# RAJNI SANGHI v. WESTERN INDIAN STATE MOTORS LTD. & ORS

- **Citation:** [2015] 14 S.C.R. 217
- **Court:** Supreme Court of India
- **Decided:** 2015-12-01
- **Case number:** Civil Appeal No. 3687 of 2006
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rajni-sanghi-v-western-indian-state-motors-ltd-ors-30596
- **Pages:** 33

## Headnote

[2015] 14 S.C.R. 217
RAJNI SANGHI
v.
WESTERN INDIAN STATE MOTORS LTD. & ORS.
(Civil Appeal No. 3687 of 2006)
DECEMBER 01, 2015
[VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ~)
Arbitration Act, 1940:
A
B
s.30 - Arbitration agreement .between four business C
groups owned by four brothers (NK, AK, RK and MK) and
their families - For affecting partition of the business into
four equal lots - During pendency of the arbitral proceedings
company petition filed by MK in Bombay High Court, wherein
settlement regarding the partition of the properties was done D
between two brothers (MK and RK)-Another company case
filed by RK in Rajasthan High Court - Arbitration award
passed -AK filed application u/s 17 of Arbitration Act before
Delhi High Court to make the award rule of the Court -
Rajasthan High Court approved a scheme of reconstruction E
and family settlement dated 6.9.1994 arrived at between 3
brothers (AK, RK and NK)-AK undertook therein to withdraw
his application u/s. 17 of Arbitration Act- Order of Rajasthan
High Court challenged in appeal by fourth brother (MK in
Company appeal No.30 of 1994) - Later son of AK also F
transposed as appellant - Widowed daughter-in-law of one
of the brothers (NK) also challenged the order of Rajasthan
High Court (in Appeal No.24 of 1994) - However,
subsequently she entered into compromise and settlement
in 1995 - Contempt petition against AK for not withdrawing G
the application u/s. 17 - Dismissed by Delhi High Court on
the ground that the non-withdrawal was not wi/Jful- Delhi High
Court set aside the arbitration award in view of the orders of
Bombay High Court and Rajasthan High Court - MK
withdrew his appeal against the Rajasthan High Court H
217
218
SUPREME COURT REPORTS
[2015] 14 S.C.R.
A order - However, the appeal continued at the behest of son
of AK - Division Bench of Rajasthan High Court allowed the
appeals (Appeal Nos.3011994 and 2411994) remitting the
matter to Company Judge on the ground of non-compliance
of s.391(1) of Companies Act - Appeals to this Court
B challenging the orders of Delhi High Court whereby
arbitration award was set aside and the contempt petition was
dismissed and that of Division Bench of Rajasthan High Court
whereby appeal Nos. 30 and 24 of 1994 were partly allowed
· - Held: When the courts of competent jurisdiction at Bombay
c and Rajasthan were allowed to proceed and decide the family
arrangement, the proceedings and orders of those courts
cannot be ignored on account of pendency of an award still
waiting to be made rule of the Court - The award has to be
set aside on the ground that it was otherwise invalid on the
o date it was being considered for being made rule of the Court
- The agreement/settlement between the parties in 1994 and
1995 approved by Rajasthan High Court and Bombay High
Court will prevail over the award as the award had not acquired
the status of decree as it was yet not made rule of the Court
E as required by Arbitration Act, 1940 -AK not honouring his
undertaking to withdraw his application u/s. 17 and attempt
by his son to obstruct the scheme of family settlement of 1994
(while his father had signed the settlement as Head of the
family) were impermissible conduct of approbate and
F reprobate- The status of head of the family as a 'Karta' under
Hindu Law deserves to be kept in mind-Junior members of
the family are bound by decisions of'Karta' in matters of family
business and property unless proved that act of the Karla'
was fraudulent and for immoral purpose - Remand of the
G appeal by Division Bench of Rajasthan High Court should
have been avoided because it was not on the basis of defect
in the settlement but on the technical ground - Order of
remand set aside - The settlements of 1994 and 1995 are
affirmed - Orders passed by Delhi High Court are upheld -
H Hindu Law - Companies Act, 1956.
RAJNI SANGH Iv. WESTERN INDIAN STATE MOTORS
219
LTD.&ORS.
s.30(c)- Ground under, for setting aside award- Scope A
of- The ground for setting aside the awa

## Text

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[2015] 14 S.C.R. 217
RAJNI SANGHI
v.
WESTERN INDIAN STATE MOTORS LTD. & ORS.
(Civil Appeal No. 3687 of 2006)
DECEMBER 01, 2015
[VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ~)
Arbitration Act, 1940:
A
B
s.30 - Arbitration agreement .between four business C
groups owned by four brothers (NK, AK, RK and MK) and
their families - For affecting partition of the business into
four equal lots - During pendency of the arbitral proceedings
company petition filed by MK in Bombay High Court, wherein
settlement regarding the partition of the properties was done D
between two brothers (MK and RK)-Another company case
filed by RK in Rajasthan High Court - Arbitration award
passed -AK filed application u/s 17 of Arbitration Act before
Delhi High Court to make the award rule of the Court -
Rajasthan High Court approved a scheme of reconstruction E
and family settlement dated 6.9.1994 arrived at between 3
brothers (AK, RK and NK)-AK undertook therein to withdraw
his application u/s. 17 of Arbitration Act- Order of Rajasthan
High Court challenged in appeal by fourth brother (MK in
Company appeal No.30 of 1994) - Later son of AK also F
transposed as appellant - Widowed daughter-in-law of one
of the brothers (NK) also challenged the order of Rajasthan
High Court (in Appeal No.24 of 1994) - However,
subsequently she entered into compromise and settlement
in 1995 - Contempt petition against AK for not withdrawing G
the application u/s. 17 - Dismissed by Delhi High Court on
the ground that the non-withdrawal was not wi/Jful- Delhi High
Court set aside the arbitration award in view of the orders of
Bombay High Court and Rajasthan High Court - MK
withdrew his appeal against the Rajasthan High Court H
217
218
SUPREME COURT REPORTS
[2015] 14 S.C.R.
A order - However, the appeal continued at the behest of son
of AK - Division Bench of Rajasthan High Court allowed the
appeals (Appeal Nos.3011994 and 2411994) remitting the
matter to Company Judge on the ground of non-compliance
of s.391(1) of Companies Act - Appeals to this Court
B challenging the orders of Delhi High Court whereby
arbitration award was set aside and the contempt petition was
dismissed and that of Division Bench of Rajasthan High Court
whereby appeal Nos. 30 and 24 of 1994 were partly allowed
· - Held: When the courts of competent jurisdiction at Bombay
c and Rajasthan were allowed to proceed and decide the family
arrangement, the proceedings and orders of those courts
cannot be ignored on account of pendency of an award still
waiting to be made rule of the Court - The award has to be
set aside on the ground that it was otherwise invalid on the
o date it was being considered for being made rule of the Court
- The agreement/settlement between the parties in 1994 and
1995 approved by Rajasthan High Court and Bombay High
Court will prevail over the award as the award had not acquired
the status of decree as it was yet not made rule of the Court
E as required by Arbitration Act, 1940 -AK not honouring his
undertaking to withdraw his application u/s. 17 and attempt
by his son to obstruct the scheme of family settlement of 1994
(while his father had signed the settlement as Head of the
family) were impermissible conduct of approbate and
F reprobate- The status of head of the family as a 'Karta' under
Hindu Law deserves to be kept in mind-Junior members of
the family are bound by decisions of'Karta' in matters of family
business and property unless proved that act of the Karla'
was fraudulent and for immoral purpose - Remand of the
G appeal by Division Bench of Rajasthan High Court should
have been avoided because it was not on the basis of defect
in the settlement but on the technical ground - Order of
remand set aside - The settlements of 1994 and 1995 are
affirmed - Orders passed by Delhi High Court are upheld -
H Hindu Law - Companies Act, 1956.
RAJNI SANGH Iv. WESTERN INDIAN STATE MOTORS
219
LTD.&ORS.
s.30(c)- Ground under, for setting aside award- Scope A
of- The ground for setting aside the award is quite wide in its
amplitude - Clause (c) of s. 30 does not attract the principle·
of 'ejusdem generis' so far as the term 'otherwise invalid' is
concerned.
Doctines/Principles - Principle of 'ejusdem generis' -
B
Applicability of.
Partly allowing appeal No.3687 of 2006 and
dismissing the appeal Nos.2763 of 2002 and 503 of 2001,
the Court
c
HELD:1.1 Clause (c) of Section 30 of Arbitration
Act, 1940 does not attract the principle of ejusdem
generis so far as the term 'otherwise invalid' is
concerned. That ground for setting aside award is quite
wide in amplitude and available to the concerned court 0
if it finds that the award requires to be treated as invalid
because on face of the·things it runs counter to a valid
law prohibiting such an award or when the subject matter
of the award has been lawfully dealt with by a statutory
authority or a court and it is no longer available for E
disposal in accordance with the award under
consideration. [Para 25] [246-D-F]
Union of India v. Om Prakash 1976 (3) SCR 998
: (1976) 4 SCC 32; Mis. Siddeshwari Cotton Mills
(P) Ltd. v. Union of India 1989 (1) SCR 214 : (1989)
F ·
2 sec 458 - referred to.
1.2 In the present case, when the Courts having
jurisdiction were allowed to proceed and decide the
properties available at Bombay and record a family
arrangement in respect of other matters in a company G
proceeding before the Rajasthan High Court, the
judgments and orders in these proceedings cannot be
ignored or obliterated on account of pendency of an
award still waiting to be made a rule of the court. In such
a situation, the award has to be set aside on the ground H
220
SUPREME COURT REPORTS
[2015] 14S.C.R.
A that it is otherwise invalid on the date it is being
considered for being made a rule of the court. This
course of action is available and has been rightly
adopted by the Delhi High Court. [Para 25] [246-F-H; 247A]
B
Ram Prasad Surajmull v.
Mohan Lal
Lachminarain AIR 1921 Calcutta 770; Sheobabu
v. Udit Narain and Another AIR 1914 Allahabad
275 - referred to.
C
2. In view of the scheme of the Arbitration Act, 1940
and provisions of Code of Civil Procedure, family
arrangements made before the Rajasthan High Court in
1994 before the Company Judge and in 1995 before the
Division Bench need to be protected and given preD eminence over the award which is yet not made the rule
of the court. The family arrangement was arrived at in
spite of knowing the award for six years and obviously
because the parties who are family members, were at
loggerheads over the terms of the award. No doubt the
E family arrangements were initially made only on behalf
of three groups who originally signed the agreements
for themselves as well as on behalf of their families but
the 4'h group, i.e., 'M.K.' group later decided to go along
with that arrangement by opting to withdraw its appeal.
F Hence, if parties settle their·disputes amicably by an
agreement, even post-award, such settlement/
agreement will prevail in view of requirement of the Act.
An award will acquire the status of a decree only when it
is made a rule of the court after rejection of all objections.
In that view of the matter there is no hindrance in law in
G upholding the family arrangements made before the High
Court at Rajasthan as well as judgment of the Bombay
High Court which has attained finality. They deserve to
have pre-eminence over the award in question. [Para 26]
[247-C-H]
H
RAJNI SANGHI v. WESTERN INDIAN STATE MOTORS
221 .
LTD.&ORS.
Munshi Ram v. Banwari Lal (deceased) AIR 1962
A
SC 903 : 1962 Suppl. SCR 477; Kale v. Deputy
Director of Consolidation 1976 (3) SCR 202 :
(1976) 3 sec 119 - referred to.
3. The act of' A.K.' in not honouring his undertaking 8
to withdraw his petition for making the award a rule of
court and the attempt made by his son to obstruct the
scheme of reconstruction-cum-family settlement of 1994
by getting transposed as an appellant in Company
Appeal No. 30 of 1994 when his father had signed the C
settlement on behalf of his group, were impermissible
conduct of approbate and reprobate on the part of A.K.
Sang hi. group which shouid not have been permitted.
The status of the head of the family acting as a Karta
under the traditional Hindu law deserves to be kept in 0
mind in such a situation. The junior members of the
family are bound by decisions of a Karla in matters of
family business and property unless it can be pleaded
and proved that the head of the family has acted
fraudulently or for immoral purposes. In such a situation, E
ignoring the traditional Hindu law and the rights of the
head of the family or Karta has put unnecessary burden
not only on the larger family but also upon the courts.
[Para 27] [248-A-D]
Noorali Babu/ Thanewa/a v. K.M.M. Shetty1989
F
(2) Suppl. SCR 561 : (1990) 1 sec 259; P.R.
Deshpande v. Maruti Balaram Haibatti 1998 (3)
SCR 1079: (1998) 6 SCC 507- referred to.
4. The remand order is not on the basis of any defect
in the agreements or supplementary agreements but on G
account of certain technicai requirements which should
have been ignored when the issues had been settled by.
all the stake holders by reaching amicable agreement.
The companies of family of four brothers are almost like
H
222
SUPREME COURT REPORTS
[2015] 14 S.C.R.
A partnerships and when all were agreeable, interest of
justic.e was best subserved by recognizing even the
supplementary family settlement of 1995 in favour of 'R'
(widowed daughter-in-law of 'NK') as well as the original
family arrangement of 1994 accepted by the Company
B Judge. In that view of the matter the order of remand
under challenge at the instance of 'R' is set aside and
both the family arrangements indicated above are
affirmed. If any party fails to act as per those
arrangements within three months, the aggrieved party
c will be free to initiate appropriate proceedings including
those of contempt before the concerned High Court or
seek execution of the agreements through other
appropriate proceedings. [Para 28] [248-E·H]
D
E
F
G
H
Raj Kumar Dey and Ors. v. Tarapada Dey and
Ors. 1988 (1) SCR 118: 1987(4) sec 398; Mis.
General Radio & Appliances Co. Ltd. v. M.A.
Khader (dead) by LRs AIR 1986 SC 1218 : 1986
(2) SCR 607; Singer India Ltd. v. Chander Mohan
Chadha 2004 (3) Suppl. SCR 535 : (2004) 7 sec
1 ; Oudh Commercial Bank Ltd. v. Thakurain Bind
Basni Kuer AIR 1939 PC 80 - referred to.
Case Law Reference
1988 (1) SCR118
referred to
Para 11
AIR 1921 Calcutta 770
referred to
Para 14
AIR 1914 Allahabad 275
referred to
Para 14
1986 (2) SCR 607
· referred to
Para 15
2004 (3) Suppl. SCR 535
referred to
Para 15
1962 Suppl. SCR 477
referred to
Para 17
1976 (3 ) SCR 202
referred to
Para 17
AIR 1939 PC 80
referred to
Para 19
1989 (2) Suppl. SCR 561
referred to
Para 20
1998 (3) SCR 1079
referred to
Para 21
RAJNI SANGH! v. WESTERN INDIAN STATE MOTORS
223
1976 (~) SCR 998
1989 (1) SCR 214
LTD.&ORS.
referred to
referred to
Para.22
Para 22
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3687 of 2006.
A
From the Judgment and Order dated 03.04.2002 of the B
Division Bench of the Raja:sthan High Court at Jodhpur in D.B.
Civil Special Appeal No. 24 of 1994
WITH
C. A. Nos. 503/2001 and 2763/2002.
c
Dhruv Mehta, Gaurav Pachnanda, Anoop G Chaudhari, .
Ms. June Chaudhari, A. N. S. Nadkarni, Arvind P. Datar, Shyam
Divan, Sr. Advs., Yashraj Singh Deora, Ms. ShreyaAgarwal,
Sameer Abhaynkar, Ms. Priyadarshini Singh, Shashwat
Purohit, Ms. Shruti Gupta, Ms. Rajni Sanghi, Ankit Kr. Lal, D
Mishra Saurabh, Sarwa Mitter, Amit Gupta, AnantA. Pavgi (For
M/s. Mitter & Mitter Co.), Pratap Venugopal, Ms. Surekha
Raman, Anuj Sarma, Debarshi Bhuyan, Ms. Niharika (For
M/s. K. J. John & Co.), Siddhartha Chowdhury, Puneet Jain,
Ms. Christi Jain, Abhinav Gupta, Manu Maheshwari, Ms. Anikta E
Gupta, Sushi! Kumar Jain, Yashraj Singh Deora, Pratap
Venugopal, Jai Munim, Ms. Tihsha Mukherjee, Senthil
Jagadeesan, Abhijtat
P.
Medh,
Milind Kumar,
V. Ramasubramanian, Ashok Kumar, Chand Qureshi,
Ms. Mukti Chowdhry for the appearing parties.
F
The Judgment of the Court was delivered by
SHIVA KIRTI SINGH, J. 1. These three Civil Appeals
have been heard together because in essence they relate to G
and arise out of common facts and disputes between members
of a larger family belonging to the branches of four sons of
late Motilal Sanghi, the family patriarch who died in 1961.
From the materials on record it appears that his four sons
effected a de facto partition of the .then existing three family
H
224
SUPREME COURT REPORTS
[2015] 14 S.C.R.
A business. The eldest son (Late) N.K. Sanghi became in charge
of family business in Rajasthan. The next brother (Late) A.K.
Sanghi got charge of business at Delhi and the remaining two,
R.K. Sanghi and M.K. Sanghi got charge of business at
Bombay. In 1964 Sanghi Motors Private Limited {Bombay)
B expanded to establish a factory for manufacture of oxygen in
the name of Sanghi Oxygen. R.K: Sanghi looked after the
oxygen division and the youngest brother M.K. Sanghi looked
after the motor division of the Sang hi Motors Private Limited
(Bombay). Whether in the form of partnership firm or as a
c company, the family business appears to have been held by
the brothers like a partnership firm in which all the brothers
have cross holdings. With passage of almost two decades
and changing profile of family headed by the four brothers there
was apparently some friction first at Bombay which led to an
o arrangement signed by the four brothers on 6. 7 .1983. This was
mainly for resolving dispute of authority between the two
brothers in respect of business at Bombay. Soon thereafter
attempt was made for a larger family agreement for partition
of all th.e family business consisting of four partnership firms
E and four companies. This family agreement involving the
methodology of partition chalked out on 22.2.1984 in a board
meeting of M/s Sanghi Motors Private Limited (Bombay) held
at Jodhpur ran into rough weather and could not be
implemented because of differences. Thereafter all the four
F groups entered into an arbitration agreement on 6.8.1984 and
appointed one Sh. H.K. Sanghi, a family friend as the sole
arbitrator for effecting a partition of the family business under
the control of four groups into four equal lots but with an
understanding that the division would maintain the place of
G business of each group as it existed already.
H
2. The subsequent developments and relevant facts will
be detailed hereinafter at appropriate place but it is useful to
notice that on 7.8.1984 N.K. Sanghi filed the arbitration
agreement with the Arbitrator who entered into reference on
RAJNI SANGH Iv. WESTERN INDIAN STATE MOTORS
225
LTD. & ORS. [SHIVA KIRTI SINGH, J.]
18.8.1984 and made communications with the other three A
brothers. N.K. Sanghi expired on 19.10.1984. On filing of
appropriate application by N.K. Sanghi group the Delhi High
Court enlarged the time for publication of the award by the
Arbitrator. During the pendency of the reference M.K. Sang hi .
filed a company petition bearing C.P. No. 128 of 1985 before B
the High Court of Bombay mainly seeking injunction against
A.K. Sanghi and R.K. Sanghi in respect of shares and
management of both the divisions of Sanghi Motors Private
Limited (Bombay). Family members of A.K. Sanghi and R.K.
Sang hi filed a petition under Section 33 of the Arbitration Act, c
· 1940 before Delhi Hi:;ih Court to challenge the existence and
validity of arbitration agreement dated 6.8.1984 but ultimately
High Court of Delhi permitted the arbitrator to make and publish
the award. The award dated 3.12.1987 was filed with High
Court of Delhi which recorded the filing on 17.12.1987 and
D
notice was issued to the parties. Objection to the award was
filed by M.K. Sang hi within time and beyond time by R.K. Sanghi
and also by Sang hi Motors Private Limited (Bombay). On the
other hand A.K. Sanghi (now represented by his sons Vijay
· Sang hi and Ajay Sanghi, appellants in C.A. No. 2763 of 2002) E .
filed Suit No. 581-A/1988 under Section 17 of the Arbitration
Act, 1940 in the High Court of Delhi to make the award a rule
of the Court. Learned Single Judge of the Delhi High Court
took notice of subsequent developments in tlie company case
at Bombay High Court and in another Company petition no. 6 F
of 1986 filed by R.K. Sanghi in the High Court of Rajasthan
and set aside the award by order dated 11.12.1996. This order
was upheld in appeal by the Division Bench vide impugned
order dated 5.10.2001 which is under challenge in Civil Appeal
of 2763 of 2002.
3. Interestingly, no one could obtain a stay of theproceedings in the Company Petition No. 128 of 1985 before
the High Court of Bombay which appointed a Receiver with
respectto the Sanghi Motors Private Limited (Bombay) and
G
H
·' :
226
SUPREME COURT REPORTS
[2015] 14S.C.R.
A all its subsidiaries by an order dated 11.9.1987. On the basis
of a successful bid, Vaibhav Sanghi son of M.K. Sanghi
entered into an agreement with the receiver and exercised
right of management in terms of such agreement. Ultimately,
Bombay High Court vide order dated 6.7.1989 sanctioned the
B scheme of division of two units of Sanghi Motors Private
Limited (Bombay). Motors division fell to the group of M.K.
Sanghi and oxygen division to the group of R.K. Sanghi. A.K.
Sang hi opposed the aforesaid settlement scheme before the
Company Court as well as through an appeal before the
c Division Bench but without any success. The Division Bench
dismissed the appeal on 30.6.1992 after holding that the
scheme of reconstruction did not violate the injunction order of
the High Court of De: hi as care was taken to ensure that under
the scheme the transfer of shares would be effected only after
D the injunction would be vacated by the Delhi High court. The
Bombay company case has thus attained finality.
4. Tfle Company Petition No. 6 of 1986, already noticed
earlier was filed by R.K. Sanghi group on 6.8.1986 before the
High Court of Rajasthan under Section 397-398 of the
E Companies Act against Western India State Motors Limited
(WISM), Smt. Uma Sanghi (widow of late N.K. Sanghi), Vijay
Kumar Sang hi (son of A.K. Sang hi) and an official of Rajasthan
State Industrial Development and Investment Corporation. In
this company petition which remained pending for a number
F of years, ultimately a scheme of reconstruction and family
settlement was arrived at between persons representing three
groups i.e, A.K. Sanghi, R.K. Sanghi and N.K. Sanghi. This
scheme dated 5.9.1994 with a correction dated 6.9.1994 was
approved by the High Court of Rajasthan on 5/6.9.1994.
G Although M.K. Sanghi was not a party to this scheme but his
interest clearly received considerable attention. His objection
to the award was within time and pending before the High Court
of Delhi in the Suit no. 581-A/1988 filed by A.K. Sanghi group
to make the award a rule of the Court. In paragraph 13 of the
H
RAJNI SANGHI v. WESTERN INDIAN STATE MOTORS
227
LTD. & ORS. [SHIVA KIRTI SINGH, J.]
scheme of reconstruction filed in Company Petition No. 6 of A
1986 a clear stipulation was made in following words -
"13. That Shri A.K. Sanghi and his family members have
filed a petition in Delhi High Court for making the award
·of the Arbitrator dated 3.12.1987 as rule of the Court B
being petition no. 581-A/1988. ShriA.K. Sanghi hereby
undertakes to withdraw the said proceedings
unconditionally and all the parties further agree that they
shall abide by the terms of the scheme of reconstruction."
The scheme was signed by R.K. Sanghi and A.K. Sang hi also C
on behalf of their respective family members. It involved
passing of immovable property from one group to another as
well as payment of substantial amounts of money for
completing the adjustment required by way of reconstructioncum-family settlement. The widow of N. K. Sanghi, Smt. Uma D
Sang hi as well as the petitioners of that company petition, Mr.
R.K. Sanghi and his wife along with A.K. Sanghi as well as
one son and daughter in law of Uma Sang hi were personally
present before the learned Single Judge when the Company
Petition No. 6 of 1986 was disposed of in terms of the scheme E
of reconstruction-cum-family settlement. The order of the Court
dated 5.9.1994 records that Mr. R.K. Sanghi as well as Mr.
A.K. Sanghi agreed to obtain the consent of their family
members and file the same within two weeks.
5. The orders of learned Single Judge of High Court of F
Rajasthan acceptingthe scheme of reconstruction-cum-family
settlement were challenged in appeal filed by M.K. Sanghi
bearing Civil Special Appeal No. 30 of 1994. Much later in
October 1998 R.K. Sanghi filed an affidavit in the aforesaid G
appeal alleging that Uma Sanghi was not honouring her
commitments under the scheme, hence he was now of the view
that the scheme be set aside. Since learned Single Judge
had rejected an application for impleadment filed by Mrs. Rajni
Sanghi, widowed daughter-in-law of Uma Sanghi, Rajni Sanghi H
228
SUPREME COURT REPORTS
[2015] 14S.C.R.
A also preferred Special Appeal No. 24 of 1994 before the
Division Bench but while both the appeals were pending, on
20.2.1995 she entered into a compromise and settlement with
the other parties who were signatory to the family settlement.
M.K. Sanghi prayed for and was granted time to examine the
B terms of the aforesaid settlement. While the appeal preferred
by M.K. Sanghi was still pending before the Division Bench of
Rajasthan High Court, curiously he and his group filed an
additional affidavit on 14.8.1995 in Suit No. 581-A/1988 before
High Court of Delhi for setting aside the award on the additional
c ground thatA.K. Sanghi had undertaken before the High Court
of Rajasthan to withdraw his application to make the award a
rule of the Court. As noted earlier, this weighed heavily with
the learned Single Judge as well as the Division Bench of the
Delhi High Court in setting aside the award. Sanghi Motors
D Bombay, under the control of N.K. Sang hi group also filed a
Contempt Petition no. 107 of 1997 before the High Court of
Rajasthan alleging that Mr. A.K. Sanghi was guilty of contempt
of order dated 5.9.1994 as he was still persisting with Suit No.
581-A/1988 when he had undertaken to withdraw the same.
E This contempt petition was dismissed vide order dated
3.4.2000 as the Court came to the opinion that non-compliance
was on account of certain circumstances and not wilful. This
order against Sang hi Motors is subject matter of Civil Appeal
No. 503 of 2001 which shall also be governed by this common
F judgment.
6. The Division Bench of High Court of Rajasthan had
permitted Vijay Sanghi son of A.K. Sanghi to be transposed
as appellant in Company Appeal _No. 30 of 1994 and hence
the appeal continued even after M.K. Sanghi filed an
G application on 4.7.2000 to withdraw that appeal. Ultimately by
judgment and order dated 3.4.2002 the Rajasthan High Court
allowed Appeal No. 30 of 1994 as well as Appeal No. 24 of
1994 and remitted the matter again to the learned Company
Judge to proceed in accordance with law, mainly because the
H
·~,
RAJNI SANGHI v. WESTERN INDIAN STATE MOTORS
229
LTD. & ORS. [SHIVA KIRT! SINGH, J.]
Division Bench found a case of non-compliance of sub-clause A
(1) of Section 391 of the Companies Act. The DivisionBench
noticed objections raised on behalf of respondents that the
situation had become irreversible as major part of the scheme
had been given effect to, but it left this aspect open for
consideration by the learned Company Judge after remand.
B
Rajni Sanghi did not accept the Division Bench order and
preferred a Civil Review Petition bearing No. D.R. (J) 2536/
2002 pointing out that she had already compromised the
matter by way of a subsequent scheme and filed the
compromise petition on 20.2.1995; the only non-signatory c
group i.e, M.K. Sanghi group had subsequently accepted that
compromise/settlement and had prayed for withdrawal of
Appeal No. 30 of 1994 and therefore when all the stake holders
had accepted the terms of settl.ement and family arrangement,
there was no need of interfering with the order of the Single D
Judge. The review petition was however dismissed on
26.8.2003. The aforesaid orders of Division Bench dated
3.4.2002 partly allowing Appeal Nos. 24 and 30 of 1994 and
order dated 26.8.2003 dismissing the review petition are under
challenge at the instance of Rajni Sang hi in Civil Appeal No.
E
3687 of 2006.
7. In the aforesaid fact situation, this common judgment
will govern all the three civil appeals. For the sake of
convenience, facts have been taken from convenience·
compilations in C.A. No. 2763 of 2002 unless indicated
F
otherwise. That civil appeal has been argued at great length
as the lead case. But of equal significance is the civil appeal
of Rajni Sang hi because it offers an alternative and competing
solution to the family dispute sought to be settled by the
arbitration award. The High Court of Delhi has set aside the G
award primarily because of orders passed by High Courts at
Bombay as well as Rajasthan approving schemes of
reconstruction and also the undertaking of A.K. Sanghi that he
will withdraw his petition in Delhi High Court through which he
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[2015] 14 S.C.R.
A
had prayed for making the Award of the Arbitrator dated
3.12.1987 as rule of the Court. In this scenario, our task is
also to find out whether the view taken by the Delhi High Court
is correct or not and further whether order of remand by Division
Bench of Rajasthan High Court under challenge by Rajni Sanghi
B
is legally sustainable.
8. Since A.K. Sanghi is dead, Civil Appeal No. 2763 of
2002 has been pressed on behalf of his two sons namely Ajay
Sanghi and Vijay Sanghi. On behalf of Ajay Sanghi, Senior
Advocate Mr. Dhruv Mehta has forwarded elaborate
C
submissions for contending that the judgment of the learned
Single Judge as well as affirming judgment of the Delhi High
Court under appeal have wrongly set aside the Award ignoring
the provisions of Section 30 of the Arbitration Act, 1940
D (hereinafter referred to as 'the Act'). As per his submissions
the High Court has travelled beyond the permissible grounds
for setting aside an Award, which cannot include an undertaking
or conduct of a party recorded by the Rajasthan High Court
after about seven years of making of the Award. He highlighted
the legal position that as per Section 30 of the Act, an Award
E can be set aside only on one or more of the three grounds
mentioned in Clause (a),(b) and (c). He has also contended
that in this case misconduct by the Arbitrator cannot be a
ground, for the additional reason that no notice of any alleged
misconduct was served upon the Arbitrator which is required
F
under the Delhi High Court rules. The other ground under clause
(b) can also not arise because it is nobody's case that there
was any order by the Court superseding the arbitration or
holding the arbitration proceeding invalid under Section 35.
So far as the third permissible ground is concerned, it has
G been submitted that there is no case made out that the Award
has been improperly procured or is otherwise invalid. On behalf
of other son of A.K. Sanghi, Mr. Anoop G Chaudhari, Senior
Advocate has also assailed the judgments of the Delhi High
Court. According to him the allegations by Mr. M.K. Sanghi
H
RAJNI SANGH Iv. WESTERN INDIAN STATE MOTORS
231
LTD. & ORS. [SHIVA KIRTI SINGH, J.]
against the arbitrator in letter dated 20.11.1987 were noticed A
by the Single Judge and at one place the learned Single Judge
described these accusations as "wild allegations". Mr.
Chaudhari has further contended that Section 32 of the Act
not only contains a bar to suits seeking decision upon the
existence, effect or validity of the arbitration agreement or B
award but that Section contains a further prohibition that
notwithstanding any law for the time being in force, no
arbitration agreement or award can be enforced, set aside,
amended, modified or in any way affected otherwise than as
pr_ovided in the Act (emphasis supplied).
c
9. Section 32 of the Act reads as follows:-
"32. Bar to suits contesting arbitration agreement
or award - Notwithstanding any law for the time being
in force, no suit shall lie on any ground whatsoever for a D
decision upon the existence, effect or validity of an
arbitration agreement or award, nor shall any arbitration
agreement.or award be enforced, set aside, amended,
modified or in any way affected otherwise than as
provided in this Act."
E
According to Mr. Chaudhari if the schemes of settlement
as ordered by Bombay High Court or Rajasthan High Court
are allowed to come in the way of arbitration agreement or the
award made by the Arbitrator, it shall amount to a disregard of
the mandate of law in Section 32. The second contention of F
Mr. Chaudhari is·that Delhi High Court had passed an interim
order dated 16.3.1988 restraining the parties from transferring,
parting with, alienating or leasing out the properties covered
by the award of the Arbitrator including shares of the
partnership and company businesses in any manner and G
therefore, M.K. Sanghi could not have proceeded with the
company petition in Bombay to obtain a scheme of division of
the two units of Sanghi Motors at Bombay nor any scheme
could have been approved by the Rajasthan High Court in
Company Petition No. 6 of 1986 nor any undertaking of A.K.
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[2015] 14S.C.R.
A
Sanghi could have been recorded therein. According to Mr.
B
Chaudhari also, the allegations of misconduct could not have
been gone into in absence of any notice to the Arbitrator. Lastly,
according to Mr. Chaudhari belated objections to the award
could not have been taken into consideration.
10. Learned Counsel for Uma Sanghi, widow of N.K.
Sanghi has reversed Uma Sanghi's stance before the High
Court and sought to support the award and assail the
judgments of Delhi High Court on the grounds already noticed.
He also opposed the family settlement and agreement dated
C 5.9.1994 recorded by the learned Single Judge of High Court
of Rajasthan under which Uma Sanghi (N.K. Sanghi group)
received be;:efits. But he defended and supported the other
agreement dated 20.2.1995 in favour of Rajni Sanghi.
According to him the latter agreement of February 1995 is in
D effect an arrangement between the family members of late N.K.
Sanghi and the same will be honoured by Uma Sanghi and
other heirs and legal representatives of N.K. Sanghi even if
the award is held valid and restored.
E
11. On the other hand learned Senior Counsel Mr. Arvind
P. Datar appearing for M.K. Sanghi group and Mr. Shyam
Divan, Senior Advocate appearing for R.K. Sanghi group
sought to strongly defend the judgments of Delhi High Court
setting aside the award. According to Mr. Datar the award
F deals with immoveable properties and therefore in terms of
the Registration Act, 1908 requires registration and since that
was not done, as per Section 49 of the Registration Act, the
award shall not affect any immoveable property or be received
as evidence of any transaction affecting such property. He
G pointed out that immoveable properties in lot No. 2 at serial
Nos. 8 and 9 given toA.K. Sanghi Group and one workshop of
Sanghi Motors in lot No. 3 allotted to R.K. Sanghi Group were
illustrative of the fact that the award sought to transfer
immovable properties to different persons without requiring
H further conveyance deeds and documents. However, the award
RAJNI SANGH Iv. WESTERN INDIAN STATE MOTORS
233
LTD. & ORS. [SHIVA KIRTI SINGH, J.]
towards the end, in paragraph 16 stipulates that all obligations, A
conveyances, deeds and documents (including transfers and
assignments) required to be executed to implement the award
shall be made and executed faithfully by each and every
member of all groups within three months. This stipulation, in
our view, fully meets the above noted grievance on the basis B
of the non-registration of award and more particularly when it
is an arguable point, as contended by Mr. Mehta in reply that
the period when an award was called for by the Court and
remained under its custody may be excluded for the purpose
of limitation on the ground that court's action shall not prejudice c
any of the parties. For this dictum Mr. Mehta placed reliance
on judgment in the case of Raj Kumar Dey and Ors. vs.
Tarapada Dey and Ors., 1987(4) SCC 398. However, it is
not necessary to go into several other judgments cited on behalf
of the parties on the effect of non-registration of an award which D
· requires registration and as to when an award may not require
registration, in view of somewhat different issue on which we
propose to decide this case.
12. Mr. Datar pointed out that the main controversy
between the parties is in respect of two properties, one UMR E
property in Rajasthan which is to be with R.K. Sanghi Group
on account of payments made for that property under the
Rajasthan settlement arrived in the company case before the
Single Judge in 1994. But that property, as per the award is.to
be with N.K. Sanghi Group. The other property is the workshop F
property of M/s. Sanghi Motors at Bombay which as per
settlement by the Bombay High Court has gone to M.K. Sang hi
Group whereas under the award it shall go to A.K. Sanghi
Group. Mr. Datar pointed out that the learned Single Judge of
Delhi High Court allowed several I.As including OPM No. 109 G
of 1989 filed by Sanghi Motors Private Limited, Bombay but
in appeal before the Division .Bench, Sang hi Motors Private
Limited (Bombay) was not impleaded as a party and therefore
no useful purpose will be served by interfering with the orders
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234
SUPREME COURT REPORTS
[2015] 14S.C.R.
A of the Delhi High Court rejecting the award when the same
order of the learned Single Judge has attained finality qua
M/s Sanghi Motors Pvt. Ltd., Bombay.
13. Mr. Datar has nextcor:itenc;Jed that the Delhi High Court
B was bound by the undertaking recorded in the judgment of
Company Judge of Rajasthan High Court. Under such
undertaking which amounts to an injunction, as per
submissions, the application of Mr. A.K. Sanghi for making
the award a Rule of the Court under Section 17 of the Act
C required outright dismissal without going into the issue of
validity of the award on grounds under Sections 30 and 33 of
the Act. According to him the undertaking before the competent
court of law, in the facts of the case, was sufficient to render
the award unenforceable on the ground under clause (c) of
D Section 30 of the Act Viz. "otherwise invalid". According to him
the award was signed on 3.12.1987 and it dealt with Bombay
properties which were then under the receiver appointed by
the Bombay High Court. This also made the award invalid on
the ground covered by clause (c) of Section 30 of the Act. Mr.
E Datar further submitted that both, A.K. Sang hi Group which "is
now propounding the award and R.K. Sanghi Group had
preferred OM No. 23 of 1986 to challenge the Arbitration
Agreement itself on grounds and allegations of facts which
amounted to admission on their part as to the invalidity of the
arbitration agreement and in such a situation their turning volte
F {ace and seeking to support the award after it was signed and
filed under orders of the court inspite of their pending
objections, cannot make the award good and enforceable at
their instance unless it is held that their admissions in
pleadings can be ignored for some good reasons. Mr. Datar
G next submitted that Section 34 of the Act gave an option to the
parties to the Arbitration Agreement to obtain stay of the legal
proceedings at Bombay or Rajasthan on account of Arbitration
Agreement and if they chose not to get the legal proceedings
stayed or even if they failed to do so, the effect of such legal
H
RAJNI SANGH Iv. WESTERN INDIAN STATE MOTORS
235
LTD. & ORS. [SHIVAKIRTI SINGH, J.]
proceedings cannot be ignored at the time of deciding, at the A
stage of Section 17, as to whether an order/decree could be
passed in terms of the award or not. According to the
submissions, once at the stage of Section 17, the court is made
aware of judgment of a competent court of law affecting the
matter covered by the award, it would be proper and lawful for B
such court to set aside the award under clause (c) of Section
30 of the Act by holding thatthe award is "otherwise invalid". It
was argued on the basis of Section 35 of the Act that the
principle is salutary that in case there is no stay granted under
Section 34 and if the conditions under Section 35 are met, c
further proceedings in a pending reference shall be invalid.
14. This principle appears to have been developed and
generalized further. Mr. Datar has placed reliance upon
judgment in the case of Ram Prosad Surajmull vs. Mohan
Lal Lachminarain, AIR 1921 Calcutta 770 and in the case of D
Sheobabu vs. Udit Narain and Another, AIR 1914
Allahabad 275. The Calcutta judgment was rendered in the
context of Indian Arbitration Act of 1899 but the principle
enunciated therein is equally applicable to an award under
the Arbitration Act, 1940. The principle is - "if the court has E
refused to stay an action or if the defendant has abstained
from asking it to do so, the Court has seisin of the dispute and
it is by its decision and by its decision alone, that the rights of
the parties are settled." This view was adopted on a larger
proposition that the Courts will not allow their jurisdiction to be F
ousted. In simpler words, the proposition is that the courts'
decisions will not be overridden by an award arising out of an
arbitration proceeding. In the Allahabad case, in somewhat
similar situation as in the Calcutta case, the judgment of the
Court under Specific Relief Act in a regular suit was held valid G
because the parties could not or did not take proper steps to
suspend the regular suit. We find no legal or other infirmity in
this proposition of law ..
15. Our attention was drawn to judgment of Bombay High H
236
SUPREME COURT REPORTS
[2015] 14 S.C.R.
A Court dated 30.06.1992 passed by a Division Bench in Appeal
No.350 of 1992 preferred by A.K. Sanghi Group against order
of the Company Judge dated 06.07.1989 to highlight that in
paragraph 3 of the judgment, the Division Bench rejected the
contention advanced on behalf of A.K. Sanghi Group and held
B that the companies are not ·parties to the arbitration
proceedings and consequently the decree on the basis of
award cannot bind the companies. Mr. Datar pointed out that
A.K. Sanghi Group allowed the matter to attain finality and
hence in the present appeals, the appellantA.K. Sanghi Group
c cannot be permitted to take the stand that the award will bind
the companies. He also highlighted the fact that Bombay
property under dispute is a property leased to Mk. Sanghi
Motors and vests with A.K. Sanghi Group as a leasehold
property and in view of law laid down in the case of M/s.
D General Radio &AppliancesCo. Ltd. v. M.A. Khader(dead)
by LRs AIR 1986 SC 1218 and in the case of Singer India
Ltd. v. Chander Mohan Chadha (2004) 7 SCC 1, such
leased property cannot be legally sublet or granted to another
under assignment. That will be the effect if award is allowed to
E operate. On this ground also it has been submitted that the
award suffers from patent illegality.
16. Mr. Gaurav Pachnanda, learned senior advocate
appearing for Rajni Sanghi has submitted that Rajni Sanghi
preferred Special Appeal No.24 of 1994 before the Division
F Bench of Rajasthan High Court against orders of Company
Judge accepting the Scheme of Reconstruction-cum-Family
Settlement because she wanted her specific share out of the
family business allotted to M.K. Sang hi Group ~o that she and
her children may enjoy their share separately. This was
G achieved by amended family settlement dated 20.02.1995.
H
Although M.K.