2018 (11) TMI 1408 - SC - Companies Law

Territorial jurisdiction - whether High Court of Madras has the territorial jurisdiction to entertain the suit filed by the appellants herein? - correctness of the order granting leave to the plaintiffs permitting them to institute the suit in Chennai, under Clause 12 of the Letters Patent - Held that - Grant of leave is discretionary and for granting leave the Court is governed by the principle of forum conveniens. In the instant case, having regard to the fact that the holding company (defendant No.11) as well as the company on whose behalf the suit was filed (defendant No.2) were situated in Dubai and the shareholders of defendant No.2 were having disputes inter se, who were also residents of Dubai, the Courts in Dubai were better equipped to deal with such a dispute. 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. 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 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.

Summary

Issues Involved:
1. Territorial jurisdiction of the High Court of Madras.
2. Beneficial interest in shares.
3. Derivative action by minority shareholders.
4. Applicability of Sections 89 and 187C of the Companies Act, 1956/2013.
5. Cause of action and forum conveniens.

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction of the High Court of Madras:
The primary issue was whether the High Court of Madras had the territorial jurisdiction to entertain the suit filed by the plaintiffs. The plaintiffs argued that since the registered office of the Indian Company (Defendant No. 1) was in Chennai, and the investments were made in Chennai, the High Court had jurisdiction. However, the Division Bench of the High Court reversed the Single Judge’s decision, stating that the dispute was essentially between shareholders of a Dubai company (Defendant No. 2) and not directly related to the Indian Company. The court highlighted that the real dispute pertained to the beneficial interest in shares and the deconsolidation of accounts, which were issues to be resolved in Dubai, not Chennai.

2. Beneficial Interest in Shares:
The plaintiffs sought a declaration that Defendant No. 2 had a beneficial interest in the shares of the Indian Company held by Defendant Nos. 3 to 7. The Division Bench noted that the plaintiffs' claim was based on the assertion that funds were remitted by Defendant No. 2 for the purchase of these shares. However, the court emphasized that the beneficial interest issue should be adjudicated in Dubai, where Defendant No. 2 is incorporated and where the dispute between the shareholders of Defendant No. 2 arose.

3. Derivative Action by Minority Shareholders:
The plaintiffs, as minority shareholders of Defendant No. 2, initiated the suit as a derivative action on behalf of Defendant No. 2 to protect its alleged beneficial interest in the shares. The court acknowledged the concept of derivative action but pointed out that Defendant No. 2 itself opposed the suit, making it a dispute between shareholders of a Dubai company. The court concluded that such a dispute should be resolved under Dubai law and within the jurisdiction of Dubai courts.

4. Applicability of Sections 89 and 187C of the Companies Act, 1956/2013:
The contesting defendants argued that the suit was barred by Sections 89 and 187C of the Companies Act, which require declarations of beneficial interest to be made to the company. The Division Bench agreed, noting that the plaintiffs had not made the required declarations, and thus, the relief sought could not be granted. The court held that these statutory provisions barred the suit, reinforcing the decision to revoke the leave granted to institute the suit in Chennai.

5. Cause of Action and Forum Conveniens:
The court examined the cause of action and determined that it primarily arose from the deconsolidation of accounts and the denial of beneficial interest, which were actions taken by entities in Dubai. The court applied the principle of forum conveniens, concluding that Dubai was the more appropriate forum to adjudicate the dispute. The court emphasized that the relief sought against the Indian Company was merely consequential and could not establish jurisdiction in Chennai.

Conclusion:
The appeals were dismissed, with the court affirming that the High Court of Madras lacked territorial jurisdiction to entertain the suit. The dispute was fundamentally between shareholders of a Dubai company concerning beneficial interest in shares, and thus, the appropriate forum for resolution was in Dubai. The court also upheld the applicability of Sections 89 and 187C of the Companies Act, barring the suit in its current form.