Case: CHERAN PROPERTIEES LIMITED Vs. KASTURI AND SONS LIMITED

new agreement, no other conclusion then the one that the transaction was in terms of the agreement, entered into between the parties to arbitration can be arrived at. At the sake of repetition, it may be mentioned that the reading of the letter dated 18.8.2004 on which reliance was placed by the third respondent shows that clear reference was made to the agreement dated 19.7.2004 entered into between the applicant and the first respondent. The High Court further held thus: The respondents 3 to 6 have purchased the shares, as nominees of the first respondent and not as of independent right. No material other than the agreement dated 19.7.2004 has been placed on record to show that the respondents 3 to 6 exercises their independent right to purchase the shares. The contention of Mr. V. Prakash, learned Senior counsel that the respondents 4 to 6 cannot be treated as nominees of the first respondent cannot be sustained, as shares were transferred, in pursuance to the letter dated 18.8.2004 addressed by the third respondent, for registration of the transfer deed by referring to the agreement dated 19.7.2004. Thus, the second question is also answered by holding that the respondents 2 to 6 purchased the shares, as the nominees of the first respondent. We have referred to the above findings for the completeness of the record. These findings of the Madras High Court would indicate that virtually everyone of the submission which was urged before this Court have been negatived. 34. Finally, having covered the entire gamut of submissions which were urged on behalf of the appellant, it would be worthwhile to revisit the fundamental principles which were formulated nearly fifty years ago in a judgment of a three judge Bench of this Court in Satish Kumar v Surinder Kumar 22 . That case arose under the provisions of the Indian Arbitration Act 1940. The question which arose before this Court was whether an award under the Act requires registration under Section 17(1)(b) of the Registration Act, if it effects partition of immovable property above the value of Rs 100. A Full Bench of the Patna High Court held that unless a decree is passed in terms of the award (in terms of the position as it stood under the 1940 Act) it had no legal effect. In holding thus, the Patna High Court had relied upon a Punjab Full Bench decision holding that under the Arbitration Act 1940, an award was effective only when a decree follows a judgment on the award. The Punjab 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 Court held that the two Full Benches had taken a view contrary to that formulated 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 not in dispute. It is well settled that as a general rule, all claims which are the subject-matter of a reference to arbitration merge in the award which is pronounced in the proceedings before the arbitrator and that after an award has been pronounced, the rights and liabilities of the parties in respect of the said claims can be determined only on the basis of the said award. After an award is pronounced, no action can be started on the original claim which had been the subject-matter of the reference. As has been observed by Mookerjee, J., in the case of Bhajahari Saha Banikya v. Behary Lal Basak [33 Col 881 at p 898] the award is, in fact, a final adjudication of a Court of the parties own choice, and until impeached upon sufficient grounds in an appropriate proceeding, an award, which is on the fact of it regular, is conclusive upon the merits of the controversy submitted, unless possibly the parties have intended that the award shall not be final and conclusive … in reality, an award possesses all the elements of vitality, even though it has not been formally enforced, and it may be relied upon in a litigation between the parties relating to the same subject-matter This conclusion, according to the learned Judge, is based upon the elementary principle that, as between the parties and their privies, an award is entitled to that respect which is due to the judgment of a court of last resort. Therefore, if the award which has been pronounced between the parties has in fact, or can, in law, be deemed to have dealt with the present dispute, the second reference would be incompetent. This position also has not been and cannot be seriously disputed. (emphasis supplied) The above position was followed in Satish Kumar (supra) as stating a binding principle of law. The earlier decision was reiterated in the following observations: In our opinion this judgment lays down that the position under the Act is in no way different from what it was before the Act came into force, and that an award has some legal force and is not a mere waste paper. If the award in question is not a mere waste paper but has some legal effect it plainly purports to or affects property within the meaning of Section 17(1)(b) of the Registration Act. (emphasis supplied) The present case which arises under the Arbitration and Conciliation Act 1996 stands on even a higher pedestal. 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. 35.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Mr Sibal has sought to make a distinction between the provisions of Section 45 and the unamended Section 8. Section 45, forms a part of Part II dealing with the enforcement of foreign awards to which the New York Convention applies. It contemplates a reference by a judicial authority to arbitration at the request of one of the parties or any person claiming through or under him, where there is an arbitration agreement. The submission of Mr Sibal is that a similar expression (any person claiming through or under him) has been introduced in the amended provisions of Section 8 (substituted by Act 3 of 2016 with effect from 23 October 2015) but that this expression did not find place in the unamended. The submission is a non-sequitur. Both Sections 8 and 45 operate in the sphere of the duty of a judicial authority to refer parties to arbitration. In the present case Section 35 is the material provision, which expressly stipulates that an arbitral award is, final and binding not only on the parties but on persons claiming under them.The submission which was urged on behalf of the appellant, proceeds on the basis that since the appellant was not impleaded as a party to the arbitral proceedings, proceedings for the enforcement of the award will not lie against it. This line of submissions clearly misses the central facet of Section 35, which is that a person who claims under a party is bound by the award. 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 partyThe record establishes 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 dated 19 July 2004 but expressly sought the allotment of shares in pursuance to it, to its group companies. In this background, it will not be open to the appellant to contend that while it was bound by all other terms of the agreement dated 19 July 2004, it would not be bound by the arbitration agreement contained in the very same agreement. The arbitral award, as we have noticed, attained finality after all attempts to raise objections to it failed before the High Court and, later, before this Court. The appellant, in purchasing the shares, was conscious of and accepted the terms of the agreement dated 19 July 2004. Its letter dated 17 August 2004 leaves no manner of doubt of the acceptance of this positionThe appellant questions the application of the Chloro Controls doctrine. Dr Singhvi urged that in Chloro Controls there was a joint venture agreement; the mother or parent agreement contained an arbitration clause and though the ancillary agreements did not contain an arbitration agreement, they could not have been performed in the absence of the mother agreement.The submission proceeds on a constricted interpretation of the Chloro Controls dictum. The principle which underlies Chloro Controls is that an arbitration agreement which is entered into by a company within a group of companies may bindy affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. In applying the doctrine, the law seeks to enforce the common intention of the parties, where circumstances indicate that both signatories and non-signatories were intended to be bound. In Duro (supra), the case was held to stand on a different footing since all the five different packages as well as the corporate guarantee did not depend on the terms and conditions of the original package nor on the memorandum of understanding executed between the parties. The judgment in Duro does not detract from the principle which was enunciated in Chloro Controls.In the present case, as we have seen, the parent agreement dated 19 July 2004 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. KCPs letter dated 17 August 2004 to KSL contains a specific reference to the share purchase agreement dated 19 July 2004. 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 dated 19 July 2004 which the appellant recognised in its letter dated 17 August 2004. Having regard to this factual context, the defence of the appellant against the enforcement of the award cannot be accepted. To allow such a defence to prevail would be to cast the mutual intent of the parties to the winds and to put a premium on dishonesty.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 registerWe have not been impressed with the submission that the application by KSL to the NCLT was not maintainable since the Tribunal has no power to execute an arbitral award. The submission proceeds on finding of the Tribunal that the purpose of the petition before it was to implement the award dated 16 December 2009 and that its ultimate direction is to the same effect. The submission relies on the provisions of Section 42 of the 1996 Act which provides as follows:42. Jurisdiction. -Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a court, that court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court and in no other court.While dealing with the submission 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 dated 19 July 2004 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 dated 19 July 2004, to the claimant in the arbitral proceedings. This necessitated an application under 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 is made in entering in the register, the fact of any person having become a member of the company. Under sub-section 5 while hearing the appeal, the Tribunal is entitled to direct that the transfer or transmission shall be registered by the company and to order rectification of the register.In the present case, the arbitral award required the shares to be transmitted to the claimants. The arbitral award attained finality. The award could be enforced in accordance with the provisions of the Code of Civil Procedure, in the same manner as if it were a decree of the Court. The award postulates a transmission of shares to the claimant. The directions contained in the award can be enforced only by moving the Tribunal for rectification in the manner contemplated by law.The reliance which has been sought to be placed on the provisions of Section 42 of the 1996 Act is inapposite.In the present case, the arbitral award, in essence, postulates the transmission of shares from the appellant to the claimant. The only remedy available for effectuating the transmission is that which was provided in Section 111 for seeking a rectification of the register. There is, therefore, no merit in the challenge addressed by the appellantWe may also note the fact that in the proceedings before the Madras High Court under Section 9, it was held that the purchase of shares by the appellant was as a nominee of KCP and not by way of an independent right. The purchase was held to be referable to the agreement dated 19 July 2004. There has been no challenge to this findingWe have referred to the above findings for the completeness of the record. These findings of the Madras High Court would indicate that virtually everyone of the submission which was urged before this Court have been negatived.The present case which arises under the Arbitration and Conciliation Act 1996 stands on even a higher pedestal. 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.