HIGH COURT OF BOMBAY
Delta
Distilleries Ltd.
v.
Shaw
Wallace & Co. Ltd.
Dr.
D.Y. Chandrachud, J.
Arbitration
Petition No. 377 of 2007
November
27, 2007
Section 34 of the Arbitration and Conciliation Act, 1996 read with order 22 rule 3 of the Code of Civil Procedure, 1908 – Application for setting aside arbitral award – Whether where a devolution of interest within meaning of order 22 rule 10 of Code of Civil Procedure, 1908 has taken place, a successor can be brought on record notwithstanding fact that period of limitation for an application under order 22 rule 3 had elapsed – Held, yes – Whether concept of abatement is not attracted to a situation where as a result of a scheme of amalgamation, corporate personality of claimant has ceased to exist, there being a devolution of interest upon transferee – Held, yes – Whether, therefore, upon a devolution of interest transferee upon whom interest is devolved is entitled to be impleaded – Held, yes
There was an arbitration proceedings between second respondent and the petitioner. Later second respondent in pursuance of sanctioning of a scheme of amalgamation merged with the third respondent. An application was filed on behalf of the respondents seeking to implead the third respondent instead and in place of the second respondent. The application was allowed by the arbitrator. The decision of the arbitrator had been questioned in these proceedings. The petitioner submitted that upon sanctioning of the scheme of amalgamation by the Court, the original second claimant ceased to have any existence in the eyes of law ; the claim of the second claimant must be deemed to have abated upon the sanctioning of the scheme of amalgamation ; the application that was moved before the arbitrator was in any event beyond a period of three years from the date of the order of the Court sanctioning the scheme of amalgamation and was, therefore, beyond limitation.
HELD
The effect of a scheme of amalgamation, as held by the Supreme Court in Singer India Ltd. v. Chander Mohan Chandha (2004) 7 SCC 1 is that as a result of amalgamation of two companies into one, the transferor company loses its entity as it ceases to have its business. The respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective. The concept of abatement is inapposite where a merger takes place in the course of a scheme of amalgamation in pursuance of a sanction received from the Company Court. The transferor in such a case merges with the transferee who becomes the successor in interest of the assets, liabilities and business to the extent contemplated in the scheme. There is in other words a devolution of interest. In law, what takes place in the course of a scheme of amalgamation is the devolution of the interest of the transferor upon the transferee. [Para 6]
Rule 10 of order 22 of the Code of Civil Procedure, 1908 contemplates that in other cases of an assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved. The principle which underlies order 22 rule 10 is that the trial of a suit does not get disbanded merely as a result of a devolution of the interest of a party to the proceedings upon another during the pendency of the suit. [Para 7]
The judgment of the Supreme Court in Rikhu Dev v. Som Das AIR 1975 SC 2159 is also authority for the proposition that where a devolution of interest within the meaning of order 22 rule 10 of the code has taken place, a successor can be brought on the record notwithstanding the fact that the period of limitation for an application under order 22 rule 3 of the code had elapsed. The reason for that is that such an application is obviously not one under order 22 rule 3 of the Code. Several High Courts have consistently followed the position that where a devolution of interest within the meaning of order 22 rule 10 of the Code, has taken place no period of limitation is prescribed and the successor upon whom the interest has devolved can be brought on the record at any time before a final decree is passed. [Para 9]
Consequently, the arbitrator was not in error in allowing the application for bringing the third respondent on the record. The interest of the second claimant to the arbitral proceedings had devolved upon the third respondent in pursuance of the orders passed by the Court sanctioning the two schemes of amalgamation under sections 391 and 394 of the Companies’ Act, 1958. The concept of abatement is not attracted to a situation where as a result of a Scheme of Amalgamation, the corporate personality of the claimant has ceased to exist, there being a devolution of interest upon the transferee. Upon a devolution of interest the transferee upon whom the interest is devolved is entitled to be impleaded. Indeed the transferee in instant case would also be liable to be impleaded to the counter claim, which had also been done. These steps had to be taken and had been taken prior to the conclusion of the proceedings. Strictly speaking, the provisions of the Code of Civil Procedure, 1908 do not apply to arbitral proceedings, but even on principles analogous to those of order 22 rule 10, the arbitrator was within the exercise of jurisdiction in permitting the third respondent as the successor entity to be brought on the record as a result of the events that had taken place after the statement of claim was filed. There was, therefore, no merit in the challenge. The petition was to be dismissed. [Para 10]