2022 (3) TMI 1616 - HC - Indian Laws

Third execution petition allowed to attach assets despite ongoing proceedings under Order XXI Rule 21 CPC

Pueblo Holdings Limited Versus Emirates Trading Agency Llc Dubai, Syed Mohammed Salahuddin, Hameed Syed Salahuddin, Arif Rahman Buhary, Ashraf Rahman Buhary, Abdul Quadir Rahman Buhary, Khalid Ak Buhary, Sabiha Khalid Buhary, Eta Constructions (India) Limited., Eta Properties And Investment Private Limited, Eta Karnataka Estates Limited, Eta Engineering Private Limited., Eta Star Property Developers Limited. Chennai, Eta General Private Limited. Pondicherry, Eta Star Infopark Bengaluru, Eta Builders Pvt Ltd Karnataka, Maricar Estates Pvt Ltd Chennai

Pueblo Holdings Limited Versus Emirates Trading Agency Llc Dubai, Syed Mohammed Salahuddin, Hameed Syed Salahuddin, Arif Rahman Buhary, Ashraf Rahman ... Issues Involved:1. Maintainability of the Third Execution Petition (EP) against non-parties to the arbitral proceedings.2. Application of the Benami Transactions Act.3. Compliance with Section 89 of the Companies Act, 2013.4. Filing of multiple execution petitions and potential abuse of process.5. Establishment of debts and beneficial ownership of shares.Detailed Analysis:1. Maintainability of the Third Execution Petition (EP):The primary issue was whether the Third EP filed by the Award Holder against non-parties to the arbitral proceedings is maintainable. The Award Holder sought to enforce the decree by attaching assets held in the names of Respondents 2-17, based on the Foreign Awards deemed enforceable by the court.The Respondents argued that the Award Holder should first establish the beneficial interest in the UAE courts before approaching Indian courts. However, the court rejected this contention, stating that the Award Holder seeks attachment and sale of shares of an Indian company, which falls under the jurisdiction of Indian law (CA 1956 or CA 2013). The court distinguished the current case from the Star Health Insurance judgments, which involved derivative actions by shareholders of a UAE company. Therefore, the objection on this ground was rejected.2. Application of the Benami Transactions Act:The Respondents contended that the Third EP contravenes Section 4 of the Benami Property Transactions Act, 1988, which prohibits suits by a person claiming to be the real owner of a property against the benami owner. They relied on various judgments, including Greaves Cotton and Thayammal, to support their claim.The court noted that the Benami Act does not apply to the creation of beneficial interest in shares, which is recognized under CA 1956 and CA 2013. The Award Holder provided prima facie evidence of beneficial ownership over shares, which was contested by the Respondents. The court concluded that these issues could only be resolved through a trial and rejected the objection based on the Benami Act.3. Compliance with Section 89 of the Companies Act, 2013:The Respondents argued that Section 89 of the Companies Act, 2013, which mandates declarations of beneficial interest in shares, was not complied with. They contended that the Award Holder could not assert rights over the shares without such compliance.The court clarified that Section 89 imposes obligations on the ostensible owner, beneficial owner, and the company, but not on a third-party Award Holder. The prohibition under Section 89(8) applies only to the beneficial owner or a person claiming through him, which does not include the Award Holder. The court referenced a Division Bench order in the Second EP, which arrived at the same conclusion. Thus, the objection based on Section 89 was overruled.4. Filing of Multiple Execution Petitions and Potential Abuse of Process:The Respondents contended that the Third EP constitutes an abuse of process since two earlier EPs were pending. They cited Order XXI Rule 21 CPC, which relates to simultaneous execution against the person and property of a judgment debtor.The court noted that Order XXI Rule 21 CPC does not apply in this case, as the Award Holder does not seek simultaneous execution against the person and property of the Award Debtor. The court also emphasized that the provision is discretionary. The court found no abuse of process, given that the Award Holder had not realized any part of the debt through the earlier EPs. Therefore, the application for permission to prosecute the Third EP was allowed.5. Establishment of Debts and Beneficial Ownership of Shares:The court examined the evidence provided by the Award Holder, including the consolidated financial statements of the Award Debtor, which indicated debts owed by some Respondents and beneficial ownership of shares held in the names of others.The Respondents argued that the financial statements were outdated and had been overtaken by subsequent events, such as the deconsolidation of the ETA Group. They relied on draft financial statements and the non-filing of declarations under Section 187C of CA 1956 or Section 89 of CA 2013.The court found the prima facie evidence sufficient to overrule the preliminary objections but acknowledged that the contested issues required a trial. Therefore, the parties were directed to lead evidence regarding the garnishee claim and the alleged beneficial ownership of the Award Debtor.Conclusion:The court overruled the preliminary objections and held that the petition is maintainable. The application for permission to prosecute the Third EP was allowed. The parties were directed to present evidence on the garnishee claim and the alleged beneficial ownership. The case was listed for further hearing on merits.