# KAMYA) & ANR v. STAR HEALTH AND ALLIED INSURANCE COMPANY

- **Citation:** [2018] 13 S.C.R. 670
- **Court:** Supreme Court of India
- **Decided:** 2018-11-26
- **Case number:** Civil Appeal Nos. 9786-9799 of 2018
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kamya-anr-v-star-health-and-allied-insurance-company-32529
- **Pages:** 33

## Headnote

Jurisdiction: Territorial jurisdiction - Territorial jurisdiction
of High Court to entertain the suit - Plaintiffs-resident nationals of
Dubai, have share holding in defendant No. 2 Company,
incorporated in Dubai - Plaintiffs holding 34% of shares and
defendant Nos. 3,4 and 7 holding 66% shares in the defendant No.
2 Company - Defendant Nos. 3-7 also subscribers to 6.16% share
capital of defendant No. 1/Indian Company - Plaintiffs filed suit
for declaration in the High Court of Madras, as a derivative action
on behalf of defendant No. 2, purportedly to protect and declare
the beneficial interest in the shares available with defendant no. 1
standing in the name of defendant Nos. 3-7 - Single Judge of the
High Court held that the High Court had the jurisdiction to entertain
the suit, however, the Division Bench held that the suit in the High
Court of Madras was not maintainable - On appeal, held: When a
dispute is between the shareholder and the company with respect to
the shares held in another, the mere existence of registered office of
the subsequent company is not a factor to clothe jurisdiction - In
reality, the dispute is between the plaintiffs and defendant nos. 3-7,
all residents of Dubai - Even defendant No. 2 whose beneficial
interest is claimed was incorporated in Dubai - Merely, because
the dispute is about those shares issued by Indian Company, would
not lead to the conclusion that cause of action has arisen in India -
Defendant No. 1 has nothing to do with the dispute - Relief of
declaration sought is that defendant Nos. 3-7 are not the real owners
of such shares and its beneficial owner is defendant No. 2 - Such a
dispute would not bring jurisdiction of Chennai courts simply
because defendant No. 1 has its registered office in Chennai - While
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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 not amenable to the
jurisdiction of the Madras High Court - Furthermore, the 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, Company registered in Dubai - Suit - Cause of
action.
Dismissing the appeals, the Court
HELD: 1.1 The High Court rightly held that when a dispute
arose against the company, which issued the shares, then the
situs would be its registered office, however, when the dispute is
between the shareholder and the company with respect to the
shares held in another, the mere existence of registered office of
the subsequent company is not a factor to clothe jurisdiction.
[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 become
manifest that the dispute between the plaintiffs on the one hand
and Defendant Nos. 3 to 7 on the other hand pertains to the affairs
of the Defendant no. 2 Company and in respect of which cause of
action has not arisen in Chennai and such a dispute has to be
sorted out by the parties between themselves by filing appropriate
proceedings in Dubai, UAE only. [Para 46][698-E-F]
1.3 While making the averments qua the cause of action
and territorial jurisdiction, it becomes apparent that the plaintiffs
got aggrieved by the draft Consolidated Financial Statement of
Defendant No. 11 (which is again a Dubai company and a parent
company) and this statement records deconsolidation of its
account with those of Defendant No. 2. The real dispute, thus, is
whether Defendant Nos. 3 to 7 in whose name shares to the extent
of 6.16% of Indian Company stand, are the real owners or it is
Defendant no. 2 Company which has the beneficial interest in the
said shares. Though, the plaintiffs claim beneficial interest of
Defendant No. 2, Defendant Nos. 3 to 7 deny the same.
Interestingly,

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SUPREME COURT REPORTS
[2018] 13 S.C.R.
AHMED ABDULLA AHMED AL GHURAIR (THROUGH THEIR
POWER OF ATTORNEY HOLDER MR. BARTHOLOMEW
KAMYA) & ANR.
v.
STAR HEALTH AND ALLIED INSURANCE COMPANY
LIMITED & ORS.
(Civil Appeal Nos. 9786-9799 of 2018)
NOVEMBER 26, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Jurisdiction: Territorial jurisdiction - Territorial jurisdiction
of High Court to entertain the suit - Plaintiffs-resident nationals of
Dubai, have share holding in defendant No. 2 Company,
incorporated in Dubai - Plaintiffs holding 34% of shares and
defendant Nos. 3,4 and 7 holding 66% shares in the defendant No.
2 Company - Defendant Nos. 3-7 also subscribers to 6.16% share
capital of defendant No. 1/Indian Company - Plaintiffs filed suit
for declaration in the High Court of Madras, as a derivative action
on behalf of defendant No. 2, purportedly to protect and declare
the beneficial interest in the shares available with defendant no. 1
standing in the name of defendant Nos. 3-7 - Single Judge of the
High Court held that the High Court had the jurisdiction to entertain
the suit, however, the Division Bench held that the suit in the High
Court of Madras was not maintainable - On appeal, held: When a
dispute is between the shareholder and the company with respect to
the shares held in another, the mere existence of registered office of
the subsequent company is not a factor to clothe jurisdiction - In
reality, the dispute is between the plaintiffs and defendant nos. 3-7,
all residents of Dubai - Even defendant No. 2 whose beneficial
interest is claimed was incorporated in Dubai - Merely, because
the dispute is about those shares issued by Indian Company, would
not lead to the conclusion that cause of action has arisen in India -
Defendant No. 1 has nothing to do with the dispute - Relief of
declaration sought is that defendant Nos. 3-7 are not the real owners
of such shares and its beneficial owner is defendant No. 2 - Such a
dispute would not bring jurisdiction of Chennai courts simply
because defendant No. 1 has its registered office in Chennai - While
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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 not amenable to the
jurisdiction of the Madras High Court - Furthermore, the 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, Company registered in Dubai - Suit - Cause of
action.
Dismissing the appeals, the Court
HELD: 1.1 The High Court rightly held that when a dispute
arose against the company, which issued the shares, then the
situs would be its registered office, however, when the dispute is
between the shareholder and the company with respect to the
shares held in another, the mere existence of registered office of
the subsequent company is not a factor to clothe jurisdiction.
[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 become
manifest that the dispute between the plaintiffs on the one hand
and Defendant Nos. 3 to 7 on the other hand pertains to the affairs
of the Defendant no. 2 Company and in respect of which cause of
action has not arisen in Chennai and such a dispute has to be
sorted out by the parties between themselves by filing appropriate
proceedings in Dubai, UAE only. [Para 46][698-E-F]
1.3 While making the averments qua the cause of action
and territorial jurisdiction, it becomes apparent that the plaintiffs
got aggrieved by the draft Consolidated Financial Statement of
Defendant No. 11 (which is again a Dubai company and a parent
company) and this statement records deconsolidation of its
account with those of Defendant No. 2. The real dispute, thus, is
whether Defendant Nos. 3 to 7 in whose name shares to the extent
of 6.16% of Indian Company stand, are the real owners or it is
Defendant no. 2 Company which has the beneficial interest in the
said shares. Though, the plaintiffs claim beneficial interest of
Defendant No. 2, Defendant Nos. 3 to 7 deny the same.
Interestingly, even Defendant No. 2 Company, whose beneficial
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH
AND ALLIED INSUR. COMPANY LTD.
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SUPREME COURT REPORTS
[2018] 13 S.C.R.
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 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 said nature is given by the said court, Defendant No. 1 can
always act thereupon. [Para 47][696-F-H; 697-A-D]
1.4 As per sub-section (1) of Section 89 of the Companies
Act, 2013 a person whose name is entered in the register of
Members of the Company as the holders of shares in that
Company but does not hold beneficial interest in such shares, he
shall make declaration within the prescribed time to the Company
specifying the name and address of the person who hold the
beneficial interest. Sub-section (8) provides that if such a
declaration is not made right in this behalf cannot be enforced by
other person claiming through the beneficial owner. Prima facie,
it appears that court in India on the application of the said
provision would not be in a position to give any relief to the
plaintiffs in the instant suit. The High Court has discussed the
nature of derivative action as well as the meaning that is to be
ascribed to the term 'beneficial interest'. 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,
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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. [Para 48][698-D-H;
699-A]
1.5 The term 'Beneficial interest' is defined under Section
3 of the Trust Act, 1882. As it can be discerned from the definition
of 'Beneficial interest'; 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.
[Paras 49, 50][699-A-D]
1.6 The High Court is 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. 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 the Madras High
Court. [Para 52-53][698-G-H; 699-A-B]
1.7 The High Court in the impugned judgment discussed
in detail the meaning and scope of 'cause of action'. It 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, the principles of
forum convenience would become applicable. The 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.
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH
AND ALLIED INSUR. COMPANY LTD.
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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 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. [Paras 54, 55][699-B-F]
Vodafone International Holdings BV v. Union of India
and Another (2012) 6 SCC 613 : [2012] 1 SCR 573;
Starlight Real Estate (Ascot) Mauritius Ltd. and Another
v. Jagrati Trade Services P. Ltd. and Others (2016) 195
Comp Cas 434 (Cal); Nirad Amilal Mehta v. Genelec
Limited & Others (2008) 6 Bom CR 499; Kusum Ingots
and Alloys Ltd. v. Union of India and Another (2004) 6
SCC 254 : [2004] 1 Suppl. SCR 841 - referred to.
Mount Royal/Walsh Inc. v. Jensen Star, the Ship (1990)
1 FC 199 - referred to.
Case Law Reference
[2012] 1 SCR 573
 referred to
Para 40
(2016) 195 Comp Cas 434 (Cal) referred to
Para 41
(2008) 6 Bom CR 499
 referred to
Para 41
[2004] 1 Suppl. SCR 841
 referred to
Para 54
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 97869799 of 2018.
From the Judgment and Order dated 03.08.2018 of the High Court
of 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. Chanan
Parwani, Raghavendra M. Bajaj, Ms. Svadha Shankar, Ms. Ila Sheel, S.
S. Shroff, Advs. for the appellants.
Mukul Rohatgi, Dr. Abhishek Manu Singhvi, Shyam Divan, Gopal
Subramaniam, Sr. Advs., Ms. Shalini Kaul, Ms. Priyanka Shetty, Ms.
Ashwini Vaidialingam, Chaman Lal, J. Sivanand Raaj, P. B. Suresh, Vipin
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Nair, N. Vijayaraghavan, Vijay Kumar, Karthik Jayashankar, Anshumaan
Bahadur, 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 heard
together and is being disposed of by this common judgment as an identical
issue is involved therein.
2. At the outset, we may mention that the dispute between the
parties pertain to the shares of Respondent No.1, Star Health Insurance
Company, standing in the name of the Respondent Nos. 3-7. As per the
appellants/plaintiffs, it is Respondent No. 2 which has the beneficial
interest in those shares. In this behalf, the appellants/plaintiffs filed the
suit through their Power of Attorney holder (C.S. No. 33 of 2018) before
the High Court of Madras seeking, inter alia, the relief of declaration of
beneficial interest of Respondent no. 2 herein in the shares which are in
the names of Respondent nos. 3 to 7. These constitute a total of 6.16%
of the share holding of Respondent No. 1. However, issue before this
Court is very limited which pertains to the territorial jurisdiction, viz.,
whether High Court of Madras has the territorial jurisdiction to entertain
the suit filed by the appellants herein?
3. As per Clause 12 of the Letters Patent, along with the suit the
plaintiffs also filed application for seeking leave to sue on the ground
that a substantial part of cause of action had arisen within its jurisdiction.
This application was allowed by the High Court vide its order dated
January 12, 2018. After the service of summons in that suit, Respondent
no. 1 herein (Defendant no. 1 in the suit) filed applications for revoking
leave to institute the suit within the jurisdiction of Madras High Court on
the ground that it lacked territorial jurisdiction to decide the suit. Similar
applications were filed by Respondent nos. 2 and 3 as well. Respondent
nos. 4,6,and 7 filed Memos supporting these applications. The learned
Single Judge of the High Court dismissed these applications holding that
High Court had the jurisdiction to entertain the 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.
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH
AND ALLIED INSUR. COMPANY LTD.
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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 decide
the controversy regarding jurisdictional issue are taken note of. Also,
for the sake of clarity and convenience, the parties are addressed as
plaintiffs and defendants, on the basis of memo of the parties in the suit.
Since there are multiple parties to the litigations-contesting as
well as proforma - we start with the description of these parties, which
is as under:
5. Plaintiff No. 1 - Ahmed Abdulla Al Ghurair and Plaintiff no. 2,
Ibrahim Abdulla Al Ghurair are brothers. They are residents and nationals
of Dubai, UAE and are minority shareholders with 34% shares in
defendant No. 2, ETA Star Holdings Ltd., a Company incorporated under
the laws of Jebel Ali Free Zone Authority and having its registered office
in Dubai, UAE. The remaining 66% shares in the same are held by
Defendant nos. 3 to 7.
6. The Defendant no. 1, Star Health Insurance Company
(hereinafter "Indian Company"), a Company registered under the
Companies Act, 1956 having its registered office in Chennai, Tamil Nadu,
India was incorporated on 17.06.2005. It is engaged in the Health
Insurance business in India, having an authorised share capital of Rs.600
Crores and issued and subscribed capital of Rs. 455.57 Crores.
7. Defendant nos. 3 and 5 to 7 belong to the same family, viz., the
"Buhary Family". The Defendant no. 3, Mr. Syed Mohamed Salahuddin
holds 2.98% of shares in Defendant no. 1/Indian Company. Defendant
nos. 5 to 7, sons of Defendant no. 3 and Mr. Arif Buhary respectively, all
national and residents of Dubai, UAE hold 0.002% share each in the
Indian Company.
8. Defendant no. 4, Mr. Essa Abdulla Ahmed Al Ghurair, a resident
of Dubai, UAE, and the brother of the plaintiffs, holds a 3.18% share in
Defendant no. 1/Indian Company.
9. Consequently, Defendant nos. 3 to 7 (i.e. the Buhary Family)
along with Defendant no. 4 (who is the brother of the plaintiffs and all
resident nationals of Dubai) jointly own 6.16% shares in the Indian
Company.
10. All the share certificates regarding these 6.16% shares are
held with the Proforma Defendant no. 11, viz., ETA Star Holding LLC,
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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.
11. The Contesting Defendant no. 8, Mr. V. Jagannathan, a resident
of Chennai, Tamil Nadu India was the Manging Director of Defendant
no. 1/Indian Company at the time of institution of the Suit.
12. The Contesting Defendant no. 9, Mr. V.P. Nagarajan, a resident
of Chennai, Tamil Nadu India was the Managing Personnel of Defendant
no. 2 (incorporated in Dubai) at the time of institution of the Suit.
13. The Contesting Defendant no. 10, Mr. C.M. Kannan Unni, a
resident of Chennai, Tamil Nadu India was the Joint Executive director
and Company Secretary of Defendant no. 1 at the time of institution of
the Suit.
14. The Proforma Defendant no. 12, Emirates Trading Agency is
having its registered office in Dubai, UAE. It has 52% share held by the
plaintiffs and 48% share held by the Defendant nos. 3 and 5 to 7. It had
provided funds for and on behalf of the Defendant no. 2 towards the
shares held by the Defendant nos. 3 to 7 in the Indian Company.
15. It is the case of the plaintiffs that the Defendant nos. 3 to 7
had made declarations that the shares of the Indian Company in their
name were actually held by them for and on behalf of Defendant no. 2.
Conversely, they acknowledged that Defendant no. 2 had a beneficial
interest in the shares of the Indian Company, though the shares were in
their names. Since the Defendant no. 2 had a beneficial interest in the
shares in the names of Defendant nos. 3 to 7, the actual share certificates
were in the possession of Defendant no. 11, ETA Star Holding LLC,
who in turn had a 100% beneficial holding over the Respondent No. 2.
This declaration by Defendant nos. 3 to 7 was discontinued after the deconsolidation of accounts between Defendant nos. 2 and 11.
16. The case of the plaintiffs was that the majority group of
shareholders of Defendant no. 2 should have taken some steps in order
to assert that it was having a beneficial interest in the shares of the
Indian Company, though allotted in the names of Defendant nos. 3 to 7.
However, the majority shareholders, namely, Defendant nos. 3 to 7, who
held 66% of the shares of the Indian Company, did not take any steps,
thereby causing prejudice to the Indian Company.
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
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17. In these circumstances, the minority shareholders, namely,
the plaintiffs, who together hold 34% in the shares of the Indian Company,
initiated the Suit, i.e., C.S. No. 33 of 2018 in the High Court of Judicature
at Madras, in the nature of derivative action on behalf of the Indian
Company seeking protection and declaration of its beneficial interest in
the shares available with the Indian Company standing in the names of
Defendant nos. 3 to 7.
18. It is the claim of the plaintiffs that even the pre-incorporation
expenses of the Indian Company were met by the funds remitted by
Defendant no. 12. Defendant nos. 11 and 12 are further, part of the
ETA Group of Companies in Dubai, UAE. According to the plaintiffs,
Defendant no. 12 had remitted a total sum of Rs.1,43,00,000/- towards
pre-incorporation expenses of the Indian Company between April 2005
and October 2005. The same have been recorded in the books of account
of Defendant no. 2. The plaintiffs have further claimed that four share
certificates for a total of 33,200 shares were issued on July 11, 2005 in
favour of Defendant nos. 3, 5 and 7, who are shown as subscribers to
the Memorandum of Association of Indian Company. The outstanding
call amounts on these shares were satisfied from the remittance made
in March 2006 by Defendant no. 12. These share certificates are in the
custody of Defendant no. 11 in its capacity as beneficial interest holder
of Defendant no. 2. Defendant nos. 3, 5 and 7 have also made
declarations acknowledging the beneficial interest of Defendant no. 2 in
these shares.
19. It was further stated that on December 21, 2005 a sum of
Rs.50/- lakhs was remitted by the Defendant no. 12 through bank transfer
from Mashreq Bank in Dubai to the Bank Account of the Indian Company
in Andhra Bank, Chennai, Main Branch and share certificates were
issued in favour of the Defendant no. 3, which has also been recorded in
the books of accounts of the Indian Company.
20. Thereafter, on January 16, 2006, the Indian Company issued
payment instructions to HSBC Bank, Dubai, for an amount of
Rs.16,25,00,000/- to be deposited in the account of the Defendant no. 1
in Andhra Bank, Chennai. According to the plaintiffs, contribution was
towards equity share capital held by Defendant nos. 3 and 4. Share
certificates were also issued and recorded as having beneficial interest
by the ETA Group.
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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 made in the
Indian Company. On June 28, 2009, a further investment was made in
the Indian Company by Defendant no. 12 to the tune of Rs.2,14,00,000/
- through payment instructions to Emirates Bank to debit the same, which
was actually credited on July 01, 2009. In 2011, two investments were
made on December 26, 2011 to the tune of Rs.17,70,00,000/- by payment
instructions to Bank of Baroda, debiting the account of Defendant no.
12 and crediting the account of the Indian Company. Thereafter, share
certificates in the names of the Defendant nos. 3 and 4 were issued by
the Defendant no. 1 around February 10, 2012.
22. The plaintiffs also stated that Defendant nos. 3 to 7 admitted
and acknowledged that Defendant no. 2 had a beneficial interest in the
share certificates of the India Company issued in their names. Defendant
nos. 3 to 7, however, do not have physical possession of these 2,72,20,448
shares, the same being held by Defendant no. 11. It was also contended
in the Plaint that Defendant nos. 3, 4, 5 and 7 had signed blank share
transfer forms with respect to the shares of the Indian Company in
favour of the Defendant nos. 2 and 11. Accordingly, it was urged that
Defendant no. 2 has a beneficial interest over the shares of the Defendant
no. 1 but held in the names of Defendant nos. 3 to 7.
23. It was further urged in the plaint that deconsolidation of the
accounts and businesses of Defendant no. 2 with that of Defendant no.
11 was effected in 2016 with retrospective effect from 2014. The same
was on account of Defendant nos. 3, 4 and 7 to sign the financial
statements of Defendant no. 2. It was also urged that till the time the
Indian Company had requirements for funds, the interest of Defendant
no. 2 was acknowledged and it was stopped subsequently. It was further
urged that the entire remittance towards the suit shares of 6.16% of the
Indian Company, were by the funds provided by Defendant no. 12 or
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH
AND ALLIED INSUR. COMPANY LTD. [A. K. SIKRI, J.]
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Defendant no. 2 and no part of the funds came from the personal accounts
of Defendant nos. 3 to 7. It was further urged by the plaintiffs that
Defendant nos. 8 to 10 had direct knowledge of these facts.
24. It is pertinent to mention here that there is no dispute regarding
the fact that the decision of the Board of Directors of the Group General
Body followed by Defendant no. 11 through the draft financial statement
would impact the beneficial interest of Defendant no. 2 in the shares
held by in the names of Defendant nos. 3 to 7, which was the subject
matter of the suit.
25. Plaintiff no. 2, under these circumstances, wrote the letter
dated June 01, 2017 to Defendant no. 8 - the Managing Director of the
Indian Company, protesting that the investments made by Defendant
no. 2 were denied. Defendant no. 1, through its letter dated June 07,
2017 refused to take notice of the claim asserted by the ETA Group.
Plaintiff no. 2, thereafter, sent another letter dated June 12, 2017 to the
Indian Company, addressed to the Managing Director of the Indian
Company, giving details in support of the claim of the ETA Group. He
also called for a meeting in person. However, Defendant nos. 8 and 9
along with other Directors of the Indian Company failed to attend the
meeting proposed by Plaintiff no. 2. However, they sent a letter dated
June 27, 2017 stating that they had earlier replied on June 07, 2017 itself
and had nothing further to state. Plaintiff no. 2 sent another letter dated
July 09, 2017 reiterating his original stand. The Indian Company responded
through letter dated July 27, 2017, stating that they were not obliged to
offer any clarification to the same.
26. It was under these circumstances that the plaintiffs filed the
Suit, C.S. No. 33 of 2018 at the High Court of Judicature at Madras.
27. The plaintiffs claim that the Indian Defendant no. 2 Company
is under the control of wrong doers. They further claim that Defendant
nos. 8 to 10 were in active collusion with Defendant nos. 3 to 7 and that
they have joined hands to deprive Defendant no. 2 of its beneficial interest
in the suit shares, namely, 6.16% of shares of the Indian Company.
28. The plaintiffs have further stated that they came to know
from Newspaper reports that the equity of Defendant no. 1 was to be
sold to private equity investors through a bidding process and that
Defendant nos. 3 to 7 along with Defendant nos. 8 to 9 were attempting
to sell their investments in the Indian Company.
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29. It was urged that in case such a sale was to happen, Defendant
no. 2, which had financed the purchase of such shares would be put to
loss if its beneficial interest was not recorded in the books of the Indian
Company.
30. While filing the suit, the plaintiffs had filed application no. 292
of 2018 seeking leave to institute the suit within the jurisdiction of the
High Court of Judicature at Madras. In the affidavit filed in support of
that application, the plaintiffs had stated that they had sought a declaration
that Defendant no. 2 had a beneficial interest over 6.16% of shares of
the Indian Company. However, the shares might be alienated. It was
further stated that substantial part of cause of action arose within the
jurisdiction of the Court where the registered office of the first defendant
was located and where it carried on business. Further, the entire subject
matter of the suit was the shares of the Indian Company, which are held
by Defendant nos. 3 to 7 and that Defendant nos. 3, 5, 6 and 7 normally
reside in Chennai. It was further stated that the correspondences 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
AHMED ABDULLA AHMED AL GHURAIR v. STAR HEALTH
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also questioned on the ground that it was barred by Section 89 of the
Companies Act 2013 and Section 187(C) of the Companies Act 1956.
32. Somewhat similar stand was taken by other contesting
defendants in support of the prayer for revoking the leave and to rejecting
the plaint in C.S. No. 33 of 2018. Defendant no. 2 also took the plea that
it was not interested in seeking the relief claimed in the plaint, viz.,
Defendant no. 2 is the beneficial interest holder of 6.16% of shares of
the Indian Company.
33. Counter affidavits were filed by the plaintiffs with respect to
these applications reiterating that they had the locus; that the suit is
within the period of limitation; that the Court had jurisdiction to adjudicate
the issues; and that the suit had been filed with bona fide intent.
34. The learned Single Judge dismissed the applications filed by
the defendants seeking to revoke the leave granted to institute the suit
and to reject the plaint inter alia holding that the allegations pertaining
to fraud would have to be decided in the suit. He further observed that
there were factual issues that were to be gone into and Sections 187C
and 89 of the Companies Act, 1956/2013 which may bar the reliefs but
would not bar the suit.
35. The aforesaid order of the learned Single Judge has been
reversed by the Division Bench vide common judgment dated August
03, 2018. It has allowed the appeals filed by the contesting defendants
and set aside the common order of the Single Judge, thereby revoking
the leave granted by the Single Judge.
36. To recapitulate in brief the controversy, the suit filed by the
plaintiffs was in the nature of a derivative action on behalf of defendant
No.2 to protect and declare its beneficial interest (i.e. beneficial interest
of defendant No.2) in the shares available with the Indian company,
which stand in the name of defendant Nos. 3 to 7. According to the
plaintiffs, defendant No.2 is the beneficial owner and defendant Nos. 3
to 7, in collusion with defendant Nos. 1, 8 and 9, are acting against the
interests of defendant No.2. In the plaint the averments regarding cause
of action and Chennai having territorial jurisdiction were mentioned in
paragraph Nos. 54 and 55, which are as under:
"54. The Plaintiffs submit that the present lis relates to the denial
and non-recognition of the beneficial interest of Defendant No.2
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of the shares held by the Defendant Nos. 3, 4, 5, 6 and 7 in
Defendant No.1. The cause of action arose on 31.12.2016 when
the draft consolidated financial statement of Defendant No.11
records deconsolidation of its accounts with those of Defendant
No.2 (refer to Para 42 supra) for the reason that there is "absence
of confirmation of beneficial ownership from the legally registered
shareholders of the entities" (which inter alia includes Defendant
No.2). Thus on 31.12.2016 it became manifested that the recordal
of declaration of beneficial interest of the Defendant No.2 would
no longer be caused to be made by those in control of Defendant
No.2 and its affairs namely Defendant Nos. 3, 4 and 7 and which
hostile action led to not only the denial of the recording of beneficial
interest of Defendant No.2 but also to deconsolidation with
retrospective effect of its accounts with Defendant No.11. With
the deconsolidation of accounts it became clear that a hostile action
denying the beneficial interest of Defendant No.2 stood taken by
Defendant Nos. 3, 4 and 7. The cause of action further arose on
07.06.2017 when Defendant No.1 refused to acknowledge the
beneficial interest in the suit shares. The cause of action further
arose when Defendant No.1 through Defendant No.10 on
27.06.2017 once again refused to acknowledge the beneficial
interest in the suit shares. The cause of action further arose on
12.11.2017 and 24.11.2017 when newspaper articles, being in public
knowledge suggested that the equity of the Defendant No.1 is
being sold to private equity investors through a bidding process
and the present investors including the Defendant Nos. 3 to 7
along with Defendant Nos. 8 and 9 are attempting to sell their
investments in the Defendant No.1 and exit the health insurer.
The cause of action further arose on 21.12.2017 when newspaper
articles of the Economic Times, being in public knowledge
suggested that the five (5) companies have been shortlisted to
purchase the Defendant No.1 and that the floor price if INR 5,500
crore has been put for the sale. The article further suggested that
the sale of the Defendant No.2 will help ETA Trading to exit the
Defendant No.1, as the beneficial interest of Defendant No.2 has
been negated and continues to be negated the cause of action has
and is continuing to arise.
55. Since the registered office of Defendant No.1 is in Chennai,
the investments made by Defendant No.2 were also made in
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Defendant No.1 in Chennai, this Hon'ble Court will exercise
jurisdiction over the present dispute. Furthermore, the recent
correspondence/letters were also exchanged between the Plaintiff
No.2 and Defendant No.1 and 10 in Chennai. Therefore, it is
clear that a substantial part of the cause of action has arisen within
the territorial jurisdiction of this Hon'ble Court. Leave is being
craved to sue the Defendants who are outside the jurisdiction of
this Hon'ble Court."
37. The plaintiffs, thus, wanted a declaration to the effect that
shares in the Indian company which are held by defendant Nos. 3 to 7 in
fact belong to defendant No.2 company. Since defendant No.2 did not
come forward to make the said claim, derivative action was filed by the
plaintiffs on its behalf to the aforesaid effect. As per the plaintiffs, the
High Court of Madras, at Chennai, had the jurisdiction to entertain the
same inasmuch as: (a) Registered Office of the Indian company is in
Chennai; (b) the investments made by defendant No.2 were made in the
Indian company in Chennai; and (c) substantial part of cause of action,
as reflected in the correspondence/letters exchanged between plaintiff
No.2 and defendant Nos. 1 and 10 arose in Chennai.
38. The contesting defendants questioned the territorial jurisdiction
of the Madras High Court to entertain the said suit on the ground that no
cause of action available to the plaintiffs to maintain the suit arose within
the jurisdiction of the said Court. In substance, the plaintiffs were
attempting to resolve the dispute between the shareholders of the company
though all these shareholders are residents and nationals of Dubai.
Moreover, they are claiming that though shares are in the names of
defendants Nos. 3 to 7, it is defendant No.2 which has the beneficial
interest therein and even defendant No.2 is a foreign entity which is
covered by the foreign law. Likewise, the inter se relationship between
defendant No.2 and the plaintiffs is also covered by the foreign law. It
was additionally contended that the claims made by the plaintiffs are not
enforceable even under the Companies Act, 1956 or the Companies
Act, 2013. As far as inter se disputes between the plaintiffs and the
contesting defendants, who are all shareholders of defendant No.2, are
concerned, they have arisen in Dubai which is outside the territorial
jurisdiction of Chennai.
39. M/s. C.A. Sundaram, Neeraj Kishan Kaul, V. Giri and C.U.
Singh, learned senior counsel appeared for the plaintiffs. In substance,
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their argument was that the learned Single Judge of the Madras High
Court had rightly allowed the application for leave to file the suit after
satisfying that the Court at Chennai had the territorial jurisdiction to
entertain such a suit which was a derivative action taken out by the
plaintiffs on behalf of defendant No.2. It was highlighted that even if
defendant No.2 was a Dubai company, of which plaintiffs and defendant
Nos. 3 to 7 were the shareholders, dispute was in respect of shares in
defendant No.1 which was an Indian company having its Registered
Office in Chennai. Moreover, defendant Nos. 3 to 7 were also having
their residence in Chennai even though they are NRIs residing in Dubai.
Attention of this Court was specifically drawn to the following discussion
in the order of the learned Single Judge, which was adopted as their
arguments in support of the plea that the suit was validly instituted in
Chennai:
"130. It had been further argued on behalf of the defendants that
under Section 34 of the Specific Relief Act, the plaintiffs must
have a direct interest and entitlement over the property, for which
the declaration is sought. Section 34 of the Specific Relief Act is
as follows:
"34. Discretion of court as to declaration of status or right. - Any
person entitled to any legal character, or to any right as to any
property, may institute a suit against any person denying, or
interested to deny, his title to such character or right, and the
court may in its discretion make therein a declaration that he is so
entitled, and the plaintiff need not in such suit ask for any further
relief:
Provided that no court shall make any such declaration where the
plaintiff, being able to seek further relief than a mere declaration
of title, omits to do so."
131. In the present case, the plaintiffs are not seeking a declaration
that they have a beneficial interest. A derivative action is sought
only for the beneficial interest of the second defendant. The second
defendant has however abjured such interest. Whether such
disclaimer or abjuration is the result or effect of collusion or fraud
are further aspects to be examined. Such abjuration has to be
weighed with the flow of funds through the second defendant to
the first defendant, leading to the allotment of shares to the third
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to the seventh defendants. Examining all these aspects can only
be through advancing oral and documentary evidence. This would
further imply that the suit has to be retained on file.
132. It had been further contended that the suit relief is barred
under Section 187C of the Companies Act, 1956. It had been
contended that primarily the third, fourth and seventh defendants
should first make a declaration that though the shares are in their
names, a beneficial interest had accrued to the second defendant.
Similarly, the second defendant has to make a declaration that
they are the beneficial interest holders of the said shares. It has
been contended that in the absence of the above declarations
seeking a declaration against the first defendant would be akin to
putting the cart before the horse.
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134.