TaxTMI 
TaxTMI 
2018 (4) TMI 1412
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....P) (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 ....
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....ores 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 sh....
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....her 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 rig....
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....deration 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. (2013) 1 SCC 641 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 Limited (2017) 9 SCC 729. 10 Dr Abhishek Manu Singhvi has in his submissions addressed the Court on the following propositions. 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; Sec....
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....er 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.....
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....thus: "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 B....
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....ident 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 h....
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....ticing the position in English law, is as follows: "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 th....
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....ts 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. 17 As the law has evolved, it has recognised that 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 hold....
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....s principle: "..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.. (Id 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 companies (Redfern and Hunter (supra) 2.40, page 100). 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 circ....
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.... non-signatory be bound and benefitted by the relevant contracts. (Id 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. (Id at page 1450)" 20 The decision in Indowind arose from an application under Section 11 of the Arbitration and Conciliation Act 1996. Indowind was not a signatory to the contract and was held not to be a party to the agreement to refer disputes to arbitration. Indowind held that an application under Section 11 was not maintainable. The present case does not envisage a situation of the kind which prevailed before this Court in Indowind. The present case relates to a post award situa....
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.... 22 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 party. Essentially, the Court is called upon to consider whether the test embodied in Section 35 is fulfilled in the present case, so as to bind the appellant. 23 Under the agreement dated 19 July 2004, KCP was to be offered 243 lakh equity shares of KSL for a consideration of Rs. 2.31 crores. The intent of the parties, as evinced in clause 6 of the agreement, was that KCP would take over the business, assets and liabilities of SPIL. KCP was to discharge those liabilities of SPIL which were specified in Schedules 2 and 3 of the agreement. Clause 14 of the agreement recognises, on the part of KSL, the right of KCP to ....
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....he 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 bind non-signatory 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. 26 In the present case, as we have seen, the parent agreement dated 19 July 2004 envisaged the allotme....
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.... 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 shar....
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....efinition 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 ....
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....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....
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....d 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." We 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. 34 Finally, having covered the entire gamut of submissions which were urged on behalf of the appellant, it would be worthwhile to revisit the fundamental principles which were formulated nearly fif....