Case: AHMED ABDULLA AHMED AL GHURAIR (THROUGH THEIR POWER OF ATTORNEY HOLDER MR. BARTHOLOMEW KAMYA) Vs. STAR HEALTH AND ALLIED INSURANCE COMPANY LIMITED

Counsel for the plaintiffs submitted that the Mysore Court was incompetent to deliver an effective judgment in respect of the shares. But by personal compliance with an order for retransfer judgment in favour of the plaintiffs could be rendered effective. Per Hidayatullah, J (Minority) : It only remains to consider the argument in relation to the shares of the Indian Sugars and Refineries Ltd. It was contended that the shares must be deemed to be situated where they could be effectively dealt with and that was Madras, where the Head Office of the Company was situated. Learned counsel relied upon some English cases in support of his contention. It is not necessary to refer to those cases. The situs of shares between the Company and the shareholders is undoubtedly in the country where the business is situated. But in a dispute between rival claimants both within the jurisdiction of a court over shares the court has jurisdiction over the parties and the share scrips which are before the court. The Mysore court was in this position. Between the rival claimants the Mysore High Court could order the share scrips to be handed over to the successful party and if necessary could order transfer of the shares between them and enforce that order by the coercive process of the law. It would be a different matter if the Company refused to register the transfer and a different question might then have arisen; but we are told that the Company has obeyed the decision and accepted the executors as the shareholders. The judgment of the Mysore courts on the ownership of the shares is ancillary to the main decision. It is therefore not necessary for me to consider the argument of Mr Desai that jurisdiction attaches on the principle of effectiveness propounded by Dicey, but which has been criticised by the present editors of his book and by Cheshire. In my opinion, this controversy does not arise in this case, which must be decided on the plain words of Section 13 of the Code of Civil Procedure.? 6.12 Keeping in view of the abovesaid principles of law,let us consider the issues raised before us. Admittedly, the defendant no. 2 is a foreign entity governed by the laws of Dubai. The Plaintiffs are its shareholders. Therefore, any dispute between them will have to be resolved under the laws of Dubai. Hence, the contention of the learned Senior Counsel appearing for the plaintiffs that they are stepping into the shoes of the defendant no. 2 seeking a relief against the defendant no. 1 cannot be countenanced. This is also for the reason that there must be declaration in clear terms qua the status of a beneficial interest holder before seeking a relief against the defendant no. 1. More so, when defendant no. 2 itself denies it. 6.13 In the case on hand, the fundamental and core facts are not in dispute. They are with respect to the consolidation and deconsolidation of defendant No. 2 by the defendant No. 11. Similarly a decision of the general body of a ETA Group, the Board of Directors and the participation of the plaintiffs in that are also not in dispute. These undisputed happenings lead to the draft financial statement of the defendant No. 11. This draft financial statement confirms two things. One is with respect to the deconsolidation and the other is removal of status over the shares held by the individuals. The decision was to implement it with retrospective effect from 10.01.2014. It is an admitted case that the decision of the ETA Group and the draft financial statement of defendant No. 11 would make the trustees of the holders f the respective shares involving beneficial interest as absolute owners. The plaintiffs may have grievance over this, but their remedy will lie elsewhere. That is the reason why one of the plaintiffs after issuing notice on behalf of the defendant No. 11 to defendant No. 1, has chosen to file the suit along with the other in the status of shareholders. May be it is also for the reason that the defendant No. 11 cannot wriggle out of the decision of ETA Group followed by its draft financial statement. If we see the cause of action as recorded above, it is abundantly clear that what has triggered the present suit is the aforesaid facts. 6.14 The decision of the ETA Group, which consists of numerous entities, applies to every shareholder of the Group. Accordingly, the status of a registered owner would get transferred into one of absolute ownership. Therefore, even if we go by the averments in the plaint while eschewing the defence of the defendant No. 2, no relief can be claimed before this Court. It is an indirect way of challenging the decision of the ETA Group, in which, the plaintiffs were also parties. Any adjudication on this though indirectly, will have a serious spiralling effect, as settled things would get unsettled for the reason that it might have an adverse impact on other shareholders of other entities coming under the umbrella of the ETA Group. The logic and rationale behind the decision 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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. Thereal 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, 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.Mr. Gopal Subramanium, had referred to the provisions of Section 89(1) and (8) of the Companies Act, 2013. As per(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.(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 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.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 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.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.(1990) 1 FC 199While 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.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. We find that court in Dubai would be more convenient forum to decide the dispute between the parties who are residents of Dubai and which revolves around Defendant no. 2, again a Company registered and situate in Dubai.The High Court also appears to be right in holding that the relief sought for against Indian Company, at best, is a consequential one and cannot give a cause of action. Even Defendant no. 2 cannot seek such(2004) 6 SCC 254 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.