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TMI Blog2017 (5) TMI 1827X X X X Extracts X X X X X X X X Extracts X X X X ..... iction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement in question. UEIT is a limited liability company and it is Mr. Gopi's case that although he is the principal shareholder as well as the Chairman and Managing Director of UEIT, he is not personally liable for the contractual liability of UEIT. Further, that he is not a party to the arbitration agreement and, therefore, the impugned award inasmuch as it holds him liable, is without jurisdiction. 7. Briefly stated, the relevant facts necessary to address the aforesaid controversy are as under:- 7.1 IGNOU is a statutory university established under the Indira Gandhi National Open University Act, 1985. It is stated that IGNOU has developed educational programmes for distant learning, which are offered in over 35 countries across the globe. 7.2 UEIT is company incorporated under the applicable laws in Dubai, United Arab Emirates (UAE). UEIT and IGNOU agreed to collaborate for a distant educational project in Dubai, UAE. For the aforesaid purpose, IGNOU and UEIT entered into an agreement dated 16.11.2005 whereby UEIT agreed to act as a Partner Institute (PI) of IGNOU on the terms and conditions as indicated in the said agreement. Essentially, UEIT was to run a centre in Dubai f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill. 7.7 Mr. Gopi and UEIT filed a reply to the statement of claims before the arbitral tribunal on 30.04.2012. Simultaneously, they also filed counter claims claiming a sum of USD 66,15,498 which included compensation for business loss quantified at USD 44,91,671 and compensation for loss of reputation quantified at USD 20,00,000. 7.8 The arbitral tribunal passed an order on 30.04.2012 directing UEIT to file a statement inter alia clarifying the nature and character of UEIT and whether the signatory of the reply (Mr. Gopi) was authorised to represent UEIT. 7.9 In compliance with the aforesaid order, UEIT filed an additional statement on 15.05.2012 inter alia stating that UEIT was a Limited Liability Company (LLC) and was incorporated on 20.05.2003 under United Arab Emirates Law (Private Companies Regulation). It was also disclosed that its shareholders were Universal Empire Institute of Medical Sciences Pvt. Ltd. and Mr. Nader Mohammed Abdulla Fikri. It was further disclosed that Universal Empire Institute of Medical Sciences Pvt. Ltd. transferred its shareholding in UEIT - 99 shares out of a total of 100 shares issued as on 19.03.2007 - to Mr. Sudhir Gopi and the balance singl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied at ` 1,00,000/-. Submissions 8. Mr. Ashish Dholakia, learned counsel appearing for Mr. Gopi contended that the impugned award was without jurisdiction to the extent that Mr. Gopi was also made liable for the awarded amounts. He contended that an arbitral tribunal does not have the power to proceed against any person who was not a signatory/party to the arbitration agreement (non-signatories). He relied upon the decisions of this Court in Prakash Industries Ltd. v. Space Capital Services Ltd.: 2016 SCC OnLine Del 6140 and Balmer Lawrie Company Ltd. v. Saraswathi Chemicals Proprietors Saraswathi Leather Chemicals (P) Ltd.: EA(OS) No. 340/2013 in Ex.P.280/2012, decided on 17.03.2017 as well as the decision of the Bombay High Court in Oil and Natural Gas Corporation Ltd. v. Jindal Drilling and Industries Ltd.: (2015) SCC OnLine Bom 1707 and Great Pacific Navigation (Holdings) Corporation Limited v. M V Tongli Yantai: 2011 LawSuit (Bom) 2095 in support of his contention. 9. Mr. Aly Mirza, learned counsel appearing for IGNOU countered the aforesaid submissions. He submitted that Mr. Gopi held 99 shares out of the 100 shares issued by UEIT and was the sole in-charge of running its aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mance, arbitration rests on consent . NON-SIGNATORIES AND INTERNATIONAL CONTRACTS: AN ARBITRATOR'S DILEMMA By Prof. William W. Park. The agreement between parties to resolve their disputes by arbitration is the cornerstone of arbitration. The arbitral tribunal derives its jurisdiction from the consent of parties (other than statutory arbitrations). In absence of such consent, the arbitral tribunal would have no jurisdiction to make an award and the award so rendered would, plainly, be of no value. Thus, the first and foremost question to be addressed is whether there existed any arbitration agreement between Mr. Sudhir Gopi and IGNOU. 12. In terms of Section 7(3) of the Act, an arbitration agreement must be in writing. By virtue of Section 7(4) of the Act, an arbitration agreement is in writing if it is contained in (a) a document signed by parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electric means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which existence of an agreement is alleged by one party and not denied by the other . The term party is defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts have disregarded the corporate facade and held the shareholders/directors (the alter egos) accountable for the obligations of the corporate entity. 18. In Chloro Controls India Private Limited v. Severn Trent Water Purifications Inc. Others: 2013(1) SCC 641, the Supreme Court had explained the above principle in the following words: Various legal basis may be applied to bind a non-signatory to an arbitration agreement. The first theory is that of implied consent, third party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities. The second theory includes the legal doctrines of agent- principal relations, apparent authority, piercing of veil (also called the alter ego ), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law. 19. It is also necessary to emphasize that whether a court will compel any person to arbitrate would have to be examined in the context of the specific provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty. An arbitration reference stands upon a different footing. It is a mode of adjudication of disputes dependent upon an agreement between parties . This decision in MV Tongli Yantai (supra) was overturned by the division bench of the Bombay High Court, albeit, on another point. And the Supreme Court, by consent of parties, set aside both the decision of the Single Judge as well as the Division Bench. Thus, this decision does not have any precedent value, but this court respectfully concurs with the view expressed therein. 23. This court has also held that an arbitral tribunal cannot lift the corporate veil in the case of Balmer Laurie (supra). 24. It is also relevant to refer to the decision of the Supreme in Indowind Energy Limited v. Wescare (India) Limited 2010 (5) SCC 306. 25. In that case Subuthi Finance Ltd. (Subuthi) the promoter of appellant company (Indowind) entered into an agreement with Wescare (India) Ltd. (Wescare) for sale and purchase of certain equipments. Wescare and its subsidiary (RCI Power Ltd.) were described as seller/wescare and Subuthi and its nominee were described as buyer . The agreement also disclosed Subuthi to be the promoter of Indowind. The agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an inference that one company will be bound by the acts of the other. 28. The decision of the Supreme Court in the case of M/s. Pam Development Pvt. Ltd. (supra), has no application in the facts of the present case. In that case, there was no dispute as to the existence of the arbitration agreement. The only dispute raised by the appellant (Union of India) was that the arbitrator was not appointed in accordance with the agreement and the disputes entertained were excepted matters and thus, not arbitrable. It is material to mention that the arbitrator was appointed by the High Court under Section 11(6) of the Act and the said decision was not challenged. No objection as to the jurisdiction was taken before the arbitral tribunal. The appellant (Union of India) participated in the arbitration proceedings. It also preferred counter claims and led evidence in defence. It is in these facts that the Supreme Court concluded that the appellant had waived its right to object to the jurisdiction of the arbitrator. 29. The decision in Purple Medical Solutions Pvt. Ltd. (supra) was rendered by the Supreme Court in an application filed under Section 11(6) of the Act. In that case, serious alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, arbitration is founded on consent between the parties to refer the disputes to arbitration. The fact that an individual or a few individuals hold controlling interest in a company and are in-charge of running its business does not ipso jure render them personally bound by all agreements entered into by the company. 34. Arbitration agreement can be extended to non-signatories in limited circumstances; first, where the Court comes to the conclusion that there is an implied consent and second, where there are reasons to disregard the corporate personality of a party, thus, making the shareholder(s) answerable for the obligations of the company. In the present case, the arbitral tribunal has proceeded to disregard the corporate personality of UEIT. The arbitral tribunal has lifted the corporate veil only for the reason that UEIT's business was being conducted by Mr. Sudhir Gopi who was also the beneficiary of its business being the absolute shareholder (barring a single share held by Mr. Fikri) of UEIT. This is clearly impermissible and militates against the law settled since the nineteenth century. Any party dealing with the limited liability company is fully aware of the limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and Family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people. 39. An abuse of corporate form is the bare minimum pre-condition that must be met before the corporate entity can be disregarded to impose the obligations of such entity on its shareholders/directors. 40. As stated earlier, in the present case, there is no foundation that the corporate facade of UEIT was used by Mr. Sudhir Gopi to perpetuate a fraud. Mere failure of a corporate entity to meet its contractual obligations is no ground for piercing the corporate veil. Although the arbitral tribunal has mentioned in the passing that UEIT was used for improper purpose, however, there is no foundation for such observation. It was never IGNOU's case that UEIT was set up or used to perpetuate a fraud on IGNOU and at any rate, no particulars - that are required to be pleaded to set up a case of fraud - to indicate that a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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