Ahmed Abdulla Ahmed Al Ghurair (Through ... vs Star Health And Allied Insurance ...

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:

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.

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.

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.

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.

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

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.

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.

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.

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.

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.”

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.

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

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.

57) As a consequence, we do not find any merit in these appeals which are, accordingly, dismissed.

NOVEMBER 26, 2018.