Oil and Natural Gas Corporation Ltd. V . M/s. Jindal Drilling and Industries Limited

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A perusal of the arbitral award clearly indicates that the arbitral tribunal has refused to lift the corporate veil after considering the evidence produced by both the parties and has rendered finding of fact that no such case was made out by the petitioners for lifting the corporate veil which are not perverse and thus cannot be interfered with by this Court under Section 34 of the Arbitration Act.

Case name:Oil and Natural Gas Corporation Ltd. V.  M/s. Jindal Drilling and Industries Limited
Case number:Arbitration Petition Nos. 584 of 2014, 767 of 2014, 768 of 2014 and 1045 of 2014
Court: The High Court of Bombay
Bench:R.D. Dhanuka, J
Decided on:April 28, 2015
Relevant Act/Sections:Arbitration and Conciliation Act
  • BRIEF FACTS AND PROCEDURAL HISTORY:
    • In October 2005, the petitioners floated a tender for charter hire of a Floating Production, Storage and Off-loading vessel (FPSO). Pursuant to the said notice inviting tender, Messrs. Discovery Enterprises Pvt. Ltd. (hereinafter referred to as ‘the said DEPL’) submitted its bid with the petitioners. On 22nd March 2006, the petitioners awarded the said contract in favour of the said DEPL and executed a contract agreement with the said DEPL.
    • It is the case of the petitioners that the petitioners paid the customs duty on the said vessel on behalf of the said DEPL as assessed at Rs. 55,78,12,857/- with clear and express understanding that the vessel would be exported under the duty drawback scheme and the said DEPL would complete all the formalities required to be completed as per the Customs Act, 1962 to avail of the benefit of duty drawback.
    • The said DEPL, however, did not comply with their part of the obligation and accordingly, the petitioners terminated the said contract on 12th November 2006. The petitioners issued a notice on 12th February 2007 to the said DEPL and demanded various amounts towards compensation. The said dispute between the petitioners and the said DEPL was referred to the arbitral tribunal.
    • By an order passed by the arbitral tribunal on 27th October 2010, the arbitral tribunal accepted the plea of the respondents and directed the petitioners to strike of the name of the respondents from the array of parties. Being aggrieved by the said order dated 27th October 2010, the petitioners filed an appeal (Arbitration Petition No. 814 of 2011) under Section 37 of the Arbitration Act before this Court. By an order dated 27th June 2012, the learned Single Judge dismissed the said appeal filed by the petitioners, inter alia, challenging the said order dated 27th October 2010.
    • In the meanwhile, the petitioners entered into an agreement with the respondents on 2nd December 2006 and took on hire the drilling unit RIG Noble Charlie Yester from the respondents to conduct drilling operations in the offshore waters of India. The petitioners also executed three more contracts with the respondents.
    • The petitioners have not disputed the claim made by the respondents. The petitioners, however, refused to pay the dues of the respondents on the ground that since the said DEPL was liable to compensate the petitioners as claimed in the said pending arbitration proceedings at the relevant time between the petitioners and the said DEPL, the petitioners had adjusted/appropriated and/or exercised lien on the amount of Rs. 63,87,38,070.76 which was kept by the respondents with the petitioners by treating it as a security to satisfy the award to be passed in favour of the petitioners in the said then pending arbitration proceedings between the petitioners and the said DEPL.
    • Since the petitioners refused to pay the undisputed dues of the respondents under the aforesaid four contracts, the dispute arose between the parties arising out of those four contracts and was referred to arbitration. The arbitral tribunal framed separate points for determination in all four arbitral proceedings.
    • On 9th October 2013, the arbitral tribunal rendered a common award in all four matters and directed the petitioners to pay to the respondents various amounts with interest and costs. The said common award has been impugned by the petitioners in these four petitions under Section 34 of the Arbitration Act.
    •  Mr. Merchant learned senior counsel for the petitioners submits that the said DEPL was an extension of the activities of the respondents who had set up the said DEPL as an agency to carry out its activities and the doctrine of Group Company ought to have been applied in this case.
    •  It is submitted that the respondents had all throughout acted on behalf of the DEPL in respect of the contract which was awarded by the petitioners in favour of the said DEPL. It is submitted that the Directors of the said DEPL were the sons and daughters-in-law of the Managing Director of the respondents and both the companies for some time shared a common office and telephone numbers. It was the case of the petitioners that the DEPL was incorporated to defraud the creditors. Based on such allegations, learned senior counsel for the petitioners submits that the arbitral tribunal was required to lift the corporate veil in order to treat the said DEPL and the respondents herein as one company and ought to have rejected the claims made by the respondents.
  • ISSUE BEFORE THE COURT:
    • Whether DEPL was incorporated to defraud creditors and whether corporate veil can be lifted in the said scenario
  • RATIO OF THE COURT
    • The Court observed that merely because son and daughter-in-law of the Managing Director of the respondents were the Directors of the DEPL, the same could not take the claim of the petitioners any further to pin down the respondents in respect of the contractual obligations between the petitioners and the said DEPL.
    • In a previous said judgment dated 27th June 2012, this Court held that there was no evidence tendered before the arbitral tribunal that the said DEPL and the respondents herein had common shareholders and common Board of Directors. This Court after adverting to the judgment of the Supreme Court in the case of Indowind Energy Limited v. Wescare (India) Limited (supra) and the judgment of the Delhi High Court in the case of K.K. Modi Investment and Financial Services Pvt. Ltd. v. Apollo International INC. (supra) held that merely because the two companies may, at one point of time, had a common address and telephone number, it did not make them one economic unit. The mere fact that son and daughter-in-law of the Managing Director of the respondents herein were the Directors in the said DEPL also did not and could not establish that those companies were one and the same.
    • The Court further observed that it was held by this Court that there was also no credible evidence to show that because of the alleged nexus between the two companies, the petitioners had awarded the said contract to the said DEPL. It was held that even assuming that to be correct, it did not take the case of the petitioners any further. The respondents herein were admittedly not parties to the contract and could not be liable under the said contract which was only between the petitioners and the said DEPL. It is held that if the petitioners wanted to bind the respondents to the said contract, it should have asked the respondents to be a party to the said contract.
    • The Court after the perusal of the impugned award on this issue indicated that the arbitral tribunal has rendered findings of facts that there was hardly any evidence to support the plea of the petitioners that the said DEPL and the respondents were one and the same company. And thus, held that although the Directors of the said DEPL were the son and daughter-in-law of the Managing Director of the respondents herein and the two companies for some time had shared a common office and telephone numbers that did not make two companies as one entity. Both were subsidiaries of the main company and both had independent legal existence. The said DEPL was incorporated in the year 2003 whereas the respondents herein were public limited company listed on the stock exchange and were incorporated in the year 1983.
    • The Court further stated that the arbitral tribunal has also rendered finding that there was no material to show that the petitioners had awarded the said contract to the said DEPL because it was in fact the respondents herein and/or was supported by the respondents. The petitioners did not produce Minutes of Meeting held by the petitioners for short listing of the bidders in respect of that contract awarded to the DEPL.
    •  The Court while expressing its view stated that  the arbitral tribunal has considered the evidence led by the parties in the impugned award independently and have rendered findings of facts that i) the petitioners had failed to prove that the said DEPL and the respondents herein were one and the same company; ii) both the companies had independent legal existence; iii) the petitioners had failed to produce any evidence to prove that the petitioners had awarded the said contract to DEPL because it was in fact the respondents herein and/or was supported by the respondents; iv) there was no evidence to show that in order to secure the said contract, DEPL had represented that it was a part of the respondents group; v) the witness examined by the petitioners was not present in the meeting held by the Executive Purchase Committee and did not produce Minutes of Meeting held by the said Committee for short listing of the bidders; vi) the respondents herein had not issued any guarantee or letter of comfort from the respondents to the petitioners in respect of the liabilities, if any, of DEPL under its contract with the petitioners and vii) the petitioners had failed to provide any particulars of the alleged fraud or that the said DEPL was incorporated in order to defraud the creditors. In my view, all the aforesaid findings rendered by the arbitral tribunal are based on the pleadings, documents and the evidence led by the parties and are not perverse and thus no interference with such findings of facts is permissible under Section 34 of the Arbitration Act.
    • The court referred to the case of Gopal Krishnaj Ketkar and reached the conclusion that, the petitioners have thus suppressed and withheld the best evidence before the arbitral tribunal. The arbitral tribunal, in my view, has thus rightly rendered findings that the petitioners could not prove the said allegations against the respondents.
    • Furthermore, the Court mentioned that the respondents being separate legal entity, in my view, thus could not be made liable for the liabilities, if any, of the said DEPL against the petitioners unless the same was under any agreement independently between the petitioners and the respondents herein.
  1. The Court then referred to the case of Balwant Rai Saluja which has dealt with the issue of lifting the corporate veil by Court in detail. In my view, even if the arbitral tribunal had no power to lift the corporate veil of a company, the petitioners did not satisfy the criteria laid down by the Supreme Court in the its judgment in the case of Balwant Rai Saluja (supra) for lifting the corporate veil. It is not the case of the petitioners that there was any impropriety which was linked to the use of the company structure to avoid or conceal liability. It was held by the Supreme Court that to justify piercing the corporate veil, there must be both control of the company by the wrongdoers and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and the company may be a ‘facade’ even though it was not originally incorporated with any deceptive intent. The Supreme Court has held that the Court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice. In my view, the petitioners had failed to prove that either the said DEPL or the respondents-company was a mere camouflage or sham or were deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The petitioners have not made out any case for lifting the corporate veil. I am respectfully bound by the judgment of the Supreme Court in the case of Balwant Rai Saluja (supra) which squarely applies to the facts of this case.
  • DECISION HELD BY COURT:
    •  Arbitration Petition Nos. 584 of 2014, 767 of 2014, 768 of 2014 and 1045 of 2014 were dismissed.
    • There shall be no order as to costs.
Case Brief
Case Judgement

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