Case: Cheran Properties Limited vs Kasturi And Sons Limited

Date of Judgement: April 24, 2018

Court: Supreme Court of India

Citation: CIVIL APPEAL NOS 10025-10026 OF 2017

Bench:

  • Hon’ble Justice D Y Chandrachud
  • Hon’ble Justice A M Khanwilkar
  • Hon’ble Justice Misra

Appellant: Cheran Properties Limited

Respondent: Kasturi and Sons Limited

Statutes referred:

  • Companies Act, 1956
  • Arbitration and Conciliation Act, 1940

Facts:

  1. An agreement was entered between Sporting Pastime India Limited (SPIL), Kasturi Sons and Limited (KSL), KC Palanisamy (KCP) and Hindcorp Resorts Private Limited (Hindcorp).
  2. Under the agreement, SPIL was to allot 240 lakhs equity shares to KSL against the book debts. KSL offered to sell 243 lakhs equity shares to KCP. KCP agreed to take over the business, shares and liabilities of SPIL as per the Agreement.
  3. KCP failed to comply with its obligations under the Agreement. KSL and Hindcorp initiated Arbitration proceedings against KCP and SPIL.
  4. The Arbitral tribunal made its award directing KCP and SPIL to return the share certificates of SPIL to KSL and Hindcorp. KSL was directed to pay an amount of INR 3,58,11,000 together with interest at 12% p.a.
  5. KCP challenged this Judgement under Section 34 of the Arbitration and Concilliation Act. The challenge was dismissed by the High Court of Madras.
  6. KSL held proceedings against Cheran, a nominee of KCP to execute the award which directed transmission of shares. KSL approached the National Company Law Tribunal, where it was held that that Cheran is a nominee of KCP and holds shares on its behalf.

Issue involved:

  • Whether an Arbitral award is binding on a third party?

Rationale:

1. Supreme Court held that Section 35 of the Arbitration and Conciliation Act, states that an Arbitral award is “Binding on the parties and persons claiming under them”. Besides the parties, an arbitral award binds every person whose capacity or position is same as a party to the proceedings. This expression includes those who claim under the award, irrespective of whether such person was a party to the arbitration agreement or the arbitral proceedings.

2. Moreover execute the transfer of shares awarded in the arbitration proceedings, use of remedy of the rectification of the register under Section 111-A was appropriate and necessary. Thus, KSL was entitled to seek rectification before the NCLT by referring the provisions of Section 111-A of the Companies Act, 1956.

Obiter dicta:

Section 35 of the arbitration and conciliation act, 1940 states about, Effect of legal proceedings on arbitration:-

(1) No reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject- matter of the reference, but when legal proceedings upon the whole of the subject- matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators, all further proceedings in a pending reference shall, unless a stay of proceedings is granted under section 34, be invalid.

(2) In this section the expression” parties to the reference” includes any persons claiming under any of the parties and litigating under the same title.

Section 111-A of the companies act 1956 tells about, Rectification of Register on transfer.

The shares or debentures and any interest therein of a company shall be freely transferable: Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares.”

Judgement:

  • As per the above reasons, Court contended that the appeals are lacking in merit. The Appeals shall stand dismissed.

Conclusion:

In the above mentioned case, the Court identified the power of NCLT to execute an award that directed transmission of shares.

Moreover the court held that an arbitral award shall be final and binding on the parties and persons claiming under them. Despite of the fact that Cheran was not a party to the arbitral proceedings the arbitral award was final and binding on him too.

Edited By: Tanvi Mahajan, Publisher, Law Insider

Published On: February 13, 2022 at 23:30 IST

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