CHERAN PROPERTIES LIMITED v. KASTURI AND SONS LIMITED & Ors.

1.9 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. There is, therefore, no merit in the challenge addressed by the appellant. [Paras 34-35] [1096-G-H; 1097-A-B] Indowind Energy Limited v. Wescare (India) Limited (2010) 5 SCC 306 : [2010] 5 SCR 284 - distinguished. S.N.Prasad, Hitek Industries (Bihar) Limited v. Monnet Finance Limited (2011) 1 SCC 320 : [2010] 13 SCR 207; Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. (2013) 1 SCC 641 : [2012] 13 SCR 402; Duro Felguera, S.A. v Gangavaram Port Limited (2017) 9 SCC 729; State of West Bengal v. Associated Contractors (2015) 1 SCC 32 : [2014] 10 SCR 426; Sundaram Finance Limited v. Abdul Samad (2018) 2 SCALE 467; Satish Kumar v Surinder Kumar [1969] 2 SCR 244; Uttam Singh Duggal & Co v. Union of India Civil Appeal No 162 of 1962 decided on 11.10.1962 – referred to. Case Law Reference [2010] 5 SCR 284 [2010] 13 SCR 207 [2012] 13 SCR 402 (2017) 9 SCC 729 [2014] 10 SCR 426 (2018) 2 SCALE 467 [1969] 2 SCR 244 distinguished referred to referred to referred to referred to referred to referred to Para 20 Para 8 Para 9 Para 9 Para 30 Para 31 Para 34 CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 10025- 10026 of 2017. From the Judgment and Order dated 05.07.2017 and 18.07.2017 of the National Company Law Appellate Tribunal at New Delhi in Company Appeal (AT) No.125 of 2017 and in I.A. No.368 of 2017 in Company Appeal (AT) No.125 of 2017 respectively. CHERAN PROPERTIES LIMITED v. KASTURI AND SONS LIMITED AND ORS. 1069 Dr. A.M. Singhvi, Sr. Adv., Abhinav Shrivastava, Avishkar Singhvi, Kartik Seth, Naveen Dahiya, Ms. Anisha Mahajan, Vabhiv Mishra, Rahul Gupta, Advs. for the Appellant. Mukul Rohatgi, Arvind P. Datar, Vikas Singh, Sr. Advs., Ms. Haripriya Padmanabhan, Ms. Pooja Dhar, Rohan George, Shrutanjay Bhardwaj, Anandh Kannan N., Advs. for the Respondents. The Judgment of the Court was delivered by DR. D. Y. CHANDRACHUD, J. 1. The appeals in the present case arise under Section 423 of the Companies Act, 2013 against a judgment and order of the National Company Law Appellate Tribunal1 dated 18 July 2017. The NCLAT has dismissed an appeal filed against an order dated 6 March 2017 of the National Company Law Tribunal2 at its Chennai Bench.

#2. The second respondent is a company by the name of Sporting Pastime India Limited3. It was incorporated on 2 May 1994, as a fully owned subsidiary of the first respondent, Kasturi & Sons Limited4. On 19 July 2004 an agreement was entered into between KC Palanisamy5 (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 1 NCLAT 2 NCLT 3 SPIL 4 KSL 5 KCP A B C D E F G H 1070 SUPREME COURT REPORTS [2018] 4 S.C.R. 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. 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 : A B C D E F G H CHERAN PROPERTIES LIMITED v. KASTURI AND SONS LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.] 1071

#7. C G Holdings (P) Ltd. Cheran Holdings P Ltd. KCP Associates Holdings P. Ltd Mr K C Palanisomi Cheraan Properties Limited Cherraan Properties Limited 242,99.994 Cherraan Properties Limited 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”.

#3. 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 A B C D E F G H 1072 SUPREME COURT REPORTS [2018] 4 S.C.R. A B C D E F G H 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.

#4. 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. CHERAN PROPERTIES LIMITED v. KASTURI AND SONS LIMITED AND ORS. [DR. D. Y. CHANDRACHUD, J.] 1073

#5. 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.

#6. 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 111. For 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.

#7. We have heard Mr Kapil Sibal and Dr Abhishek Manu Singhvi, learned senior counsel in support of the appeal and Mr Mukul Rohtagi and Mr Arvind Datar, learned senior counsel on behalf of the respondents.

#8. On behalf of the appellants it has been urged that: Firstly, the appellant is not a party to the arbitration agreement contained in clause 21 of the agreement dated 19 July 2004. A B C D E F G H 1074 SUPREME COURT REPORTS [2018] 4 S.C.R. A B C D E F G H 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.

#9. Mr Kapil Sibal, learned senior counsel, has basically urged three submissions in support. 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 6 7 8