Case: Rajni Sanghi Vs. Western Indian State Motors Ltd.

1. These three Civil Appeals have been heard together because in essence they relate to 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 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) 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 Sanghi Motors Private Limited (Bombay). Whether in the form of partnership firm or as a 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 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 the family business consisting of four partnership firms 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 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 business of each group as it existed already2. 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 18.8.1984 and made communications with the other three 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. Sanghi filed a company petition bearing C.P. No. 128 of 1985 before 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. Sanghi filed a petition under Section 33 of the Arbitration Act, 1940 before Delhi High 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 notice was issued to the parties. Objection to the award was filed by M.K. Sanghi within time and beyond time by R.K. Sanghi and also by Sanghi Motors Private Limited (Bombay). On the other hand A.K. Sanghi (now represented by his sons Vijay Sanghi and Ajay Sanghi, appellants in C.A. No.2763 of 2002) 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 the company case at Bombay High Court and in another Company petition no. 6 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 20023. Interestingly, no one could obtain a stay of the proceedings in the Company Petition No. 128 of 1985 before the High Court of Bombay which appointed a Receiver with respect to the Sanghi Motors Private Limited (Bombay) and 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 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. Sanghi opposed the aforesaid settlement scheme before the Company Court as well as through an appeal before the 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 Delhi as care was taken to ensure that under the scheme the transfer of shares would be effected only after the injunction would be vacated by the Delhi High court. The Bombay company case has thus attained finality4. The 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 Companies Act against Western India State Motors Limited (WISM), Smt. Uma Sanghi (widow of late N.K. Sanghi), Vijay Kumar Sanghi (son of A.K. Sanghi) and an official of Rajasthan State Industrial Development and Investment Corporation. In this company petition which remained pending for a number 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. 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 scheme of reconstruction filed in Company Petition No. 6 of 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 being petition no. 581-A/1988. Shri A.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 reconstructionThe scheme was signed by R.K. Sanghi and A.K. Sanghi also 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 reconstruction-cum-family settlement. The widow of N. K. Sanghi, Smt. Uma Sanghi 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 Sanghi were personally present before the learned Single Judge when the Company Petition No. 6 of 1986 was disposed of in terms of the scheme 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 weeks5. The orders of learned Single Judge of High Court of Rajasthan accepting the 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 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 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 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 ground that A.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 Bombay, under the control of N.K. Sanghi 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. 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 Sanghi Motors is subject matter of Civil Appeal No. 503 of 2001 which shall also be governed by this common judgment6. 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 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 Division Bench found a case of non-compliance of sub-clause (1) of Section 391 of the Companies Act. The Division Bench 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. 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 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 settlement and family arrangement, there was no need of interfering with the order of the Single 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 Sanghi in Civil Appeal No. 3687 of 20067. 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 otherwise. That civil appeal has been argued at great length as the lead case. But of equal significance is the civil appeal of Rajni Sanghi 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 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 had prayed for making the Award of the Arbitrator dated 3.12.1987 as rule of the Court.

Reasoning:
25. So far as the argument in favour of maintaining the award is concerned, we find that clause (c) of Section 30 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 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 disposal in accordance with the award under consideration. Such a situation is only illustrative and has been enunciated by us in the light of facts obtaining in this 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 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, in our view, the award has to be set aside on the ground that it is otherwise invalid on the date it is being considered for being made a rule of the court. Since this course of action is available and has been rightly adopted by the Delhi High Court, we do not feel necessary to examine the hypothetical question as to whether even in absence of any ground for setting aside such an award, could the court concerned refuse to make the award a rule of the court under Section 17 of the Act if it was confronted with a situation like the one on hand in this case. Such a question need not be answered in the present proceeding26. We have already referred to judgments highlighting the significance of family arrangement under Hindu Law and in light of such judgments and considering the scheme of the Act and provisions of Code of Civil Procedure we are satisfied that 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 pre-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 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 4th group, i.e., M.K. Sanghi group later decided to go along with that arrangement by opting to withdraw its appeal. Hence we accept the submissions advanced by Mr. Datar, Mr. Pachnanda and Mr. Shyam Divan and hold that if parties settle their disputes amicably by an agreement, even post-award, such settlement/agreement will prevail in view of requirement of the Act that 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 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 question27. The act of A.K. Sanghi in not honouring his undertaking to withdraw his petition for making the award a rule of court and the attempt made by Vijay Sanghi 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 A.K. Sanghi had signed the settlement on behalf of his group, were impermissible conduct of approbate and reprobate on the part of A.K. Sanghi group which should 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 mind in such a situation. The junior members of the family are bound by decisions of a Karta 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. We have not been shown any such case on behalf of Vijay Sanghi. In such a situation, 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 courts28. We have examined the Division Bench judgment of the Rajasthan High Court under challenge by Rajni Sanghi and we find that the remand order is not on the basis of any defect in the agreements or supplementary agreements but on account of certain technical 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 partnerships and when all were agreeable, interest of justice was best subserved by recognizing even the supplementary family settlement of 1995 in favour of Rajni Sanghi as well as the original family arrangement of 1994 accepted by the Company Judge. In that view of the matter the order of remand under challenge at the instance of Rajni Sanghi 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 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. Civil Appeal No.3687 of 2006 is allowed to the aforesaid extent and is disposed of accordingly.