TMI Blog2018 (4) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal Nos 10025-10026 of 2017 - - - Dated:- 24-4-2018 - Mr. Dipak Misra, Mr. A M Khanwilkar And Dr. D Y Chandrachud For the Appellant(s) : Mr. Baij Nath Patel, Adv., Ms. Sweta, Adv., Ms. Romila, Adv., And Mr. Abhinav Shrivastava, AOR For the Respondent(s) : Ms. Pooja Dhar, AOR, Mr. Anandh Kannan N., AOR JUDGMENT 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 (NCLAT) dated 18 July 2017. The NCLAT has dismissed an appeal filed against an order dated 6 March 2017 of the National Company Law Tribunal (NCLT) at its Chennai Bench. 2 The second respondent is a company by the name of Sporting Pastime India Limited (SPIL) . It was incorporated on 2 May 1994, as a fully owned subsidiary of the first respondent, Kasturi Sons Limited (KSL) . On 19 July 2004 an agreement was entered into between KC Palanisamy (KCP) (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 &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or by their nominees have agreed to purchase shares in Sporting Pastime India Limited of a face value of ₹ 2,430 lakhs, for a sum of ₹ 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 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 AMR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings in a sum of ₹ 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 ₹ 3,58,11,000 together with interest at 12% p.a. on a sum of ₹ 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 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered in proceedings between the parties to the agreement dated 19 July 2004 does not bind the appellant; 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 (2010) 5 SCC 306 and in S.N.Prasad, Hitek Industries (Bihar) Limited v Monnet Finance Limited (2011) 1 SCC 320 ; 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 appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes 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: 7 Arbitration agreement. - (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be clearly established, since its effect is to exclude the authority of national courts to adjudicate upon disputes. (Redfern and Hunter on International Arbitration, Fifth Edition 2.13, p.89-90) 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 exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, assignment) and nonconsensual theories (e.g. estoppel, alter ego) (2nd Ed. Volume 1 page 1418) . 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, 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 (Id at page 1432) . 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. (Id at pages 1448-49) Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is one who claims under a party to the agreement. 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 bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght 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 (2015) 1 SCC 32. 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 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 Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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