2017 (11) TMI 1987 - HC - Indian Laws

Seeking 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 - Order XXXIX Rule 1 and 2 CPC - Order XXXIX Rule 4 CPC - Section 45 of the Arbitration and Conciliation Act, 1996 - Whether the arbitration that commenced at Singapore pursuant to Arb.316/16/ACU would fall under Part-I or Part-II of the Arbitration Act? - HELD THAT - An arbitration agreement is an independent self-contained agreement not dependant on the substantive agreement, therefore irrespective of the contractual rights and obligations parties can opt for an international arbitration - argument raised by learned counsel for Doosan India which deserves to be accepted is that in case the contention of learned counsel for GMR Energy that the present arbitration is covered by Part-I is to be accepted then this Court will have no territorial jurisdiction to entertain the present suit for the reason in the jurisdictional para mentioned in the plaint GMR Energy submits that the closest connect of the parties to the present case is Chhattisgarh in India, thus the Court at Delhi is ousted of the territorial jurisdiction to try the suit and pass orders - the arbitration that commenced at Singapore pursuant to Arb.316/16/ACU would fall under Part-II of the Arbitration Act and not Part-I. Whether on the basis of pleas in the notice of arbitration issued by Doosan India a case is made out by Doosan India to subject GMR Energy to arbitration with GCEL and GIL? - HELD THAT - It is evident that though Doosan India stated that the tripartite agreement between GCEL and GMR Energy and Doosan India became null and void on 31st December, 2015 and that the payment obligation was now on the GCEL and GIL by invocation of the corporate guarantee however, the said letter was without prejudice to the rights and remedies available to Doosan India in respect of any breach of agreements, MOUs, Corporate Guarantee and related documentation and agreements. Further whether a tripartite agreement resulting in the two MOUs between Doosan India, GCEL and GMR Energy could be novated by a unilateral letter is a question to be decided on merits during the arbitration and not in the present suit. Considering the fact that firstly, GCEL was a joint venture of GMR Group, secondly, the group companies did not observe separate corporate formalities and commingled corporate funds, thirdly, by the two MOUs entered into between Doosan India, GMR Energy and GCIL, GMR Energy undertook to discharge liability and made part payments in discharge of GCEL's liability also, fourthly, when the two MOUs were entered into, GMR Energy had acquired GCEL and fifthly, whether the two MOUs being the tripartite agreement between Doosan India, GCEL and GMR Energy could or could not be novated by letter dated 31st December, 2015 being an issue to be decided on merits, it is held that from the notice of arbitration Doosan India has made out a case for proceeding against GMR Energy to subject GMR Energy to arbitration with GCEL and GIL. Whether the Arbitral Tribunal has no jurisdiction to pierce the corporate veil? - HELD THAT - In CHLORO CONTROLS (I) P. LTD. VERSUS SEVERN TRENT WATER PURIFICATION INC. ORS. 2014 (1) TMI 830 - SUPREME COURT Supreme Court reiterated the decision in NATIONAL INSURANCE CO. LTD. VERSUS M/S. BOGHARA POLYFAB PVT. LTD. 2008 (9) TMI 864 - SUPREME COURT wherein a distinction was carved out between a court referred arbitration and an arbitration without the intervention of the Court. In Chloro Controls, Supreme Court was dealing with an application under Section 45 of the Arbitration Act seeking reference to arbitration. In the present case the arbitration was initiated without the intervention of the Court and only after initiation of the arbitration, GMR Energy filed the present suit invoking the jurisdiction of this Court seeking an injunction against arbitration to proceed against it on the basis of issue of alter ego - the issue of alter ego based on the facts as noted in the present case and not on fraud can be decided by the Court as well as the Arbitral Tribunal. In the present suit whether this Court will form a prima facie opinion on the issue of alter ego or return a finding? - HELD THAT - The present arbitration not being a court referred arbitration and the application under Section 45 of the Arbitration Act filed by Doosan India without prejudice to its rights and contentions, for the reason this Court passed an interim injunction on the facts of this case it would be sufficient if this Court returns a finding based on the pleadings supported by affidavits by the parties without going into a full-fledged trial. Whether the arbitration against GMR Energy is contrary to Rule 7 of SIAC Rules? - HELD THAT - There being a distinction between invoking arbitration against a non-signatory and joinder of a non-party during arbitration, the contention of learned counsel for GMR Energy that the invocation of arbitration against GMR Energy is contrary to Rule 7 of the SIAC Rules is rejected. In any case GMR Energy would be at liberty to raise the plea before the arbitral tribunal - 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; and this Court having formed an opinion based on the pleadings on affidavit that from the notice of arbitration Doosan India has made out a case for proceeding against GMR Energy to arbitration with GCEL and GIL. It is clarified that the finding of this Court on the issue of alter ego is for subjecting GMR Energy to arbitration and not a final determination on merits to pass an award against GMR Energy which would be in the domain of the Arbitral Tribunal. Application disposed off.

Summary

Issues Involved:
1. Whether the arbitration that commenced at Singapore pursuant to Arb.316/16/ACU would fall under Part-I or Part-II of the Arbitration Act?
2. Whether on the basis of pleas in the notice of arbitration issued by Doosan India a case is made out by Doosan India to subject GMR Energy to arbitration with GCEL and GIL?
3. Whether the Arbitral Tribunal has no jurisdiction to pierce the corporate veil?
4. In the present suit whether this Court will form a prima facie opinion on the issue of alter ego or return a finding?
5. Whether the invocation of arbitration against GMR Energy is contrary to Rule 7 of the SIAC Rules?

Detailed Analysis:

Issue 1: Whether the arbitration that commenced at Singapore pursuant to Arb.316/16/ACU would fall under Part-I or Part-II of the Arbitration Act?
The court held that the arbitration falls under Part-II of the Arbitration Act, rejecting the contention that Singapore is merely a venue and not the seat of arbitration. The court emphasized the decision in *Yograj Infrastructure Ltd. v. Ssangyong Engineering & Construction Co. Ltd.*, which clarified that when arbitration proceedings are conducted in accordance with SIAC Rules, Singapore is the seat of arbitration, and the arbitration dispute is governed by the Singapore International Arbitration Act. The court also noted that the amendments to Section 2(1)(f) of the Arbitration Act do not change the applicability of Part-II for arbitrations seated outside India, even if the parties are Indian entities. The court dismissed the argument that two Indian parties cannot choose a foreign seat, referencing *Atlas Exports Industries v. Kotak & Co.*, which upheld the validity of such agreements.

Issue 2: Whether on the basis of pleas in the notice of arbitration issued by Doosan India a case is made out by Doosan India to subject GMR Energy to arbitration with GCEL and GIL?
The court found that Doosan India made a prima facie case to subject GMR Energy to arbitration based on the principle of alter ego. The court considered the close interrelationship between GMR Energy, GCEL, and GIL, including shared directors, commingled funds, and GMR Energy's acknowledgment of GCEL's debts through MOUs. The court referenced *Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Ors.*, which allows non-signatories to be bound by arbitration agreements under certain circumstances, such as implied consent or piercing the corporate veil.

Issue 3: Whether the Arbitral Tribunal has no jurisdiction to pierce the corporate veil?
The court held that the Arbitral Tribunal has the jurisdiction to pierce the corporate veil, rejecting the argument that this function is solely within the domain of the courts. The court cited *A. Ayyasamy v. A Paramasivam*, which delineates categories of non-arbitrable disputes and does not include the issue of alter ego. The court also referenced international arbitration principles, noting that issues like alter ego are arbitrable and can be determined by the Arbitral Tribunal.

Issue 4: In the present suit whether this Court will form a prima facie opinion on the issue of alter ego or return a finding?
The court decided to form a prima facie opinion rather than a final finding on the issue of alter ego, consistent with international arbitration principles and the decision in *Malini Ventura v. Knight Capital Pte. Ltd. & Ors.*, which supports a prima facie standard for determining the existence of an arbitration agreement. The court emphasized that the final determination of alter ego and the merits of the case should be left to the Arbitral Tribunal.

Issue 5: Whether the invocation of arbitration against GMR Energy is contrary to Rule 7 of the SIAC Rules?
The court rejected the argument that the invocation of arbitration against GMR Energy was contrary to Rule 7 of the SIAC Rules. The court clarified that Rule 7, which deals with the joinder of additional parties, is not applicable in the context of invoking arbitration against an alter ego. The court distinguished between the concepts of joinder and invoking arbitration against a non-signatory, affirming that Doosan India's actions were consistent with the SIAC Rules.

Conclusion:
The court dismissed GMR Energy's application for an interim stay and vacated the interim order. The court held that GMR Energy is required to submit to the arbitration pursuant to SIAC Arbitration No. 316/2016. The findings on the issue of alter ego were made to subject GMR Energy to arbitration, leaving the final determination on merits to the Arbitral Tribunal.