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2011 Supreme(Mad) 2478
High Court of Judicature at Madras
VINOD K. SHARMA
Kasturi & Sons Ltd
Versus
K.C. Palaniswamy
O.A.Nos.138 of 2010, A.Nos.694 of 2010 & 694 of 2011
Decided On: 29-04-2011
For the Appearing Parties: --------
Headnote:
The Court held that an order of injunction can be passed against a third party who is not a party to the arbitration agreement or arbitration proceedings, but to the limited extent of preservation or interim custody of the subject matter of arbitration.
Fact of the Case:
The applicant and Sri K.C.Palaniswami entered into an agreement regarding the takeover of Sporting Pastime India Ltd. (SPIL). As per the agreement, 243 lakh equity shares of SPIL were to be transferred to Sri K.C.Palaniswami or his nominees. The applicant challenged the action of SPIL in increasing its capital, and the Company Law Board declared the enhancement of paid-up capital to be illegal and void. The applicant claimed that Sri K.C.Palaniswami failed to discharge its liability under the agreement and the matter was referred to arbitration. The Arbitral Tribunal passed an interim consent award directing Sri K.C.Palaniswami to pay a certain amount to the applicant. Sri K.C.Palaniswami challenged the consent award and the applicant filed applications under Section 9 of the Arbitration & Conciliation Act for an injunction restraining the respondents from transferring, alienating, encumbering, or creating an interest in the shares of SPIL and for the deposit of the original title deeds of the properties belonging to SPIL and Hindcorp Resorts Pvt. Ltd. (HRPL).
Finding of the Court:
The Court found that the shares were the subject matter of the arbitration dispute and that the respondents 3 to 6 purchased the shares as nominees of the first respondent. The Court held that an order of injunction can be passed against a third party who is not a party to the arbitration agreement or arbitration proceedings, but to the limited extent of preservation or interim custody of the subject matter of arbitration. The Court also held that the applicant was not entitled to an order directing the respondents to deposit the share certificates or the title deeds of the properties, as the award had not yet become enforceable.
Issues: 1. Whether an order of interim injunction can be passed against the respondents who are not party/parties to the arbitration agreement or arbitration proceedings? 2. Whether the respondents 3 to 6 can be said to be the nominees of Sri.K.C.Palaniswami so as to be bound by the Arbitral Award, for passing interim direction against them?
Ratio Decidendi: The Court held that an order of injunction can be passed against a third party who is not a party to the arbitration agreement or arbitration proceedings, but to the limited extent of preservation or interim custody of the subject matter of arbitration. The Court relied on Section 9(ii)(a) of the Arbitration & Conciliation Act, which provides for the preservation, interim custody, or sale of any goods which are the subject matter of the arbitration agreement.
Final Decision: The Court allowed the application for an injunction restraining the respondents from transferring, alienating, encumbering, or creating an interest in the shares of SPIL, but dismissed the applications for the deposit of the share certificates and the title deeds of the properties.
VINOD K. SHARMA, J.
1. This order shall dispose of O.A.Nos.138 of 2010, A.Nos.694 of 2010 and A.No.694 of 2011 filed under Sec.9 of the Arbitration & Conciliation Act by M/s.Kasturi & Sons Ltd.
2 The prayer made in all these applications is as under:
O.A.No.138 of 2010:
This application has been filed to grant an order of injunction restraining the respondents 1, 3, 4, 5 and 6 from transferring, alienating, encumbering or creating interest of any kind whatsoever in respect of 2,43,00,000 shares of the second respondent, morefully described in the shedule to the Judge's summons.
A.No.694 of 2010:
This application has been filed to direct the respondents 1, 3, 4, 5 and 6 to deposit the share certificates in respect of 2,43,00,000 shares of the second respondent, morefully described in the schedule to the Judge's Summons.
A.No.694 of 2011:
This application has been filed to direct the third respondent or any other person who may claim through the third respondent, to deposit all the original title deeds of the properties belonging to the second respondent company and the fourth respondent before this Court, morefully described in the schedule to the Judge's Summons pending enforcement of award.
3. The facts leading to the filing of all these applications, are that the applicant along with M/s.Hindcorp Resorts Pvt. Ltd. (HRPL) and M/s.Sporting Pastime India Ltd. (SPIL), entered into an agreement with Sri K.C.Palaniswami on 19.07.2004 regarding take over of Sporting Pastime India Ltd., a company registered under the Companies Act. M/s.Sporting Pastime India Ltd. was incorporated on 2.5.1995 on 02.05.1995 as subsidiary company of M/s.Kasturi & Sons Ltd. which held 100% shares in the company.
4. In compliance with the terms of the agreement dated 19.07.2004, two hundred and forty three lakh equity shares of the face value of Rs.10/- each were agreed to have been transferred by the applicant, in favour of Sri K.C.Palaniswami or his nominees. These shares represented 90% of the issued and paid up capital of M/s.Sporting Pastime India Ltd. and the balance twenty seven lakh equity shares of Rs.10/- each were retained by the applicant.
5. All the nominees of the applicant on the Board of M/s.Sporting Pastime India Ltd. resigned their directorships, and three directors along with Sri.K.C.Palaniswami were inducted on 18.08.2004. The directors nominated by Sri.K.C.Palaniswami were 1) Mr.Athappan Ramasamy and (3) Mr.Chandran Ratnasamy. Thus control of M/s. Sporting Pastime India Ltd. was transferred to Sri.K.C.Palaniswami.
6. The shareholding in the second respondent after 18.08.2004 is as under:
No.
Name
Share Cert.No.
Distinctive Nos.
No. of Shares
1
Cheran Properties Ltd
013
014
015
016
017
021
019
041,
051,
061,
071, 002-010 012-020 022-030 032-040 042-050 052-060 062-070 072-080
270081- 3000000
3000001- 27000000
2,42,99,996
2
Cheran Holdings Pvt Ltd
010,
011,
1
3
KCP Associates Holdings Pvt. Ltd.
011,
021,
1
4
CG Holdings Pvt. Ltd. 009, 001, 1 5
K.C. Palaniswamy
012,
031,
1
6
Kastrui & Sons Ltd. 020,
081- 2700080
27,00,000
Total
2,70,00,000
7. The issued and paid up capital of M/s.Sporting Pastime India Ltd. was unauthorisedly increased to Rs.52 crores on 28.10.2004 by the nominees of the K.C.Palaniswami by subscribing to the additional capital of Rs.25 crores. The applicant challenged the action of Sporting Pastime India Ltd. in increasing its capital, vide C.P.No.50 of 2005 before the Company Law Board, Chennai. The company Law Board declare the enhancement of paid up capital of M/s.Sporting Pastime India Ltd. to be illegal and void, and further directed the Central Government to appoint Inspectors to investigate the affairs of the company vide order dated 9.10.2006.
8. It is the case of the applicant that the Inspectors appointed have observed several irregularities including invalidation of the appointment of one of the director, not having registered office as per the requirements of the Companies Act, 1956 etc. In pursuance thereto, show cause notice has been issued, and the i
