Mrs Lakshmi Konamaneni and Others v Rolls Royce Industrial Power (India) Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 20 December 2001 |
| Neutral Citation | [2001] EWHC J1220-1 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | HC 00 03128 |
| Date | 20 December 2001 |
[2001] EWHC J1220-1
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Lawrence Collins
HC 00 03128
Mr Leslie Kosmin QC and Mr Andrew Thompson (instructed by S J Berwin) appeared on behalf of the Claimants.
Mr Robert Hildyard QC and Mr Robert Miles (instructed by Freshfields Bruckhaus Deringer) appeared on behalf of the First and Second Defendants
Mr David Mackie QC and Ms Sarah Garvey (of Allen & Overy) appeared on behalf of the Third Defendant
Hearing: 21, 22, 23, 26, 27, 28 November 2001.
I direct that pursuant to CPR 39A para 6.1 no official shorthand note shall be taken of this
Judgment and that copies of this version as handed down may be treated as authentic.
APPROVED JUDGMENT
()
I Introduction
These proceedings involve a derivative claim by four claimants. Two of the claimants are individuals resident in India, one is an individual resident in the United States, and the fourth claimant is a company incorporated in Mauritius. They sue as members of Spectrum Power Generation Ltd. ("SPGL"), an Indian company which is joined as a defendant. The claimants seek to enforce a claim by the company against two English companies in the Rolls-Royce group which, it is alleged, paid bribes, through a British Virgin Islands company, Towanda Services Ltd., to the managing director of the company, an Indian resident in India, to secure contracts for the construction and maintenance of a power station in India. The 208MW power station has been fully operational since 1998 and was one of the first power plants in India to be operated in the private sector. The plant was constructed by the Rolls-Royce defendants, and the Rolls-Royce group remains involved in the maintenance of the plant.
There are pending in India some 18 actions or criminal complaints relating to the interests in, and conduct of, the project, in which the principal protagonists are, on the one hand, the managing director of the company, Mr Kishan Rao, and, on the other hand, Dr Mohan Rao who is related to Kishan Rao by marriage, and who was a principal promoter of the project. The information on which the claimants base their action is derived from Mohan Rao, and he gives instructions to their lawyers. The proceedings are funded by his business associate and relative by marriage, Mr Ravi Reddy, who is also a relative by marriage of two of the individual claimants (the other claimant being the wife of a senior employee of one of his companies) and who owns, indirectly, shares in the fourth claimant and thereby in SPGL.
The defendants challenge the existence and/or exercise of jurisdiction by the English court. When Master Moncaster was asked to give permission to serve the Indian company outside the jurisdiction he expressed concerns about whether the English court had jurisdiction to entertain a derivative action brought for the benefit of a foreign company, but those concerns were allayed by the claimants' advisers on the without notice application. This case raises, apparently for the first time in England, the question of the operation in the international context of derivative claims and the exceptions to the rule in Foss v Harbottle.
II The claim and the protagonists
The claim was brought originally by the first three claimants. Between them they hold 9,000 shares in the third defendant, SPGL. The number of issued shares in SPGL is about 141 million, and the claimants' shares amounted in aggregate to about 0.005% of the issued share capital, and are worth about the equivalent of £2,000 in aggregate. The fourth claimant, Spectrum Technologies USA Inc., a company incorporated in Mauritius ("STUSA (Mauritius)"), is a company which owns about 22% of the issued shares in SPGL. It is managed by Mohan Rao, who has an indirect interest in some of its shares. STUSA (Mauritius) was added as a claimant to allay the concern of Master Moncaster whether the court would allow a derivative action by shareholders who had no significant interest in the outcome of the proceedings and who were acting on the directions of Ravi Reddy.
Ravi Reddy
Mr Ravi Reddy is a successful businessman who has been resident in the United States since 1978, and who is a non-resident Indian ("NRI"). He is connected with each of the claimants in ways on which I shall elaborate below in paragraphs 8 to 10. He is a non-resident Indian, and is now a United States citizen. His business interests are primarily in the United States, and he says his net worth is more than $100 million. He is related, through marriage, to Mohan Rao. Mr Reddy, who is indirectly a substantial shareholder in SPGL and in STUSA (Mauritius), is funding the claimants (including the provision of security for costs) and has agreed to indemnify SPGL in relation to its costs of the action if leave to continue is obtained by the claimants under CPR 19.9. He says he is funding the litigation because he feels morally bound to support the shareholders, and they do not necessarily have the sophistication or financial means to chase down fraud within the company.
For reasons which will be mentioned below (paragraph 100) the Rolls-Royce group became substantial shareholders in SPGL, through Rolls-Royce Godavari Power Ltd. Ravi Reddy sought to purchase its interest in SPGL. That would have given him and Mohan Rao a controlling interest in SPGL. The negotiations for the purchase terminated in 1999. The Rolls-Royce evidence (from Mr Mead, who was a project development manager with Rolls-Royce, and who left earlier this year) is that Ravi Reddy said on various occasions that if the deal did not proceed he would seek other avenues to exert control over SPGL, and Mr Mead says he understood that to be a threat of further legal action against, amongst others, Rolls-Royce.
Dr Mohan Rao
Dr Mohan Rao is a United States citizen of Indian origin. He has been involved all his working career in the power generation field. After taking a first degree in engineering in Hyderabad, he obtained a PhD in Mechanical and Electrical Engineering from an American university, and then worked for 18 years from 1972 with GE Power Systems, a leading manufacturer of power equipment, where he was a development engineer and subsequently a manager of mechanical systems. Since about 1990 he has been associated with the STUSA group of companies. He was said to be the source of much of the information relied upon by Mrs Konamaneni, the first claimant, and by Mr Mervis, the claimants' solicitor, in their witness statements in support of the application for permission to serve out of the jurisdiction. In his own witness statement he says that he is responsible for the day to day affairs of STUSA with regard to the litigation concerning the project.
The individual claimants
The first claimant, Mrs Konamaneni, is resident in Hyderabad. She is a deputy manager with Vysya Bank in Hyderabad. She owns 3,600 shares of 10 rupees nominal value each in SPGL out of a total issued share capital of 141 million shares (i.e. about 0.0025% of the issued share capital). She is the wife of Mr K Satish, a senior employee of STUSA. She says that her husband told her that Mohan Rao had told him that Kishan Rao had taken bribes from Rolls-Royce. She was shocked and she jumped at the chance to take legal action when her husband told her that Ravi Reddy (who is a good friend of her husband) was prepared to bear the legal expenses.
The second claimant, Mrs Pekety, who lives in the United States, owns 2,700 shares in SPGL (approximately 0.0019% of the issued share capital). Mrs Pekety is the mother-in-law of Ravi Reddy, and she is also the aunt of Mohan Rao's wife. She says she heard about the bribery allegation from Ravi Reddy in about 1999. She is a claimant in eight derivative actions on behalf of SPGL in Hyderabad in India against, inter alios, RRIP and Heaton. She is also the complainant in three actions brought against SPGL and various directors of SPGL before the criminal courts in Hyderabad. I deal in sections IX and XII below with these proceedings.
The third claimant, Mr Mitta, is resident in Hyderabad, and owns 2,700 shares in SPGL (approximately 0.0019% of the issued share capital). He is the first named claimant in the eight derivative actions in Hyderabad. Mr Mitta's brother is Mohan Rao's brother-in-law. He says that most of his information about the allegations comes from Ravi Reddy.
Kishan Rao and Jaya Food Industries
Kishan Rao has, at all material times, been the managing director of SPGL. He is resident in India. He is Mohan Rao's relation by marriage, Kishan Rao's daughter in law being Mohan Rao's niece. Mohan Rao involved Kishan Rao and his company Jaya Food Industries Pvt Ltd ("Jaya Food") in the project at its outset in 1992. Jaya Food was engaged in the production of dry foods, such as pasta and was Kishan Rao's principal business and his vehicle for his original investment in SPGL. It was incorporated in India, and is now called Bambino Agro Industries Pvt Ltd. His sons, M. Raghuveer and M. Subramanyam, are associated with him in business and are directors of SPGL.
SPGL
SPGL was incorporated on October 26, 1992 under the Indian Companies Act 1956. The current shareholders are as follows: (a) Rolls-Royce Godavari Power Limited (a Mauritius Company) and part of the Rolls-Royce group (47.5%); (b) Kishan Rao and associates (about 26%); (c) Mohan Rao and associates (about 25%). The remaining shares are held by the general public.
All the directors of SPGL are Indian...
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