“The idea of corporate veil is becoming more transparent with time”
| Case name: | GMR Energy Limited v. Doosan Power Systems India Private Limited & Others |
| Case number/Citation: | Civil Suit Commercial No. 447 of 2017 |
| Court: | High Court of Delhi |
| Bench: | HON’BLE MS. JUSTICE MUKTA GUPTA |
| Decided on: | November 14, 2017 |
| Relevant Act/Sections: | Part-II of Arbitration Act, 1996 |
- BRIEF FACTS AND PROCEDURAL HISTORY:
- The present suit has been filed by the plaintiff GMR Energy Limited (in short ‘GMR Energy’) against Dossan Power Systems India Pvt. Ltd. (in short ‘Doosan India’), the sole contesting defendant being the defendant No.1 and GMR Chhattisgarh Energy Limited (in short ‘GCEL’) and GMR Infrastructure Ltd. (in short ‘GIL’), proforma defendants impleaded as defendant Nos. 2 and 3 respectively.
- In the suit GMR Energy inter alia seeks a decree of permanent injunction restraining Doosan India and its representatives, agents etc. from instituting or continuing or proceeding with arbitration proceeding against GMR Energy before the Singapore International Arbitral Centre (SIAC) being SIAC Arbitration No. 316/2016 (Arb. 316/16/ACU).
- SIAC Arbitration No. 316/2016 is based on the three agreements between Doosan India and GCEL all dated 22nd January, 2010 (for convenience ‘EPC agreements’ dated 22nd January, 2010) being (i) the Agreement for Civil Works, Erection, Testing and Commissioning (in short ‘CWETC Agreement’) executed between GCEL and Doosan India; (ii) the Onshore Supply Agreement executed between GCEL and Doosan India; (iii) the BTG Equipment Supply Agreement (in short ‘Offshore Supply Agreement’) also executed between GCEL and Doosan India; and (iv) the Corporate Guarantee dated 17th December, 2013 (in short ‘Corporate Guarantee’) executed between GCEL, GIL and Doosan India besides the two Memorandum of Understandings (in short the two ‘MOUs’) between Doosan India and GMR Energy dated 1st July, 2015 and 30th October, 20152.
- Basing its claim on the three agreements, that is, EPC agreements dated 22nd January, 2010, the Corporate Guarantee dated 17th December, 2013 and the two MOUs, Doosan India sent a notice of arbitration dated 11th December, 2016 to GIL as first respondent, GMR Energy as second respondent and GCEL as third respondent seeking enforcement of the liability of the three respondents therein jointly and severally towards Doosan India, GCEL being liable in terms of three EPC agreements, GIL in terms of the Corporate Guarantee and GMR Energy, though not a party to the three EPC Agreements and the Corporate Guarantee, but by virtue of the two MOUs, common family governance, transfer of shareholding and being the alter ego of GCEL and GIL.
- In the plaint GMR Energy claims that since it was not a party to the three EPC agreements or the Corporate Guarantee which contained arbitration clause, it responded to the correspondence received from SIAC, objecting to its being arrayed as a party and sought discharge of GMR Energy as a party, respondent and termination of the reference, wrongfully and incorrectly initiated against GMR Energy by Doosan India.
- Since SIAC neither acceded to nor rejected the request of GMR Energy and was proceeding to appoint an arbitrator on behalf of GMR Energy, the present suit was filed with the prayers as noted above. Along with the suit, GMR Energy filed an application being I.A. No. 7248/2017 under Order XXXIX Rule 1 and 2 of Civil Procedure Code, 1908 (in short ‘CPC’) seeking an ad-interim ex-parte stay.
- When the present suit came up before this Court on 4th July, 2017 as GMR Energy was not a party either to the three EPC agreements or to the Corporate Guarantee, this Court passed an ad-interim ex-parte order staying operation of the letter dated 8th June, 2017 addressed from Ms. Adriana noting that “in the circumstances, the President of the Court of Arbitration of SIAC proceeded to appoint all three arbitrators and shall designate one of them to be the presiding arbitrator pursuant to Rule 12.2 of the SIAC Rules.” and directed that no arbitrator be appointed on behalf of GMR Energy till the next date of hearing which interim order is continuing till date.
- RATIO OF THE COURT
- This court relied upon Sudhir Gopi vs IGNOU wherein this Court was dealing with the arbitration agreement which falls in Part-I of the Arbitration Act, and held that whether a court will compel any person to arbitrate would have to be examined in the context of the specific provisions of the applicable statute. Though it is universally accepted principle that dispute resolution by arbitration must be encouraged, however, the courts determine the question whether an individual or an entity can be compelled to arbitrate, guided by the domestic law and the judicial standards of their country.
- This Court further held that the courts would undoubtedly have the power to determine whether in a given case the corporate veil should be pierced or not, however, an arbitral tribunal has no jurisdiction to lift the corporate veil, its jurisdiction being confined by the arbitration agreement which included the parties to arbitration and it would not be permissible for the arbitral tribunal to expand or extend the same to other persons.
- Continuing the discussion, this Court also noted that an arbitration agreement can be extended to a non-signatory in limited circumstances, firstly, where the Court comes to the conclusion that there is an implied consent and secondly, where there are reasons to disregard the corporate personality of a party, thus, making the shareholders answerable for the obligations of the company.
- Thus, this Court recognized that though limited, corporate veil could be lifted but it was for the court to do it and not the arbitral tribunal. To come to this conclusion this Court in Sudhir Gopi (supra) referred to the decision in DDA vs. Skipper Construction (supra) wherein the Court lifted the corporate veil for the reason the corporate character was being employed for the purpose of committing illegality or for defrauding others.
- This court considering the above, was of view that the issue can be decided by both the tribunal as well as the court with Part-II of Arb Act being applicable.
- DECISION HELD BY COURT:
This Court having held that the arbitration that has commenced at Singapore would fall under Part-II of the Arbitration Act and not Part-I; the arbitration pending in Singapore pursuant to Arb.316/16/ACU not on a reference by Court, the issue of piercing the corporate veil, in the facts the present case, can be decided both by the Court as well as the Arbitral Tribunal.