1NCLAT
2NCLT
3SPIL
4KSL
5KCP
“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:
On 17 August 2004, a letter was addressed by KCP acting as the authorized signatory of the appellant to KSL. The letter specifically contained a reference to the share purchase agreement dated 19 July 2004. The text of the letter is extracted below:
“Re: SHARE PURCHASE AGREEMENT DT.19.7.04
In pursuance of the above Agreement, you have agreed to sell and our Group Companies, by themselves and/or by their nominees have agreed to purchase shares in Sporting Pastime India Limited of a face value of Rs. 2,430 lakhs, for a sum of Rs. 243.00 lakhs.
Accordingly we send herewith seven Share Transfer Deeds duly executed by us and we request you to execute the same and lodge them with Sporting Pastime India Limited together with relevant Share Certificates for registering the transfers in the Following names :
Total 243.00.000
We enclose a Demand Draft no. 788401 dt. 16.08.04, drawn on ABN AMRO Bank, for Rs. 2,43,00,000, (Rupees Two Crores lakhs only) towards Share Consideration as above. Kindly acknowledge receipt thereof.
We will now have to draw up a Supplementary Agreement to the above Share Purchase Agreement to reflect the altered consideration. We will also have to sign all the Annexures to the Agreement.
There are certain outstanding guarantees issued by you, to the parties listed in Schedule 2 to the above Agreement. You are requested to keep your guarantees in good standing in accordance with the terms of the Agreement. We shall relieve your guarantees in accordance with the Agreement”.
“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.
“(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.
Firstly, the appellant is not a party to the arbitration agreement contained in clause 21 of the agreement dated 19 July 2004. This agreement was entered into between KCP, KSL, SPIL and Hindcorp. Even though the appellant purchased the shares of SPIL as a nominee of KCP, the arbitral award which has been rendered in proceedings between the parties to the agreement dated 19 July 2004 does not bind the appellant;
Secondly, the principle that an arbitration agreement will, under Section 7, bind only parties and not a third party in the position of the appellant, is settled by the decisions of this Court in Indowind Energy Limited v Wescare (India) Limited6 and in S.N.Prasad, Hitek Industries (Bihar) Limited v Monnet Finance Limited7;
Thirdly, an arbitral award has to be enforced as a decree of a civil court in view of the provisions of Section 36. The arbitral award could not have been enforced by pursuing proceedings before the NCLT;
Fourthly, though a review was sought before the NCLAT on the basis of the law laid down by this Court in Indowind (supra) it was summarily dismissed on the ground that there was no error in the original judgment.
6(2010) 5 SCC 306
7(2011) 1 SCC 320
Firstly the appellant ought to have been, but was not impleaded as a party to the arbitral proceedings (obviously because it was not a party to the arbitration agreement). The appellant has paid valuable consideration for the shares purchased by it. KSL proceeded on a wrong legal basis in the first place and has compounded its legally untenable approach by selecting a wrong remedy by moving the NCLT;
Secondly, Chloro Controls India Private Limited v Severn Trent Water Purification Inc.8 does not apply because it deals with an international arbitration under Section 45 whereas this was a case of a domestic arbitration. The provisions of Section 45 must be distinguished from unamended Section 8 of the Arbitration and Conciliation Act 1996. The appellant is not a party to the arbitration agreement and having paid consideration for its purchase of shares, is not bound by the arbitral award;
Thirdly, the decision in Chloro Controls has been clarified by this Court in Duro Felguera, S.A. v Gangavaram Port Limited9.
8(2013) 1 SCC 641
9(2017) 9 SCC 729
Firstly, the arbitral award dated 16 December 2009 cannot be executed against the appellant which is admittedly not a signatory to the agreement dated 19 July 2004 which contains a provision for arbitration;
Secondly, the arbitral award cannot be executed by a Tribunal such as the NCLT/NCLAT in a “camouflaged petition” (under Sections 111, 397, 398, 402 and 403 of the Companies Act 1956) which would be barred by Section 42 of the Arbitration and Conciliation Act, 1996;
Thirdly, the prayer seeking a rectification of the register of members fails to meet the strict requirements of Sections 111 and 111 A of the erstwhile Companies Act 1956 and hence the direction to rectify the register of members is fallacious;
Fifthly, reliance on the letter dated 17 August 2004 addressed on behalf of the appellant and on the order of the Madras High Court in the petition under Section 9 is misconceived;
Sixthly, during the course of the proceedings under Section 9, counsel for the appellant had conceded that the expression ‘party’ means a party to the arbitration agreement and which is actually before the arbitral tribunal;
Seventhly, for the Chloro Controls principle to be attracted, the following requirements are necessary:
Firstly, Clause 14 of the agreement dated 19 July 2004 specifically provides that the nominees of KCP would be bound by the agreement. The recognition of the right of KCP to sell or transfer his holdings in SPIL was expressly subject to the condition that the proposed transferees would accept the terms and conditions of the agreement. Such an acceptance would necessarily include all its provisions including the arbitration agreement contained in clause 21;
Secondly, the condition for KCP’s nominees to obtain the shares of SPIL having been spelt out in clause 14, the appellant is merely a nominee and is not entitled to raise the present dispute;
Thirdly, in the order of the High Court dated 29 April 2011 under Section 9 of the Arbitration and Conciliation Act 1996, the appellant was held specifically to be a nominee of KCP whose purchase of shares was referable to the agreement dated 19 July 2004. The appellant which is a party to those proceedings has not challenged the finding;
Fourthly, the arbitral award has the status of a decree under Section 36 and can be enforced “as if” it is a decree of the court. Under the Companies Act, no matter relating to the transfer of shares can be decided except by the NCLT after 2013. KSL requires physical custody of the share certificates and rectification of the share register. Mere transfer of the physical custody of the share certificates wold not be sufficient, since a rectification of the share register is required to perfect the title of KSL. Consequently, it was necessary for KSL to move the NCLT for rectification of the share register under Section 111; and
Fifthly, the principle that an arbitral award may bind a group company, which is an affiliate of a signatory to the arbitration agreement has been settled in a judgment of a three judge bench of this Court in Chloro Controls. While there can be no dispute about the applicability of the Indowind principle in the generality of cases, attribution of an arbitral award to a group company is governed by the decision in Chloro Controls (supra).
Firstly, each of the submissions which are sought to be advanced before this Court in the present appeals were urged before the Madras High Court in the proceedings under Section 9. The Madras High Court has categorically rejected those submissions and has held that the appellant, at all material times, acted as a nominee of KCP under the agreement dated 19 July 2004. The appellant’s letter of 17 August 2004 categorically contains a reference to the earlier agreement and establishes beyond doubt that the appellant assumed all the obligations under the agreement, including the remedy of arbitration;
Secondly, Indowind is essentially a case under Section 11 of the Arbitration and Conciliation Act, 1996. In the present case the Court is dealing with a post award enforcement;
Thirdly, Section 35 of the Arbitration and Conciliation Act, 1996 indicates that an arbitral award binds parties to an arbitration and persons claiming under them. The appellant has, at all material times, been aware of the fact that it was claiming under KCP in pursuance of the original agreement dated 19 July 2004 and its letter dated 17 August 2004;
Fourthly, the judgment in Chloro Controls explains the concept of a person claiming under a party to an arbitration agreement and is attracted to the present case on all fours; and
Fifthly, the consequence of the arbitral award is to envisage a transmission of the shares to KSL by operation of law. This being the position, the CLB could have directed a rectification of the register of the company. Upon the constitution of the NCLT, exclusive jurisdiction to do so stands vested in it. The transmission of shares, as a consequence of law under the arbitral award, has to be given effect to by a formal rectification of the register. To effectuate this, the only remedy which is available to KSL was to move the NCLT for rectification.
“7 Arbitration agreement. —
(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
While interpreting Section 7 in Indowind, a two Judge Bench of this Court held that:
“It is fundamental that a provision for arbitration to constitute an arbitration agreement for the purpose of Section 7 should satisfy two conditions: (i) it should be between the parties to the dispute; and (ii) it should relate to or be applicable to the dispute.”
That was a case where an agreement of sale was entered into between W and S. The agreement described S and its nominee as a buyer and as the promoter of Indowind. Under the agreement, the seller agreed to transfer to the buyer certain assets for a consideration which was payable partly in cash and partly by the issue of equity shares. The Board of Directors of W accorded approval to the agreement, as did the Board of S. No approval was, however, granted by the Board of Directors of Indowind. According to W, certain disputes arose between it and S and Indowind on the other. W filed a petition under Section 11(6) against S and Indowind for appointment of a sole arbitrator. Indowind resisted the petition on the ground that it was not a party to the agreement which was entered into between W and S. The Chief Justice of the Madras High Court allowed the application for appointment of an arbitrator, holding that though Indowind was not a signatory to the agreement, it was bound. In appeal, this Court held that W had not entered into an agreement with Indowind, referring to the agreement which contained an arbitration agreement, with an intention to make the arbitration agreement a part of their agreement. In the view of this Court:
“..The question is when Indowind is not a signatory to the agreement dated 24-2-2006, whether it can be considered to be a “party” to the arbitration agreement. In the absence of any document signed by the parties as contemplated under clause (a) of sub-section (4) of Section 7, and in the absence of existence of an arbitration agreement as contemplated in clauses (b) or (c) of sub-section (4) of Section 7 and in the absence of a contract which incorporates the arbitration agreement by reference as contemplated under sub-section (5) of Section 7, the inescapable conclusion is that Indowind is not a party to the arbitration agreement. In the absence of an arbitration agreement between Wescare and Indowind, no claim against Indowind or no dispute with Indowind can be the subject-matter of reference to an arbitrator. This is evident from a plain, simple and normal reading of Section 7 of the Act.”
The fact that the agreement was entered into by S as the promoter of Indowind and described the latter as its nominee and that the agreement was signed on behalf of S by a person who was also a director of Indowind was held not to make any difference. This Court held that S and Indowind were two independent companies each of which was a separate and distinct legal entity and the mere fact that the companies had common shareholders or a common Board of Directors will not make them a single entity. Nor could there be an inference that one company would be bound by the acts of the other. In the view of this Court:
“..A contract can be entered into even orally. A contract can be spelt out from correspondence or conduct. But an arbitration agreement is different from a contract. An arbitration agreement can come into existence only in the manner contemplated under Section 7. If Section 7 says that an arbitration agreement should be in writing, it will not be sufficient for the petitioner in an application under Section 11 to show that there existed an oral contract between the parties, or that Indowind had transacted with Wescare, or Wescare had performed certain acts with reference to Indowind, as proof of arbitration agreement.”
“An arbitration agreement between the lender on the one hand and the borrower and one of the guarantors on the other, cannot be deemed or construed to be an arbitration agreement in respect of another guarantor who was not a party to the arbitration agreement. Therefore, there was no arbitration agreement as defined under Sections 7(4)(a) or (b) of the Act, insofar as the appellant was concerned, though there was an arbitration agreement as defined under Section 7(4)(a) of the Act in regard to the second and third respondents..”
Consequently, the impleadment of the appellant as party to the arbitration proceedings and the award were held to be unsustainable. The principle which was formulated by the Court was this:
“..The Act makes it clear that an arbitrator can be appointed under the Act at the instance of a party to an arbitration agreement only in respect of disputes with another party to the arbitration agreement. If there is a dispute between a party to an arbitration agreement, with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to the parties to the arbitration agreement and not the non-parties.”
“Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the courts under the English law have, in certain cases, also applied the “group of companies doctrine”. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (23rd Edn.)]
This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, “intention of the parties” is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.”
The Court held that it would examine the facts of the case on the touch-stone of the existence of a direct relationship with a party which is a signatory to the arbitration agreement, a ‘direct commonality’ of the subject matter and on whether the agreement between the parties is a part of a composite transaction:
“A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non- signatory parties would fall within the exception afore- discussed.”
Explaining the legal basis that may be applied to bind a non-signatory to an arbitration agreement, this Court held thus:
“The first theory is that of implied consent, third-party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities.
The second theory includes the legal doctrines of agent- principal relations, apparent authority, piercing of veil (also called “the alter ego”), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law.
We have already discussed that under the group of companies doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non-signatory affiliates, if the circumstances demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties.”
The position in Indowind was formulated by a Bench of two Judges before the evolution of law in the three Judge Bench decision in Chloro Controls. Indowind arose out of a proceeding under Section 11(6). The decision turns upon a construction of the arbitration agreement as an agreement which binds parties to it. The decision in Prasad evidently involved a guarantee, where the guarantor who was sought to be impleaded as a party to the arbitral proceeding was not a party to the loan agreement between the lender and borrower. The loan agreement between the lender and borrower contained an arbitration agreement. The guarantor was not a party to that agreement.
10Redfern and Hunter on International Arbitration, Fifth Edition – 2.13, p.89-90
“..The requirement of a signed agreement in writing, however, does not altogether exclude the possibility of an arbitration agreement concluded in proper form between two or more parties also binding other parties. Third parties to an arbitration agreement have been held to be bound by (or entitled to rely on) such an agreement in a variety of ways: first, by operation of the ‘group of companies’ doctrine pursuant to which the benefits and duties arising from an arbitration agreement may in certain circumstances be extended to other members of the same group of companies; and, secondly, by operation of general rules of private law, principally on assignment, agency, and succession..11”
11Id at page 99
The group of companies doctrine has been applied to pierce the corporate veil to locate the “true” party in interest, and more significantly, to target the creditworthy member of a group of companies12. Though the extension of this doctrine is met with resistance on the basis of the legal imputation of corporate personality, the application of the doctrine turns on a construction of the arbitration agreement and the circumstances relating to the entry into and performance of the underlying contract13.
12Redfern and Hunter (supra) 2.40, page 100
13Id.2.41 page 100
Russel on Arbitration14 formulates the principle thus:
“Arbitration is usually limited to parties who have consented to the process, either by agreeing in their contract to refer any disputes arising in the future between them to arbitration or by submitting to arbitration when a dispute arises. A party who has not so consented, often referred to as a third party or a non- signatory to the arbitration agreement, is usually excluded from the arbitration. There are however some occasions when such a third party may be bound by the agreement to arbitrate. For example, …, assignees and representatives may become a party to the arbitration agreement in place of the original signatory on the basis that they are successors to that party’s interest and claim “through or under” the original party. The third party can then be compelled to arbitrate any dispute that arises.”
14(24th Ed.), 3-025 pages 110-111
Garry B Born in his treatise on International Commercial Arbitration indicates that:
“The principal legal bases for holding that a non-signatory is bound (and benefitted) by an arbitration agreement … include both purely consensual theories (e.g., agency, assumption, assignment) and nonconsensual theories (e.g. estoppel, alter ego)15”.
152nd Ed. Volume 1 page 1418
Explaining the application of the alter ego principle in arbitration, Born notes:
“Authorities from virtually all jurisdictions hold that a party who has not assented to a contract containing an arbitration clause may nonetheless be bound by the clause if that party is an “alter ego” of an entity that did execute, or was otherwise a party to, the agreement. This is a significant, but exceptional, departure from “the fundamental principle ... that each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate rights and liabilities<>sup.16”
16Id at page 1432
Explaining group of companies doctrine, Born states :
“the doctrine provides that a non-signatory may be bound by an arbitration agreement where a group of companies exists and the parties have engaged in conduct (such as negotiation or performance of the relevant contract) or made statements indicating the intention assessed objectively and in good faith, that the non-signatory be bound and benefitted by the relevant contracts17.”
17Id at pages 1448-49
While the alter ego principle is a rule of law which disregards the effects of incorporation or separate legal personality, in contrast the group of companies doctrine is a means of identifying the intentions of parties and does not disturb the legal personality of the entities in question. In other words :
“the group of companies doctrine is akin to principles of agency or implied consent, whereby the corporate affiliations among distinct legal entities provide the foundation for concluding that they were intended to be parties to an agreement, notwithstanding their formal status as non-signatories<>sup.18”
18Id at page 1450
19Third Edition, Volume I Page 818
“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.
20(2015) 1 SCC 32.
“If an application were to be preferred to a court which is not a Principal Civil Court of original jurisdiction in a district or a High Court exercising original jurisdiction to decide questions forming the subject matter of an arbitration if the same had been the subject matter of a suit, then obviously such application would be outside the four corners of Section 42. If, for example, an application were to be filed in a court inferior to a Principal Civil Court, or to a High Court which has no original jurisdiction, or if an application were to be made to a court which has no subject-matter jurisdiction, such application would be outside Section 42 and would not debar subsequent applications from being filed in a court other than such court.”
The conclusion of the Court is in the following terms:
“(a) Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of Original Jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as “court” for the purpose of Part I of the Arbitration Act, 1996.
(b) The expression “with respect to an arbitration agreement” makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an award is pronounced under Part I of the 1996 Act.
(c) However, Section 42 only applies to applications made under Part I if they are made to a court as defined. Since applications made under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section 42.
(d) Section 9 applications being applications made to a court and Section 34 applications to set aside arbitral awards are applications which are within Section 42.
(e) In no circumstances can the Supreme Court be “court” for the purposes of Section 2(1)(e), and whether the Supreme Court does or does not retain seisin after appointing an arbitrator, applications will follow the first application made before either a High Court having original jurisdiction in the State or a Principal Civil Court having original jurisdiction in the district, as the case may be.
(f) Section 42 will apply to applications made after the arbitral proceedings have come to an end provided they are made under Part I.
(g) If a first application is made to a court which is neither a Principal Court of Original Jurisdiction in a district or a High Court exercising original jurisdiction in a State, such application not being to a court as defined would be outside Section 42. Also, an application made to a court without subject-matter jurisdiction would be outside Section 42.”
21(2018) 2 SCALE 467
“The aforesaid provision would show that an award is to be enforced in accordance with the provisions of the said code in the same manner as if it were a decree. It is, thus, the enforcement mechanism, which is akin to the enforcement of a decree but the award itself is not a decree of the civil court as no decree whatsoever is passed by the civil court. It is the arbitral tribunal, which renders an award and the tribunal does not have the power of execution of a decree. For the purposes of execution of a decree the award is to be enforced in the same manner as if it was a decree under the said Code.”
Explaining the provisions of Section 42 the Court held that:
“The aforesaid provision, however, applies with respect to an application being filed in Court under Part I. The jurisdiction is over the arbitral proceedings. The subsequent application arising from that agreement and the arbitral proceedings are to be made in that court alone. However, what has been lost sight of is Section 32 of the said Act, which reads as under: “32. Termination of proceedings.— (1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2). (2) The arbitral tribunal shall issue an order for the termination of CIVIL APPEAL No.1650 of 2018 Page 17 of 21 the arbitral proceedings where— (a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute, (b) the parties agree on the termination of the proceedings, or (c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. (3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.”
19.The aforesaid provision provides for arbitral proceedings to be terminated by the final arbitral award. Thus, when an award is already made, of which execution is sought, the arbitral proceedings already stand terminated on the making of the final award. Thus, it is not appreciated how Section 42 of the said Act, which deals with the jurisdiction issue in respect of arbitral proceedings, would have any relevance..”
Consequently, in the view of the Court, the enforcement of an award through its execution can be initiated anywhere in the country where the decree can be executed and there is no requirement of obtaining a transfer of the decree from the Court which would have jurisdiction over the arbitral proceedings.
The Madras High Court held thus:
“The reading of the letter issued by the third respondent seeking transfer and registration of shares shown that reference was made to the agreement dated 19.7.2004 which was in dispute before the Arbitration Tribunal. Nothing has been produced on record to show, if any fresh agreement was executed as suggested in the letter, seeking transfer of shares in favour of the person mentioned in the letter written by the third respondent, nor any documents have been placed on record to show as to whether the respondent took over the liabilities, which were met by the applicant, and finally held to be binding on first respondent.
In the absence of execution of 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.”
22(1969) 2 SCR 244
23Civil Appeal No 162 of 1962 – judgment delivered on 11 October 1962
“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.