Arbitration In IndiaArbitration- When Corporate Veil Can Be Pierced ?

Arbitration intelligence

GMR Energy Limited v. Doosan Power Systems India Pvt. Ltd. & Ors.

2017 SCC OnLine Del 11625

Facts:

The arbitration between Doosan India, GMR Energy, GMR Chhattisgarh Energy Limited (GCEL) and GMR Infrastructure Limited (GIL) for development of a 1350 MW Coal Fired Thermal Power Plant at Raikheda in Chhattisgarh was under consideration in this case.

GMR Energy was a non-signatory to an arbitration agreement. They sought an injunction for being made party in arbitration proceedings in Singapore governed by the SIAC rules.

Issues:

1.Whether arbitration in Singapore falls under Part I of Part II of the Act since the parties to the Arbitration were Indian ?

2.Whether the Arbitral Tribunal has the jurisdiction to pierce the corporate veil ?

Held:

23.16. Learned counsel for GMR Energy heavily relied upon clause 23.12 of the agreement between the parties which provided as under: 

“23.12 Parties Obligation Non-Recourse The Parties have entered into this Agreement entirely on their own behalf, and in no manner for or on behalf of any shareholder of either Party, or any partner, shareholder, officer, director, employee or agent of either Party and neither Party shall have any recourse against such persons for any act, omission, obligation or liability of the other Party or for any other matter pertaining in any way to this Agreement or the Other Contracts, whether based upon a piercing of the Party’s corporate veil or any other legal theory based upon exercise of control over the party or otherwise.” (emphasis supplied)

 

23.17. A perusal of clause 23.12 bars recourse to applications qua any partner, shareholder, office, director, employee or agent of either party even on the principle of piercing the parties’ corporate veil or any other legal theory. However, the agreement did not bar other corporate entity to be made subject to arbitration based on the principle of piercing of the corporate veil or any such legal theory.

 

23.18. Considering the fact that firstly, GCEL was a joint venture of GMR Group, secondly, the group companies did not observe separate corporate formalities and comingled corporate funds, thirdly, by the two MOUs entered into between Doosan India, GMR Energy and GCIL, GMR Energy undertook to discharge liability and made part payments in discharge of GCEL’s liability also, fourthly, when the two MOUs were entered into, GMR Energy had acquired GCEL and fifthly, whether the two MOUs being the tripartite agreement between Doosan India, GCEL and GMR Energy could or could not be novated by letter dated 31st December, 2015 being an issue to be decided on merits, it is held that from the notice of arbitration Doosan India has made out a case for proceeding against GMR Energy to subject GMR Energy to arbitration with GCEL and GIL.

27. This Court having held that the arbitration that has commenced at Singapore would fall under Part-II of the Arbitration Act and not Part-I; the arbitration pending in Singapore pursuant to Arb.316/16/ACU not on a reference by Court, the issue of piercing the corporate veil, in the facts the present case, can be decided both by the Court as well as the Arbitral Tribunal; and this Court having formed an opinion based on the pleadings on affidavit that from the notice of arbitration Doosan India has made out a case for proceeding against GMR Energy to arbitration with GCEL and GIL; I.A. No. 7248/2017 under Order XXXIX Rule 1 and 2 CPC is dismissed and I.A. No. 9068/2017 under Order XXXIX Rule 4 CPC is disposed of. Interim order dated 4th July, 2017 is vacated. There being an arbitration pending at Singapore pursuant to Arb.316/16/ACU no further reference to arbitration is necessary under Section 45 of the Arbitration Act. I.A. No. 9069/2017 under Section 45 of the Arbitration and Conciliation Act, 1996 is accordingly disposed of as infructuous holding that GMR Energy is required to submit to the arbitration pursuant to SIAC Arbitration No. 316/2016 (Arb.216/16/ACU).”

Conclusion