WHETHER AN ARBITRAL TRIBUNAL CAN UPLIFT THE CORPORATE VEIL IN ARBITRATION PROCEEDINGS?

WHETHER AN ARBITRAL TRIBUNAL CAN UPLIFT THE CORPORATE VEIL IN ARBITRATION PROCEEDINGS?

**Author :- Khushi Rastogi a student of Lloyd Law College

The doctrine of corporate personality is one of the cardinal principles of company law. A company has a distinct legal personality from its shareholders, and this principle is known as the "corporate veil". However, in certain situations, courts are permitted to lift the corporate veil and determine the true nature of the party involved in a particular dispute. This principle of "lifting the corporate veil" has evolved over the years, and includes doctrines like "alter ego", "directing mind", etc.

In the context of arbitrations, this has often been referred to as the "group of companies" doctrine. As per the said doctrine, a non-signatory may be bound by an arbitration agreement where the parent company, holding company, or any sister affiliate of the non-signatory is a signatory to the arbitration agreement, and the non-signatory entity has been engaged in the negotiation or performance of the commercial contract to which its sister concern is a party. The Arbitration and Conciliation Act, 1996 ("the Act") is silent on this question of law, and there are conflicting views propounded by various High Courts in this regard.

Lifting of the corporate veil by arbitral tribunals – two conflicting views

Arbitral tribunal not empowered to lift the corporate veil.

The High Court of Judicature at Bombay ("Bombay High Court") in Oil and Natural Gas Corporation Ltd. v. Jindal Drilling and Industries Limited,7 ("Jindal Drilling") observed that an arbitral tribunal has no power to lift the corporate veil. In Jindal Drilling, the claimant had impleaded Jindal Drilling and Industries Limited ("Jindal") as respondent in the arbitration proceedings, even though Jindal had not signed the arbitration agreement under which the arbitral tribunal was constituted. The claimant had argued that the two respondents in the arbitration proceedings were part of the same economic entity. Justice R.D. Dhanuka opined that the since Jindal was not a signatory to the arbitration agreement between the two concerned parties, it could not have been subjected to arbitral proceedings under such arbitration agreement. 

Arbitral tribunal has the power to lift the corporate veil

However, Justice Mukta Gupta of the Delhi High Court took a different approach to this question in GMR Energy Limited v. Doosan Power Systems India Private Limited and Others10 ("GMR Energy"). In this case, the Bench referred to paragraph 106 of the Chloro Controls decision, wherein it was held that the question of the formal validity of the arbitration agreement did not include determining the parties which would be subject to the arbitration. Thus, it was observed that once the validity of the arbitration agreement was determined, it was a different step to establish which parties were bound by the arbitration agreement.

It was also observed in this case that the determination of the alter ego of a company was not mentioned in the list of non-arbitrable disputes propounded in A. Ayyasamy v. A. Paramasivam.11 The Delhi High Court also referred to a decision of the Singapore High Court in Aloe Vera of America, Inc. v. Asianic Food (S) Pte. Ltd. and Another,12 ("Asianic Food") wherein it was held that the determination of the alter ego of a company did not have any public interest element, and was thus an arbitrable dispute. Therefore, it was held that the issue of alter ego can be decided by the court as well as the arbitral tribunal.

It is pertinent to note that despite arguments being raised disputing the validity of the Sudhir Gopi decision, the Delhi High Court in GMR Energy steered clear of making any observation on the correctness of Sudhir Gopi. The only explicit distinction was that Sudhir Gopi dealt with a domestic arbitration under Part I of the Act, while GMR Energy dealt with an application under Section 45 of the Act (which is a part of Part II of the Act).