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

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:Plaintiff No. 1 — Ahmed Abdulla Al Ghurair and Plaintiff no. 2, Ibrahim Abdulla Al Ghurair are brothers. They are residents and nationals of Dubai, UAE and are minority shareholders with 34% shares in defendant No. 2, ETA Star Holdings Ltd., a Company incorporated under the laws of Jebel Ali Free Zone Authority and having its registered office in Dubai, UAE. The remaining 66% shares in the same are held by Defendant nos. 3 to 7.The Defendant no. 1, Star Health Insurance Company (hereinafter ?Indian Company?), a Company registered under the Companies Act, 1956 having its registered office in Chennai, Tamil Nadu, India was incorporated on 17.06.2005. It is engaged in the Health Insurance business in India, having an authorised share capital of Rs.600 Crores and issued and subscribed capital of Rs. 455.57 Crores.Defendant nos. 3 and 5 to 7 belong to the same family, viz., the ?Buhary Family?. The Defendant no. 3, Mr. Syed Mohamed Salahuddin holds 2.98% of shares in Defendant no. 1/Indian Company. Defendant nos. 5 to 7, sons of Defendant no. 3 and Mr. Arif Buhary respectively, all national and residents of Dubai, UAE hold 0.002% share each in the Indian Company.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.Consequently, Defendant nos. 3 to 7 (i.e. the Buhary Family) along with Defendant no. 4 (who is the brother of the plaintiffs and all resident nationals of Dubai) jointly own 6.16% shares in the Indian Company.All the share certificates regarding these 6.16% shares are held with the Proforma Defendant no. 11, viz., ETA Star Holding LLC, having its registered office in Dubai, UAE, which is a limited liability company incorporated in the Emirates of Dubai, UAE under UAE Federal Law No. 8 and is the 100% beneficial owner of the Indian Company.The Contesting Defendant no. 8, Mr. V. Jagannathan, a resident of Chennai, Tamil Nadu India was the Manging Director of Defendant no. 1/Indian Company at the time of institution of the Suit.The Contesting Defendant no. 9, Mr. V.P. Nagarajan, a resident of Chennai, Tamil Nadu India was the Managing Personnel of Defendant no. 2 (incorporated in Dubai) at the time of institution of the Suit.The Contesting Defendant no. 10, Mr. C.M. Kannan Unni, a resident of Chennai, Tamil Nadu India was the Joint Executive director and Company Secretary of Defendant no. 1 at the time of institution of the Suit.The Proforma Defendant no. 12, Emirates Trading Agency is having its registered office in Dubai, UAE. It has 52% share held by the plaintiffs and 48% share held by the Defendant nos. 3 and 5 to 7. It had provided funds for and on behalf of the Defendant no. 2 towards the shares held by the Defendant nos. 3 to 7 in the Indian Company.It is the case of the plaintiffs that the Defendant nos. 3 to 7 had made declarations that the shares of the Indian Company in their name were actually held by them for and on behalf of Defendant no. 2. Conversely, they acknowledged that Defendant no. 2 had a beneficial interest in the shares of the Indian Company, though the shares were in their names. Since the Defendant no. 2 had a beneficial interest in the shares in the names of Defendant nos. 3 to 7, the actual share certificates were in the possession of Defendant no. 11, ETA Star Holding LLC, who in turn had a 100% beneficial holding over the Respondent No. 2. This declaration by Defendant nos. 3 to 7 was discontinued after thedeconsolidation of accountsbetween Defendant nos. 2 and 11.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.In these circumstances, the minority shareholders, namely, the plaintiffs, who together hold 34% in the shares of the Indian Company, initiated the Suit, i.e., C.S. No. 33 of 2018 in the High Court of Judicature at Madras, in the nature of derivative action on behalf of the Indian Company seeking protection and declaration of its beneficial interest in the shares available with the Indian Company standing in the names of Defendant nos. 3 to 7.It is the claim of the plaintiffs that even theexpenses 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/n 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.It was further stated that on December 21, 2005 a sum of Rs.50/lakhs was remitted by the Defendant no. 12 through bank transfer from Mashreq Bank in Dubai to the Bank Account of the Indian Company in Andhra Bank, Chennai, Main Branch and share certificates were issued in favour of the Defendant no. 3, which has also been recorded in the books of accounts of the Indian Company.Thereafter, on January 16, 2006, the Indian Company issued payment instructions to HSBC Bank, Dubai, for an amount of Rs.16,25,00,000/to be deposited in the account of the Defendant no. 1 in Andhra Bank, Chennai. According to the plaintiffs, contribution was towards equity share capital held by Defendant nos. 3 ad 4. Share certificates were also issued and recorded as having beneficial interest by the ETA Group.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 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.The plaintiffs also stated that Defendant nos. 3 to 7 admitted and acknowledged that Defendant no. 2 had a beneficial interest in the share certificates of the India Company issued in their names. Defendant nos. 3 to 7, however, do not have physical possession of these 2,72,20,448 shares, the same being held by Defendant no. 11. It was also contended in the Plaint that Defendant nos. 3, 4, 5 and 7 had signed blank share transfer forms with respect to the shares of the Indian Company in favour of the Defendant nos. 2 and 11. Accordingly, it was urged that Defendant no. 2 has a beneficial interest over the shares of the Defendant no. 1 but held in the names of Defendant nos. 3 to 7.It was further urged in the plaint that deconsolidation of the accounts and businesses of Defendant no. 2 with that of Defendant no. 11 was effected in 2016 with retrospective effect from 2014. The same was on account of Defendant nos. 3, 4 and 7 to sign the financial statements of Defendant no. 2. It was also urged that till the time the Indian Company had requirements for funds, the interest of Defendant no. 2 was acknowledged and it was stopped subsequently. It was further urged that the entire remittance towards the suit shares of 6.16% of the Indian Company, were by the funds provided by Defendant no. 12 or Defendant no. 2 and no part of the funds came from the personal accounts of Defendant nos. 3 to 7. It was further urged by the plaintiffs that Defendant nos. 8 to 10 had direct knowledge of these facts.It is pertinent to mention here that there is no dispute regarding the fact that the decision of the Board of Directors of the Group General Body followed by Defendant no. 11 through the draft financial statement would impact the beneficial interest of Defendant no. 2 in the shares held by in the names of Defendant nos. 3 to 7, which was the subject matter of the suit.Plaintiff no. 2, under these circumstances, wrote the letter dated June 01, 2017 to Defendant no. 8 — the Managing Director of the Indian Company, protesting that the investments made by Defendant no. 2 were denied. Defendant no. 1, through its letter dated June 07, 2017 refused to take notice of the claim asserted by the ETA Group. Plaintiff no. 2, thereafter, sent another letter dated June 12, 2017 to the Indian Company, addressed to the Managing Director of the Indian Company, giving details in support of the claim of the ETA Group. He also called for a meeting in person. However, Defendant nos. 8 and 9 along with other Directors of the Indian Company failed to attend the meeting proposed by Plaintiff no. 2. However, they sent a letter dated June 27, 2017 stating that they had earlier replied on June 07, 2017 itself and had nothing further to state. Plaintiff no. 2 sent another letter dated July 09, 2017 reiterating his original stand. The Indian Company responded through letter dated July 27, 2017, stating that they were not obliged to offer any clarification to the same.It was under these circumstances that the plaintiffs filed the Suit, C.S. No. 33 of 2018 at the High Court of Judicature at Madras.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.The plaintiffs have further stated that they came to know from Newspaper reports that the equity of Defendant no. 1 was to be sold to private equity investors through a bidding process and that Defendant nos. 3 to 7 along with Defendant nos. 8 to 9 were attempting to sell their investments in the Indian Company.It was urged that in case such a sale was to happen, Defendant no. 2, which had financed the purchase of such shares would be put to loss if its beneficial interest was not recorded in the books of the Indian Company.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 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.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 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.Somewhat similar stand was taken by other contesting defendants in support of the prayer for revoking the leave and to rejecting the plaint in C.S. No. 33 of 2018. Defendant no. 2 also took the plea that it was not interested in seeking the relief claimed in the plaint, viz., Defendant no. 2 is the beneficial interest holder of 6.16% of shares of the Indian Company.Counter affidavits were filed by the plaintiffs with respect to these applications reiterating that they had the locus; that the suit is within the period of limitation; that the Court had jurisdiction to adjudicate the issues; and that the suit had been filed with bona fide intent.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.The aforesaid order of the learned Single Judge has been reversed by the Division Bench vide common judgment dated August 03, 2018. It has allowed the appeals filed by the contesting defendants and set aside the common order of the Single Judge, thereby revoking the leave granted by the Single Judge.

Court's reasoning:
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.