CHERAN PROPERTIES LIMITED versus KASTURI AND SONS LIMITED AND ORS. on 24 April 2018

CHERAN PROPERTIES LIMITED

v.

KASTURI AND SONS LIMITED AND ORS.

(Civil Appeal Nos. 10025-10026 OF 2017)

APRIL 24, 2018

[DIPAK MISRA, CJI, A. M. KHANWILKAR ANDDR. D. Y. CHANDRACHUD, JJ.]

Arbitration and Conciliation Act, 1996: ss. 35, 36, 7 – Finalityof awards – Enforcement – Arbitration agreement – Binding on thirdparties who may not be signatories to an agreement between twocontracting parties – Held: Section 35 postulates that an arbitralaward “shall be final and binding on the parties and personsclaiming under them respectively – Expression “persons claimingunder them” is a legislative recognition of the doctrine that besidesthe parties, an arbitral award binds every person whose capacityor position is derived from and is the same as a party to theproceedings – Furthermore, arbitral award has the character of adecree of a civil court u/s. 36 and is capable of being enforced as ifit were a decree – On facts, dispute between parties resulting incommencement of arbitral proceedings wherein arbitral awardpassed – Said award could be enforced against appellant company-nominee even though appellant was not signatory to the arbitrationproceedings – Arbitral award requiring transmission of shares,having attained finality, could be enforced in the same manner as ifit were a decree of the court – Further, the transmission of shares tothe claimants as mandated by the award could be fully effectuatedby obtaining rectification of the register before NCLT by invokingprovision of s. 111 – NCLT rightly exercised the jurisdiction to passan order directing rectification of the register which was upheld byNCLAT – Thus, no merit in the challenge raised by the appellant –Companies Act, 1956 – s. 111.

KCP-third respondent, KSL-first respondent, SPIL andHRP company entered into an agreement whereby, SPIL was toallot 240 lakh equity shares to KSL against the book debts dueby it to KSL. KSL offered to sell the shares to KCP. KCP agreedto take over the business, shares and liabilities of SPIL and woulddischarge the liabilities. However, KCP did not complete thetransaction. Disputes arose between the parties resulting in

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Aarbitral proceedings. An award was passed directing KCP andSPIL to return documents of title and share certificates relatingto 2.43 crore shares to KSL and KSL would pay or tender a sumof Rs. 3.58 crores with interest. The said award attained finality.KSL then initiated proceedings u/s. 111 of the Companies Act,1956 for rectification of the register of SPIL. NCLT allowed theBpetition. Thereafter, NCLAT held that the appellant is a nomineeof KCP and holds the shares in question, hence, NCLT wasjustified in entertaining the proceedings for rectification u/s. 111.Hence the present appeals.

Dismissing the appeals, the CourtCHELD: 1.1 The modern business transactions are ofteneffectuated through multiple layers and agreements. There maybe transactions within a group of companies. The circumstancesin which they have entered into them may reflect an intention tobind both signatory and non-signatory entities within the same Dgroup. In holding a non-signatory bound by an arbitrationagreement, the Court approaches the matter by attributing tothe transactions a meaning consistent with the business sensewhich was intended to be ascribed to them. Therefore, factorssuch as the relationship of a non-signatory to a party which is asignatory to the agreement, the commonality of subject matterEand the composite nature of the transaction weigh in the balance.The group of companies doctrine is essentially intended tofacilitate the fulfilment of a mutually held intent between theparties, where the circumstances indicate that the intent was tobind both signatories and non-signatories. The effort is to findFthe true essence of the business arrangement and to unravelfrom a layered structure of commercial arrangements, an intentto bind someone who is not formally a signatory but has assumedthe obligation to be bound by the actions of a signatory. [Para 17][1083-C-F]

International Arbitration by Redfern and Hunter, FifthGEdn 2.13, p.89-90, 99, 2.40 p 100, 2.41 p 100; Russelon Arbitration 24[th] Edn, 3-025 pages 110-111; Treatiseon International Commercial Arbitration by Garry BBorn 2[nd] Ed. Volume 1 p 1418 - referred to.

1.2 The instant case relates to a post award situation. TheHenforcement of the arbitral award has been sought against the appellant on the basis that it claims under KCP and is bound bythe award. Section 35 of the Arbitration and Conciliation Act 1996postulates that an arbitral award “shall be final and binding onthe parties and persons claiming under them respectively”. Theexpression ‘claiming under’, in its ordinary meaning, directsattention to the source of the right. The expression includes casesof devolution and assignment of interest. The expression“persons claiming under them” in Section 35 widens the net ofthose whom the arbitral award binds. It does so by reaching outnot only to the parties but to those who claim under them, aswell. The expression “persons claiming under them” is alegislative recognition of the doctrine that besides the parties,an arbitral award binds every person whose capacity or positionis derived from and is the same as a party to the proceedings.Having derived its capacity from a party and being in the sameposition as a party to the proceedings binds a person who claimsunder it. The issue in every such a case is whether the personagainst whom the arbitral award is sought to be enforced is one who claims under a party to the agreement. [Para 20] [1086-D-G]

Advanced Law Lexicon by P Ramanatha Aiyar ThirdEdn Volume I p 818 – referred to.

1.3 The fact that the appellant was not a party to the arbitralproceedings will not conclude the question as to whether theaward can be enforced against it on the ground that it claims undera party. Essentially, the Court is called upon to consider whetherthe test embodied in s. 35 is fulfilled, so as to bind the appellant.[Para 22] [1087-E]

1.4 Clause 14 of the agreement recognises, on the part ofKSL, the right of KCP to sell or transfer his holding in SPIL“provided the proposed transferees accept the terms andconditions mentioned in this agreement” for the management ofSPIL and related financial aspects covered by this agreement.KCP addressed a letter to KSL acting as the authorised signatoryof the appellant. The letter contained a clear and categoricreference to the Share Purchase Agreement. The appellantintimated to KSL that it was in pursuance of the said agreementthat KSL had agreed to sell and “our group of companies by thisagreement and/or by themselves and/or by their nominees have A

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Aagreed to purchase shares” in SPIL of a face value of Rs 2430lakhs for a sum of Rs 2.43 crores. Accordingly, the appellantindicated that it was remitting seven share transfer deeds dulyexecuted and requested KSL to lodge them, upon execution, withSPIL. The parties in whose favour the transfers were to beregistered were described as group companies. It was indicatedBthat a supplementary agreement would be drawn up to reflectthe altered consideration. [Para 23] [1087-G-H; 1088-A-C]

1.5 The record established that the transfer of shares byKCP to his nominees was to be on the express condition that thenominee would abide by the terms of the agreement in relationCto the take over of the management of SPIL and related financialaspects. The appellant, while purchasing the shares, was notmerely aware of the agreement but expressly sought the allotmentof shares in pursuance to it, to its group companies. In thisbackground, it would not be open to the appellant to contendDthat while it was bound by all other terms of the agreement, itwould not be bound by the arbitration agreement contained inthe very same agreement. The arbitral award attained finality afterall attempts to raise objections to it failed before the High Courtand, later, before this Court. The appellant, in purchasing theshares, was conscious of and accepted the terms of theEagreement. Its letter leaves no manner of doubt of the acceptanceof this position. [Para 24] [1088-C-E]

1.6 The parent agreement envisaged the allotment of equityshares of KSL to KCP with the intent that KCP would take overthe business, assets and liabilities of SPIL. While KCP was entitledFto transfer his shareholding, this was expressly subject to thecondition of the acceptance by the transferee of the terms andconditions of the agreement. KCP’s letter to KSL contains aspecific reference to the share purchase agreement. It was inpursuance of that agreement that KCP indicated, as authorisedGsignatory of the appellant, that his group of companies had agreedto purchase the shares in SPIL. The shares were to be purchasedby several entities in the same group. A supplementary agreementwas to be entered into, to reflect the altered consideration.Eventually, no supplementary agreement was executed and thetransaction was structured on the basis of the parent agreementH

which the appellant recognised in its letter. Having regard tothis factual context, the defence of the appellant against theenforcement of the award cannot be accepted. [Para 26] [1089-B-E]

1.7 The arbitral award envisaged that KSL was entitled tothe return of documents of title and the certificates pertaining tothe shares of SPIL contemporaneously with the payment ortendering of a sum of Rs 3.58 crores together with interest. KSLis in terms of the arbitral award entitled to the share certificates.That necessarily means the transfer of the share certificates. Toeffectuate the transfer, recourse to the remedy of the rectificationof the register under Section 111 was but appropriate andnecessary. The arbitral award has the character of a decree of acivil court under Section 36 and is capable of being enforced as ifit were a decree. Armed with that decree, KSL was entitled toseek rectification before the NCLT by invoking the provisionsof Section 111 of the Companies Act, 1956. There can be,therefore, no question about the jurisdiction of NCLT to pass anappropriate order directing rectification of the register. [Para 27][1089-F-H; 1090-A]

1.8 The submission that the application by KSL to the NCLTwas not maintainable since the tribunal has no power to executean arbitral award, cannot be accepted. The submission proceedson finding of the tribunal that the purpose of the petition before itwas to implement the award and that its ultimate direction is tothe same effect. The submission relies on the provisions of Section42 of the 1996 Act. It is necessary to note that the award of thearbitral tribunal mandates that the appellant must return the sharecertificates relating to 2.43 crore shares of SPIL which werehanded over in terms of the agreement against the payment ofthe consideration stipulated in the award. The transfer of the sharecertificates by the appellant will be effectual only by therectification of the register of the company. The mere handingover of a share certificates will not constitute due implementationof the award. The award contemplates the transmission of theshares which stood in the name of the appellant in pursuance ofthe agreement, to the claimant in the arbitral proceedings. Thisnecessitated an application under Section 111 for the purpose ofsecuring a rectification of the register. [Para 28] [1090-B, D-G]

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A1.9 Under the provisions of Section 35, the award can beenforced in the same manner as if it were a decree of the Court.The award has attained finality. The transmission of shares asmandated by the award could be fully effectuated by obtaining arectification of the register under Section 111 of the CompaniesAct. The remedy which was resorted to was competent. The viewBof the NCLT, which has been affirmed by the NCLAT does notwarrant interference. There is, therefore, no merit in thechallenge addressed by the appellant. [Paras 34-35] [1096-G-H;1097-A-B]

Indowind Energy Limited v. Wescare (India) LimitedC(2010) 5 SCC 306 : [2010] 5 SCR 284 - distinguished.S.N.Prasad, Hitek Industries (Bihar) Limited v. MonnetFinance Limited (2011) 1 SCC 320 : [2010] 13 SCR207; Chloro Controls India Private Limited v. SevernTrent Water Purification Inc. (2013) 1 SCC 641 : [2012]D13 SCR 402; Duro Felguera, S.A. v Gangavaram PortLimited (2017) 9 SCC 729; State of West Bengal v.Associated Contractors (2015) 1 SCC 32 : [2014] 10SCR 426; Sundaram Finance Limited v. Abdul Samad(2018) 2 SCALE 467; Satish Kumar v Surinder Kumar[1969] 2 SCR 244; Uttam Singh Duggal & Co v. UnionEof India Civil Appeal No 162 of 1962 decided on11.10.1962 – referred to.

Case Law Reference

From the Judgment and Order dated 05.07.2017 and 18.07.2017of the National Company Law Appellate Tribunal at New Delhi inCompany Appeal (AT) No.125 of 2017 and in I.A. No.368 of 2017 inHCompany Appeal (AT) No.125 of 2017 respectively.

CHERAN PROPERTIES LIMITED v. KASTURI AND SONSLIMITED AND ORS.

Dr. A.M. Singhvi, Sr. Adv., Abhinav Shrivastava, Avishkar Singhvi,Kartik Seth, Naveen Dahiya, Ms. Anisha Mahajan, Vabhiv Mishra, RahulGupta, Advs. for the Appellant.

Mukul Rohatgi, Arvind P. Datar, Vikas Singh, Sr. Advs.,Ms. Haripriya Padmanabhan, Ms. Pooja Dhar, Rohan George, ShrutanjayBhardwaj, Anandh Kannan N., Advs. for the Respondents.

The Judgment of the Court was delivered by DR. D. Y. CHANDRACHUD, J. 1. The appeals in the presentcase arise under Section 423 of the Companies Act, 2013 against ajudgment and order of the National Company Law Appellate Tribunal[1]dated 18 July 2017. The NCLAT has dismissed an appeal filed againstan order dated 6 March 2017 of the National Company Law Tribunal[2] atits Chennai Bench.

2. The second respondent is a company by the name of SportingPastime India Limited[3]. It was incorporated on 2 May 1994, as a fullyowned subsidiary of the first respondent, Kasturi & Sons Limited[4]. On19 July 2004 an agreement was entered into between KC Palanisamy[5](the third respondent), KSL (the first respondent) and SPIL and a companyby the name of Hindcorp Resorts Pvt. Ltd. (Hindcorp). Under theagreement SPIL was to allot 240 lakh equity shares of Rs 10 each, fullypaid up at par to KSL against the book debts due by SPIL to KSL. KSLoffered to sell to KCP or his nominees 243 lakh equity shares representing90 per cent of the total paid up share capital for a lumpsum considerationof Rs 2,31,50,000. The intention of the parties, as reflected in theagreement, was that KCP would take over the business, shares andliabilities of SPIL and would discharge the liabilities set out in Schedules2 and 3 of the agreement which were outstanding on the date of theagreement. KCP agreed to discharge the Schedule 2 liabilities within180 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 tosell or transfer their holding in SPIL to any other person of theirchoice, provided the proposed transferees accept the terms and 1 NCLAT

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5 KCP

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1070SUPREME COURT REPORTS

Aconditions mentioned in this agreement for the management ofSPIL and related financial aspects covered by this agreement.”

The agreement contained the following provision for resolution of disputesby arbitration:

“In the unlikely case of dispute arising out of this agreementBrelating to claims and counter claims, the parties hereto agreethat the same shall be referred to Arbitration under he IndianArbitration 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 appointedCshall elect the third arbitrator.”

An amount of Rs 2.5 crores was paid by KCP as against a totalconsideration of Rs 30 crores. Ninety per cent of the shares weretransferred by KSL to KCP and to his nominees in the following manner:

•One share to KCP

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•Ninety five per cent shares to Cheran Properties Limited, theappellant •One share each to Cheran Enterprises Pvt.Ltd., KCP AssociatesHoldings P. Ltd., CG Holdings (P) Ltd. and Cheran Holdings P.Ltd.EOn 17 August 2004, a letter was addressed by KCP acting as theauthorized signatory of the appellant to KSL. The letter specificallycontained a reference to the share purchase agreement dated 19 July2004. The text of the letter is extracted below:

“Re: SHARE PURCHASE AGREEMENT DT.19.7.04F

In pursuance of the above Agreement, you have agreed to selland our Group Companies, by themselves and/or by their nomineeshave agreed to purchase shares in Sporting Pastime India Limitedof a face value of Rs. 2,430 lakhs, for a sum of Rs. 243.00 lakhs.

GAccordingly we send herewith seven Share Transfer Deeds dulyexecuted by us and we request you to execute the same andlodge them with Sporting Pastime India Limited together withrelevant Share Certificates for registering the transfers in theFollowing names :

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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 Limited242,99.994

7. Cherraan Properties LimitedTotal243.00.000

We enclose a Demand Draft no. 788401 dt. 16.08.04, drawn onABN AMRO Bank, for Rs. 2,43,00,000, (Rupees Two Croreslakhs only) towards Share Consideration as above. Kindlyacknowledge receipt thereof.

We will now have to draw up a Supplementary Agreement tothe above Share Purchase Agreement to reflect the alteredconsideration. We will also have to sign all the Annexures to theAgreement.

There are certain outstanding guarantees issued by you, to theparties listed in Schedule 2 to the above Agreement. You arerequested to keep your guarantees in good standing in accordancewith the terms of the Agreement. We shall relieve yourguarantees in accordance with the Agreement”.

3. Since the transaction was not completed by KCP, disputes arosebetween the parties resulting in the commencement of arbitralproceedings. On 16 December 2009 the arbitral tribunal made its awardin the following terms:

“28.0 Award

28.01 In the result this Arbitral Tribunal passes the final Awardin the arbitration matter between M/s Kasturi & Sons LimitedM/s Hindcorp Resorts Private Limited, the claimants and Mr KC Palaniswami and M/s Sporting Pastime India Limited, therespondents:-

(i) Directing the respondents to return to the claimants thedocuments of title and share certificates relating to 2,43,00,000

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Ashares of the second respondent namely Sporting Pastime IndiaLimited, which were handed over earlier to the first respondentpursuant to the agreement dated 19/07/2004 in the mannerfollowing :

(a) The documents of title relating to the second claimant beingBpart of the documents of title referred to above to the secondclaimant, forthwith.

(b) The documents of title pertaining to the first claimant beingpart of the documents of title referred to in (a) above and theshare certificates pertaining to 2,43,00,000 shares referred toabove contemporaneously with the first claimant paying /Ctendering the sum of Rs. 3,58,11,000/- (Rs. Three crores fiftyeight thousand eleven thousand only) to the first respondent asper 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/tenderand thereafter @ 18% p.a. on Rs. 2,50,00,000/- till date ofDpayment / tendering of the amount of Rs. 3,58,11,000/-(ii) Dismissing the counter – claim of the respondents forRs. 8,83,23,086/-

(iii) Directing the respondents to bear the costs of the proceedingsin a sum of Rs. 60,15,000/- the claimants being entitled to theEsame 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 theclaim and the counter-claim.”

Under the terms of the award, a direction was issued under which KCPFand SPIL were required to return documents of title and share certificatesrelating to 2.43 crore shares contemporaneously with KSL paying anamount of Rs 3,58,11,000 together with interest at 12% p.a. on a sum ofRs 2.55 crores.

4. KCP challenged the award of the arbitral tribunal underGSection 34 of the Arbitration and Conciliation Act, 1996. The challengewas repelled by a learned Single Judge of the Madras High Court by ajudgment and order dated 30 April 2015. The appeal filed by KCP wasdismissed by the Division Bench of the High Court on 24 January 2017.This Court dismissed the Special Leave Petition challenging the judgmentof the Division Bench on 10 February 2017. The award has attainedHfinality.

5. KSL initiated proceedings, inter alia, under Section 111 of theCompanies Act, 1956 read with Sections 397, 398, 402 and 403, amongother things, for rectification of the register of SPIL. NCLT allowed thepetition by its order dated 6 March 2017. The decision of the NCLTwas affirmed by NCLAT on 3 May 2017.

6. NCLAT held that the appellant is a nominee of KCP and holdsthe shares in question on his behalf. Hence, NCLT was held to be justifiedin entertaining the proceedings for rectification under Section 111. Forcoming to the conclusion that the appellant is a nominee of KCP andheld the shares on his behalf, reliance has been placed on a judgmentdated 29 April 2011 of the Madras High Court inter partes in anapplication under Section 9 of the Arbitration and Conciliation Act, 1996.The Madras High Court formulated the following questions forconsideration:

“(1) Whether an order of interim injunction can be passed againstthe respondents who are not party to the arbitration agreementor arbitration proceedings;

(2) Whether the respondents 3 to 6 can be said to be nomineesof Sri K. C. Palanisamy so as to be bound by the ArbitrationAward, for passing interim direction against them.”

The High Court came to the conclusion that clause 14 of the agreementdated 19 July 2004 recognise the right of KCP to transfer his holding inSPIL to a person of his choice, provided that the proposed transfereeaccepts the terms and conditions mentioned in the agreement for themanagement of SPIL together with related financial aspects covered bythe agreement. The High Court held that the shares had not been purchasedby the appellant as a matter of an independent right but as a nominee ofKCP. The purchase of the shares was in pursuance of the agreementdated 19 July 2004. Rectification of the register was held to have beenordered 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 Rohtagiand 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 agreementcontained in clause 21 of the agreement dated 19 July 2004.

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This agreement was entered into between KCP, KSL, SPIL andHindcorp. Even though the appellant purchased the shares ofSPIL as a nominee of KCP, the arbitral award which has beenrendered in proceedings between the parties to the agreementdated 19 July 2004 does not bind the appellant; Secondly, the principle that an arbitration agreement will, underSection 7, bind only parties and not a third party in the position ofthe appellant, is settled by the decisions of this Court in IndowindEnergy Limited v Wescare (India) Limited[6] and in S. N.Prasad, Hitek Industries (Bihar) Limited v MonnetFinance Limited[7]; B

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Thirdly, an arbitral award has to be enforced as a decree of acivil court in view of the provisions of Section 36. The arbitralaward could not have been enforced by pursuing proceedingsbefore the NCLT; Fourthly, though a review was sought before the NCLAT onthe basis of the law laid down by this Court in Indowind (supra)it was summarily dismissed on the ground that there was noerror in the original judgment.

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9. Mr Kapil Sibal, learned senior counsel, has basically urged threeEsubmissions in support.

Firstly the appellant ought to have been, but was not impleadedas a party to the arbitral proceedings (obviously because it wasnot a party to the arbitration agreement). The appellant has paidvaluable consideration for the shares purchased by it. KSLproceeded on a wrong legal basis in the first place and hasFcompounded its legally untenable approach by selecting a wrongremedy by moving the NCLT; Secondly,Chloro Controls India Private Limited v SevernTrent Water Purification Inc.[8] does not apply because it dealswith an international arbitration under Section 45 whereas thisGwas a case of a domestic arbitration. The provisions of Section45 must be distinguished from unamended Section 8 of theArbitration and Conciliation Act 1996. The appellant is not a 6 (2010) 5 SCC 306

7 (2011) 1 SCC 320H8 (2013) 1 SCC 641

party to the arbitration agreement and having paid considerationfor its purchase of shares, is not bound by the arbitral award; Thirdly, the decision in Chloro Controlshas been clarifiedby this Court in Duro Felguera, S.A. v Gangavaram PortLimited[9].

10. Dr Abhishek Manu Singhvi has in his submissions addressedthe Court on the following propositions.

Firstly, the arbitral award dated 16 December 2009 cannot beexecuted against the appellant which is admittedly not a signatoryto the agreement dated 19 July 2004 which contains a provisionfor arbitration; Secondly, the arbitral award cannot be executed by a Tribunalsuch as the NCLT/NCLAT in a “camouflaged petition” (underSections 111, 397, 398, 402 and 403 of the Companies Act 1956)which would be barred by Section 42 of the Arbitration andConciliation Act, 1996; Thirdly, the prayer seeking a rectification of the register ofmembers fails to meet the strict requirements of Sections 111and 111 A of the erstwhile Companies Act 1956 and hence thedirection to rectify the register of members is fallacious; Fourthly, NCLAT as well as NCLT have failed to explain ordistinguish the settled principle of law laid down in the judgmentof this Court in Indowind; Fifthly, reliance on the letter dated 17 August 2004 addressedon behalf of the appellant and on the order of the Madras HighCourt 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 ‘party’means a party to the arbitration agreement and which is actuallybefore the arbitral tribunal; Seventhly, for the Chloro Controls principle to be attracted,the following requirements are necessary:

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A(c) the mother agreement must contain an arbitration agreement; (d) agreements ancillary to the mother agreement need notcontain an arbitration agreement; and (e) there must be a finding that the ancillary agreements cannotbe performed in the absence of the mother agreement.

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11. On the other hand, it has been urged on behalf of therespondents that:

Firstly, Clause 14 of the agreement dated 19 July 2004specifically provides that the nominees of KCP would be boundby the agreement. The recognition of the right of KCP to sell ortransfer his holdings in SPIL was expressly subject to the conditionthat the proposed transferees would accept the terms andconditions of the agreement. Such an acceptance wouldnecessarily include all its provisions including the arbitrationagreement contained in clause 21; C

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Secondly, the condition for KCP’s nominees to obtain the sharesof SPIL having been spelt out in clause 14, the appellant is merelya nominee and is not entitled to raise the present dispute; Thirdly, in the order of the High Court dated 29 April 2011 underSection 9 of the Arbitration and Conciliation Act 1996, theappellant was held specifically to be a nominee of KCP whosepurchase of shares was referable to the agreement dated 19July 2004. The appellant which is a party to those proceedingshas not challenged the finding; E

Fourthly, the arbitral award has the status of a decree underFSection 36 and can be enforced “as if” it is a decree of thecourt. Under the Companies Act, no matter relating to the transferof shares can be decided except by the NCLT after 2013. KSLrequires physical custody of the share certificates and rectificationof the share register. Mere transfer of the physical custody ofGthe share certificates wold not be sufficient, since a rectificationof the share register is required to perfect the title of KSL.Consequently, it was necessary for KSL to move the NCLT forrectification of the share register under Section 111; and Fifthly, the principle that an arbitral award may bind a groupcompany, which is an affiliate of a signatory to the arbitration H

agreement has been settled in a judgment of a three judge benchof this Court in Chloro Controls. While there can be no disputeabout the applicability of the Indowind principle in the generalityof cases, attribution of an arbitral award to a group company isgoverned by the decision in Chloro Controls (supra).

12. Mr Mukul Rohtagi and Mr Arvind Datar have countered thesubmissions which were urged on behalf of the appellant. They haveurged that:

Firstly, each of the submissions which are sought to be advancedbefore this Court in the present appeals were urged before theMadras High Court in the proceedings under Section 9. TheMadras High Court has categorically rejected those submissionsand has held that the appellant, at all material times, acted as anominee of KCP under the agreement dated 19 July 2004. Theappellant’s letter of 17 August 2004 categorically contains areference to the earlier agreement and establishes beyond doubtthat the appellant assumed all the obligations under the agreement,including the remedy of arbitration; Secondly,Indowind is essentially a case under Section 11 ofthe Arbitration and Conciliation Act, 1996. In the present casethe Court is dealing with a post award enforcement; Thirdly, Section 35 of the Arbitration and Conciliation Act, 1996indicates that an arbitral award binds parties to an arbitrationand persons claiming under them. The appellant has, at allmaterial times, been aware of the fact that it was claiming underKCP in pursuance of the original agreement dated 19 July 2004and its letter dated 17 August 2004; Fourthly, the judgment in Chloro Controls explains the conceptof a person claiming under a party to an arbitration agreementand is attracted to the present case on all fours; and

Fifthly,theconsequence of the arbitral award is to envisage atransmission of the shares to KSL by operation of law. Thisbeing the position, the CLB could have directed a rectification ofthe register of the company. Upon the constitution of the NCLT,exclusive jurisdiction to do so stands vested in it. The transmissionof shares, as a consequence of law under the arbitral award, has A

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to be given effect to by a formal rectification of the register. Toeffectuate this, the only remedy which is available to KSL wasto move the NCLT for rectification.

13. The rival submissions will now be analysed.

14. Section 7 of the Arbitration and Conciliation Act, 1996 provides Bthus:

“7 Arbitration agreement. —

(1) In this Part, “arbitration agreement” means an agreement bythe parties to submit to arbitration all or certain disputes whichhave arisen or which may arise between them in respect of adefined legal relationship, whether contractual or not.

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(2) An arbitration agreement may be in the form of an arbitrationclause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

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(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 oftelecommunication which provide a record of the agreement; or E

(c) an exchange of statements of claim and defence in whichthe existence of the agreement is alleged by one party and notdenied by the other.

(5) The reference in a contract to a document containing anarbitration clause constitutes an arbitration agreement if theFcontract is in writing and the reference is such as to make thatarbitration clause part of the contract.”

While interpreting Section 7 in Indowind, a two Judge Bench of thisCourt held that:

“It is fundamental that a provision for arbitration to constitute anarbitration agreement for the purpose of Section 7 should satisfytwo conditions: (i) it should be between the parties to the dispute;and (ii) it should relate to or be applicable to the dispute.”

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That was a case where an agreement of sale was entered into betweenW and S. The agreement described S and its nominee as a buyer and as H

the promoter of Indowind. Under the agreement, the seller agreed totransfer to the buyer certain assets for a consideration which was payablepartly in cash and partly by the issue of equity shares. The Board ofDirectors of W accorded approval to the agreement, as did the Boardof S. No approval was, however, granted by the Board of Directors ofIndowind. According to W, certain disputes arose between it and S andIndowind on the other. W filed a petition under Section 11(6) against Sand Indowind for appointment of a sole arbitrator. Indowind resisted thepetition on the ground that it was not a party to the agreement whichwas entered into between W and S. The Chief Justice of the MadrasHigh Court allowed the application for appointment of an arbitrator, holdingthat 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 withIndowind, referring to the agreement which contained an arbitrationagreement, with an intention to make the arbitration agreement a part oftheir agreement. In the view of this Court:

“..The question is when Indowind is not a signatory to theagreement dated 24-2-2006, whether it can be considered to bea “party” to the arbitration agreement. In the absence of anydocument signed by the parties as contemplated under clause(a) of sub-section (4) of Section 7, and in the absence of existenceof an arbitration agreement as contemplated in clauses (b) or(c) of sub-section (4) of Section 7 and in the absence of a contractwhich incorporates the arbitration agreement by reference ascontemplated under sub-section (5) of Section 7, the inescapableconclusion is that Indowind is not a party to the arbitrationagreement. In the absence of an arbitration agreement betweenWescare and Indowind, no claim against Indowind or no disputewith Indowind can be the subject-matter of reference to anarbitrator. This is evident from a plain, simple and normal readingof Section 7 of the Act.”

The fact that the agreement was entered into by S as the promoter ofIndowind and described the latter as its nominee and that the agreementwas signed on behalf of S by a person who was also a director of Indowindwas held not to make any difference. This Court held that S and Indowindwere two independent companies each of which was a separate anddistinct legal entity and the mere fact that the companies had commonshareholders or a common Board of Directors will not make them a AB

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Asingle entity. Nor could there be an inference that one company wouldbe bound by the acts of the other. In the view of this Court:

“..A contract can be entered into even orally. A contract can bespelt out from correspondence or conduct. But an arbitrationagreement is different from a contract. An arbitration agreementBcan come into existence only in the manner contemplated underSection 7. If Section 7 says that an arbitration agreement shouldbe in writing, it will not be sufficient for the petitioner in anapplication under Section 11 to show that there existed an oralcontract between the parties, or that Indowind had transactedwith Wescare, or Wescare had performed certain acts withCreference to Indowind, as proof of arbitration agreement.”

15. The decision in Indowind was followed by a two Judge Benchin Prasad (supra). The issue in that case was whether a guarantor to aloan who is not a party to a loan agreement between the lender andborrower could be made a party to a reference to an arbitration in regardDto a dispute governing the repayment of the loan and be subjected to thearbitral award. The loan agreement contained an arbitration clause. Inthe view of this Court:

“An arbitration agreement between the lender on the one handand the borrower and one of the guarantors on the other, cannotEbe deemed or construed to be an arbitration agreement in respectof another guarantor who was not a party to the arbitrationagreement. Therefore, there was no arbitration agreement asdefined under Sections 7(4)(a) or (b) of the Act, insofar as theappellant was concerned, though there was an arbitrationFagreement as defined under Section 7(4)(a) of the Act in regardto the second and third respondents..”

Consequently, the impleadment of the appellant as party to the arbitrationproceedings and the award were held to be unsustainable. The principlewhich was formulated by the Court was this:

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“..The Act makes it clear that an arbitrator can be appointedunder the Act at the instance of a party to an arbitration agreementonly in respect of disputes with another party to the arbitrationagreement. If there is a dispute between a party to an arbitrationagreement, with other parties to the arbitration agreement asalso non-parties to the arbitration agreement, reference to H

arbitration or appointment of arbitrator can be only with respectto the parties to the arbitration agreement and not the non-parties.”

16. Both these decisions were prior to the three Judge Benchdecision in Chloro Controls (supra). In Chloro Controls this Courtobserved that ordinarily, an arbitration takes place between persons whohave been parties to both the arbitration agreement and the substantivecontract underlying it. English Law has evolved the “group of companiesdoctrine” under which an arbitration agreement entered into by acompany within a group of corporate entities can in certain circumstancesbind non-signatory affiliates. The test as formulated by this Court, noticingthe position in English law, is as follows:

“Though the scope of an arbitration agreement is limited to theparties who entered into it and those claiming under or throughthem, the courts under the English law have, in certain cases,also applied the “group of companies doctrine”. This doctrinehas developed in the international context, whereby an arbitrationagreement entered into by a company, being one within a groupof companies, can bind its non-signatory affiliates or sister orparent concerns, if the circumstances demonstrate that the mutualintention of all the parties was to bind both the signatories andthe non-signatory affiliates. This theory has been applied in anumber of arbitrations so as to justify a tribunal taking jurisdictionover a party who is not a signatory to the contract containing thearbitration agreement. [Russell on Arbitration (23rd Edn.)]

This evolves the principle that a non-signatory party could besubjected to arbitration provided these transactions were withgroup of companies and there was a clear intention of the partiesto bind both, the signatory as well as the non-signatory parties.In other words, “intention of the parties” is a very significantfeature which must be established before the scope of arbitrationcan be said to include the signatory as well as the non-signatoryparties.”

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 asignatory to the arbitration agreement, a ‘direct commonality’ of thesubject matter and on whether the agreement between the parties is apart of a composite transaction:

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A“A non-signatory or third party could be subjected to arbitrationwithout their prior consent, but this would only be in exceptionalcases. The court will examine these exceptions from thetouchstone of direct relationship to the party signatory to thearbitration agreement, direct commonality of the subject-matterand the agreement between the parties being a compositeBtransaction. The transaction should be of a composite naturewhere performance of the mother agreement may not be feasiblewithout aid, execution and performance of the supplementary orancillary agreements, for achieving the common object andcollectively having bearing on the dispute. Besides all this, theCcourt would have to examine whether a composite reference ofsuch parties would serve the ends of justice. Once this exerciseis completed and the court answers the same in the affirmative,the reference of even non-signatory parties would fall within theexception afore-discussed.”

DExplaining the legal basis that may be applied to bind a non-signatory toan arbitration agreement, this Court held thus:

“The first theory is that of implied consent, third-partybeneficiaries, guarantors, assignment and other transfermechanisms of contractual rights. This theory relies on theEdiscernible intentions of the parties and, to a large extent, ongood faith principle. They apply to private as well as public legalentities.

The second theory includes the legal doctrines of agent-principalrelations, apparent authority, piercing of veil (also called “theFalter ego”), joint venture relations, succession and estoppel. Theydo not rely on the parties’ intention but rather on the force of theapplicable law.

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We have already discussed that under the group of companiesdoctrine, an arbitration agreement entered into by a companywithin a group of companies can bind its non-signatory affiliates,if the circumstances demonstrate that the mutual intention of theparties was to bind both the signatory as well as the non-signatoryparties.”

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The position in Indowind was formulated by a Bench of two Judgesbefore the evolution of law in the three Judge Bench decision in ChloroControls. Indowind arose out of a proceeding under Section 11(6).The decision turns upon a construction of the arbitration agreement asan agreement which binds parties to it. The decision in Prasad evidentlyinvolved a guarantee, where the guarantor who was sought to beimpleaded as a party to the arbitral proceeding was not a party to theloan agreement between the lender and borrower. The loan agreementbetween 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 businesstransactions are often effectuated through multiple layers andagreements. There may be transactions within a group of companies.The circumstances in which they have entered into them may reflect anintention to bind both signatory and non-signatory entities within the samegroup. In holding a non-signatory bound by an arbitration agreement, theCourt approaches the matter by attributing to the transactions a meaningconsistent with the business sense which was intended to be ascribed tothem. Therefore, factors such as the relationship of a non-signatory to aparty which is a signatory to the agreement, the commonality of subjectmatter and the composite nature of the transaction weigh in the balance.The group of companies doctrine is essentially intended to facilitate thefulfilment of a mutually held intent between the parties, where thecircumstances indicate that the intent was to bind both signatories andnon-signatories. The effort is to find the true essence of the businessarrangement and to unravel from a layered structure of commercialarrangements, an intent to bind someone who is not formally a signatorybut has assumed the obligation to be bound by the actions of a signatory.

18. International conventions on arbitration as well as theUNCITRAL Model Law mandate that an arbitration agreement mustbe in writing. Section 7 of the Arbitration and Conciliation Act, 1996affirms the same principle. Why does the law postulate that there shouldbe a written agreement to arbitrate? The reason is simple. An agreementto arbitrate excludes the jurisdiction of national courts. Where partieshave agreed to resolve their disputes by arbitration, they seek to substitutea private forum for dispute resolution in place of the adjudicatoryinstitutions constituted by the state. According to Redfern and Hunteron International Arbitration, the requirement of an agreement to arbitrate A

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Ain writing is an elucidation of the principle that the existence of such anagreement should be clearly established, since its effect is to excludethe authority of national courts to adjudicate upon disputes.[10]

19. Does the requirement, as in Section 7, that an arbitrationagreement be in writing exclude the possibility of binding third partiesBwho may not be signatories to an agreement between two contractingentities? The evolving body of academic literature as well as adjudicatorytrends indicate that in certain situations, an arbitration agreement betweentwo or more parties may operate to bind other parties as well. Redfernand Hunter explain the theoretical foundation of this principle:

C“..The requirement of a signed agreement in writing, however,does not altogether exclude the possibility of an arbitrationagreement concluded in proper form between two or more partiesalso binding other parties. Third parties to an arbitrationagreement have been held to be bound by (or entitled to rely on)such an agreement in a variety of ways: first, by operation of theD‘group of companies’ doctrine pursuant to which the benefitsand duties arising from an arbitration agreement may in certaincircumstances be extended to other members of the same groupof companies; and, secondly, by operation of general rules ofprivate law, principally on assignment, agency, andEsuccession..[11]”

The group of companies doctrine has been applied to pierce the corporateveil to locate the “true” party in interest, and more significantly, to targetthe creditworthy member of a group of companies[12]. Though the extensionof this doctrine is met with resistance on the basis of the legal imputationFof corporate personality, the application of the doctrine turns on aconstruction of the arbitration agreement and the circumstances relatingto 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 toGthe process, either by agreeing in their contract to refer any 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

13 Id.2.41 page 100H14 (24th Ed.), 3-025 pages 110-111

disputes arising in the future between them to arbitration or bysubmitting to arbitration when a dispute arises. A party who hasnot so consented, often referred to as a third party or a non-signatory to the arbitration agreement, is usually excluded fromthe arbitration. There are however some occasions when such athird party may be bound by the agreement to arbitrate. Forexample, …, assignees and representatives may become a partyto the arbitration agreement in place of the original signatory onthe basis that they are successors to that party’s interest andclaim “through or under” the original party. The third party canthen be compelled to arbitrate any dispute that arises.”

Garry B Born in his treatise on International Commercial Arbitrationindicates that:

“The principal legal bases for holding that a non-signatory is bound(and benefitted) by an arbitration agreement … include bothpurely 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, Bornnotes:

“Authorities from virtually all jurisdictions hold that a party whohas not assented to a contract containing an arbitration clausemay nonetheless be bound by the clause if that party is an “alterego” of an entity that did execute, or was otherwise a party to,the agreement. This is a significant, but exceptional, departurefrom “the fundamental principle ... that each company in a groupof companies (a relatively modern concept) is a separate legalentity 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 anarbitration agreement where a group of companies exists andthe parties have engaged in conduct (such as negotiation orperformance of the relevant contract) or made statementsindicating the intention assessed objectively and in good faith,that the non-signatory be bound and benefitted by the relevantcontracts.[17]”

15 2nd Ed. Volume 1 page 1418

16 Id at page 1432

17 Id at pages 1448-49

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AWhile the alter ego principle is a rule of law which disregards the effectsof incorporation or separate legal personality, in contrast the group ofcompanies doctrine is a means of identifying the intentions of partiesand does not disturb the legal personality of the entities in question. Inother words :

B“the group of companies doctrine is akin to principles of agencyor implied consent, whereby the corporate affiliations amongdistinct legal entities provide the foundation for concluding thatthey were intended to be parties to an agreement, notwithstandingtheir formal status as non-signatories.[18]”

C20. The decision in Indowind arose from an application underSection 11 of the Arbitration and Conciliation Act 1996. Indowind wasnot a signatory to the contract and was held not to be a party to theagreement to refer disputes to arbitration. Indowind held that anapplication under Section 11 was not maintainable. The present casedoes not envisage a situation of the kind which prevailed before thisDCourt in Indowind. The present case relates to a post award situation.The enforcement of the arbitral award has been sought against theappellant on the basis that it claims under KCP and is bound by theaward. Section 35 of the Arbitration and Conciliation Act 1996 postulatesthat an arbitral award “shall be final and binding on the parties andEpersons claiming under themrespectively”. The expression ‘claimingunder’, in its ordinary meaning, directs attention to the source of theright. The expression includes cases of devolution and assignment ofinterest (Advanced Law Lexicon by P Ramanatha Aiyar[19]). Theexpression “persons claiming under them” in Section 35 widens the netof those whom the arbitral award binds. It does so by reaching out notFonly to the parties but to those who claim under them, as well. Theexpression “persons claiming under them” is a legislative recognition ofthe doctrine that besides the parties, an arbitral award binds every personwhose capacity or position is derived from and is the same as a party tothe proceedings. Having derived its capacity from a party and being inGthe same position as a party to the proceedings binds a person whoclaims under it. The issue in every such a case is whether the personagainst whom the arbitral award is sought to be enforced is one whoclaims under a party to the agreement.

18 Id at page 1450H19 Third Edition, Volume I Page 818

18 Id at page 1450H19 Third Edition, Volume I Page 818

21. Mr Sibal has sought to make a distinction between the provisionsof Section 45 and the unamended Section 8. Section 45, forms a part ofPart II dealing with the enforcement of foreign awards to which theNew York Convention applies. It contemplates a reference by a judicialauthority to arbitration at the request of one of the parties ‘or any personclaiming through or under him’, where there is an arbitration agreement.The submission of Mr Sibal is that a similar expression (‘any personclaiming through or under him’) has been introduced in the amendedprovisions of Section 8 (substituted by Act 3 of 2016 with effect from 23October 2015) but that this expression did not find place in theunamended provision. The submission is a non-sequitur. Both Sections 8and 45 operate in the sphere of the duty of a judicial authority to referparties to arbitration. In the present case Section 35 is the materialprovision, which expressly stipulates that an arbitral award is, final andbinding 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 aparty to the arbitral proceedings, proceedings for the enforcement of theaward will not lie against it. This line of submissions clearly misses thecentral facet of Section 35, which is that a person who claims under aparty is bound by the award. The fact that the appellant was not a partyto the arbitral proceedings will not conclude the question as to whetherthe award can be enforced against it on the ground that it claims undera party. Essentially, the Court is called upon to consider whether the testembodied in Section 35 is fulfilled in the present case, so as to bind theappellant.

23. Under the agreement dated 19 July 2004, KCP was to beoffered 243 lakh equity shares of KSL for a consideration of Rs 2.31crores. The intent of the parties, as evinced in clause 6 of the agreement,was that KCP would take over the business, assets and liabilities ofSPIL. KCP was to discharge those liabilities of SPIL which were specifiedin Schedules 2 and 3 of the agreement. Clause 14 of the agreementrecognises, on the part of KSL, the right of KCP to sell or transfer hisholding in SPIL “provided the proposed transferees accept the termsand conditions mentioned in this agreement” for the management ofSPIL and related financial aspects covered by this agreement.Significantly, on 17 August 2004, KCP addressed a letter to KSL actingas the authorised signatory of the appellant. The letter contains a clear A

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Aand categoric reference to the Share Purchase Agreement dated 19July 2004. The appellant intimated to KSL that it was in pursuance ofthe said agreement that KSL had agreed to sell and “our group ofcompanies by this agreement and/or by themselves and/or by theirnominees have agreed to purchase shares” in SPIL of a face value ofRs 2430 lakhs for a sum of Rs 2.43 crores. Accordingly, the appellantBindicated that it was remitting seven share transfer deeds duly executedand requested KSL to lodge them, upon execution, with SPIL. The partiesin whose favour the transfers were to be registered were described asgroup companies. It was indicated that a supplementary agreement wouldbe drawn up to reflect the altered consideration.

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24. The record establishes that the transfer of shares by KCP tohis nominees was to be on the express condition that the nominee wouldabide by the terms of the agreement in relation to the take over of themanagement of SPIL and related financial aspects. The appellant, whilepurchasing the shares, was not merely aware of the agreement dated 19DJuly 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 theappellant to contend that while it was bound by all other terms of theagreement dated 19 July 2004, it would not be bound by the arbitrationagreement contained in the very same agreement. The arbitral award,as we have noticed, attained finality after all attempts to raise objectionsEto it failed before the High Court and, later, before this Court. Theappellant, in purchasing the shares, was conscious of and accepted theterms of the agreement dated 19 July 2004. Its letter dated 17 August2004 leaves no manner of doubt of the acceptance of this position.

25. The appellant questions the application of the ChloroFControls doctrine. Dr Singhvi urged that in Chloro Controls therewas a joint venture agreement; the mother or parent agreement containedan arbitration clause and though the ancillary agreements did not containan arbitration agreement, they could not have been performed in theabsence of the mother agreement. The submission proceeds on aGconstricted interpretation of the Chloro Controls dictum. The principlewhich underlies Chloro Controls is that an arbitration agreement whichis entered into by a company within a group of companies may bind non-signatory affiliates, if the circumstances are such as to demonstrate themutual intention of the parties to bind both signatories and non-signatories.In applying the doctrine, the law seeks to enforce the common intentionH

of the parties, where circumstances indicate that both signatories andnon-signatories were intended to be bound. In Duro (supra), the casewas held to stand on a different footing since all the five differentpackages as well as the corporate guarantee did not depend on the termsand conditions of the original package nor on the memorandum ofunderstanding executed between the parties. The judgment in Duro doesnot detract from the principle which was enunciated in Chloro Controls.

26. In the present case, as we have seen, the parent agreementdated 19 July 2004 envisaged the allotment of equity shares of KSL toKCP with the intent that KCP would take over the business, assets andliabilities of SPIL. While KCP was entitled to transfer his shareholding,this was expressly subject to the condition of the acceptance by thetransferee of the terms and conditions of the agreement. KCP’s letterdated 17 August 2004 to KSL contains a specific reference to the sharepurchase agreement dated 19 July 2004. It was in pursuance of thatagreement that KCP indicated, as authorised signatory of the appellant,that his group of companies had agreed to purchase the shares 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 alteredconsideration. Eventually, no supplementary agreement was executedand the transaction was structured on the basis of the parent agreementdated 19 July 2004 which the appellant recognised in its letter dated 17August 2004. Having regard to this factual context, the defence of theappellant against the enforcement of the award cannot be accepted. Toallow such a defence to prevail would be to cast the mutual intent of theparties to the winds and to put a premium on dishonesty.

27. The arbitral award envisaged that KSL was entitled to thereturn of documents of title and the certificates pertaining to the sharesof SPIL contemporaneously with the payment or tendering of a sum ofRs 3.58 crores together with interest. KSL is in terms of the arbitralaward entitled to the share certificates. That necessarily means thetransfer of the share certificates. To effectuate the transfer, recourse tothe remedy of the rectification of the register under Section 111 was butappropriate and necessary. The arbitral award has the character of adecree of a civil court under Section 36 and is capable of being enforcedas if it were a decree. Armed with that decree, KSL was entitled to seekrectification before the NCLT by invoking the provisions of Section 111of the Companies Act, 1956. There can be, therefore, no question about AB

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Athe jurisdiction of NCLT to pass an appropriate order directing rectificationof the register.

28. We have not been impressed with the submission that theapplication by KSL to the NCLT was not maintainable since the Tribunalhas no power to execute an arbitral award. The submission proceeds onBfinding of the Tribunal that the purpose of the petition before it was toimplement the award dated 16 December 2009 and that its ultimatedirection is to the same effect. The submission relies on the provisionsof Section 42 of the 1996 Act which provides as follows:

“42. Jurisdiction. -Notwithstanding anything contained elsewhereCin this Part or in any other law for the time being in force, wherewith respect to an arbitration agreement any application underthis Part has been made in a court, that court alone shall havejurisdiction over the arbitral proceedings and all subsequentapplications arising out of that agreement and the arbitralproceedings shall be made in that court and in no other court.”DWhile dealing with the submission it is necessary to note that the awardof the arbitral tribunal mandates that the appellant must return the sharecertificates relating to 2.43 crore shares of SPIL which were handedover in terms of the agreement dated 19 July 2004 against the paymentof the consideration stipulated in the award. The transfer of the shareEcertificates by the appellant will be effectual only by the rectification ofthe register of the company. The mere handing over of a share certificateswill not constitute due implementation of the award. The awardcontemplates the transmission of the shares which stood in the name ofthe appellant in pursuance of the agreement dated 19 July 2004, to theFclaimant in the arbitral proceedings. This necessitated an applicationunder Section 111 for the purpose of securing a rectification of the register.Sub-section 4 of Section 111 deals with a situation where a default ismade in entering in the register, the fact of any person having become amember of the company. Under sub-section 5 while hearing the appeal,the Tribunal is entitled to direct that the transfer or transmission shall beGregistered by the company and to order rectification of the register.

29. In the present case, the arbitral award required the shares tobe transmitted to the claimants. The arbitral award attained finality. Theaward could be enforced in accordance with the provisions of the Codeof Civil Procedure, in the same manner as if it were a decree of theHCourt. The award postulates a transmission of shares to the claimant.

The directions contained in the award can be enforced only by movingthe Tribunal for rectification in the manner contemplated by law.

30. The reliance which has been sought to be placed on theprovisions of Section 42 of the 1996 Act is inapposite. Dr Singhvi reliedon the decision in State of West Bengal v Associated Contractors[20].The principle which was enunciated in the judgment of this Court wasas follows:

“If an application were to be preferred to a court which is not aPrincipal Civil Court of original jurisdiction in a district or a HighCourt exercising original jurisdiction to decide questions formingthe subject matter of an arbitration if the same had been thesubject matter of a suit, then obviously such application wouldbe outside the four corners of Section 42. If, for example, anapplication were to be filed in a court inferior to a Principal CivilCourt, or to a High Court which has no original jurisdiction, or ifan application were to be made to a court which has no subject-matter jurisdiction, such application would be outside Section 42and would not debar subsequent applications from being filed ina court other than such court.”

The conclusion of the Court is in the following terms:

“(a) Section 2(1)(e) contains an exhaustive definition markingout only the Principal Civil Court of Original Jurisdiction in adistrict or a High Court having original civil jurisdiction in theState, and no other court as “court” for the purpose of Part I ofthe Arbitration Act, 1996.

(b) The expression “with respect to an arbitration agreement”makes it clear that Section 42 will apply to all applications madewhether before or during arbitral proceedings or after an awardis pronounced under Part I of the 1996 Act.

(c) However, Section 42 only applies to applications made underPart I if they are made to a court as defined. Since applicationsmade under Section 8 are made to judicial authorities and sinceapplications under Section 11 are made to the Chief Justice orhis designate, the judicial authority and the Chief Justice or hisdesignate not being court as defined, such applications would beoutside Section 42.

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A(d) Section 9 applications being applications made to a court andSection 34 applications to set aside arbitral awards areapplications which are within Section 42.

(e) In no circumstances can the Supreme Court be “court” forthe purposes of Section 2(1)(e), and whether the Supreme CourtBdoes or does not retain seisin after appointing an arbitrator,applications will follow the first application made before either aHigh Court having original jurisdiction in the State or a PrincipalCivil Court having original jurisdiction in the district, as the casemay be.

(f) Section 42 will apply to applications made after the arbitralCproceedings have come to an end provided they are made underPart I.

(g) If a first application is made to a court which is neither aPrincipal Court of Original Jurisdiction in a district or a HighCourt exercising original jurisdiction in a State, such applicationDnot being to a court as defined would be outside Section 42.Also, an application made to a court without subject-matterjurisdiction would be outside Section 42.”

31. More recently in Sundaram Finance Limited v AbdulSamad[21], this Court considered the divergence of legal opinion in theEHigh Courts on the question as to whether an award under the 1996 Actis required to be first filed in the Court having jurisdiction over the arbitralproceedings for execution, to be followed by a transfer of the decree orwhether the award could be filed and executed straight-away in theCourt where the assets are located. Dealing with the provisions of Section36, Justice Sanjay Kishan Kaul observed thus:F

“The aforesaid provision would show that an award is to beenforced in accordance with the provisions of the said code inthe same manner as if it were a decree. It is, thus, the enforcementmechanism, which is akin to the enforcement of a decree butthe award itself is not a decree of the civil court as no decreeGwhatsoever is passed by the civil court. It is the arbitral tribunal,which renders an award and the tribunal does not have the powerof execution of a decree. For the purposes of execution of adecree the award is to be enforced in the same manner as if itwas a decree under the said Code.”

H21 (2018) 2 SCALE 467

Explaining the provisions of Section 42 the Court held that:

“The aforesaid provision, however, applies with respect to anapplication being filed in Court under Part I. The jurisdiction isover the arbitral proceedings. The subsequent application arisingfrom that agreement and the arbitral proceedings are to be madein that court alone. However, what has been lost sight of is Section32 of the said Act, which reads as under: “32. Termination ofproceedings.— (1) The arbitral proceedings shall be terminatedby the final arbitral award or by an order of the arbitral tribunalunder sub-section (2). (2) The arbitral tribunal shall issue an orderfor the termination of CIVIL APPEAL No.1650 of 2018 Page17 of 21 the arbitral proceedings where — (a) the claimantwithdraws his claim, unless the respondent objects to the orderand the arbitral tribunal recognises a legitimate interest on hispart in obtaining a final settlement of the dispute, (b) the partiesagree on the termination of the proceedings, or (c) the arbitraltribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. (3) Subjectto section 33 and sub-section (4) of section 34, the mandate ofthe arbitral tribunal shall terminate with the termination of thearbitral proceedings.”

19. The aforesaid provision provides for arbitral proceedings tobe terminated by the final arbitral award. Thus, when an awardis already made, of which execution is sought, the arbitralproceedings already stand terminated on the making of the finalaward. Thus, it is not appreciated how Section 42 of the saidAct, which deals with the jurisdiction issue in respect of arbitralproceedings, would have any relevance..”

Consequently, in the view of the Court, the enforcement of an awardthrough its execution can be initiated anywhere in the country where thedecree can be executed and there is no requirement of obtaining a transferof the decree from the Court which would have jurisdiction over thearbitral proceedings.

32. In the present case, the arbitral award, in essence, postulatesthe transmission of shares from the appellant to the claimant. The onlyremedy available for effectuating the transmission is that which wasprovided in Section 111 for seeking a rectification of the register. Thereis, therefore, no merit in the challenge addressed by the appellant.

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33. We may also note the fact that in the proceedings before theMadras High Court under Section 9, it was held that the purchase ofshares by the appellant was as a nominee of KCP and not by way of anindependent right. The purchase was held to be referable to the agreementdated 19 July 2004. There has been no challenge to this finding.

BThe Madras High Court held thus:

“The reading of the letter issued by the third respondent seekingtransfer and registration of shares shown that reference wasmade to the agreement dated 19.7.2004 which was in disputebefore the Arbitration Tribunal. Nothing has been produced onrecord to show, if any fresh agreement was executed as suggestedin the letter, seeking transfer of shares in favour of the personmentioned in the letter written by the third respondent, nor anydocuments have been placed on record to show as to whetherthe respondent took over the liabilities, which were met by theapplicant, and finally held to be binding on first respondent.

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In the absence of execution of new agreement, no otherconclusion then the one that the transaction was in terms of theagreement, entered into between the parties to arbitration canbe arrived at.”

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“At the sake of repetition, it may be mentioned that the readingof the letter dated 18.8.2004 on which reliance was placed bythe third respondent shows that clear reference was made tothe agreement dated 19.7.2004 entered into between the applicantand the first respondent.”

FThe High Court further held thus:

“The respondents 3 to 6 have purchased the shares, as nomineesof the first respondent and not as of independent right. Nomaterial other than the agreement dated 19.7.2004 has been placedon record to show that the respondents 3 to 6 exercises theirGindependent right to purchase the shares.”

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“The contention of Mr. V. Prakash, learned Senior counsel thatthe respondents 4 to 6 cannot be treated as nominees of the firstrespondent cannot be sustained, as shares were transferred, in H

pursuance to the letter dated 18.8.2004 addressed by the thirdrespondent, for registration of the transfer deed by referring tothe agreement dated 19.7.2004. Thus, the second question isalso answered by holding that the respondents 2 to 6 purchasedthe shares, as the nominees of the first respondent.”

We have referred to the above findings for the completeness of therecord. These findings of the Madras High Court would indicate thatvirtually everyone of the submission which was urged before this Courthave been negatived.

34. Finally, having covered the entire gamut of submissions whichwere urged on behalf of the appellant, it would be worthwhile to revisitthe fundamental principles which were formulated nearly fifty yearsago in a judgment of a three judge Bench of this Court in Satish Kumarv Surinder Kumar[22]. That case arose under the provisions of the IndianArbitration Act 1940. The question which arose before this Court waswhether an award under the Act requires registration under Section17(1)(b) of the Registration Act, if it effects partition of immovableproperty above the value of Rs 100. A Full Bench of the Patna HighCourt held that unless a decree is passed in terms of the award (in termsof the position as it stood under the 1940 Act) it had no legal effect. Inholding thus, the Patna High Court had relied upon a Punjab Full Benchdecision holding that under the Arbitration Act 1940, an award waseffective only when a decree follows a judgment on the award. ThePunjab 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 Courtheld that the two Full Benches had taken a view contrary to thatformulated 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 notin dispute. It is well settled that as a general rule, all claims whichare the subject-matter of a reference to arbitration merge in theaward which is pronounced in the proceedings before thearbitrator and that after an award has been pronounced, the rightsand liabilities of the parties in respect of the said claims can bedetermined only on the basis of the said award. After an awardis pronounced, no action can be started on the original claim 22 (1969) 2 SCR 244

23 Civil Appeal No 162 of 1962 – judgment delivered on 11 October 1962

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Awhich had been the subject-matter of the reference. As hasbeen observed by Mookerjee, J., in the case of BhajahariSaha Banikya v. Behary Lal Basak [33 Col 881 at p 898]the award is, in fact, a final adjudication of a Court of theparties own choice, and until impeached upon sufficientgrounds in an appropriate proceeding, an award, which isBon the fact of it regular, is conclusive upon the merits ofthe controversy submitted, unless possibly the partieshave intended that the award shall not be final andconclusive … in reality, an award possesses all theelements of vitality, even though it has not been formallyCenforced, and it may be relied upon in a litigation betweenthe parties relating to the same subject-matter”. Thisconclusion, according to the learned Judge, is based upon theelementary principle that, as between the parties and theirprivies, an award is entitled to that respect which is dueto the judgment of a court of last resort. Therefore, if theDaward which has been pronounced between the parties has infact, or can, in law, be deemed to have dealt with the presentdispute, the second reference would be incompetent. This positionalso has not been and cannot be seriously disputed.”

(emphasis supplied)

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The above position was followed in Satish Kumar (supra) as stating abinding principle of law. The earlier decision was reiterated in thefollowing observations:

“In our opinion this judgment lays down that the positionFunder the Act is in no way different from what it was beforethe Act came into force, and that an award has some legalforce and is not a mere waste paper. If the award in questionis not a mere waste paper but has some legal effect it plainlypurports to or affects property within the meaning of Section17(1)(b) of the Registration Act.”

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(emphasis supplied)

The present case which arises under the Arbitration and ConciliationAct 1996 stands on even a higher pedestal. Under the provisions ofSection 35, the award can be enforced in the same manner as if it werea decree of the Court. The award has attained finality. The transmissionH

of shares as mandated by the award could be fully effectuated byobtaining a rectification of the register under Section 111 of the CompaniesAct. The remedy which was resorted to was competent. The view ofthe NCLT, which has been affirmed by the NCLAT does not warrantinterference.

35. For the above reasons, we are of the view that the appealsare lacking in merit. The appeals shall stand dismissed.

Nidhi Jain Appeals dismissed.

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