 and 10 in Chennai. Therefore, it isclear that a substantial part of the cause of action has arisen withinthe territorial jurisdiction of this Hon’ble Court. Leave is beingBcraved to sue the Defendants who are outside the jurisdiction ofthis Hon’ble Court.”

37. The plaintiffs, thus, wanted a declaration to the effect thatshares in the Indian company which are held by defendant Nos. 3 to 7 infact belong to defendant No.2 company. Since defendant No.2 did notCcome forward to make the said claim, derivative action was filed by theplaintiffs on its behalf to the aforesaid effect. As per the plaintiffs, theHigh Court of Madras, at Chennai, had the jurisdiction to entertain thesame inasmuch as: (a) Registered Office of the Indian company is inChennai; (b) the investments made by defendant No.2 were made in theDIndian company in Chennai; and (c) substantial part of cause of action,as reflected in the correspondence/letters exchanged between plaintiffNo.2 and defendant Nos. 1 and 10 arose in Chennai.

38. The contesting defendants questioned the territorial jurisdictionof the Madras High Court to entertain the said suit on the ground that noEcause of action available to the plaintiffs to maintain the suit arose withinthe jurisdiction of the said Court. In substance, the plaintiffs wereattempting to resolve the dispute between the shareholders of the companythough all these shareholders are residents and nationals of Dubai.Moreover, they are claiming that though shares are in the names ofdefendants Nos. 3 to 7, it is defendant No.2 which has the beneficialFinterest therein and even defendant No.2 is a foreign entity which iscovered by the foreign law. Likewise, the inter se relationship betweendefendant No.2 and the plaintiffs is also covered by the foreign law. Itwas additionally contended that the claims made by the plaintiffs are notenforceable even under the Companies Act, 1956 or the CompaniesGAct, 2013. As far as inter se disputes between the plaintiffs and thecontesting defendants, who are all shareholders of defendant No.2, areconcerned, they have arisen in Dubai which is outside the territorialjurisdiction of Chennai.

39. M/s. C.A. Sundaram, Neeraj Kishan Kaul, V. Giri and C.U.HSingh, learned senior counsel appeared for the plaintiffs. In substance, their argument was that the learned Single Judge of the Madras HighCourt had rightly allowed the application for leave to file the suit aftersatisfying that the Court at Chennai had the territorial jurisdiction toentertain such a suit which was a derivative action taken out by theplaintiffs on behalf of defendant No.2. It was highlighted that even ifdefendant No.2 was a Dubai company, of which plaintiffs and defendantNos. 3 to 7 were the shareholders, dispute was in respect of shares indefendant No.1 which was an Indian company having its RegisteredOffice in Chennai. Moreover, defendant Nos. 3 to 7 were also havingtheir residence in Chennai even though they are NRIs residing in Dubai.Attention of this Court was specifically drawn to the following discussionin the order of the learned Single Judge, which was adopted as theirarguments in support of the plea that the suit was validly instituted inChennai:

“130. It had been further argued on behalf of the defendants thatunder Section 34 of the Specific Relief Act, the plaintiffs musthave a direct interest and entitlement over the property, for whichthe declaration is sought. Section 34 of the Specific Relief Act isas follows:

“34. Discretion of court as to declaration of status or right. - Anyperson entitled to any legal character, or to any right as to anyproperty, may institute a suit against any person denying, orinterested to deny, his title to such character or right, and thecourt may in its discretion make therein a declaration that he is soentitled, and the plaintiff need not in such suit ask for any furtherrelief:

Provided that no court shall make any such declaration where theplaintiff, being able to seek further relief than a mere declarationof title, omits to do so.”

131. In the present case, the plaintiffs are not seeking a declarationthat they have a beneficial interest. A derivative action is soughtonly for the beneficial interest of the second defendant. The seconddefendant has however abjured such interest. Whether suchdisclaimer or abjuration is the result or effect of collusion or fraudare further aspects to be examined. Such abjuration has to beweighed with the flow of funds through the second defendant tothe first defendant, leading to the allotment of shares to the third A

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to the seventh defendants. Examining all these aspects can onlybe through advancing oral and documentary evidence. This wouldfurther imply that the suit has to be retained on file.

132. It had been further contended that the suit relief is barredunder Section 187C of the Companies Act, 1956. It had beencontended that primarily the third, fourth and seventh defendantsshould first make a declaration that though the shares are in theirnames, a beneficial interest had accrued to the second defendant.Similarly, the second defendant has to make a declaration thatthey are the beneficial interest holders of the said shares. It hasbeen contended that in the absence of the above declarationsseeking a declaration against the first defendant would be akin toputting the cart before the horse.

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134. I hold that the declarations made or not made in the books ofthe first defendant would be to the exclusive knowledge of thefirst defendant alone and those in charge of management of thefirst defendant. In this context, the eighth to tenth defendants havea vital role to play. Evidence is necessary from their end to disclosefacts and to subject themselves to cross examination on all theseaspects. The plaintiffs have pleaded the facts to their knowledge.It must also be kept in mind that except the third defendant, noother defendant had sworn to an affidavit. Questions raised bythe plaintiffs remain unanswered and trial is the answer todetermine 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 tomeander. The reliefs sought may be superfluous but if the plaintdiscloses a cause of action and if the plaintiffs are prepared tobattle out the issues at the time of recording the evidence, thenagain they must be afforded such opportunity.

136. At this stage, the plaintiffs have come to Court primarilyclaiming a declaration as against the first defendant. Whetherthe third, fourth and seventh defendants on the one hand and thesecond defendant on the other hand have made declarations inaccordance with the provisions of either Section 187C or Section89 of the Companies Act 1956 or 2013 are facts to the exclusive knowledge of the first, second, third, fourth and seventh defendantsand also the eighth defendant. The plaintiffs could never havehad access to the records of the first defendant. The queriesraised in the pre-suit notices have not been answered.Consequently, they have sought a declaration only against the firstdefendant. This declaration is sought because in Dubai, the third,fourth and seventh defendants had made similar declarations andin the plaint, the plaintiffs have stated that they believed that similardeclarations had been made in the books of the first defendant.This statement of the plaintiffs has to be tested further throughoral and documentary evidence. Consequently, I am not inagreement with this contention raised by the defendants. Trial isthe answer to settle facts. At this stage, the plaint averments holdthe sway and a reading makes it obvious that the first defendanthas to open up its records for scrutiny, and that can be done onlyduring trial.

139. To sum up, the allegations raised in the plaint have to beexamined at Chennai since, the first defendant is registered inChennai. During its pre-incorporation, incorporation and postcorporation stages, substantial amounts of money had flowed toit. It is only with examination of the books of the first defendantthat the source of the funds can be determined. This is becausethe third to seventh defendants, who are said to have benefited byallotment of shares in view of the flow of funds have denied thecontention of the plaintiffs. The eighth, ninth and tenth defendants,who were in management have not filed any affidavit disclosingfacts to their knowledge. The eleventh and twelth defendantshave chosen not to participate in these proceedings. The first,third, eighth, ninth and tenth defendants are in Chennai. They areprivity to the relevant records and to the facts in issue in this case.I hold that since the plaint discloses cause of action, and substantialcause of action had arisen in Chennai, and since the suit is norbarred by any statute, the issues raised in the suit can be determinedin this Court and by this Court.

140. Moreover, the eighth, ninth and tenth defendants, who werein management of the first and second defendants are residents A

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at Chennai and it would be to their convenience if the suit is litigatedin Chennai. Their evidence would be crucial. In the plaint, fraudhas been alleged against them and they will have to withstandcross examination on such specific aspects.

141. The third defendant, who appears to fight his own cause andBalso the cause of the second defendant, has his residence atChennai.

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143. The fifth and sixth defendants are the sons of the thirddefendant. They have residence in Chennai, and if required totender evidence, they would not be inconvenienced. The seventhdefendant is also a resident of Chennai. These defendants alsoappear to tag the line of the third defendant, and consequentlythey would never be prejudiced by the suit being continued inChennai.

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144. The main evidence on behalf of the defendants would be onbehalf of the first defendant and by the third defendant and by theeighth, ninth and tenth defendants. The records of the firstdefendant are in Chennai. These defendants are all in Chennai.The cause of action arose within Chennai. In view of all theseEreasons, I hold that the applications seeking revocation of the leavehave to be dismissed.”

40. Attention of this Court was also drawn to the averments madein various paragraphs of the plaint as well as documents annexed withthe plaint which, according to them, were taken note of by the learnedSingle Judge in forming the opinion about the jurisdiction. It was submittedFthat the Division Bench has misdirected itself by ignoring the aforesaidvital discussion by the Single Judge and committed an error in treating itto be a dispute between the shareholders of defendant No.2. It wasspecifically argued that paragraph 54 of the plaint would reflect that thedispute raised by the plaintiffs pertained to the shares in defendant No.1/GIndian company, which would mean that situs of the shares, namely, theplace where company is located, would be the determinative factor, asheld in Vodafone International Holdings BV v. Union of India andAnother[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 exemptedcompany was not entitled to conduct business in the CaymanIslands. CGP was an “exempted company”. According to theRevenue, since CGP was a mere holding company and since itcould not conduct business in the Cayman Islands, the situs of theCGP share existed where the “underlying assets are situated”,that is to say, India. That, since CGP as an exempted companyconducts no business either in the Cayman Islands or elsewhereand since its sole purpose is to hold shares in a subsidiary companysituated outside the Cayman Islands, the situs of the CGP share,in the present case, existed “where the underlying assets stoodsituated” (India). We find no merit in these arguments.

140. At the outset, we do not wish to pronounce authoritativelyon the Companies Law of the Cayman Islands. Be that as it may,under the Indian Companies Act, 1956, the situs of the shareswould be where the company is incorporated and where its sharescan be transferred. In the present case, it has been asserted byVIH that the transfer of the CGP share was recorded in theCayman Islands, where the register of members of CGP ismaintained. This assertion has neither been rebutted in theimpugned order of the Department dated 31-5-2010 nor traversedin the pleadings filed by the Revenue nor controverted before us.In the circumstances, we are not inclined to accept the argumentsof the Revenue that the situs of the CGP share was situated in theplace (India) where the underlying assets stood situated.”

41. The appellants also relied upon the following two judgmentsof 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 defendantneither could have initiated an arbitration proceeding in their ownname, nor the said plaintiffs would be entitled to initiate arbitration 2 (2016) 195 Comp Cas 434 (Cal)

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proceedings and claim any relief on behalf of the company. Noshareholder can say that because the company is a party to thearbitration agreement, he should be allowed to initiate arbitrationproceedings and claim any relief in the said proceeding. It is thecompany who alone can initiate and/or defend such proceeding.A third party is no way concerned with the inter se disputes betweenthe shareholders of the company. However if the said third partyis a party to a fraud in an action in which a decree or an award ispassed affecting the valuable right of the company and is prejudicialto the interest of the company, the shareholder can sue themiscreant directors and the persons and/or entities connected withthe fraud on behalf of himself and other shareholders and in thename of the company to prevent any wrong being perpetrated onthe company. In such a situation, the complainant-shareholderwould be seeking to enforce a cause of action which is availableand belongs to the company and not to the shareholder personally.The essential purpose of such an action is to remedy a wrongdone to the company and if the suit ultimately succeeds, thejudgment 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 ofdefendant No.1 company by defendant Nos. 2, 3 and 4 in thecapacity as its directors. It is alleged that the sale being contraryto the provisions to section 293 of the Companies Act is void. Ifthe said is void, the person aggrieved is the company. The suitshould therefore normally be filed by the company for setting asidethe alienation. The plaintiff who is only a shareholder of thecompany would not normally have a right to file a suit on behalf ofthe company as the person aggrieved is the company and not ashareholder. More than one and a half century ago, in (Foss v.Harbottle), (1843) 2 Hare 461, the Court laid down the rule thatnormally an individual shareholder would not be entitled to bringan action for a wrong allegedly done to the company. It is thecompany who alone can bring an action for a wrong done to it.

3 (2008) 6 Bom CR 499H

The rule however has been subjected to more than one exceptions.In (B.B.N. (UK) Limited v. Janardan Mohandas Rajan Pillai),1993 (3) Bom. C.R. 228, this Court while upholding the rule that itis the company who is entitled to maintain an action for wrongallegedly done to it and a shareholder has no locus standi tomaintain the suit, affirmed one of the exceptions to the aforesaidrule that where a shareholder can show that the wrong doers arein control of the defendant company and hence the company wouldbe unable to maintain the action, he can maintain an action.”

It was submitted that the present case is covered by the exceptioncarved out by the Calcutta and Bombay High Courts in the aforesaidjudgments.

42. M/s. Gopal Subramanium, Mukul Rohatgi, Dr. Abhishek ManuSinghvi and Shyam Divan, learned senior counsel appeared for defendantNos.1, 2, 3 and 4 respectively. They strongly refuted the aforesaidsubmissions of the appellants/plaintiffs and submitted that the approachof the Division Bench of the High Court was without any blemish whichwarranted imprimatur by this Court as well. They paraphrased theirsubmissions in the following manner:

(a) In the first instance, it was submitted that undoubtedly the suitof the plaintiffs was for a derivative action which means it wasfiled by them on behalf of defendant No.2. Such a suit, even asper the plaintiffs, was in the interest of defendant No.2 company.This company was a Dubai company incorporated under the lawsof that country. Defendant No. 11 is the holding company whichis also a Dubai company. It was further submitted that the maingrievance of the plaintiffs pertained to deconsolidation, which wasadmitted in paragraph 48 of the plaint that this deconsolidationwas by defendant Nos. 11 and 2, both Dubai companies. It wasargued that shares were held by defendant Nos. 3 to 7 in theIndian company, which fact was not in dispute. Since the plaintiffswere seeking declaration in respect of beneficial interest in theseshares, the governing provision was Section 89(2) of theCompanies Act, 2013, which clearly barred the institution of sucha suit. Section 89(1) and (2) are as under:

“89. Declaration in respect of beneficial interest in anyshare. – (1) Where the name of a person is entered in the AB

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register of members of a company as the holder of shares inthat company but who does not hold the beneficial interest insuch shares, such person shall make a declaration within suchtime and in such form as may be prescribed to the companyspecifying the name and other particulars of the person whoholds the beneficial interest in such shares.

(2) Every person who holds or acquires a beneficial interest inshare of a company shall make a declaration to the companyspecifying the nature of his interest, particulars of the personin whose name the shares stand registered in the books of thecompany and such other particulars as may be prescribed.”

(b) Though the action was brought by the plaintiffs on behalf ofdefendant No.2 as a derivative action, defendant No.2 hadspecifically opposed this action. It, therefore, became a disputebetween the shareholders of defendant No.2, which is a Dubaicompany. Therefore, the courts at Chennai had no jurisdiction todeal with such a dispute.

(c) In the instant case the question was about the correctness ofthe order granting leave to the plaintiffs permitting them to institutethe suit in Chennai, under Clause 12 of the Letters Patent. Thecontesting defendants had filed the applications for revocation ofthe said order of grant of leave and, therefore, the parameters ofOrder VII Rule 11 of the CPC could not be applied. It wassubmitted that as far as the High Court of Madras is concerned,specific provision in the form of Clause 12 of the Letters Patentwas made, in supersession of Section 20 of the CPC. Grant ofleave is discretionary and for granting leave the Court is governedby the principle of forum conveniens. In the instant case, havingregard to the fact that the holding company (defendant No.11) aswell as the company on whose behalf the suit was filed (defendantNo.2) were situated in Dubai and the shareholders of defendantNo.2 were having disputes inter se, who were also residents ofDubai, the Courts in Dubai were better equipped to deal withsuch a dispute.

(d) In any case, the defendants’ application was also under OrderVII Rule 11 of the CPC raising the plea that no cause of actionhad arisen in Chennai and also that the suit was barred by law as well. These contentions were accepted by the Division Bench,inter alia, with the following discussion:

“6.12 Keeping in view of the abovesaid principles of law, letus consider the issues raised before us. Admittedly, thedefendant No.2 is a foreign entity governed by the laws ofDubai. The Plaintiffs are its shareholders. Therefore, anydispute between them will have to be resolved under the lawsof Dubai. Hence, the contention of the learned Senior Counselappearing for the plaintiffs that they are stepping into the shoesof the defendant No.2 seeking a relief against the defendantNo. 1 cannot be countenanced. This is also for the reason thatthere must be a declaration in clear terms qua the status of abeneficial interest holder before seeking a relief against thedefendant No.1. More so, when defendant No.2 itself deniesit.

6.13 In the case on hand, the fundamental and core facts arenot in dispute. They are with respect to the consolidation anddeconsolidation of defendant No.2 by defendant No.11.Similarly, a decision of the general body of a ETA Group, theBoard of Directors and the participation of the plaintiffs in thatare also not in dispute. These undisputed happenings lead tothe draft financial statement of the defendant No.11. Thisdraft financial statement confirms two things. One is withrespect to the deconsolidation and the other is removal of statusover the shares held by the individuals. The decision was toimplement it with retrospective effect from 10.01.2014. It isan admitted case that the decision of the ETA Group and thedraft financial statement of defendant No.11 would make thetrustees of the holders of the respective shares involvingbeneficial interest as absolute owners. The plaintiffs may havegrievance over this, but their remedy will lie elsewhere. Thatis the reason why one of the plaintiffs after issuing notice onbehalf of the defendant No.11 to defendant No.1, has chosento 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 cannotwriggle out of the decision of ETA Group followed by its draftfinancial statement. If we see the cause of action as recordedabove, it is abundantly clear that what has triggered the present

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suit is the aforesaid facts.

6.14The decision of the ETA Group, which consists ofnumerous entities, applies to every shareholder of the Group.Accordingly, the status of a registered owner would gettransferred into one of absolute ownership. Therefore, even ifwe go by the averments in the plaint while eschewing thedefence of the defendant No.2, no relief can be claimed beforethis Court. It is an indirect way of challenging the decision ofthe ETA Group, in which, the plaintiffs were also parties. Anyadjudication on this though indirectly, will have a seriousspiralling effect, as settled things would get unsettled for thereason that it might have an adverse impact on othershareholders of other entities coming under the umbrella ofthe ETA Group. The logic and rationale behind the decision ofa foreign entity cannot be adjudicated here. Be that as it may,certainly the remedy lies elsewhere. We should also keep inmind defendants 2 and 11 are admittedly situated outside thejurisdiction of the Court though the plaintiffs contend thatdefendants 3 to 7, despite being non resident Indians arepermanent residents of Chennai. This is nothing but an attemptto review the decision made already by the ETA Group asacknowledged by the defendant No.11 in the draft financialstatement. After all, the relief that is sought against thedefendant No.1 is a mere consequential one. When once theplaintiffs succeed against defendant Nos. 2 to 7 then defendantNo.1 is bound to give effect to it. For doing so, the remedy forthe plaintiffs against defendants Nos.2 to 7 lies elsewhere.

6.15When the status of defendant No.2 being the foreigncompany is not in dispute, no relief either direct or indirect canbe sought against it under the Indian Law. We are notconcerned 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 7whereas, defendant No.11 is by the plaintiffs. This explainsthe letter sent by the defendant No.11 though the plaintiff No.2to the defendant No.1 dated 01.06.2017.

6.16 A perusal of the cause of action as indicate in the plaintwould show that it started happening only from the date of

deconsolidation. Monies were sent by the defendant No.2 andon its behalf by defendant No.12 at least till 2011. Thoughprima facie, the payment made was not in dispute, the entityfrom which it emerged actually cannot be decided here. Thevery fact that payments were made by defendant No. 12 onbehalf of defendant No.2 followed by book adjustment itselfwould vouch for the fact that such things have happenedinvolving the other entities of the ETA Group as well and atleast defendant No.2 and its subsidiaries. These issues alsocannot be looked into by this Court.

6.17 In the plaint, the plaintiffs have not stated anything aboutthe derivative action available to a shareholder on behalf ofthe company in Dubai. We also note that the Indian CompaniesAct, 1956/2013 do not have an application to a foreign entity.Even assuming it to be so, Section 187(c) read with 89(8) ofthe Companies Act, 1956/2013 would disentitle the plaintiffsfrom getting the relief, when once, the reliefs cannot be grantedthrough a statutory bar, a suit filed claiming it also would bebarred. After all, a Court is required to grant a relief, whichparties are entitled to in law. Similarly, there is no correspondingduty fixed on the defendant No.1 to seek the declaration fromdefendants 3 to 7 in favour of defendant No.2. Suffice it is tostate 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, whenfacts are not in dispute, certainly it would apply. A Civil Courtis mandated to check its jurisdiction to deal with a lis qua thelimitation.”

43. We have deliberated on the respective arguments raised byboth sides with reference to the records of the case.

44. In order to appreciate the respective contentions, we mayhave to capture the real essence of the dispute between the parties. Asnoted earlier, the suit which was filed by the plaintiffs in the High Courtof Madras is derivative action on behalf of Defendant No. 2. DefendantNo. 2 is a Company incorporated in Dubai, UAE. Plaintiff Nos. 1 and 2were also resident nationals of Dubai, UAE have share holding inDefendant No. 2 Company. Together they hold 34% of shares in thisCompany. Defendant Nos. 3,4 and 7 are also share holders in Defendant A

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ANo. 2 Company. They hold 66% shares in Defendant no. 2 Company.In this way, plaintiffs on the one hand hold 34% of the shares in DefendantNo. 2 Company, whereas Defendant Nos. 3, 4 and 7 have share holdingof 66%. There are certain disputes between these two groups of shareholders insofar as affairs of Defendant No. 2 are concerned.B45. Defendant Nos. 3 to 7 are also subscribers to the share capitalof Defendant No. 1/Indian Company. It is to the extent of approximately6.16% of the share holding of the Indian Company when all the sharesheld by Defendant Nos. 3 to 7 are put together. According to theplaintiffs, these shares actually belonged to Defendant No. 2 which hasthe beneficial interest therein. It is for this reason, the plaintiffs filed suitCfor declaration, as a derivative action on behalf of Defendant No. 2,purportedly to protect and declare the beneficial interest in the sharesavailable to Defendant no. 1 standing in the name of Defendant Nos. 3to 7.

46. Since Defendant No. 1 is an Indian Company incorporated inDthe Indian laws having its registered office at Chennai, in the first blush,arguments of the plaintiff may appear to be sound that for such adeclaration the suit can be filed in Chennai. However, on going throughthe real dispute between the parties, which emerges out of the plaint aswell, it would become manifest that the dispute between the plaintiffs onEthe one hand and Defendant Nos. 3 to 7 on the other hand pertains tothe affairs of the Defendant no. 2 Company and in respect of whichcause of action has not arisen in Chennai and such a dispute has to besorted out by the parties between themselves by filing appropriateproceedings in Dubai, UAE only.F47. From the material facts in this behalf, as mentioned in theplaint itself, specifically in paragraphs 54 and 55 of the plaint, while makingthe averments qua the cause of action and territorial jurisdiction, itbecomes apparent that the plaintiffs got aggrieved by the draftConsolidated Financial Statement of Defendant No. 11 (which is again aDubai company and a parent company) and this statement recordsGdeconsolidation of its account with those of Defendant No. 2. The realdispute, thus, is whether Defendant Nos. 3 to 7 in whose name shares tothe extent of 6.16% of Indian Company stand, are the real owners or itis Defendant no. 2 Company which has the beneficial interest in the saidshares. Though, the plaintiffs claim beneficial interest of Defendant H

No. 2, Defendant Nos. 3 to 7 deny the same. Interestingly, even DefendantNo. 2 Company, whose beneficial interest in these shares is claimed bythe plaintiffs, refutes such a claim of the plaintiffs. Thus, in reality, it isthe dispute between the plaintiffs and Defendant nos. 3 to 7 who are allresidents of Dubai. Even Defendant No. 2 whose beneficial interest isclaimed by the plaintiffs is a Company incorporated in Dubai, UAE.Merely, because the dispute is about those shares which are issued byIndian Company would not lead to the conclusion that cause of actionhas arisen in India. It is obvious that insofar as Defendant No. 1/IndianCompany is concerned it has nothing to do with the dispute. The reliefof declaration which is sought is that Defendant Nos. 3 to 7 are not thereal owners of such shares and its actual/beneficial owner is DefendantNo. 2. Such a dispute would not bring jurisdiction of Chennai courtssimply because Defendant No. 1/Indian Company has its registered officein Chennai. Even if it is presumed that the plaintiffs ultimately succeedin their action, when brought in a competent court in Dubai, and adeclaration of the aforesaid nature is given by the said court, DefendantNo. 1 can always act thereupon.

48. Mr. Gopal Subramanium, had referred to the provisions ofSection 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 ofMembers of the Company as the holders of shares in that Company butdoes not hold beneficial interest in such shares, he shall make declarationwithin the prescribed time to the Company specifying the name andaddress of the person who hold the beneficial interest. Sub-section (8)provides that if such a declaration is not made right in this behalf cannotbe enforced by other person claiming through the beneficial owner. Primafacie, it appears that court in India on the application of the aforesaidprovision would not be in a position to give any relief to the plaintiffs inthe instant suit. The High Court has discussed in detail the nature ofderivative 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 derivativeaction is an exception to the general principle of locus. It can be claimedonly in a particular situation. Such a situation has to be seen contextuallyfrom the point of view of the entity, on whose behalf the suit is filed.Incidentally, the inter se relationship between the plaintiffs and thebeneficial owner, which may be a company is also of relevance. It mayinvolve a case of deceit, fraud, inability or incapacity. However, the AB

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Afundamental factor to be considered is the relationship between theplaintiff and the party, which the plaintiff seeks to represent.

49. The term ‘Beneficial interest’ is defined under Section 3 ofthe Indian Trust Act, 1882 which is reproduced hereunder:

“Beneficial interest” or “interest of the beneficiary is his rightBagainst 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 partiesinvolved in an issue governing beneficial interest. One is a beneficiarynamed as ‘beneficial owner’ and the other is the owner named asC‘registered owner’ being the trustee of the property or the asset in question.Thus, one can deduce the underlining principle that the ownership isnonetheless legal over the trust property, which vests on him but he alsoacts as a trustee of the beneficiary. A beneficial owner may include aperson who stands behind the registered owner when he acts like aDtrustee, 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 ‘beneficialowner’ in the following words:

“In my view, the expression ‘beneficial owner’ was chosen toEserve as an instruction, in a system of registration of ownershiprights, to look beyond the register in searching for the relevantperson. But such search cannot go so far as to encompass ademise charterer who has no equitable or proprietary interestwhich burden the title of the registered owner of the registeredowner. As I see it, the expression ‘beneficial owner’ serves toFinclude someone who stands behind the registered owner insituations where the latter functions merely as an intermediary,like a trustee, a legal 25[1990] 1 F.C. 199 representative or anagent. The French corresponding expression ‘veritableproprietaire’ leaves no doubt to that effect.”

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52. The High Court is also right in its observation that for applyingthe principles governing a derivative action one fundamental test has tobe passed, viz., such an action will necessary have the sanction of lawand this shall have no obligation to a foreign entity having beneficial H4 (1990) 1 FC 199

interest which can be enforced in India especially when there areprovisions dealing with such a situation.

53. While considering the territorial jurisdiction over a suit initiatedto protect the beneficial interest, the issue qua the existence of such aninterest can only be decided on the condition that the same is amenableto such a jurisdiction. Defendant no. 2 is admittedly not amenable to thejurisdiction of Madras High Court.

54. The High Court in the impugned judgment has also discussedin detail the meaning and scope of ‘cause of action’ by referring tovarious judgments including A.B.C. Laminart (Pvt.) Ltd. and Anothervs. A.P. Agencies, Salem. It has also considered the scope of Clause12 of the Letters Patent which is peculiar to Madras High Court, wherea leave is required to be obtained when part of cause of action ariseswithin the territorial jurisdiction of the said court. In such a situation, asrightly contended by Mr. Mukul Rohatgi, the principles of forumconvenience would become applicable as laid down in the case of KusumIngots and Alloys Ltd. vs. Union of India and Another[5]. We find thatcourt in Dubai would be more convenient forum to decide the disputebetween the parties who are residents of Dubai and which revolvesaround Defendant no. 2, again a Company registered and situate in Dubai.

55. The High Court also appears to be right in holding that therelief sought for against Indian Company, at best, is a consequential oneand cannot give a cause of action. Even Defendant no. 2 cannot seeksuch a relief without resolving its dispute as against Defendant nos. 3 to7. Such a dispute can only be dealt with by competent forum in Dubaias per the law prevailing in Dubai, UAE.

56. We would also like to reproduce the following discussion fromthe impugned judgment, with which we concur:

“6.11 When a dispute arose against the company, which issuedthe shares, then the situs would be its registered office. However,when the dispute is between the shareholder and the companywith respect to the shares held in another, the mere existence ofregistered office of the subsequent company is not a factor toclothe jurisdiction. In this connection, it is apposite to refer thefollowing paragraphs of the judgment of the Apex Court in R.

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Viswanathan and others v. Rukn-Ul-Mulk Syed Abdul Wajid SinceDeceased and others (Air 1963 Supreme Court 1).

“Per J.C. Shah, J. (Majority) : The situs of the shares in anyquestion between the Company and the holders thereof wasthe registered office of the Company in Bellary (outside theState of Mysore), but the share certificates must, on the caseof the plaintiffs as set out in the plaint, be deemed to be withthe executors and compliance with the decree, if any, passedagainst the executors for an order of retransfer could beobtained under the Code of Civil Procedure (see Order 21,Rules 31 and 32 Mysore Civil Procedure Code). There is norule of private international law recognised by the courts inIndia which renders the Bangalore Court incompetent to granta decree directing retransfer of the shares merely because theshares have a situs in a dispute between the Company andthe shareholders outside the jurisdiction of the foreign court:Counsel for the plaintiffs submitted that the Mysore Court wasincompetent to deliver an effective judgment in respect of theshares. But by personal compliance with an order for retransferjudgment in favour of the plaintiffs could be rendered effective.

Per Hidayatullah, J (Minority) : It only remains to consider theargument in relation to the shares of the Indian Sugars andRefineries Ltd. It was contended that the shares must bedeemed to be situated where they could be effectively dealtwith and that was Madras, where the Head Office of theCompany was situated. Learned counsel relied upon someEnglish cases in support of his contention. It is not necessaryto refer to those cases. The situs of shares between theCompany and the shareholders is undoubtedly in the countrywhere the business is situated. But in a dispute between rivalclaimants both within the jurisdiction of a court over shares thecourt has jurisdiction over the parties and the share scrips whichare before the court. The Mysore court was in this position.Between the rival claimants the Mysore High Court could orderthe share scrips to be handed over to the successful party andif necessary could order transfer of the shares between themand enforce that order by the coercive process of the law. Itwould 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 andaccepted the executors as the shareholders. The judgment ofthe Mysore courts on the ownership of the shares is ancillaryto the main decision. It is therefore not necessary for me toconsider the argument of Mr Desai that jurisdiction attacheson the principle of effectiveness propounded by Dicey, butwhich has been criticised by the present editors of his bookand by Cheshire. In my opinion, this controversy does not arisein this case, which must be decided on the plain words ofSection 13 of the Code of Civil Procedure.”

6.12 Keeping in view of the abovesaid principles of law,let usconsider the issues raised before us. Admittedly, the defendantno. 2 is a foreign entity governed by the laws of Dubai. ThePlaintiffs are its shareholders. Therefore, any dispute betweenthem will have to be resolved under the laws of Dubai. Hence,the contention of the learned Senior Counsel appearing for theplaintiffs that they are stepping into the shoes of the defendantno. 2 seeking a relief against the defendant no. 1 cannot becountenanced. This is also for the reason that there must bedeclaration in clear terms qua the status of a beneficial interestholder before seeking a relief against the defendant no. 1. Moreso, when defendant no. 2 itself denies it.

6.13 In the case on hand, the fundamental and core facts are notin dispute. They are with respect to the consolidation anddeconsolidation of defendant No. 2 by the defendant No. 11.Similarly a decision of the general body of a ETA Group, the Boardof Directors and the participation of the plaintiffs in that are alsonot in dispute. These undisputed happenings lead to the draftfinancial statement of the defendant No. 11. This draft financialstatement confirms two things. One is with respect to thedeconsolidation and the other is removal of status over the sharesheld by the individuals. The decision was to implement it withretrospective effect from 10.01.2014. It is an admitted case thatthe decision of the ETA Group and the draft financial statementof defendant No. 11 would make the trustees of the holders f therespective shares involving beneficial interest as absolute owners.The plaintiffs may have grievance over this, but their remedy will A

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lie elsewhere. That is the reason why one of the plaintiffs afterissuing 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 ofshareholders. May be it is also for the reason that the defendantNo. 11 cannot wriggle out of the decision of ETA Group followedby its draft financial statement. If we see the cause of action asrecorded above, it is abundantly clear that what has triggered thepresent suit is the aforesaid facts.

6.14 The decision of the ETA Group, which consists of numerousentities, applies to every shareholder of the Group. Accordingly,the status of a registered owner would get transferred into one ofabsolute ownership. Therefore, even if we go by the avermentsin the plaint while eschewing the defence of the defendant No. 2,no relief can be claimed before this Court. It is an indirect way ofchallenging the decision of the ETA Group, in which, the plaintiffswere also parties. Any adjudication on this though indirectly, willhave a serious spiralling effect, as settled things would get unsettledfor the reason that it might have an adverse impact on othershareholders of other entities coming under the umbrella of theETA Group. The logic and rationale behind the decision of aforeign entity cannot be adjudicated here. Be that as it may,certainly the remedy lies elsewhere. We should also keep in mindthe defendants 2 and 11 are admittedly situated outside thejurisdiction of the Court though the plaintiffs contend thatdefendants 3 to 7, despite being non resident Indians are permanentresidents of Chennai. This is nothing but an attempt to review thedecision made already by the ETA Group as acknowledged bythe defendant No. 11 in the draft financial statement. After all,the relief that is sought against the defendant No. 1 is a mereconsequential one. When once the plaintiffs succeed againstdefendant Nos. 2 to 7 then defendant No. 1 is bound to give effectto 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 appealswhich are, accordingly, dismissed.

Nidhi Jain

Appeals dismissed.