CHERAN PROPERTIES LIMITED versus KASTURI AND SONS LIMITED AND ORS.

Citation: [2018] 4 S.C.R. 1063 · Decided: 24-04-2018 · Supreme Court of India · Bench: DIPAK MISRA · Disposal: Dismissed

Cited by 4 judgment(s) · cites 6 · see the full citation network in Lexace

Judgment (excerpt)

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1063
CHERAN PROPERTIES LIMITED
v.
KASTURI AND SONS LIMITED AND ORS.
(Civil Appeal Nos. 10025-10026 OF 2017)
APRIL 24, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D. Y. CHANDRACHUD, JJ.]
Arbitration and Conciliation Act, 1996: ss. 35, 36, 7 – Finality
of awards – Enforcement – Arbitration agreement – Binding on third
parties who may not be signatories to an agreement between two
contracting parties – Held: Section 35 postulates that an arbitral
award “shall be final and binding on the parties and persons
claiming under them respectively – Expression “persons claiming
under them” is a legislative recognition of the doctrine that besides
the parties, an arbitral award binds every person whose capacity
or position is derived from and is the same as a party to the
proceedings – Furthermore, arbitral award has the character of a
decree of a civil court u/s. 36 and is capable of being enforced as if
it were a decree – On facts, dispute between parties resulting in
commencement of arbitral proceedings wherein arbitral award
passed – Said award could be enforced against appellant company-
nominee even though appellant was not signatory to the arbitration
proceedings – Arbitral award requiring transmission of shares,
having attained finality, could be enforced in the same manner as if
it were a decree of the court – Further, the transmission of shares to
the claimants as mandated by the award could be fully effectuated
by obtaining rectification of the register before NCLT by invoking
provision of s. 111 – NCLT rightly exercised the jurisdiction to pass
an order directing rectification of the register which was upheld by
NCLAT – Thus, no merit in the challenge raised by the appellant –
Companies Act, 1956 – s. 111.
KCP-third respondent, KSL-first respondent, SPIL and
HRP company entered into an agreement whereby, SPIL was to
allot 240 lakh equity shares to KSL against the book debts due
by it to KSL. KSL offered to sell the shares to KCP. KCP agreed
to take over the business, shares and liabilities of SPIL and would
discharge the liabilities. However, KCP did not complete the
transaction. Disputes arose between the parties resulting in
[2018] 4 S.C.R. 1063
1063
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SUPREME COURT REPORTS
[2018] 4 S.C.R.
arbitral proceedings. An award was passed directing KCP and
SPIL to return documents of title and share certificates relating
to 2.43 crore shares to KSL and KSL would pay or tender a sum
of Rs. 3.58 crores with interest. The said award attained finality.
KSL then initiated proceedings u/s. 111 of the Companies Act,
1956 for rectification of the register of SPIL. NCLT allowed the
petition. Thereafter, NCLAT held that the appellant is a nominee
of KCP and holds the shares in question, hence, NCLT was
justified in entertaining the proceedings for rectification u/s. 111.
Hence the present appeals.
Dismissing the appeals, the Court
HELD: 1.1 The modern business transactions are often
effectuated through multiple layers and agreements. There may
be transactions within a group of companies. The circumstances
in which they have entered into them may reflect an intention to
bind both signatory and non-signatory entities within the same
group. In holding a non-signatory bound by an arbitration
agreement, the Court approaches the matter by attributing to
the transactions a meaning consistent with the business sense
which was intended to be ascribed to them. Therefore, factors
such as the relationship of a non-signatory to a party which is a
signatory to the agreement, the commonality of subject matter
and the composite nature of the transaction weigh in the balance.
The group of companies doctrine is essentially intended to
facilitate the fulfilment of a mutually held intent between the
parties, where the circumstances indicate that the intent was to
bind both signatories and non-signatories. The effort is to find
the true essence of the business arrangement and to unravel
from a layered structure of commercial arrangements, an intent
to bind someone who is not formally a signatory but has assumed
the obligation to be bound by the actions of a signatory. [Para 17]
[1083-C-F]
International Arbitration by Redfern and Hunter, Fifth
Edn 2.13, p.89-90, 99, 2.40 p 100, 2.41 p 100; Russel
on Arbitration 24th Edn, 3-025 pages 110-111; Treatise
on International Commercial Arbitration by Garry B
Born 2nd Ed. Volume 1 p 1418 - referred to.
1.2 The instant case relates to a post award situation. The
enforcement o

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