2017 (5) TMI 1827 - HC - Indian Laws

Challenge to arbitral award delivered by the sole arbitrator - Section 34 of the Arbitration and Conciliation Act, 1996 - HELD THAT - The jurisdiction of the arbitrator is circumscribed by the agreement between the parties and it is obvious that such limited jurisdiction cannot be used to bring within its ambit, persons that are outside the circle of consent. The arbitral tribunal, being a creature of limited jurisdiction, has no power to extend the scope of the arbitral proceedings to include persons who have not consented to arbitrate. Thus, an arbitrator would not have the power to pierce the corporate veil so as to bind other parties who have not agreed to arbitrate. The courts would, undoubtedly, have the power to determine whether in a given case the corporate veil should be pierced and the persons behind the corporate facade be held accountable for the obligations of the corporate entity. However as stated earlier, an arbitral tribunal, has no jurisdiction to lift the corporate veil; its jurisdiction is confined by the arbitration agreement - which includes the parties to arbitration - and it would not be permissible for the arbitral tribunal to expand or extend the same to other persons. The decision in Purple Medical Solutions Pvt. Ltd. 2015 (1) TMI 1511 - SUPREME COURT was rendered by the Supreme Court in an application filed under Section 11(6) of the Act. In that case, serious allegations of fraud were made against respondent No. 2 (therein), who was not a party to the agreements in question. The said allegations remained uncontroverted. Thus, the Supreme Court found that the relevant facts justified lifting of corporate veil and referring respondent No. 2 to arbitration. There is no quarrel with the proposition that a court could, in given cases, lift the corporate veil. This decision is not an authority for the proposition that such power could be exercised by an arbitral tribunal. It is not necessary to examine, whether the decision of the arbitral tribunal to lift the corporate veil falls foul of Section 34 of the Act on merits as well. Nonetheless, for the sake of completeness, this court has also examined whether the decision to lift corporate veil is otherwise sustainable. In cases where it is established that an individual(s) and/or other entities have used a corporate form for a wrongful purpose; to perpetuate a fraud; circumvent a statute; or some other misdeeds, the Courts may decide to ignore the corporate personality and hold the directors, shareholders and/or officers (alter egos) responsible for the obligations of the corporate entity. However, as stated earlier, in the facts of the present case, there is no ground to disregard the corporate form of UEIT. The petition is allowed and the impugned award to the extent that the petitioner is held liable for the awarded amounts, is set aside.

Summary

Issues Involved
1. Delay in re-filing the petition.
2. Validity of the arbitral award holding Mr. Sudhir Gopi jointly and severally liable with UEIT.
3. Jurisdiction of the arbitral tribunal over non-signatories.
4. Piercing the corporate veil to hold Mr. Sudhir Gopi liable.

Issue-wise Detailed Analysis

1. Delay in Re-filing the Petition
The court condoned the delay in re-filing the petition for the reasons stated in the application. The application was disposed of accordingly.

2. Validity of the Arbitral Award Holding Mr. Sudhir Gopi Liable
The arbitral award dated 20.07.2015 awarded a sum of USD 664,070 along with pre-award and future interest at the rate of 12% per annum in favor of IGNOU and against Mr. Sudhir Gopi and UEIT, jointly and severally. The award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, on the grounds that Mr. Sudhir Gopi was not a signatory to the agreement and thus not personally liable for UEIT's contractual obligations.

3. Jurisdiction of the Arbitral Tribunal Over Non-signatories
The court emphasized that arbitration rests on consent and the arbitral tribunal derives its jurisdiction from the consent of the parties. The agreement between IGNOU and UEIT did not include Mr. Sudhir Gopi in his personal capacity. The tribunal's jurisdiction is limited to the parties who have consented to arbitrate, and it cannot extend to non-signatories. The court referenced several cases, including Prakash Industries Ltd. v. Space Capital Services Ltd., Oil and Natural Gas Corporation Ltd. v. Jindal Drilling and Industries Ltd., and Indowind Energy Limited v. Wescare (India) Limited, to support the principle that an arbitral tribunal cannot bind non-signatories.

4. Piercing the Corporate Veil to Hold Mr. Sudhir Gopi Liable
The court discussed the conditions under which the corporate veil can be pierced, such as implied consent or misuse of the corporate form to perpetuate fraud. In this case, the arbitral tribunal held Mr. Sudhir Gopi liable on the grounds that he exercised absolute control over UEIT and was its alter ego. However, the court found this reasoning flawed, as there was no evidence that the corporate form was used to perpetuate fraud or circumvent the law. The court cited cases like Life Insurance Corporation of India v. Escorts Ltd., Juggi Lal Kamlapat v. Commissioner of Income Tax, and Delhi Development Authority v. Skiper Construction Company (P) Ltd. to illustrate the limited circumstances under which the corporate veil can be pierced.

The court concluded that the arbitral tribunal had no jurisdiction to lift the corporate veil and that the award holding Mr. Sudhir Gopi liable was unsustainable. The petition was allowed, and the impugned award was set aside to the extent that it held Mr. Sudhir Gopi liable. The parties were left to bear their own costs.