An Arbitral Tribunal has the Power to Pierce the Corporate Veil and there is no Bar on Indian Parties in Choosing a Foreign Seat of Arbitration

MINI SUMMARY:

A Suit was filed by GMR Energy Limited (hereinafter referred to as “GMR”), before the Hon’ble High Court of Delhi wherein GMR was seeking a permanent injunction against Doosan Power India Ltd (hereinafter referred to as the “Doosan Power”) to restrain it from instituting or continuing with the arbitration proceeding before the Singapore International Arbitration Centre—The main issues were that whether two Indian Parties can be prohibited from choosing a foreign seat of arbitration and whether a non signatory to the Arbitration Agreement can be impleaded for the same — The Hon’ble High Court of Delhi, in its decision, upheld the impleadment of a non-signatory to the arbitration agreement in the SIAC arbitration and in addition it also opined that the decision laid down in the case of Sudhir Gopi vs. Indira Gandhi National Open University wherein it was held that the priniciple of alter ego in non-arbitrable is per incuriam.

NEWS UPDATE:

The Hon’ble High Court of Delhi, in the recent case of GMR Energy Limited vs. Doosan Power Systems India Private Limited, affirmed the proposition that there is no prohibition on two Indian parties from having a foreign seated arbitration, further it also opined that the on issue of arbitrability of alter ego, the judgment as laid down in the case of Sudhir Gopi vs. Indira Gandhi Open University, passed by the Hon’ble High Court of Delhi  is per incuriam since the decision was passed without taking into consideration the decision of the Hon’ble Supreme Court in the case of, A Ayyasamy vs. A. Paramasivam[1]wherein the Hon’ble Supreme Court had carved out the instances which cannot be referred to arbitration insofar as the exception is concerned, the judgment in Sudhir Gopi did not consider the issue of arbitrability of alter ego.

In the instant case, GMR Chattisgarh Energy Ltd (herein after referred as “GMR Chattisgarh”) had entered into three agreements with Doosan Power and a separate corporate guarantee had also been executed between GMR CHATTISGARH, and GMR Infrastructure Ltd and Doosan Power, subsequently GMR Energy and Doosan Power executed two Memoranda of Understanding. The aforementioned agreements, corporate guarantee and the MOUs became the subject matter of a dispute and Doosan Power invoked Arbitration Proceedings against GIL, GMR Energy and GMR Chattisgarh, It is in this regard that GMR filed the present suit to restrain Doosan Power from instituting, or continuing with the arbitration proceeding instituted before the Singapore International Arbitration Centre.

Doosan Power had filed a petition under Section 45 of the Arbitration Act arguing that the four arbitration agreements in the EPC Agreements and GMR Infra Guarantee provide that the arbitration is to be submitted to the SIAC in Singapore, which is reasonably construed to mean that the Parties intended for the place of arbitration to be Singapore.It was also argued by Doosan Power that GMR had been correctly impleaded in the arbitration proceedings since it was the alter ego of GMR Chattisgarhby virtue of the fact that at the relevant time, GMR Energy owned 100% stake in GMR Chattisgarh and had same Directors and officers, and was run by the same family, and it had previously taken over the financial liabilities of GMR Chattisgarh and that the principle of the arbitration against the alter ego of a signatory is a well recognized principle of law in both the countries. It was further argued that the decision in Sudhir Gopi case is not applicable since in that case, the arbitrability of the alter ego doctrine was not discussed.

On the other hand, GMR Energy argued that impleading it in the arbitration proceeding is incorrect since the mentioned entities are separate legal entities and it is not in the arbitral tribunal’s powers to pierce the alter ego and that the principles of international arbitration will not apply here since the two parties were Indian parties and thereby provisions under Section 2(1)(f) of the Arbitration Act will apply and thereby foreign seat of arbitration cannot be chosen as it will be in contravention of Section 28 of the Act.  The Hon’ble High Court of Delhi, went through both the arguments in detail and came to the conclusion that the since parties had intended to choose Singapore Law and there was no prohibition in this regard, no further reference to arbitration is necessary under Section 45 of the Arbitration Act.On basis of the above reasoning, the Hon’ble High Court of Delhi, disposed off the petition and instructed GMR Energy to submit to the arbitration before the Singapore International Arbitration Centre.

[1] Civil Appeal Nos. 8245 and 8246 of 2016

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