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2018 (9) TMI 679 - HC - Companies LawStatus of a beneficial interest holder - Status of foreign company - make the trustees of the holders of the respective shares involving beneficial interest as absolute owners - Consolidation and deconsolidation of defendant No.2 a foreign entity governed by the laws of Dubai - jurisdiction to institute the suit within the jurisdiction of this Court - Held that - Admittedly, the defendant No.2 is a foreign entity governed by the laws of Dubai. The plaintiffs are its shareholders. 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 a 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. 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 of 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. 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. When the status of defendant No.2 being the foreign company is not in dispute, no relief either direct or indirect can be sought against it under the Indian Law. We are not concerned 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 7 whereas, defendant No.11 is by the plaintiffs. This explains the letter sent by the defendant No.11 through the plaintiff No.2 to the defendant No.1 dated 01.06.2017. A perusal of the cause of action as indicated in the plaint would show that it started happening only from the date of deconsolidation. Monies were sent by the defendant No.2 and on its behalf by defendant No.12 atleast till 2011. Though prima facie, the payment made was not in dispute, the entity from which it emerged actually cannot be decided here. The very fact that payments were made by defendant No.12 on behalf of defendant No.2 followed by book adjustment itself would vouch for the fact that such things have happened involving the other entities of the ETA Group as well and atleast defendant No.2 and its subsidiaries. These issues also cannot be looked into by this Court. As against the defendants 8 to 10, the situation stood changed after a decision made in the meeting held by the ETA Group which was given effect in 2016. That is the reason why, the cause of action has been mentioned to be starting from 2016 onwards. Therefore, the alleged role of the defendant Nos.8 to 10 will not give any jurisdiction to this Court. Defendant No.11 who is stated to be in possession of the shares, is situated in Dubai. As the plaintiffs felt the importance of the defendant No.11 who would in all probability support their case, it has been accordingly arrayed. We have to keep in mind the notice dated 01.06.2017 signed by the plaintiff No.2 on behalf of defendant No.11 on the very issue. What has to be seen at this stage is the averments in the plaint along with the documents filed. Therefore, there is no difficulty in accepting the submission made by the learned Senior Counsel appearing for the plaintiffs in this regard. However, in the light of the discussion made above, a mere situs of the share in the first defendant s company alone cannot give jurisdiction to institute the suit within the jurisdiction of this Court. Thus, we find that the reasons assigned by the learned single Judge cannot be sustained in the eye of law, particularly, with reference to the provisions of the Companies Act, 1956/2013, the examination of the books of defendant No.1 qua the declaration made, flow of funds and the allegations of fraud made against defendants 7 to 10.
Issues Involved:
1. Jurisdiction of the Court 2. Cause of Action 3. Beneficial Interest and Derivative Action 4. Applicability of Foreign Law 5. Allegations of Fraud 6. Limitation Issue-Wise Analysis: 1. Jurisdiction of the Court: The Court examined whether it had jurisdiction to entertain the suit. The plaintiffs argued that the jurisdiction was proper since the registered office of Defendant No.1 was in Chennai. However, the Court noted that Defendant No.2, a foreign entity, was governed by Dubai law, and the dispute primarily involved the inter se relationship between shareholders of foreign entities. The Court concluded that the mere existence of the registered office of Defendant No.1 in Chennai did not confer jurisdiction, especially when the core dispute involved foreign entities and their shareholders. 2. Cause of Action: The Court analyzed the cause of action presented by the plaintiffs, which stemmed from the deconsolidation decision made by the ETA Group in 2014 and the subsequent draft financial statement of Defendant No.11 in 2016. The Court emphasized that a cause of action must involve material facts leading to the relief sought. It found that the primary cause of action arose from decisions made by foreign entities outside the jurisdiction of the Court. The Court held that the consequential relief sought against Defendant No.1 could not independently establish jurisdiction. 3. Beneficial Interest and Derivative Action: The plaintiffs claimed a derivative action on behalf of Defendant No.2 to protect its beneficial interest in shares held by Defendant No.1. The Court discussed the principles of beneficial interest, noting that such an interest involves a beneficiary and a trustee relationship. It held that a derivative action requires clear legal sanction, which was not applicable to a foreign entity like Defendant No.2. The Court concluded that the plaintiffs could not seek relief in India without a clear declaration of beneficial interest, which was denied by Defendant No.2. 4. Applicability of Foreign Law: The Court highlighted that Defendant No.2 and other involved entities were governed by Dubai law. It stated that any dispute between the plaintiffs and Defendant No.2 must be resolved under Dubai law. The Court emphasized that the Indian Companies Act, 1956/2013, did not apply to foreign entities, and any relief sought under these statutes was barred. 5. Allegations of Fraud: The plaintiffs alleged fraud by Defendants 8 to 10, claiming misuse of money between 2005-2012. The Court noted that there were no specific allegations of misuse of money by Defendants 8 to 10. It pointed out that the plaintiffs knew about the shareholding status of Defendants 3 to 7 since 2012, and the cause of action arose only after the deconsolidation decision in 2016. The Court held that the alleged fraud did not confer jurisdiction to the Court. 6. Limitation: The Court discussed the issue of limitation, noting that the cause of action arose from the deconsolidation decision in 2014 and the draft financial statement in 2016. It emphasized that the plaintiffs did not raise any issues until 2016, despite knowing the shareholding status since 2012. The Court held that the suit was barred by limitation, as the cause of action had arisen beyond the permissible period. Conclusion: The Court set aside the common order passed by the learned single Judge, allowing the applications filed by the defendants and dismissing the applications filed by the plaintiffs. It concluded that the reasons assigned by the learned single Judge could not be sustained in law, particularly with reference to the provisions of the Companies Act, 1956/2013, and the jurisdictional issues. The appeals were allowed, and the connected applications were closed.
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