Sunday, 12 February 2017

When junior members of family are bound by decision made by karta relating to family business and property?

 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. 
Rajni Sanghi 
Western Indian State Motors Ltd. & Ors
Citation:December 01, 2015.
Citation:(2015) 16 SCC631

1. 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
2Page 3
C.A.No.3687/06 etc.
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.
2. 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
3Page 4
C.A.No.3687/06 etc.
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
3. 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
4Page 5
C.A.No.3687/06 etc.
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.
4. 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.
5Page 6
C.A.No.3687/06 etc.
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
The scheme was signed by R.K. Sanghi and A.K. Sanghi also
on behalf of their respective family members. It involved passing of
6Page 7
C.A.No.3687/06 etc.
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.
5. 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
7Page 8
C.A.No.3687/06 etc.
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
8Page 9
C.A.No.3687/06 etc.
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.
6. 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-
9Page 10
C.A.No.3687/06 etc.
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.
7. 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
10Page 11
C.A.No.3687/06 etc.
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.
8. 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
11Page 12
C.A.No.3687/06 etc.
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,
12Page 13
C.A.No.3687/06 etc.
amended, modified or in any way affected otherwise than as
provided in the Act (emphasis supplied).
9. 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
13Page 14
C.A.No.3687/06 etc.
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.
10. 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.
11. On the other hand learned Senior Counsel Mr. Arvind P.
Datar appearing for M.K. Sanghi group and Mr. Shyam Divan,
14Page 15
C.A.No.3687/06 etc.
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 nonregistration
of award and more particularly when it is an arguable
point, as contended by Mr. Mehta in reply that the period when an
15Page 16
C.A.No.3687/06 etc.
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.
12. 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.
16Page 17
C.A.No.3687/06 etc.
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.,
13. 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
17Page 18
C.A.No.3687/06 etc.
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
18Page 19
C.A.No.3687/06 etc.
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.
14. 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
19Page 20
C.A.No.3687/06 etc.
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.
15. 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 &
20Page 21
C.A.No.3687/06 etc.
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.
16. 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
21Page 22
C.A.No.3687/06 etc.
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.
17. 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
22Page 23
C.A.No.3687/06 etc.
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
23Page 24
C.A.No.3687/06 etc.
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
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
24Page 25
C.A.No.3687/06 etc.
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
25Page 26
C.A.No.3687/06 etc.
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.
18. 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.
19. 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
26Page 27
C.A.No.3687/06 etc.
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
27Page 28
C.A.No.3687/06 etc.
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
28Page 29
C.A.No.3687/06 etc.
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
29Page 30
C.A.No.3687/06 etc.
in that event the Executing Court will leave the beneficiary party to
bring a separate suit upon the new contract/agreement.
20. 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
30Page 31
C.A.No.3687/06 etc.
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.
21. 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
31Page 32
C.A.No.3687/06 etc.
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
22. 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
32Page 33
C.A.No.3687/06 etc.
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
23. 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
33Page 34
C.A.No.3687/06 etc.
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.
24. 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.
34Page 35
C.A.No.3687/06 etc.
25. 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
35Page 36
C.A.No.3687/06 etc.
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.
26. 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
36Page 37
C.A.No.3687/06 etc.
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
27. 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.
28. 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.
29. 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.
New Delhi.
December 01, 2015.

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