Rajni Sanghi Versus Western Indian State Motors Ltd. & Ors.

Tags Land Acquisition

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 3687 of 2006, Judgment Date: Dec 01, 2015

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3687 OF 2006

Rajni Sanghi …..Appellant

Versus

Western Indian State Motors Ltd. & Ors. …..Respondents

WITH

C.A. Nos. 503 of 2001 and 2763 of 2002

J U D G M E N T

SHIVA KIRTI SINGH, J.

These three Civil Appeals have been heard together because in essence they
relate to and arise out of common facts and disputes between members of a
larger family belonging to the branches of four sons of Late Motilal
Sanghi, the family patriarch who died in 1961. From the materials on record
it appears that his four sons effected a de facto partition of the then
existing three family business. The eldest son (Late) N.K. Sanghi became in
charge of family business in Rajasthan. The next brother (Late) A.K. Sanghi
got charge of business at Delhi and the remaining two, R.K. Sanghi and M.K.
Sanghi got charge of business at Bombay. In 1964 Sanghi Motors Private
Limited (Bombay) expanded to establish a factory for manufacture of oxygen
in the name of Sanghi Oxygen. R.K. Sanghi looked after the oxygen division
and the youngest brother M.K. Sanghi looked after the motor division of the
Sanghi Motors Private Limited (Bombay). Whether in the form of partnership
firm or as a company, the family business appears to have been held by the
brothers like a partnership firm in which all the brothers have cross
holdings. With passage of almost two decades and changing profile of family
headed by the four brothers there was apparently some friction first at
Bombay which led to an arrangement signed by the four brothers on 6.7.1983.
This was mainly for resolving dispute of authority between the two brothers
in respect of business at Bombay. Soon thereafter attempt was made for a
larger family agreement for partition of all the family business consisting
of four partnership firms and four companies. This family agreement
involving the methodology of partition chalked out on 22.2.1984 in a board
meeting of M/s Sanghi Motors Private Limited (Bombay) held at Jodhpur ran
into rough weather and could not be implemented because of differences.
Thereafter all the four groups entered into an arbitration agreement on
6.8.1984 and appointed one Sh. H.K. Sanghi, a family friend as the sole
arbitrator for effecting a partition of the family business under the
control of four groups into four equal lots but with an understanding that
the division would maintain the place of business of each group as it
existed already.
The subsequent developments and relevant facts will be detailed hereinafter
at appropriate place but it is useful to notice that on 7.8.1984 N.K.
Sanghi filed the arbitration agreement with the Arbitrator who entered into
reference on 18.8.1984 and made communications with the other three
brothers. N.K. Sanghi expired on 19.10.1984. On filing of appropriate
application by N.K. Sanghi group the Delhi High Court enlarged the time for
publication of the award by the Arbitrator. During the pendency of the
reference M.K. Sanghi filed a company petition bearing C.P. No. 128 of 1985
before the High Court of Bombay mainly seeking injunction against A.K.
Sanghi and R.K. Sanghi in respect of shares and management of both the
divisions of Sanghi Motors Private Limited (Bombay). Family members of A.K.
Sanghi and R.K. Sanghi filed a petition under Section 33 of the Arbitration
Act, 1940 before Delhi High Court to challenge the existence and validity
of arbitration agreement dated 6.8.1984 but ultimately High Court of Delhi
permitted the arbitrator to make and publish the award. The award dated
3.12.1987 was filed with High Court of Delhi which recorded the filing on
17.12.1987 and notice was issued to the parties. Objection to the award was
filed by M.K. Sanghi within time and beyond time by R.K. Sanghi and also by
Sanghi Motors Private Limited (Bombay). On the other hand A.K. Sanghi (now
represented by his sons Vijay Sanghi and Ajay Sanghi, appellants in C.A.
No. 2763 of 2002) filed Suit No. 581-A/1988 under Section 17 of the
Arbitration Act, 1940 in the High Court of Delhi to make the award a rule
of the Court. Learned Single Judge of the Delhi High Court took notice of
subsequent developments in the company case at Bombay High Court and in
another Company petition no. 6 of 1986 filed by R.K. Sanghi in the High
Court of Rajasthan and set aside the award by order dated 11.12.1996. This
order was upheld in appeal by the Division Bench vide impugned order dated
5.10.2001 which is under challenge in Civil Appeal of 2763 of 2002.
Interestingly, no one could obtain a stay of the proceedings in the Company
Petition No. 128 of 1985 before the High Court of Bombay which appointed a
Receiver with respect to the Sanghi Motors Private Limited (Bombay) and all
its subsidiaries by an order dated 11.9.1987. On the basis of a successful
bid, Vaibhav Sanghi son of M.K. Sanghi entered into an agreement with the
receiver and exercised right of management in terms of such agreement.
Ultimately, Bombay High Court vide order dated 6.7.1989 sanctioned the
scheme of division of two units of Sanghi Motors Private Limited (Bombay).
Motors division fell to the group of M.K. Sanghi and oxygen division to the
group of R.K. Sanghi. A.K. Sanghi opposed the aforesaid settlement scheme
before the Company Court as well as through an appeal before the Division
Bench but without any success. The Division Bench dismissed the appeal on
30.6.1992 after holding that the scheme of reconstruction did not violate
the injunction order of the High Court of Delhi as care was taken to ensure
that under the scheme the transfer of shares would be effected only after
the injunction would be vacated by the Delhi High court. The Bombay company
case has thus attained finality.
The Company Petition No. 6 of 1986, already noticed earlier was filed by
R.K. Sanghi group on 6.8.1986 before the High Court of Rajasthan under
Section 397-398 of the Companies Act against Western India State Motors
Limited (WISM), Smt. Uma Sanghi (widow of late N.K. Sanghi), Vijay Kumar
Sanghi (son of A.K. Sanghi) and an official of Rajasthan State Industrial
Development and Investment Corporation. In this company petition which
remained pending for a number of years, ultimately a scheme of
reconstruction and family settlement was arrived at between persons
representing three groups i.e, A.K. Sanghi, R.K. Sanghi and N.K. Sanghi.
This scheme dated 5.9.1994 with a correction dated 6.9.1994 was approved by
the High Court of Rajasthan on 5/6.9.1994. Although M.K. Sanghi was not a
party to this scheme but his interest clearly received considerable
attention. His objection to the award was within time and pending before
the High Court of Delhi in the Suit no. 581-A/1988 filed by A.K. Sanghi
group to make the award a rule of the Court. In paragraph 13 of the scheme
of reconstruction filed in Company Petition No. 6 of 1986 a clear
stipulation was made in following words –
“13. That Shri A.K. Sanghi and his family members have filed a petition in
Delhi High Court for making the award of the Arbitrator dated 3.12.1987 as
rule of the Court being petition no. 581-A/1988. Shri A.K. Sanghi hereby
undertakes to withdraw the said proceedings unconditionally and all the
parties further agree that they shall abide by the terms of the scheme of
reconstruction.”

The scheme was signed by R.K. Sanghi and A.K. Sanghi also on behalf of
their respective family members. It involved passing of immovable property
from one group to another as well as payment of substantial amounts of
money for completing the adjustment required by way of reconstruction-cum-
family settlement. The widow of N. K. Sanghi, Smt. Uma Sanghi as well as
the petitioners of that company petition, Mr. R.K. Sanghi and his wife
along with A.K. Sanghi as well as one son and daughter in law of Uma Sanghi
were personally present before the learned Single Judge when the Company
Petition No. 6 of 1986 was disposed of in terms of the scheme of
reconstruction-cum-family settlement. The order of the Court dated 5.9.1994
records that Mr. R.K. Sanghi as well as Mr. A.K. Sanghi agreed to obtain
the consent of their family members and file the same within two weeks.
The orders of learned Single Judge of High Court of Rajasthan accepting the
scheme of reconstruction-cum-family settlement were challenged in appeal
filed by M.K. Sanghi bearing Civil Special Appeal No. 30 of 1994. Much
later in October 1998 R.K. Sanghi filed an affidavit in the aforesaid
appeal alleging that Uma Sanghi was not honouring her commitments under
the scheme, hence he was now of the view that the scheme be set aside.
Since learned Single Judge had rejected an application for impleadment
filed by Mrs. Rajni Sanghi, widowed daughter-in-law of Uma Sanghi, Rajni
Sanghi also preferred Special Appeal No. 24 of 1994 before the Division
Bench but while both the appeals were pending, on 20.2.1995 she entered
into a compromise and settlement with the other parties who were signatory
to the family settlement. M.K. Sanghi prayed for and was granted time to
examine the terms of the aforesaid settlement. While the appeal preferred
by M.K. Sanghi was still pending before the Division Bench of Rajasthan
High Court, curiously he and his group filed an additional affidavit on
14.8.1995 in Suit No. 581-A/1988 before High Court of Delhi for setting
aside the award on the additional ground that A.K. Sanghi had undertaken
before the High Court of Rajasthan to withdraw his application to make the
award a rule of the Court. As noted earlier, this weighed heavily with the
learned Single Judge as well as the Division Bench of the Delhi High Court
in setting aside the award. Sanghi Motors Bombay, under the control of
N.K. Sanghi group also filed a Contempt Petition no. 107 of 1997 before the
High Court of Rajasthan alleging that Mr. A.K. Sanghi was guilty of
contempt of order dated 5.9.1994 as he was still persisting with Suit No.
581-A/1988 when he had undertaken to withdraw the same. This contempt
petition was dismissed vide order dated 3.4.2000 as the Court came to the
opinion that non-compliance was on account of certain circumstances and not
wilful. This order against Sanghi Motors is subject matter of Civil Appeal
No. 503 of 2001 which shall also be governed by this common judgment.
The Division Bench of High Court of Rajasthan had permitted Vijay Sanghi
son of A.K. Sanghi to be transposed as appellant in Company Appeal No. 30
of 1994 and hence the appeal continued even after M.K. Sanghi filed an
application on 4.7.2000 to withdraw that appeal. Ultimately by judgment and
order dated 3.4.2002 the Rajasthan High Court allowed Appeal No. 30 of 1994
as well as Appeal No. 24 of 1994 and remitted the matter again to the
learned Company Judge to proceed in accordance with law, mainly because the
Division Bench found a case of non-compliance of sub-clause (1) of Section
391 of the Companies Act. The Division Bench noticed objections raised on
behalf of respondents that the situation had become irreversible as major
part of the scheme had been given effect to, but it left this aspect open
for consideration by the learned Company Judge after remand. Rajni Sanghi
did not accept the Division Bench order and preferred a Civil Review
Petition bearing No. D.R. (J) 2536/2002 pointing out that she had already
compromised the matter by way of a subsequent scheme and filed the
compromise petition on 20.2.1995; the only non-signatory group i.e, M.K.
Sanghi group had subsequently accepted that compromise/settlement and had
prayed for withdrawal of Appeal No. 30 of 1994 and therefore when all the
stake holders had accepted the terms of settlement and family arrangement,
there was no need of interfering with the order of the Single Judge. The
review petition was however dismissed on 26.8.2003. The aforesaid orders of
Division Bench dated 3.4.2002 partly allowing Appeal Nos. 24 and 30 of 1994
and order dated 26.8.2003 dismissing the review petition are under
challenge at the instance of Rajni Sanghi in Civil Appeal No. 3687 of 2006.
In the aforesaid fact situation, this common judgment will govern all the
three civil appeals. For the sake of convenience, facts have been taken
from convenience compilations in C.A. No. 2763 of 2002 unless indicated
otherwise. That civil appeal has been argued at great length as the lead
case. But of equal significance is the civil appeal of Rajni Sanghi because
it offers an alternative and competing solution to the family dispute
sought to be settled by the arbitration award. The High Court of Delhi has
set aside the award primarily because of orders passed by High Courts at
Bombay as well as Rajasthan approving schemes of reconstruction and also
the undertaking of A.K. Sanghi that he will withdraw his petition in Delhi
High Court through which he had prayed for making the Award of the
Arbitrator dated 3.12.1987 as rule of the Court. In this scenario, our task
is also to find out whether the view taken by the Delhi High Court is
correct or not and further whether order of remand by Division Bench of
Rajasthan High Court under challenge by Rajni Sanghi is legally
sustainable.
Since A.K. Sanghi is dead, Civil Appeal No. 2763 of 2002 has been pressed
on behalf of his two sons namely Ajay Sanghi and Vijay Sanghi. On behalf of
Ajay Sanghi, Senior Advocate Mr. Dhruv Mehta has forwarded elaborate
submissions for contending that the judgment of the learned Single Judge as
well as affirming judgment of the Delhi High Court under appeal have
wrongly set aside the Award ignoring the provisions of Section 30 of the
Arbitration Act, 1940 (hereinafter referred to as ‘the Act’). As per his
submissions the High Court has travelled beyond the permissible grounds for
setting aside an Award, which cannot include an undertaking or conduct of a
party recorded by the Rajasthan High Court after about seven years of
making of the Award. He highlighted the legal position that as per Section
30 of the Act, an Award can be set aside only on one or more of the three
grounds mentioned in Clause (a),(b) and (c). He has also contended that in
this case misconduct by the Arbitrator cannot be a ground, for the
additional reason that no notice of any alleged misconduct was served upon
the Arbitrator which is required under the Delhi High Court rules. The
other ground under clause (b) can also not arise because it is nobody’s
case that there was any order by the Court superseding the arbitration or
holding the arbitration proceeding invalid under Section 35. So far as the
third permissible ground is concerned, it has been submitted that there is
no case made out that the Award has been improperly procured or is
otherwise invalid. On behalf of other son of A.K. Sanghi, Mr. Anoop G.
Chaudhari, Senior Advocate has also assailed the judgments of the Delhi
High Court. According to him the allegations by Mr. M.K. Sanghi against the
arbitrator in letter dated 20.11.1987 were noticed by the Single Judge and
at one place the learned Single Judge described these accusations as “wild
allegations”. Mr. Chaudhari has further contended that Section 32 of the
Act not only contains a bar to suits seeking decision upon the existence,
effect or validity of the arbitration agreement or award but that Section
contains a further prohibition that notwithstanding any law for the time
being in force, no arbitration agreement or award can be enforced, set
aside, amended, modified or in any way affected otherwise than as provided
in the Act (emphasis supplied).
Section 32 of the Act reads as follows:-
“32. Bar to suits contesting arbitration agreement or award –
Notwithstanding any law for the time being in force, no suit shall lie on
any ground whatsoever for a decision upon the existence, effect or validity
of an arbitration agreement or award, nor shall any arbitration agreement
or award be enforced, set aside, amended, modified or in any way affected
otherwise than as provided in this Act.”

According to Mr. Chaudhari if the schemes of settlement as ordered by
Bombay High Court or Rajasthan High Court are allowed to come in the way of
arbitration agreement or the award made by the Arbitrator, it shall amount
to a disregard of the mandate of law in Section 32. The second contention
of Mr. Chaudhari is that Delhi High Court had passed an interim order dated
16.3.1988 restraining the parties from transferring, parting with,
alienating or leasing out the properties covered by the award of the
Arbitrator including shares of the partnership and company businesses in
any manner and therefore, M.K. Sanghi could not have proceeded with the
company petition in Bombay to obtain a scheme of division of the two units
of Sanghi Motors at Bombay nor any scheme could have been approved by the
Rajasthan High Court in Company Petition No. 6 of 1986 nor any undertaking
of A.K. Sanghi could have been recorded therein. According to Mr. Chaudhari
also, the allegations of misconduct could not have been gone into in
absence of any notice to the Arbitrator. Lastly, according to Mr. Chaudhari
belated objections to the award could not have been taken into
consideration.

Learned Counsel for Uma Sanghi, widow of N.K. Sanghi has reversed Uma
Sanghi’s stance before the High Court and sought to support the award and
assail the judgments of Delhi High Court on the grounds already noticed. He
also opposed the family settlement and agreement dated 5.9.1994 recorded by
the learned Single Judge of High Court of Rajasthan under which Uma Sanghi
(N.K. Sanghi group) received benefits. But he defended and supported the
other agreement dated 20.2.1995 in favour of Rajni Sanghi. According to him
the latter agreement of February 1995 is in effect an arrangement between
the family members of late N.K. Sanghi and the same will be honoured by Uma
Sanghi and other heirs and legal representatives of N.K. Sanghi even if the
award is held valid and restored.
On the other hand learned Senior Counsel Mr. Arvind P. Datar appearing for
M.K. Sanghi group and Mr. Shyam Divan, Senior Advocate appearing for R.K.
Sanghi group sought to strongly defend the judgments of Delhi High Court
setting aside the award. According to Mr. Datar the award deals with
immoveable properties and therefore in terms of the Registration Act, 1908
requires registration and since that was not done, as per Section 49 of the
Registration Act, the award shall not affect any immoveable property or be
received as evidence of any transaction affecting such property. He
pointed out that immoveable properties in lot No. 2 at serial Nos. 8 and 9
given to A.K. Sanghi Group and one workshop of Sanghi Motors in lot No. 3
allotted to R.K. Sanghi Group were illustrative of the fact that the award
sought to transfer immovable properties to different persons without
requiring further conveyance deeds and documents. However, the award
towards the end, in paragraph 16 stipulates that all obligations,
conveyances, deeds and documents (including transfers and assignments)
required to be executed to implement the award shall be made and executed
faithfully by each and every member of all groups within three months.
This stipulation, in our view, fully meets the above noted grievance on the
basis of the non-registration of award and more particularly when it is an
arguable point, as contended by Mr. Mehta in reply that the period when an
award was called for by the Court and remained under its custody may be
excluded for the purpose of limitation on the ground that court’s action
shall not prejudice any of the parties. For this dictum Mr. Mehta placed
reliance on judgment in the case of Raj Kumar Dey and Ors. vs. Tarapada Dey
and Ors., 1987(4) SCC 398. However, it is not necessary to go into several
other judgments cited on behalf of the parties on the effect of non-
registration of an award which requires registration and as to when an
award may not require registration, in view of somewhat different issue on
which we propose to decide this case.
Mr. Datar pointed out that the main controversy between the parties is in
respect of two properties, one UMR property in Rajasthan which is to be
with R.K. Sanghi Group on account of payments made for that property under
the Rajasthan settlement arrived in the company case before the Single
Judge in 1994. But that property, as per the award is to be with N.K.
Sanghi Group. The other property is the workshop property of M/s. Sanghi
Motors at Bombay which as per settlement by the Bombay High Court has gone
to M.K. Sanghi Group whereas under the award it shall go to A.K. Sanghi
Group. Mr. Datar pointed out that the learned Single Judge of Delhi High
Court allowed several I.As including OPM No. 109 of 1989 filed by Sanghi
Motors Private Limited, Bombay but in appeal before the Division Bench,
Sanghi Motors Private Limited (Bombay) was not impleaded as a party and
therefore no useful purpose will be served by interfering with the orders
of the Delhi High Court rejecting the award when the same order of the
learned Single Judge has attained finality qua M/s Sanghi Motors Pvt. Ltd.,
Bombay.
Mr. Datar has next contended that the Delhi High Court was bound by the
undertaking recorded in the judgment of Company Judge of Rajasthan High
Court. Under such undertaking which amounts to an injunction, as per
submissions, the application of Mr. A.K. Sanghi for making the award a Rule
of the Court under Section 17 of the Act required outright dismissal
without going into the issue of validity of the award on grounds under
Sections 30 and 33 of the Act. According to him the undertaking before the
competent court of law, in the facts of the case, was sufficient to render
the award unenforceable on the ground under clause (c) of Section 30 of the
Act viz. “otherwise invalid”. According to him the award was signed on
3.12.1987 and it dealt with Bombay properties which were then under the
receiver appointed by the Bombay High Court. This also made the award
invalid on the ground covered by clause (c) of Section 30 of the Act. Mr.
Datar further submitted that both, A.K. Sanghi Group which is now
propounding the award and R.K. Sanghi Group had preferred OM No. 23 of 1986
to challenge the Arbitration Agreement itself on grounds and allegations of
facts which amounted to admission on their part as to the invalidity of the
arbitration agreement and in such a situation their turning volte face and
seeking to support the award after it was signed and filed under orders of
the court inspite of their pending objections, cannot make the award good
and enforceable at their instance unless it is held that their admissions
in pleadings can be ignored for some good reasons. Mr. Datar next
submitted that Section 34 of the Act gave an option to the parties to the
Arbitration Agreement to obtain stay of the legal proceedings at Bombay or
Rajasthan on account of Arbitration Agreement and if they chose not to get
the legal proceedings stayed or even if they failed to do so, the effect of
such legal proceedings cannot be ignored at the time of deciding, at the
stage of Section 17, as to whether an order/decree could be passed in terms
of the award or not. According to the submissions, once at the stage of
Section 17, the court is made aware of judgment of a competent court of law
affecting the matter covered by the award, it would be proper and lawful
for such court to set aside the award under clause (c) of Section 30 of the
Act by holding that the award is "otherwise invalid”. It was argued on the
basis of Section 35 of the Act that the principle is salutary that in case
there is no stay granted under Section 34 and if the conditions under
Section 35 are met, further proceedings in a pending reference shall be
invalid.
This principle appears to have been developed and generalized further. Mr.
Datar has placed reliance upon judgment in the case of Ram Prosad Surajmull
vs. Mohan Lal Lachminarain, AIR 1921 Calcutta 770 and in the case of
Sheobabu vs. Udit Narain and Another, AIR 1914 Allahabad 275. The
Calcutta judgment was rendered in the context of Indian Arbitration Act of
1899 but the principle enunciated therein is equally applicable to an
award under the Arbitration Act, 1940. The principle is - “if the court
has refused to stay an action or if the defendant has abstained from asking
it to do so, the Court has seisin of the dispute and it is by its decision
and by its decision alone, that the rights of the parties are settled.”
This view was adopted on a larger proposition that the Courts will not
allow their jurisdiction to be ousted. In simpler words, the proposition
is that the courts’ decisions will not be overridden by an award arising
out of an arbitration proceeding. In the Allahabad case, in somewhat
similar situation as in the Calcutta case, the judgment of the Court under
Specific Relief Act in a regular suit was held valid because the parties
could not or did not take proper steps to suspend the regular suit. We find
no legal or other infirmity in this proposition of law.
Our attention was drawn to judgment of Bombay High Court dated 30.06.1992
passed by a Division Bench in Appeal No.350 of 1992 preferred by A.K.
Sanghi Group against order of the Company Judge dated 06.07.1989 to
highlight that in paragraph 3 of the judgment, the Division Bench rejected
the contention advanced on behalf of A.K. Sanghi Group and held that the
companies are not parties to the arbitration proceedings and consequently
the decree on the basis of award cannot bind the companies. Mr. Datar
pointed out that A.K. Sanghi Group allowed the matter to attain finality
and hence in the present appeals, the appellant A.K. Sanghi Group cannot be
permitted to take the stand that the award will bind the companies. He
also highlighted the fact that Bombay property under dispute is a property
leased to M/s. Sanghi Motors and vests with A.K. Sanghi Group as a
leasehold property and in view of law laid down in the case of M/s. General
Radio & Appliances Co. Ltd. v. M.A. Khader (dead) by LRs AIR 1986 SC 1218
and in the case of Singer India Ltd. v. Chander Mohan Chadha (2004) 7 SCC
1, such leased property cannot be legally sublet or granted to another
under assignment. That will be the effect if award is allowed to operate.
On this ground also it has been submitted that the award suffers from
patent illegality.
Mr. Gaurav Pachnanda, learned senior advocate appearing for Rajni Sanghi
has submitted that Rajni Sanghi preferred Special Appeal No.24 of 1994
before the Division Bench of Rajasthan High Court against orders of Company
Judge accepting the Scheme of Reconstruction-cum-Family Settlement because
she wanted her specific share out of the family business allotted to M.K.
Sanghi Group so that she and her children may enjoy their share separately.
This was achieved by amended family settlement dated 20.02.1995. Although
M.K. Sanghi had not signed the family settlement he took time to consider
the developments and ultimately he withdrew his appeal which signifies
that he also consented to the settlements. It was pointed out that A.K.
Sanghi Group including his son Vijay Sanghi had acted upon the Scheme of
Family Settlement and also derived benefits, but they subsequently
developed ill designs and Vijay Sanghi got himself transposed as appellant
in Company Appeal No.30 of 1994 preferred by M.K. Sanghi although the
latter had applied to withdraw the appeal. It was argued that the Division
Bench failed to notice that the only non-signatory to the Compromise
Petition filed on 20.02.1995, i.e., M.K. Sanghi Group had later accepted
the settlement/compromise and prayed for withdrawal of their appeal and
this showed that all the four groups had accepted the Terms of Settlement-
cum-Family Arrangement. In such circumstances, according to learned
counsel, the Division Bench should not have interfered with the order of
the learned Single Judge and ought not to have allowed the appeals and
remanded the matter to Single Judge vide impugned order dated 03.04.2002,
on mere technicalities. He submitted that thereafter review filed by Rajni
Sanghi was also erroneously dismissed on 26.08.2003.
Learned senior counsel placed reliance upon a judgment of this Court in the
case of Munshi Ram v. Banwari Lal (deceased) AIR 1962 SC 903 in support of
the proposition that a compromise between the parties even after filing of
award by the arbitrators deserves to be respected and such compromise will
be made a part of the decree which will be based upon the award as modified
by the compromise. The Court held that the power to record such agreement
or compromise was available to the court under the provisions of the Act
because Section 41 makes the Civil Procedure Code applicable to the
proceedings under the Act. The observation of the Court in paragraph 20 is
of some significance where it was pointed out that ‘there is nothing in the
Arbitration Act which disentitles the court from taking note of an
agreement …..’. Reliance was also placed upon judgment in the case of Kale
v. Deputy Director of Consolidation (1976) 3 SCC 119 to highlight the
nature, effect and value of family arrangement under the Hindu Law. All
the three Judges deciding this case were agreed on the relevant proposition
that the object of family arrangement is to sink their differences and
disputes and resolve their conflicting claims to buy peace of mind and
bring about complete harmony and goodwill in the family. Paragraph 9 of
the judgment deserves full respect and is extracted hereinafter :

“9. Before dealing with the respective contentions put forward by the
parties, we would like to discuss in general the effect and value of family
arrangements entered into between the parties with a view to resolving
disputes once for all. By virtue of a family settlement or arrangement
members of a family descending from a common ancestor or a near relation
seek to sink their differences and disputes, settle and resolve their
conflicting claims or disputed titles once for all in order to buy peace of
mind and bring about complete harmony and goodwill in the family. The
family arrangements are governed by a special equity peculiar to themselves
and would be enforced if honestly made. In this connection, Kerr in his
valuable treatise Kerr on Fraud at p.364 makes the following pertinent
observations regarding the nature of the family arrangement which may be
extracted thus :

The principles which apply to the case of ordinary compromise between
strangers do not equally apply to the case of compromises in the nature of
family arrangements. Family arrangements are governed by a special equity
peculiar to themselves, and will be enforced if honestly made, although
they have not been meant as a compromise, but have proceeded from an error
of all parties originating in mistake or ignorance of fact as to what their
rights actually are, or of the points on which their rights actually
depend.

The object of the arrangement is to protect the family from long-drawn
litigation or perpetual strifes which mar the unity and solidarity of the
family and create hatred and bad blood between the various members of the
family. Today when we are striving to build up an egalitarian society and
are trying for a complete reconstruction of the society, to maintain and
uphold the unity and homogeneity of the family which ultimately results in
the unification of the society and, therefore, of the entire country, is
the prime need of the hour. A family arrangement by which the property is
equitably divided between the various contenders so as to achieve as equal
distribution of wealth instead of concentrating the same in the hands of a
few is undoubtedly a milestone in the administration of social justice.
That is why the term ‘family’ has to be understood in a wider sense so as
to include within its fold not only close relations or legal heirs but even
those persons who may have some sort of antecedent title, a semblance of a
claim or even if they have a spes successionis so that future disputes are
sealed for ever and the family instead of fighting claims inter se and
wasting time, money and energy on such fruitless or futile litigation is
able to devote its attention to more constructive work in the larger
interest of the country. The courts have, therefore, leaned in favour of
upholding a family arrangement instead of disturbing the same on technical
or trivial grounds. Where the courts find that the family arrangement
suffers from a legal lacuna or a formal defect the rule of estoppel is
pressed into service and is applied to shut out plea of the person who
being a party to family arrangement seeks to unsettle a settled dispute and
claims to revoke the family arrangement under which he has himself enjoyed
some material benefits. The law in England on this point is almost the
same. In Halsbury’s Laws of England, Vol.17, Third Edition, at pp.215-216,
the following apt observations regarding the essentials of the family
settlement and the principles governing the existence of the same are made:

A family arrangement is an agreement between members of the same
family, intended to be generally or reasonably for the benefit of the
family either by compromising doubtful or disputed rights or by preserving
the family property or the peace and security of the family by avoiding
litigation or by saving its honour.

The agreement may be implied from a long course of dealing, but it is
more usual to embody or to effectuate the agreement in a deed to which the
term ‘family arrangement’ is applied.

Family arrangements are governed by principles which are not
applicable to dealings between strangers. The court, when deciding the
rights of parties under family arrangements or claims to upset such
arrangements, considers what in the broadest view of the matter is most for
the interest of families, and has regard to considerations which, in
dealing with transactions between persons not members of the same family,
would not be taken into account. Matters which would be fatal to the
validity of similar transactions between strangers are not objections to
the binding effect of family arrangements.”

The legal principles enunciated above have not been disputed.
Before this Court all the parties appear to be in agreement over the
limited issue that the properties given to widow Rajni Sanghi and her
children should belong to them. On behalf of Rajni Sanghi it has been
reiterated that she undertakes to abide by her undertaking and liabilities
under the amended Family Settlement dated 20.02.1995.
On behalf of R.K. Sanghi Group all the arguments advanced by Mr. Datar were
adopted and thereafter Mr. Shyam Divan, learned senior advocate advanced
his own arguments. He cited some judgments which give discretion to this
Court to dismiss a civil appeal summarily even after grant of leave to
appeal. According to Mr. Divan, the civil appeal of A.K. Sanghi Group
deserves to be dismissed in limine considering how at one point of time or
other all the groups including A.K. Sanghi group were opposed either to the
arbitration agreement or to the award. He submits that the judgments
rendered by Bombay High Court settling the business interests of all the
groups in respect of business at Bombay and the judgment of Company Judge
of High Court of Rajasthan disposing of Company Petition No.06 of 1986 in
terms of Scheme of Reconstruction-cum-Family Settlement of 1994 followed by
the amended family settlement before the Division Bench in 1995 deserve to
be given a finality because the judgment of Division Bench of Bombay High
Court is no longer under challenge and practically all the four groups had
agreed to the family settlement made before the Rajasthan High Court.
According to Mr. Divan, the Division Bench should have disposed of the
appeal of Rajni Sanghi in terms of the compromise and revised family
settlement and the other appeal preferred by M.K. Sanghi should have been
dismissed because M.K. Sanghi had prayed for its withdrawal. Transposition
of Vijay Sanghi should not have given him any advantage when originally he
had not filed any appeal and had also taken advantage flowing to his father
A.K. Sanghi and his group. He highlighted that the undertaking by the head
of A.K. Sanghi group was a solemn undertaking as a head and karta between
family members and the group should not have been permitted to resile from
the undertaking whereunder they agreed not to seek enforcement of the award
for which they had filed an application and which they agreed to withdraw.
He has submitted that the family arrangement at Rajasthan was a well
thought out and considered family arrangement arrived after more than six
years of making of the award. Such choice of the parties should be given
pre-eminence over award made by an arbitrator to which many of the family
members had objections. It was also highlighted that under the Act of
1940, an award does not have the force of a decree as is the case with an
award under the Arbitration and Conciliation Act 1996 and hence under the
Act there is absolutely no legal impediment in the way of parties arriving
at a settlement even after making of an award by the arbitrator. Referring
to the amendments made in the Code of Civil Procedure such as introduction
of Section 89 and provisions in the Family Courts Act it has been submitted
that policy of law is in favour of settlement of dispute by agreement
especially between members of a family. Mr. Divan highlighted provisions
of Sections 14 and 17 of the Act to contend that an award need not be set
aside if the parties, even post-award, agree for another settlement because
in the 1940 Act the arbitrators are required to file the award only on the
request of any party or upon direction by the court which in usual course,
is required to be moved by one or the other party. Even judgment in terms
of award can be passed only after rejection of application to set aside the
award or after the time for making such application has expired. On the
other hand, a judgment or order of a court has a different and higher
sanctity. It shall bind the parties till they get rid of such order or
judgment in accordance with law. He relied upon judgment in the case of
Oudh Commercial Bank Ltd. v. Thakurain Bind Basni Kuer AIR 1939 PC 80 in
support of his submission that even a decree does not stand in the way of
parties in arriving at a different settlement. In the context of power of
Executing Court under Section 47 of the Code of Civil Procedure, the Privy
Council in the aforesaid case held that the judgment-debtor and the decree-
holder could enter into an agreement and bargain for time, in consideration
of a reasonable rate of interest. It is permissible and such agreement can
be accepted by the Executing Court without attracting the criticism that it
has attempted to amend or vary the decree. Even in general terms, while
considering the issue as to whether the parties could alter or vary a
decree by consent, the Privy Council came to an opinion that the Civil
Procedure Code contains no general restriction of the parties’ liberty of
contract with reference to their rights and obligations under the decree
but such agreement may not be enforceable in all cases through execution
proceedings and in that event the Executing Court will leave the
beneficiary party to bring a separate suit upon the new contract/agreement.
Mr. Divan relied upon the case of Noorali Babul Thanewala v. K.M.M. Shetty
(1990) 1 SCC 259 to highlight the following passage in paragraph 11, ‘when
a court accepts an undertaking given by one of the parties and passes
orders based on such undertaking, the order amounts in substance to an
injunction restraining that party from acting in breach thereof.’ He also
referred to certain judgments in support of well recognized principle of
law that a party cannot approbate and reprobate at the same time. Since
the proposition is well settled, the judgments need not be adverted to.
But it is important to note that he pointed out the relevant documents such
as affidavit by R.K. Sanghi dated 10.10.1998 filed in D.B.Civil Special
Appeal No.30 of 1994 in the High Court of Judicature for Rajasthan at
Jodhpur to show that family settlement had been acted upon and considerable
money was paid by Mr. R.K. Sanghi in terms of such settlement. Retirement
deed of Vijay Sanghi dated 08.11.1994 and another retirement deed of wife
as well as of daughter-in-law of A.K. Sanghi were also shown for the same
purpose. On the basis of such undisputed materials he submitted that a
family settlement already implemented deserves to be protected by setting
aside the order of Division Bench challenged by Rajni Sanghi and the family
settlements, original as well as amended, be accepted as valid and binding
on the parties.
In reply Mr. Mehta and Mr. Chaudhari have reiterated their earlier stand
and Mr. Mehta, as noted earlier, submitted that registration of the award
was not necessary in law in view of its contents and even if it is
required, a long period when the award was lying with the court may deserve
to be excluded. According to him the judgment of Bombay High Court cannot
invalidate the award because it is not a permissible ground under Section
30 of the Act nor that proceeding could have been stayed because the
statutory powers available to a Company Judge cannot be available to an
arbitrator. In support of binding effect of the family settlement made
before the High Court of Rajasthan, it was submitted that the Division
Bench has allowed the appeals and remitted the matter back to the learned
Single Judge. On equity, Mr. Mehta contended that if award is upheld then
also equity can be restored by ordering for refund of money for UMR
property to R.K. Sanghi group with appropriate interest or even that
building may be ordered to be with R.K. Sanghi group. A concession was
offered by him on behalf of A.K. Sanghi group that the appellants of Civil
Appeal No.2763 of 2002 will be satisfied to have 50% of market value of the
property under dispute at Mumbai in lieu of the said leasehold property.
Lastly he replied that principle of impermissibility of approbate and
reprobate at the same time is an equitable principle and therefore subject
to statutory rights. In support of this proposition he placed reliance
upon judgment in the case of P.R. Deshpande v. Maruti Balaram Haibatti
(1998) 6 SCC 507.
Mr. Chaudhari also reiterated that in view of the peculiar jurisdiction of
the Company Judge the matter before the court could not have been referred
to arbitration and that ousted the parties’ option of seeking a stay under
Section 34 of the Act. According to him if Section 34 is not applicable
then Section 35 will also not be applicable. He pointed out that Section
35 is attracted only when legal proceeding before a court is upon the whole
of the subject matter of the reference and when it is between all the
parties to the reference and when notice thereof has been given to the
arbitrators or umpire. According to him such conditions were not met in
this case and therefore proceedings in the pending reference and the award
resulting therefrom are not adversely affected or rendered invalid by
virtue of Section 35 of the Act. He referred to case of Union of India v.
Om Prakash (1976) 4 SCC 32 to support his submission that post-award
conduct of a party cannot be relevant for rendering the award invalid.
However this judgment is to an extent against this proposition because it
holds that the term – ‘otherwise invalid’ – is wide enough to include all
invalidity including that of the arbitral reference. This shows that
‘otherwise invalid’ is not controlled by the principle of ejusdem generis.
To same effect is the judgment in the case of M/s. Siddeshwari Cotton Mills
(P) Ltd. v. Union of India (1989) 2 SCC 458.
According to Mr. Chaudhari, non-impleadment of Sanghi Motors (Bombay) in
the appeal before the Division Bench of Delhi High Court cannot have any
adverse consequence because no objection was taken to such defect.
According to him the company is not a necessary party because all the
shareholders and directors of the company are parties and in the context of
present dispute the presence of company is a mere formality. Lastly Mr.
Chaudhari contended that under Section 17 of the Act there is no
requirement of any obligation for making the award a rule of the court and
therefore the undertaking of A.K. Sanghi to withdraw his such application
cannot be of any consequence in law. On behalf of Rajni Sanghi it was
submitted in reply that Rajni Sanghi would be satisfied if the order of
remand is modified even partially and the modified family settlement of
1995 is accepted. It was made clear on her behalf that she has no interest
in the 1994 agreement which benefitted the three groups and who have now to
face the matter once again if the remand order is to stand.
In the light of aforesaid submissions and the entire facts and
circumstances relating to this dispute between family belonging to four
brothers, we are required to decide whether the award under the Act which
is yet to be made a rule of the court deserves implementation or preference
needs to be given to the settlements finalized by the judgment of Bombay
High Court and the family settlements of 1994 and 1995 before the Rajasthan
High Court which have been now put to peril by the order of remand impugned
by Rajni Sanghi. In course of deciding this issue we are also required to
decide another larger issue of significance as to whether any good ground
was available to Delhi High Court under the provisions of Section 30 of the
Act for invalidating the award and for refusing to make it a rule of the
court in exercise of power under Section 17 of the Act.
So far as the argument in favour of maintaining the award is concerned, we
find that clause (c) of Section 30 does not attract the principle of
ejusdem generis so far as the term ‘otherwise invalid’ is concerned. That
ground for setting aside award is quite wide in amplitude and available to
the concerned court if it finds that the award requires to be treated as
invalid because on face of the things it runs counter to a valid law
prohibiting such an award or when the subject matter of the award has been
lawfully dealt with by a statutory authority or a court and it is no longer
available for disposal in accordance with the award under consideration.
Such a situation is only illustrative and has been enunciated by us in the
light of facts obtaining in this case. When the Courts having jurisdiction
were allowed to proceed and decide the properties available at Bombay and
record a family arrangement in respect of other matters in a company
proceeding before the Rajasthan High Court, the judgments and orders in
these proceedings cannot be ignored or obliterated on account of pendency
of an award still waiting to be made a rule of the court. In such a
situation, in our view, the award has to be set aside on the ground that it
is otherwise invalid on the date it is being considered for being made a
rule of the court. Since this course of action is available and has been
rightly adopted by the Delhi High Court, we do not feel necessary to
examine the hypothetical question as to whether even in absence of any
ground for setting aside such an award, could the court concerned refuse to
make the award a rule of the court under Section 17 of the Act if it was
confronted with a situation like the one on hand in this case. Such a
question need not be answered in the present proceeding.
We have already referred to judgments highlighting the significance of
family arrangement under Hindu Law and in light of such judgments and
considering the scheme of the Act and provisions of Code of Civil Procedure
we are satisfied that family arrangements made before the Rajasthan High
Court in 1994 before the Company Judge and in 1995 before the Division
Bench need to be protected and given pre-eminence over the award which is
yet not made the rule of the court. The family arrangement was arrived at
in spite of knowing the award for six years and obviously because the
parties who are family members, were at loggerheads over the terms of the
award. No doubt the family arrangements were initially made only on behalf
of three groups who originally signed the agreements for themselves as well
as on behalf of their families but the 4th group, i.e., M.K. Sanghi group
later decided to go along with that arrangement by opting to withdraw its
appeal. Hence we accept the submissions advanced by Mr. Datar, Mr.
Pachnanda and Mr. Shyam Divan and hold that if parties settle their
disputes amicably by an agreement, even post-award, such
settlement/agreement will prevail in view of requirement of the Act that an
award will acquire the status of a decree only when it is made a rule of
the court after rejection of all objections. In that view of the matter
there is no hindrance in law in upholding the family arrangements made
before the High Court at Rajasthan as well as judgment of the Bombay High
Court which has attained finality. They deserve to have pre-eminence over
the award in question.
The act of A.K. Sanghi in not honouring his undertaking to withdraw his
petition for making the award a rule of court and the attempt made by Vijay
Sanghi to obstruct the scheme of reconstruction-cum-family settlement of
1994 by getting transposed as an appellant in Company Appeal No. 30 of 1994
when his father A.K. Sanghi had signed the settlement on behalf of his
group, were impermissible conduct of approbate and reprobate on the part of
A.K. Sanghi group which should not have been permitted. The status of the
head of the family acting as a Karta under the traditional Hindu law
deserves to be kept in mind in such a situation. The junior members of the
family are bound by decisions of a Karta in matters of family business and
property unless it can be pleaded and proved that the head of the family
has acted fraudulently or for immoral purposes. We have not been shown any
such case on behalf of Vijay Sanghi. In such a situation, ignoring the
traditional Hindu law and the rights of the head of the family or Karta has
put unnecessary burden not only on the larger family but also upon the
courts.
We have examined the Division Bench judgment of the Rajasthan High Court
under challenge by Rajni Sanghi and we find that the remand order is not on
the basis of any defect in the agreements or supplementary agreements but
on account of certain technical requirements which should have been ignored
when the issues had been settled by all the stake holders by reaching
amicable agreement. The companies of family of four brothers are almost
like partnerships and when all were agreeable, interest of justice was best
subserved by recognizing even the supplementary family settlement of 1995
in favour of Rajni Sanghi as well as the original family arrangement of
1994 accepted by the Company Judge. In that view of the matter the order
of remand under challenge at the instance of Rajni Sanghi is set aside and
both the family arrangements indicated above are affirmed. If any party
fails to act as per those arrangements within three months, the aggrieved
party will be free to initiate appropriate proceedings including those of
contempt before the concerned High Court or seek execution of the
agreements through other appropriate proceedings. Civil Appeal No.3687 of
2006 is allowed to the aforesaid extent and is disposed of accordingly.
In view of the discussions made above, Civil Appeal Nos.2763 of 2002 and
Civil Appeal No.503 of 2001 are dismissed. In the facts of the case there
shall be no order as to costs.

…………………………………….J.
[VIKRAMAJIT SEN]

……………………………………..J.
[SHIVA KIRTI SINGH]
New Delhi.
December 01, 2015.

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