Page 1 C.A.No.3687/06 etc.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3687 OF 2006

Rajni Sanghi …..Appellant

Versus

Western Indian State Motors Ltd. & Ors. …..Respondents

WITH

C.A. Nos. 503 of 2001 and 2763 of 2002

J U D G M E N T

SHIVA KIRTI SINGH, J.

1.These three Civil Appeals have been heard together because

in essence they relate to and arise out of common facts and

disputes between members of a larger family belonging to the

branches of four sons of Late Motilal Sanghi, the family patriarch

who died in 1961. From the materials on record it appears that his

four sons effected a de facto partition of the then existing three

family business. The eldest son (Late) N.K. Sanghi became in

charge of family business in Rajasthan. The next brother (Late) A.K.

Sanghi got charge of business at Delhi and the remaining two, R.K.

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Page 2 C.A.No.3687/06 etc.

Sanghi and M.K. Sanghi got charge of business at Bombay. In 1964

Sanghi Motors Private Limited (Bombay) expanded to establish a

factory for manufacture of oxygen in the name of Sanghi Oxygen.

R.K. Sanghi looked after the oxygen division and the youngest

brother M.K. Sanghi looked after the motor division of the Sanghi

Motors Private Limited (Bombay). Whether in the form of

partnership firm or as a company, the family business appears to

have been held by the brothers like a partnership firm in which all

the brothers have cross holdings. With passage of almost two

decades and changing profile of family headed by the four brothers

there was apparently some friction first at Bombay which led to an

arrangement signed by the four brothers on 6.7.1983. This was

mainly for resolving dispute of authority between the two brothers

in respect of business at Bombay. Soon thereafter attempt was

made for a larger family agreement for partition of all the family

business consisting of four partnership firms and four companies.

This family agreement involving the methodology of partition

chalked out on 22.2.1984 in a board meeting of M/s Sanghi Motors

Private Limited (Bombay) held at Jodhpur ran into rough weather

and could not be implemented because of differences. Thereafter all

the four groups entered into an arbitration agreement on 6.8.1984

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Page 3 C.A.No.3687/06 etc.

and appointed one Sh. H.K. Sanghi, a family friend as the sole

arbitrator for effecting a partition of the family business under the

control of four groups into four equal lots but with an

understanding that the division would maintain the place of

business of each group as it existed already.

2.The subsequent developments and relevant facts will be

detailed hereinafter at appropriate place but it is useful to notice

that on 7.8.1984 N.K. Sanghi filed the arbitration agreement with

the Arbitrator who entered into reference on 18.8.1984 and made

communications with the other three brothers. N.K. Sanghi expired

on 19.10.1984. On filing of appropriate application by N.K. Sanghi

group the Delhi High Court enlarged the time for publication of the

award by the Arbitrator. During the pendency of the reference M.K.

Sanghi filed a company petition bearing C.P. No. 128 of 1985 before

the High Court of Bombay mainly seeking injunction against A.K.

Sanghi and R.K. Sanghi in respect of shares and management of

both the divisions of Sanghi Motors Private Limited (Bombay).

Family members of A.K. Sanghi and R.K. Sanghi filed a petition

under Section 33 of the Arbitration Act, 1940 before Delhi High

Court to challenge the existence and validity of arbitration

agreement dated 6.8.1984 but ultimately High Court of Delhi

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permitted the arbitrator to make and publish the award. The award

dated 3.12.1987 was filed with High Court of Delhi which recorded

the filing on 17.12.1987 and notice was issued to the parties.

Objection to the award was filed by M.K. Sanghi within time and

beyond time by R.K. Sanghi and also by Sanghi Motors Private

Limited (Bombay). On the other hand A.K. Sanghi (now represented

by his sons Vijay Sanghi and Ajay Sanghi, appellants in C.A. No.

2763 of 2002) filed Suit No. 581-A/1988 under Section 17 of the

Arbitration Act, 1940 in the High Court of Delhi to make the

award a rule of the Court. Learned Single Judge of the Delhi High

Court took notice of subsequent developments in the company case

at Bombay High Court and in another Company petition no. 6 of

1986 filed by R.K. Sanghi in the High Court of Rajasthan and set

aside the award by order dated 11.12.1996. This order was upheld

in appeal by the Division Bench vide impugned order dated

5.10.2001 which is under challenge in Civil Appeal of 2763 of

2002.

3.Interestingly, no one could obtain a stay of the proceedings in

the Company Petition No. 128 of 1985 before the High Court of

Bombay which appointed a Receiver with respect to the Sanghi

Motors Private Limited (Bombay) and all its subsidiaries by an

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Page 5 C.A.No.3687/06 etc.

order dated 11.9.1987. On the basis of a successful bid, Vaibhav

Sanghi son of M.K. Sanghi entered into an agreement with the

receiver and exercised right of management in terms of such

agreement. Ultimately, Bombay High Court vide order dated

6.7.1989 sanctioned the scheme of division of two units of Sanghi

Motors Private Limited (Bombay). Motors division fell to the group

of M.K. Sanghi and oxygen division to the group of R.K. Sanghi.

A.K. Sanghi opposed the aforesaid settlement scheme before the

Company Court as well as through an appeal before the Division

Bench but without any success. The Division Bench dismissed the

appeal on 30.6.1992 after holding that the scheme of

reconstruction did not violate the injunction order of the High

Court of Delhi as care was taken to ensure that under the scheme

the transfer of shares would be effected only after the injunction

would be vacated by the Delhi High court. The Bombay company

case has thus attained finality.

4.The Company Petition No. 6 of 1986, already noticed earlier

was filed by R.K. Sanghi group on 6.8.1986 before the High Court

of Rajasthan under Section 397-398 of the Companies Act against

Western India State Motors Limited (WISM), Smt. Uma Sanghi

(widow of late N.K. Sanghi), Vijay Kumar Sanghi (son of A.K.

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Page 6 C.A.No.3687/06 etc.

Sanghi) and an official of Rajasthan State Industrial Development

and Investment Corporation. In this company petition which

remained pending for a number of years, ultimately a scheme of

reconstruction and family settlement was arrived at between

persons representing three groups i.e, A.K. Sanghi, R.K. Sanghi

and N.K. Sanghi. This scheme dated 5.9.1994 with a correction

dated 6.9.1994 was approved by the High Court of Rajasthan on

5/6.9.1994. Although M.K. Sanghi was not a party to this scheme

but his interest clearly received considerable attention. His

objection to the award was within time and pending before the High

Court of Delhi in the Suit no. 581-A/1988 filed by A.K. Sanghi

group to make the award a rule of the Court. In paragraph 13 of

the scheme of reconstruction filed in Company Petition No. 6 of

1986 a clear stipulation was made in following words –

“13. That Shri A.K. Sanghi and his family

members have filed a petition in Delhi High Court

for making the award of the Arbitrator dated

3.12.1987 as rule of the Court being petition no.

581-A/1988. Shri A.K. Sanghi hereby undertakes

to withdraw the said proceedings unconditionally

and all the parties further agree that they shall

abide by the terms of the scheme of

reconstruction.”

The scheme was signed by R.K. Sanghi and A.K. Sanghi also

on behalf of their respective family members. It involved passing of

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Page 7 C.A.No.3687/06 etc.

immovable property from one group to another as well as payment

of substantial amounts of money for completing the adjustment

required by way of reconstruction-cum-family settlement. The

widow of N. K. Sanghi, Smt. Uma Sanghi as well as the petitioners

of that company petition, Mr. R.K. Sanghi and his wife along with

A.K. Sanghi as well as one son and daughter in law of Uma Sanghi

were personally present before the learned Single Judge when the

Company Petition No. 6 of 1986 was disposed of in terms of the

scheme of reconstruction-cum-family settlement. The order of the

Court dated 5.9.1994 records that Mr. R.K. Sanghi as well as Mr.

A.K. Sanghi agreed to obtain the consent of their family members

and file the same within two weeks.

5.The orders of learned Single Judge of High Court of Rajasthan

accepting the scheme of reconstruction-cum-family settlement were

challenged in appeal filed by M.K. Sanghi bearing Civil Special

Appeal No. 30 of 1994. Much later in October 1998 R.K. Sanghi

filed an affidavit in the aforesaid appeal alleging that Uma Sanghi

was not honouring her commitments under the scheme, hence he

was now of the view that the scheme be set aside. Since learned

Single Judge had rejected an application for impleadment filed by

Mrs. Rajni Sanghi, widowed daughter-in-law of Uma Sanghi, Rajni

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Page 8 C.A.No.3687/06 etc.

Sanghi also preferred Special Appeal No. 24 of 1994 before the

Division Bench but while both the appeals were pending, on

20.2.1995 she entered into a compromise and settlement with the

other parties who were signatory to the family settlement. M.K.

Sanghi prayed for and was granted time to examine the terms of

the aforesaid settlement. While the appeal preferred by M.K. Sanghi

was still pending before the Division Bench of Rajasthan High

Court, curiously he and his group filed an additional affidavit on

14.8.1995 in Suit No. 581-A/1988 before High Court of Delhi for

setting aside the award on the additional ground that A.K. Sanghi

had undertaken before the High Court of Rajasthan to withdraw his

application to make the award a rule of the Court. As noted earlier,

this weighed heavily with the learned Single Judge as well as the

Division Bench of the Delhi High Court in setting aside the award.

Sanghi Motors Bombay, under the control of N.K. Sanghi group

also filed a Contempt Petition no. 107 of 1997 before the High

Court of Rajasthan alleging that Mr. A.K. Sanghi was guilty of

contempt of order dated 5.9.1994 as he was still persisting with

Suit No. 581-A/1988 when he had undertaken to withdraw the

same. This contempt petition was dismissed vide order dated

3.4.2000 as the Court came to the opinion that non-compliance

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Page 9 C.A.No.3687/06 etc.

was on account of certain circumstances and not wilful. This order

against Sanghi Motors is subject matter of Civil Appeal No. 503 of

2001 which shall also be governed by this common judgment.

6.The Division Bench of High Court of Rajasthan had permitted

Vijay Sanghi son of A.K. Sanghi to be transposed as appellant in

Company Appeal No. 30 of 1994 and hence the appeal continued

even after M.K. Sanghi filed an application on 4.7.2000 to withdraw

that appeal. Ultimately by judgment and order dated 3.4.2002 the

Rajasthan High Court allowed Appeal No. 30 of 1994 as well as

Appeal No. 24 of 1994 and remitted the matter again to the learned

Company Judge to proceed in accordance with law, mainly because

the Division Bench found a case of non-compliance of sub-clause

(1) of Section 391 of the Companies Act. The Division Bench

noticed objections raised on behalf of respondents that the

situation had become irreversible as major part of the scheme had

been given effect to, but it left this aspect open for consideration by

the learned Company Judge after remand. Rajni Sanghi did not

accept the Division Bench order and preferred a Civil Review

Petition bearing No. D.R. (J) 2536/2002 pointing out that she had

already compromised the matter by way of a subsequent scheme

and filed the compromise petition on 20.2.1995; the only non-

9

Page 10 C.A.No.3687/06 etc.

signatory group i.e, M.K. Sanghi group had subsequently accepted

that compromise/settlement and had prayed for withdrawal of

Appeal No. 30 of 1994 and therefore when all the stake holders had

accepted the terms of settlement and family arrangement, there

was no need of interfering with the order of the Single Judge. The

review petition was however dismissed on 26.8.2003. The aforesaid

orders of Division Bench dated 3.4.2002 partly allowing Appeal

Nos. 24 and 30 of 1994 and order dated 26.8.2003 dismissing the

review petition are under challenge at the instance of Rajni Sanghi

in Civil Appeal No. 3687 of 2006.

7.In the aforesaid fact situation, this common judgment will

govern all the three civil appeals. For the sake of convenience, facts

have been taken from convenience compilations in C.A. No. 2763 of

2002 unless indicated otherwise. That civil appeal has been argued

at great length as the lead case. But of equal significance is the civil

appeal of Rajni Sanghi because it offers an alternative and

competing solution to the family dispute sought to be settled by the

arbitration award. The High Court of Delhi has set aside the award

primarily because of orders passed by High Courts at Bombay as

well as Rajasthan approving schemes of reconstruction and also

the undertaking of A.K. Sanghi that he will withdraw his petition in

10

Page 11 C.A.No.3687/06 etc.

Delhi High Court through which he had prayed for making the

Award of the Arbitrator dated 3.12.1987 as rule of the Court. In

this scenario, our task is also to find out whether the view taken by

the Delhi High Court is correct or not and further whether order of

remand by Division Bench of Rajasthan High Court under

challenge by Rajni Sanghi is legally sustainable.

8.Since A.K. Sanghi is dead, Civil Appeal No. 2763 of 2002 has

been pressed on behalf of his two sons namely Ajay Sanghi and

Vijay Sanghi. On behalf of Ajay Sanghi, Senior Advocate Mr. Dhruv

Mehta has forwarded elaborate submissions for contending that the

judgment of the learned Single Judge as well as affirming judgment

of the Delhi High Court under appeal have wrongly set aside the

Award ignoring the provisions of Section 30 of the Arbitration Act,

1940 (hereinafter referred to as ‘the Act’). As per his submissions

the High Court has travelled beyond the permissible grounds for

setting aside an Award, which cannot include an undertaking or

conduct of a party recorded by the Rajasthan High Court after

about seven years of making of the Award. He highlighted the legal

position that as per Section 30 of the Act, an Award can be set

aside only on one or more of the three grounds mentioned in

Clause (a),(b) and (c). He has also contended that in this case

11

Page 12 C.A.No.3687/06 etc.

misconduct by the Arbitrator cannot be a ground, for the additional

reason that no notice of any alleged misconduct was served upon

the Arbitrator which is required under the Delhi High Court rules.

The other ground under clause (b) can also not arise because it is

nobody’s case that there was any order by the Court superseding

the arbitration or holding the arbitration proceeding invalid under

Section 35. So far as the third permissible ground is concerned, it

has been submitted that there is no case made out that the Award

has been improperly procured or is otherwise invalid. On behalf of

other son of A.K. Sanghi, Mr. Anoop G. Chaudhari, Senior Advocate

has also assailed the judgments of the Delhi High Court. According

to him the allegations by Mr. M.K. Sanghi against the arbitrator in

letter dated 20.11.1987 were noticed by the Single Judge and at

one place the learned Single Judge described these accusations as

“wild allegations”. Mr. Chaudhari has further contended that

Section 32 of the Act not only contains a bar to suits seeking

decision upon the existence, effect or validity of the arbitration

agreement or award but that Section contains a further prohibition

that notwithstanding any law for the time being in force, no

arbitration agreement or award can be enforced, set aside,

12

Page 13 C.A.No.3687/06 etc.

amended, modified or in any way affected otherwise than as

provided in the Act (emphasis supplied).

9.Section 32 of the Act reads as follows:-

“32. Bar to suits contesting arbitration

agreement or award – Notwithstanding any law for

the time being in force, no suit shall lie on any

ground whatsoever for a decision upon the

existence, effect or validity of an arbitration

agreement or award, nor shall any arbitration

agreement or award be enforced, set aside,

amended, modified or in any way affected otherwise

than as provided in this Act.”

According to Mr. Chaudhari if the schemes of settlement as

ordered by Bombay High Court or Rajasthan High Court are

allowed to come in the way of arbitration agreement or the award

made by the Arbitrator, it shall amount to a disregard of the

mandate of law in Section 32. The second contention of Mr.

Chaudhari is that Delhi High Court had passed an interim order

dated 16.3.1988 restraining the parties from transferring, parting

with, alienating or leasing out the properties covered by the award

of the Arbitrator including shares of the partnership and company

businesses in any manner and therefore, M.K. Sanghi could not

have proceeded with the company petition in Bombay to obtain a

scheme of division of the two units of Sanghi Motors at Bombay nor

any scheme could have been approved by the Rajasthan High Court

13

Page 14 C.A.No.3687/06 etc.

in Company Petition No. 6 of 1986 nor any undertaking of A.K.

Sanghi could have been recorded therein. According to Mr.

Chaudhari also, the allegations of misconduct could not have been

gone into in absence of any notice to the Arbitrator. Lastly,

according to Mr. Chaudhari belated objections to the award could

not have been taken into consideration.

10.Learned Counsel for Uma Sanghi, widow of N.K. Sanghi has

reversed Uma Sanghi’s stance before the High Court and sought to

support the award and assail the judgments of Delhi High Court on

the grounds already noticed. He also opposed the family settlement

and agreement dated 5.9.1994 recorded by the learned Single

Judge of High Court of Rajasthan under which Uma Sanghi (N.K.

Sanghi group) received benefits. But he defended and supported

the other agreement dated 20.2.1995 in favour of Rajni Sanghi.

According to him the latter agreement of February 1995 is in effect

an arrangement between the family members of late N.K. Sanghi

and the same will be honoured by Uma Sanghi and other heirs and

legal representatives of N.K. Sanghi even if the award is held valid

and restored.

11.On the other hand learned Senior Counsel Mr. Arvind P.

Datar appearing for M.K. Sanghi group and Mr. Shyam Divan,

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Page 15 C.A.No.3687/06 etc.

Senior Advocate appearing for R.K. Sanghi group sought to strongly

defend the judgments of Delhi High Court setting aside the award.

According to Mr. Datar the award deals with immoveable properties

and therefore in terms of the Registration Act, 1908 requires

registration and since that was not done, as per Section 49 of the

Registration Act, the award shall not affect any immoveable

property or be received as evidence of any transaction affecting

such property. He pointed out that immoveable properties in lot

No. 2 at serial Nos. 8 and 9 given to A.K. Sanghi Group and one

workshop of Sanghi Motors in lot No. 3 allotted to R.K. Sanghi

Group were illustrative of the fact that the award sought to transfer

immovable properties to different persons without requiring further

conveyance deeds and documents. However, the award towards

the end, in paragraph 16 stipulates that all obligations,

conveyances, deeds and documents (including transfers and

assignments) required to be executed to implement the award shall

be made and executed faithfully by each and every member of all

groups within three months. This stipulation, in our view, fully

meets the above noted grievance on the basis of the non-

registration of award and more particularly when it is an arguable

point, as contended by Mr. Mehta in reply that the period when an

15

Page 16 C.A.No.3687/06 etc.

award was called for by the Court and remained under its custody

may be excluded for the purpose of limitation on the ground that

court’s action shall not prejudice any of the parties. For this

dictum Mr. Mehta placed reliance on judgment in the case of Raj

Kumar Dey and Ors. vs. Tarapada Dey and Ors. , 1987(4) SCC

398. However, it is not necessary to go into several other judgments

cited on behalf of the parties on the effect of non-registration of an

award which requires registration and as to when an award may

not require registration, in view of somewhat different issue on

which we propose to decide this case.

12.Mr. Datar pointed out that the main controversy between the

parties is in respect of two properties, one UMR property in

Rajasthan which is to be with R.K. Sanghi Group on account of

payments made for that property under the Rajasthan settlement

arrived in the company case before the Single Judge in 1994. But

that property, as per the award is to be with N.K. Sanghi Group.

The other property is the workshop property of M/s. Sanghi Motors

at Bombay which as per settlement by the Bombay High Court has

gone to M.K. Sanghi Group whereas under the award it shall go to

A.K. Sanghi Group. Mr. Datar pointed out that the learned Single

Judge of Delhi High Court allowed several I.As including OPM No.

16

Page 17 C.A.No.3687/06 etc.

109 of 1989 filed by Sanghi Motors Private Limited, Bombay but in

appeal before the Division Bench, Sanghi Motors Private Limited

(Bombay) was not impleaded as a party and therefore no useful

purpose will be served by interfering with the orders of the Delhi

High Court rejecting the award when the same order of the learned

Single Judge has attained finality qua M/s Sanghi Motors Pvt. Ltd.,

Bombay.

13.Mr. Datar has next contended that the Delhi High Court was

bound by the undertaking recorded in the judgment of Company

Judge of Rajasthan High Court. Under such undertaking which

amounts to an injunction, as per submissions, the application of

Mr. A.K. Sanghi for making the award a Rule of the Court under

Section 17 of the Act required outright dismissal without going into

the issue of validity of the award on grounds under Sections 30 and

33 of the Act. According to him the undertaking before the

competent court of law, in the facts of the case, was sufficient to

render the award unenforceable on the ground under clause (c) of

Section 30 of the Act viz. “otherwise invalid”. According to him the

award was signed on 3.12.1987 and it dealt with Bombay

properties which were then under the receiver appointed by the

Bombay High Court. This also made the award invalid on the

17

Page 18 C.A.No.3687/06 etc.

ground covered by clause (c) of Section 30 of the Act. Mr. Datar

further submitted that both, A.K. Sanghi Group which is now

propounding the award and R.K. Sanghi Group had preferred OM

No. 23 of 1986 to challenge the Arbitration Agreement itself on

grounds and allegations of facts which amounted to admission on

their part as to the invalidity of the arbitration agreement and in

such a situation their turning volte face and seeking to support the

award after it was signed and filed under orders of the court inspite

of their pending objections, cannot make the award good and

enforceable at their instance unless it is held that their admissions

in pleadings can be ignored for some good reasons. Mr. Datar next

submitted that Section 34 of the Act gave an option to the parties

to the Arbitration Agreement to obtain stay of the legal proceedings

at Bombay or Rajasthan on account of Arbitration Agreement and if

they chose not to get the legal proceedings stayed or even if they

failed to do so, the effect of such legal proceedings cannot be

ignored at the time of deciding, at the stage of Section 17, as to

whether an order/decree could be passed in terms of the award or

not. According to the submissions, once at the stage of Section 17,

the court is made aware of judgment of a competent court of law

affecting the matter covered by the award, it would be proper and

18

Page 19 C.A.No.3687/06 etc.

lawful for such court to set aside the award under clause (c) of

Section 30 of the Act by holding that the award is "otherwise

invalid”. It was argued on the basis of Section 35 of the Act that

the principle is salutary that in case there is no stay granted under

Section 34 and if the conditions under Section 35 are met, further

proceedings in a pending reference shall be invalid.

14.This principle appears to have been developed and

generalized further. Mr. Datar has placed reliance upon judgment

in the case of Ram Prosad Surajmull vs. Mohan Lal

Lachminarain, AIR 1921 Calcutta 770 and in the case of

Sheobabu vs. Udit Narain and Another, AIR 1914 Allahabad 275.

The Calcutta judgment was rendered in the context of Indian

Arbitration Act of 1899 but the principle enunciated therein is

equally applicable to an award under the Arbitration Act, 1940.

The principle is - “if the court has refused to stay an action or if the

defendant has abstained from asking it to do so, the Court has

seisin of the dispute and it is by its decision and by its decision

alone, that the rights of the parties are settled.” This view was

adopted on a larger proposition that the Courts will not allow their

jurisdiction to be ousted. In simpler words, the proposition is that

the courts’ decisions will not be overridden by an award arising out

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Page 20 C.A.No.3687/06 etc.

of an arbitration proceeding. In the Allahabad case, in somewhat

similar situation as in the Calcutta case, the judgment of the Court

under Specific Relief Act in a regular suit was held valid because

the parties could not or did not take proper steps to suspend the

regular suit. We find no legal or other infirmity in this proposition

of law.

15.Our attention was drawn to judgment of Bombay High Court

dated 30.06.1992 passed by a Division Bench in Appeal No.350 of

1992 preferred by A.K. Sanghi Group against order of the Company

Judge dated 06.07.1989 to highlight that in paragraph 3 of the

judgment, the Division Bench rejected the contention advanced on

behalf of A.K. Sanghi Group and held that the companies are not

parties to the arbitration proceedings and consequently the decree

on the basis of award cannot bind the companies. Mr. Datar

pointed out that A.K. Sanghi Group allowed the matter to attain

finality and hence in the present appeals, the appellant A.K. Sanghi

Group cannot be permitted to take the stand that the award will

bind the companies. He also highlighted the fact that Bombay

property under dispute is a property leased to M/s. Sanghi Motors

and vests with A.K. Sanghi Group as a leasehold property and in

view of law laid down in the case of M/s. General Radio &

20

Page 21 C.A.No.3687/06 etc.

Appliances Co. Ltd. v. M.A. Khader (dead) by LRs AIR 1986 SC

1218 and in the case of Singer India Ltd. v. Chander Mohan

Chadha (2004) 7 SCC 1, such leased property cannot be legally

sublet or granted to another under assignment. That will be the

effect if award is allowed to operate. On this ground also it has

been submitted that the award suffers from patent illegality.

16.Mr. Gaurav Pachnanda, learned senior advocate appearing for

Rajni Sanghi has submitted that Rajni Sanghi preferred Special

Appeal No.24 of 1994 before the Division Bench of Rajasthan High

Court against orders of Company Judge accepting the Scheme of

Reconstruction-cum-Family Settlement because she wanted her

specific share out of the family business allotted to M.K. Sanghi

Group so that she and her children may enjoy their share

separately. This was achieved by amended family settlement dated

20.02.1995. Although M.K. Sanghi had not signed the family

settlement he took time to consider the developments and

ultimately he withdrew his appeal which signifies that he also

consented to the settlements. It was pointed out that A.K. Sanghi

Group including his son Vijay Sanghi had acted upon the Scheme

of Family Settlement and also derived benefits, but they

subsequently developed ill designs and Vijay Sanghi got himself

21

Page 22 C.A.No.3687/06 etc.

transposed as appellant in Company Appeal No.30 of 1994

preferred by M.K. Sanghi although the latter had applied to

withdraw the appeal. It was argued that the Division Bench failed

to notice that the only non-signatory to the Compromise Petition

filed on 20.02.1995, i.e., M.K. Sanghi Group had later accepted the

settlement/compromise and prayed for withdrawal of their appeal

and this showed that all the four groups had accepted the Terms of

Settlement-cum-Family Arrangement. In such circumstances,

according to learned counsel, the Division Bench should not have

interfered with the order of the learned Single Judge and ought not

to have allowed the appeals and remanded the matter to Single

Judge vide impugned order dated 03.04.2002, on mere

technicalities. He submitted that thereafter review filed by Rajni

Sanghi was also erroneously dismissed on 26.08.2003.

17.Learned senior counsel placed reliance upon a judgment of

this Court in the case of Munshi Ram v. Banwari Lal (deceased)

AIR 1962 SC 903 in support of the proposition that a compromise

between the parties even after filing of award by the arbitrators

deserves to be respected and such compromise will be made a part

of the decree which will be based upon the award as modified by

the compromise. The Court held that the power to record such

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Page 23 C.A.No.3687/06 etc.

agreement or compromise was available to the court under the

provisions of the Act because Section 41 makes the Civil Procedure

Code applicable to the proceedings under the Act. The observation

of the Court in paragraph 20 is of some significance where it was

pointed out that ‘there is nothing in the Arbitration Act which

disentitles the court from taking note of an agreement …..’.

Reliance was also placed upon judgment in the case of Kale v.

Deputy Director of Consolidation (1976) 3 SCC 119 to highlight

the nature, effect and value of family arrangement under the Hindu

Law. All the three Judges deciding this case were agreed on the

relevant proposition that the object of family arrangement is to sink

their differences and disputes and resolve their conflicting claims to

buy peace of mind and bring about complete harmony and goodwill

in the family. Paragraph 9 of the judgment deserves full respect

and is extracted hereinafter :

“9.Before dealing with the respective contentions put

forward by the parties, we would like to discuss in

general the effect and value of family arrangements

entered into between the parties with a view to resolving

disputes once for all. By virtue of a family settlement or

arrangement members of a family descending from a

common ancestor or a near relation seek to sink their

differences and disputes, settle and resolve their

conflicting claims or disputed titles once for all in order

to buy peace of mind and bring about complete

harmony and goodwill in the family. The family

23

Page 24 C.A.No.3687/06 etc.

arrangements are governed by a special equity peculiar

to themselves and would be enforced if honestly made.

In this connection, Kerr in his valuable treatise Kerr on

Fraud at p.364 makes the following pertinent

observations regarding the nature of the family

arrangement which may be extracted thus :

The principles which apply to the case of

ordinary compromise between strangers do not

equally apply to the case of compromises in the

nature of family arrangements. Family

arrangements are governed by a special equity

peculiar to themselves, and will be enforced if

honestly made, although they have not been

meant as a compromise, but have proceeded from

an error of all parties originating in mistake or

ignorance of fact as to what their rights actually

are, or of the points on which their rights actually

depend.

The object of the arrangement is to protect the family

from long-drawn litigation or perpetual strifes which

mar the unity and solidarity of the family and create

hatred and bad blood between the various members of

the family. Today when we are striving to build up an

egalitarian society and are trying for a complete

reconstruction of the society, to maintain and uphold

the unity and homogeneity of the family which

ultimately results in the unification of the society and,

therefore, of the entire country, is the prime need of the

hour. A family arrangement by which the property is

equitably divided between the various contenders so as

to achieve as equal distribution of wealth instead of

concentrating the same in the hands of a few is

undoubtedly a milestone in the administration of social

justice. That is why the term ‘family’ has to be

understood in a wider sense so as to include within its

fold not only close relations or legal heirs but even those

persons who may have some sort of antecedent title, a

semblance of a claim or even if they have a spes

successionis so that future disputes are sealed for ever

and the family instead of fighting claims inter se and

24

Page 25 C.A.No.3687/06 etc.

wasting time, money and energy on such fruitless or

futile litigation is able to devote its attention to more

constructive work in the larger interest of the country.

The courts have, therefore, leaned in favour of

upholding a family arrangement instead of disturbing

the same on technical or trivial grounds. Where the

courts find that the family arrangement suffers from a

legal lacuna or a formal defect the rule of estoppel is

pressed into service and is applied to shut out plea of

the person who being a party to family arrangement

seeks to unsettle a settled dispute and claims to revoke

the family arrangement under which he has himself

enjoyed some material benefits. The law in England on

this point is almost the same. In Halsbury’s Laws of

England, Vol.17, Third Edition, at pp.215-216, the

following apt observations regarding the essentials of

the family settlement and the principles governing the

existence of the same are made:

A family arrangement is an agreement between

members of the same family, intended to be

generally or reasonably for the benefit of the family

either by compromising doubtful or disputed

rights or by preserving the family property or the

peace and security of the family by avoiding

litigation or by saving its honour.

The agreement may be implied from a long

course of dealing, but it is more usual to embody

or to effectuate the agreement in a deed to which

the term ‘family arrangement’ is applied.

Family arrangements are governed by

principles which are not applicable to dealings

between strangers. The court, when deciding the

rights of parties under family arrangements or

claims to upset such arrangements, considers

what in the broadest view of the matter is most for

the interest of families, and has regard to

considerations which, in dealing with transactions

between persons not members of the same family,

would not be taken into account. Matters which

25

Page 26 C.A.No.3687/06 etc.

would be fatal to the validity of similar

transactions between strangers are not objections

to the binding effect of family arrangements.”

The legal principles enunciated above have not been disputed.

18.Before this Court all the parties appear to be in agreement

over the limited issue that the properties given to widow Rajni

Sanghi and her children should belong to them. On behalf of Rajni

Sanghi it has been reiterated that she undertakes to abide by her

undertaking and liabilities under the amended Family Settlement

dated 20.02.1995.

19.On behalf of R.K. Sanghi Group all the arguments advanced

by Mr. Datar were adopted and thereafter Mr. Shyam Divan,

learned senior advocate advanced his own arguments. He cited

some judgments which give discretion to this Court to dismiss a

civil appeal summarily even after grant of leave to appeal.

According to Mr. Divan, the civil appeal of A.K. Sanghi Group

deserves to be dismissed in limine considering how at one point of

time or other all the groups including A.K. Sanghi group were

opposed either to the arbitration agreement or to the award. He

submits that the judgments rendered by Bombay High Court

settling the business interests of all the groups in respect of

business at Bombay and the judgment of Company Judge of High

26

Page 27 C.A.No.3687/06 etc.

Court of Rajasthan disposing of Company Petition No.06 of 1986 in

terms of Scheme of Reconstruction-cum-Family Settlement of 1994

followed by the amended family settlement before the Division

Bench in 1995 deserve to be given a finality because the judgment

of Division Bench of Bombay High Court is no longer under

challenge and practically all the four groups had agreed to the

family settlement made before the Rajasthan High Court.

According to Mr. Divan, the Division Bench should have disposed

of the appeal of Rajni Sanghi in terms of the compromise and

revised family settlement and the other appeal preferred by M.K.

Sanghi should have been dismissed because M.K. Sanghi had

prayed for its withdrawal. Transposition of Vijay Sanghi should not

have given him any advantage when originally he had not filed any

appeal and had also taken advantage flowing to his father A.K.

Sanghi and his group. He highlighted that the undertaking by the

head of A.K. Sanghi group was a solemn undertaking as a head

and karta between family members and the group should not have

been permitted to resile from the undertaking whereunder they

agreed not to seek enforcement of the award for which they had

filed an application and which they agreed to withdraw. He has

submitted that the family arrangement at Rajasthan was a well

27

Page 28 C.A.No.3687/06 etc.

thought out and considered family arrangement arrived after more

than six years of making of the award. Such choice of the parties

should be given pre-eminence over award made by an arbitrator to

which many of the family members had objections. It was also

highlighted that under the Act of 1940, an award does not have the

force of a decree as is the case with an award under the Arbitration

and Conciliation Act 1996 and hence under the Act there is

absolutely no legal impediment in the way of parties arriving at a

settlement even after making of an award by the arbitrator.

Referring to the amendments made in the Code of Civil Procedure

such as introduction of Section 89 and provisions in the Family

Courts Act it has been submitted that policy of law is in favour of

settlement of dispute by agreement especially between members of

a family. Mr. Divan highlighted provisions of Sections 14 and 17 of

the Act to contend that an award need not be set aside if the

parties, even post-award, agree for another settlement because in

the 1940 Act the arbitrators are required to file the award only on

the request of any party or upon direction by the court which in

usual course, is required to be moved by one or the other party.

Even judgment in terms of award can be passed only after rejection

of application to set aside the award or after the time for making

28

Page 29 C.A.No.3687/06 etc.

such application has expired. On the other hand, a judgment or

order of a court has a different and higher sanctity. It shall bind the

parties till they get rid of such order or judgment in accordance

with law. He relied upon judgment in the case of Oudh

Commercial Bank Ltd. v. Thakurain Bind Basni Kuer AIR 1939

PC 80 in support of his submission that even a decree does not

stand in the way of parties in arriving at a different settlement. In

the context of power of Executing Court under Section 47 of the

Code of Civil Procedure, the Privy Council in the aforesaid case held

that the judgment-debtor and the decree-holder could enter into an

agreement and bargain for time, in consideration of a reasonable

rate of interest. It is permissible and such agreement can be

accepted by the Executing Court without attracting the criticism

that it has attempted to amend or vary the decree. Even in general

terms, while considering the issue as to whether the parties could

alter or vary a decree by consent, the Privy Council came to an

opinion that the Civil Procedure Code contains no general

restriction of the parties’ liberty of contract with reference to their

rights and obligations under the decree but such agreement may

not be enforceable in all cases through execution proceedings and

29

Page 30 C.A.No.3687/06 etc.

in that event the Executing Court will leave the beneficiary party to

bring a separate suit upon the new contract/agreement.

20.Mr. Divan relied upon the case of Noorali Babul Thanewala

v. K.M.M. Shetty (1990) 1 SCC 259 to highlight the following

passage in paragraph 11, ‘when a court accepts an undertaking

given by one of the parties and passes orders based on such

undertaking, the order amounts in substance to an injunction

restraining that party from acting in breach thereof.’ He also

referred to certain judgments in support of well recognized principle

of law that a party cannot approbate and reprobate at the same

time. Since the proposition is well settled, the judgments need not

be adverted to. But it is important to note that he pointed out the

relevant documents such as affidavit by R.K. Sanghi dated

10.10.1998 filed in D.B.Civil Special Appeal No.30 of 1994 in the

High Court of Judicature for Rajasthan at Jodhpur to show that

family settlement had been acted upon and considerable money

was paid by Mr. R.K. Sanghi in terms of such settlement.

Retirement deed of Vijay Sanghi dated 08.11.1994 and another

retirement deed of wife as well as of daughter-in-law of A.K. Sanghi

were also shown for the same purpose. On the basis of such

undisputed materials he submitted that a family settlement already

30

Page 31 C.A.No.3687/06 etc.

implemented deserves to be protected by setting aside the order of

Division Bench challenged by Rajni Sanghi and the family

settlements, original as well as amended, be accepted as valid and

binding on the parties.

21.In reply Mr. Mehta and Mr. Chaudhari have reiterated their

earlier stand and Mr. Mehta, as noted earlier, submitted that

registration of the award was not necessary in law in view of its

contents and even if it is required, a long period when the award

was lying with the court may deserve to be excluded. According to

him the judgment of Bombay High Court cannot invalidate the

award because it is not a permissible ground under Section 30 of

the Act nor that proceeding could have been stayed because the

statutory powers available to a Company Judge cannot be available

to an arbitrator. In support of binding effect of the family

settlement made before the High Court of Rajasthan, it was

submitted that the Division Bench has allowed the appeals and

remitted the matter back to the learned Single Judge. On equity,

Mr. Mehta contended that if award is upheld then also equity can

be restored by ordering for refund of money for UMR property to

R.K. Sanghi group with appropriate interest or even that building

may be ordered to be with R.K. Sanghi group. A concession was

31

Page 32 C.A.No.3687/06 etc.

offered by him on behalf of A.K. Sanghi group that the appellants of

Civil Appeal No.2763 of 2002 will be satisfied to have 50% of

market value of the property under dispute at Mumbai in lieu of

the said leasehold property. Lastly he replied that principle of

impermissibility of approbate and reprobate at the same time is an

equitable principle and therefore subject to statutory rights. In

support of this proposition he placed reliance upon judgment in the

case of P.R. Deshpande v. Maruti Balaram Haibatti (1998) 6 SCC

507.

22.Mr. Chaudhari also reiterated that in view of the peculiar

jurisdiction of the Company Judge the matter before the court

could not have been referred to arbitration and that ousted the

parties’ option of seeking a stay under Section 34 of the Act.

According to him if Section 34 is not applicable then Section 35 will

also not be applicable. He pointed out that Section 35 is attracted

only when legal proceeding before a court is upon the whole of the

subject matter of the reference and when it is between all the

parties to the reference and when notice thereof has been given to

the arbitrators or umpire. According to him such conditions were

not met in this case and therefore proceedings in the pending

reference and the award resulting therefrom are not adversely

32

Page 33 C.A.No.3687/06 etc.

affected or rendered invalid by virtue of Section 35 of the Act. He

referred to case of Union of India v. Om Prakash (1976) 4 SCC 32

to support his submission that post-award conduct of a party

cannot be relevant for rendering the award invalid. However this

judgment is to an extent against this proposition because it holds

that the term – ‘otherwise invalid’ – is wide enough to include all

invalidity including that of the arbitral reference. This shows that

‘otherwise invalid’ is not controlled by the principle of ejusdem

generis. To same effect is the judgment in the case of M/s.

Siddeshwari Cotton Mills (P) Ltd. v. Union of India (1989) 2 SCC

458.

23.According to Mr. Chaudhari, non-impleadment of Sanghi

Motors (Bombay) in the appeal before the Division Bench of Delhi

High Court cannot have any adverse consequence because no

objection was taken to such defect. According to him the company

is not a necessary party because all the shareholders and directors

of the company are parties and in the context of present dispute

the presence of company is a mere formality. Lastly Mr. Chaudhari

contended that under Section 17 of the Act there is no requirement

of any obligation for making the award a rule of the court and

therefore the undertaking of A.K. Sanghi to withdraw his such

33

Page 34 C.A.No.3687/06 etc.

application cannot be of any consequence in law. On behalf of

Rajni Sanghi it was submitted in reply that Rajni Sanghi would be

satisfied if the order of remand is modified even partially and the

modified family settlement of 1995 is accepted. It was made clear

on her behalf that she has no interest in the 1994 agreement which

benefitted the three groups and who have now to face the matter

once again if the remand order is to stand.

24.In the light of aforesaid submissions and the entire facts and

circumstances relating to this dispute between family belonging to

four brothers, we are required to decide whether the award under

the Act which is yet to be made a rule of the court deserves

implementation or preference needs to be given to the settlements

finalized by the judgment of Bombay High Court and the family

settlements of 1994 and 1995 before the Rajasthan High Court

which have been now put to peril by the order of remand impugned

by Rajni Sanghi. In course of deciding this issue we are also

required to decide another larger issue of significance as to whether

any good ground was available to Delhi High Court under the

provisions of Section 30 of the Act for invalidating the award and

for refusing to make it a rule of the court in exercise of power under

Section 17 of the Act.

34

Page 35 C.A.No.3687/06 etc.

25.So far as the argument in favour of maintaining the award is

concerned, we find that clause (c) of Section 30 does not attract

the principle of ejusdem generis so far as the term ‘otherwise

invalid’ is concerned. That ground for setting aside award is quite

wide in amplitude and available to the concerned court if it finds

that the award requires to be treated as invalid because on face of

the things it runs counter to a valid law prohibiting such an award

or when the subject matter of the award has been lawfully dealt

with by a statutory authority or a court and it is no longer available

for disposal in accordance with the award under consideration.

Such a situation is only illustrative and has been enunciated by us

in the light of facts obtaining in this case. When the Courts having

jurisdiction were allowed to proceed and decide the properties

available at Bombay and record a family arrangement in respect of

other matters in a company proceeding before the Rajasthan High

Court, the judgments and orders in these proceedings cannot be

ignored or obliterated on account of pendency of an award still

waiting to be made a rule of the court. In such a situation, in our

view, the award has to be set aside on the ground that it is

otherwise invalid on the date it is being considered for being made

a rule of the court. Since this course of action is available and has

35

Page 36 C.A.No.3687/06 etc.

been rightly adopted by the Delhi High Court, we do not feel

necessary to examine the hypothetical question as to whether even

in absence of any ground for setting aside such an award, could

the court concerned refuse to make the award a rule of the court

under Section 17 of the Act if it was confronted with a situation like

the one on hand in this case. Such a question need not be

answered in the present proceeding.

26.We have already referred to judgments highlighting the

significance of family arrangement under Hindu Law and in light of

such judgments and considering the scheme of the Act and

provisions of Code of Civil Procedure we are satisfied that family

arrangements made before the Rajasthan High Court in 1994

before the Company Judge and in 1995 before the Division Bench

need to be protected and given pre-eminence over the award which

is yet not made the rule of the court. The family arrangement was

arrived at in spite of knowing the award for six years and obviously

because the parties who are family members, were at loggerheads

over the terms of the award. No doubt the family arrangements

were initially made only on behalf of three groups who originally

signed the agreements for themselves as well as on behalf of their

families but the 4

th

group, i.e., M.K. Sanghi group later decided to

36

Page 37 C.A.No.3687/06 etc.

go along with that arrangement by opting to withdraw its appeal.

Hence we accept the submissions advanced by Mr. Datar, Mr.

Pachnanda and Mr. Shyam Divan and hold that if parties settle

their disputes amicably by an agreement, even post-award, such

settlement/agreement will prevail in view of requirement of the Act

that an award will acquire the status of a decree only when it is

made a rule of the court after rejection of all objections. In that

view of the matter there is no hindrance in law in upholding the

family arrangements made before the High Court at Rajasthan as

well as judgment of the Bombay High Court which has attained

finality. They deserve to have pre-eminence over the award in

question.

27.The act of A.K. Sanghi in not honouring his undertaking to

withdraw his petition for making the award a rule of court and the

attempt made by Vijay Sanghi to obstruct the scheme of

reconstruction-cum-family settlement of 1994 by getting

transposed as an appellant in Company Appeal No. 30 of 1994

when his father A.K. Sanghi had signed the settlement on behalf of

his group, were impermissible conduct of approbate and reprobate

on the part of A.K. Sanghi group which should not have been

permitted. The status of the head of the family acting as a Karta

37

Page 38 C.A.No.3687/06 etc.

under the traditional Hindu law deserves to be kept in mind in

such a situation. The junior members of the family are bound by

decisions of a Karta in matters of family business and property

unless it can be pleaded and proved that the head of the family has

acted fraudulently or for immoral purposes. We have not been

shown any such case on behalf of Vijay Sanghi. In such a situation,

ignoring the traditional Hindu law and the rights of the head of the

family or Karta has put unnecessary burden not only on the larger

family but also upon the courts.

28.We have examined the Division Bench judgment of the

Rajasthan High Court under challenge by Rajni Sanghi and we find

that the remand order is not on the basis of any defect in the

agreements or supplementary agreements but on account of certain

technical requirements which should have been ignored when the

issues had been settled by all the stake holders by reaching

amicable agreement. The companies of family of four brothers are

almost like partnerships and when all were agreeable, interest of

justice was best subserved by recognizing even the supplementary

family settlement of 1995 in favour of Rajni Sanghi as well as the

original family arrangement of 1994 accepted by the Company

Judge. In that view of the matter the order of remand under

38

Page 39 C.A.No.3687/06 etc.

challenge at the instance of Rajni Sanghi is set aside and both the

family arrangements indicated above are affirmed. If any party fails

to act as per those arrangements within three months, the

aggrieved party will be free to initiate appropriate proceedings

including those of contempt before the concerned High Court or

seek execution of the agreements through other appropriate

proceedings. Civil Appeal No.3687 of 2006 is allowed to the

aforesaid extent and is disposed of accordingly.

29.In view of the discussions made above, Civil Appeal Nos.2763

of 2002 and Civil Appeal No.503 of 2001 are dismissed. In the

facts of the case there shall be no order as to costs.

…………………………………….J.

[VIKRAMAJIT SEN]

……………………………………..J.

[SHIVA KIRTI SINGH]

New Delhi.

December 01, 2015.

39