The appeals in the present case arise under Section 423 of the Companies Act, 2013 against a judgment and order of the National Company Law Appellate Tribunal The NCLAT has ...
No Acts & Articles mentioned in this case
1
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS 10025-10026 OF 2017
CHERAN PROPERTIES LIMITED ..Appellant
VERSUS
KASTURI AND SONS LIMITED AND ORS ..Respondents
J U D G M E N T
Dr D Y CHANDRACHUD, J
1 The appeals in the present case arise under Section 423 of the
Companies Act, 2013 against a judgment and order of the National Company
Law Appellate Tribunal
1
dated 18 July 2017. The NCLAT has dismissed an
appeal filed against an order dated 6 March 2017 of the National Company Law
Tribunal
2
at its Chennai Bench.
1
NCLAT
2
NCLT
REPORTABLE
2
2 The second respondent is a company by the name of Sporting Pastime
India Limited
3
. It was incorporated on 2 May 1994, as a fully owned subsidiary
of the first respondent, Kasturi & Sons Limited
4
. On 19 July 2004 an agreement
was entered into between KC Palanisamy
5
(the third respondent), KSL (the first
respondent) and SPIL and a company by the name of Hindcorp Resorts Pvt.
Ltd. (Hindcorp). Under the agreement SPIL was to allot 240 lakh equity shares
of Rs 10 each, fully paid up at par to KSL against the book debts due by SPIL
to KSL. KSL offered to sell to KCP or his nominees 243 lakh equity shares
representing 90 per cent of the total paid up share capital for a lumpsum
consideration of Rs 2,31,50,000. The intention of the parties, as reflected in
the agreement, was that KCP would take over the business, shares and
liabilities of SPIL and would discharge the liabilities set out in Schedules 2 and
3 of the agreement which were outstanding on the date of the agreement. KCP
agreed to discharge the Schedule 2 liabilities within 180 days from the date on
which he took over management of SPIL. Clause 14 of the agreement was to
the following effect:
“KSL hereby recognise the right of KCP and/or his nominees
to sell or transfer their holding in SPIL to any other person of
their choice, provided the proposed transferees accept the
terms and conditions mentioned in this agreement for the
management of SPIL and related financial aspects covered by
this agreement.”
3
SPIL
4
KSL
5
KCP
3
The agreement contained the following provision for resolution of disputes by
arbitration:
“In the unlikely case of dispute arising out of this agreement
relating to claims and counter claims, the parties hereto agree
that the same shall be referred to Arbitration under he Indian
Arbitration Law. The arbitration shall be by three arbitrators.
KCP shall be entitled to appoint one arbitrator. KSL shall be
entitled to appoint one arbitrator. The two arbitrators so
appointed shall elect the third arbitrator.”
An amount of Rs 2.5 crores was paid by KCP as against a total consideration
of Rs 30 crores. Ninety per cent of the shares were transferred by KSL to KCP
and to his nominees in the following manner:
• One share to KCP
• Ninety five per cent shares to Cheran Properties Limited, the appellant
• One share each to Cheran Enterprises Pvt.Ltd., KCP Associates
Holdings P. Ltd., CG Holdings (P) Ltd. and Cheran Holdings P. Ltd.
On 17 August 2004, a letter was addressed by KCP acting as the authorized
signatory of the appellant to KSL. The letter specifically contained a reference
to the share purchase agreement dated 19 July 2004. The text of the letter is
extracted below:
“Re: SHARE PURCHASE AGREEMENT DT.19.7.04
In pursuance of the above Agreement, you have agreed to sell and our
Group Companies, by themselves and/or by their nominees have
agreed to purchase shares in Sporting Pastime India Limited of a face
value of Rs. 2,430 lakhs, for a sum of Rs. 243.00 lakhs.
Accordingly we send herewith seven Share Transfer Deeds duly
executed by us and we request you to execute the same and lodge
4
them with Sporting Pastime India Limited together with relevant Share
Certificates for registering the transfers in the Following names :
1. C G Holdings (P) Ltd.
2. Cheran Holdings P Ltd.
3. KCP Associates Holdings P. Ltd
4. Mr K C Palanisomi
5. Cheraan Properties Limited
6. Cherraan Properties Limited 242,99.994
7. Cherraan Properties Limited
Total 243.00.000
We enclose a Demand Draft no. 788401 dt. 16.08.04, drawn on ABN
AMRO Bank, for Rs. 2,43,00,000, (Rupees Two Crores lakhs only)
towards Share Consideration as above. Kindly acknowledge receipt
thereof.
We will now have to draw up a Supplementary Agreement to the above
Share Purchase Agreement to reflect the altered consideration. We will
also have to sign all the Annexures to the Agreement.
There are certain outstanding guarantees issued by you, to the parties
listed in Schedule 2 to the above Agreement. You are requested to
keep your guarantees in good standing in accordance with the terms
of the Agreement. We shall relieve your guarantees in accordance with
the Agreement”.
3 Since the transaction was not completed by KCP, disputes arose
between the parties resulting in the commencement of arbitral proceedings. On
16 December 2009 the arbitral tribunal made its award in the following terms:
“28.0 Award
28.01 In the result this Arbitral Tribunal passes the final
Award in the arbitration matter between M/s Kasturi & Sons
Limited M/s Hindcorp Resorts Private Limited, the claimants
and Mr K C Palaniswami and M/s Sporting Pastime India
Limited, the respondents:-
(i) Directing the respondents to return to the claimants the
documents of title and share certificates relating to 2,43,00,000
shares of the second respondent namely Sporting Pastime
India Limited, which were handed over earlier to the first
respondent pursuant to the agreement dated 19/07/2004 in the
manner following :
5
(a) The documents of title relating to the second claimant
being part of the documents of title referred to above to the
second claimant, forthwith.
(b) The documents of title pertaining to the first claimant
being part of the documents of title referred to in (a) above and
the share certificates pertaining to 2,43,00,000 shares referred
to above contemporaneously with the first claimant paying /
tendering the sum of Rs. 3,58,11,000/- (Rs. Three crores fifty
eight thousand eleven thousand only) to the first respondent as
per para 27.01 with interest @ 12% p.a. on Rs. 2,55,00,000/-
from the date of award till 17/01/2010 or earlier payment/tender
and thereafter @ 18% p.a. on Rs. 2,50,00,000/- till date of
payment / tendering of the amount of Rs. 3,58,11,000/-
(ii) Dismissing the counter – claim of the respondents for
Rs. 8,83,23,086/-
(iii) Directing the respondents to bear the costs of the
proceedings in a sum of Rs. 60,15,000/- the claimants being
entitled to the same in para 23.09 hereinabove and the same
having been set-off in the manner stated in para 26.01
hereinabove.
(Iv) Directing the respondents to bear their own costs in
both the claim and the counter-claim.”
Under the terms of the award, a direction was issued under which KCP and
SPIL were required to return documents of title and share certificates relating
to 2.43 crore shares contemporaneously with KSL paying an amount of Rs
3,58,11,000 together with interest at 12% p.a. on a sum of Rs 2.55 crores.
4 KCP challenged the award of the arbitral tribunal under Section 34 of the
Arbitration and Conciliation Act, 1996. The challenge was repelled by a learned
Single Judge of the Madras High Court by a judgment and order dated 30 April
2015. The appeal filed by KCP was dismissed by the Division Bench of the
High Court on 24 January 2017. This Court dismissed the Special Leave
6
Petition challenging the judgment of the Division Bench on 10 February 2017.
The award has attained finality.
5 KSL initiated proceedings, inter alia, under Section 111 of the Companies
Act, 1956 read with Sections 397, 398, 402 and 403, among other things, for
rectification of the register of SPIL. NCLT allowed the petition by its order dated
6 March 2017. The decision of the NCLT was affirmed by NCLAT on 3 May
2017.
6 NCLAT held that the appellant is a nominee of KCP and holds the shares
in question on his behalf. Hence, NCLT was held to be justified in entertaining
the proceedings for rectification under Section 111. For coming to the
conclusion that the appellant is a nominee of KCP and held the shares on his
behalf, reliance has been placed on a judgment dated 29 April 2011 of the
Madras High Court inter partes in an application under Section 9 of the
Arbitration and Conciliation Act, 1996. The Madras High Court formulated the
following questions for consideration:
“(1) Whether an order of interim injunction can be passed
against the respondents who are not party to the arbitration
agreement or arbitration proceedings;
(2) Whether the respondents 3 to 6 can be said to be nominees
of Sri K.C. Palanisamy so as to be bound by the Arbitration
Award, for passing interim direction against them.”
7
The High Court came to the conclusion that clause 14 of the agreement dated
19 July 2004 recognise the right of KCP to transfer his holding in SPIL to a
person of his choice, provided that the proposed transferee accepts the terms
and conditions mentioned in the agreement for the management of SPIL
together with related financial aspects covered by the agreement. The High
Court held that the shares had not been purchased by the appellant as a matter
of an independent right but as a nominee of KCP. The purchase of the shares
was in pursuance of the agreement dated 19 July 2004. Rectification of the
register was held to have been ordered by the NCLT correctly. The appeal was
dismissed.
7 We have heard Mr Kapil Sibal and Dr Abhishek Manu Singhvi, learned
senior counsel in support of the appeal and Mr Mukul Rohtagi and Mr Arvind
Datar, learned senior counsel on behalf of the respondents.
8 On behalf of the appellants it has been urged that:
Firstly, the appellant is not a party to the arbitration agreement
contained in clause 21 of the agreement dated 19 July 2004.
This agreement was entered into between KCP, KSL, SPIL and
Hindcorp. Even though the appellant purchased the shares of
SPIL as a nominee of KCP, the arbitral award which has been
rendered in proceedings between the parties to the agreement
dated 19 July 2004 does not bind the appellant;
8
Secondly, the principle that an arbitration agreement will, under
Section 7, bind only parties and not a third party in the position
of the appellant, is settled by the decisions of this Court in
Indowind Energy Limited v Wescare (India) Limited
6
and in
S.N.Prasad, Hitek Industries (Bihar) Limited v Monnet
Finance Limited
7
;
Thirdly, an arbitral award has to be enforced as a decree of a
civil court in view of the provisions of Section 36. The arbitral
award could not have been enforced by pursuing proceedings
before the NCLT;
Fourthly, though a review was sought before the NCLAT on the
basis of the law laid down by this Court in Indowind (supra) it
was summarily dismissed on the ground that there was no error
in the original judgment.
9 Mr Kapil Sibal, learned senior counsel, has basically urged three
submissions in support.
Firstly the appellant ought to have been, but was not impleaded
as a party to the arbitral proceedings (obviously because it was
not a party to the arbitration agreement). The appellant has
6
(2010) 5 SCC 306
7
(2011) 1 SCC 320
9
paid valuable consideration for the shares purchased by it. KSL
proceeded on a wrong legal basis in the first place and has
compounded its legally untenable approach by selecting a
wrong remedy by moving the NCLT;
Secondly, Chloro Controls India Private Limited v Severn
Trent Water Purification Inc.
8
does not apply because it deals
with an international arbitration under Section 45 whereas this
was a case of a domestic arbitration. The provisions of Section
45 must be distinguished from unamended Section 8 of the
Arbitration and Conciliation Act 1996. The appellant is not a
party to the arbitration agreement and having paid
consideration for its purchase of shares, is not bound by the
arbitral award;
Thirdly, the decision in Chloro Controls has been clarified by
this Court in Duro Felguera, S.A. v Gangavaram Port
Limited
9
.
10 Dr Abhishek Manu Singhvi has in his submissions addressed the Court
on the following propositions.
8
(2013) 1 SCC 641
9
(2017) 9 SCC 729
10
Firstly, the arbitral award dated 16 December 2009 cannot be
executed against the appellant which is admittedly not a
signatory to the agreement dated 19 July 2004 which contains
a provision for arbitration;
Secondly, the arbitral award cannot be executed by a Tribunal
such as the NCLT/NCLAT in a “camouflaged petition” (under
Sections 111, 397, 398, 402 and 403 of the Companies Act
1956) which would be barred by Section 42 of the Arbitration
and Conciliation Act, 1996;
Thirdly, the prayer seeking a rectification of the register of
members fails to meet the strict requirements of Sections 111
and 111 A of the erstwhile Companies Act 1956 and hence the
direction to rectify the register of members is fallacious;
Fourthly, NCLAT as well as NCLT have failed to explain or
distinguish the settled principle of law laid down in the judgment
of this Court in Indowind;
Fifthly, reliance on the letter dated 17 August 2004 addressed
on behalf of the appellant and on the order of the Madras High
Court in the petition under Section 9 is misconceived;
Sixthly, during the course of the proceedings under Section 9,
counsel for the appellant had conceded that the expression
11
‘party’ means a party to the arbitration agreement and which is
actually before the arbitral tribunal;
Seventhly, for the Chloro Controls principle to be attracted, the
following requirements are necessary:
(a) there has to be a joint venture agreement;
(b) there must be a mother agreement;
(c) the mother agreement must contain an arbitration
agreement;
(d) agreements ancillary to the mother agreement need not
contain an arbitration agreement; and
(e) there must be a finding that the ancillary agreements cannot
be performed in the absence of the mother agreement.
11 On the other hand, it has been urged on behalf of the respondents that:
Firstly, Clause 14 of the agreement dated 19 July 2004
specifically provides that the nominees of KCP would be bound
by the agreement. The recognition of the right of KCP to sell or
transfer his holdings in SPIL was expressly subject to the
condition that the proposed transferees would accept the terms
and conditions of the agreement. Such an acceptance would
necessarily include all its provisions including the arbitration
agreement contained in clause 21;
12
Secondly, the condition for KCP’s nominees to obtain the
shares of SPIL having been spelt out in clause 14, the appellant
is merely a nominee and is not entitled to raise the present
dispute;
Thirdly, in the order of the High Court dated 29 April 2011 under
Section 9 of the Arbitration and Conciliation Act 1996, the
appellant was held specifically to be a nominee of KCP whose
purchase of shares was referable to the agreement dated 19
July 2004. The appellant which is a party to those proceedings
has not challenged the finding;
Fourthly, the arbitral award has the status of a decree under
Section 36 and can be enforced “as if” it is a decree of the court.
Under the Companies Act, no matter relating to the transfer of
shares can be decided except by the NCLT after 2013. KSL
requires physical custody of the share certificates and
rectification of the share register. Mere transfer of the physical
custody of the share certificates wold not be sufficient, since a
rectification of the share register is required to perfect the title
of KSL. Consequently, it was necessary for KSL to move the
NCLT for rectification of the share register under Section 111; and
Fifthly, the principle that an arbitral award may bind a group
company, which is an affiliate of a signatory to the arbitration
13
agreement has been settled in a judgment of a three judge
bench of this Court in Chloro Controls. While there can be no
dispute about the applicability of the Indowind principle in the
generality of cases, attribution of an arbitral award to a group
company is governed by the decision in Chloro Controls
(supra).
12 Mr Mukul Rohtagi and Mr Arvind Datar have countered the submissions
which were urged on behalf of the appellant. They have urged that:
Firstly, each of the submissions which are sought to be
advanced before this Court in the present appeals were urged
before the Madras High Court in the proceedings under
Section 9. The Madras High Court has categorically rejected
those submissions and has held that the appellant, at all
material times, acted as a nominee of KCP under the
agreement dated 19 July 2004. The appellant’s letter of 17
August 2004 categorically contains a reference to the earlier
agreement and establishes beyond doubt that the appellant
assumed all the obligations under the agreement, including the
remedy of arbitration;
Secondly, Indowind is essentially a case under Section 11 of
the Arbitration and Conciliation Act, 1996. In the present case
the Court is dealing with a post award enforcement;
14
Thirdly, Section 35 of the Arbitration and Conciliation Act, 1996
indicates that an arbitral award binds parties to an arbitration
and persons claiming under them. The appellant has, at all
material times, been aware of the fact that it was claiming
under KCP in pursuance of the original agreement dated 19
July 2004 and its letter dated 17 August 2004;
Fourthly, the judgment in Chloro Controls explains the
concept of a person claiming under a party to an arbitration
agreement and is attracted to the present case on all fours; and
Fifthly, the consequence of the arbitral award is to envisage a
transmission of the shares to KSL by operation of law. This
being the position, the CLB could have directed a rectification
of the register of the company. Upon the constitution of the
NCLT, exclusive jurisdiction to do so stands vested in it. The
transmission of shares, as a consequence of law under the
arbitral award, has to be given effect to by a formal rectification
of the register. To effectuate this, the only remedy which is
available to KSL was to move the NCLT for rectification.
13 The rival submissions will now be analysed.
14 Section 7 of the Arbitration and Conciliation Act, 1996 provides thus:
15
“7 Arbitration agreement. —
(1) In this Part, “arbitration agreement” means an agreement
by the parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate
agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement;
or
(c) an exchange of statements of claim and defence in which
the existence of the agreement is alleged by one party and not
denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract.”
While interpreting Section 7 in Indowind, a two Judge Bench of this Court held
that:
“It is fundamental that a provision for arbitration to constitute
an arbitration agreement for the purpose of Section 7 should
satisfy two conditions: (i) it should be between the parties to
the dispute; and (ii) it should relate to or be applicable to the
dispute.”
That was a case where an agreement of sale was entered into between W and
S. The agreement described S and its nominee as a buyer and as the promoter
of Indowind. Under the agreement, the seller agreed to transfer to the buyer
certain assets for a consideration which was payable partly in cash and partly
by the issue of equity shares. The Board of Directors of W accorded approval
to the agreement, as did the Board of S. No approval was, however, granted
by the Board of Directors of Indowind. According to W, certain disputes arose
16
between it and S and Indowind on the other. W filed a petition under Section
11(6) against S and Indowind for appointment of a sole arbitrator. Indowind
resisted the petition on the ground that it was not a party to the agreement which
was entered into between W and S. The Chief Justice of the Madras High Court
allowed the application for appointment of an arbitrator, holding that though
Indowind was not a signatory to the agreement, it was bound. In appeal, this
Court held that W had not entered into an agreement with Indowind, referring
to the agreement which contained an arbitration agreement, with an intention
to make the arbitration agreement a part of their agreement. In the view of this
Court:
“..The question is when Indowind is not a signatory to the
agreement dated 24-2-2006, whether it can be considered to
be a “party” to the arbitration agreement. In the absence of any
document signed by the parties as contemplated under clause
(a) of sub-section (4) of Section 7, and in the absence of
existence of an arbitration agreement as contemplated in
clauses (b) or (c) of sub-section (4) of Section 7 and in the
absence of a contract which incorporates the arbitration
agreement by reference as contemplated under sub-section
(5) of Section 7, the inescapable conclusion is that Indowind is
not a party to the arbitration agreement. In the absence of an
arbitration agreement between Wescare and Indowind, no
claim against Indowind or no dispute with Indowind can be the
subject-matter of reference to an arbitrator. This is evident from
a plain, simple and normal reading of Section 7 of the Act.”
The fact that the agreement was entered into by S as the promoter of Indowind
and described the latter as its nominee and that the agreement was signed on
behalf of S by a person who was also a director of Indowind was held not to
make any difference. This Court held that S and Indowind were two
independent companies each of which was a separate and distinct legal entity
17
and the mere fact that the companies had common shareholders or a common
Board of Directors will not make them a single entity. Nor could there be an
inference that one company would be bound by the acts of the other. In the
view of this Court:
“..A contract can be entered into even orally. A contract can be
spelt out from correspondence or conduct. But an arbitration
agreement is different from a contract. An arbitration
agreement can come into existence only in the manner
contemplated under Section 7. If Section 7 says that an
arbitration agreement should be in writing, it will not be
sufficient for the petitioner in an application under Section 11
to show that there existed an oral contract between the parties,
or that Indowind had transacted with Wescare, or Wescare had
performed certain acts with reference to Indowind, as proof of
arbitration agreement.”
15 The decision in Indowind was followed by a two Judge Bench in Prasad
(supra). The issue in that case was whether a guarantor to a loan who is not a
party to a loan agreement between the lender and borrower could be made a
party to a reference to an arbitration in regard to a dispute governing the
repayment of the loan and be subjected to the arbitral award. The loan
agreement contained an arbitration clause. In the view of this Court:
“An arbitration agreement between the lender on the one hand
and the borrower and one of the guarantors on the other,
cannot be deemed or construed to be an arbitration agreement
in respect of another guarantor who was not a party to the
arbitration agreement. Therefore, there was no arbitration
agreement as defined under Sections 7(4)(a) or (b) of the Act,
insofar as the appellant was concerned, though there was an
arbitration agreement as defined under Section 7(4)(a) of the
Act in regard to the second and third respondents..”
18
Consequently, the impleadment of the appellant as party to the arbitration
proceedings and the award were held to be unsustainable. The principle which
was formulated by the Court was this:
“..The Act makes it clear that an arbitrator can be appointed
under the Act at the instance of a party to an arbitration
agreement only in respect of disputes with another party to the
arbitration agreement. If there is a dispute between a party to
an arbitration agreement, with other parties to the arbitration
agreement as also non-parties to the arbitration agreement,
reference to arbitration or appointment of arbitrator can be only
with respect to the parties to the arbitration agreement and not
the non-parties.”
16 Both these decisions were prior to the three Judge Bench decision in
Chloro Controls (supra). In Chloro Controls this Court observed that
ordinarily, an arbitration takes place between persons who have been parties
to both the arbitration agreement and the substantive contract underlying it.
English Law has evolved the “group of companies doctrine” under which an
arbitration agreement entered into by a company within a group of corporate
entities can in certain circumstances bind non-signatory affiliates. The test as
formulated by this Court, noticing the position in English law, is as follows:
“Though the scope of an arbitration agreement is limited to the
parties who entered into it and those claiming under or through
them, the courts under the English law have, in certain cases,
also applied the “group of companies doctrine”. This doctrine
has developed in the international context, whereby an
arbitration agreement entered into by a company, being one
within a group of companies, can bind its non-signatory
affiliates or sister or parent concerns, if the circumstances
demonstrate that the mutual intention of all the parties was to
bind both the signatories and the non-signatory affiliates. This
theory has been applied in a number of arbitrations so as to
justify a tribunal taking jurisdiction over a party who is not a
19
signatory to the contract containing the arbitration agreement.
[Russell on Arbitration (23rd Edn.)]
This evolves the principle that a non-signatory party could be
subjected to arbitration provided these transactions were with
group of companies and there was a clear intention of the
parties to bind both, the signatory as well as the non-signatory
parties. In other words, “intention of the parties” is a very
significant feature which must be established before the scope
of arbitration can be said to include the signatory as well as the
non-signatory parties.”
The Court held that it would examine the facts of the case on the touch-stone
of the existence of a direct relationship with a party which is a signatory to the
arbitration agreement, a ‘direct commonality’ of the subject matter and on
whether the agreement between the parties is a part of a composite transaction:
“A non-signatory or third party could be subjected to arbitration
without their prior consent, but this would only be in exceptional
cases. The court will examine these exceptions from the
touchstone of direct relationship to the party signatory to the
arbitration agreement, direct commonality of the subject-matter
and the agreement between the parties being a composite
transaction. The transaction should be of a composite nature
where performance of the mother agreement may not be
feasible without aid, execution and performance of the
supplementary or ancillary agreements, for achieving the
common object and collectively having bearing on the dispute.
Besides all this, the court would have to examine whether a
composite reference of such parties would serve the ends of
justice. Once this exercise is completed and the court answers
the same in the affirmative, the reference of even non-
signatory parties would fall within the exception afore-
discussed.”
Explaining the legal basis that may be applied to bind a non-signatory to an
arbitration agreement, this Court held thus:
“The first theory is that of implied consent, third-party
beneficiaries, guarantors, assignment and other transfer
20
mechanisms of contractual rights. This theory relies on the
discernible intentions of the parties and, to a large extent, on
good faith principle. They apply to private as well as public legal
entities.
The second theory includes the legal doctrines of agent-
principal relations, apparent authority, piercing of veil (also
called “the alter ego”), joint venture relations, succession and
estoppel. They do not rely on the parties' intention but rather
on the force of the applicable law.
..
We have already discussed that under the group of companies
doctrine, an arbitration agreement entered into by a company
within a group of companies can bind its non-signatory
affiliates, if the circumstances demonstrate that the mutual
intention of the parties was to bind both the signatory as well
as the non-signatory parties.”
The position in Indowind was formulated by a Bench of two Judges before the
evolution of law in the three Judge Bench decision in Chloro Controls.
Indowind arose out of a proceeding under Section 11(6). The decision turns
upon a construction of the arbitration agreement as an agreement which binds
parties to it. The decision in Prasad evidently involved a guarantee, where the
guarantor who was sought to be impleaded as a party to the arbitral proceeding
was not a party to the loan agreement between the lender and borrower. The
loan agreement between the lender and borrower contained an arbitration
agreement. The guarantor was not a party to that agreement.
17 As the law has evolved, it has recognised that modern business
transactions are often effectuated through multiple layers and agreements.
There may be transactions within a group of companies. The circumstances in
which they have entered into them may reflect an intention to bind both
21
signatory and non-signatory entities within the same group. In holding a non-
signatory bound by an arbitration agreement, the Court approaches the matter
by attributing to the transactions a meaning consistent with the business sense
which was intended to be ascribed to them. Therefore, factors such as the
relationship of a non-signatory to a party which is a signatory to the agreement,
the commonality of subject matter and the composite nature of the transaction
weigh in the balance. The group of companies doctrine is essentially intended
to facilitate the fulfilment of a mutually held intent between the parties, where
the circumstances indicate that the intent was to bind both signatories and non-
signatories. The effort is to find the true essence of the business arrangement
and to unravel from a layered structure of commercial arrangements, an intent
to bind someone who is not formally a signatory but has assumed the obligation
to be bound by the actions of a signatory.
18 International conventions on arbitration as well as the UNCITRAL Model
Law mandate that an arbitration agreement must be in writing. Section 7 of the
Arbitration and Conciliation Act, 1996 affirms the same principle. Why does the
law postulate that there should be a written agreement to arbitrate? The reason
is simple. An agreement to arbitrate excludes the jurisdiction of national courts.
Where parties have agreed to resolve their disputes by arbitration, they seek to
substitute a private forum for dispute resolution in place of the adjudicatory
institutions constituted by the state. According to Redfern and Hunter on
International Arbitration, the requirement of an agreement to arbitrate in writing
is an elucidation of the principle that the existence of such an agreement should
22
be clearly established, since its effect is to exclude the authority of national
courts to adjudicate upon disputes.
10
19 Does the requirement, as in Section 7, that an arbitration agreement be
in writing exclude the possibility of binding third parties who may not be
signatories to an agreement between two contracting entities? The evolving
body of academic literature as well as adjudicatory trends indicate that in certain
situations, an arbitration agreement between two or more parties may operate
to bind other parties as well. Redfern and Hunter explain the theoretical
foundation of this principle:
“..The requirement of a signed agreement in writing, however,
does not altogether exclude the possibility of an arbitration
agreement concluded in proper form between two or more
parties also binding other parties. Third parties to an arbitration
agreement have been held to be bound by (or entitled to rely
on) such an agreement in a variety of ways: first, by operation
of the ‘group of companies’ doctrine pursuant to which the
benefits and duties arising from an arbitration agreement may
in certain circumstances be extended to other members of the
same group of companies; and, secondly, by operation of
general rules of private law, principally on assignment, agency,
and succession..
11
”
The group of companies doctrine has been applied to pierce the corporate veil
to locate the “true” party in interest, and more significantly, to target the
creditworthy member of a group of companies
12
. Though the extension of this
doctrine is met with resistance on the basis of the legal imputation of corporate
10
Redfern and Hunter on International Arbitration, Fifth Edition – 2.13, p.89-90
11
Id at page 99
12
Redfern and Hunter (supra) 2.40, page 100
23
personality, the application of the doctrine turns on a construction of the
arbitration agreement and the circumstances relating to the entry into and
performance of the underlying contract.
13
Russel on Arbitration
14
formulates the principle thus:
“Arbitration is usually limited to parties who have consented to
the process, either by agreeing in their contract to refer any
disputes arising in the future between them to arbitration or by
submitting to arbitration when a dispute arises. A party who has
not so consented, often referred to as a third party or a non-
signatory to the arbitration agreement, is usually excluded from
the arbitration. There are however some occasions when such
a third party may be bound by the agreement to arbitrate. For
example, …, assignees and representatives may become a
party to the arbitration agreement in place of the original
signatory on the basis that they are successors to that party’s
interest and claim “through or under” the original party. The
third party can then be compelled to arbitrate any dispute that
arises.”
Garry B Born in his treatise on International Commercial Arbitration
indicates that:
“The principal legal bases for holding that a non-signatory
is bound (and benefitted) by an arbitration agreement …
include both purely consensual theories (e.g., agency,
assumption, assignment) and nonconsensual theories (e.g.
estoppel, alter ego)
15
”.
Explaining the application of the alter ego principle in arbitration, Born notes:
“Authorities from virtually all jurisdictions hold that a party
who has not assented to a contract containing an arbitration
clause may nonetheless be bound by the clause if that party
is an “alter ego” of an entity that did execute, or was
otherwise a party to, the agreement. This is a significant,
13
Id.2.41 page 100
14
(24
th
Ed.), 3-025 pages 110-111
15
2
nd
Ed. Volume 1 page 1418
24
but exceptional, departure from “the fundamental
principle ... that each company in a group of companies (a
relatively modern concept) is a separate legal entity
possessed of separate rights and liabilities
16
.”
Explaining group of companies doctrine, Born states :
“the doctrine provides that a non-signatory may be bound
by an arbitration agreement where a group of companies
exists and the parties have engaged in conduct (such as
negotiation or performance of the relevant contract) or
made statements indicating the intention assessed
objectively and in good faith, that the non-signatory be
bound and benefitted by the relevant contracts.
17
”
While the alter ego principle is a rule of law which disregards the effects of
incorporation or separate legal personality, in contrast the group of companies doctrine
is a means of identifying the intentions of parties and does not disturb the legal
personality of the entities in question. In other words :
“the group of companies doctrine is akin to principles of
agency or implied consent, whereby the corporate
affiliations among distinct legal entities provide the
foundation for concluding that they were intended to be
parties to an agreement, notwithstanding their formal status
as non-signatories.
18
”
20 The decision in Indowind arose from an application under Section 11 of
the Arbitration and Conciliation Act 1996. Indowind was not a signatory to the
contract and was held not to be a party to the agreement to refer disputes to
arbitration. Indowind held that an application under Section 11 was not
maintainable. The present case does not envisage a situation of the kind which
16
Id at page 1432
17
Id at pages 1448-49
18
Id at page 1450
25
prevailed before this Court in Indowind. The present case relates to a post
award situation. The enforcement of the arbitral award has been sought against
the appellant on the basis that it claims under KCP and is bound by the award.
Section 35 of the Arbitration and Conciliation Act 1996 postulates that an
arbitral award “shall be final and binding on the parties and persons
claiming under them respectively”. The expression ‘claiming under’, in its
ordinary meaning, directs attention to the source of the right. The expression
includes cases of devolution and assignment of interest (Advanced Law
Lexicon by P Ramanatha Aiyar
19
). The expression “persons claiming under
them” in Section 35 widens the net of those whom the arbitral award binds. It
does so by reaching out not only to the parties but to those who claim under
them, as well. The expression “persons claiming under them” is a legislative
recognition of the doctrine that besides the parties, an arbitral award binds
every person whose capacity or position is derived from and is the same as a
party to the proceedings. Having derived its capacity from a party and being in
the same position as a party to the proceedings binds a person who claims
under it. The issue in every such a case is whether the person against whom
the arbitral award is sought to be enforced is one who claims under a party to
the agreement.
19
Third Edition, Volume I Page 818
26
21 Mr Sibal has sought to make a distinction between the provisions of
Section 45 and the unamended Section 8. Section 45, forms a part of Part II
dealing with the enforcement of foreign awards to which the New York
Convention applies. It contemplates a reference by a judicial authority to
arbitration at the request of one of the parties ‘or any person claiming through
or under him’, where there is an arbitration agreement. The submission of Mr
Sibal is that a similar expression (‘any person claiming through or under him’)
has been introduced in the amended provisions of Section 8 (substituted by Act
3 of 2016 with effect from 23 October 2015) but that this expression did not find
place in the unamended provision. The submission is a non-sequitur. Both
Sections 8 and 45 operate in the sphere of the duty of a judicial authority to
refer parties to arbitration. In the present case Section 35 is the material
provision, which expressly stipulates that an arbitral award is, final and binding
not only on the parties but on persons claiming under them.
22 The submission which was urged on behalf of the appellant, proceeds on
the basis that since the appellant was not impleaded as a party to the arbitral
proceedings, proceedings for the enforcement of the award will not lie against
it. This line of submissions clearly misses the central facet of Section 35, which
is that a person who claims under a party is bound by the award. The fact that
the appellant was not a party to the arbitral proceedings will not conclude the
question as to whether the award can be enforced against it on the ground that
it claims under a party. Essentially, the Court is called upon to consider whether
27
the test embodied in Section 35 is fulfilled in the present case, so as to bind the
appellant.
23 Under the agreement dated 19 July 2004, KCP was to be offered 243
lakh equity shares of KSL for a consideration of Rs 2.31 crores. The intent of
the parties, as evinced in clause 6 of the agreement, was that KCP would take
over the business, assets and liabilities of SPIL. KCP was to discharge those
liabilities of SPIL which were specified in Schedules 2 and 3 of the agreement.
Clause 14 of the agreement recognises, on the part of KSL, the right of KCP to
sell or transfer his holding in SPIL “provided the proposed transferees accept
the terms and conditions mentioned in this agreement” for the management of
SPIL and related financial aspects covered by this agreement. Significantly, on
17 August 2004, KCP addressed a letter to KSL acting as the authorised
signatory of the appellant. The letter contains a clear and categoric reference
to the Share Purchase Agreement dated 19 July 2004. The appellant intimated
to KSL that it was in pursuance of the said agreement that KSL had agreed to
sell and “our group of companies by this agreement and/or by themselves
and/or by their nominees have agreed to purchase shares” in SPIL of a face
value of Rs 2430 lakhs for a sum of Rs 2.43 crores. Accordingly, the appellant
indicated that it was remitting seven share transfer deeds duly executed and
requested KSL to lodge them, upon execution, with SPIL. The parties in whose
favour the transfers were to be registered were described as group companies.
28
It was indicated that a supplementary agreement would be drawn up to reflect
the altered consideration.
24 The record establishes that the transfer of shares by KCP to his
nominees was to be on the express condition that the nominee would abide by
the terms of the agreement in relation to the take over of the management of
SPIL and related financial aspects. The appellant, while purchasing the shares,
was not merely aware of the agreement dated 19 July 2004 but expressly
sought the allotment of shares in pursuance to it, to its group companies. In this
background, it will not be open to the appellant to contend that while it was
bound by all other terms of the agreement dated 19 July 2004, it would not be
bound by the arbitration agreement contained in the very same agreement. The
arbitral award, as we have noticed, attained finality after all attempts to raise
objections to it failed before the High Court and, later, before this Court. The
appellant, in purchasing the shares, was conscious of and accepted the terms
of the agreement dated 19 July 2004. Its letter dated 17 August 2004 leaves
no manner of doubt of the acceptance of this position.
25 The appellant questions the application of the Chloro Controls doctrine.
Dr Singhvi urged that in Chloro Controls there was a joint venture agreement;
the mother or parent agreement contained an arbitration clause and though the
ancillary agreements did not contain an arbitration agreement, they could not
have been performed in the absence of the mother agreement. The submission
29
proceeds on a constricted interpretation of the Chloro Controls dictum. The
principle which underlies Chloro Controls is that an arbitration agreement
which is entered into by a company within a group of companies may bind non-
signatory affiliates, if the circumstances are such as to demonstrate the mutual
intention of the parties to bind both signatories and non-signatories. In applying
the doctrine, the law seeks to enforce the common intention of the parties,
where circumstances indicate that both signatories and non-signatories were
intended to be bound. In Duro (supra), the case was held to stand on a different
footing since all the five different packages as well as the corporate guarantee
did not depend on the terms and conditions of the original package nor on the
memorandum of understanding executed between the parties. The judgment in
Duro does not detract from the principle which was enunciated in Chloro
Controls.
26 In the present case, as we have seen, the parent agreement dated 19
July 2004 envisaged the allotment of equity shares of KSL to KCP with the
intent that KCP would take over the business, assets and liabilities of SPIL.
While KCP was entitled to transfer his shareholding, this was expressly subject
to the condition of the acceptance by the transferee of the terms and conditions
of the agreement. KCP’s letter dated 17 August 2004 to KSL contains a
specific reference to the share purchase agreement dated 19 July 2004. It was
in pursuance of that agreement that KCP indicated, as authorised signatory of
the appellant, that his group of companies had agreed to purchase the shares
30
in SPIL. The shares were to be purchased by several entities in the same
group. A supplementary agreement was to be entered into, to reflect the altered
consideration. Eventually, no supplementary agreement was executed and the
transaction was structured on the basis of the parent agreement dated 19 July
2004 which the appellant recognised in its letter dated 17 August 2004. Having
regard to this factual context, the defence of the appellant against the
enforcement of the award cannot be accepted. To allow such a defence to
prevail would be to cast the mutual intent of the parties to the winds and to put
a premium on dishonesty.
27 The arbitral award envisaged that KSL was entitled to the return of
documents of title and the certificates pertaining to the shares of SPIL
contemporaneously with the payment or tendering of a sum of Rs 3.58 crores
together with interest. KSL is in terms of the arbitral award entitled to the share
certificates. That necessarily means the transfer of the share certificates. To
effectuate the transfer, recourse to the remedy of the rectification of the register
under Section 111 was but appropriate and necessary. The arbitral award has
the character of a decree of a civil court under Section 36 and is capable of
being enforced as if it were a decree. Armed with that decree, KSL was entitled
to seek rectification before the NCLT by invoking the provisions of Section 111
of the Companies Act, 1956. There can be, therefore, no question about the
jurisdiction of NCLT to pass an appropriate order directing rectification of the
register.
31
28 We have not been impressed with the submission that the application by
KSL to the NCLT was not maintainable since the Tribunal has no power to
execute an arbitral award. The submission proceeds on finding of the Tribunal
that the purpose of the petition before it was to implement the award dated 16
December 2009 and that its ultimate direction is to the same effect. The
submission relies on the provisions of Section 42 of the 1996 Act which
provides as follows:
“42. Jurisdiction. -Notwithstanding anything contained
elsewhere in this Part or in any other law for the time being in
force, where with respect to an arbitration agreement any
application under this Part has been made in a court, that court
alone shall have jurisdiction over the arbitral proceedings and
all subsequent applications arising out of that agreement and
the arbitral proceedings shall be made in that court and in no
other court.”
While dealing with the submission it is necessary to note that the award of the
arbitral tribunal mandates that the appellant must return the share certificates
relating to 2.43 crore shares of SPIL which were handed over in terms of the
agreement dated 19 July 2004 against the payment of the consideration
stipulated in the award. The transfer of the share certificates by the appellant
will be effectual only by the rectification of the register of the company. The
mere handing over of a share certificates will not constitute due implementation
of the award. The award contemplates the transmission of the shares which
stood in the name of the appellant in pursuance of the agreement dated 19 July
2004, to the claimant in the arbitral proceedings. This necessitated an
application under Section 111 for the purpose of securing a rectification of the
32
register. Sub-section 4 of Section 111 deals with a situation where a default is
made in entering in the register, the fact of any person having become a
member of the company. Under sub-section 5 while hearing the appeal, the
Tribunal is entitled to direct that the transfer or transmission shall be registered
by the company and to order rectification of the register.
29 In the present case, the arbitral award required the shares to be
transmitted to the claimants. The arbitral award attained finality. The award
could be enforced in accordance with the provisions of the Code of Civil
Procedure, in the same manner as if it were a decree of the Court. The award
postulates a transmission of shares to the claimant. The directions contained in
the award can be enforced only by moving the Tribunal for rectification in the
manner contemplated by law.
30 The reliance which has been sought to be placed on the provisions of
Section 42 of the 1996 Act is inapposite. Dr Singhvi relied on the decision in
State of West Bengal v Associated Contractors
20
. The principle which was
enunciated in the judgment of this Court was as follows:
“If an application were to be preferred to a court which is not a
Principal Civil Court of original jurisdiction in a district or a High
Court exercising original jurisdiction to decide questions
forming the subject matter of an arbitration if the same had
been the subject matter of a suit, then obviously such
application would be outside the four corners of Section 42. If,
for example, an application were to be filed in a court inferior
to a Principal Civil Court, or to a High Court which has no
20
(2015) 1 SCC 32.
33
original jurisdiction, or if an application were to be made to a
court which has no subject-matter jurisdiction, such application
would be outside Section 42 and would not debar subsequent
applications from being filed in a court other than such court.”
The conclusion of the Court is in the following terms:
“(a) Section 2(1)(e) contains an exhaustive definition marking out only
the Principal Civil Court of Original Jurisdiction in a district or a High
Court having original civil jurisdiction in the State, and no other court
as “court” for the purpose of Part I of the Arbitration Act, 1996.
(b) The expression “with respect to an arbitration agreement” makes it
clear that Section 42 will apply to all applications made whether before
or during arbitral proceedings or after an award is pronounced under
Part I of the 1996 Act.
(c) However, Section 42 only applies to applications made under Part
I if they are made to a court as defined. Since applications made under
Section 8 are made to judicial authorities and since applications under
Section 11 are made to the Chief Justice or his designate, the judicial
authority and the Chief Justice or his designate not being court as
defined, such applications would be outside Section 42.
(d) Section 9 applications being applications made to a court and
Section 34 applications to set aside arbitral awards are applications
which are within Section 42.
(e) In no circumstances can the Supreme Court be “court” for the
purposes of Section 2(1)(e), and whether the Supreme Court does or
does not retain seisin after appointing an arbitrator, applications will
follow the first application made before either a High Court having
original jurisdiction in the State or a Principal Civil Court having original
jurisdiction in the district, as the case may be.
(f) Section 42 will apply to applications made after the arbitral
proceedings have come to an end provided they are made under Part
I.
(g) If a first application is made to a court which is neither a Principal
Court of Original Jurisdiction in a district or a High Court exercising
original jurisdiction in a State, such application not being to a court as
defined would be outside Section 42. Also, an application made to a
court without subject-matter jurisdiction would be outside Section 42.”
31 More recently in Sundaram Finance Limited v Abdul Samad
21
, this
Court considered the divergence of legal opinion in the High Courts on the
21
(2018) 2 SCALE 467
34
question as to whether an award under the 1996 Act is required to be first filed
in the Court having jurisdiction over the arbitral proceedings for execution, to
be followed by a transfer of the decree or whether the award could be filed and
executed straight-away in the Court where the assets are located. Dealing with
the provisions of Section 36, Justice Sanjay Kishan Kaul observed thus:
“The aforesaid provision would show that an award is to be
enforced in accordance with the provisions of the said code in
the same manner as if it were a decree. It is, thus, the
enforcement mechanism, which is akin to the enforcement of
a decree but the award itself is not a decree of the civil court
as no decree whatsoever is passed by the civil court. It is the
arbitral tribunal, which renders an award and the tribunal does
not have the power of execution of a decree. For the purposes
of execution of a decree the award is to be enforced in the
same manner as if it was a decree under the said Code.”
Explaining the provisions of Section 42 the Court held that:
“The aforesaid provision, however, applies with respect to an
application being filed in Court under Part I. The jurisdiction is
over the arbitral proceedings. The subsequent application
arising from that agreement and the arbitral proceedings are to
be made in that court alone. However, what has been lost sight
of is Section 32 of the said Act, which reads as under: “32.
Termination of proceedings.— (1) The arbitral proceedings
shall be terminated by the final arbitral award or by an order of
the arbitral tribunal under sub-section (2). (2) The arbitral
tribunal shall issue an order for the termination of CIVIL
APPEAL No.1650 of 2018 Page 17 of 21 the arbitral
proceedings where— (a) the claimant withdraws his claim,
unless the respondent objects to the order and the arbitral
tribunal recognises a legitimate interest on his part in obtaining
a final settlement of the dispute, (b) the parties agree on the
termination of the proceedings, or (c) the arbitral tribunal finds
that the continuation of the proceedings has for any other
reason become unnecessary or impossible. (3) Subject to
section 33 and sub-section (4) of section 34, the mandate of
the arbitral tribunal shall terminate with the termination of the
arbitral proceedings.”
35
19.The aforesaid provision provides for arbitral proceedings to
be terminated by the final arbitral award. Thus, when an award
is already made, of which execution is sought, the arbitral
proceedings already stand terminated on the making of the
final award. Thus, it is not appreciated how Section 42 of the
said Act, which deals with the jurisdiction issue in respect of
arbitral proceedings, would have any relevance..”
Consequently, in the view of the Court, the enforcement of an award through
its execution can be initiated anywhere in the country where the decree can be
executed and there is no requirement of obtaining a transfer of the decree from
the Court which would have jurisdiction over the arbitral proceedings.
32 In the present case, the arbitral award, in essence, postulates the
transmission of shares from the appellant to the claimant. The only remedy
available for effectuating the transmission is that which was provided in Section
111 for seeking a rectification of the register. There is, therefore, no merit in
the challenge addressed by the appellant.
33 We may also note the fact that in the proceedings before the Madras
High Court under Section 9, it was held that the purchase of shares by the
appellant was as a nominee of KCP and not by way of an independent right.
The purchase was held to be referable to the agreement dated 19 July 2004.
There has been no challenge to this finding.
The Madras High Court held thus:
“The reading of the letter issued by the third respondent
seeking transfer and registration of shares shown that
36
reference was made to the agreement dated 19.7.2004 which
was in dispute before the Arbitration Tribunal. Nothing has
been produced on record to show, if any fresh agreement was
executed as suggested in the letter, seeking transfer of shares
in favour of the person mentioned in the letter written by the
third respondent, nor any documents have been placed on
record to show as to whether the respondent took over the
liabilities, which were met by the applicant, and finally held to
be binding on first respondent.
In the absence of execution of new agreement, no other
conclusion then the one that the transaction was in terms of the
agreement, entered into between the parties to arbitration can
be arrived at.”
..
“At the sake of repetition, it may be mentioned that the reading
of the letter dated 18.8.2004 on which reliance was placed by
the third respondent shows that clear reference was made to
the agreement dated 19.7.2004 entered into between the
applicant and the first respondent.”
The High Court further held thus:
“The respondents 3 to 6 have purchased the shares, as
nominees of the first respondent and not as of independent
right. No material other than the agreement dated 19.7.2004
has been placed on record to show that the respondents 3 to
6 exercises their independent right to purchase the shares.”
..
“The contention of Mr. V. Prakash, learned Senior counsel that
the respondents 4 to 6 cannot be treated as nominees of the
first respondent cannot be sustained, as shares were
transferred, in pursuance to the letter dated 18.8.2004
addressed by the third respondent, for registration of the
transfer deed by referring to the agreement dated 19.7.2004.
Thus, the second question is also answered by holding that the
respondents 2 to 6 purchased the shares, as the nominees of
the first respondent.”
We have referred to the above findings for the completeness of the record.
These findings of the Madras High Court would indicate that virtually everyone
of the submission which was urged before this Court have been negatived.
37
34 Finally, having covered the entire gamut of submissions which were
urged on behalf of the appellant, it would be worthwhile to revisit the
fundamental principles which were formulated nearly fifty years ago in a
judgment of a three judge Bench of this Court in Satish Kumar v Surinder
Kumar
22
. That case arose under the provisions of the Indian Arbitration Act
1940. The question which arose before this Court was whether an award under
the Act requires registration under Section 17(1)(b) of the Registration Act, if it
effects partition of immovable property above the value of Rs 100. A Full Bench
of the Patna High Court held that unless a decree is passed in terms of the
award (in terms of the position as it stood under the 1940 Act) it had no legal
effect. In holding thus, the Patna High Court had relied upon a Punjab Full
Bench decision holding that under the Arbitration Act 1940, an award was
effective only when a decree follows a judgment on the award. The Punjab Full
Bench held that even if the award is registered, it is still a ‘waste paper’ unless
it is made a rule of the court. In appeal, this Court held that the two Full Benches
had taken a view contrary to that formulated in an unreported decision of this
Court in Uttam Singh Duggal & Co v Union of India
23
where it was held thus:
“The true legal position in regard to the effect of an award is
not in dispute. It is well settled that as a general rule, all claims
which are the subject-matter of a reference to arbitration merge
in the award which is pronounced in the proceedings before
the arbitrator and that after an award has been pronounced,
the rights and liabilities of the parties in respect of the said
claims can be determined only on the basis of the said award.
After an award is pronounced, no action can be started on the
original claim which had been the subject-matter of the
reference. As has been observed by Mookerjee, J., in the
22
(1969) 2 SCR 244
23
Civil Appeal No 162 of 1962 – judgment delivered on 11 October 1962
38
case of Bhajahari Saha Banikya v. Behary Lal Basak [33
Col 881 at p 898] the award is, in fact, a final adjudication
of a Court of the parties own choice, and until impeached
upon sufficient grounds in an appropriate proceeding, an
award, which is on the fact of it regular, is conclusive upon
the merits of the controversy submitted, unless possibly
the parties have intended that the award shall not be final
and conclusive … in reality, an award possesses all the
elements of vitality, even though it has not been formally
enforced, and it may be relied upon in a litigation between
the parties relating to the same subject-matter”. This
conclusion, according to the learned Judge, is based upon the
elementary principle that, as between the parties and their
privies, an award is entitled to that respect which is due to
the judgment of a court of last resort. Therefore, if the award
which has been pronounced between the parties has in fact, or
can, in law, be deemed to have dealt with the present dispute,
the second reference would be incompetent. This position also
has not been and cannot be seriously disputed.”
(emphasis supplied)
The above position was followed in Satish Kumar (supra) as stating a binding
principle of law. The earlier decision was reiterated in the following
observations:
“In our opinion this judgment lays down that the position
under the Act is in no way different from what it was before
the Act came into force, and that an award has some legal
force and is not a mere waste paper. If the award in question
is not a mere waste paper but has some legal effect it plainly
purports to or affects property within the meaning of Section
17(1)(b) of the Registration Act.”
(emphasis supplied)
The present case which arises under the Arbitration and Conciliation Act 1996
stands on even a higher pedestal. Under the provisions of Section 35, the
award can be enforced in the same manner as if it were a decree of the Court.
The award has attained finality. The transmission of shares as mandated by
39
the award could be fully effectuated by obtaining a rectification of the register
under Section 111 of the Companies Act. The remedy which was resorted to
was competent. The view of the NCLT, which has been affirmed by the NCLAT
does not warrant interference.
35 For the above reasons, we are of the view that the appeals are lacking in
merit. The appeals shall stand dismissed.
...........................................CJI
[DIPAK MISRA]
...........................................J
[A M KHANWILKAR]
...........................................J
[Dr D Y CHANDRACHUD ]
New Delhi;
April 24, 2018
Legal Notes
Add a Note....