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2015 Supreme(Del) 1796
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. MURALIDHAR, J.
Sanjay Kapur & Ors. - Petitioners
Versus
Vikram Kapur & Ors. - Respondents
OMP 30/2015 & 31/2015
Decided on: 3-8-2015
Mr. Sudhir Chandra, Mr. Sudhir K. Makkar, Ms. Meenakshi Singh and Mr. Karan Lamba, Advocates.
Mr. Salman Khurshid and Mr. U.K. Chaudhary, Mr. Antony, Mr. Himanshu Vij, Ms. Gitanjai Kapur, Ms. Shrshti Singh, Mr. Anil Airi with Mr. Ravi Krishan Chandna, Ms. Sadhna Sharma, Mr. Aman Madan, and Mr. Ishan Khanna, Advocates
A private agreement between shareholders cannot be used to divide the assets of a public limited company or public trusts.
Headnote:
JUDGEMENT - [KEYWORD] - [SUBJECT] - [ACT SECTION LIST] - [SUMMARY]
Fact of the Case:
The Kapur family, owners of Atlas Cycles (Haryana) Limited, entered into a Memorandum of Understanding (MoU) in 1999 to divide the company's assets and management among three family branches. A subsequent MoU in 2003 sought to implement the division, but disputes arose leading to arbitration proceedings.
Finding of the Court:
The Court held that the learned Arbitrator exceeded his jurisdiction by directing the division of Atlas Cycles (Haryana) Limited and the two Trusts into three lots, as these entities were governed by separate legal regimes and could not be divided by a private agreement between the parties. The Court also held that the directions of the Arbitrator were contrary to the fundamental policy of Indian law and were, therefore, unsustainable.
Issues: 1. Whether the learned Arbitrator had jurisdiction to direct the division of Atlas Cycles (Haryana) Limited and the two Trusts into three lots? 2. Whether the directions of the learned Arbitrator were contrary to the fundamental policy of Indian law?
Ratio Decidendi: 1. The Court held that the learned Arbitrator did not have jurisdiction to direct the division of Atlas Cycles (Haryana) Limited and the two Trusts into three lots because: a. The company was a public limited company with over 12,000 shareholders and could not be divided by a private agreement between the parties. b. The Trusts were governed by separate legal regimes and could not be divided by a private agreement between the parties. 2. The Court held that the directions of the learned Arbitrator were contrary to the fundamental policy of Indian law because: a. They were opposed to the provisions of the Companies Act, which governs the restructuring of public limited companies. b. They were opposed to the legal regime governing public trusts.
Final Decision: The Court set aside the directions of the learned Arbitrator to the extent that they legitimised the division of the assets and properties of Atlas Cycles (Haryana) Limited and the two Trusts into three baskets/lots falling to the shares of three branches of the Kapur family.
1. The challenge in both these petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) is to an Award dated 1st November 2014 passed by the learned sole Arbitrator in the disputes between the parties.
Background facts
2. The parties are all descendants of late Rai Bahadur Janki Dass Kapur. His three sons were Mr. Bishambar Dass Kapur, Mr. Jaidev Kapur and Mr. Jagdish Kapur. Mr. Sanjay Kapur, one of the sons of late Mr. Jagdish Kapur, Mr. Gautam Kapur and Mr. Girish Kapur, sons of late Mr. Jaidev Kapur and Mr. Rishav Kapur, son of Mr. Girish Kapur are the Petitioners in OMP No. 30 of 2015. Another son of Mr. Jagdish Kapur, namely, Mr. Salil Kapur is not himself a Petitioner. However, his two sons, Mr. Prashant Kapur and Mr. Ashwin Kapur, have filed OMP No. 31 of 2015.
3. The contesting Respondents in both petitions belong to the family branch of late Mr. B.D Kapur. The first two respondents, Mr. Vikram Kapur and Mr. Rajiv Kapur are the sons of late Mr. B.D. Kapur. The eldest son of Mr. B.D. Kapur, namely, late Mr. Arun Kapur, passed away during the pendency of the arbitration proceedings and his wife, Mrs. Rashmi Kapur and their sons, Mr. Akshay Kapur and Mr. Ashwath Kapur are Respondents 3, 4 and 5 respectively.
The 1999 MoU
4. After the death of late Rai Bahadur Janki Dass Kapur, his three sons had decided to split the management, ownership and control of the companies and assets jointly owned by the family in three equal shares and award one share to each of the unit/families. A Memorandum of Understanding dated 8th January 1999 (‘1999 MoU’) was entered into between them. The relevant preamble clauses of the MoU read as under:-
“Whereas the parties hereto have been carrying on business by owning, managing and/or controlling various assets in their individual names or in the names of different companies, private companies, partnership firms, charitable trusts and joint properties, firm, other than personal assets acquired by own savings or personal/wives business: And whereas with the growth of the family during subsistence of complete amity between all the members of the family, it is considered prudent to split the ownership, management and/or control of the companies and the assets in three equal share and to allot each share to the three units of the family which will help in the exercise of better management controls and further augment the business of the reconstituted units and business enterprises.”
5. It requires to be mentioned that the principal company that is the subject matter of the 1999 MoU is Atlas Cycles (Haryana) Limited. It had three bicycle units. One was in Sonepat, Haryana, the second in Sahibabad (Uttar Pradesh) and the third in Malanpur (Madhya Pradesh). There were, of course, other firms, companies and properties, including five trusts that have been jointly managed by the family.
6. The 1999 MoU recorded the agreement that the division of the three lots should be made in such a manner that one bicycle unit falls in the share of each of the three groups such that the production facility including machinery, painting and plating plants etc., and that of services including tool room, maintenance, electrical, generators, research and development, heat treatment etc. of each cycle unit is more or less equally divided. It envisaged that the market areas for sales in India and exports for each separate unit “shall be clearly identified, demarcated and equated.” In case any benefit was to be given to any group/groups it could be given in the form of net worth/assets. The valuation was to be done by Mr. K.N. Memani of M/s. Ernst and Young, Chartered Accountants.
7. The 1999 MoU further stated that each of the three groups would be entitled to the use of the ‘Atlas’ brand as well as the ‘logo’ on products with “an additional name for identification and differentiation as may be permissible under legal regulations.” The three names were to be chosen and placed in three baskets before th
