Madras HC Holds Execution Petition Over Beneficial Ownership Of Award Debtor In Shares Held Ostensibly By Third Parties Maintainable

Madras High Court has recently held that the execution petition filed by a company incorporated in the Republic of Marshall Islands, in pursuance of a foreign arbitral award in its favour, against another company with its registered office in Dubai is maintainable before it.The single-judge bench of Justice Senthilkumar Ramamoorthy has held that the consecutive third execution petition filed by Award Holder, Pueblo Holdings Limited, seeking the enforcement of the decree against UAE based Award Debtor, Emirates Trading Agency LLC, by attaching the assets held ostensibly by third parties in the prominently Chennai based ETA Group is maintainable.Before arriving upon the conclusion, the court elaborately discussed the following issues:i) Whether the Award Holder has established that the other respondent parties are debtors of award debtor or hold the shares as ostensible owners for and on behalf of the Award Debtor?ii) Whether the Madras High Court Division Bench and Supreme Court judgments in Star Health Insurance [Ahmed Abdulla Ahmed Al Ghurair & Anr. v. Star Health and Allied Insurance Company Limited & Ors.] would mean that the Award Holder should first institute proceedings before courts in the UAE to establish the existence of beneficial interest before initiating proceedings before an Indian court?iii) Whether the prohibition under the Benami Property Transactions Act for the institution of proceedings by a person claiming to be the real owner of the property against the person in whose name the property stands will place a bar on the Award Holder in this case?iv) Whether the specific prohibition for asserting the rights over shares by the beneficial owner or a person claiming through or on his behalf under Section 89 of Companies Act, 2013 will bring within its ambit the Award Holder in the case at hand?v) Whether a third execution petition can be filed under Order XXI Rule 21 CPC while two previous execution petitions were filed before the same court and are still pending adjudication?Court's FindingsOn the second question, the court unequivocally held that the objection raised by the respondent parties by relying on Star Health Insurance was fallacious. The Madras High Court Division Bench judgment in Star Health Insurance essentially dealt with a fight between two groups of shareholders of a company incorporated in the UAE. Moreover, the Supreme Court judgment by Justices Ashok Bhushan and A.K. Sikri also only indicated that a derivative action cannot be maintained in India as regards a company incorporated in the UAE. Therefore, both judgments in Star Health Insurance were pronounced in a suit filed as a derivative action by shareholders of a company incorporated in the UAE, on the basis that the company concerned failed to act to protect its interest, the court noted. Thereafter, the court elaborated upon how the issue in Star Health Insurance has a stark difference from the issue presented in this case:"First, the Award Holder (in this case) seeks attachment and sale of the shares of an Indian company by asserting that the Award Debtor has a beneficial interest therein. Being shares of an Indian company, Companies Act 1956 or Companies Act 2013 would apply depending on when such beneficial interest was allegedly created. To put it differently, a court in the UAE cannot decide whether beneficial interest was created in the shares of an Indian company..."Unlike in Star Health Insurance, the court here is essentially dealing with an execution proceeding by an Award Holder seeking attachment and sale of the shares of an Indian Conglomerates like ETA Group.On the first question, the court went on to note that the third execution petition was filed by Pueblo on the basis of the consolidated financial statement of the Award Debtor, Emirates Trading Agency LLC, for the year that ended on 31.03.2013. Within that, the report of the Board of Directors mentioned the beneficial holding by Emirates in the names of certain shareholders and related parties/ certain receivables from Directors/ shareholders. According to Pueblo, the Consolidated Financial Statement asserts that these shareholders and related parties have provided the Emirates Group with an undertaking that these assets are held by them for the beneficial interest of the Group, which includes beneficial ownership by Emirates in the shares of various entities of ETA Group."Thus, undoubtedly, there is prima facie evidence of beneficial ownership. With this preamble, the other issues are dealt with", the court remarked at the outset.However, the respondent parties including ETA contended that the Consolidated Financial Statement relied upon by Pueblo is outdated in the light of subsequent deconsolidation of the ETA group. By relying on a draft financial statement of ETA Star Holdings LLC, it was submitted that there has been an undisputed Deconsolidation of ETA Group and relinquishment of alleged beneficial interest of the Award Debtor in respect ...

Madras HC Holds Execution Petition Over Beneficial Ownership Of Award Debtor In Shares Held Ostensibly By Third Parties Maintainable

Sebin James

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