Top
News Updates

Can An Arbitral Tribunal Pierce The Corporate Veil?

Siddhant Bajaj
27 Jun 2020 4:38 PM GMT
Can An Arbitral Tribunal Pierce The Corporate Veil?
x
Your free access to Live Law has expired
To read the article, get a premium account.
    Your Subscription Supports Independent Journalism
Subscription starts from
599+GST
(For 6 Months)
Premium account gives you:
  • Unlimited access to Live Law Archives, Weekly/Monthly Digest, Exclusive Notifications, Comments.
  • Reading experience of Ad Free Version, Petition Copies, Judgement/Order Copies.
Already a subscriber?

The concept of legal personality is a classic innovation of the law, it is perhaps the most relevant example of legal fiction. From the mid 19th century, the jurisprudence surrounding companies as legal entities has taken quantum leaps. The year 1844 introduced the world to the idea of incorporation of companies by registration.[1] Eleven years later, the doctrine of limited liability of companies was codified[2]; and, in 1897, the landmark judgement of Saloman v. Saloman[3] gave us the 'veil of incorporation', an epoch in the development of corporate law.

Simply put, the 'veil of incorporation' or the 'corporate veil', means that there is a fictional veil between a company and its shareholders, members and directors. This veil of incorporation brings with it separate legal personality of the company, in other words, the law deems a company to be a 'juristic/legal person'. Legal personality, grants a company leeway to do what could traditionally, only be done by a natural person.[4]

The greatest benefit of the corporate veil and separate legal personality of companies is the legal insulation it affords to those running the company. Being safely behind the veil of incorporation, the shareholders, members and directors of a company are usually not proceeded against in the first instance, with actions being brought against the company in its name, unless exigent circumstances exist to necessitate the lifting of the corporate veil. It is settled that courts may lift or pierce the corporate veil when circumstances so warrant, what is less settled is, whether the same can be done by an arbitral tribunal.

So, can an arbitral tribunal pierce the corporate veil?'. Given the prevailing state of judicial precedent, the answer is yes, and no. Confusing as it is, this is the situation that has been created by two recent judgements, coming from coordinate benches of the Delhi High Court (the "DHC")[5] which answered this question contrary to one another. This Article will examine the divergent views expressed in these judgements and analyse briefly the reasoning on which these judgements rest.

A Final List Of Non-Arbitrable Disputes: Do We Have One?

It is appropriate for this discussion to begin with the seminal precedent on the arbitrability of disputes, viz. Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors.[6] ("Booz Allen"). In Booz Allen, the Supreme Court of India (the "SC") was concerned with the scope of Section 8 of the Arbitration and Conciliation Act, 1996 (the "Act") and was dealing with a mortgage suit. While laying down the scope of Section 8 of the Act, the Court observed that while considering an application under Section 8 of the Act a court or judicial authority had to decide inter-alia "whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration"[7] In explaining this question, the Court laid down the law on arbitrability of disputes.

The SC laid down that arbitral tribunals are private fora, distinct from courts and tribunals which are public fora, established by the laws of the country. The Court held that every civil or commercial dispute which is capable of being decided by a court is also capable of being decided by arbitration unless the arbitral tribunal is barred from doing so expressly or by necessary implication. The Court laid down that an express bar would arise if certain disputes are placed beyond the remit of arbitration by statute as matters of public policy.[8]

Commenting on the exclusion of matters by necessary implication from the ambit of arbitration, the Court laid down the famous right in rem v. right in personam test. The Court articulated this test in the following words –

"38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable."[9]

In para 36 of its judgement, the Court also laid down the following -

"36. The well recognized examples of non-arbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters;(v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction."[10]

The above-quoted para does not exclude piercing of the corporate veil from the purview of arbitration, however, as is evident from the words "…well recognized examples of non-arbitrable disputes…" the Court did not lay down an exhaustive list of non-arbitrable disputes in this case. The list provided in para 36 was meant, only to be illustrative. It is appropriate at this stage to consider another judgement where the SC has laid down a list of non-arbitrable disputes.

The SC, in the case of A. Ayyasamy v. A Paramasivam and Ors.[11] ("Ayyasamy") was dealing with the arbitrability of cases involving allegations of fraud, in doing so, the Court reiterated that certain disputes cannot be adjudicated upon in arbitrations. In para 14 of the judgement, the Court observed as follows –

"14. ……As pointed out above, the Act does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the Courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. Following categories of disputes are generally treated as non-arbitrable:

  1. patent, trademarks and copyright;
  2. anti-trust/competition laws;
  3. insolvency/winding up;
  4. bribery/corruption;
  5. fraud;
  6. criminal matters.[12]

From the emboldened portion of the above-quoted text, it is again clear that the Court regarded the disputes mentioned therein to be 'generally' non-arbitrable. This list is thus, illustrative, just like the one in Booz Allen. Further, in para 35 of Ayyasamy, the Court has recognised that Booz Allen "…set down certain examples of non-arbitrable disputes…"[13].The Court also acknowledged that more categories of disputes could be added to the list laid down in Booz Allen when it observed that "…in Vimal Kishor Shah v. Jayesh Dinesh Shah[14], this Court added a seventh category of cases to the six non-arbitrable categories set out in Booz Allen, namely disputes related to trusts, trustees and beneficiaries arising out of a trust deed and the Trust Act."

A conspectus of the observations made in Booz Allen and Ayyasamy, would reveal that the jurisprudence on what is and what is not arbitrable is still evolving and that additions to the categories of disputes held to be non-arbitrable in these judgements may well be made. I have not yet come across any judgement which claims to have laid down with finality, a comprehensive list of non-arbitrable disputes.

Having said that, it is now apposite to examine the DHC's view on whether an arbitral tribunal can pierce the corporate veil, beginning with the decisions which hold that an arbitral tribunal cannot pierce the corporate veil.

Balmer Lawrie and Company Ltd. v. Saraswathi Chemicals Proprietors Saraswathi Leather Chemicals (P) Ltd.[15] ("Balmer Lawrie")

The case of Balmer Lawrie seems to be the first in a line of judgements that expressly state that an arbitral tribunal cannot lift the corporate veil.[16] In this case, the DHC was confronted with a situation wherein the Decree holder ("DH") in whose favour the arbitral award had been passed, was seeking inter-alia to implead the directors of the Judgement Debtor ("JD") against whom the award had been passed in execution proceedings under Section 36 of the Act.

The DH had alleged that the JD was essentially a concern of its directors, it was also alleged that the directors had siphoned off the funds of the JD and must, therefore, be held accountable to satisfy the requirements of the award. It was argued that the JD's description varied in various documents and for this reason also, it was necessary to lift the corporate façade and hold the persons behind it accountable for the conduct of the JD.

The Court held that an arbitral tribunal's jurisdiction rests on the agreement between the parties and cannot proceed against non-signatories to the arbitration agreement. The Court also held that an arbitral award made against non-signatories would be "wholly without jurisdiction and unenforceable".[17]

The Court recognised the exceptions to this rule, which allow courts to compel non-signatories to an arbitration agreement to arbitrate provided that such non-signatories are either claiming through signatory(ies) or had a clear intention to be bound by the arbitration agreement. For this, the DHC relied on the SC's landmark decision in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc & Others.[18] The DHC laid down that a court can lift the corporate veil, however, the same can be done only in extraordinary circumstances and by following the due adjudicatory process. The Court held that in cases where the corporate façade is used to perpetrate fraud the corporate veil may be lifted by courts. Thus, it was laid down in unequivocal terms that only a court can lift the corporate veil and the same cannot be done in an arbitration.

Finding none of the arguments for the lifting of the corporate veil to be satisfactory, the DHC held that no occasion arose for it to do so. The Court held that the directors and their family conducting the affairs of the JD was no ground for lifting of the corporate veil.

Sudhir Gopi v. Indira Gandhi National Open University[19] ("Sudhir Gopi")

In this case, the Petitioner was the chairman and managing director of Universal Empire Institute of Technology (UIET). UIET and Indira Gandhi National Open University ("IGNOU"/Respondent") had agreed to collaborate on a distance education project in Dubai, to which end they had entered into an agreement, which was subsequently renewed by another agreement. Disputes arose between the parties and the arbitration clause in the agreement between them was invoked.

In the course of the arbitral proceedings, the Tribunal directed UEIT to file a statement, inter-alia clarifying the nature and character of UIET and whether the signatory (the Petitioner) of the reply (filed by UIET against the claims submitted by IGNOU) was authorised to represent UIET.

UIET clarified that it was a Limited Liability Company and that ninety-nine per cent of its shares were held by the Petitioner. It was disclosed that the Petitioner was the managing director of UIET and that his wife was also a director thereof. It was further conveyed that the Petitioner was representing UIET not in his personal capacity, but in the capacity of UIET's managing director. Along with this, the Petitioner and UIET, both contended before the Tribunal that the statement of claims filed by IGNOU was bad for misjoinder of parties as the Petitioner was not a party to the agreement or the arbitration clause between UIET and IGNOU.

The Tribunal rendered its award against UIET and the Petitioner, holding them jointly and severally liable to pay the sums awarded in favour of IGNOU. The Petitioner challenged this award under Section 34 of the Act. The controversy before the Court was whether the impugned award, insofar as it made the Petitioner jointly and severally liable along with UIET was maintainable.

IGNOU contended that since the Petitioner had filed counterclaims jointly with UIET, his consent to be bound by the arbitration agreement must be inferred. The Court found no merit in this argument and held that since the Petitioner had clarified before the Tribunal that he had filed the counter claims on behalf of UIET and not in his personal capacity. Moreover, both, the Petitioner and UIET had resisted the claims of IGNOU on the ground of misjoinder of the Petitioner as a party to the arbitration proceedings. In para 15 of the judgement, the Court held the following –

"15. 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 Court held that there may be cases where courts may compel non-signatory parties to arbitrate on grounds of implied consent and/or where reasons exist to disregard the corporate personality. Implied consent to arbitrate must be inferred from the conduct and intention of the parties. As far as reasons to disregard the corporate personality are concerned, the Court held that there must be an abuse of the corporate form i.e. "where a corporate form is used to perpetuate a fraud, to circumvent a statute or for other misdeeds". It was held that in such situations courts are empowered to disregard the corporate veil and hold the alter egos of the company liable for its obligations.[20]

The DHC, in this case, laid down that courts undoubtedly have the power to pierce the corporate façade but an arbitral tribunal, being a creation of and bound by the arbitration agreement could not do so. [21] The DHC, inter-alia relied on a judgement of a single judge of the Bombay High Court in Oil and Natural Gas Corporation Ltd. v. Jindal Drilling and Industries Limited[22] and Balmer Lawrie to support its view.

The DHC also relied on the judgement in Indowind Energy Limited v. Wescare (India) Limited[23] ("Indowind ") wherein the following was held – "each company is a separate and distinct legal entity and the mere fact that two companies have common shareholders or common Board of Directors, will not make the two companies a single entity. Nor will existence of common shareholders or Directors lead to an inference that one company will be bound by the acts of the other."

It may be argued that Indowind precedes the landmark judgement delivered by the SC in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purifications Inc.[24] ("Chloro Controls") which enhanced the scope of joinder of non-signatories to arbitration proceedings, thus, rendering the decision in Indowind moot(if not invalid). However, it is my considered view that the scope of Chloro Controls is not as wide as is generally construed to be. The debate surrounding the true import of Chloro Controls is complex and beyond the purview of this Article, therefore, I would not delve into it. However, for a better understanding of Chloro Controls, a reading of the DHC's judgement in M/S STCI Finance Limited vs M/S Sukhmani Technologies Pvt. Ltd. & Ors.[25] is strongly recommended.

The DHC in Sudhir Gopi observed that the sole reason for the Tribunal to have held the Petitioner to be a party seemed to be that he held ninety-nine per cent of the shares of UIET and that he exercised absolute control over its operations. The Court disagreed with this view and held the following "…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."[26]

The Court held that in the absence of fraud committed by UIET, the Tribunal's act of piercing the corporate veil fell foul of the law settled in the nineteenth century. The primary reason for the Court's decision to hold that the corporate veil cannot be pierced by an arbitral tribunal seems to be the following – "…Businesses are organised on the fundamental premise that a company is an independent juristic entity notwithstanding that its shareholders and directors exercise the ultimate control on the affairs of the company. In law, the corporate personality cannot be disregarded…."[27]

The Court further held that the corporate veil could be pierced only in exceptional cases. The Court relied on the judgement in Insurance Corporation of India v. Escorts Ltd[28] to hold that the veil may be pierced only when the statute so requires or in cases of fraud or where a taxing statute or a beneficent statute is sought to be circumvented. The Court relied on various other judgements[29] to buttress the argument that "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."[30]

The Court finally, also stated that the decision of an arbitral tribunal to pierce the corporate veil is averse to the fundamental policy of Indian law which recognises companies to be independent juristic persons.[31] The decision in Sudhir Gopi was followed by the High Court of Bombay in NOD Bearings Pvt. Ltd. v. Bhairav bearing Corporation[32]. Para 10 of this judgement neatly summarises the law on the lifting of the corporate veil by an arbitral tribunal in the following words–

"10… In doing this, the arbitrator appears to have lifted the corporate veil and tried to find out who the parties really were. This, I am afraid, is not permissible to an arbitral forum. It may be appropriate in a given case for a court of plenary jurisdiction to lift the corporate veil and find out the true perpetrator of the act and hold him responsible for its consequences. Even in such a case, lifting of a veil can only occur in certain specified circumstances, particularly, where a question of fraud is involved and it is necessary to ascertain who the real perpetrator of the fraud was. Other cases where corporate veil has been lifted on judicial grounds have been to detect the enemy character of a company in times of war, to find out the substance of a transaction involving tax evasion or economic offences or other improper conduct or improper purpose. An arbitral forum, on the other hand, is bound by the contract of the parties, which creates it and the terms of submission through which the reference is made to it. Third parties, who are not parties to the contract, the arbitration agreement being a part of such contract, cannot be either arraigned to a cause or made liable for the same. In Sudhir Gopi Vs. Indira Gandhi National Open University7, Delhi High Court has held that an arbitral tribunal has no power to lift the corporate veil. Only a court has a power to lift the corporate veil of a company if a strong case is made out. The mere fact that a party is an alter ego of another would not predicate an agreement to refer the disputes to arbitration by that party under an arbitration agreement of the other. Corporate veil cannot by that reason alone be lifted so as to make a party, who was not party to an arbitration agreement, a party to the reference."

Coming now to the decisions which have decided the law on piercing of the corporate veil contrary to the judgements discussed so far.

GMR Energy Ltd. v. Doosan Power Systems India Pvt. Ltd. [33] ("Doosan")

In this matter, the Appellant ("GMR Energy") had filed a suit against the Respondent ("Doosan India") seeking a permanent injunction restraining Doosan India and its representatives, agents, etc. from proceeding against GMR in the Singapore International Arbitration Centre ("SIAC"), in an arbitration between Doosan India and companies related to GMR Energy.

The factual background of the case is that for the purpose of building a thermal power plant Doosan India had entered into -

(i) Three agreements with GMR Chhattisgarh Energy Limited ("GCEL"), together the "EPC Agreements";

(ii) a corporate guarantee with GCEL and GMR Infrastructure Ltd ("GIL"); and,

(iii) two subsequent Memoranda of Understanding (the "MOUs") with GCEL's parent company, GMR Energy.

Doosan India's agreements with GCEL and GIL provided for disputes to be resolved by arbitration before the SIAC. The MOUs with GMR Energy did not make an express reference to arbitration. Disputes arose between the parties and Doosan India sent a notice of arbitration under the SIAC Rules to GIL, GCEL and GMR Energy. It is because of this that GMR Energy approached the DHC with a plea to injunct Doosan India from proceeding against it before the SIAC. The only issue relevant to this Article that the DHC dealt with in this case, was whether the Tribunal had the power to pierce the corporate veil.

In par 74 of its judgement, the Court has relied on the Singapore High Court's Judgement in Aloe Vera of America, Inc. v. Asianic Food(s) Pte. Ltd.[34], in para 72 of which, the Singapore High Court has held "Whether a person is the alter ego of a company is an issue which does not have a public interest element"

Further, in para 75 of the judgement delivered in Doosan, the DHC has highlighted the distinction made by Chloro Controls between formal validity of an arbitration agreement and the nature of parties to the agreement. Here the Court has quoted para 106 of Chloro Controls which says the following –

"106. The question of formal validity of the arbitration agreement is independent of the nature of parties to the agreement, which is a matter that belongs to the merits and is not subject to substantive assessment. Once it is determined that a valid arbitration agreement exists, it is a different step to establish which parties are bound by it. …"

The Court noted that the issue of alter ego did not find mention in the list of non-arbitrable disputes as specified in Ayyasamy. Following this, it was noted (basis Chloro Controls) that the question of the nature of parties to the agreement is distinct from the question of formal validity of the agreement and since the question of nature of parties to the agreement is a question on merits, it must be decided by the arbitral tribunal and not by a court. To hold that matters on merits must not be decided by a court and must remain within the remit of the arbitral tribunal the Court relied on the judgement of National Insurance Co. ltd. v. Boghara Polyfab[35] ("Polyfab").

It seems that the DHC in Doosan has delinked the issue of alter-ego from issues which have a public interest element, relying on a foreign judgement. It has also observed that while a court must decide issues of formal validity of an arbitration agreement, the question of nature of parties (issues of joinder) must be decided only by an arbitral tribunal, being merit-based issues. The Court has relied on the judgement in Polyfab to support its reasoning, that issues on merits must be left to the arbitral tribunal to decide. To further validate its views, the Court also held that Ayyasamy does not lay down as non-arbitrable, the issue of lifting of the corporate veil.

Before moving on to the analysis of these judgements, for completeness, it is important to note that a division bench of the Gujarat High Court, in I.M.C. Ltd. v. Board of Trustees of Deendayal Port Trust and Ors[36]. ("I.M.C. Limited") has concurred with the view expressed in Doosan (though it does not rely on Doosan). The reasoning of the Court in I.M.C. Ltd. is primarily founded on a detailed analysis of Ayyasamy and the fact that there is nothing in the law that prevents an arbitrator from piercing the corporate veil. The crux of the Court's reasoning, in this case, seems to be summarized in para 31 of its judgement which states inter-alia the following –

"31. …There is nothing in law which prohibits an Arbitral Tribunal from lifting the corporate veil on the basis of doctrine of alter ego. The Arbitral Tribunal has a right to take up all disputes which a Court can undertake, except certain disputes generally treated as non-arbitrable, viz. (i) patent, trade marks and copyright, (ii) anti-trust/ competition laws, (iii) insolvency/ winding up, (iv) bribery/ corruption, (v) fraud, (vi) criminal matters. The Arbitration and Conciliation Act, 1996, does not make any provision excluding any category of disputes treating them as non-arbitratble but the Courts have held that certain kinds of disputes may not be capable of adjudication through means of arbitration. This issue is elaborately considered by the Hon'ble Supreme Court in the case of A. Ayyasamy v. A. Paramasivam And Others reported in (2016)10 SCC 386…"

The Gujarat High Court concluded that an arbitral tribunal has the jurisdiction to lift the corporate veil and the necessity for doing so, would depend on the facts of each case.[37]

Analysis

It would be appropriate to begin the analysis of the aforementioned judgements with Doosan. While the judgement rendered in Doosan bases its conclusion on arbitral tribunals being empowered to lift the corporate veil on various landmarks, the reasoning employed by the Judgement in reaching this conclusion is fragile for the following reasons -

1. The Judgement delivered in Doosan seems to have relied on a Judgement of the Singapore High Court to further the view that lifting of the corporate veil is not a matter of public policy. This is problematic for two reasons – (a) a judgement by a foreign court cannot possibly lay down the law on what will and will not be a part of Indian public policy (fundamental policy of Indian law), this being the prerogative of India's legislature and its courts; and, (b) in relying on the foreign judgement mentioned above, the Judgement in Doosan has gone against Sudhir Gopi, a judgement rendered by a coordinate bench which clearly holds the concept of separate legal personality to be a part of the fundamental policy of Indian law. In my view the Judgement in Doosan could not have delivered a view so drastically averse to the one expressed in Sudhir Gopi, without declaring it to be per incuriam, which was not done.[38] Moreover, Doosan provides no explanation as to how and why the concept of separate corporate identity is not a part of India's public policy.

2. The Judgement in Doosan has assumed that lifting of corporate veil is not beyond the purview of arbitration because the Judgement delivered in Ayyasamy does not mention it to be a non-arbitrable subject matter. Doosan has unfortunately, failed to take stalk of the fact that neither Ayyasamy nor Booz Allen, lay down exhaustive lists of non-arbitrable disputes. Doosan has also failed to appreciate that Ayyasamy acknowledged that disputes may be added to the illustrative lists of non-arbitrable disputes presented in these judgements.[39] The same reasoning error is apparent in I.M.C. Ltd.

3. Doosan could not have over-ruled Sudhir Gopi (both judgements having been rendered by benches of co-equal strength), therefore, while it held that questions pertaining to joinder of parties would be issues on merits of the matter, falling within the purview of arbitration, it could not have held that piercing of the corporate veil would fall within the same purview. In other words, Doosan did not take into account that simply because an arbitral tribunal has the power to join non-signatories to arbitral proceedings, that does not automatically confer on it the power to pierce the corporate veil. A reading of Balmer Lawrie and Sudhir Gopi on the one hand and Doosan on the other would reveal that joinder of non-signatories can thus be done but not where it involves piercing the corporate veil.

4. Doosan neither addresses nor negates by implication the core reasoning based on which Balmer Lawrie, Sudhir Gopi and N.O.D. Bearings have held the lifting of the corporate veil to be beyond the remit of arbitral tribunals. This reasoning will be discussed in the analysis of these judgements. The Court in I.M.C. Ltd. has faltered at the same front.

For the above mentioned-reasons, I am of the opinion that the judgement in Doosan and I.M.C. Ltd., cannot be the final word in addressing the question of whether an arbitral tribunal can pierce the corporate veil.

Moving now to the judgements delivered in Balmer Lawrie, Sudhir Gopi and N.O.D Bearings. Since the reasoning employed by these three judgements in holding the power of lifting the corporate veil to be beyond the remit of arbitration is near identical, I will analyse them collectively.

While it is clear that an arbitral tribunal may transcend the arbitration agreement and implead non-signatories as parties to the arbitration in certain cases, it must not be forgotten that the DHC and the Bombay High Court, while delivering the judgements in Balmer Lawrie, Sudhir Gopi and N.O.D Bearings were aware of this fact. It is not the joinder of third parties that the DHC has held to be beyond the purview of arbitration, it is the piercing of the corporate veil based on the doctrine of alter ego that the DHC has sought to move outside of said purview.

In my opinion, the reasoning given by the aforementioned judgements rests on the fact that the veil of incorporation is a fundamental tenet of corporate law and is well settled. The reasoning of these judgements, which seek to prevent the lifting of the corporate façade by arbitral tribunals is also based on the fact that there is a legitimate expectation associated to the strength of the corporate veil. Businesses are organised on the fundamental premise that a company is an independent juristic entity. There exists an expectation that the veil of incorporation must be strong enough to insulate the promoters, shareholders, directors and member of companies, except in situations where lifting of the veil is dictated by a statute, or where there is an abuse of the corporate form. In order to meet this expectation, it must be ensured that the corporate veil is not made so weak, that an arbitral tribunal that derives its powers from a private contract is able to blast through it.

Groups of companies are structured to hedge and mitigate risks for those running the companies, thus, in nearly all cases, parties would seek piercing of the corporate veil, for, doing so would enable them to mount bigger claims against their counter-parties. This is problematic because it allows claimant parties to break free from the confines of their contracts and go after entities that they initially did not intend to bind by their contract/s.

Thus, the power to pierce the corporate veil must be sparingly exercised, or else it's sanctity will gradually erode and that would have a deleterious impact on development and growth in the commercial sector. It is, therefore, advisable that the power to pierce the veil of incorporation rest with public fora, i.e. the courts and be exercised judiciously, by the judiciary.

Conclusion

As mentioned in the introduction, on the question that this Article deals with, the situation in India is rather confusing as of now. Sudhir Gopi and Doosan are both judgements delivered by single judge benches of the DHC, and neither has been over-ruled. Thus, within the territorial jurisdiction of the DHC, there is no clarity on whether or not an arbitral tribunal can pierce the corporate veil. In any event, the precedential value of Doosan is on a precarious footing since it is averse to a judgement of a coordinate bench without declaring it per incuriam or sub silentio.

As regards the rest of the country, it is settled law that the decision of one High Court is not binding on the others[40] (Though the same cannot be said for when a High Court rules on the vires of central legislation[41]). Therefore, the decision of the Gujarat High Court in I.M.C. Ltd, despite being rendered by a division bench (while expressly disagreeing with single bench judgements of the DHC) will not bind any other High Court (though it will have persuasive value). Similarly, the decision of the Bombay High Court in N.O.D. Bearings will not bind any other High Court, even though it has been delivered post Doosan.

As is clear, there is yet no clarity on whether an arbitral tribunal can pierce the corporate veil. In the words of Hon'ble Mr. Justice D.Y. Chandrachud, '…nothing is as destructive of legitimate commercial expectations than a state of unsettled legal precept'[42]. While this state of unsettled legal precept subsists, one can only hope that the SC would step in to clear the air on how strong the corporate veil really is.

Views are personal only.

[1] By way of the Joint Stock Companies Act, 1844 (7 & 8 Vict. c.110), prior to which incorporation of a company could only be effected by royal charter or private act (laws applicable only to a particular individual, or a group of individuals or a corporate entity or multiple such entities)

[2] By way of the Limited Liability Act, 1855 (18 & 19 Vict c 133)

[3] Saloman v. Saloman [1] (1897) AC 22

[4] For instance, a company may contract in its own name, acquire and hold property in its own name, as well as sue and be sued in its own name. A company has perpetual succession, which means that its life is not dependant on its shareholders and that it survives changes to its membership, until it is finally dissolved by liquidation.

[5] As well as other conflicting judgements on the subject from other High Courts

[6] Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors. (2011) 5 SCC 532

[7] Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors. (2011) 5 SCC 532, ¶ 19

[8] Ibid, ¶ 35

[9] Ibid, ¶38

[10] Ibid, ¶ 36

[11] Ayyasamy v. A Paramasivam and Ors, 2016 SCC OnLine SC 1110

[12] Ibid, ¶ 14

[13] Ibid, ¶ 35

[14] Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788.

[15] Balmer Lawrie and Company Ltd. v. Saraswathi Chemicals Proprietors Saraswathi Leather Chemicals (P) Ltd, 239 (2017) DLT 217

[16] Though a catena of judgements prior to Balmer Lawrie could be interpreted to mean the same.

[17] Supra N. 16, ¶ 13

[19] Sudhir Gopi v. Indira Gandhi National Open University, 2017 SCC OnLine Del 8345

[20] Ibid, ¶ 16 and 17

[21] Ibid, ¶ 20

[22] Oil and Natural Gas Corporation Ltd. v. Jindal Drilling and Industries Limited, 2015 SCC OnLine Bom 1707

[23] Indowind Energy Limited v. Wescare (India) Limited, (2010) 5 SCC 306

[24] Supra N. 19

[25] M/S STCI Finance Limited vs M/S Sukhmani Technologies Pvt. Ltd. & Ors. [(2016) SCC OnLine Del 6650, ¶ 29-31

[26] Supra N. 20, ¶ 34

[27] Ibid, ¶ 36

[28] Insurance Corporation of India v. Escorts Ltd, (1986) 1 SCC 264

[29] Delhi Development Authority v. Skiper Construction Company (P) Ltd. and another, (1996) 4 SCC 622; Juggi Lal Kamlapat v. Commissioner of Income Tax, U.P., AIR 1969 SC 932; In Re: Sir Dinshaw Maneckjee Petit Bart: AIR 1927 Bombay 37.

[30] Supra N. 20, ¶ 40

[31] Ibid, ¶ 41

[32] NOD Bearings Pvt. Ltd. v. Bhairav bearing Corporation, 2019 SCC OnLine Bom 366

[33] GMR Energy Limited v. Doosan Power Systems India Pvt. Ltd. 2017 SCC OnLine Del 11625

[34] Aloe Vera of America, Inc. v. Asianic Food(s) Pte. Ltd. 2006 SGHC 78

[35] National Insurance Co. ltd. v. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267 ¶ 22

[36] I.M.C. Ltd. v. Board of Trustees of Deendayal ort Trust and Ors (2019) 3GLR 1798

[37] Ibid, ¶ 34

[38] The Court in Doosan did not declare the judgement delivered in Sudhir Gopi to be per incuriam, even though the same was argued before the bench.

[39] For greater clarity, refer to the section titled – "A Final List Of Non-Arbitrable Disputes: Do We Have One?"

[40] See, Neon Laboratories Limited v Medical Technologies Limited, (2016) 2 SCC 672, ¶

7 – 'We may reiterate that every High Court must give due deference to the enunciation of law made by another High Court even though it is free to charter a divergent direction": and, Commissioner of Income Tax v. Thane Electricity Supply Limited, 1993 SCC OnLine Bom 59, ¶ 11.

[41] See Kusum Ingots & Alloys Ltd. v. Union of India, (2004) 6 SCC 254, Para 22

[42] Supra N. 12, ¶ 31.

Next Story