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Section 34 in The Companies Act, 1956
Section 47 in The Companies Act, 1956
THE ARBITRATION AND CONCILIATION ACT, 1996
M/S. J.D. Singh And Others vs Calcutta Port Trust on 6 January, 1993
Section 35 in The Companies Act, 1956

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Calcutta High Court
Alaka Saraogi vs Anil Nahata & Ors on 20 July, 2009
Author: Pinaki Chandra Ghose
                          A.P.O. No. 138 of 2009
                         A.P.O.T. No. 156 of 2009
                           G.A. No. 2995 of 2008
                       Execution Case No. 11 of 2007

                        In the High Court at Calcutta
                         Civil Appellate Jurisdiction
            In appeal from its Ordinary Original Civil Jurisdiction
                                 Original Side
PRESENT:

The Hon'ble JUSTICE PINAKI CHANDRA GHOSE

The Hon'ble JUSTICE I.P. MUKERJI



                               ALAKA SARAOGI
                                    Versus
                              ANIL NAHATA & ORS



For the appellant             : Mr. Abhrajit Mitra, Adv.
                                Mr. A.P. Agarwalla, Adv.

For the respondent Nos. 1-16 : Mr. Surojit Nath Mitra, Adv.
                               Mr. Arindam Mukerjee, Adv.
                               Mr. Deepak Jain, Adv.


Heard on: 24.06.09, 30.06.09, and 02.07.09.



Judgment on: 20th July 2009



I.P. Mukerji, J.

This is an appeal from a judgment and order dated 17th March, 2009 passed by the Hon'ble Court of the first instance dismissing an application being G.A. No. 2995 of 2008made by the appellant and her husband Mohanlal Saraogi, the respondent No.17 under Section 47 of the Code of Civil Procedure in Execution Case No. 11 of 2007 started by the respondents. The respondent No. 17 has not preferred any appeal.

FACTS:

There is a public company limited by shares called Bhagatpur Tea Company Limited. It has large assets and properties. Along with one Pyarelal Saraogi, the father of Mohanlal Saraogi the respondent No. 17, the appellant being the wife of respondent No. 17 and the respondent Nos. 17 to 26 (hereafter called the 'appellant's group') the appellant held the entire issued and subscribed share capital of this company and were in absolute control of it. The other respondents constitute another group. (hereafter called 'respondent's group') They held negotiations with the appellant's group and Pyarelal Saraogi. An agreement was entered into with effect from 1st October, 2000. Under it the respondents' group acquired the entire share capital of the company on payment of a very handsome consideration to the appellant's group and assumed its control and of its assets and properties.

But this company also had very large liabilities. Out of the sale proceeds of the said capital of the company, by the above agreement, a sum of Rs.1,00,00,000/- (Rupees One crore) was kept in escrow with Mr. R.L. Gaggar, Solicitor & Advocate of 6 Old Post Office Street, Kolkata - 700 001 to discharge certain liabilities of the company up to the period 1st October, 2000, in terms of that agreement. Soon, disputes arose between the two groups. Both groups are parties in the litigation.

The parties agreed to refer the matter before the arbitrator in terms of an arbitration agreement dated 19th October, 2001 The present disputes owe their origin to a terms of settlement dated 1st April 2003 filed in the arbitral proceedings. It is signed by Anil Nahata, the respondent No. 1 and respondent No. 17, the husband of the appellant. It is stated in clause 'a' of these terms that ' Sri Mohanlal Saraogi has duly been authorised and empowered on behalf of all the respondents, whose names and addresses are stated in Part - II of the Schedule -X annexed hereto, to enter into this Settlement.' There is a similar recital regarding Anil Nahata binding the respondents. Now these Terms of Settlement provide for payments to be made out of the above fund to discharge liabilities and other things to be done in execution of the above agreement for transfer of shares. The name of the appellant appear in part II of schedule -X of these terms, the effect of which would be that she would be bound by these Terms of Settlement. In accordance with the above Settlement dated 1st April 2003, the said learned arbitrator passed an award dated 3rd April 2003.

It is also to be noted that the said award was never challenged by the parties before the Court and by efflux of time has become a decree. It was also not in dispute that Mr. A.P. Agarwalla, Advocate was representing the appellants and the respondent Nos. 17 to 26 in the arbitration proceedings and, in fact, the application under Section 47 of the Code of Civil Procedure was also filed by the appellant as well as by the Mohanlal Saraogi through Mr. A.P. Agarwalla, Advocate. It is also not in dispute that the learned Arbitrator duly sent a copy of the award to Mr. Agarwalla which was duly received by him. It is also admitted that no application was filed either by Mohanlal Saraogi or by his wife, the appellant, Alaka Saraogi, challenging the said award. In fact it became an admitted position during the hearing of this appeal that the award had been acted upon by part distribution of sums kept in the said Escrow account.

In or about February 2007, the respondents took out an execution application being Execution Case No. 11 of 2007 to implement the award particularly with regard to payment of statutory dues and penalties under the above award. After more than one and a half years, i.e. 2nd September 2008, the appellant and the respondent No. 17 made an application under Section 47 of the Code of Civil Procedure being G.A. No. 2995 of 2008 to declare the award dated 3 April 2003 a nullity.

CONTENTIONS:

We have heard the learned counsel for the parties at length. Mr. Abhrajit Mitra, learned advocate appearing on behalf of the appellant, in support of this appeal submitted that the persons, who were represented by Mohanlal Saraogi were not on record before the arbitrator. No notice was served under Order XXIII Rule 3B (1)(2), which was mandatory. It is further submitted that there has been no compliance of Order I Rule 8(4) of the Code of Civil Procedure for this purpose. Further it is contended that there was no decree under Section 36 of 1996 Act. As the decree sought to be executed is a compromise decree it is void as the conditions mentioned in Order XXIII having not been satisfied. Mr. Abhrajit Mitra in support of such contention relied on AIR 1990 SC 1480 ( Charan Lal Sahu vs. Union of India & Ors. ) He further submitted that the award was never served upon the appellant under Section 31(5) of the Arbitration and Conciliation Act, 1996 and, therefore, Section 47 of the application which was filed by the appellant is mandatory and he relied upon AIR 1994 Calcutta 148 (M/s. J.D. Singh & Ors. vs. Calcutta Port Trust). In support of such contention he relied on 2008 Chhatisgarh 75 (M/s. R.S. Bajwa & Company through R.S. Bajwa vs. State of Chhattisgarh & Ors. ), (2007) 11 SCC 19 (N.R. Construction (P) Ltd. vs. Ram Badan Singh and Ors.), and (2005) 4 SCC 239 (Union of India vs. Tecco Trichy Engineers & Contractors).

He also relied on (1985) 3 CLJ 209 (S. Narayanan & Ors. vs. Century Flour Mills Ltd. & Ors.) and submitted that the Order 23 Rule 3B has been applied to company proceedings under Section 397 and 308 of the Companies Act. He further submitted that since his client is not a party in the arbitration proceedings award has to be declared is bad. In this context, he relied on (1994)5 SCC 570 (Sukalu Ram Gond vs. State of M.P. & Ors.) and 2006(2) CLJ 381 (Arch Hi-Rise (P) Ltd. vs. Yatin Bhimani & Ors.) and argued that the Civil Procedure Code would apply to execution of an award. He also submitted that the Civil Procedure Code which constitutes the general rules of procedure of Civil Courts would apply to an execution application for an award and he relied on AIR 2002 SC 2308 (M/s. I.T.I. Ltd. vs. M/s. Stemens Public Communications Networks Ltd.) and AIR 2007 SC 2144 (M/s. Arvind Constructions Co. Pvt. Ltd. vs. M/s. Kalinga Mining Corporation & Ors.). He further contended that in the decision of AIR 1994 Calcutta 148 (M/s. J.D. Singh & Ors. vs. Calcutta Port Trust) and 2004 (3) CLT 637 (M/s. Saraswat Trading Agency vs. Union of India & Ors.), (2003)8 SCC 565 (M. Anasuya Devi & Anr. Vs. M. Manik Reddy & ors.) it has been specifically observed by the Court that Section 47 of the Civil Procedure Code shall apply to the award. He further submitted that the time for making an application under Section 34 has not started since the award has not been served upon the appellant and he relied upon 2005(4) SCC 239 (Union of India vs. Tecco Trichy Engineers & Contractors).

On the contrary, it is submitted by Mr.Surojit Nath Mitra, learned advocate appearing on behalf of the respondent group that the application under Section 47 was filed jointly by the appellant and the respondent No.17. The execution application was filed in respect of an award dated 3rd April, 2003. No application for setting aside of the said award was made by any of the judgment-debtors namely the appellant and the respondent Nos.17 to 26. None of the judgment- debtors filed any affidavit-in-opposition to the said execution application. It is further pointed out that in the application which was filed under Section 47 the appellant and the respondent No.17 did not deny or even dispute the existence of the arbitration agreement between the decree-holders and the judgment-debtors. The appointment or the jurisdiction of the arbitrator was also not challenged. The appellants did not challenge the terms of settlement which was filed before the arbitrator. The appellant had not submitted that the respondent No.17 was not authorized to represent her either before the arbitrator or to sign the terms of settlement. It was not disputed that Mr. A.P. Agarwalla, Advocate, was not authorized to receive the signed copy of the award on behalf of the judgment-debtors. No case has been made out by the appellant and the respondents No.17 that they did not have any notice of the award dated 3rd April, 2003.

Mr. Mitra further submitted that the Arbitration and Conciliation Act, 1996 is a complete code by itself and no application under Section 47 of the Code of Civil Procedure is maintainable. In support of such contention he relied on (2004) 2 Arbitration Law Reporter 469 (Krishna Kumar Mundhra vs. Narendra Kumar Anchalia). He also drew our attention to Section 34 of the said Act of 1996 and submitted that no application under Section 47 of the Civil Procedure Code is maintainable.

According to Mr. Mitra the appellant did not file the requisite application in terms of Section 34 of the 1996 Act. Therefore, the award has reached its finality under Section 35 of the said Act and, therefore, become enforceable under Section 36. Therefore, the only remedy before the appellant is to challenge the award before the appropriate forum if at all permitted at his stage.

Mr. Mitra further pointed out that the point which has been sought to be raised on behalf of the appellant is that no leave was recorded by the arbitrator permitting the decree-holder and the judgment-debtor to enter into the agreement/compromise dated 3rd April, 2003 under Order XXIII Rule 3B as also Order I Rule 8(4) of Civil Procedure Code and, as such, the award is void, cannot be taken at this stage by the appellants, since as he submitted that the Arbitral Tribunal is not bound by the Civil Procedure Code. The proceeding before the arbitrator was not a representative action as it would be evident from the cause title of the award as well as the terms of settlement which refers to claimants and respondents. Order I Rule 8 of the Civil Procedure Code would show that the action was not a representative action. In view of the aforesaid, Mr. Mitra submitted that the provisions of Order XXIII Rule 3B and Order I Rule 8(4) of the Code of Civil Procedure have no application in the facts and circumstances of this case.

In this context, Mr. Mitra submitted that the decision of Supreme Court reported in the case of Charan Lal Sahu vs. Union of India & Ors., AIR 1990 SC 1480, has no application in the facts and circumstances of this case. He further submitted the decision reported in the case of S. Narayanan & Ors. vs. Century Flour Mills Ltd. & Ors., 1985(3) CLJ 209 has no application in the facts and circumstances of the present case.

He also submitted that the points sought to be taken by the appellant that there should exist an agreement showing consent to refer the dispute for settlement by arbitrator is not a point taken in the said application under Section 47 of the Civil Procedure Code and, accordingly, he argued that a point not taken cannot be urged at this stage. In view of that he argued that decisions reported in the case of Sukalu Ram Gond vs. State of M.P. & Ors., (1994)5 SCC 570 and Arch Hi-Rise (P) Ltd. vs. Yatin Bhimani & Ors., 2006(2) CLJ 381, have no application in the facts and circumstances of this case. Mr. Mitra further submitted that the decisions reported in the case of M/s. I.T.I. Ltd. vs. M/s. Siemens Public Communications Networks Ltd., AIR 2002 SC 2308 and M/s. Arvind Constructions Co. Pvt. Ltd. vs. M/s. Kalinga Mining Corporation & Ors., AIR 2007 SC 2144, do not deal with the maintainability of an application under Section 47 of the Code of Civil Procedure for the purpose of challenging an award made under the 1996 Act and, as such, have no application in the facts and circumstances of the case. He further contended that the decision reported in the case of M/s. J.D. Singh & Ors. vs. Calcutta Port Trust, AIR 1994 Calcutta 148, is a decision under the Arbitration Act, 1940. The provisions contained in Sections 34, 35 and 36 of the said Act of 1996 are very stringent and those were not there in the 1940 Act. Therefore, according to him, the said decision has no application in the facts and circumstances of this case.

Similarly, he submitted the decision reported in the case of M/s. Saraswat Trading Agency vs. Union of India & Ors., 2004(3) CLT 637, also cannot be of help to the appellant. The decision reported in the case of M. Anasuya Devi & Anr. vs. M. Manik Reddy & Ors., (2003)8 SCC 565, also does not hold that a point which could be taken for setting aside of an award can be taken in an application under Section 47. In this context, the Supreme Court held that an application for setting aside the award would not lie on any ground which is not enumerated in Section 34. He further pointed out that the decision reported in the case of M/s. R.S. Bajwa & Company through R.S. Bajwa vs. State of Chhattisgarh & Ors., AIR 2008 Chattishgarh 75 , did not decide the question of maintainability of Section 47 of the application. In this context he relied on the decisions reported in (2001)2 Arbitration Law Reporters 552 (Anil Mehra vs. East India Weaving Ltd.) and AIR 2004 SC 716 (Mallikarjun vs. Gulbarga University).

Mr. Mitra contended that the making the application under Section 34 has not even started. In the facts of this case would show that the signed copy of the award was served on Mr. A.P. Agarwalla, Advocate who was acting on behalf of the appellant as well as on behalf of the respondent No.17 on 3rd April 2009. In this circumstances, Mr. Mitra, submitted that the appeal should be dismissed. REASONS:

We have carefully considered the submissions made on behalf of the parties and cases cited by them.

For doing complete justice between the parties, we propose to entertain all the above grounds urged before us, except the ground about non service of the award for the reasons discussed later even though some were not urged before the trial Court. We will deal only with the relevant casses.

So was the proceeding before the learned arbitrator representative? In order to be representative numerous persons must have the 'same interest' in a particular matter. Amongst these numerous persons one person or more than one person may be given leave by the Court to represent that interest and institute or defend a particular proceeding on behalf of all. Plainly, if one person or a group of persons is espousing a cause on behalf of himself and numerous others, such a cause is not allowed by the Court to be settled by the person or persons authorised to institute or defend the proceeding without leave of Court and proper notice and concurrence of the other parties, if necessary, who would be bound by a proposed settlement. This is the simple interpretation which one can give to of Order I Rule 8 and Order XXIII Rule 3B of the Code of Civil Procedure on their conjoined consideration.

If the Court has to declare a particular action as representative it has to see whether there is community of interest. Community of interest does not mean same cause of action. By community of interest it is meant that the interests of the plaintiffs or the defendants are common and inseparable and that there is no distinguishing feature in the case of any of the plaintiffs or any of the defendants as the case may be. The Supreme Court has recognised such principle in the case of Charan Lal Sahu - Vs. - Union of India, AIR 1990 SC 1480 and Union Carbide Corporation - Vs - Union of India, AIR 1992 SC 248. In this case, the disputes which were sought to be resolved by the arbitrator was not a common dispute involving parties to the arbitration agreement in question. Here each and every party to the agreement for sale of shares of the said company had an individual interest. Each and every member of the group representing the Nahatas or the Saraogi in the arbitration proceeding had distinct individual interests. By virtue of the arbitration agreement dispute from those individual interests and were being resolved by the arbitrator. Hence, the proceding before the arbitrator was not representative. It has been specifically recited in the body of the compromise that the appellant's group had authorised the appellant No. 17 to enter into the settlement on their behalf. Up to the stage of settlement the respondent No. 17, Mohanlal Saraogi had prosecuted the arbitration on behalf of the appellant's group and at no point of time was there any denial of his authority.

Further it became an admitted position during the hearing of the appeal that the award that has been passed on the basis of such settlement had been partially carried out. Even at the stage of passing of the award there was no denial or dispute about the authority of Mohanlal Saraogi. Not even after the award was served on the husband of the appellant on 3rd April 2003 when it is not disputed that the husband and wife are on very good terms. Not even after filing of the Execution Application in February 2007. The challenge to his authority comes more than 1½ years after filing of the Execution Application. Therefore, there is little doubt that Mohanlal Saraogi, had the authority to bind the appellant. Now if the settlement was binding on the appellant, the award in terms of the settlement was also binding upon her.

Further, during and after the agreement concerning sale of shares of Bhagatpur Tea Company Limited, during arbitration proceedings culminating in the award, the appellant had represented to all other parties expressly and or impliedly that she authorised her husband Mohanlal to participate in the arbitration on her behalf and would be bound by whatever decision he took. Having made the above representation of his authority express and or implied, at this stage, this Court will not permit the appellant to deny that authority or take a stand which is inconsistent with the stand taken by Mohanlal Saraogi. The Arbitration and Conciliation Act, 1996 encourages settlement under Section

30. Section 30 reads thus:-

"30. Settlement. - (1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
(2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
(3) An arbitral award on agreed terms shall be made in accordance with section 31 and shall state that it is an arbitral award.
(4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute."

It is plain on a reading of the above section that a settlement in arbitration need not comply with the strict requirements of order XXIII rule 3 of the Code of Civil Procedure. A settlement would be binding on the parties if they agree to settle the dispute before the arbitrator in a form and manner which is acceptable to the arbitrator and which appears to the conscience of the arbitrator and the Court to have been made validly, and is not unlawful.

We are convinced that the settlement in the arbitration here complies with the above requirement.

Yet it has been alleged that the award is a nullity. A null and void award never comes into existence, never had any effect and never bound any person at any time. A decree by a Court having inherent lack of jurisdiction is a nullity. The Court is inherently lacking in jurisdiction when it has no competence to decide on the subject matter of the dispute. An erroneous decision or an irregular decision or even an illegal decision is not a nullity. The principles applying to nullity of a decree also applies to arbitration award. If there is no arbitration agreement, the arbitrator inherently lacks jurisdiction to proceed. The award in consequence is a nullity. If some one is not a party to the arbitration agreement and an award is passed against him the same would be without jurisdiction and a nullity. The above principles of law regarding nullity of a decree and award have been evolved by the Supreme Court over half a century and can be found in the case of Kiran Singh and others - vs. - Chaman Paswan and others, AIR 1954 S.C. 340, Hira Lal Patni - vs. - Sri Kali Nath, A.I.R. 1962 SC 199, Vasudev Dhanjibhat Modi - vs. - Rajabhai Abdul Rehman and others, 1970 (1) Supreme Court Cases 670, Sukalu Ram Gond - Vs. - State of M.P. and others, (1994)5 Supreme Court Cases 570, Rafique Bibi - vs. - Sayed Waliuddin and ors., (2004)1 Supreme Court Cases 287, Balvant N. Viswamitra and others - vs - Yadav Sadashiv Mule and ors, (2004)8 Supreme Court Cases 706, Centrotrade Minerals & Metals Inc. - vs - Hindustan Copper Ltd., (2006) 11 Supreme Court Cases 245, Official Trustee of West Bengal - vs. - Stephen Court Ltd., (2006) 13 Supreme Court Cases 401, Deepak Agro Foods - vs. - State of Rajasthan and ors., (2008)7 Supreme Court Cases 748 and H.V. Nirmala - vs. - Karmatala State Financial Corporation and ors., (2008) 7 Supreme Court Cases 639. In this particular case, the arbitration agreement is admitted. Therefore, the arbitrator had the jurisdiction to conduct the arbitration reference. It is also admitted that the appellant was a party to the arbitration agreement. From the discussion above, it is plain that Mohanlal Saraogi had the necessary authority to bind the appellant. The settlement was signed by him in such capacity and it was also binding on the appellant. Now, if the settlement was binding on the appellant, the award in terms of the settlement was also binding upon her. Therefore, the award, far from being a nullity is a valid and enforceable award. At the time of hearing of the appeal the learned Counsel for the appellant tried to urge an additional point that the award had not been served upon the appellant. Further, Mr. A.P. Agarwalla, Advocate did not represent her. Since the appellant was affected by the award and the award had not been served upon her, the execution proceedings could not have been started till the award had been formally served upon her and the time to making an application for setting aside of the award under Section 34 of the Arbitration and Conciliation Act, 1934 had expired, it was submitted.

We have not allowed the appellant to urge the above point in this appeal. The application which the appellant had made before the Hon'ble Court at the first instance only stated that the award was a nullity for specified reasons discussed above. No question about the award not being served on the appellant or that the execution proceedings were incompetent because of such alleged non-service was raised at the Trial Court. The above are factual issues and the respondents have had no opportunity to deal with such facts at the Trial Court. Thus, we do not think it fit entertain these factual questions in this appeal. CONCLUSIONS:

For these reasons we hold that the settlement dated 1st April 2003 and the award which is passed in terms thereon dated 3rd April 2003 are valid. We make ourselves clear that this judgment will not be construed as a finding upon any issue not discussed above. The point of non-service of the award upon the appellant is kept open to be decided in any proceedings where it is permitted to be made an issue. The judgment and order dated 17th March 2009 is affirmed. The appeal is hereby dismissed.

There shall be no order as to costs.

Urgent certified photocopy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.

(I.P. MUKERJI, J.) I agree, (PINAKI CHANDRA GHOSE, J.)