Delhi High Court
Bhai Hospital Trust And Ors. vs Parvinder Singh And Ors. on 18 January, 2002
Equivalent citations: 2002IIIAD(DELHI)833, AIR2002DELHI311, 2002(3)ARBLR19(DELHI), AIR 2002 DELHI 311, (2002) 3 ARBILR 19
JUDGMENT V.S. Aggarwal, J.
1. Vide the order passed by this court on 19th March, 2001 issues 1 and 2 were directed to be treated as preliminary issues. By virtue of the present order the said issues are proposed to be disposed. The same reads as under:-
1. Whether the suit is barred and/or liable to be stayed under the provisions of Section 32 of the Arbitration Act?
2. Whether the suit is barred by principles of res judicata in view
2. The aforesaid issues require consideration as a result of the following facts.
3. Bhai Hospital Trust is stated to be a trust with plaintiff Nos. 2 to 4 as its Trustees. The defendant No. 6 (Jagdish Anand) is also stated to be one of the first trustees of he above said trust. The present suit has been filed by the plaintiffs for a declaration against defendants 11 to 4 that defendants 1 to 4 were nt the lawfully appointed trustees of Bhai Hospital Trust. They have no legal right or authority to seek to act as such and that plaintiffs 2 to 4 and defendant No. 6 are the only lawful trustees of Bhai Hospital Trust. it also seeks a permanent/prohibitive injunction against defendants 1 to 4 restraining them f or in any manner intermeddling or interfering in the affairs and assets of the plaintiff No. 1 trust (Bhai Hospital Trust). A mandatory injunction is also claimed against defendants 1 to 5 requiring them to forthwith make over to plaintiffs 2 to 4 and defendant No. 6 of the share certificates relating to the shares owned by Bhai Hospital Trust.
4. It has been pleaded that plaintiff No. 2 Bhai Mohan Singh is an eminent industrialist and has over the years promoted and launched and controlled various companies, out of them three companies Ranbaxy Laboratories Ltd., Max India Ltd and Montari Industries Ltd. are also existing. Plaintiff No. 2 is also the founder of the same public and private trust including plaintiff No. 1. Plaintiff No. 1 so created by an under the denture of 8th October, 1979. Plaintiffs 2 and 4 and defendant No. 6 are the first trustees by virtue of the said indenture. Shortly afterwards plaintiff No. 3 who is the close relation of plaintiff No. 2 was appointed as additional trustee. Since plaintiff No. 2 was the Chairman and Managing Director of Ranbaxy Laboratories Ltd. as a measure of convenience all records relating to trust including minutes books, attendance register etc. were maintained under the supervision and control at the head office of the company Ranbaxy Laboratories Ltd. On the appointment of plaintiff No. 3 he maintained the records under the supervision of plaintiff No. 2. Plaintiff No. 2 had three sons. Defendant No. 1 is the eldest son. They have grown up their respective families. It is pleaded that in the normal and natural course of events as sons grew up equity shares and convertible debentures in the aforesaid three principal companies as also share/interest in the other companies promoted by the plaintiff came to be held in the names of various members of the larger family headed by them. The aspirations of his three sons to be active participants in the family companies business also grew in course of time. In order to accommodate and provide for the aspiration of his sons and to set them up in life, plaintiff No. 2 while retaining overall control, management and direction placed and promote his sons to look after day to day operations of one of the three principal companies. The first defendant was groomed over a period and finally placed to look after day to day operation of defendant No. 5, Ranbaxy Laboratories Ltd as its Vice President and Managing Director. Plaintiff No. 2 continued to be the Chairman.The other two sons were likewise placed in charge of day to day operations of Max India Ltd. and Montaris Industries Ltd. Plaintiff No. 2 noticed and realised that though the actual spheres of functioning of his three sons was separate, the intricate intermingled shareholding pattern of the three main companies could result in undesirable disputes, differences and disharmony amongst the three sons and their families after his demises. Plaintiff NO. 2 thought it prudent to devise some family settlement acceptable to all.
5. A family settlement was arrived at and was subsequently recorded in a Memorandum of Family settlement. The purport and intent of the said family settlement was to separate for eventual ownership/control of the respective interests and assets by the three sons of plaintiff No. 2. Defendant No. 1 and his family members were to be have eventual management, control and ownership of shares of Ranbaxy held by the larger family. In 1991 the first defendant approached plaintiff No. 2 and persuaded him to transfer/arrange for transfer of shares of Ranbaxy and control and management of holding companies owning share in Ranbaxy subject to continued overall supervision and control of the plaintiff No. 2. Plaintiff No. 1 (Bhai Hospital Trust) Trust) holds over one lakh equity shares in Ranbaxy. This fact was mentioned in the second schedule of the family settlement and eventual control thereof was to be ultimately transferred to the first defendant and his family group in due course.
6. It is alleged that before action or steps in this regard could be taken first defendant persistently breached the fundamental features of the agreement and term of the family settlement relating to the continuance of overall control and supervision of the plaintiff No. 2. This conduct of the defendant led to initiation of arbitration proceedings which were presided by Hon'ble Mr. Justice E S Venkatarmiah, former Chief Justice of India. The behavior of first defendant became so disrespectful, arrogant that plaintiff No. 2 was forced to resign as Chairman and Managing Director of Ranbaxy. The arbitration proceedings relate only to whether the first defendant has failed to carry out his obligations under the family settlement with regard to his carrying out of his duties and obligation under the overall supervision and control of plaintiff No. 2. During pendency of the arbitration proceedings a letter was received under the signatures of one Arun Bhalla relating to the wholly unlawful usurpation of authority by first defendant. He described himself as the Managing Trustee of plaintiff No.1. On 30th March, 1993 plaintiff No. 2 in his capacity as the Managing Trustee of plaintiff No. 1 caused a notice of meeting to be issued, a copy was endorsed to Shri V M Bhutani, an officer of Ranbaxy Laboratories Ltd. A letter was received singed by one Arun Bhalla, Executive Secretary of defendant No. 1 which indicated that it was alleged that first defendant was the Managing Trustee of plaintiff No. 1
7. According to the plaintiffs trustees had been appointed and plaintiffs 2 to 4 and defendant 6 were the only trustees. Even first defendant was the trustee of plaintiff No. 1 The appointment could only be made in accordance with the Indenture of trust and defendant No. 1 or other defendants were never appointed according to it. Defendant No. 1 even wrote to plaintiff No. 3 and defendant No. 6 resign from the trust. It is claimed that defendant No. 1 is a mere usurper and intermeddler taking over the record, assets and management of plaintiff No. 1 trust. Asserting that defendants 1 to 4 are not the trustees the aforesaid reliefs as such have been claimed.
8. In the written statement filed defendant No. 1 took various pleas, but for purposes of he present order it is relevant to mention that it has been pleaded that even the plaintiffs admit that Bhai Hospital Trust holds well one lakh equity shares in Ranbaxy and figured in Second schedule in the family settlement. Eventual control was ultimately to be transferred to defendant No. 1 as per the family settlement of 30th December, 1989. As per defendant No. 1 it was between all the family members of plaintiff No. 2, his wife, three sons and their children. In terms of the said family settlement the ownership, management and control over Bhai Hospital Trust was to be transferred and to be vested in the group of defendant No. 1 In pursuance to the effectuation of the family settlement on 19th January, 1991 defendant No. 2 was already a trustee of Bhai Hospital Trust, became its managing trustee. Defendants 2, 3 and 4 were inducted as additional trustees. Plaintiff No. 1 along with others had resigned as trustees. Disputes had arisen and as a result of which disputes between plaintiff No. 2 and defendant No. 1 pertaining to the said family settlement and the alleged breaches were referred to the sole arbitration of Justice E S Venkataramiah. The arbitrator had since given the award. It has been pleaded keeping in view the aforesaid that the present suit was not maintainable and would be barred under Section 32 of the Arbitration Act, 1940 in as much as the prayers sought in the suit by the plaintiffs amount to contesting the award and nullifying the effect thereto. On the same lines it has further been pleaded that the present suit would be barred by the principles of res judicata. In pursuance thereto that the above referred to two preliminary issues had been framed.
9. Preliminary Issue No. 1 : As is apparent from the pleadings the claim of the plaintiffs is for a declaration in their favor and against defendants 1 to 4 declaring that none of defendants 1 to 4 were lawfully appointed as trustees of Bhai Hospital Trust and they have no lawful right or authority to seek to act as such. On the same lines permanent prohibitory injunction restraining these defendants from intermingling in the affairs of Bhai Hospital Trust has been claimed. In other words, the entire relief is emerging form a trust, that had been created known as Bhai Hospital Trust and pertaining to the trustees.
10. At this stage, it is relevant to mention that certain disputes between plaintiff No. 2 and defendant No. 1 had been referred to arbitration. The controversy had not been raised that the award has since been pronounced and that the same has been made a rule of the court and decree in terms of the same has been passed. The dispute obviously pertained to between plaintiff No. 2 and defendant No. 1. The arbitrator had recorded that under Clause 6 of the family settlement all the shares standing in the name of the members of the family or several companies, firm and trust shown in second schedule had to be allotted. It has further been recorded that ultimately the ownership of all the shares held by the family members and the trust mentioned in the second schedule had to go the branch of Dr. Parvinder Singh, the defendant. Ultimately the view in this regard was expressed in paragraph 57 of the award which is being reproduced below for the sake of facility:-
"Since I have taken the view that no deprivation or divesting of vested interest of the members of the branch of Dr. Parvinder Singh is possible, the parties should implement the terms of the family settlement which are yet to be completed with Bhai Mohan Singh cannot be absolved from the performance of the remaining obligations arising under the family settlement. in the course of the hearing the learned counsel for Dr. Parvinder Singh has produced a Tabular, Statement showing the extent to which it had been implemented, the correctness of which is not seriously disputed by the learned counsel for Bhai Mohan Singh. The said statement which runs to 244 pages is enclosed to this award as Annexure-I, so that parties may know what is implemented and what is not yet implemented. in the light of the advice of the family committee the remaining part of the settlement shall be implemented and parties shall render necessary corporation in this regard. If there is any error or omission in the statement (Annexure-I) that may be rectified by the Family Committee.
11. The award was finally pronounced and the relevant extract of the same reads:-
"1. The Joint Family consisting of Bhai Mohan Singh and his sons became divided in status with effect from 1.1.1988.
2. to 5. xxxxx
6. Dr. Parvinder Singh and his sons became entitled absolutely to the assets allocated to them as per the terms of the Family Settlement with effect from 1.1.1988.
7. & 8. xxxxx
9. The management of the affairs of Ranbaxy Laboratories Limited and all other companies//first/trusts, the control of which are allocated to the branch of Dr. parvinder Singh under the family settlement shall be vested and carried on by the respective Board of Directors as per provisions of Companies Act.
12. In other words, the arbitrator gave the award for management of the affairs of Ranbaxy Laboratories ltd and all other companies/firms/trusts, the control of which are to be allotted to the branch of Dr. Parvinder Singh under the family settlement shall be vested and carried on by the respective Board of Directors as per provisions of the Companies Act. It is in pursuance of the said award which ha been made a rule of the court that it had been highlighted that once award has been made a rule of the court it could not be set aside except in accordance with the provisions of the Arbitration Act, 1940 and therefore the present suit as such would be barred.
13. Section 32 of the Arbitration Act therefore holds the key to the said controversy and reads as under:-
"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 of ward, no shall any arbitration, agreement or award be [enforced], set aside, amended, modified or in any way affected otherwise than as provided in this Act."
14. Section 32 gave effect to the recommendation of Civil Justice Committee. It bars a suit for any relief relating to existence effect or validity of the arbitration award or agreement. Ordinarily as is a well settled principle parties to the agreement only would be bound by the award but Section 32 of the Arbitration Act, 1940 is silent as to whether a suit by a party to the arbitration agreement only is barred or even an outsider is bound therein. The principle is not in dispute that a person who is not party to the arbitration agreement would not be bound by the award. That has not been put an end to and therefore a person who is not a party to the arbitration agreement is not bound by the award.
15. It was further highlighted that even if plaintiff was a party to he arbitration agreement still as a trustee he could maintain his right because his rights as trustees would be different from that of the individual.
16. It is not is dispute that plaintiff No. 1 was created and is a trust. The Indian Trust Act, 1882 in this regard clearly provides the duties and liabilities of the trust. Reference to some of those provisions would be into fitness of things.
17. Under Section 10 of the Indian Trust Act every person capable of holding property may be a trustee and where the trust involves exercise of discretion, he cannot execute it unless he is competent to contract. Section 12 provides the duty of the in terms that he is bound to acquaint himself with the nature and circumstances of the trust property. Section 131 of the same Act further provides that trustee is bound to maintain and defend all such suits, to take steps for preservation of trust property. Under Section 18 he is to prevent the waste of the trust property. Chapter 5 of the Indian Trust Act, 1882 further provides certain obligations being of the trustees. A trustee who has accepted the trust cannot renounce it except with the permission of the principal civil court of original jurisdiction or if the beneficiary is competent to contract with his consent or by virtue of special power in the instrument of trust. The trustee cannot delegate his office or any of this duties u less the instrument of trust provides or the delegation is in the regular course of business (Section 47). Section 48 further gives a clarification that when there are more trustees than one all must join in execution of the trust. As regard vacation of the office of the trustees Section 71 reads as under:-
" 71. Discharge of trustee - The trustee may be discharged form his office only as follows:-
(a) by the extinction of the trust;
(b) by the completion of his duties under the trust;
(c) by such means as may be prescribed by the instrument of trust;
(d) by appointment under this Act of a new trustee in this place;
(d) by consent of himself and the beneficiary, or, where there are more beneficiaries than one, all the beneficiaries being competent to contract; or
(f) by the court to which a petition for his discharge is presented under this Act."
18. Section 73 further provides that whenever any person appointed as trustee disclaims, dies or is for a continuous period of six months absent form India or started living abroad ETC, a new trustee could be appointed by a person nominated by that purpose and where there is no person so nominated or no such person able to and willing to act then the auther of the trust if he is alive could do it. Section 74 refers to cases where trustee could be appointed with the permission of the court.
19. The aforesaid provisions, brief resume of which has been given clearly show that the trustees have certain rights. The scheme of the act clearly provides they cannot divest the property of the trust as such. The powers of the trustees cannot be abdicated and they have to take due course of preservation of the property of the trust. At this stage further detailed examination in this regard would not be proper or in the fitness of things. This is for the reason that presently the court is only concerned that the question as to whether Section 32 of the Arbitration Act, 1940 would bar the present suit or the present suit is liable to be stayed. Once the law embarks upon the trustees some powers which cannot be abdicated and the new trustees have to be appointed in accordance with the Trust Act or in accordance with the document of trust necessarily a person can always challenge that certain persons who claim themselves to be trustees are not the trustees. That exactly is the suit that has been filed in the present form. The same would not therefore be barred.
20. The question as to whether it would tantamount to setting aside the award or not indeed will not arise. The award as already referred to above and re-mentioned at the risk of repetition pertained to a dispute between plaintiff No. 2 and defendant No. 1. They did not act as trustees. They acted in their individual capacity. The present suit is only with respect to the rights that were conferred on certain trustees in pursuance of the document of trust. The capacity in which the present suit, therefore is filed is totally different. Since they were not parties to the agreement as trustees and particularly plaintiffs 3 and 4 were not even parties at all to the said agreement holding that suit is maintainable does not tantamount in any way to setting aside of the award.
21. The attention of the court has been drawn towards the decision of the Patna High Court Lachuman Singh v. Maker Singh and Ors. AIR 1954 Patna 27. The Division Bench of the court held that Section 32 of the Arbitration Act, 1940 is in a very wide term and where effect on decreeing a partition suit will be to set aside an award under Section 32 will be a bar to the suit. Indeed that is not the controversy before us. The award in no event as between the parties to the agreement is being set aside. If certain rights of their as trustees exists then ratio decidendi of Lachuman Singh (supra) will not apply.
22. The attention of the court has further been drawn towards a Division Bench of Nagpur High Court in the case of Nathulal Khunilal Dejendant v. Beharilal Bisheshwerial AIR (39) 1952 Nagpur 65. It was held that there can be no doubt legislature intent to make one court as the venue for all matters connected with an arbitration agreement or award. The precise findings in this regard read:-
"There can be no doubt that the Legislature intended to make only one Court as the venue for all matter connected with an arbitration agreement or award and also to make 'applications' (not ' suits') as the vehicle to approach that Court. The intention was to make it explicit that no suit of any kind whatsoever would lie in this behalf. The position thus must be taken to be radically altered after the new Act came into force and the Privy Council case cannot be invoked."
23. As already referred to above the said proposition of law in fact is not in dispute. The intent of the legislature is obvious. But when a person is not bound by the award an independent right occurs to him and the Section 32 of the Arbitration Act, 1940 therefore will not be a bar from filing of such a suit. At this stage it is not appropriate to refer to the decision of the Bombay High Court in the case of Akbar Ali (deceased by LR) and Ors. v. Mumtaz Hussain and Anr. AIR 1987 Bombay 339. Herein too the Bombay High Court was concerned where parties referred their disputes to an arbitration and award is made then it was held that it is binding on the parties. In paragraph 18 the Bombay High Court held:-
"It has, therefore, to be held that the suit on the original cause of action would be bared because of the existence of the arbitration award in the instant case, although in express terms it is not stated in Section 32 that a suit on the original cause of action would be barred, the scheme of Sections 30, 31(2) and 32 would be that a suit on the original cause of action would be barred because what is provided therein is that no suit can lie on any ground whatsoever for a decision upon the existence, effect and validity of an award and no arbitration award can be enforced, set aside, amended, modified or in any way affected otherwise than as provided in the Arbitration Act. Although, therefore, the suit may not directly be framed to set aside the award as such or to vary its terms, the effect of the filing of a suit on the basis of he original cause of action for adjudication of the rights of the parties would be the same. In my view, therefore, the suit on the original cause of action stands barred by the provisions of Section 32 of the Arbitration Act."
24. But for the reasons, recorded above there is no controversy in this regard, but when there are parties before the court who are not parties to the arbitration agreement their independent right as such cannot be defeated. It must therefore be held that suit in the present form is not barred or is liable to by stayed for the reasons recorded above. Issue is decided in favor of the plaintiffs.
25. Preliminary Issue No. 2: As already pointed above award has been made a rule of the court and decree in terms of the same has been passed. Keeping in view the said fact it has bene urged that principles of res judicata would apply and the present suit therefore is barred. The principle of law in this regard pertaining to Section 11 of the Code of Civil Procedure is not in controversy i.e. where between the parties matter has been heard and finally adjudicated. Thus to put an end to the litigation the law clearly provides that the earlier decision would operate as resjudicata. This principle had clearly been stated in the case of Isher Singh v. Sarwan Singh and Ors. in the following words:-
"Undoubtedly, the question whether a matter is "directly and substantially in issue" would depend upon whether a decision on such an issue, would materially affect the decision of the suit. A close examination of the plaint has satisfied us that the plea regarding the relationship was not an irrelevant mater which accidentally got into the suit but did possess some significance in relation to the relief to be granted. Isher Singh asserted that he had title to the property by reason of the oral will. If he succeeded in his plea as regards his title he would, of course, be entitled to succeed in the suit because in such an event his possession would have been lawful and referable to a legal title which he had established, but that was not the only basis of his claim. He also pleaded that he was, apart form his title under the will lawfully in possessio of the property. Even if, therefore, his title under the oral will was negatived he would still be entitled to the relief (a) of declaration as regards his possessory title, and (b) a permanent injunction restraining the defendant from interfering with his possession so long as the defendants were not able to assert and establish a title superior to his own, to that property. Learned counsel for the appellant did not also dispute this. This meant that his possessory title was good against all the world except the true owner and by paragraph 4 of his plaint Isher Singh sought to raise the plea that the defendants had no title on the basis of which they could claim a superior right to possession of the property. It is in this context that the form of the prayer sought in paragraph 6 of his plaint derives some significance. The prayer was "A declaratory decree in respect of agricultural land etc. be passed in favor of the plaintiff against the defendants". In other words, the declaration sought was not confined to his title under the oral will but was general and attributable to every source of his tile, either as legatee or as person in peaceful possession, and the permanent injunction was consequential upon the declaration respect of both these sources of title. The plea raised on behalf of the defendants bore upon both the points(a) the genuineness and legal effect of the oral will and (b) an assertion that if the oral will were out of the way the defendants had title which would prevail over the possessory title of the plaintiff...."
26. The said principle had been reiterate din the decision rendered in the case of Sulochana Amma v.
Narayanan Nair in paragraph in the following words:
"Section 11 of C.P.C. embodies the rule of conclusiveness as evidence or bars as a plea of an issue tried in an earlier suit founded on a plaint in which the matter is directly and substantially in issue and became final. In a later suit between the same parties or their privies in a competent Court to try such subsequent suit in which the issue has been directly and substantially raised and decided in the judgment and decree in the former suit would operate as res judicata. Section 11 does not create any right or interest in the property, but merely operates as a bar to try the same issue once over. In to her words, it aims to prevent multiplicity of the proceedings and accords finality to an issue, which directly and substantially had arisen in the former suit between the same parties of their privies, decided and became final, so that parties are not vexed twice over, vexatious litigation would be put to an end and the valuable time of the Court is saved. It is based on public policy, as well as private justice. They would apply, therefore, to all judicial proceedings whether civil or otherwise. It equally applies to quasi-judicial proceedings of the tribunals other than the civil Courts."
27. Same was the view expressed in the case of Marwari Kumhar and Ors. v. Bhagwanpuri Guru Ganeshpuri and Anr. , which is reproduced hereinbelow:
"In this case there is the additional factor that the factum of there being such a judgment was not denied. The respondents did not contended that the copy which had been produced was not the correct copy. All that the Ist respondent had pleaded was that the earlier judgment was not binding on him. The respondents were parties to the earlier proceedings. The 1st respondent was properly represented by his mother, the 2nd respondent. The earlier suit had been hotly contested. The earlier judgment was, therefore, binding on bothy the respondents. In the earlier judgment it had clearly been held that the title to the property vested int he appellants. It was held that Ganeshpuri and the respondents were merely pujaris. The judgment attained finality n 7-5-1948 when in the second appeal the decree was confirmed. Thus up to 7-5-1948 the respondents were in possession merely as pujaris. Their claim to title, through Ganeshpuri, had bene negatived by a competent court. That finding was binding on the respondents. Both the firs appellate court and the second appellate court failed to appreciate that on principles of res judicata the respondents were precluded from denying the appellants title to the suit property. They were precluded from claiming that they had acquired title by adverse possession through Ganeshpuri..."
28. In other words either in the earlier decision the parties should be common or they shall be holding under the same title of the parties which were before the court. Herein the position as already referred to above is different. Plaintiffs 3 and 4 are claiming themselves to be the trustees of plaintiff No. 1. They were not parties to arbitration agreement. The rights of the trustees as already referred to above are different and cannot be merged with that of the individual rights that a person may have. In that view of the mater when there were not parties as trustees to the arbitration agreement (some of them not even parties), the decision of the arbitrator which has been made a rule of the court and decree passed will not operate as res judicata so as to bind the plaintiff vis-a-vis the nature of the suit that has been filed an they claim that they are the trustees and not the defendants 1 to 4. Issue is decided in favor of the plaintiffs.
29. Keeping in view the findings referred to above it is directed that it be listed before the regular bench on 5th February, 2002 for further directions.