An arbitrator cannot lift the corporate veil and proceed against nonparties. An arbitration is consensual. It is based on the agreement between parties. The arbitrator derives his jurisdiction to adjudicate disputes from the consent of parties, therefore, he is not in a position to enlarge the scope of his influence and extend his jurisdiction to non-parties by exercise of his limited jurisdiction based on the consent of parties.
Case Name: Balmer Lawrie & Company Ltd Versus Saraswathi Chemicals Proprietors Saraswathi Leather Chemicals (P) Ltd
Case Number: EX.P. 280/2012
Court: THE HIGH COURT OF DELHI AT NEW DELHI
Bench: HON’BLE MR. JUSTICE VIBHU BAKHRU
Decided on: 17.03.2017
Relevant act/ The Arbitration and Conciliation Act, 1996
- BRIEF FACTS AND PROCEDURAL HISTORY:
- The petition has been filed under section 36 of the Arbitration and Conciliation Act, 1996 for enforcing the arbitral award dated 24.07.2000 entered in favour of the Decree Holder (DH) and against the Judgement Debtor (JD) described as “Saraswathi Chemicals, Proprietors Sawaswati leathers Chemicals (P) Ltd.”
- The DH alleges that the JD is essentially a concern of the Mundhra family and all sons of Late Shri G. D. Mundhra are involved in the business. It is further alleged that the DH had acted on the representations of the Late Shri G. D. Mundhra and Shri Krishan Mundhra and, consequently, Shri Krishan Mundhra and legal heirs of Late G. D. Mundhra are responsible for satisfying the arbitral award.
- The DH has also alleged that the proposed JDs have siphoned off the assets of the JD company and, therefore, ought to be held responsible for satisfying the arbitral award.
- It is seen that the present petition is for enforcement of the arbitral award dated 24.07.2000, which was rendered in the context of disputes that had arisen, inter alia, in relation to the ‘Stockist Agreement’ dated 01.08.1995. A bare perusal of the said agreement indicates that M/s Saraswati Chemicals was described as partnership firm. However, this was corrected as recorded in the Minutes of the Meeting held between the parties on 15.01.1993.
- It is also not disputed that all bills and invoices were raised by the DH in the name of the JD as a company and this was also true in respect of all business correspondence between the parties. It is also asserted that the statutory sales tax forms issued by the JD to the DH reflected the JD as a company and not as a firm of the proposed JDs.
- There is no indication in the arbitral award as to the constitution or the nature of the JD’s entity. However, it is not disputed that the DH had instituted the proceedings against JD as a company and not as a firm.
- It is relevant to note that the JD had filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Madras High Court and the same was disposed of by an order dated 08.04.2011. A perusal of the said order also indicates that the JD had filed the said petition as “Saraswathi Chemicals, Proprietor, Saraswathi Leather Chem. (P) Ltd”.
- ISSUE BEFORE THE COURT:
- Whether this Court can lift the corporate veil while enforcing the arbitral award?
- Whether the necessary grounds for doing so have been established?
- RATIO OF THE COURT:
- It is trite law that an arbitral tribunal draws its jurisdiction from the agreement between the parties and persons who are not party to the arbitration agreement cannot be proceeded against by an arbitral tribunal. Thus, an arbitral award made by an arbitral tribunal against any person who is not a party to the arbitration agreement would be wholly without jurisdiction and unenforceable. There may be exceptional cases where a court may compel persons who are not signatories to an arbitration agreement to arbitrate provided it is established that the non-signatory(ies) is either claiming through signatory(ies) or there was clear intention to be bound as parties (see: Chloro Controls India Private Limited v. Severn Trent Water Purification Inc & Others: (2013) 1 SCC 641). However, an arbitrator cannot lift the corporate veil and proceed against nonparties. An arbitration is consensual. It is based on the agreement between parties. The arbitrator derives his jurisdiction to adjudicate disputes from the consent of parties, therefore, he is not in a position to enlarge the scope of his influence and extend his jurisdiction to non-parties by exercise of his limited jurisdiction based on the consent of parties.
- In the present case, none of the grounds for lifting the corporate veil are established. The DH has not made out a case of egregious fraud; the same has been neither been pleaded nor established. Thus, there is no occasion for this Court to examine the question of lifting the corporate veil. The statement that the Mundhra family members have been conducting the affairs of the JD company is no ground for piercing the corporate veil. The decision of the Bench of this Court in V. K. Uppal v. M/s Akshay EX.P. 280/2012 International Pvt. Ltd. is also of no assistance to the petitioner. On the contrary, in that case, this Court had observed that “This court as the executing court cannot execute the decree against anyone other than the judgement debtor or against the assets/properties of anyone other than the judgement debtor. The identity of a Director or a shareholder is distinct from that of the company”.
- Plainly, a mere allegation that the Directors have siphoned off the assets without any particulars cannot be accepted as the ground for improper conduct. As noted above, the error in describing the JD as the firm in Stockist Agreement was ex facie an inadvertent error, which was corrected subsequently. There is no material (or even a cogent allegation) that the DH had been defrauded by the description of the JD as a firm and subsequently as a company. The DH had never dealt with the JD as a firm; this is established by the bills, invoices, correspondence as well as the statutory forms (sales tax). Thus, it can hardly be asserted – and in all fairness it is not – that the DH has been defrauded on now discovering the JD to be a company.
- DECISION HELD BY COURT:
- The application is dismissed as bereft of any merit.
- The applications are disposed of.
 2010 SCC Online Del 538