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Cheran Properties Limited v. Kasturi and Sons Limited

Civil Appeal · 2018 INSC 394Decided 24 Apr 2018
Civil Appeal Nos. 10025-10026 of 2017
Chief Justice Dipak Misra · Justice A.M. Khanwilkar · Dr. Justice D.Y. Chandrachud

Background

Kasturi & Sons Ltd. (KSL) agreed to sell a controlling stake in its subsidiary, Sporting Pastime India Ltd. (SPIL), to K.C. Palanisamy (KCP) and his nominee companies, including Cheran Properties. When the deal fell through, arbitration followed, and the arbitral tribunal ordered KCP and SPIL to return the share documents to KSL once KSL paid an agreed sum: an award that became final after KCP's challenges failed all the way up to the Supreme Court. KSL then went to the National Company Law Tribunal (NCLT) to rectify SPIL's share register in its favour, and both the NCLT and the National Company Law Appellate Tribunal (NCLAT) held that Cheran Properties, though not itself a signatory to the arbitration agreement, was merely KCP's nominee and so was bound by the award; Cheran Properties appealed that finding to the Supreme Court.

Decision Breakdown

The Supreme Court upheld the "group of companies doctrine," under which an arbitration agreement signed by one company in a corporate group can bind a non-signatory group company where the circumstances show a clear, composite intention that all group entities be bound. Examining the record, including KCP's own letter describing the share purchase as made by "our Group Companies, by themselves and/or by their nominees" and a Madras High Court ruling (never successfully challenged) finding Cheran Properties to be KCP's nominee, the Court found Cheran Properties was part of a single composite transaction and not an independent purchaser with its own distinct right to the shares. It held that the award had attained finality, could be enforced like a decree, and that rectification of the share register under Section 111 of the Companies Act was a proper and available remedy; the NCLT and NCLAT view did not call for interference, and the appeal was dismissed.

Lesson Learnt

A company that structures a transaction through related "nominee" entities within its own corporate group cannot use the separate legal identity of those entities to escape the consequences of an arbitration award: if the group's own conduct shows the entities were acting as one composite unit, all of them can be held bound.

Official source (sci.gov.in)View Judgment (PDF)

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