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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 ..... ) and UEIT (respondent No. 2), jointly and severally. 5. The impugned award was rendered in the context of the disputes that had arisen in relation to an agreement dated 16.11.2005 as renewed by an agreement dated 01.05.2009 entered into between IGNOU and UEIT. 6. UEIT had also made an application under Section 34 of the Act challenging the impugned award (O.M.P. (COMM) 25/2016), which was rejected by this Court by an order dated 14.09.2016. The limited controversy involved in the present petition is whether the impugned award to the extent that it makes Mr. Sudhir Gopi jointly and severally liable along with UEIT for the amount awarded in favour of IGNOU, is sustainable considering that Mr. Sudhir Gopi was not a signatory to the agreement 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 necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also claimed that IGNOU withheld the certificates and mark sheets and informed the students that the operations at centre had been temporarily suspended. This caused severe harm to UEIT and other institutions run by the same management. 7.5 IGNOU terminated the Agreement with UEIT and encouraged the enrolled students to migrate to other PIs. 7.6 IGNOU also invoked the arbitration clause. Before the arbitral tribunal, IGNOU filed its statement of claims inter alia claiming an aggregate sum of USD 14,48,046, which included a sum of USD 6,63,653 on account of unpaid invoices; a sum of USD 417 on account of demand drafts which were not encashed; an amount of USD 1,60,000 on account of loss of earning; and USD 5,00,001 on account of loss of goodwill. 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 clarify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their respective contentions, the issue to mis-joinder of Mr. Sudhir Gopi be considered alongwith other issues framed by the arbitral tribunal. Accordingly, an additional issue, "whether the arbitration proceedings are bad for mis-joinder of respondent No. 2 [Sudhir Gopi]?" was framed. 7.13 The arbitral tribunal awarded a sum of USD 664,070 (comprising of claims for unpaid invoices and demand drafts) in favour of IGNOU against Mr. Gopi and UEIT, jointly and severally. In addition, the arbitral tribunal also awarded interest at the rate of 12% per annum on the awarded amount from 03.01.2012 to the date of the award and from the date of the award till full realisation of the amount. The arbitral tribunal also awarded the cost of proceedings quantified 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he jurisdiction of the arbitral tribunal at a subsequent stage. He also relied upon the decision of the Supreme Court in Purple Medical Solutions Pvt. Ltd. v. MIV Therapeutics Inc. and Ors 2015 (2) SCALE 127 wherein the court had allowed an application under Section 11(6) of the Act and appointed the arbitrator by lifting the corporate veil. He also referred to the decision of a Coordinate Bench of this Court in Ram Kishan and Sons v. Freeway Marketing (India) (P) Ltd. and Anr.2004 (2) ArbLR 508 (Delhi) whereby this Court had found fault with the arbitral tribunal in not lifting the corporate veil and had, therefore, allowed the application for setting aside the arbitral award as being opposed to public policy. Reasons and Conclusion 11. "Like consummated romance, 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 jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. 16. There may be cases where courts can compel non signatory(ies) to arbitrate. These may be on grounds of (a) implied consent and/or (b) disregard of corporate personality. In cases of implied consent, the consent of non signatory(ies) to arbitrate is inferred from the conduct and intention of the parties. Thus, in cases where it is apparent that the non-signatory(ies) intended to be bound by the arbitration agreements, the courts have referred such non-signatories to arbitration. 17. The second class of cases, is where a corporate form is used to perpetuate a fraud, to circumvent a statute or for other misdeeds. In such cases, the 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 arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an lift the corporate veil of a company if the strongest case is made out. In my view, the prayer of the petitioners for lifting the corporate veil of the said DEPL was itself not maintainable in the arbitration proceedings." 22. In MV Tongli Yantai (supra), Vazifdar J sitting as a single judge of the Bombay High Court had observed that: "..In whatever other circumstances the corporate veil may be lifted, it ought not to be in arbitration proceedings even in principle. To permit such course would be contrary to the 1996 Act....The mere fact that a party is an alter ego of another would not predicate an agreement to refer disputes to arbitration by the one which is not a party to the arbitration agreement. Courts have lifted the corporate veil to confer benefit or to foist liability upon a party. 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 Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Madras High Court appointing an arbitrator in respect of the claims of Wescare against Indowind, for the reason that Indowind was not a party to the Agreement. 27. The Supreme Court explained that "It is fundamental that a provision for arbitration to constitute an arbitration agreement for the purpose of Section 7 should satisfy two conditions: (i) it should be between the parties to the dispute; and (ii) it should relate to or be applicable to the dispute." The Court further held that Subuthi and Indowind were two independent companies and "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." 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 arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 32. The solitary reason for the arbitral tribunal to hold that Mr. Sudhir Gopi was a party to the Agreement is that he held almost entire shares of UEIT; thus, exercising absolute control over the affairs of UEIT. The entire business of UEIT was run by Mr. Sudhir Gopi. The arbitral tribunal held that Mr. Sudhir Gopi was the "face and a cloak" of UEIT for running the business and, therefore, was a party to the arbitration agreement. Consequently, the arbitral tribunal held that Mr. Gopi and UEIT were jointly and severally liable for the liabilities of UEIT. 33. As stated above, 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-sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mple, the Court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud". 38. In Delhi Development Authority v. Skiper Construction Company (P) Ltd. and another (1996) 4 SCC 622 the Supreme Court observed as under: "28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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