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TMI Blog2018 (9) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Original Side Appeal Nos.220 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applications filed by them. 2.For the sake of brevity, the appellants are referred as defendants as against the respondents 1 and 2 as plaintiffs. 3. Brief Facts: 3.1. Though the learned single Judge has captured the facts with clarity, it would be appropriate to reiterate them to the extent required while dealing with the issues raised. 3.2. The plaintiffs and the defendant No.4 are brothers. They belong to Al Ghurair family. Defendants 3 and 5 to 7 from Buhary family. M/s ETA Star Holding LLC- defendant No.11 is a limited liability company incorporated in the Emirates of Dubai, UAE under UAE Federal Law No.8. It has got its own subsidiaries and associate companies along with joint ventures. So is the case with defendant No.2. On a combination, these entities exceed 100, forming part of a larger entity named as ETA Group (hereinafter referred to as Group ). 3.3. Defendants 3 to 7 are the majority shareholder in defendant No.2, which is also registered and functioning in Dubai. The plaintiffs hold about 34% shares in defendant No.2 as against defendants 3 to 7. Similarly, in defendant No.11, the plaintiffs hold the majority shares of 52% and thus, hold contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities due to loss of control during the year ended 31 December 2014. The on-going disagreements between the shareholders of the Group had a significant impact on Group's relationships with certain subsidiaries, associates and joint ventures, in particular all subsidiaries, associates and joint ventures where the shareholding interest was not legally registered in the name of the Group and the Group was accounting for its interest in these entities based on a confirmation of beneficial shareholding interest obtained from the legal shareholders of these entities. The disagreement between the shareholders, also resulted in the Group losing physical access to the premises, management or books of accounts of certain overseas entities. During 2014, the Board of Directors reassessed all such relationships in the light of International Financial Reporting Standards - IFRS 10 (Consolidated Financial Statements), IFRS 11 (Joint Arrangements) and IAS 28 (Investment in Associates and Joint Ventures). Based on this exercise, it was concluded that, with effect from 1 January 2014, the Group no longer had the ability to exercise control or significant influence (as applicable) ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's ownership interest in such assets and entities resolved that the Group would only include in its consolidated financial statements the assets over which the Group has legal ownership interest as the Group would no longer have the benefit of beneficial interest in these assets held on its behalf by individuals and related parties. However, the Group continues to consolidated investment held by entities being consolidated under ETA ASCON Holding LLC. Accordingly, the management recorded a provision for impairment against these assets amounting to AED XXX as at 31 December 2014. 3.7. To the abovesaid extent there is no dispute between the parties. It is also not in dispute that the decision of the Board of Directors of the Group general body followed by the defendant No.11 through the draft financial statement would impact the beneficial interest of the defendant No.2 in the shares held in the name of defendants 3 to 7, which is the subject matter of the suit before us. 3.8. On 01.06.2017, a letter was issued by the defendant No.11 signed by the plaintiff No.2 to the defendant No.1 requiring it to take note of the group's interest in its shares and thus, no action wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2, the share certificates are with the defendant No.11, moneys were transferred from the defendant No.2 and some times through defendant Nos.11 and 12 and defendant No.1 is bound to record the beneficial interest of defendant No.2. The cause of action according to the plaintiffs arose on 31.12.2016 with the draft consolidated financial statement of defendant No.11 records deconsolidation of its account with those of defendant No.2 and thereafter. It has also been stated that in view of the registered office of the defendant No.1 being in Chennai, followed by correspondence between the plaintiff No.2 and defendant No.1, this Court has got jurisdiction. It would be appropriate to place on record the cause of action as shown in the plaint. 54. The Plaintiffs submit that the present lis relates to the denial and non-recognition of the beneficial interest of Defendant No.2 of the shares held by the Defendants 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 absen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent dispute. Furthermore, the recent correspondences/letters were also exchanged between the Plaintiff No.2 and Defendant Nos.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. 3.10. The learned single Judge allowed the applications filed by the plaintiffs while dismissing 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 allegation pertaining to fraud will have to be decided in the suit. There are factual issues which are to be gone into and Section 187 c and 89 of the Companies Act, 1956/2018 though may bar the reliefs, but not the suit. Aggrieved, these appeals are before us. 4. Submissions of the Defendants: The learned counsels appearing for the defendants would submit that the suit as filed is barred by law. There is no cause of action available to the plaintiffs to maintain the suit within the jurisdiction of this Court. The plaintiffs are attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment is not applicable to defendant No.2. Even otherwise it bars the relief. There is no allegation of misuse of money by defendants 8 to 10. Merely because defendant No.1 is situated at Chennai, a cause of action will not arise. The learned single Judge has committed an error in allowing the applications filed by the plaintiffs while dismissing those of the defendants. To strengthen their submissions, the following judgments are relied upon. (i) TATA ENGINEERING AND LOCOMOTIVE CO. LTD., AND OTHERS VS. STATE OF BIHAR AND OTHERS (AIR 1965 Supreme Court 40); (ii) BACHA F. GUZDAR, BOMBAY V. COMMISIONER OF INCOME TAX, BOMBAY (AIR 1955 Supreme Court 74); (iii)BHARVAGI CONSTRUCTIONS AND ANOTHER V. KOTHKAPU MUTHYAM REDDY ORS. (2017 SCC Online SC 1053); (iv) A.C.MUTHIAH V. BOARD OF CONTROL FOR CRICKET IN INDIA AND ANOTHER ((2011) 6 Supreme Court Cases 617); (v) WEALTH SEA PTE. LTD., VS. JUMBO WORLD HOLDINGS LTD., (C.S.No.742 of 2009 and A.Nos.4251 of 2009 and 1737 of 2010 dated 30.11.2016); (vi) DR.A.C. MUTHIAH V. BOARD OF CONTROL FOR CRICKET IN INDIA AND ANOTHER (Civil Appeal Nos.3753 of 2011 dated 18.03.2016); and (vii) PEARLITE LINERS (P) LTD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orum non conveniens will not apply, as even the plaintiffs are from Dubai and thus, they do not seek the convenience. As factual adjudication is required and as observed by the learned single Judge, the truth will come out only after full fledged trial. The learned Senior Counsel has made reliance upon the following decisions to buttress his submissions. (i)MAHESH AND ANOTHER VS. T.V.SUNDARAM IYENGAR SONS LTD., AND OTHERS (C.S.NO.963 OF 1992 DATED 119.02.1993); (ii)BOSTON SCIENTIFIC INTERNATIONAL BV ORS. V. TRIVITRON HEALTHCARE PVT. LIMITED (2015 (5) CTC 190); (iii) MAYAR (H.K.) ORS. V. OWNERS PARTIES, VESSEL M.V. FORTUNE EXPRESS ORS. (AIR 2006 SC 1828); (iv) UROOJ AHMED, LORDS ENTERPRISESVS. PREETHI KITCHEN APPLIANCES PRIVATE LIMITED (2013 SCC ONLINE MAD. 2969); (v) EXPHAR SA ANR. VS. EUPHARMA LABORATORIES LMITED ANR. (AIR 2004 SC 1682); (vi) N.RAVINDRAN V. RAMACHANDRAN (2011 SCC ONLINE MAD. 401); (vii) BALASARIA CONSTRUCTIONS PRIVATE LIMITED VS. HANUMAN SEVVA TRUST ORS ((2005) 5 SCC 659); (viii) C.NATARAJAN V. ASHIM BAI ANR.((2007) 14 SCC 183); and (ix) VODAPHONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA ANR.((20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proprietaire' leaves no doubt to that effect. 6.5. This legal position has also been taken note of by the Apex Court in SUNIL B. NAIK V. GEOWAVE COMMANDER ((2018) 5 Supreme Court Cases 505) . 6.6. However, for applying the principles governing a derivative action, one fundamental test will have to be passed. Such an action will necessarily have the sanction of law, which shall have no application to a foreign entity having beneficial interest, which can be enforced in India especially when there are provisions dealing with such situation. Derivative action against a defendant can only be raised on the undisputed existence of the beneficial interest being held in trust. To put it differently, while considering the territorial jurisdiction over a suit initiated to protect the beneficial interest, the issue qua the existence of such an interest canonly be decided provided the same is also amenable to such jurisdiction. 6.7. A cause of action has to involve material facts. Therefore, all facts not being material would not constitute cause of action. Such a material fact may be a fact in issue or a relevant fact. It has to be seen in the context of the averments in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in D.LAKSHMINARAYANA CHETTIAR AND ANOTHER ((1954) AIR Madras 594) in the following manner. 41. There is no definition of cause of action in the Civil Procedure Code; but it is the fundamental pivot around which many of the provisions of the Civil Procedure Code revolve. It is the basis for the maintainability of the suit. It is the foundation for the adding up of parties, and it is an important ingredient in working out the principle of res judicata and that embodied in Order 2, Rule 2, Civil P.C. It has, therefore, necessarily become the subject of judicial scrutiny. Bretts J. defined it in -- 'Cooke v. Gill', (1373) 8 CP 107 (Z1) a leading case on the subject, to mean every fact which is material to be proved to entitle the plaintiff to succeed, every fact which the defendant would have a right to traverse. In -- 'Bead V. Brown', (1889) 22 QBD 128 (Z2), Lord Esher adopted the same definition, but expressed it in more felicitous language as follows: Every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court. It does not comprise every piece of evidence which is necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant would have a right to traverse' and have no relation whatever to the defence, but refer entirely to the grounds set forth in the plaint as the cause of action: (1873) 6 CP 107 (Z1), -- 'Shankar Baksh v. Daya Shankar', 15 Ind App 66 (PC) (Z8), 16 Cal 98 (PC) (33). Though the ground of title on both suits are founded in one and the same and the causes of action also arose at the same time, yet the properties comprised in the two suits are different and the persons who severally withheld the same are also different. A reference to Section 50, C. P. C. clearly shows that in every suit the plaint must show that the defendant is or claims to be interested in the subject matter and that he is liable to be called upon to answer the plaintiff's demand. This clearly shows that the cause of action is not an abstraction, something independent of the defendant, but that the plaint should disclose a cause of action against the defendant. We respectfully agree with the aforesaid observations of the learned Judge, and this passage clearly brings out the distinction between the ground of title and the cause of action. A cause of action is something more than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decisions that though under Act 3 of 1859 this court was inclined to take the view that the unity of title was synonymous with cause of action, the later decisions clearly laid down that cause of action was something more than unity of title, and that it would include not only the right of the plaintiff but also the facts disclosing the infringement of that right. 8.3. A similar view has been taken by the Apex Court in A.B.C. LAMINART PVT. LTD., AND ANOTHER V. A.P. AGENCIES, SALEM (1989 AIR 1239), in which, the following passage would be apposite. A cause of action means every fact, which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court. In other words, it is a bundle of facts which taken with the law applicable to them gives the plaintiff a fight to relief against the defendant. It must include some act done by t he defendant since in the absence of such an act no cause of action can possibly accrue. It is not limited to the actual infringement of the fight sued on but includes all t he material facts on which it is founded. It does not comprise evidence necessary to prove such facts, but every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the leave granted under Clause 12 of the Letters Patent; b) that such an application should be made at an early stage of the suit and delay and acquiescence may be a bar to such an application; c) that if the application depends on difficult questions of law or fact, the Court should not revoke leave on a summary application but should decide the question at the trial; d) that if the defendant shows clearly that no part of the cause of action arose within jurisdiction, the leave should be revoked as a matter of course; e) that if only a part of the cause of action arose within jurisdiction, then it is a question of discretion for the Court to give or refuse leave or where leave has already been granted to revoke or maintain the leave; ........ g) that in giving or refusing leave or maintaining or revoking leave, the Court will ordinarily take into consideration the balance of convenience and may, if the balance is definitely in favour of the defendant, apply the doctrine of forum conveniens; h) that the Court may refuse leave or revoke leave on the ground of balance of convenience, although there be no evidence of bad faith or abuse of process on the part of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njustice or that the balance of convenience is decidedly or overwhelmingly against the suit going on in the forum chosen by the plaintiff. (c) In Tuticorin Alkali Chemicals and Fertilizers Limited vs. Cochin Silicate and Glass Industries reported in (1992) 1 LW 308), it has been held by the Division Bench, We do not say that in considering the balance of convenience as to the forum for instituting a suit, it would be necessary (like the principles of injunction) to see the ultimate injury that a party may suffer, but we do find support for our view and we state in no uncertain terms that in deciding whether to refuse leave or not, it would be necessary to see on facts and not, on assumptions, who shall suffer plaintiff or defendant if leave is granted or refused, as the case may be. (d) In Brooke Bond (India) Limited vs. Balaji Tea (India) Pvt., Ltd., reported in (1993) 2 MLJ 132), it has been observed by the Division Bench as :- 13. In granting leave to sue on a cause of action only partly arising within the jurisdiction of the Court the principle of balance of convenience is no doubt applied. The principle of balance of convenience which is an expansion of the doctrine & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2011) 3 LW 376), the Division Bench referred to the Judgement of Honourable Supreme Court in Kusum Ingots and Alloys Ltd., vs. Union of India and another (2004) 6 SCC 254 = 2004-4-L.W 310), wherein it was held that even if it was found that part of cause of action has arisen within the jurisdiction of the Court, the Court may refuse to exercise its discretionary jurisdiction on the principle of 'forum conveniens'. 51. A number of judgments were cited in the context of Section 62 of the Copyright Act, which gave the discretion to the litigant to decide the forum, including of this Court in Brooke Bond (India) Ltd. case (supra). Interestingly, this very Court in Glaxo Operations U.K. Ltd. (supra) observed that the expression carrying on business is too wide to embrace the branch or branches where business activities are carried on. The jurisdiction of the Court under Section 20 of the Code of Civil Procedure is different from the jurisdiction under Clause 12 of the Letters Patent. In a proceeding under Clause 12 of the Letters Patent, the plaintiff does not have an absolute right to bring proceedings in the High Court and can only do so with the prior leave of the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Re. fineries Ltd. It was contended that the, shares must be deemed to be situated where they could be effectively dealt with and that was Madras, where the Head Office of the Company was situated. Learned counsel relied upon some English cases in support of his contention. It is not necessary to refer to those cases. The suits of shares between the Company and the shareholders is undoubtedly in the Country where the business is situated. But in a dispute between rival claimants both within the jurisdiction of a Court over shares the Court has jurisdiction over the parties and the share scripts which are before the Court. The Mysore Court was in this position. Between the rival claimants the Mysore High Court could order the share scrips to be handed over to the successful party and if necessary could order transfer of the shares between them and enforce that order by the coercive process of the law. It would be a different matter if the Company refused to, register the transfer and a different question might then have arisen; but we are told that the Company has obeyed the decision and accepted the executors as the shareholders. The judgment of the Mysore Court on the ownership o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant 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. 6.14. The decision of the ETA Group, which consists of numerous entities, applies to every shareholder of the Group. Accordingly, the status of a registered owner would get transferred into one of absolute ownership. Therefore, even if we go by the averments in the plaint while eschewing the defence of the defendant No.2, no relief can be claimed before this Court. It is an indirect way of challenging the decision of the ETA Group, in which, the plaintiffs were also parties. Any adjudication on this though indirectly, will have a serious spiralling effect, as settled things would get unsettled for the reason that it might have an adverse impact on other shareholders of other entities coming under the umbrella of the ETA Group. The logic and rationale behind the decision of a foreign entity cannot be adjudicated here. Be that as it may, certainly the remedy lies elsewhere. We should also keep in mind defendants 2 and 11 are admittedly situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to grant a relief, which parties are entitled to in law. Similarly, there is no corresponding duty fixed on the defendant No.1 to seek the declaration from defendants 3 to 7 in favour of defendant No.2. Suffice it is to state that the plaintiffs do not raise any such issue till 2016, though share certificates were issued in the year 2012 itself. Though the limitation is a mixed question of law and fact, when facts are not in dispute, certainly it would apply. A Civil Court is mandated to check its jurisdiction to deal with a lis qua the limitation. 6.18. As against the defendants 8 to 10, there is no specific allegation of misuse of money. This alleged fraud is said to have been committed between 2005-2006/2012. It is to be seen that the plaintiffs knew the factum of share standing in the name of Defendant Nos.3 to 7. As discussed above, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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