SOHAN NAYYAR v. LIEUTENANT GOVERNOR DELHI — 1982 DIGILAW 361 (DEL)

D. K. KAPUR, J. ( 1 ) THERE are two appeals before the Court which relate to the same judgment. There was an award made by the Lt. Governor of Delhi on 6th July, 1971, relating to the New Friends Co-operative House Build- ing Society Limited. The facts of the case, as far as the present appeal is con- cerned, show that on 9th July, 1971, the Lt. Governor superseded the Managing Committee and appointed a new Manag- ing Committee. On 17th July, 1971, Shri Bal Mokand Vig, who was the Secretary of the superseded Managing Committee made an application under S. 14 (2) of the Arbitration Act, 1940, praying that the award of the Lt. Governor may be directed to be filed in Court together with the arbitration proceedings. On this application the Court directed the award to be filed by an order dated 11th Aug. , 1971, and the award was filed on 23rd Sept. , 1971. ( 2 ) THERE were then three applications by us members under S. 15 of the Arbitration Act praying that the award be modified in respect of items Nos. 2, 5, 6 and 8. One application, I. A. No. 1695 of 1971 was filed by 136 members, I. A. No. 1694 of 1971 was filed by 5 other members and a third application was filed by only two members of the Society. Thus, 143 members of the Society filed objections to the award. ( 3 ) THE newly appointed management passed a resolution resolving that the award be made a rule of the Court, so they did not file any objections, ( 4 ) BEFORE the Court, the new Manag- ing Committee contested the right of 143 members to file objections on the ground that they had no locus standi. It was claimed that the Society and the Delhi Administration were the only parties to the dispute and nobody else could file objections. This matter was decided by the learned single Judge on the footing that the members of the Society were different from the Society itself and they had no right to file objections. Ac- cordingly, it was held that the objections were not maintainable and judgment was pronounced on the award. This matter was decided by the learned single Judge on the footing that the members of the Society were different from the Society itself and they had no right to file objections. Ac- cordingly, it was held that the objections were not maintainable and judgment was pronounced on the award. There is a mention in the judgment of the fact that there were claims that the Manag- ing Committee had not been properly appointed and a case was pending in the Supreme Court. It may be mentioned that this case has since been decided, but it did not decide anything about the Managing Committee being wrongly appointed. ( 5 ) THE fact remains that the only point raised in these appeals is whether the objections filed by 143 members by means of three separate applications could have been filed when the Society itself did not file the same. ( 6 ) AS mentioned earlier, the learned single Judge has decided this question on the short ground that only the par- ties to the dispute being the Society and the Delhi Administration, can file ob- jections and no one else. We are only to decide whether this is a correct decision. ( 7 ) TURNING now to the provisions of the Arbitration Act, 1940, it is provided in S. 14 (2) that when an award is made, then the Court shall give notice to the parties of the filing of the award, but the Act is completely silent as to who can file objections. S. 17 of the Act is in the following terms: "17. Judgment in terms of award. Where the Court sees no cause to remit the award or any of the matters reffered to arbitration for reconsideration or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a de- cree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with the award. "this is the only provision which deals with the objections. "this is the only provision which deals with the objections. The Section merely states that if the Court sees no cause to remit the award and after the time for making an application to set aside the award has expired, may make it a rule of the Court. ( 8 ) THOUGH, there are no cases on the subject, it is quite possible to imagine a case where the Court may refuse to make an award a rule of the Court on its own motion. For example, it there is a reference to arbitration concerning an illegal matter or when an award which is illegal on the face of it, the Court may refuse to make the award a rule of the Court even though both the parties may consent to the same. For instance, if the award gives a decision which no Civil Court could give, Or which is against public morality or decency, the Court may refuse to make the award a rule of the Court. It is not necessary to amplify this because this is not the question involved in this case. ( 9 ) IT is only necessary to state here that S. 1 7 of the Act does not specify who is to make an application. Normally, one would except only a party to make an application and not someone else. In this case, the Managing Committee was superseded only three days after the award was given and the Lt. Governor who gave the award nominated a new Managing Committee who was obviously not going to challenge the award. So, the question as to whether any third party can file objections has arisen almost incidentally to the facts of the case, ( 10 ) AS the act does not forbid the filing of objections by third parties, there does not seem to be any bar to some one else filing objections provided they have some interest in the subject-matter of the litigation. ( 11 ) FOR purpose of reference, it is necessary to refer to some parallel deci- sions. In Province of Bombay v. West- ern India Automobile Association, AIR 1949 Bom 141. it was held that a person who was not a party to a suit can ap- peal if it adversely affects that party with the leave of the appellate Court. In Province of Bombay v. West- ern India Automobile Association, AIR 1949 Bom 141. it was held that a person who was not a party to a suit can ap- peal if it adversely affects that party with the leave of the appellate Court. The appeal was actually filed by the Province of Bombay, but it was not a party to the original petition decided by the learned single Judge. A preliminary objection was taken that the Province of Bombay could not file an appeal although a notice had been given by the learned single Judge. The Province of Bombay submitted its view point: The Court held: "the Civil P, C, does not in terms lay down as to who can be a party to an ap- peal. But it is clear, and this fact arises from the very basis of appeals, that only a party against whom a decision is given has a right to prefer an appeal. Even in England the position is the same. But it is recognised that a person who is not a party to the suit may prefer an appeal if he is affected by the order of the trial Court, provided he obtains leave from the Court of Appeal,"in Smt. Jatan Kanwar Golcha v. Golcha Properties Private Ltd. (in Liquidation), AIR 1971 SC 374 . the Supreme Court observed as follows (at p. 376): "it would be a travesty of justice if a party is driven to file a suit which would involve long and cumbersome procedure when an order has been made directly affecting that party and redress can be had by filing an appeal which is permit- ted by law. It is well settled that a Person who is not a party to the suit may prefer an appeal with the leave of the appellate Court and such leave should be granted if he would be pre judicially affected by the judgment. "thus, the Supreme Court has reiterated the view adopted by the Bombay High Court. ( 12 ) IN another decision of the Sup- reme Court in Ebrahim Aboobakar v. Custodian General of Evacuee Property, New Delhi, AIR 1952 SC 319 , the guestion arose as to who can appeal under S. 24 of the Administration of the Eva- cuee Property Act, 1950. ( 12 ) IN another decision of the Sup- reme Court in Ebrahim Aboobakar v. Custodian General of Evacuee Property, New Delhi, AIR 1952 SC 319 , the guestion arose as to who can appeal under S. 24 of the Administration of the Eva- cuee Property Act, 1950. The question arose because one Tek Chand Delwani had contended that the property of Ebrahim Aboobakar was evacuee pro- perty. He was the first informant who brought to the notice of the Custodian that the property of Ebrahim Aboobakar should be taken over by the Ministry of Rehabilitation as evacuee property. It was held that when a person was given a right to contest, he was a person ag- grieved and, therefore, he had a right to appeal under S. 24 of the Act. It may be mentioned that all along Ebrahim Aboobakar had been claiming that Tek Chand Delwani had no right of appeal and the objections had been overruled first before the Evacuee Property auth- orities and then by a decision of the Punjab High Court in a writ petition. ( 13 ) THESE judgments show that a person who is not a party to the litigation can with the leave of the Court be allowed to appeal. It certainly appears that if this principle is available in the case of an appeal, if should also be equally applicable to cases under the Arbitration Act though, the cases in which a third party could file objections must be few and far between. ( 14 ) THE award of the Lt. Governor in the present case does affect the rights of the persons who had filed objections. A reference to Cls. 2, 5, 6 and 8, which are sought to be modified will indicate that the ultimate effect thereof is on the members of the Society. ( 15 ) IN passing, it may be mentioned that the learned counsel tor the appellants contended that the present Managing Committee and the Society fully supported the objections. This is not relevant at this stage because the fortunes of the Society and its Managing Committee are subject to change and we are solely concerned whether a third party can file objections and in what circumstances. This is not relevant at this stage because the fortunes of the Society and its Managing Committee are subject to change and we are solely concerned whether a third party can file objections and in what circumstances. ( 16 ) KEEPING in view the principles contained in the aforementioned judgments regarding appeals, it appears that a person who is affected directly by a decision, whether it is of a Court or an arbitrator or someone else, must have the right to agitate the question in Court. Inasmuch as it has been held that in a suit, a person who is adversely affected by the judgment can appeal although he is not a party to the suit, it should follow that a person who is adversely affected by an award which has been filed in Court should be able to maintain objections. In order to sustain those objections, such person will have to show that his interests are adversely affected. ( 17 ) IN the case of Co-operative Society, the liability of a member may be limited or if may be unlimited. If there is a limited liability, then the Society will use the words limited or its equivalent as part of its name. It so happens that in the instant case, the liability of the members is limited as it uses the word limited as part of its name. All this is provided in various sections of the Delhi Co-operative Societies Act, 1972. Even when the liability is limited, any claim against the Society can be recovered from the property of the Society as well as from the members of the Society to the extent of their liability. This is so provided in S. 75 of the Act. Even if no personal liability is involved, it is obvious that each member of the Society has an interest in the Society and as each member can have only one share, all the members share the interest equally. If the interests of the Society are adversely affected, the value of the share of each member to that extent is diminished. So, if cannot be denied that each member has an interest in the Society. One of the items in the award is that a sum of Rupees 22,45,742. 00 has to be paid to the Administration. If the interests of the Society are adversely affected, the value of the share of each member to that extent is diminished. So, if cannot be denied that each member has an interest in the Society. One of the items in the award is that a sum of Rupees 22,45,742. 00 has to be paid to the Administration. There is also another item to the effect that the Society shall not contest the smooth acquisitions of its land and shall not appeal for enhancement of its compensation. These two items are sufficient to show that the interest of the members is adversely affected to some extent, though it is difficult to see the exact implications of the award. ( 18 ) IF appears that on this ground the members of the Society can maintain objections if the Society itself does not file the same. ( 19 ) THERE is yet another reason to come to the conclusion that the objection could be maintained. From an analysis of the facts set out earlier in the judgment, it plainly appears that the Managing Committee was superseded on 9th July, 1971. The application moved in this Court under S. 14 of the Arbitration Act was moved by Shri Bal Mokand Vig who was the ex-Secretary of the Society. S. 14 (2) of the Act provides that the arbitrators or umpire may file the award at the request of the parties or under directions by the Court Obviously, for the purpose of that application, a member of the Society was treated as being competent to obtain an order from the Court to direct the filing of the award. If we come to the conclusion that no objections could be filed, then it would also have to be held that the award has been wrongly filed in the Court because it was at the instance of a party not entitled to maintain the application. We do not think that this is the correct view. The exact language used in S. 14 (2) is as follows: "the arbitrators or umpire shall, at the request of any party to the arbitration agreement or any person claiming under such Party or if so directed by the Court. . . . . . . . . cause the award or a signed copy. . . . . . . . . . . . . . . . . . . . cause the award or a signed copy. . . . . . . . . . . . to be filed in the Court. . . . . . . . . . . . "this shows that a person claiming under a party to the arbitration agreement has also a right. If this right exists under S. 14 (2), it would appear that that party can also move the Court and consequently can also file the objections. All the members of the Society can be deemed to be persons claiming under the Society and, therefore, they are entitled to get the award filed in the Court and must also have the right to maintain the objections, otherwise, there was no point in giving the right to a person claiming under a party to move the arbitrator or the Court, as seems to be implicit in the language of S. 14 (2 ). For this reason also it seems the objections could be maintained by the members, ( 20 ) IT is now necessary to turn to perhaps the most important aspect of this case, which regarding the rights of individual members of a Corporation to maintain a suit in the name of the Corporation or in the interest of the Corporation, since it is the analogy of a Corporation that has been applied here to a Co-operative Society as well. This matter was considered by the Federal Court in Dr. Satya Charan Lal v. Rameshwar Prosad Bajoria, AIR 1950 FC 133. It was stated in that judgment that it was well-settled that in order to redress a wrong done to a company or to recover monies or damages alleged to be due to the company, the action should be brought by the company itself. This was the rule in Foss v. Harbottle, (1843) 2 Hare 461. It is unnecessary to refer to the other cases cited by the Federal Court. This was the rule in Foss v. Harbottle, (1843) 2 Hare 461. It is unnecessary to refer to the other cases cited by the Federal Court. The law was summarised in the following terms: "the correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they are themselves the wrong-doers against the company and have acted mala fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the shareholders must in such a case be entitled to take steps to redress the wrong. "this view upheld the right to the majority of share-holders to maintain an action in the name of the company. The law has been summarised in this behalf in Para No. 767 of Halsbury s Laws of England, Fourth Edition Vol. 7 as follows: "in an action to redress a wrong done to a company or to recover money or damages alleged to be due to it, the company is the only proper plaintiff, but its name should be used as plaintiff by direction of the company or its directors. Where the members complaining represent the majority of the company, the action may be brought in the company s name, ever though the directors object. The court may allow the matter to stand so that a company meeting can be held to decide whether the action should proceed in the company s name. At such a meeting the votes of the persons complained of cannot be excluded. Nevertheless, proceedings may be brought by any member or members in his or their own name or names where such authority cannot be obtained and the act complained of is of a fraudulent character or oppressive or is ultra vires the company, or criminal or where the wrongdoers control the majority of votes; or where the result would otherwise be that the company was carrying out by an ordinary resolution something which could only be properly carried out by a special resolution, or by any other resolution requiring a prescribed majority. "thus, the position as far as the latest Edition of Halsbury s Laws of England is concerned is that the action may be brought without the directors consent by a majority of shareholders in the name of the company and in some cases where the majority does not support the litigation by the shareholders in their representatives capacity. In such a case, the suit may be either by all the complaining members altogether or representatively by some of them. There is no case in which the minority of shareholders cannot protect their interest ( 21 ) KEEPING this in view, it does not seem right to hold that the members of the Society who have filed objections cannot maintain the objections. These objections have been filed in the individual names of the members and now, they are supported by the present management of the Society. No meeting was called by the Court because it was not a case of objections being filed in the name of the Co-operative Society. ( 22 ) IT is now necessary to turn to a very recent decision where a minority shareholder was allowed to maintain a representative action. This is Estmanco (Kilner House) Ltd. v. Greater London Council, (1982) 1 All ER 437. In this case the company had filed an action relating to certain flats belonging to the Greater London Council. There were 60 flats, out of which 12 had been sold. The original decision was that all the 60 flats should be sold, but the Council decided that instead of selling the flats, they would be let out by the Council. The suit was to restrain the disposal of the unsold flats. The purchasers of the 12 fiats had been given one share each in the company. As far as the company was concerned, the Greater London Council held the entire voting rights, so at a general meeting, it voted to discontinue the suit. One minority shareholder sought leave to be substituted as plaintiff to sue on behalf of herself and other shareholders of the company other than the Council. The Court held that this could be done and the action could be maintained by the minority shareholder. This was treated as an exception to the rule that only the majority of the shareholders could maintain the action. The Court held that this could be done and the action could be maintained by the minority shareholder. This was treated as an exception to the rule that only the majority of the shareholders could maintain the action. Reference was made to another decision in Daniels v. Daniels (1978) 2 All ER 89, in which a minority shareholders had been permitted to maintain an action and the Judge had refused to follow the rule in Foss v. Harbottle. ( 23 ) THE facts of Daniels v. Daniels are illustrative of the necessity for departing from the rule that only the majority of the shareholders could maintain the action. In that case, a husband and wife were majority shareholders and directors of a company. The company sold to the wife land owned by the company which was sold later by her at a price 28 times that she had paid to the company. This was thus a misuse of the power by the directors which was allowed to be challenged by minority shareholders. The objection of the defendants to the maintenance of the suit was rejected on the ground that the minority shareholders had a cause of action against the majority shareholders for damage caused to the company even though no fraud was alleged. This was on the basis that the directors had made a profit out of their own negligence. ( 24 ) THESE two cases and the statement of law contained in the previously quoted passage from Halsbury s Laws of England, Vol. 7, indicate that there has been a considerable change in the law regarding maintenance of suits by minority share-holders. ( 25 ) APPLYING the above principle to the case of the present objector, on the footing that they are a minority set of shareholders in the Co-operative Society, it would appear that some remedy should be open to them in respect of the Society s failure to object to the award. For the purpose of this analysis, it must be assumed that there is something wrong with the award, if this is so, it would be for the Society to challenge the same in normal circumstances. If the persons in charge of the management refuse to challenge the award, then it should be open to the minority shareholders to maintain a suit in respect of the award. If the persons in charge of the management refuse to challenge the award, then it should be open to the minority shareholders to maintain a suit in respect of the award. However, S. 32 of the Arbitration Act states that no suit can lie on any ground whatsoever for a decision upon the existence, effect or validity to arbitration agreement or award. So, these 143 members could not maintain a suit, on the principles laid down by the Supreme Court in Jawahar Lal Barman v. Union of India, AIR 1962 SC 378 . This means that they can only approach the Court under the Arbitration Act. This is, therefore, an additional ground on which the objections could be heard by the Court. ( 26 ) TO summarise the conclusions, if may be useful to state the following propositions: (1) In the case of Corporations, where there are members, a suit may be maintained by the Corporation acting through its directors. If the directors refuse to act or the action complained of is that of the directors themselves, then such a suit can be maintained by the majority shareholders in the name of the Corporation. (2) If the action is challenged by the minority shareholders when the directors refuse to act, then the action or suit has to be brought by the minority shareholders in their own name. This may be done by them acting jointly or there may be a representative suit by a class of shareholders or members. (3) In the case of an arbitration award which is filed in Court, the objections may be filed by the parties thereto or if the parties refuse to file objections or fail to file objections, then a person claiming under them can also file objections provided they can show some interest in the subject-matter of the award or reference, as the case may be. (4) The principle which applies to appeals, namely, that third parties can also file objections, even though not parties to the suit, applies also to objections against ail award being made a rule of the Court subject to the same limitations, i. e. , the objectors must show that they have an interest in the subject-matter of award or reference and they obtain leave of the Court which should normallynot be refused. (5) In the case of arbitration awards against a Corporation which have been filed in the Court, members of the Corporation can maintain objections as they are debarred from filing a suit because of S. 32 of the Arbitration Act, to challenge the award or the arbitration agreement, as the case may be. These objections can be filed on the same basis as a suit can be filed by majority or minority shareholders of a company, which means that if the majority shareholders object to the award they can do so in the name of the company and if the minority shareholders challenge the same, they can do so in their own names. (6) In order to determine whether it is the majority or minority shareholders who are maintaining the objections, the Court can even call a meeting of the company. ( 27 ) APPLYING these propositions to the circumstances of this case, it clearly appears that the nominated management of the Society was not willing to file objections to the award. The award was filed at the instance of one of the members of the Co-operative Society and not at the instance of the parties to the reference. Against this award, objections could be filed by the majority of the members in the name of the Co-operative Society or by a minority in their own names. If the objectors could establish an interest in the subject-matter of the award, they were entitled to get the leave of the Court to maintain the objections or they could be treated as persons claiming under a party and, therefore, entitled to maintain objections. Alternatively, they could maintain these subjections on the principles on which minority shareholders could challenge the decision of the majority. For all these reasons, we think the objections in this case were maintainable and we could allow the present appeal. ( 28 ) THE result would be that we would set aside the judgment under appeal and remand the case for further trial of the objections. As there is no appearance on behalf of the respondents, there will be no order as to costs.