2018 (4) TMI 1412 - SC - Companies Law

Arbitration Award Valid & Enforceable, Non-Signatory Bound, NCLT Jurisdiction Upheld

Cheran Properties Limited Versus Kasturi And Sons Limited And Ors

Cheran Properties Limited Versus Kasturi And Sons Limited And Ors - TMI Issues Involved:1. Validity and enforceability of the arbitral award.2. Binding nature of the arbitration agreement on non-signatory parties.3. Jurisdiction of NCLT and NCLAT in enforcing the arbitral award.4. Rectification of the register of members under Section 111 of the Companies Act, 1956.5. Applicability of the group of companies doctrine.Detailed Analysis:1. Validity and Enforceability of the Arbitral Award:The arbitral tribunal issued an award directing the respondents to return documents of title and share certificates relating to 2.43 crore shares of SPIL to the claimants, contemporaneously with the payment of Rs. 3,58,11,000 by the claimants. The award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, but the challenge was dismissed by the Madras High Court and the Division Bench, with the Supreme Court also dismissing the Special Leave Petition. Consequently, the award attained finality.2. Binding Nature of the Arbitration Agreement on Non-Signatory Parties:The appellant contended that it was not a party to the arbitration agreement dated 19 July 2004 and hence not bound by the arbitral award. However, the court held that the appellant, being a nominee of KCP and having accepted the terms of the agreement, was bound by the arbitration clause. The court referenced the group of companies doctrine, which allows non-signatory affiliates to be bound by an arbitration agreement if the mutual intention of the parties was to bind both signatories and non-signatories.3. Jurisdiction of NCLT and NCLAT in Enforcing the Arbitral Award:The appellant argued that the arbitral award should be enforced as a decree of a civil court and not through proceedings before the NCLT. However, the court held that the NCLT had jurisdiction to direct rectification of the register under Section 111 of the Companies Act, 1956, to effectuate the transfer of shares as mandated by the arbitral award. The court emphasized that the arbitral award, having the status of a decree under Section 36, could be enforced through rectification proceedings before the NCLT.4. Rectification of the Register of Members under Section 111 of the Companies Act, 1956:The NCLT allowed the petition for rectification of the register of SPIL, which was affirmed by the NCLAT. The court held that the rectification was necessary to perfect the title of KSL to the shares and that the arbitral award's mandate for the transfer of share certificates required such rectification. The court dismissed the appellant's contention that the NCLT lacked the power to execute the arbitral award, stating that the rectification of the register was essential to implement the award.5. Applicability of the Group of Companies Doctrine:The court applied the group of companies doctrine, holding that the appellant, as a nominee of KCP, was bound by the arbitration agreement and the arbitral award. The court referenced the decision in Chloro Controls, which allows non-signatory affiliates to be bound by an arbitration agreement if the circumstances demonstrate the mutual intention of the parties to bind both signatories and non-signatories. The court found that the appellant's purchase of shares was in pursuance of the agreement dated 19 July 2004 and that the appellant was aware of and accepted the terms of the agreement, including the arbitration clause.Conclusion:The appeals were dismissed, affirming the enforceability of the arbitral award against the appellant, the jurisdiction of the NCLT to direct rectification of the register, and the applicability of the group of companies doctrine to bind the appellant to the arbitration agreement and the arbitral award.