Smay Investments Ltd & Anor v Sachdev & Ors

Reliance Silicones (India) Private Limited ("RSIL") was incorporated in India and has its registered office in Bombay. It carries on the business of manufacturing silanes and silicone-based products. The first Claimant, SMAY Investments Limited ("SMAY") is registered as the holder of 41% of the issued share capital of RSIL. The remaining shares are held by Manasvi Investments Private Limited ("Manasvi"), the Fourth Defendant (9.43%), Hargreaves Investment Limited ("Hargreaves"), a company incorporated in Mauritius (49%), and Mr Sachdev, the First Defendant, his wife and a Mr Shamba Prasad Misra (0.27%).

SMAY is a Jersey company which until July 2001 was controlled by the Second Claimant, Mr Bachchan, through Chelford Holdings Limited, a BVI company. In July 2001, in circumstances I will come to shortly, some 49% of the issued shares were transferred by Chelford to Bachmann Alpha Limited, which is described in the evidence as an investment company for beneficiaries under a Guernsey Trust, who are independent of Mr Bachchan.

Manasvi is also an Indian company. In the Particulars of Claim in this action it is alleged that its ultimate beneficial owner is Mr Sachdev, but this is denied. In the annual returns to the Registrar of Companies in India the registered shareholders are shown as Mr A P Parikh, Mr Kaushik Parikh and Ms Amita Parikh in equal one-third shares. Its directors are Mr Kamlesh Sanghavi and Mr Prakash Randive.

It is common ground between the parties that on 5 ^th June 2001 Mr Bachchan and Mr Sachdev met at the offices of the Second Defendant, RMSP (UK) Limited ("RMSP") in Guildford and agreed terms for the provision of financial assistance to RSIL. At that time SMAY owned 90% of the issued share capital of RSIL. Mr Gregg Egen (then a director of SMAY and RMSP) was also present. The terms of what is generally referred to as the Guildford Agreement were recorded in a signed manuscript note as follows:

Mr Bachchan claims that under the terms of the Guildford Agreement he was to acquire ultimate voting control of RSIL and on 11 ^th June 2001 76% of the issued shares in SMAY were transferred to Chelford. At the same time Mr Egen resigned as a director of SMAY and was replaced by Mr McCann, who acted as Mr Bachchan’s representative on the board. Mr Sachdev remained as a director. As a result of the transfer of the 76% interest in SMAY to Chelford Mr Bachchan effectively controlled RSIL.

The background to the Guildford Agreement is highly contentious. The relationship between Mr Bachchan and Mr Sachdev goes back to early 1994. At that time Mr Sachdev was a director of, and the majority shareholder in, RSIL. He was anxious to expand the company and in particular its manufacturing capacity. An agreement was made in about June 1994 under which Mr Bachchan would provide initial funding of £5m and subsequently arrange for facilities of up to US $50m. In return, Mr Sachdev agreed to transfer to Mr Bachchan 24% of the issued share capital of RSIL and a declaration of trust to this effect was executed on 23 ^rd August 1994. Mr Sachdev says in his evidence that the funding pursuant to the 1994 agreement was to be provided by December of that year, but was not forthcoming. Only about Rs.11 crores (£2m) was provided through Lotus Investments Limited (one of Mr Bachchan’s companies). Eventually it was agreed that funding would be provided through SMAY to the tune of US $60m and RSIL would issue and allot to SMAY 97% of its shares. It is at this point that the accounts of Mr Sachdev and Mr Bachchan significantly diverge. Mr Bachchan in his first affidavit describes events between 1995 and 1998 in these terms:

Mr Sachdev accepts that SMAY acquired a majority interest in RSIL, but he alleges that by early 1996 the promised funding of US $60m had not materialised and that instead Mr Bachchan offered to provide funding of Rs.36 crores (£6m) through Manasvi, which Mr Bachchan then controlled. This led to an agreement between SMAY, RSIL and Manasvi, executed on 22 ^nd March 1996 in India, which I shall refer to as the Tripartite Agreement. It provided for SMAY to provide technical know-how to RSIL in return for shares. In addition SMAY was to contribute US $60m to RSIL, and Manasvi was to provide or arrange for an injection of Rs.36 crores. Both payments would be by way of subscription for shares. In the event of a default by SMAY, then the voting rights attaching to the shares would be forfeited and Manasvi would have the right to acquire SMAY’s shares. Mr Sachdev says that the Tripartite Agreement was approved by the board of RSIL at a meeting held on 21 ^st March 1996. It was then executed by Mr Sachdev on behalf of SMAY, by Mr Khati on behalf of RSIL and by Mr Kaushik Parikh on behalf of Manasvi. Lotus Investments (rather than Manasvi) then proceeded to make the payment of Rs.36 crores by a cash advance of Rs.11 crores and by the discharge of third party liabilities of RSIL in a sum equivalent to the balance, in return for a 9.5% holding in RSIL.

In paragraph 14 of his third affidavit Mr Sachdev says that the reason why Mr Bachchan arranged for the Rs.36 crores to be provided through Lotus Investments and not by Manasvi was that he wished to carry out a scheme designed to avoid Indian capital gains tax liabilities which Lotus had incurred through the sale of its interest in a pharmaceutical company called Ipca Laboratories Limited. In order to reduce or eliminate tax on the gain, Lotus sought to set off losses which it said it had accrued on a disposal of its shares in RSIL. It had been allotted these shares on 30 ^th August 1996. Mr Sachdev says that the disposal of the shares to Manasvi took place in September 1997. Mr Bachchan puts the sale in March 1998. The real difference, however, between their accounts lies in the explanation given for the disposal. Mr Sachdev says that the sole purpose of the sale of the shares at a price of US $100,000 to Manasvi was to produce a loss to set against the gains on the sale of Ipca. In this he is supported by a decision of the Deputy Commissioner of Income Tax in India (the equivalent of a Special Commissioner) who found that Lotus had purchased Manasvi as a dormant company and used it to set up what he regarded as a sham sale, whose only purpose was to produce the tax loss I have referred to and at the same time to retain control of RSIL through Manasvi.

Mr Bachchan, on the other hand, alleges that Manasvi is controlled by Mr Sachdev, and that the sale to it of the Lotus shares in RSIL was genuine and merely reflected the financial difficulties into which RSIL had by then fallen. He makes no mention of the findings of the Commissioner in his first affidavit, but in his evidence in reply he says that the Commissioner’s findings are not accepted and are under appeal. His case is that he was never the ultimate beneficial owner of Manasvi and that the sale was an arm’s length transaction. He points to the evidence of Mr Egen on these applications, who says that he assisted Mr Sachdev in raising funds to enable Manasvi to purchase the Lotus shares in RSIL. There is no explanation in Manasvi’s own evidence as to how (if Mr Sachdev is right) control of Manasvi passed from Mr Bachchan, nor does Mr Randive (the director of Manasvi who made the witness statement) say that Mr Sachdev has never had any beneficial interest in Manasvi, whatever the present position may be. The feature of the Tripartite Agreement most at odds with the allegation that Manasvi was at the time controlled by Mr Bachchan is its right to acquire SMAY’s shares in RSIL in the event of a breach by SMAY in failing to provide the US $60m. Given that Mr Bachchan was to be either the source or the procurer of these funds and was to be given (on Mr Sachdev’s evidence) a shareholding in SMAY, it seems odd that his own company should be able to acquire its interest in RSIL in the event that he failed to honour these undertakings. Moreover the account of subsequent events in Mr Randive’s witness statement indicates that Manasvi sought to exercise these rights in opposition to the interests of SMAY and Mr Bachchan. His evidence is that Manasvi (to use his words) chased SMAY for the investment in RSIL and, when it had failed to provide the US $60m by 31 ^st March 2001, it called upon RSIL to protect its interests by disenfranchising its shares held by SMAY and converting them into non-voting shares. This was effected by an alteration of the Articles of Association of RSIL, which was made at a meeting of the company in May 2001. SMAY (acting by Mr Sachdev) consented to this. Further, on 21 ^st September 2002 Manasvi wrote to SMAY terminating the Tripartite Agreement because of SMAY’s default and giving notice of its intention to purchase SMAY’s shares in RSIL. By then, of course, the Guildford Agreement had been made and SMAY was under the control of Mr Bachchan and the other investors. Manasvi has subsequently commenced proceedings against SMAY in India for injunctions to prevent it from disposing of the RSIL shares, for a declaration that the transfer of some of the shares to Hargreaves was invalid, and for specific performance of the option under the Tripartite Agreement. I shall come to these proceedings in more detail when I deal with the applications by the Defendants for a stay of this action and for the setting aside of service of the proceedings on Manasvi and RSIL. For the moment it is enough to observe that Manasvi has acted throughout in opposition to the interests of Mr Bachchan and continues to do so.

Mr Bachchan’s case on the Tripartite Agreement is that it does not exist. He says, and pleads in this action, that it is a fabrication on the part of Mr Sachdev and that the documents themselves are forgeries. He says that Manasvi was never his company and that the earlier investment through Lotus represented his own and family money, together with contributions from outside investors. His case is that the Tripartite Agreement is an invention designed to thwart recovery by SMAY against Mr Sachdev, under claims which it has against him as a director and which SMAY wishes to bring by way of derivative action as a minority shareholder in RSIL. In summary, these claims relate to the trading arrangements between RSIL and RMSP, under which RMSP acted as the exclusive distributor of RSIL’s products and also purchased raw materials on its behalf. It is alleged that Mr Sachdev manipulated these trading arrangements for his own benefit during his time as a director and later as CEO of RMSP from 1994 until the company ceased to trade in October 2002. It is now in liquidation. Mr Sachdev is said to have used his position so as to cause RMSP to benefit at the expense of RSIL, by inflating its charges to RSIL so as to include what was described as "Indian Purchase Commission", thereby reducing the amount payable to RSIL. The sums involved are alleged to exceed US $8m. In addition, Mr Sachdev is said to have benefited personally from these arrangements by making a number of unauthorised drawings from RMSP in breach of the Guildford Agreement.

In support of his contention that the Tripartite Agreement is an invention, Mr Bachchan relies upon a number of matters. These include the late filing in the Indian Companies Registry in December 2001 of documents relating to the Tripartite Agreement, inconsistencies and inaccuracies in the board minutes approving the Tripartite Agreement, the absence of a copy of the Tripartite Agreement from the books and records of SMAY, the denial by Mr Egen of any knowledge of the agreement or the subsequent disenfranchisement of SMAY’s shares in RSIL, and the absence of any knowledge of the agreement, or of the subsequent amendment of the Articles of Association of RSIL, by Mr Arun Hattangadi, who was RSIL’s Managing Director from 1995 until August 2001. I am not called upon to express any view on these matters, because it is accepted by Mr Rosen (for purposes of these applications) on behalf of Mr Sachdev that the Claimants have made out a sufficiently arguable case to challenge the 1996 agreement. Mr Drake on behalf of Manasvi showed me the copy of the Tripartite Agreement purportedly held by the Reserve Bank of India since the date of the agreement, in support of an argument that there is really no doubt about the existence and execution of the agreement back in 1996. But I am not convinced that I can properly make any determination of the issues of authenticity on these applications, and I intend to proceed on the basis that there is at least a serious issue to be tried as to whether the Tripartite Agreement ever existed, and if so, whether subsequent events have provided Manasvi with the grounds on which to seek the transfer of SMAY’s shares in RSIL.

There is therefore a contest between SMAY and Mr Bachchan on the one hand and Mr Sachdev and Manasvi on the other for control of RSIL. Mr Bachchan’s pleaded case in this action is that the Tripartite Agreement does not exist and that, as a shareholder in RSIL, SMAY is entitled to pursue Mr Sachdev for breach of fiduciary duty in respect of his dealings with the company through RMSP. The claim also includes a challenge to the validity of the various resolutions of the members of RSIL, purporting to amend the company’s articles and to disenfranchise SMAY’s shares. SMAY’s consent to these resolutions was given through Mr Sachdev and he purportedly executed the Tripartite Agreement on its behalf. If the Claimants’ case about the Tripartite Agreement is made out, and permission is given to proceed with the derivative action for the benefit of RSIL, then the issues will be limited to the merits of that claim and a personal action by Mr Bachchan for damages against Mr Sachdev and Manasvi for bringing a false claim in the Indian Courts based on the Tripartite Agreement. This is said to be both a breach of Mr Sachdev’s fiduciary duties towards Mr Bachchan under the Guildford Agreement and a tortious conspiracy to injure the Claimants by unlawful means. Mr Trace accepted, however, that the damages were difficult to quantify under the personal claims and might not exceed the Claimants’ irrecoverable costs of the Indian proceedings. However if, contrary to the Claimants’ primary case, the Tripartite Agreement is found to have existed and to have been breached, with the result that Manasvi is entitled to require a transfer of SMAY’s shares, then the derivative claim cannot proceed, at least at the suit of SMAY. What would be left is an alternative claim by Mr Bachchan against Mr Sachdev for damages for deceit, based on the latter’s failure to disclose at the time of the Guildford Agreement that SMAY’s interests in RSIL consisted of disenfranchised shares which were subject to an enforceable claim by Manasvi for their transfer under the terms of the Tripartite Agreement.

As already indicated, RMSP was the subject of a compulsory winding-up order and has played no part in these applications. But each of the other three Defendants challenges the appropriateness of the English court as a forum for the resolution of these disputes. In the case of Mr Sachdev, who was served within the jurisdiction, this takes the form of an application for a stay of the English action on grounds of forum non conveniens . The other Defendants, RSIL and Manasvi, seek orders setting aside the service of the proceedings on them outside the jurisdiction of the English court. The Claimants oppose these applications and seek the continuation of a freezing order obtained against Mr Sachdev without notice from Lloyd J on 22 ^nd November 2002, which was continued by Peter Smith J on 6 ^th December 2002. They also seek permission under CPR 19.9 to proceed with the derivative claim and for permission for SMAY to continue an action in the High Court of Bombay which it commenced on 13 ^th December 2002 in breach of an undertaking given to Peter Smith J on 6 ^th December. The learned Judge (on SMAY’s application) made an order on 17 ^th December 2002 permitting SMAY’s Indian action to continue over Judgment on the effective hearing of the application today.

In his first affidavit Mr Bachchan says that the Guildford Agreement forms the basis of his claims against Mr Sachdev. It was under the terms of this agreement that Mr Bachchan introduced the further investment into RSIL and obtained through SMAY an interest in that company. This action is brought to protect the value of these investments by seeking compensation from Mr Sachdev for his alleged breaches of duty to RSIL through RMSP and, in the alternative, for the recovery of that investment in the event that the Court rules in favour of Mr Sachdev on the Tripartite Agreement and the right of Manasvi to a transfer of the SMAY shares. The amount secured by the freezing order of £6m is calculated by reference to the amount of that investment.

As part of their attack on the orders so far obtained, the Defendants contend that there was material non-disclosure of the true facts surrounding the alleged investment. I shall deal with what was said to Lloyd J on 22 ^nd November later in this Judgment, but by way of background, it may be useful at this stage to set out some of the evidence about the making and subsequent operation of the Guildford Agreement.

At the time of the Guildford Agreement RSIL was operating under the terms of a rehabilitation scheme sanctioned by the Appellate Authority for Industrial and Financial Reconstruction. As I understand it, this is not the equivalent of an administration order and seems to be closer to a form of voluntary arrangement. In any event the company had, under the terms of the scheme, to make certain payments to its bankers, and it is common ground that substantial new investment was needed if it was to make these payments and to be able to resume manufacturing from the new plant at Khopoli. Mr Bachchan says that he made it clear to Mr Sachdev that any new investment would only be made in return for an interest in RSIL. This was agreed, and Mr Bachchan then approached his cousin, Mr A Raja, to assist in raising the finance.

Mr Sachdev accepts that an agreement was reached on 5 ^th June 2001, which was recorded in a handwritten document produced at the meeting. But there is a controversy even as to the terms of this agreement. The copy exhibited to Mr Bachchan’s affidavit begins with the heading of "Board Meeting" followed by, as point 1: "Resolution for transfer of 76% holdings, i.e. both A and B - actual transfer of SMAY". But in the proceedings commenced by Manasvi in India, a typed up version of the agreement is exhibited, in which the heading reads: "Board Meeting - Transfers 76% SMAY - Control of $98.4m Non-voting RSIL Shares".

Mr Bachchan says that this was never part of the agreement signed by him and Mr Sachdev, and that he was not told that the shares in RSIL were to be non-voting shares. Mr Sachdev, on the other hand, alleges in his third witness statement that at the time of the Guildford Agreement, Mr Bachchan was fully aware that the shares held by SMAY in RSIL had been altered to non-voting shares due to SMAY’s earlier default under the Tripartite Agreement. He does not explain how Mr Bachchan came to know this. The transfer of the 76% interest in SMAY was, he says, in return for the payment of £20,000. This reflected the status of the shares. Mr Sachdev says that it is ridiculous to suggest that he would have parted with control of RSIL for that sum.

The controversy extends to the subsequent investments. In his first affidavit Mr Bachchan says in paragraphs 33 and 34 that:

That leaves the payments of £1.25m and £150,000, which in his first affidavit he said were organised by Hargreaves as working capital for RSIL on the faith of its shareholding in SMAY. Again, the earlier account of these payments is far from accurate. In his second affidavit he accepts that Hargreaves has yet to make the payment of £150,000 and that the £1.25m was made up of a variety of payments by NEPL, GIL and Bhavi Investments Limited. The Bhavi Investments payment was supported by a cross-guarantee from Mr Bachchan. It seems clear on the basis of this evidence that Mr Bachchan made no direct contribution to the funding of RSIL pursuant to the Guildford Agreement, but did assume ultimate liability for the £4.5m bank loan and at least part of the £1.25m of working capital.

An important feature of this case is the scope and content of various actions between the parties in India. On 23 ^rd September 2002 Manasvi commenced proceedings in the High Court of Bombay against SMAY and RSIL based on the Tripartite Agreement. This is the action which, in these proceedings, is characterised as a false claim and a tortious conspiracy. In the plaint form the agreement is pleaded. It is then alleged that the promised funding of RSIL was not forthcoming and that, as a consequence, the shares in RSIL allotted to SMAY were converted into non-voting shares by an amendment to the Articles of Association and the agreement was subsequently terminated. Based on these allegations, Manasvi seeks payment by SMAY of Rs.36 crores and injunctions preventing SMAY from disposing of, or dealing with, its shares in RSIL. On 8 ^th October 2002 SMAY gave an undertaking not to deal with the shares which it retained after the transfer to Hargreaves.

On 13 ^th December 2002 Manasvi commenced a second action against SMAY, to which Hargreaves is also a Defendant. This action is based on the same allegations of breach of the Tripartite Agreement, but also seeks to impugn the transfer of RSIL shares from SMAY to Hargreaves in July 2001. Manasvi seeks against both SMAY and Hargreaves a declaration that the transfer was invalid and a decree of specific performance in respect of the option to re-acquire the RSIL shares. If this succeeds, then SMAY will cease to have any locus to bring a derivative action against Mr Sachdev, whether in the Indian or in the English proceedings.

On the same day (25 ^th November 2002) as SMAY and Mr Bachchan commenced the English proceedings, Mr Sachdev started his own action in Bombay against Mr Bachchan, Chelford and Bachmann Alpha Limited, seeking a declaration that the Guildford Agreement had been validly terminated and an order for the return of the shares in SMAY. The principal allegation in these proceedings (set out in paragraph 14 of the plaint) is that Mr Sachdev and not the Defendants negotiated and obtained the UTI £4.5m bank loan of August 2001. Mr Bachchan is said to have played no role at all in these negotiations. In these circumstances Mr Sachdev seeks a declaration that by his solicitors’ letters of 12 ^th November 2002 the Guildford Agreement was validly terminated on account of the Defendants’ breach, and Mr Sachdev is entitled to the return of the SMAY shares transferred to Mr Bachchan under the Guildford Agreement. The Indian Court will therefore be required to decide in these proceedings what are the terms of the Guildford Agreement and whether Mr Bachchan complied with his obligations to raise funds for RSIL. It will therefore rule on the matter raised in paragraph 49 of the Particulars of Claim in the English action, which contains Mr Bachchan’s primary personal claim that the letters of 12 ^th November 2002 which were sent by Hariani & Co (Mr Sachdev’s Bombay solicitors) constitute a repudiation by Mr Sachdev of the Guildford Agreement. These are just the two sides of the same coin.

There is also in existence a winding-up petition presented by RSIL against NEPL on 2 ^nd December 2002, on the basis of unpaid hire charges in respect of the Khopoli plant under the agreement of 9 ^th August 2001 referred to earlier in paragraph 19 of this Judgment.

On 13 ^th December 2002 SMAY and Hargreaves launched their own proceedings in the High Court of Bombay. The Defendants include RSIL, Manasvi, Mr Sachdev and RMSP. This action was commenced in breach of the undertaking given to Lloyd J on 20 ^th November 2002 and repeated in the order of Peter Smith J of 6 ^th December. The explanation for acting in breach of the undertaking is that there was some kind of breakdown in communications between SMAY’s English solicitors and those acting for the company in India, but it is not suggested that the commencement of the action in India was in any sense accidental. On the contrary, in paragraph 65 of his second affidavit Mr Bachchan says that a firm decision by SMAY to bring its own Indian proceedings was reached between 22 ^nd November and 6 ^th December 2002. Later in the same affidavit he says that Mr Sachdev has suffered no oppression due to SMAY’s Indian proceedings because "it was always intended and accordingly made clear at the outset of these English proceedings that he should face a challenge to his actions in Indian litigation".

That challenge takes the form of a comprehensive attack on the resolutions purportedly passed at the meetings of RSIL held on 12 ^th May, 15 ^th May and 21 ^st September 2001 to amend the articles of RSIL and to disenfranchise the shares held by SMAY. The resolutions are said to have been void, and a declaration is sought that the SMAY shares in RSIL are full voting shares. This part of the action is therefore SMAY’s response to the Manasvi actions based on the Tripartite Agreement and mirrors the stance taken by SMAY in the English proceedings. It is accepted on both sides that the Indian Court will therefore decide all the issues about the existence and enforceability of the Tripartite Agreement and the validity of the subsequent steps taken to alter the articles of RSIL and to remove the voting rights attaching to SMAY shares. SMAY’s locus as a shareholder in RSIL will therefore be conclusively determined in those proceedings.

The second part of SMAY’s Indian action concerns the conduct of Mr Sachdev and the other directors of RSIL. SMAY and Hargreaves seek the appointment by the Court of a receiver over RSIL and an injunction preventing Mr Sachdev and the other directors from running the company and dealing with its assets. An injunction is also sought preventing them from taking any steps on the basis of the Tripartite Agreement and the resolutions subsequently passed as a consequence.

The plaint in this action therefore sets out in detail SMAY’s case on the Tripartite Agreement and, in support of the claim for the appointment of a receiver, alleges (in paragraph 12) that Mr Sachdev has diverted and utilised the funds of RSIL by exploiting his position in RSIL and his control of RMSP. Paragraph 12 contains the allegation that Mr Sachdev derived a personal benefit to himself by manipulating the state of the trading accounts between the two companies and by utilising monies unlawfully obtained by RMSP at the expense of RSIL, to make loans to himself for the purchase of his house in Cobham, Surrey, known as Foxholm. His conduct in relation to the Tripartite Agreement and to the subsequent resolutions I have referred to is relied upon as further material to show that he has acted fraudulently in relation to the management of RSIL.

The plaint then goes on to refer to the English proceedings. Paragraphs 16(a) - 17 plead as follows:

On 22 ^nd November 2002 the Claimants applied without notice to Lloyd J for a worldwide freezing order against Mr Sachdev and for permission to serve the claim form upon RSIL and Manasvi outside the jurisdiction pursuant to CPR Part 6.20(3). The Judge granted both orders. The freezing order covered all Mr Sachdev’s assets up to a value of £6m, including specifically his house in Cobham and any interest he may have (whether personally or through another entity) in the shares of SMAY, RSIL, Manasvi or RMSP. The Claimants gave a cross-undertaking in damages, together with the undertaking not to begin proceedings in any other jurisdiction without the leave of the English Court. They also undertook to issue and serve the claim form on the Defendants, together with the evidence in support of the application. This consisted of the first affidavit of Mr Bachchan and the affidavit of Mr Egen.

In the skeleton argument prepared by Mr Russen for the application before Lloyd J, reference is made to Mr Bachchan’s evidence in which he says that he had before June 2001 made substantial investments in RSIL and that further substantial investments (amounting to £6m) were made by Mr Bachchan and SMAY in reliance upon the Guildford Agreement. The skeleton argument goes on to deal with the Manasvi proceedings in India and the allegation in those proceedings that SMAY’s shares in RSIL had become disenfranchised. It also sets out Mr Sachdev’s claim that he is entitled to recover the 76% shareholding in SMAY because of breaches by Mr Bachchan of the Guildford Agreement. The facts as set out by Mr Bachchan are analysed into the two claims (derivative and personal) made in these proceedings and the skeleton argument indicates that, because of the Manasvi proceedings, there is (to quote from the skeleton) a very real issue as to who controls RSIL and is therefore competent to bring proceedings against Mr Sachdev in the company’s name.

On the issue of jurisdiction, the skeleton argument asserts that despite the litigation in India, the English Court is the appropriate forum. In particular, reliance is placed on the fact that the Guildford Agreement was made in England and has in part been breached within the jurisdiction. If the alternative case on deceit is made out, then the tort is said to have been committed here.

I have also been supplied with a note of the hearing before Lloyd J. This indicates that Mr Russen outlined to the Judge the various causes of action asserted by Mr Bachchan, including the derivative claim. Lloyd J was shown the two versions of the Guildford Agreement and told of Mr Bachchan’s assertion that the additional words were the creation of Mr Sachdev and not part of the agreement as made. He was also shown Mr Bachchan’s first affidavit and told of the £1.25m funding by Hargreaves and the £4.5m bank loan for RSIL arranged through Bachmann Alpha Limited. His attention was drawn to the dispute about the Tripartite Agreement and the reliance on it by Manasvi in the Indian Proceedings. Mr Russen went on to outline the issues in the derivative action and the estimated loss of £8m on the trading with RMSP. The learned Judge read through the affidavits of Mr Bachchan and Mr Egen. He also asked about the £6m referred to in the freezing order and was told that the loss may exceed this, but that the £6m was the amount invested by Mr Bachchan and SMAY in RSIL. The Judge made the orders over a return date of 6 ^th December. He accepted that SMAY should be recognised as a minority shareholder in RSIL and that the freezing order would support both the personal and the derivative claims, unless and until the Court decided otherwise.

Mr Sachdev was served with the proceedings within the jurisdiction on 4 ^th December. RSIL and Manasvi were served in Bombay. On 5 ^th December 2002 Mr Sachdev made an affidavit in compliance with the order of Lloyd J, in which he also disputed the claims against him and, in particular, Mr Bachchan’s evidence that he had procured finance for RSIL from Hargreaves and Bachmann Alpha Limited. In paragraph 6 of his affidavit he said this:

On 6 ^th December the hearing took place before Peter Smith J. Mr Sachdev was represented by Mr Deacon of Counsel, who prepared a skeleton argument indicating, inter alia, that Mr Sachdev intended to contest the evidence relied on to obtain the freezing order and that the effective inter partes hearing of the application to continue the injunction, and to deal with any issue over jurisdiction, would last for between one and two days. Over that effective inter partes hearing Mr Deacon suggested that the injunction should be discharged on Mr Sachdev’s undertaking not to dispose of or deal with Foxholm without giving to the Claimants’ solicitors 14 days prior notice. This offer was rejected and instead Peter Smith J continued the freezing order in similar terms to those on which it was originally granted, and gave directions for evidence. It was, however, agreed that Mr Sachdev should have an extension of time for service of his defence until 17 ^th January 2003, and this was incorporated in the order.

On 16 ^th December 2002 Mr Sachdev filed an acknowledgment of service in the prescribed form. His solicitors ticked two of the three boxes, indicating that Mr Sachdev intended to defend part of the claim, as well as intending to contest jurisdiction. RSIL filed a similar acknowledgment of service on the same day. Manasvi filed its own acknowledgment of service on 30 ^th December, but the only box ticked by its solicitors was the one indicating that it intended to contest jurisdiction. The matter now comes before me inter partes as an application by the Claimants to continue the injunctions, coupled with the Defendants’ applications for the stay of the English proceedings and for orders setting aside service on RSIL and Manasvi.

Mr Sachdev was properly served in England and is therefore subject to the jurisdiction of the Court. He can only challenge its jurisdiction to try the action by seeking a stay of the proceedings on grounds of forum non conveniens . The other active Defendants, Manasvi and RSIL, who were served in India, apply to set aside service on them outside the jurisdiction. The issue of the appropriateness of the English Court as the place of trial is complicated in the present case by an issue about submission to the jurisdiction. Mr Trace on behalf of the Claimants argues that Mr Sachdev and RSIL have waived their right to challenge the jurisdiction in the English Court. The Claimants rely on the ticking of the box in the acknowledgment of service, indicating an intention to defend part of the claim and (in the case of Mr Sachdev) the seeking and obtaining of an extension of time for the service of his defence in the action, and his seeking the discharge of the freezing order by offering undertakings to the Court. Mr Trace submits that if Mr Sachdev and RSIL have submitted to the jurisdiction, then it is proper to maintain the action against Manasvi as a necessary party under CPR Part 6.20(3). I turn first, then, to the question whether there has been a submission to the jurisdiction by Mr Sachdev and RSIL.

A convenient starting-point is CPR Part 11. This sets out the procedure to be followed by a party who wishes to dispute the Court’s jurisdiction to try the claim. It covers cases both of foreign Defendants who wish to set aside service of the claim form and applications by Defendants served within the jurisdiction for a stay of the proceedings on forum non conveniens grounds. CPR Part 11(2) requires all such Defendants to file an acknowledgment of service in accordance with CPR Part 10. Under CPR Part 10.3(1)(b) the acknowledgment of service must be filed within 14 days after service of the claim form. This was complied with by all three Defendants and an acknowledgment in the standard printed form was filed. CPR Part 11(3) to (5) provides as follows:

In relation to Manasvi there is no suggestion of any submission to the jurisdiction. It has followed the procedure laid down in CPR Part 11 and has issued its application seeking to set aside service, as indicated in the form of acknowledgment of service which it filed. But, say the Claimants, the position of Mr Sachdev and RSIL is different because, unlike Manasvi, they ticked the "intention to defend" box on the form of acknowledgment of service and Mr Sachdev has also obtained directions from the Court extending time for the service of his defence. In addition, he has offered an undertaking to the Court. His conduct is said only to be consistent with an intention to defend the proceedings on their merits at trial.

One would have thought that, with the advent of the CPR, we could finally have adopted an all-embracing and exhaustive code for dealing with challenges to jurisdiction and assigned to history arguments about implied waiver and submissions to jurisdiction, which seem to me to be an affront to any mature legal system. As it is, it still appears to be open to argument (and it has been argued in this case) that by placing a tick in the wrong box and by obtaining (necessarily or unnecessarily) an extension of time for a defence, Mr Sachdev has waived his right to apply for a stay.

It seems to me that when a Defendant has complied with CPR Part 11 with a view to challenging the jurisdiction of the Court, and the time for making his application under CPR Part 11(4) has not yet expired, then any conduct on his part said to amount to a submission to jurisdiction, and therefore a waiver of that right of challenge, must be wholly unequivocal. That was also the view of Colman J in relation to the provisions of the old RSC. In Spargos Mining v. Atlantic Capital Corporation (15 ^th December 1995, unreported) he said this:

That was a case in which the Defendants applied unsuccessfully to set aside service of the writ outside the jurisdiction. After judgment was handed down the parties asked the Court to give directions for the service of pleadings and for discovery. The directions were given. The Defendants did not make any application for leave to appeal the refusal to set service aside, nor was there any reservation of their position on jurisdiction. When they subsequently applied for leave to appeal, Colman J held that, by seeking and obtaining directions in the manner I have described, there had been a submission to the jurisdiction. Such conduct was only explicable on the basis that they intended to have the case tried in England. The same conclusion, in similar circumstances, was reached in the case of Re a Company (No 002015 of 1996) [1997] 2 BCLC 1.

In the present case, however, Mr Sachdev’s conduct was anything but unequivocal. He indicated in the affidavit sworn on 5 ^th December and served prior to the hearing on 6 ^th December that he intended to contest jurisdiction. Mr Deacon indicated to Peter Smith J that the full inter partes hearing would involve a contest on jurisdiction, and the undertakings offered were only until that effective hearing. Therefore the only order sought and obtained by Mr Sachdev from the Judge on 6 ^th December which was in any way inconsistent with the challenge to jurisdiction being maintained was the extension of time for service of the defence. That was strictly unnecessary (see CPR Part 11(9)), but it can only operate as an unequivocal submission to the jurisdiction if the only possible explanation for it is an intention on the part of Mr Sachdev to have the case tried in England. In making that assessment the Court cannot ignore the background circumstances as they were on 6 ^th December. The acknowledgment of service had not yet been filed and the position was therefore as set out in the affidavit of 5 ^th December and in Counsel’s skeleton argument. It is true that when Mr Sachdev and RSIL did later file acknowledgments of service on 16 ^th December, these had the "intention to defend" box ticked, but they also indicated that these Defendants intended to contest jurisdiction, and the notification of an intention to defend was therefore at best equivocal. Given the assertions by Mr Sachdev in his affidavit about a challenge to the jurisdiction and the subsequent affirmation of that position in the acknowledgment of service, the position, in my judgment, could only have become unequivocal either by his failure to issue an application challenging jurisdiction within the time limits prescribed by CPR Part 11(4) or by his indicating to the Court in clear and express terms that he had abandoned his intention to contest jurisdiction. Neither of these events occurred. Insofar as the extension of time for a defence was sought and obtained, that is not inconsistent with a continuing intention to challenge jurisdiction. On the contrary, it seems to me equally consistent with a desire to postpone any obligation to serve a defence until after the issue of jurisdiction had been determined.

The other matter relied on by Mr Trace is the attendance by Counsel at the hearing on 6 ^th December itself and the offering of the undertaking. The argument about the undertaking was premised on the basis that the undertaking was to subsist until trial, but it has been confirmed to me that this was not the basis on which it was offered. That leaves Mr Sachdev’s representation at the 6 ^th December hearing. I do not accept that a party who attends before a Judge to challenge a freezing order obtained without notice ipso facto waives his right to contest jurisdiction, unless as part of those proceedings he agrees to an order which in terms regulates his position until, and therefore contemplates, the trial of the action. This was made clear by the decision of the Court of Appeal in Esal (Commodities) v. Pujara [1989] 2 Lloyds Law Reports 479, where the Defendant acknowledged service, gave notice of his intention to defend the action and then, on the return date of an application to continue an injunction until trial, consented to an order in those terms without at the same time reserving his position on jurisdiction. The Court of Appeal held that, on those facts, he had submitted. Reliance was placed by the Defendant in that case on an earlier decision of Parker J in Obikoya v. Silvernorth Ltd (29 ^th June 1993, unreported), where he held that a challenge to a Mareva injunction did not, without more, amount to a submission to the jurisdiction. In the Court of Appeal Slade LJ (at page 485-6) said this:

I turn, then, to the principal question I have to decide, which is whether England or India is the appropriate forum for the trial of the action. It is well established (see Spiliada Maritime Corporation v. Cansulex Limited [1987] AC 460) that the Court’s approach to this issue differs, depending on whether the application is one to obtain or contest an order for the service of parties outside the jurisdiction or is one for a stay of the proceedings by a party who has been properly served within the jurisdiction. In the former case the onus is on the Claimant to demonstrate that England is the proper place in which to bring the claim: see CPR Part 6.21(2A). In the latter type of case the Defendant seeking the stay must establish not only that England is not the natural and appropriate forum, but also that there is another Court of competent jurisdiction which is clearly or distinctly more appropriate than the English forum for the trial of the claim: see Spiliada Maritime Corporation at page 477E. If the Defendant succeeds in establishing this, then the stay will be granted unless the Claimant shows that there are circumstances which, as a matter of justice, require that the stay should not be granted. Cases of this kind will include those where it can be demonstrated that the law or procedure of the alternative forum will work injustice to the Claimant, compared to the position in England.

I propose, therefore, to deal first with the application by Mr Sachdev for a stay. If he succeeds in establishing the necessary grounds for that order, then it will, I think, follow that service of the proceedings on RSIL and Manasvi should be set aside. Conversely, if Mr Sachdev fails in his application, then it will be more difficult for the other Defendants to resist being joined as necessary parties to the English proceedings.

There is no evidence before me to suggest that, were this action to be tried in India, there would be either unjustifiable delay or some other kind of procedural injustice sufficient to make the Courts of that country an inappropriate forum for the resolution of the dispute. I am also invited to assume that Indian law is the same as English law in elation to the causes of action relied upon in the proceedings. On that basis, the Claimants’ opposition to the application for the stay is very largely founded on the fact that Mr Sachdev was served here and that the Guildford Agreement was made here.

The Defendants’ position (and this is common to all three applications) is that it is impossible to ignore the existence of the Indian proceedings and the fact that the locus of SMAY as a shareholder in RSIL will be determined by the Indian Court in those proceedings. It is also the case that SMAY itself has commenced proceedings in India in which most of the issues in the English action will be raised. On this basis, the Defendants submit that India, rather than England, is not only the natural and obvious forum for the trial of an action about the ownership of an Indian company, but is a forum in which SMAY (and by implication Mr Bachchan) are content to litigate these very issues.

Quite apart from authority, I am strongly inclined to the view that issues relating to the ownership of shares in a foreign company, and to the right of a shareholder in such a company to obtain relief against a director in the name of the company, should be determined by the Courts of the place of incorporation. In the present case, the validity or not of the steps taken to disenfranchise SMAY’s shares in RSIL and the whole question of the existence and alleged breach of the Tripartite Agreement are going to be decided in India. Mr Trace, on behalf of the Claimants, accepts moreover that India is the most appropriate forum for the resolution of these issues, and that the English action is, to use his words, parasitic on the Indian proceedings. That approach is consistent with the views expressed by Lawrence Collins J in the recent case of Konamaneni v. Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269. In that case the Court held that a derivative action by shareholders in an Indian company against two English companies who were said to have paid bribes to the Indian company’s Managing Director should be tried in India, and a stay of the English proceedings was granted. After a detailed examination of the authorities, the learned Judge held that the Courts of the place of incorporation are likely in most cases (but not necessarily all cases) to be the appropriate forum in relation to derivative proceedings. At paragraph 155 of his Judgment, he said this:

In the present case this is not really in dispute. Mr Trace has in effect conceded that India is the natural and most appropriate forum for the resolution of the issues about the Tripartite Agreement and the control of RSIL. By the same token, if SMAY’s status as a shareholder in RSIL is upheld, the Indian Court will obviously be the best place to go on and decide whether SMAY should be permitted to take proceedings in the name of the company against Mr Sachdev, and whether Mr Sachdev is liable for the breaches of fiduciary duty alleged. In these circumstances it is difficult to see the justification for retaining in England the possibility of a trial of the remaining issues. If the derivative claim is to be dealt with in India, only the personal claim is left. This is based on the Guildford Agreement, but its shape and content is directly dependent on what the Indian Court decides about the Tripartite Agreement and the resolutions in respect of the RSIL shares. If the Tripartite Agreement is found to be an invention, then it will only leave the claims against Mr Sachdev for mounting a false claim based on that agreement. If the Tripartite Agreement does exist, then the possibility arises of damages for deceit. But given that the parties are all involved in the Indian litigation, and both Mr Sachdev and Mr Bachchan have homes in India, it is difficult to see why the Indian Court cannot sensible try these issues as well. A measure of case management will be necessary in order to convert the various actions in existence in India into a manageable whole, but nobody has suggested that that will not be possible. It seems to me to be extremely artificial to seek to segregate the issues arising out of the Guildford Agreement from the dispute about RSIL and the Tripartite Agreement merely because the Guildford Agreement was made in England, when all the relevant parties are, or can be, before the Indian Court. Mr Trace submitted that, by maintaining the English action, his client would have a lever by which to exert some pressure on the Indian Courts to maintain the pace of the litigation there. But there is no real evidence to show that that may be necessary, nor is that, in my judgment, a proper reason in itself for keeping part of the action in England, where all other considerations of convenience point to a trial in India.

I am therefore satisfied that India, rather than England, is clearly the natural and appropriate forum for the resolution of what is at heart a dispute about the ownership of, and investment in, an Indian company. The fact that the Guildford Agreement was made in England is not of itself sufficient to cause me to reach a different conclusion. Any lingering doubts I might have had about the stay have been removed by the offer of undertakings from Mr Sachdev, until further order, not to deal with or dispose of Foxholm without giving prior notice to the Claimants, to submit to the jurisdiction of the Indian Court in relation to the derivative and personal claims presently made by SMAY and Mr Bachchan in these proceedings, and to abide by the orders made from time to time by the Indian Court. I shall accept these undertakings and, on that basis, order a stay of the English action. Any further interim relief will be a matter for the Indian Court. The orders of Lloyd J and Peter Smith J of 22 ^nd November and 6 ^th December 2002 will be discharged. In the light of my decision on the application for a stay, the service of the proceedings on RSIL and Manasvi out of the jurisdiction as necessary parties must be set aside. Consistently with that, I will dismiss the applications of the Claimants to continue the freezing order and for permission to bring the derivative claim, but grant them permission to continue the Indian proceedings commenced in breach of their earlier undertaking to the Court.

That leaves the alternative issues about non-disclosure. In the light of the orders I have made, it is unnecessary for me to deal with these arguments. I can, however, indicate that, were non-disclosure the only basis of the challenge to the orders of Lloyd J and Peter Smith J, I would have rejected it.