# CHERAN PROPERTIES LIMITED v. KASTURI AND SONS LIMITED AND ORS

- **Citation:** [2018] 4 S.C.R. 1063
- **Court:** Supreme Court of India
- **Decided:** 2018-04-24
- **Case number:** Civil Appeal Nos. 10025-10026 OF 2017
- **Bench:** Dipak Misra, A. M. Khanwilkar, Dr. D. Y. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/cheran-properties-limited-v-kasturi-and-sons-limited-and-ors-32754
- **Pages:** 35

## Headnote

Arbitration and Conciliation Act, 1996: ss. 35, 36, 7 - Finality
of awards - Enforcement - Arbitration agreement - Binding on third
parties who may not be signatories to an agreement between two
contracting parties - Held: Section 35 postulates that an arbitral
award "shall be final and binding on the parties and persons
claiming under them respectively - Expression "persons claiming
under them" is a legislative recognition of the doctrine that besides
the parties, an arbitral award binds every person whose capacity
or position is derived from and is the same as a party to the
proceedings - Furthermore, arbitral award has the character of a
decree of a civil court u/s. 36 and is capable of being enforced as if
it were a decree - On facts, dispute between parties resulting in
commencement of arbitral proceedings wherein arbitral award
passed - Said award could be enforced against appellant companynominee even though appellant was not signatory to the arbitration
proceedings - Arbitral award requiring transmission of shares,
having attained finality, could be enforced in the same manner as if
it were a decree of the court - Further, the transmission of shares to
the claimants as mandated by the award could be fully effectuated
by obtaining rectification of the register before NCLT by invoking
provision of s. 111 - NCLT rightly exercised the jurisdiction to pass
an order directing rectification of the register which was upheld by
NCLAT - Thus, no merit in the challenge raised by the appellant -
Companies Act, 1956 - s. 111.
KCP-third respondent, KSL-first respondent, SPIL and
HRP company entered into an agreement whereby, SPIL was to
allot 240 lakh equity shares to KSL against the book debts due
by it to KSL. KSL offered to sell the shares to KCP. KCP agreed
to take over the business, shares and liabilities of SPIL and would
discharge the liabilities. However, KCP did not complete the
transaction. Disputes arose between the parties resulting in
[2018] 4 S.C.R. 1063
1063
A
B
C
D
E
F
G
H
1064
SUPREME COURT REPORTS
[2018] 4 S.C.R.
arbitral proceedings. An award was passed directing KCP and
SPIL to return documents of title and share certificates relating
to 2.43 crore shares to KSL and KSL would pay or tender a sum
of 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 the
petition. Thereafter, NCLAT held that the appellant is a nominee
of KCP and holds the shares in question, hence, NCLT was
justified in entertaining the proceedings for rectification u/s. 111.
Hence the present appeals.
Dismissing the appeals, the Court
HELD: 1.1 The modern business transactions are often
effectuated through multiple layers and agreements. There may
be transactions within a group of companies. The circumstances
in which they have entered into them may reflect an intention to
bind both signatory and non-signatory entities within the same
group. In holding a non-signatory bound by an arbitration
agreement, the Court approaches the matter by attributing to
the transactions a meaning consistent with the business sense
which was intended to be ascribed to them. Therefore, factors
such as the relationship of a non-signatory to a party which is a
signatory to the agreement, the commonality of subject matter
and the composite nature of the transaction weigh in the balance.
The group of companies doctrine is essentially intended to
facilitate the fulfilment of a mutually held intent between the
parties, where the circumstances indicate that the intent was to
bind both signatories and non-signatories. The effort is to find
the true essence of the business arrangement and to unravel
from a layered structure of commercial arrangements, an intent
to bind someone who is not formally a signatory but has assumed
the obligation to be bound by the actions of a signatory. [Para 17]
[1083-C-F]
International Arbitration by Redfern and

## Text

_Characters 0–39,931 of 79,315. This is a partial read: ask again with offset=39931 for what follows._

A
B
C
D
E
F
G
H
1063
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 AND
DR. D. Y. CHANDRACHUD, JJ.]
Arbitration and Conciliation Act, 1996: ss. 35, 36, 7 - Finality
of awards - Enforcement - Arbitration agreement - Binding on third
parties who may not be signatories to an agreement between two
contracting parties - Held: Section 35 postulates that an arbitral
award "shall be final and binding on the parties and persons
claiming under them respectively - Expression "persons claiming
under them" is a legislative recognition of the doctrine that besides
the parties, an arbitral award binds every person whose capacity
or position is derived from and is the same as a party to the
proceedings - Furthermore, arbitral award has the character of a
decree of a civil court u/s. 36 and is capable of being enforced as if
it were a decree - On facts, dispute between parties resulting in
commencement of arbitral proceedings wherein arbitral award
passed - Said award could be enforced against appellant companynominee even though appellant was not signatory to the arbitration
proceedings - Arbitral award requiring transmission of shares,
having attained finality, could be enforced in the same manner as if
it were a decree of the court - Further, the transmission of shares to
the claimants as mandated by the award could be fully effectuated
by obtaining rectification of the register before NCLT by invoking
provision of s. 111 - NCLT rightly exercised the jurisdiction to pass
an order directing rectification of the register which was upheld by
NCLAT - Thus, no merit in the challenge raised by the appellant -
Companies Act, 1956 - s. 111.
KCP-third respondent, KSL-first respondent, SPIL and
HRP company entered into an agreement whereby, SPIL was to
allot 240 lakh equity shares to KSL against the book debts due
by it to KSL. KSL offered to sell the shares to KCP. KCP agreed
to take over the business, shares and liabilities of SPIL and would
discharge the liabilities. However, KCP did not complete the
transaction. Disputes arose between the parties resulting in
[2018] 4 S.C.R. 1063
1063
A
B
C
D
E
F
G
H
1064
SUPREME COURT REPORTS
[2018] 4 S.C.R.
arbitral proceedings. An award was passed directing KCP and
SPIL to return documents of title and share certificates relating
to 2.43 crore shares to KSL and KSL would pay or tender a sum
of 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 the
petition. Thereafter, NCLAT held that the appellant is a nominee
of KCP and holds the shares in question, hence, NCLT was
justified in entertaining the proceedings for rectification u/s. 111.
Hence the present appeals.
Dismissing the appeals, the Court
HELD: 1.1 The modern business transactions are often
effectuated through multiple layers and agreements. There may
be transactions within a group of companies. The circumstances
in which they have entered into them may reflect an intention to
bind both signatory and non-signatory entities within the same
group. In holding a non-signatory bound by an arbitration
agreement, the Court approaches the matter by attributing to
the transactions a meaning consistent with the business sense
which was intended to be ascribed to them. Therefore, factors
such as the relationship of a non-signatory to a party which is a
signatory to the agreement, the commonality of subject matter
and the composite nature of the transaction weigh in the balance.
The group of companies doctrine is essentially intended to
facilitate the fulfilment of a mutually held intent between the
parties, where the circumstances indicate that the intent was to
bind both signatories and non-signatories. The effort is to find
the true essence of the business arrangement and to unravel
from a layered structure of commercial arrangements, an intent
to bind someone who is not formally a signatory but has assumed
the obligation to be bound by the actions of a signatory. [Para 17]
[1083-C-F]
International Arbitration by Redfern and Hunter, Fifth
Edn 2.13, p.89-90, 99, 2.40 p 100, 2.41 p 100; Russel
on Arbitration 24th Edn, 3-025 pages 110-111; Treatise
on International Commercial Arbitration by Garry B
Born 2nd Ed. Volume 1 p 1418 - referred to.
1.2 The instant case relates to a post award situation. The
enforcement of the arbitral award has been sought against the
A
B
C
D
E
F
G
H
1065
appellant on the basis that it claims under KCP and is bound by
the award. Section 35 of the Arbitration and Conciliation Act 1996
postulates that an arbitral award "shall be final and binding on
the parties and persons claiming under them respectively". The
expression 'claiming under', in its ordinary meaning, directs
attention to the source of the right. The expression includes cases
of devolution and assignment of interest. The expression
"persons claiming under them" in Section 35 widens the net of
those whom the arbitral award binds. It does so by reaching out
not only to the parties but to those who claim under them, as
well. The expression "persons claiming under them" is a
legislative recognition of the doctrine that besides the parties,
an arbitral award binds every person whose capacity or position
is derived from and is the same as a party to the proceedings.
Having derived its capacity from a party and being in the same
position as a party to the proceedings binds a person who claims
under it. The issue in every such a case is whether the person
against whom the arbitral award is sought to be enforced is one
who claims under a party to the agreement. [Para 20] [1086-D-G]
Advanced Law Lexicon by P Ramanatha Aiyar Third
Edn Volume I p 818 - referred to.
1.3 The fact that the appellant was not a party to the arbitral
proceedings will not conclude the question as to whether the
award can be enforced against it on the ground that it claims under
a party. Essentially, the Court is called upon to consider whether
the 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 of
KSL, the right of KCP to sell or transfer his holding in SPIL
"provided the proposed transferees accept the terms and
conditions mentioned in this agreement" for the management of
SPIL and related financial aspects covered by this agreement.
KCP addressed a letter to KSL acting as the authorised signatory
of the appellant. The letter contained a clear and categoric
reference to the Share Purchase Agreement. The appellant
intimated to KSL that it was in pursuance of the said agreement
that KSL had agreed to sell and "our group of companies by this
agreement and/or by themselves and/or by their nominees have
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS.
A
B
C
D
E
F
G
H
1066
SUPREME COURT REPORTS
[2018] 4 S.C.R.
agreed to purchase shares" in SPIL of a face value of Rs 2430
lakhs for a sum of Rs 2.43 crores. Accordingly, the appellant
indicated that it was remitting seven share transfer deeds duly
executed and requested KSL to lodge them, upon execution, with
SPIL. The parties in whose favour the transfers were to be
registered were described as group companies. It was indicated
that a supplementary agreement would be drawn up to reflect
the altered consideration. [Para 23] [1087-G-H; 1088-A-C]
1.5 The record established that the transfer of shares by
KCP to his nominees was to be on the express condition that the
nominee would abide by the terms of the agreement in relation
to the take over of the management of SPIL and related financial
aspects. The appellant, while purchasing the shares, was not
merely aware of the agreement but expressly sought the allotment
of shares in pursuance to it, to its group companies. In this
background, it would not be open to the appellant to contend
that while it was bound by all other terms of the agreement, it
would not be bound by the arbitration agreement contained in
the very same agreement. The arbitral award 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. Its letter leaves no manner of doubt of the acceptance
of this position. [Para 24] [1088-C-E]
1.6 The parent agreement envisaged the allotment of equity
shares of KSL to KCP with the intent that KCP would take over
the business, assets and liabilities of SPIL. While KCP was entitled
to transfer his shareholding, this was expressly subject to the
condition of the acceptance by the transferee of the terms and
conditions of the agreement. KCP's letter to KSL contains a
specific reference to the share purchase agreement. It was in
pursuance of that agreement that KCP indicated, as authorised
signatory of the appellant, that his group of companies had agreed
to purchase the shares in SPIL. The shares were to be purchased
by several entities in the same group. A supplementary agreement
was to be entered into, to reflect the altered consideration.
Eventually, no supplementary agreement was executed and the
transaction was structured on the basis of the parent agreement
A
B
C
D
E
F
G
H
1067
which the appellant recognised in its letter. Having regard to
this factual context, the defence of the appellant against the
enforcement of the award cannot be accepted. [Para 26] [1089-B-E]
1.7 The arbitral award envisaged that KSL was entitled to
the return of documents of title and the certificates pertaining to
the shares of SPIL contemporaneously with the payment or
tendering of a sum of Rs 3.58 crores together with interest. KSL
is in terms of the arbitral award entitled to the share certificates.
That necessarily means the transfer of the share certificates. To
effectuate the transfer, recourse to the remedy of the rectification
of the register under Section 111 was but appropriate and
necessary. The arbitral award has the character of a decree of a
civil court under Section 36 and is capable of being enforced as if
it were a decree. Armed with that decree, KSL was entitled to
seek rectification before the NCLT by invoking the provisions
of Section 111 of the Companies Act, 1956. There can be,
therefore, no question about the jurisdiction of NCLT to pass an
appropriate order directing rectification of the register. [Para 27]
[1089-F-H; 1090-A]
1.8 The submission that the application by KSL to the NCLT
was not maintainable since the tribunal has no power to execute
an arbitral award, cannot be accepted. The submission proceeds
on finding of the tribunal that the purpose of the petition before it
was to implement the award and that its ultimate direction is to
the same effect. The submission relies on the provisions of Section
42 of the 1996 Act. It is necessary to note that the award of the
arbitral tribunal mandates that the appellant must return the share
certificates relating to 2.43 crore shares of SPIL which were
handed over in terms of the agreement against the payment of
the consideration stipulated in the award. The transfer of the share
certificates by the appellant will be effectual only by the
rectification of the register of the company. The mere handing
over of a share certificates will not constitute due implementation
of the award. The award contemplates the transmission of the
shares which stood in the name of the appellant in pursuance of
the agreement, to the claimant in the arbitral proceedings. This
necessitated an application under Section 111 for the purpose of
securing a rectification of the register. [Para 28] [1090-B, D-G]
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS.
A
B
C
D
E
F
G
H
1068
SUPREME COURT REPORTS
[2018] 4 S.C.R.
1.9 Under the provisions of Section 35, the award can be
enforced in the same manner as if it were a decree of the Court.
The award has attained finality. The transmission of shares as
mandated by the award could be fully effectuated by obtaining a
rectification of the register under Section 111 of the Companies
Act. The remedy which was resorted to was competent. The view
of the NCLT, which has been affirmed by the NCLAT does not
warrant interference. There is, therefore, no merit in the
challenge addressed by the appellant. [Paras 34-35] [1096-G-H;
1097-A-B]
Indowind Energy Limited v. Wescare (India) Limited
(2010) 5 SCC 306 : [2010] 5 SCR 284 - distinguished.
S.N.Prasad, Hitek Industries (Bihar) Limited v. Monnet
Finance Limited (2011) 1 SCC 320 : [2010] 13 SCR
207; Chloro Controls India Private Limited v. Severn
Trent Water Purification Inc. (2013) 1 SCC 641 : [2012]
13 SCR 402; Duro Felguera, S.A. v Gangavaram Port
Limited (2017) 9 SCC 729; State of West Bengal v.
Associated Contractors (2015) 1 SCC 32 : [2014] 10
SCR 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. Union
of India Civil Appeal No 162 of 1962 decided on
11.10.1962 - referred to.
Case Law Reference
[2010] 5 SCR 284
distinguished
Para 20
[2010] 13 SCR 207
referred to
Para 8
[2012] 13 SCR 402
referred to
Para 9
(2017) 9 SCC 729
referred to
Para 9
[2014] 10 SCR 426
referred to
Para 30
(2018) 2 SCALE 467
referred to
Para 31
[1969] 2 SCR 244
referred to
Para 34
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1002510026 of 2017.
From the Judgment and Order dated 05.07.2017 and 18.07.2017
of the National Company Law Appellate Tribunal at New Delhi in
Company Appeal (AT) No.125 of 2017 and in I.A. No.368 of 2017 in
Company Appeal (AT) No.125 of 2017 respectively.
A
B
C
D
E
F
G
H
1069
Dr. A.M. Singhvi, Sr. Adv., Abhinav Shrivastava, Avishkar Singhvi,
Kartik Seth, Naveen Dahiya, Ms. Anisha Mahajan, Vabhiv Mishra, Rahul
Gupta, Advs. for the Appellant.
Mukul Rohatgi, Arvind P. Datar, Vikas Singh, Sr. Advs.,
Ms. Haripriya Padmanabhan, Ms. Pooja Dhar, Rohan George, Shrutanjay
Bhardwaj, 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 present
case arise under Section 423 of the Companies Act, 2013 against a
judgment and order of the National Company Law Appellate Tribunal1
dated 18 July 2017. The NCLAT has dismissed an appeal filed against
an order dated 6 March 2017 of the National Company Law Tribunal2 at
its Chennai Bench.
2.The second respondent is a company by the name of Sporting
Pastime India Limited3. It was incorporated on 2 May 1994, as a fully
owned subsidiary of the first respondent, Kasturi & Sons Limited4. On
19 July 2004 an agreement was entered into between KC Palanisamy5
(the third respondent), KSL (the first respondent) and SPIL and a company
by the name of Hindcorp Resorts Pvt. Ltd. (Hindcorp). Under the
agreement SPIL was to allot 240 lakh equity shares of Rs 10 each, fully
paid up at par to KSL against the book debts due by SPIL to KSL. KSL
offered to sell to KCP or his nominees 243 lakh equity shares representing
90 per cent of the total paid up share capital for a lumpsum consideration
of Rs 2,31,50,000. The intention of the parties, as reflected in the
agreement, was that KCP would take over the business, shares and
liabilities of SPIL and would discharge the liabilities set out in Schedules
2 and 3 of the agreement which were outstanding on the date of the
agreement. KCP agreed to discharge the Schedule 2 liabilities within
180 days from the date on which he took over management of SPIL.
Clause 14 of the agreement was to the following effect:
"KSL hereby recognise the right of KCP and/or his nominees to
sell or transfer their holding in SPIL to any other person of their
choice, provided the proposed transferees accept the terms and
1 NCLAT
2 NCLT
3 SPIL
4 KSL
5 KCP
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS.
A
B
C
D
E
F
G
H
1070
SUPREME COURT REPORTS
[2018] 4 S.C.R.
conditions mentioned in this agreement for the management of
SPIL and related financial aspects covered by this agreement."
The agreement contained the following provision for resolution of disputes
by arbitration:
"In the unlikely case of dispute arising out of this agreement
relating to claims and counter claims, the parties hereto agree
that the same shall be referred to Arbitration under he Indian
Arbitration Law. The arbitration shall be by three arbitrators.
KCP shall be entitled to appoint one arbitrator. KSL shall be
entitled to appoint one arbitrator. The two arbitrators so appointed
shall elect the third arbitrator."
An amount of Rs 2.5 crores was paid by KCP as against a total
consideration of Rs 30 crores. Ninety per cent of the shares were
transferred by KSL to KCP and to his nominees in the following manner:
•
One share to KCP
•
Ninety five per cent shares to Cheran Properties Limited, the
appellant
•
One share each to Cheran Enterprises Pvt.Ltd., KCP Associates
Holdings P. Ltd., CG Holdings (P) Ltd. and Cheran Holdings P.
Ltd.
On 17 August 2004, a letter was addressed by KCP acting as the
authorized signatory of the appellant to KSL. The letter specifically
contained a reference to the share purchase agreement dated 19 July
2004. The text of the letter is extracted below:
"Re: SHARE PURCHASE AGREEMENT DT.19.7.04
In pursuance of the above Agreement, you have agreed to sell
and our Group Companies, by themselves and/or by their nominees
have agreed to purchase shares in Sporting Pastime India Limited
of a face value of Rs. 2,430 lakhs, for a sum of Rs. 243.00 lakhs.
Accordingly we send herewith seven Share Transfer Deeds duly
executed by us and we request you to execute the same and
lodge them with Sporting Pastime India Limited together with
relevant Share Certificates for registering the transfers in the
Following names :
A
B
C
D
E
F
G
H
1071
1.
C G Holdings (P) Ltd.
2.
Cheran Holdings P Ltd.
3.
KCP Associates Holdings P. Ltd
4.
Mr K C Palanisomi
5.
Cheraan Properties Limited
6.
Cherraan Properties Limited
242,99.994
7.
Cherraan Properties Limited
Total
243.00.000
We enclose a Demand Draft no. 788401 dt. 16.08.04, drawn on
ABN AMRO Bank, for Rs. 2,43,00,000, (Rupees Two Crores
lakhs only) towards Share Consideration as above. Kindly
acknowledge receipt thereof.
We will now have to draw up a Supplementary Agreement to
the above Share Purchase Agreement to reflect the altered
consideration. We will also have to sign all the Annexures to the
Agreement.
There are certain outstanding guarantees issued by you, to the
parties listed in Schedule 2 to the above Agreement. You are
requested to keep your guarantees in good standing in accordance
with the terms of the Agreement. We shall relieve your
guarantees in accordance with the Agreement".
3. Since the transaction was not completed by KCP, disputes arose
between the parties resulting in the commencement of arbitral
proceedings. On 16 December 2009 the arbitral tribunal made its award
in the following terms:
"28.0 Award
28.01 In the result this Arbitral Tribunal passes the final Award
in the arbitration matter between M/s Kasturi & Sons Limited
M/s Hindcorp Resorts Private Limited, the claimants and Mr K
C Palaniswami and M/s Sporting Pastime India Limited, the
respondents:-
(i) Directing the respondents to return to the claimants the
documents of title and share certificates relating to 2,43,00,000
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
1072
SUPREME COURT REPORTS
[2018] 4 S.C.R.
shares of the second respondent namely Sporting Pastime India
Limited, which were handed over earlier to the first respondent
pursuant to the agreement dated 19/07/2004 in the manner
following :
(a) The documents of title relating to the second claimant being
part of the documents of title referred to above to the second
claimant, forthwith.
(b) The documents of title pertaining to the first claimant being
part of the documents of title referred to in (a) above and the
share certificates pertaining to 2,43,00,000 shares referred to
above contemporaneously with the first claimant paying /
tendering the sum of Rs. 3,58,11,000/- (Rs. Three crores fifty
eight thousand eleven thousand only) to the first respondent as
per para 27.01 with interest @ 12% p.a. on Rs. 2,55,00,000/-
from the date of award till 17/01/2010 or earlier payment/tender
and thereafter @ 18% p.a. on Rs. 2,50,00,000/- till date of
payment / tendering of the amount of Rs. 3,58,11,000/-
(ii) Dismissing the counter - claim of the respondents for
Rs. 8,83,23,086/-
(iii) Directing the respondents to bear the costs of the proceedings
in a sum of Rs. 60,15,000/- the claimants being entitled to the
same in para 23.09 hereinabove and the same having been setoff in the manner stated in para 26.01 hereinabove.
(iv) Directing the respondents to bear their own costs in both the
claim and the counter-claim."
Under the terms of the award, a direction was issued under which KCP
and SPIL were required to return documents of title and share certificates
relating to 2.43 crore shares contemporaneously with KSL paying an
amount of Rs 3,58,11,000 together with interest at 12% p.a. on a sum of
Rs 2.55 crores.
4.
KCP challenged the award of the arbitral tribunal under
Section 34 of the Arbitration and Conciliation Act, 1996. The challenge
was repelled by a learned Single Judge of the Madras High Court by a
judgment and order dated 30 April 2015. The appeal filed by KCP was
dismissed by the Division Bench of the High Court on 24 January 2017.
This Court dismissed the Special Leave Petition challenging the judgment
of the Division Bench on 10 February 2017. The award has attained
finality.
A
B
C
D
E
F
G
H
1073
5. KSL initiated proceedings, inter alia, under Section 111 of the
Companies Act, 1956 read with Sections 397, 398, 402 and 403, among
other things, for rectification of the register of SPIL. NCLT allowed the
petition by its order dated 6 March 2017. The decision of the NCLT
was affirmed by NCLAT on 3 May 2017.
6. NCLAT held that the appellant is a nominee of KCP and holds
the shares in question on his behalf. Hence, NCLT was held to be justified
in entertaining the proceedings for rectification under Section 111. For
coming to the conclusion that the appellant is a nominee of KCP and
held the shares on his behalf, reliance has been placed on a judgment
dated 29 April 2011 of the Madras High Court inter partes in an
application under Section 9 of the Arbitration and Conciliation Act, 1996.
The Madras High Court formulated the following questions for
consideration:
"(1) Whether an order of interim injunction can be passed against
the respondents who are not party to the arbitration agreement
or arbitration proceedings;
(2) Whether the respondents 3 to 6 can be said to be nominees
of Sri K. C. Palanisamy so as to be bound by the Arbitration
Award, for passing interim direction against them."
The High Court came to the conclusion that clause 14 of the agreement
dated 19 July 2004 recognise the right of KCP to transfer his holding in
SPIL to a person of his choice, provided that the proposed transferee
accepts the terms and conditions mentioned in the agreement for the
management of SPIL together with related financial aspects covered by
the agreement. The High Court held that the shares had not been purchased
by the appellant as a matter of an independent right but as a nominee of
KCP. The purchase of the shares was in pursuance of the agreement
dated 19 July 2004. Rectification of the register was held to have been
ordered by the NCLT correctly. The appeal was dismissed.
7. We have heard Mr Kapil Sibal and Dr Abhishek Manu Singhvi,
learned senior counsel in support of the appeal and Mr Mukul Rohtagi
and Mr Arvind Datar, learned senior counsel on behalf of the respondents.
8. On behalf of the appellants it has been urged that:
Firstly, the appellant is not a party to the arbitration agreement
contained in clause 21 of the agreement dated 19 July 2004.
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
1074
SUPREME COURT REPORTS
[2018] 4 S.C.R.
This agreement was entered into between KCP, KSL, SPIL and
Hindcorp. Even though the appellant purchased the shares of
SPIL as a nominee of KCP, the arbitral award which has been
rendered in proceedings between the parties to the agreement
dated 19 July 2004 does not bind the appellant;
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) Limited6 and in S. N.
Prasad, Hitek Industries (Bihar) Limited v Monnet
Finance Limited7;
Thirdly, an arbitral award has to be enforced as a decree of a
civil court in view of the provisions of Section 36. The arbitral
award could not have been enforced by pursuing proceedings
before the NCLT;
Fourthly, though a review was sought before the NCLAT on
the basis of the law laid down by this Court in Indowind (supra)
it was summarily dismissed on the ground that there was no
error in the original judgment.
9. Mr Kapil Sibal, learned senior counsel, has basically urged three
submissions in support.
Firstly the appellant ought to have been, but was not impleaded
as a party to the arbitral proceedings (obviously because it was
not a party to the arbitration agreement). The appellant has paid
valuable consideration for the shares purchased by it. KSL
proceeded on a wrong legal basis in the first place and has
compounded its legally untenable approach by selecting a wrong
remedy by moving the NCLT;
Secondly,Chloro Controls India Private Limited v Severn
Trent Water Purification Inc.8 does not apply because it deals
with an international arbitration under Section 45 whereas this
was a case of a domestic arbitration. The provisions of Section
45 must be distinguished from unamended Section 8 of the
Arbitration and Conciliation Act 1996. The appellant is not a
6 (2010) 5 SCC 306
7 (2011) 1 SCC 320
8 (2013) 1 SCC 641
A
B
C
D
E
F
G
H
1075
party to the arbitration agreement and having paid consideration
for its purchase of shares, is not bound by the arbitral award;
Thirdly, the decision in Chloro Controlshas been clarified
by this Court in Duro Felguera, S.A. v Gangavaram Port
Limited9.
10. Dr Abhishek Manu Singhvi has in his submissions addressed
the Court on the following propositions.
Firstly, the arbitral award dated 16 December 2009 cannot be
executed against the appellant which is admittedly not a signatory
to the agreement dated 19 July 2004 which contains a provision
for arbitration;
Secondly, the arbitral award cannot be executed by a Tribunal
such as the NCLT/NCLAT in a "camouflaged petition" (under
Sections 111, 397, 398, 402 and 403 of the Companies Act 1956)
which would be barred by Section 42 of the Arbitration and
Conciliation Act, 1996;
Thirdly, the prayer seeking a rectification of the register of
members fails to meet the strict requirements of Sections 111
and 111 A of the erstwhile Companies Act 1956 and hence the
direction to rectify the register of members is fallacious;
Fourthly, NCLAT as well as NCLT have failed to explain or
distinguish the settled principle of law laid down in the judgment
of this Court in Indowind;
Fifthly, reliance on the letter dated 17 August 2004 addressed
on behalf of the appellant and on the order of the Madras High
Court in the petition under Section 9 is misconceived;
Sixthly, during the course of the proceedings under Section 9,
counsel for the appellant had conceded that the expression 'party'
means a party to the arbitration agreement and which is actually
before the arbitral tribunal;
Seventhly, for the Chloro Controls principle to be attracted,
the following requirements are necessary:
(a) there has to be a joint venture agreement;
(b) there must be a mother agreement;
9 (2017) 9 SCC 729
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
1076
SUPREME COURT REPORTS
[2018] 4 S.C.R.
(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 29 April 2011 under
Section 9 of the Arbitration and Conciliation Act 1996, the
appellant was held specifically to be a nominee of KCP whose
purchase of shares was referable to the agreement dated 19
July 2004. The appellant which is a party to those proceedings
has not challenged the finding;
Fourthly, the arbitral award has the status of a decree under
Section 36 and can be enforced "as if" it is a decree of the
court. Under the Companies Act, no matter relating to the transfer
of shares can be decided except by the NCLT after 2013. KSL
requires physical custody of the share certificates and rectification
of the share register. Mere transfer of the physical custody of
the share certificates wold not be sufficient, since a rectification
of the share register is required to perfect the title of KSL.
Consequently, it was necessary for KSL to move the NCLT for
rectification of the share register under Section 111; and
Fifthly, the principle that an arbitral award may bind a group
company, which is an affiliate of a signatory to the arbitration
A
B
C
D
E
F
G
H
1077
agreement has been settled in a judgment of a three judge bench
of this Court in Chloro Controls. While there can be no dispute
about the applicability of the Indowind principle in the generality
of cases, attribution of an arbitral award to a group company is
governed by the decision in Chloro Controls (supra).
12. Mr Mukul Rohtagi and Mr Arvind Datar have countered the
submissions which were urged on behalf of the appellant. They have
urged that:
Firstly, each of the submissions which are sought to be advanced
before this Court in the present appeals were urged before the
Madras High Court in the proceedings under Section 9. The
Madras High Court has categorically rejected those submissions
and has held that the appellant, at all material times, acted as a
nominee of KCP under the agreement dated 19 July 2004. The
appellant's letter of 17 August 2004 categorically contains a
reference to the earlier agreement and establishes beyond doubt
that the appellant assumed all the obligations under the agreement,
including the remedy of arbitration;
Secondly,Indowind is essentially a case under Section 11 of
the Arbitration and Conciliation Act, 1996. In the present case
the Court is dealing with a post award enforcement;
Thirdly, Section 35 of the Arbitration and Conciliation Act, 1996
indicates that an arbitral award binds parties to an arbitration
and persons claiming under them. The appellant has, at all
material times, been aware of the fact that it was claiming under
KCP in pursuance of the original agreement dated 19 July 2004
and its letter dated 17 August 2004;
Fourthly, the judgment in Chloro Controls explains the concept
of a person claiming under a party to an arbitration agreement
and is attracted to the present case on all fours; and
Fifthly,theconsequence 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
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
1078
SUPREME COURT REPORTS
[2018] 4 S.C.R.
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) In this Part, "arbitration agreement" means an agreement by
the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a
defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which
the existence of the agreement is alleged by one party and not
denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract."
While interpreting Section 7 in Indowind, a two Judge Bench of this
Court held that:
"It is fundamental that a provision for arbitration to constitute an
arbitration agreement for the purpose of Section 7 should satisfy
two conditions: (i) it should be between the parties to the dispute;
and (ii) it should relate to or be applicable to the dispute."
That was a case where an agreement of sale was entered into between
W and S. The agreement described S and its nominee as a buyer and as
A
B
C
D
E
F
G
H
1079
the promoter of Indowind. Under the agreement, the seller agreed to
transfer to the buyer certain assets for a consideration which was payable
partly in cash and partly by the issue of equity shares. The Board of
Directors of W accorded approval to the agreement, as did the Board
of S. No approval was, however, granted by the Board of Directors of
Indowind. According to W, certain disputes arose between it and S and
Indowind on the other. W filed a petition under Section 11(6) against S
and Indowind for appointment of a sole arbitrator. Indowind resisted the
petition on the ground that it was not a party to the agreement which
was entered into between W and S. The Chief Justice of the Madras
High Court allowed the application for appointment of an arbitrator, holding
that though Indowind was not a signatory to the agreement, it was bound.
In appeal, this Court held that W had not entered into an agreement with
Indowind, referring to the agreement which contained an arbitration
agreement, with an intention to make the arbitration agreement a part of
their agreement. In the view of this Court:
"..The question is when Indowind is not a signatory to the
agreement dated 24-2-2006, whether it can be considered to be
a "party" to the arbitration agreement. In the absence of any
document signed by the parties as contemplated under clause
(a) of sub-section (4) of Section 7, and in the absence of existence
of an arbitration agreement as contemplated in clauses (b) or
(c) of sub-section (4) of Section 7 and in the absence of a contract
which incorporates the arbitration agreement by reference as
contemplated under sub-section (5) of Section 7, the inescapable
conclusion is that Indowind is not a party to the arbitration
agreement. In the absence of an arbitration agreement between
Wescare and Indowind, no claim against Indowind or no dispute
with Indowind can be the subject-matter of reference to an
arbitrator. This is evident from a plain, simple and normal reading
of Section 7 of the Act."
The fact that the agreement was entered into by S as the promoter of
Indowind and described the latter as its nominee and that the agreement
was signed on behalf of S by a person who was also a director of Indowind
was held not to make any difference. This Court held that S and Indowind
were two independent companies each of which was a separate and
distinct legal entity and the mere fact that the companies had common
shareholders or a common Board of Directors will not make them a
CHERAN PROPERTIES LIMITED v. KASTURI AND SONS
LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
1080
SUPREME COURT REPORTS
[2018] 4 S.C.R.
single entity. Nor could there be an inference that one company would
be bound by the acts of the other. In the view of this Court:
"..A contract can be entered into even orally. A contract can be
spelt out from correspondence or conduct. But an arbitration
agreement is different from a contract. An arbitration agreement
can come into existence only in the manner contemplated under
Section 7. If Section 7 says that an arbitration agreement should
be in writing, it will not be sufficient for the petitioner in an
application under Section 11 to show that there existed an oral
contract between the parties, or that Indowind had transacted
with Wescare, or Wescare had performed certain acts with
reference to Indowind, as proof of arbitration agreement."
15. The decision in Indowind was followed by a two Judge Bench
in Prasad (supra). The issue in that case was whether a guarantor to a
loan who is not a party to a loan agreement between the lender and
borrower could be made a party to a reference to an arbitration in regard
to a dispute governing the repayment of the loan and be subjected to the
arbitral award. The loan agreement contained an arbitration clause. In
the view of this Court:
"An arbitration agreement between the lender on the one hand
and the borrower and one of the guarantors on the other, cannot
be deemed or construed to be an arbitration agreement in respect
of another guarantor who was not a party to the arbitration
agreement. Therefore, there was no arbitration agreement as
defined under Sections 7(4)(a) or (b) of the Act, insofar as the
appellant was concerned, though there was an arbitration
agreement as defined under Section 7(4)(a) of the Act in regard
to the second and third respondents.."
Consequently, the impleadment of the appellant as party to the arbitration
proceedings and the award were held to be unsustainable. The principle
which was formulated by the Court was this:
"..The Act makes it clear that an arbitrator can be appointed
under the Act at the instance of a party to an arbitration agreement
only in respect of disputes with another party to the arbitration
agreement. If there is a dispute between a party to an arbitration
agreement, with other parties to the arbitration agreement as
also non-parties to the arbitration agreement, reference to
A
B
C
D
E
F
G
H
1081
arbitration or appointment of arbitrator can be only with respect
to the parties to the arbitration agreement and not the nonparties."
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.