The Delhi High Court, on Tuesday, permitted the Arbitral Tribunal to decide an issue which involved lifting of the corporate veil, noting that the facts of the case did not point towards fraud.
The Court was hearing a suit filed by GMR Energy Limited against Dossan Power Systems India Pvt. Ltd. seeking permanent injunction restraining Doosan India from proceeding with arbitration proceedings against it before the Singapore International Arbitral Centre (SIAC).
The question of piercing the corporate veil had come up as GMR Energy was not a signatory to any of the arbitration agreements, which were signed between Doosan India, GMR Chhattisgarh Energy Limited (GCEL) and GMR Infrastructure Ltd. (GIL). GMR Energy was, however, roped into the proceedings by virtue of MoUs executed between GMR Energy and Dossan India, wherein GMR Energy had accepted its liability to pay. It had also contended that GMR Energy was the alter ego of GCEL and GIL, relying on the fact that the companies had common family governance and transfer of shareholding.
GMR Energy had inter alia contended that the concept of piercing the corporate veil is within the domain of the Courts and not of Arbitral Tribunals, submitting that the same can only be based on an allegation of fraud.
It had relied on the decision in the case of Indowind Energy Ltd. vs. Wescare (India) Ltd., 2017 SCCOnline Del 8345 to contend that the mere fact that two companies have common shareholders or common Board of Director will not make the two companies a single entity.
It had further highlighted the observations made by the Supreme Court in the case of Chloro Controls India Pvt. Ltd. vs. Severn Trent Water Purification Inc. & Ors., 2013 (1) SCC 641 wherein the Court had opined that only in exceptional cases can a non-party to the arbitration agreement can be subjected to arbitration without prior consent.
Countering such contentions, GMR India had also placed reliance on Chloro Chemicals case, contending that the Supreme Court had recognized the legal basis to bind a non-signatory to an arbitration agreement. The legal basis, it said, includes situations such as apparent authority, piercing of veil, agent principle relationship and agent vendor relations. In the same vein, it had contended that fraud is not the only concept in which corporate veil can be pierced.
At the outset, the Court noted that the issue of alter ego did not fall within the categories of non-arbitrable disputes as specified in the case of A. Ayyasamy v. A Paramasivam, 2016 (10) SCC 386. It further noted that during the pendency of the dealings between the parties, GMR Energy held 100% stakes in GCEL, though the same were transferred again pending disputes between the parties.
The Court then opined that such cases would fall in category (2), as laid down in the case of National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., 2009 (1) SCC 267. These categories had been identified and segregated for the purpose of consideration in an application under Section 11 of the Arbitration Act. Category (2) includes issues where either the Chief Justice of his designate may choose to decide the issues or leave them to the decision of the Arbitral Tribunal.