Case: CHERAN PROPERTIEES LIMITED Vs. KASTURI AND SONS LIMITED

The second respondent is a company by the name of Sporting Pastime India3 . It was incorporated on 2 May 1994, as a fully owned subsidiary of the first respondent, Kasturi & Sons4 . On 19 July 2004 an agreement was entered into between KC5 (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 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.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.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 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 set-off 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.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.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.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 111For 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.

Reasoning: 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.