Gujarat High Court
Imc Limited vs Deendayal Port Trust on 24 July, 2018
Equivalent citations: AIRONLINE 2018 GUJ 119
Author: Rajesh H.Shukla
Bench: Rajesh H.Shukla
C/SCA/5694/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5694 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE RAJESH H.SHUKLA : Sd/
=======================================================
1 Whether Reporters of Local Papers may be YES
allowed to see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the YES
fair copy of the judgment ?
4 Whether this case involves a substantial
question of law as to the interpretation NO
of the Constitution of India or any
order made thereunder ?
=======================================================
IMC LIMITED
Versus
DEENDAYAL PORT TRUST
=======================================================
Appearance:
MR SN SOPARKAR, Sr. Adv. with MR DHAVAL SHAH(2354) for
the PETITIONER(s) No. 1
MR MIHIR THAKORE, Sr. Adv. with MR PK Jani, Sr. Adv.
with MR DHAVAL D VYAS(3225) for the RESPONDENT(s) No. 1
MR R.S. SANJANWALA, Sr. Adv. with MS GARGI R VYAS(7983)
for the RESPONDENT(s) No. 2
None for the RESPONDENT(s) No. 3
=======================================================
CORAM: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA
Date : 24/07/2018
ORAL JUDGMENT
1. The present petition is filed by the petitioner -
Company under Articles 19(1)(g), 226 and 227 of the Constitution of India as well as under the Page 1 of 66 C/SCA/5694/2018 JUDGMENT provision of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the Arbitration Act") for the prayers inter alia that appropriate writ, order or direction may be issued for quashing and setting aside the impugned order dated 14.03.2018 (with reasons as recorded on 26.03.2018) passed by the Hon'ble Arbitral Tribunal and also to call for the records and stay the further proceedings before the Hon'ble Arbitral Tribunal.
2. The facts of the case briefly summarized are as follows : 2.1 The petitioner - IMC Limited is a Company incorporated under the provisions of the Companies Act and is engaged in the business of port based liquid bulk terminal operations and providing storage tank farm and terminalling services. Thus the petitioner has considerable expertise in handling and storage of hazardous and nonhazardous liquids including petroleum products etc. The respondent no.1 - Deendayal Port Trust formerly known as Kandla Port Trust (hereinafter referred to as "the Port Trust") Page 2 of 66 C/SCA/5694/2018 JUDGMENT is a Major Port Trust and it invited bid for the project i.e. operating a berth for handling multipurpose cargo on a Built Operate Transfer basis. The project was awarded on the basis of the tender process, where the petitioner was highest bidder. The tender agreement provided for the incorporation and creation of special purpose vehicle, which would enter into an agreement known as "concession agreement" with the Port Trust. Thus the respondent no.2 has been incorporated by the petitioner as a Special Purpose Vehicle for the project.
2.2 However as per the concession agreement, the respondent no.2 was to complete the project, however due to breaches committed by the respondent no.1, the project could not be operated as envisaged in the concession agreement and the dispute arose between the respondent no.1 and the respondent no.2 and it has been referred to the Hon'ble Arbitral Tribunal consisting of the Justice R.C. Lahoti (Retd.), Former Chief Justice of India (Presiding Arbitrator), Justice J.M. Panchal Page 3 of 66 C/SCA/5694/2018 JUDGMENT (Retd.) and Justice A.R. Dave (Retd.) (hereinafter referred to as "the Hon'ble Arbitral Tribunal").
2.3 It is the case of the petitioner that during the pendency of the arbitration proceeding, the respondent no.1 - Port Trust belatedly moved an application for the impleadment of the petitioner - Company, who is non signatory of the concession agreement. Therefore, the present petition has been filed. The details with regard to the dispute between the respondent no.1 and the respondent no.2 have also been narrated. Reliance has been placed on Request for Proposal (RFP) as well as letter dated 25.09.2010 to focus the dispute or the differences culminated into arbitration proceedings.
2.4 Therefore, it has been contended inter alia as stated in detail in the grounds:
(i) The impugned order is passed in violation of principle of natural justice as no notice has been given by the respondent no.1 before passing Page 4 of 66 C/SCA/5694/2018 JUDGMENT impugned order for impleadment of the petitioner in the arbitration proceedings between the respondent no.1 and the respondent no.2. Thus it is contended that the petitioner has not provided with chance to be heard before passing impugned order, which is in violation of rules of natural justice.
(ii) It is also contended that the Arbitral Tribunal has no jurisdiction to entertain such application as there is no arbitration agreement between the petitioner and the respondent no.1 and reliance has been placed on the record as well as concession agreement to emphasis that the concession agreement is executed between the respondent no.1 and the respondent no.2, where the petitioner is not a party. It is, therefore, contended that the arbitration could be invoked by the parties only i.e. the respondent no.1 - Port Trust and the respondent no.2 -
JRE. The emphasis has been given to Page 5 of 66 C/SCA/5694/2018 JUDGMENT Article 19.3. Further reference is made to the provision of the Arbitration Act. It is also contended that as per the provision of Section 21 of the Arbitration Act, before the arbitration is commenced and it is referred to the arbitration, notice is required to be served. Further Section 11 provides for the procedure if it is not agreed between the parties and, therefore, the petitioner could not have been impleaded as party.
(iii) It is contended that the Arbitral Tribunal would not have jurisdiction to entertain application as it does not have power under the provision of the Arbitration Act.
(iv) Further, it is contended that the Hon'ble Arbitral Tribunal does not have jurisdiction regarding the alleged dispute as there are not disputes between the petitioner and the respondent no.1 and, therefore, the impugned order is without jurisdiction Page 6 of 66 C/SCA/5694/2018 JUDGMENT and also in violation of the rules of natural justice.
2.5 The statement of claim submitted before the Hon'ble Arbitral Tribunal is produced on record at AnnexureI.
3. Heard learned Senior Counsel, Shri S.N. Soparkar appearing with learned advocate, Shri Dhaval Shah for the petitioner, learned Senior Counsel, Shri Mihir Thakore with learned Senior Counsel, Shri P.K. Jani appearing with learned advocate, Shri Dhaval Vyas for the respondent no.1 and learned Senior Counsel, Shri R.S. Sanjanwala appearing with learned advocate, Ms. Gargi Vyas for the respondent no.2
4. Learned Senior Counsel, Shri Soparkar referred to RFP produced on record and submitted that the relations between the parties are not governed by this document but it is by concession agreement, where the petitioner is not a party to the said agreement. He, therefore, submitted that the arbitration could be either with the consent of the parties as per the agreement or by operation of law. He, therefore, submitted that by making such application pending arbitration proceeding Page 7 of 66 C/SCA/5694/2018 JUDGMENT for impleadment of the petitioner as party, the provision of Section 11 of the Arbitration Act are circumvented. Learned Senior Counsel, Shri Soparkar, therefore, submitted that the petitioner
- Company was involved at the bid stage and RFP does not include any arbitration clause. He emphasized that the concession agreement is between the respondent no.1 and the respondent no.2, where the petitioner is not a party and, therefore, the arbitration could not be invoked against the petitioner - Company. Learned Senior Counsel, Shri Soparkar referred to the order of the Hon'ble Arbitral Tribunal dated 26.03.2018 and submitted that it has been observed that if on trial it is found that IMC cannot be held bound by the agreement entered into between the claimant and the respondent, ICM would not be held liable. He further emphasized that on one hand, it has been observed, "......... If on recording of evidence the Tribunal finds that the conditions requisite for holding the present Respondent an alter ego of the IMC have not been shown to exist, or, a case for piercing the corporate veil is not made out, the Tribunal may exonerate IMC from Page 8 of 66 C/SCA/5694/2018 JUDGMENT the liability ..........."
5. Learned Senior Counsel, Shri Soparkar referred to the letter comprising the bid produced on record (Appendix - I) and referred to the clauses including Clause - 19 and submitted that as per the bid, required special purpose vehicle has been created and, thereafter, the petitioner has no role to play. He referred to the dates and submitted that once the bid has been accepted and the special purpose vehicle is created, which is required for the execution of the project, the parties would be governed by the concession agreement, where the petitioner is not a party. Learned Senior Counsel, Shri Soparkar referred to the concession agreement produced at AnnexureC and again emphasized that the parties to this concession agreement are governed by the agreement providing for arbitration and, therefore, would not include or cover the petitioner. He referred to Article 19, which is regarding "dispute resolution". Learned Senior Counsel, Shri Soparkar referred to the application for impleadment of the petitioner - IMC as party to the arbitration proceeding produced at AnnexureL and pointedly Page 9 of 66 C/SCA/5694/2018 JUDGMENT referred to the averments and submitted that it proceeds on assumption that JRE - the concessionaire is an alter ego and is merely a corporate veil of petitioner - IMC for performance of the project. He submitted that JRE is a separately incorporated company under the Companies Act with separate entity and the petitioner is also separate entity. He submitted that notice for invocation of the arbitration and proceedings were initially against the respondent
- JRE and not against the petitioner.
6. Learned Senior Counsel, Shri Soparkar, therefore, submitted that when the petitioner is not a party to the concession agreement nor is responsible for the execution of the project, the arbitration cannot be foisted upon the petitioner. He emphasized that the application for impleadment given during the course of arbitration proceedings requires that opportunity could have been provided as per the principles of natural justice. Learned Senior Counsel, Shri Soparkar has also submitted that on one hand, before invoking arbitration, notice as required under Section 21 has not been provided. Moreover, it was obligatory for the Page 10 of 66 C/SCA/5694/2018 JUDGMENT respondent - Port Trust to make an application before the Court under Section 11, where the petitioner could have opportunity to contest as to whether to be impleaded or not and it would have provided an opportunity in compliance with the rules of natural justice. However by such procedure by the Hon'ble Arbitral Tribunal, the statutory provisions have been negated. Learned Senior Counsel, Shri Soparkar also submitted that valuable right of the petitioner is affected even if the observation in the impugned order of the Hon'ble Arbitral Tribunal regarding the impleadment is considered. He emphasized that on one hand, it has been observed that the opportunity will be provided and if it is considered that the petitioner is an "alterego", the order could be passed depending upon the evidence. He, therefore, submitted that it would suggest that the petitioner is not an "alter ego"
and still though the petitioner is not a party to the concession agreement, it is sought to be joined on the socalled ground of piercing the corporate veil. He further submitted that in fact, Hon'ble Arbitral Tribunal has no jurisdiction or Page 11 of 66 C/SCA/5694/2018 JUDGMENT authority to pierce the corporate veil and it is only the Court, which can decide as the jurisdiction or the authority of the Hon'ble Arbitral Tribunal is confined to and within the framework of the arbitration agreement i.e. the concession agreement.
7. Learned Senior Counsel, Shri Soparkar referred to the judgment of this Court in case of N.G. Projects Limited Vs. Backbone Projects Limited 7 Ors., reported in (2016) 4 GLR 3181. He pointedly referred to the order of the Coordinate Bench of the High Court (Coram : C.L. Soni, J.) in case of IVRCL Limited Vs. Gujarat State Petroleum corporation Limited & Ors. in Special Civil Application No. 4210 of 2017 and allied matter dated 14.03.2017 and submitted that the High Court has jurisdiction and, therefore, stay of the proceeding may be granted. Learned Senior Counsel, Shri Soparkar has also referred to the judgment of the Hon'ble Bombay High Court in case of Oil and Natural Gas Corporation Ltd. Vs. Jindal Drilling and Industries Ltd., reported in 2015 SCC OnLine Bom 1707 and submitted that there is specific observation that the Hon'ble Arbitral Tribunal has Page 12 of 66 C/SCA/5694/2018 JUDGMENT no jurisdiction to lift the corporate veil.
8. Again learned Senior Counsel, Shri Soparkar referred to the impugned order and submitted that the concession agreement is in supersession of earlier agreement and it is not complementary or consequential and, therefore, the issues are not interwoven. He submitted that the judgment of the Court is required to be considered. He emphasized that mere fact that it is a group company, is not sufficient but it has to be shown mutual intention of the parties to bind both the signatory and non signatory to such agreement. He submitted that there is no such clause providing for such eventuality and the parties could have provided that even if the petitioner is not signatory, it would be bound by such agreement or it could have been made confirming party. He submitted that at no point of time, the petitioner was called upon by any notice and during the pendency of the proceeding, now it is sought to be impleaded, that too, without providing an opportunity of hearing and in violation of the natural justice. He referred to Section 8 of the Arbitration Act and also Section 45 of the Arbitration Act. He, Page 13 of 66 C/SCA/5694/2018 JUDGMENT therefore, submitted that the petitioner could not be joined in the midst of the pending arbitration proceeding. He also referred to the judgment of the Hon'ble Delhi High Court in case of Sudhir Gopi Vs. Indira Gandhi National Open University, reported in 2017 SCC OnLine Del 8345 and submitted that whether the notice under Section 21 is mandatory or not, is required to be considered. Learned Senior Counsel, Shri Soparkar also submitted that contract has to be interpreted on the basis of the terms of the contract and not on the basis of the document, which led to the contract. He submitted that the judgment of the Hon'ble Apex Court in case of Chloro Controls India Private Ltd. Vs. Seven Trend Water Purification Inc. & Ors., reported in (2013) 1 SCC 641, is not applicable. Learned Senior Counsel, Shri Soparkar also referred to the judgments of the Hon'ble Apex Court in case of Dresser Rand S.A. Vs. Bindal Agro Chem Ltd. & Anr., reported in (2006) 1 SCC 751 and in case of Bharat Sanchar Nigam Ltd. Vs. Telephone Cables Ltd., reported in (2010) 5 SCC 213. He also referred to the judgment in case of Indowind Energy Ltd. Vs. Wescare Page 14 of 66 C/SCA/5694/2018 JUDGMENT (India) Ltd. & Anr., reported in (2010) 5 SCC 306 and submitted that it has been discussed as to when third party could be joined. He also referred to and relied upon the judgment in case of Deutsche Post Bank Home Finance Vs. Taduri Sridhar & Anr., reported in (2011) 11 SCC 375 = AIR 2011 SC 1899 and in case of Essar Oil Ltd. Vs. Hindustan Shipyard Ltd. & Ors., reported in (2015) 10 SCC 642. He also referred to and relied upon the judgment in case of Sudhir Gopi Vs. Indira Gandhi National Open University, reported in 2017 SCC OnLine Del 8345 and also in a judgment in case of Oil and Natural Gas Corporation Ltd. Vs. Jindal Drilling and Industries Ltd., reported in 2015 SCC OnLine Bom 1707. He has also submitted that the Hon'ble Apex Court has considered the judgment in case of Balwant Rai Saluja & Anr. Vs. Air India Ltd. & Ors., reported in (2014) 9 SCC 407 as to circumstances when the corporate veil could be lifted. He pointedly referred to relevant criteria that when the corporate veil could be lifted and emphasized, "Generally and broadly speaking, we may say that the corporate veil may be lifted where Page 15 of 66 C/SCA/5694/2018 JUDGMENT a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc."
9. He also referred to Paragraph No.71 and emphasized this principles formulated for lifting of corporate veil. He, therefore, submitted that the impugned order may be quashed and set aside.
10. Learned Senior Counsel, Shri Thakore for the Port Trust has referred to the papers at length and submitted that the petitioner - IMC and JRE are the "alter ego" and it would be established on the basis of the record itself. For that purpose, he referred to letter of compromising bid at AnnexureB and pointedly referred to Clause - 19 and submitted that it clearly provides, "................ We through the Page 16 of 66 C/SCA/5694/2018 JUDGMENT concessionaire agree to enter into a Concession Agreement in accordance with the draft .............."
11. Learned Senior Counsel, Shri Thakore submitted that the concessionaire, the respondent no.2 is incorporated as special purpose company, which is not in dispute. He also submitted that Clause 1.3 refers to the fact that for the purpose of interpretation of concession agreement, RFP document could be referred to and he referred to Article 3 of the concession agreement at Annexure C and submitted that condition precedent is required to be seen. For that purpose, he referred to Clause 3.1(a)viii and emphasized Clauses - (a),
(b) and (c). He emphasized Clause (c), which reads as under : "(c) the Applicant is duly organized and validly existing under the laws of the jurisdiction of its incorporation, and has requested the Concessioning Authority to enter into this Agreement with the Concessionaire and has agreed to and unconditionally accepted the terms and conditions set forth in this Agreement."
12. Learned Senior Counsel, Shri Thakore, therefore, submitted that it cannot be said that the petitioner is a third party as ought to be Page 17 of 66 C/SCA/5694/2018 JUDGMENT canvassed. Learned Senior Counsel, Shri Thakore submitted that the petitioner as an applicant has accepted the terms of the concession agreement and is an "alter ego" of JRE and it has entered into an agreement through JRE and, therefore, such submission about the impleadment without providing an opportunity and/or notice, are misconceived. He also referred to the impugned order and submitted that the petitioner is not deprived of any right and no prejudice is caused as right to contest before the Hon'ble Arbitral Tribunal that they are not an "alter ego", is still available and all such contentions could be raised before the Hon'ble Arbitral Tribunal. He, therefore, strenuously submitted that if the corporate veil is lifted and if the Hon'ble Arbitral Tribunal has jurisdiction as per the concession agreement, the petitioner could be joined as party and the corporate veil could be lifted in such cases. Learned Senior Counsel, Shri Thakore submitted that reliance placed on the judgment of the Bombay High Court has also been considered by the Hon'ble Arbitral Tribunal that it is not binding as it is not the jurisdictional Court as the seat of the Page 18 of 66 C/SCA/5694/2018 JUDGMENT Arbitration is at Ahmedabad and, therefore, it will be within the jurisdiction of this Court and, therefore, it cannot be said that the Hon'ble Arbitral Tribunal has not considered.
13. Learned Senior Counsel, Shri Thakore submitted that he has reservation about the maintainability of the petition under Article 226 of the Constitution of India and submitted that it is not maintainable. Learned Senior Counsel, Shri Thakore referred to and relied upon the judgment of this Court in case of Executive Engieer, Sardar Sarovar Narmada Nigam Vs. Bhaven Construction & Anr., reported in 2006 (1) GLH 523 and the judgment of the Hon'ble Apex Court in case of CDF Financial Services (Mauritius) Ltd. Vs. BPL Communications Ltd. & Ors., reported in (2003) 12 SCC 140. He, therefore, submitted that the petition may not be maintainable when the Hon'ble Arbitral Tribunal is seized of the matter and the petitioner would have every opportunity to raise all issues including even the jurisdiction or the issue regarding the corporate veil. Learned Senior Counsel, Shri Thakore submitted that assuming that the petition is maintainable even then, the Court would be slow Page 19 of 66 C/SCA/5694/2018 JUDGMENT in interfering with the proceeding before the Hon'ble Arbitral Tribunal and, therefore, the petitioner may raise all contentions before the Hon'ble Arbitral Tribunal and the present petition may not be entertained.
14. Learned Senior Counsel, Shri Thakore referred to the brief description of the bid process and also referred to the concession agreement. He submitted that it is provided in Clause 2.1.7 that, "The Bidder shall deposit a Bid Security of Rs. 1.82 Crores (Rs. One Crore and Eighty Two lakhs) in accordance with the provisions of this RFP. The Bidder has the option to provide the Bids Security either as a Demand Draft or in the form of a Bank Guarantee, acceptable to the KPT, as per format at Appendix - II."
15. Learned Senior Counsel, Shri Thakore, therefore, submitted that reference is made to the contents of the bid and the letter of compromising bid. He also referred to Appendix - I and also further details to support his contention that the petitioner and the respondent - JRE are "alter ego".
16. Learned Senior Counsel, Shri Thakore also referred to the concession agreement and again pointed out Page 20 of 66 C/SCA/5694/2018 JUDGMENT that it cannot be disputed that IMC is the 100% holding company of the JRE and submission of the bid is by the petitioner - Company and, thereafter, the respondent - JRE is incorporated as a special purpose vehicle for the same project, for which, the bid was submitted by the petitioner
- Company. Had there not been a bid by the petitioner, JRE could not have been brought into existence and could not have been concerned with the execution of the project. He, therefore, submitted that the petitioner cannot be a third party totally unrelated to the transaction or the project. Learned Senior Counsel, Shri Thakore submitted that the petitioner - IMC itself has fulfilled the condition precedent in compliance with the terms and conditions and the special purpose vehicle - JRE is incorporated. He again emphasized that the concession agreement also provides that it has accepted and in condition precedent, it has been specifically stated about the acceptance of all the conditions of the concession agreement. Learned Senior Counsel, Shri Thakore, therefore, submitted that IMC and JRE are "alter ego" and any such contention which has been Page 21 of 66 C/SCA/5694/2018 JUDGMENT raised to pose the petitioner as totally third party, has no merits. Learned Senior Counsel, Shri Thakore referred to the judgment of the Hon'ble Apex Court in case of Chloro Controls India Private Ltd. (supra) and emphasized the observations made in Para Nos.66, 69, 70 and 71 and submitted that it has reference to the doctrine of group company. He submitted that the intention of the party has to be gathered from the document and it is evident from the concession agreement and condition precedent that the petitioner has filled in the bid and after acceptance, has created special purpose vehicle and has entered into concession agreement through JRE, which is a special purpose vehicle. He, therefore, submitted that it has to be considered in background of the facts.
17. Learned Senior Counsel, Shri Thakore referred to Section 8 of the Arbitration Act and also Section 45 of the Arbitration Act and submitted that Power of judicial authority to refer parties to arbitration, which has a reference to any person, meaning thereby, a person or a party is not a signatory to the arbitration agreement. Learned Page 22 of 66 C/SCA/5694/2018 JUDGMENT Senior Counsel, Shri Thakore pointedly referred to some of the judgments cited by learned Senior Counsel, Shri Soparkar and submitted that these judgments will not have any application or relevance in light of the judgment of the Hon'ble Apex Court in case of Chloro Controls India Private Ltd. (supra). He also referred to the amendment in Section 8 of the Arbitration Act to emphasis that the Legislature has specifically made the provision by providing, "if a party to the arbitration through or under him".
18. Learned Senior Counsel, Shri Thakore referred to the judgment of the Hon'ble Apex Court in case of Chloro Controls India Private Ltd. (supra) and pointedly referred to the observations made in Para Nos.165 and 165.2. He also referred to another judgment of the Hon'ble Apex Court in case of Purple Medical Solutions Pvt. Ltd. Vs. MIV Therapeutics Inc. & Anr., reported in (2015) 15 SCC 622. Learned Senior Counsel, Shri Thakore also submitted that there is another judgment which has been relied upon by learned Senior Counsel, Shri Soparkar for other other side in case of Cheran Properties Limited Vs. Kasturi & Sons Limited & Page 23 of 66 C/SCA/5694/2018 JUDGMENT Ors., reported in 2018 SCC OnLine SC 431 and emphasized the observation made in Para Nos.39. Learned Senior Counsel, Shri Thakore submitted that the judgment of the Hon'ble Court case in case of Essar Oil Ltd. Vs. Hindustan Shipyard Ltd. & Ors., reported in (2015) 10 SCC 642 would not have any application to the facts of the case. He emphasized that when the doctrine of group company is attracted, it has to be considered in light of the facts and there, facts were totally different as ONGC was not a party to the arbitration and, therefore, it has no application.
19. Learned Senior Counsel, Shri Thakore also referred to the judgment in case of GMR Energy Ltd. Vs. Doosan Power Systems India Pvt. Ltd. 7 Ors., reported in 2017 (6) ARBLR 447 (Delhi) and relying upon the observations made, he submitted that in this judgment, it has been discussed as to whether the Hon'ble Arbitral Tribunal has jurisdiction to pierce the corporate veil taking a different view of the matter. He emphasized that the Hon'ble Arbitral Tribunal has also considered this aspect and observations made by the Hon'ble Bombay High Court would not be binding.
Page 24 of 66
C/SCA/5694/2018 JUDGMENT
20. Learned Senior Counsel, Shri Thakore submitted that another facet of submission that no notice under Section 21 of the Arbitration Act has been given, has to be considered in background of the facts as IMC and JRE are "alter ego" and, therefore, there is no question of notice to the petitioner as it is one and the same under the same group of companies. He emphasized that email is also sent to both. He, therefore, submitted that the provision of Section 16 of the Arbitration Act would provide sufficient opportunity to the petitioner and whether the IMC is not an "alter ego", could still be contended before the Hon'ble Arbitral Tribunal as it is kept open and, therefore, the petitioner may apply under Section 16 of the Hon'ble Arbitral Tribunal.
21. Learned Senior Counsel, Shri Sanjanwala appearing for the respondent no.2 - JRE has submitted that he would adopt the submissions made by learned Senior Counsel, Shri Soparkar for the petitioner. He also referred to the papers and concession agreement and particularly, Article 19, which provides for the dispute resolution. He, therefore, submitted that it would suggest the Page 25 of 66 C/SCA/5694/2018 JUDGMENT resolution of the dispute as per this Article suggesting that it would be between the parties to the agreement. He again referred to Article 19.1. Therefore, learned Senior Counsel, Shri Sanjanwala submitted that unless it is established about "alter ego" or the petitioner has an "alter ego", corporate veil or lifting of the corporate veil has no basis and, therefore, the order may be passed setting aside the impugned order.
22. Learned Senior Counsel, Shri S.N. Soparkar appearing with learned advocate, Shri Dhaval Shah in rejoinder again dealt with the issues or the controversy with detailed submissions. Learned Senior Counsel, Shri Soparkar has broadly referred to following points: (1) Learned Senior Counsel, Shri Soparkar pointed out about the maintainability of the petition and submitted that it is not in dispute that the writ petition is maintainable, for which, he has referred to the judgment of this Court N.G. Projects Limited (supra) and also the judgment of the High Court in case of IVRCL Limited (supra).
(2) Learned Senior Counsel, Shri Soparkar also
Page 26 of 66
C/SCA/5694/2018 JUDGMENT
submitted that the judgment and order of the Division Bench has remanded the matter itself would suggest that the petition is maintainable.
(3) Learned Senior Counsel, Shri Soparkar submitted that Section 29 of the Arbitration Act provides for the time schedule and, therefore, the arbitration has to proceed further, is not an answer to the fundamental concept of law regarding the compliance with the rules of natural justice.
(4) Learned Senior Counsel, Shri Soparkar submitted that another aspect is as to whether IMC and JRE are alter ego and whether the corporate veil could be lifted and the Arbitrators have jurisdiction to lift the corporate veil, are the issues which the Hon'ble Arbitral Tribunal has not considered and decided as it is only prima facie tentative finding of the Tribunal itself has kept it open, which would suggest that if the JRE is not an alter ego of the petitioner, the presumption could not be made. Learned Senior Counsel, Shri Soparkar, therefore, Page 27 of 66 C/SCA/5694/2018 JUDGMENT submitted that this Court may not make any observation, which may cause the prejudice to the rights of the petitioner before the Tribunal and/or decide the issue, which may foreclose the rights of the petitioner before the Hon'ble Arbitral Tribunal.
23. Learned Senior Counsel, Shri Soparkar referred to Section 16 of the Arbitration Act and submitted that Chapter - V refers to "Jurisdiction of Arbitral Tribunal". He pointedly referred to Section 16, which provides "Competence of arbitral tribunal to rule on its jurisdictional" and submitted that the issue relating to the jurisdiction of the Tribunal would require hearing of the petitioner. He submitted that the burden or the negative burden is required to be discharged by the petitioner about the fact that the Tribunal has no jurisdiction to consider the issue of alter ego and/or to lift the corporate veil. However, learned Senior Counsel, Shri Soparkar submitted that the petitioner may like to go with the clean slate rather than with any such condition.
24. Another submissions, which have been made by learned Senior Counsel, Shri Soparkar is regarding Page 28 of 66 C/SCA/5694/2018 JUDGMENT the notice under Section 21 of the Arbitration Act and submitted that without issuance of such notice, no arbitration could proceed against the petitioner. He submitted that had the notice been issued, the petitioner would have opportunity to oppose and also to point out on the aspect of alter ego that JRE is not an alter ego of the petitioner.
25. Learned Senior Counsel, Shri Soparkar also strenuously submitted that if the proceedings are permitted then, it would amount to bypassing the statutory provision of Section 11 of the Arbitration Act. He submitted that the respondents have circumvented the provision of Section 11 of the Arbitration Act. He submitted that the parties may by agreement choose or if it is not agreed then, other party may have recourse before the Court under Section 11 of the Arbitration Act. In the facts of the case, he submitted that the petitioner has neither been given notice nor he has been allowed to contest, as required under Section 11 of the Arbitration Act. He submitted that if at all, the issue regarding the alter ego is required to be considered, it would be Page 29 of 66 C/SCA/5694/2018 JUDGMENT considered under Section 11 of the Arbitration Act, which would otherwise make it irrelevant and negatory.
26. Learned Senior Counsel, Shri Soparkar also raised contention as recorded hereinabove that the Arbitrator has no power to lift the corporate veil and in support of this contention, he has again referred to the judgment of the Hon'ble Apex Court in case of A. Ayyasamy Vs. A. Paramsivam & Ors., reported in (2016) 10 SCC 386 and emphasized the observations made in Para No.14. He submitted that even the lifting of the corporate veil could be adjudicated and decided in relation with the parties to the dispute. He emphasized that he does not mean that the Arbitrator can proceed against the party but is not a signatory to the arbitration agreement nor is party to the arbitration proceeding.
27. Learned Senior Counsel, Shri Soparkar also submitted that Section 8 of the Arbitration Act has no play and, therefore, it could not be decided as to who should be party to the arbitration. He, therefore, submitted that reference made to the agreement by parties through Page 30 of 66 C/SCA/5694/2018 JUDGMENT or under him, is misconceived notion.
28. Learned Senior Counsel, Shri Soparkar has also referred to the background and submitted that different High Court may have different view and the Delhi High Court may have different view than the High Court of Bombay regarding the jurisdiction of the Hon'ble Arbitral Tribunal to lift the corporate veil. He submitted that when there is no agreement or consent regarding the arbitration, notice has to go and, thereafter, one of the parties can proceed as per Section 11 of the Arbitration Act. He submitted that the observations made by the Hon'ble Arbitral Tribunal that the view of the High Court is not binding on the Arbitral Tribunal, is misconceived. For that, he referred to the observations.
29. Again learned Senior Counsel, Shri Soparkar submitted that before a person is dragged to the litigation by joining, an opportunity of hearing is required to be given in compliance with the rules of natural justice. He submitted that as no such opportunity is provided, the order is in violation of the principle of natural justice and this Court should set aside the order when Page 31 of 66 C/SCA/5694/2018 JUDGMENT admittedly no opportunity of hearing has been given to the petitioner.
30. Learned Senior Counsel, Shri Soparkar referred to the judgment in case of Chloro Controls India Private Ltd. (supra) and submitted that it has no application to the facts of the case. He submitted that in the present case, the agreement of the petitioner and JRE are sequential and separate agreement and, therefore, this judgment has no application. He referred to the judgment in case of Purple Medical Solutions Pvt. Ltd. (supra). He submitted that in that case, Section 11 of the Arbitration Act was followed and, therefore, the submissions of the petitioner are supported. He also referred to the judgment in case of Ammet Lalchand Shah Vs. Rishabh Enterprises, reported in 2018 SCC OnLine 487 and also in case of Cheran Properties Limited, reported in 2018 SCC Online
431. Learned Senior Counsel, Shri Soparkar submitted that the judgment of the High Court (Coram : Akil Kureshi, J.) in First Appeal No.1714/2015 in case of IVRCL Limited Vs. Gujarat State Petroleum corporation Limited & Ors. and it has been observed that the party can be joined by Page 32 of 66 C/SCA/5694/2018 JUDGMENT the Court and not by the Arbitral Tribunal.
31. Learned Senior Counsel, Shri Soparkar, therefore, again made detailed submission with regard to the aspect of lifting of corporate veil and submitted that reliance placed on RPF, is misconceived. He submitted that both are separate agreements and it has been clearly stated that the work could be carried out by JRE under the agreement when there is no arbitration clause. It has also been provided that when the concession agreement is made, the parties are governed by that agreement only, meaning thereby, only parties to that agreement and it has also been clearly provided, "agreements understanding would stands withdrawn".
32. Learned Senior Counsel, Shri Soparkar therefore submitted that the basic document is the concession agreement between the parties and right and liability would be governed by such agreement. He submitted that as per Cheran Properties Limited (supra)'s case, reference is made to Section 35 of the Arbitration Act, which would be applicable at the stage of execution of the award.
33. Learned Senior Counsel, Shri Soparkar, therefore, strenuously submitted that letter comprising bid, Page 33 of 66 C/SCA/5694/2018 JUDGMENT Appendix - 1, is not signed and the petitioner has not signed the concession agreement and the tentative view of the Hon'ble Arbitral Tribunal is contrary to accepted principles of law both regarding providing an opportunity of hearing and also binding judgment of the Hon'ble Apex Court including on the aspect of jurisdiction to left the corporate veil.
34. In view of the rival submissions, it is required to be considered whether the present petition deserves consideration.
35. First aspect which is required to be addressed is the maintainability of the petition, which has been addressed by both sides and learned Senior Counsel, Shri Thakore had raised objection about the maintainability and alternate submission that even assuming that there is a jurisdiction, same may not be exercise in the facts of the case, is required to be considered.
36. As both sides have made detailed submission with reference to the record on the issue regarding the jurisdiction, lifting of corporate veil as well as the provision of the Arbitration Act, however on one hand, learned Senior Counsel, Shri Soparkar Page 34 of 66 C/SCA/5694/2018 JUDGMENT has referred to the impugned order of the Hon'ble Arbitral Tribunal and submitted that the Tribunal has kept it open and has not decided the issue regarding the alter ego and, therefore, this Court may not make any observation, which would cause any prejudice or affect the rights of the petitioner even before the Hon'ble Arbitral Tribunal. In order words, he has started with caveat and at the same time, the Court is required to consider the submission made referring various issues and, therefore, some of the aspects may have to be considered at least for the purpose of deciding this petition. Therefore, it is made it clear that the observations made are only prima facie for the purpose of deciding the present petition.
37. Therefore with the aforesaid preface, first aspect which is required to be considered is the concession agreement and whether the petitioner could be joined as party respondent. Again for that matter, the submissions have been made that the petitioner is not a signatory to the concession agreement and, therefore, is not a party to the agreement and, therefore, could not Page 35 of 66 C/SCA/5694/2018 JUDGMENT have been dragged to the arbitration proceeding when the petitioner is not the signatory or party to that agreement. Again much emphasis has been given to the concession agreement that it does not contain any arbitration clause. In any event, what has been emphasized is that the rights and obligation of the parties to the concession agreement are to be decided within the framework of the concession agreement and the petitioner is a third party or is not signatory even and, therefore, could not have been joined as party pending proceeding before the Hon'ble Arbitral Tribunal, is the moot question to be considered. Again for that purpose, this submission proceeds in the background of the suggestion or the assumption that the petitioner is a third party. It is at this stage, prima facie for dealing with these issues, aspect of lifting of corporate veil has to be examined. Therefore again reference is required to be made to the background and undisputed facts, which will be stated hereinafter.
38. It is not in dispute that the petitioner - Company has given bids and the bid of the petitioner - Page 36 of 66
C/SCA/5694/2018 JUDGMENT Company has been accepted on the basis of RFP (Request for Proposal), which is required to be considered and Clause - 1.1.2 provides, "The Selected Bidder shall incorporate a special purpose company (the "Concessionaire") prior to execution of the Concession Agreement. The Concessionaire shall be responsible for designing, engineering, installation, financing, procurement, construction, commissioning operation, maintenance and management of the Project ............. as part of the Bidding Documents pursuant hereto."
39. Further Clause 1.2.3 refers to Bidding Document would include draft of concession agreement and it would be deemed to be a part of bidding document. Other clauses like Clause - 2.14.1 and 2.14.2 referred to the contents of bid and Clause - 2.14.2 clearly provides, "The Project will be awarded to the Bidder quoting the highest Royalty, as indicated at Clause 3.3."
40. The concession agreement itself has been referred to by both the sides at length and emphasized by learned Senior Counsel, Shri Thakore, more particularly Clause - 3.1 providing condition precedent. As emphasized by learned Senior Counsel, Shri Thakore, this condition precedent Page 37 of 66 C/SCA/5694/2018 JUDGMENT has a reference to the obligation by the applicant i.e. the bidder. Therefore Clause - 3.1(viii) (a),
(b), (c) has a reference to the applicant i.e. the petitioner, who had given the bid. Therefore, it is not in dispute that the bid had been submitted by the petitioner and accepted subject to the terms and conditions of the bid document referred to hereinabove as well as by learned advocates on both sides. Again concession agreement which has been much emphasized by learned Senior Counsel, Shri Soparkar to support his submission that the petitioner is not a party nor signatory has to be read as whole with the background of the facts and has reference to the petitioner in concession agreement as the applicant. It is provided, "Applicant means M/s. IMC Ltd having its registered office at 232/A, Acharjya Jagadish Chandra Bose Road, Kolkata - 700 020, India"
41. Further Clause - (G) provide, "The applicant has incorporated the Concessionaire as a special purpose company in India, under the Companies Act, 1956 to implement the Project".
42. Though the submissions have been made by learned Senior Counsel, Shri Soparkar that the concession Page 38 of 66 C/SCA/5694/2018 JUDGMENT agreement would include only parties to the agreement and the word "party" has been defined and, therefore, the petitioner is not covered, is required to be examined in light of the underlying spirit of the arbitration agreement as well as relevant material like bid document, concession agreement and also condition precedent and RFP.
43. However at the same time, as stated above, the concessionaire, JRE is a special purpose vehicle created for the implementation of the project by the applicant (the petitioner) and, therefore, it has been specifically recorded, "................ We through the concessionaire agree to enter into a Concession Agreement in accordance with the draft .............."
44. Thus in effect, for implementation of the project by the applicant (the petitioner) as a bidder, the JRE is created as special purpose vehicle. Further even the concession agreement referred to the petitioner as the applicant and reference is made to the applicant, who has entered into an agreement with the Port Trust through JRE i.e. special purpose vehicle. Therefore in light of this, when the petitioner is a holding company of Page 39 of 66 C/SCA/5694/2018 JUDGMENT JRE concessionaire, wholly owned subsidiary is created for the purpose of very project as a special purpose vehicle and it does not leave any doubt about the obligation of the petitioner under the concession agreement.
45. Therefore the submissions made by learned Senior Counsel, Shri Soparkar with much details with focusing on the concession agreement, parties to the agreement and the submission made to suggest that the petitioner is a third party to the concession agreement, who could not have been dragged to the proceedings of the arbitration by making it party, are misconceived. Such submissions may sound appealing at the threshold but on little scrutiny with the background of the facts and perusal of the RFP and the concession agreement itself leaves not doubt that any such submission has no merits. Further in order to appreciate the submission, one is required to have again a close look at the papers like RFP, concession agreement and the bid document. This would be relevant to appreciate and consider the submissions, which have been made with much emphasis by learned Senior Counsel, Shri Soparkar Page 40 of 66 C/SCA/5694/2018 JUDGMENT regarding noncompliance with the rules of natural justice and/or not having been provided any opportunity of hearing before the impleadment as party in the arbitration proceedings by the Hon'ble Arbitral Tribunal. These submissions, which have been made with much emphasis, cannot be accepted on scrutiny of the papers and material for the simple reason that the petitioner is the primary bidder, who has taken up the project and who has been awarded the contract and, therefore, the respondent no.1 would look at the petitioner and RJE is created as special purpose vehicle, meaning thereby, is in fact an alter ego. Again submissions which have been made with reference to the jurisdiction of the Hon'ble Arbitral Tribunal to lift the corporate veil and whether the corporate veil could be lifted has to be considered with the underlying object and purpose of the Arbitration Act as well as the statement of the objects and reasons. The underlying legislative purpose was to bring the domestic and international commercial arbitration in tune with Uncitral Model Law on the basis of the New York convention and geneva convention. The underlying Page 41 of 66 C/SCA/5694/2018 JUDGMENT purpose is to make the provision or provide a suitable mechanism for the arbitral procedure for speedy resolution of dispute through arbitration or settlement of disputes without much intervention of the Courts. A useful reference can be made to the judgment of the Hon'ble Apex Court in case of Bharat Sewa Sansthan Vs. U.P. Electronic Corporation Ltd., reported in AIR 2007 SC 2961. Therefore when the Hon'ble Arbitral Tribunal has been constituted and the Hon'ble Arbitral Tribunal is seized of the matter, this Court would decline to interfere in such proceedings and having regard to the underlying object and purpose of the Arbitration Act as observed by this Court in a judgment in case of N.G. Projects Limited (supra), there may not be any lack of inherent jurisdiction in exercise of jurisdiction under Articles 226 and 227 of the Constitution of India and it is rather a matter of propriety and selfimpose restrictions. Again the provision of the Arbitration Act, which referred to Section 2(1)(e) defines the Court makes it very clear that it may include the High Court for the purpose of exercising its ordinary and civil Page 42 of 66 C/SCA/5694/2018 JUDGMENT jurisdiction, meaning thereby, further proceedings arising out of the orders of the civil courts and not the jurisdiction under Articles 226 and 227 of the Constitution of India vested in the High Court as the Court exercising the constitutional powers and jurisdiction. Therefore there is no issue with regard to the aspect of maintainability though learned Senior Counsel, Shri Thakore has raised issues regarding the maintainability. However alternate submission that even assuming that there is jurisdiction, the Court may not interfere with the arbitral proceeding pending before the Hon'ble Arbitral Tribunal, requires to be considered as stated above having regard to the underlying purpose of the Arbitration Act.
46. Therefore, the submissions which have been made by learned Senior Counsel, Shri Soparkar with reference to Section 21 of the Arbitration Act read with Section 16 of the Arbitration Act to contend that unless there is an agreement between the parties, the arbitral proceeding in respect of a particular dispute would not commence. He had further emphasized that if one of the parties may not agree than, remedy is provided under Section Page 43 of 66 C/SCA/5694/2018 JUDGMENT 11 of the Arbitration Act to make the application and, therefore, the submissions have been made that Section 11 of the Arbitration Act cannot be circumvented and if the arbitration proceedings are allowed to continue, it would amount to circumvention of the provision of Section 11 of the Arbitration Act, is misconceived. This submission as discussed above proceeds on hypothesis with regard to the notice is required to be served to the applicant - petitioner, which in turn will require the issue regarding the corporate veil or the identity and the doctrine of group company. Therefore the moot question is required to be focused as to the parties to the agreement.
47. Therefore, the submissions have been made with much emphasis on the jurisdiction of the Hon'ble Arbitral Tribunal to lift the corporate veil and also the violation of principle of natural justice that the petitioner could not have been impleaded without providing an opportunity of hearing. This argument, as stated, may sound appealing but on little scrutiny of the material, it would appear that it is devoid of any merits and rather it is Page 44 of 66 C/SCA/5694/2018 JUDGMENT over simplication. The submissions proceed on hypothesis that the petitioner is a third party and not an alter ego. Again whether the parties as referred to in Section 21 of the Arbitration Act would include the petitioner, would require closer scrutiny of the material and record including RPF and concession agreement. As stated in detail, both the documents clearly suggest about the fact that the petitioner is a bidder, who had given bid for the project, the bid has been accepted as per the RPF and concession agreement is entered into by the petitioner through JRE, which is a special purpose vehicle created as required under the bid document. Therefore there is hardly any scope for much debate on the aspect of lifting of corporate veil. The submissions have been made at length relying upon the judgments about the violation of rules of natural justice and nonservice of the notice, however, the facts are clear and simple that the petitioner cannot be said to be a third party, which may justify such grievances. In the facts of the case, even though the concession agreement may not have been signed or confirmed by the petitioner, it would not make any change so Page 45 of 66 C/SCA/5694/2018 JUDGMENT far as the obligation of the petitioner is concerned and it cannot pose itself as third party merely because it is not a signatory to the concession agreement. While considering such submissions, one must have regard to the underlying purpose of the Arbitration Act and also the modern trend of business with a multiproject or multiple contracts for execution of working at different place under the project in one country or more than one country. Therefore it would not be in consonance with the object and spirit of the Arbitration Act to give a narrow and restricted interpretation to any provision of the Act like in the facts of the case, while referring to Section 21 of the Arbitration Act, the parties would include the parties to the agreement, which in turn may require to scrutinize and see through, who is party for the purpose of project or the work. There can be a different stage, by which, some of the obligations are provided under the initial bid document and, thereafter, detailed agreement like concession agreement is executed but it cannot be said that they are not complementary to each other as sought to be Page 46 of 66 C/SCA/5694/2018 JUDGMENT canvassed. As stated above, condition precedent read with concession agreement would make the position clear that the applicant has been clearly defined as the petitioner - IMC and the concession agreement as emphasized with different clauses referred to the petitioner as the applicant and undertaking and obligation incurred by it. Again the statement of object and reasons clearly provide that the Act has been made to create a mechanism for settlement of the domestic and international commercial dispute and for that purpose, it may have to be in tune with worldwide recognition of the arbitration as an instrument of settlement of dispute and, therefore, in order to remain in line and maintain uniformity of law of arbitral procedure, the United Nationals Commission on International Trade Law was made, on the basis of which, the present Arbitration Act has been enacted. The preamble itself refers to the fact that Uncitral has been adopted and the legislative intention is to bring such arbitration in consonance with the Uncitral Model Law based on geneva convention. Therefore the observation made by the Hon'ble Arbitral Tribunal with reference to Page 47 of 66 C/SCA/5694/2018 JUDGMENT the law as well as foreign Arbitration Law cannot be said to be not applicable. In fact, the judgment of the Chloro Controls India Pvt. Ltd. (supra) has to be considered while deciding such issues. In this judgment, while referring to the parties, the discussion has been made with reference to "claim through or under" and it has been observed that a stranger or third party cannot ask for Arbitrator, meaning thereby, even if one is not signatory to the agreement but if it is claimed through or under one Company, it would require examination as to alter ego and it has been specifically observed, "As noticed above, the legislative intent and essence of the 1996 Act was to bring domestic as well as international commercial arbitration in consonance with the UNCITRAL Model Rules, the New York Convention and the Geneva Convention."
48. Further it has been observed, "It is a settled rule of interpretation that every word used by the Legislature in a provision should be given its due meaning. To us, it appears that the Legislature intended to give a liberal meaning to this expression. ............
............... The language and expressions used in Section 45, any person Page 48 of 66 C/SCA/5694/2018 JUDGMENT claiming through or under him including in legal proceedings may seek reference of all parties to arbitration. Once the words used by the Legislature are of wider connotation or the very language of section is structured with liberal protection then such provision should normally be construed liberally."
49. Further it has been observed, "96. Examined from the point of view of the legislative object and the intent of the framers of the statute, i.e., the necessity to encourage arbitration, the Court is required to exercise its jurisdiction in a pending action, to hold the parties to the arbitration clause and not to permit them to avoid their bargain of arbitration by bringing civil action involving multifarious cause of action, parties and prayers.
102. Joinder of non signatory parties to arbitration is not unknown to the arbitration jurisprudence. Even the ICCAs Guide to the Interpretation of the 1958 New York Convention also provides for such situation, stating that when the question arises as to whether binding a non signatory to an arbitration agreement could be read as being in conflict with the requirement of written agreement under Article I of the Convention, the most compelling answer is no and the same is supported by a number of reasons.
Page 49 of 66
C/SCA/5694/2018 JUDGMENT
103. Various legal basis may be applied to bind a nonsignatory to an arbitration agreement:
103.1 The first theory is that of implied consent, third party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities. 103.2The second theory includes the legal doctrines of agent principal relations, apparent authority, piercing of veil (also called the alter ego), joint venture relations, succession and estoppel. They do not rely on the parties intention but rather on the force of the applicable law."
50. Again in order to analyze the submissions, a reference can be made to the observations made, "The Court will have to examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. In the case of composite transactions and multiple agreements, it may again be possible to invoke such principle in accepting the pleas of nonsignatory parties for reference to arbitration. Where the agreements are consequential and in the nature of a followup to the principal or mother agreement, the latter containing the arbitration agreement and such agreements Page 50 of 66 C/SCA/5694/2018 JUDGMENT being so intrinsically intermingled or interdependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non signatory parties to arbitration. The principle of composite performance would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other."
51. It is settled rule of interpretation that word used by the Legislature should be given its due meaning and it should subserve the purpose or the object of the Act instead of giving restricted meaning. Thus the Legislature intends to give a liberal meaning while interpreting the provision of Section 45 of the Act. Again in a judgment in case of A. Ayyasamy Vs. A. Paramasivam & Ors., reported in (2016) 10 SCC 386, it has been observed, "The basic principle which must guide judicial decision making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through Page 51 of 66 C/SCA/5694/2018 JUDGMENT a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. ................. The duty of the court is to impart to that commercial understanding a sense of business efficacy."
52. Therefore the interpretation, as stated above, has to be given keeping in mind the intention of the Legislature and also framework or the mechanism of the arbitration evolved for such purpose.
Therefore while considering the word "party", it has to be with broader concept or understanding lifting corporate veil.
53. Though the submissions have been made by learned Senior Counsel, Shri Soparkar that this judgment will not have any application, cannot be accepted. Further the submissions which have been made with emphasized on the judgment of the Hon'ble High Court of Bombay that the Hon'ble Arbitral Tribunal is not a Court and, therefore, will not have jurisdiction to lift the corporate veil, has to be considered with the facts and the background of the case and it cannot be said that any such Page 52 of 66 C/SCA/5694/2018 JUDGMENT preposition of law is laid down. In any case, the Hon'ble Delhi High Court has taken different view, which has been emphasized by learned Senior Counsel, Shri Thakore. Again the judgments, which have been cited, have to be considered in the background of the facts and also keeping in mind the underlying legislative intention and the purpose of the Arbitration Act. As stated above, the Arbitration Act has been made to provide a mechanism or framework to settle the dispute and any narrow or restrictive interpretation, which frustrate the objection, cannot be readily accepted. Again at the cost of repetition, it is stated that there may not be a lack of inherent jurisdiction under Articles 226 and 227 of the Constitution of India that the High Court may in a give case when there is absolutely violation of rules of natural justice to a party, who is sought to be proceeded without notice, could be examined. However in the facts of the case, as stated above, narrow interpretation of a word "party" as referred to in Section 21 of the Arbitration Act would not be justified. Therefore though there may not be any inherent lack of jurisdiction under Page 53 of 66 C/SCA/5694/2018 JUDGMENT Articles 226 and 227 of the Constitution of India as a matter of propriety and selfimpose discipline, this Court would decline to exercise the jurisdiction and it would not be justified when the Hon'ble Arbitral Tribunal is seized of the matter.
54. Again it is well accepted that the issues with regard to the jurisdiction of the Court or the Tribunal or any such forum, could be raised before that Court or the Tribunal itself and such Court or the Tribunal created by a special statute would be within its right to decide about its jurisdiction. The provision of Section 15 of the Arbitration Act itself provides about the jurisdiction that the Tribunal can decide about the jurisdiction. Even otherwise, it is well settled that such Tribunal or the authority created may evolve its own procedure and the rules of Civil Procedure Code may be made applicable mutatis mutandis. As discussed above, the submissions, which have been made with regard to the right of the petitioner and whether prima facie lifting of corporate veil is permissible, is required to be examined. As stated above, in the Page 54 of 66 C/SCA/5694/2018 JUDGMENT facts of the case, the Hon'ble Arbitral Tribunal has kept the issue open including the issues with regard to alter ego and lifting of corporate veil and has only said that these are prima facie observations made keeping it open allowing the petitioner to raise all contentions, would hardly call for any indulgence or exercise of discretionary jurisdiction by this Court under Articles 226 and 227 of the Constitution of India. Therefore considering the underlying object of the Arbitration Act coupled with totality of the background of the facts as discussed above and also likelihood of any prejudice to the petitioner, would not justify exercise of any such discretion in favour of the petitioner.
55. Another facet of submissions that if the arbitration proceedings are allowed, it would amount to circumvention of the provision of Section 11 of the Arbitration Act, is misconceived. Reference is made to the judgment of the Hon'ble Apex Court in case of Deutsche Post Bank Home Finance (supra), where existence of the arbitration agreement between the parties to the dispute for referring the matter to the Arbitrator Page 55 of 66 C/SCA/5694/2018 JUDGMENT is required to be considered. In the facts of the case, therefore very issue is a matter to be considered by the Arbitrator subject to the objections regarding the alter ego and lifting of the corporate veil. It is well accepted that the Court or the Tribunal will have jurisdiction including the issue regarding its jurisdiction and, therefore, the Hon'ble Arbitral Tribunal has only prima facie considered the same keeping all issues open for the petitioner. Therefore, the submissions with regard to noncompliance with the rules of natural justice or notice under Section 21 of the Arbitration Act, are misconceived. The words "empowers an arbitrator" would imply that the Arbitrator or the Tribunal may have the power for determining the issues raised under an agreement and it would justify them to examine relevant material for deciding such issues or the contentions raised including about the jurisdiction, alter ego or lifting of piercing well. As stated above, narrow interpretation would not be inconsonance with the spirit and object of the Arbitration Act. Again the submissions which have been made by learned Senior Counsel, Shri Page 56 of 66 C/SCA/5694/2018 JUDGMENT Soparkar for the petitioner that even if the corporate veil is to be lifted, it is subject to the limitations or the limited grounds, which are required to be justified. For that purpose, he pointedly referred to the observations made in a judgment of the Hon'ble Apex Court in case of Cheran Properties Limited Vs. Kasturi & Sons Limited & Ors., delivered in Civil Appeal Nos.1002510026 of 2017 and also emphasized the grounds contending that none of the grounds as mentioned exist, which would permit lifting of corporate veil. However referring to this very issue about the jurisdiction or the authority of the Ho'ble Arbitral Tribunal, it has been observed in Paragraph No.25 as under, "25. ............... The submission proceeds on a constricted interpretation of the Chloro Controls dictum. The principle which underlies Chloro Controls is that an arbitration agreement which is entered into by a company within a group of companies may bind non signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and nonsignatories. In applying the doctrine, the law seeks to enforce the common Page 57 of 66 C/SCA/5694/2018 JUDGMENT intention of the parties, where circumstances indicate that both signatories and nonsignatories were intended to be bound.........."
56. Therefore again referring to Garry B Born in his treatise on International Commercial Arbitration, it has quoted, "Authorities from virtually all jurisdictions hold that a party who has not assented to a contract containing an arbitration clause may nonetheless be bound by the clause if that party is an "alter ego" of an entity that did execute, or was otherwise a party to, the agreement. This is a significant, but exceptional, departure from "the fundamental principle ..... that each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate rights and liabilities."
Explaining group of companies doctrine, Born states :
"the doctrine provides that a non signatory may be bound by an arbitration agreement where a group of companies exists and the parties have engaged in conduct (such as negotiation or performance of the relevant contract) or Page 58 of 66 C/SCA/5694/2018 JUDGMENT made statements indicating the intention assessed objectively and in good faith, that the nonsignatory be bound and benefitted by the relevant contracts.
57. In a judgment in case of Cheran Properties Limited Vs. Kasturi & Sons Limited & Ors., reported in 2018 SCC OnLine SC 431, it has been observed, ".............. The expression 'claiming under', in its ordinary meaning, directs attention to the source of the right. The expression includes cases of devolution and assignment of interest (Advanced Law Lexicon by P Ramanatha Aiyar19). The expression "persons claiming under them" in Section 35 widens the net of those whom the arbitral award binds. It does so by reaching out not only to the parties but to those who claim under them, as well. The expression "persons claiming under them" is a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. Having derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it. ........."
58. Therefore, the submissions, which have been made by learned Senior Counsel, Shri Soparkar would required that it has to be considered in Page 59 of 66 C/SCA/5694/2018 JUDGMENT background of the facts and the modern trend where group of Companies are functioning with multiple contracts for the same project or different protect under one umbrella Company. Therefore, the doctrine of group companies and lifting of corporate veil have to be considered with reference to modern tendency to ignore separate legal entity and look at the economic entity of a group as a whole whether there is identity and community of interest between the companies within groups particularly when they are related as holding company and wholly owned subsidiary or subsidiary. Thus when the subsidiary does not enjoy real autonomy in determining course of action in the market, it could be said that it has no personality of its own and it has one and the same as a foreign company. Thus when JRE is created as special purpose vehicle for the purpose of project, for which, bid is given by the petitioner, the contentions about the separate identity or the concept of holding and subsidiary company as separate legal entity have to be considered. Therefore the submission that both the Companies have a separate corporate existing and Page 60 of 66 C/SCA/5694/2018 JUDGMENT merely because one company is holding or subsidiary does not mean that they constitute one single company, has to be considered with background of the facts and material. The doctrine of group companies is applied in modern times when group of companies are functioning and when associated companies constitute genus of species thereof as a holding and subsidiary relationship, since holding and subsidiary relationship necessarily implies care control by holding company over the subsidiary, which may have been created for use for the purpose of business. For example, whether the use of the trade mark by subsidiary may fairly be treated as use by holding company. A useful reference can be made to the judgment of the Hon'bla High Court of Madras in case of Fatima Tile Works & Anr. Vs. Sudarsan Trading Co. Ltd. & Anr., reported in 1992 (74) Company Case 423. Further even instances or the grounds where the piercing corporate veil is permitted in the instances include the cases, where a concept of agency is established. Therefore either for a particular project or the transaction or even business of the Company when Page 61 of 66 C/SCA/5694/2018 JUDGMENT prima facie it is suggested that one is working as an agent of other and there is relationship of principal and agent may be under the Companies Act, which may be holding and subsidiary company, the lifting of piercing of the corporate veil would be permissible once the agency is established. In the instant case, again at the cost of repetition, it is required to be stated that the bid document (RPF) clearly provides that the petitioner as applicant had undertaken to create special purpose vehicle for the project and entered into an agreement with the respondent - Port Trust through a company created as a special purpose vehicle. Therefore, the doctrine of lifting of corporate veil marks change in the approach regarding the concept of separate entity or personality of corporation. As stated above, due to complexity of the economic affairs, judicial decisions have also recognized such exception to the rule about the separate jurisdict personality of corporation, which may have to be done to meet with the requirement of changing modern style of business with operation of group companies under one umbrella with multiple Page 62 of 66 C/SCA/5694/2018 JUDGMENT agreements or the transactions. Therefore the ultimate aim of the Court or the Tribunal or the Legislation is to do justice to the parties. While doing so, the Court has to consider either on public policy or on the principles that such devise has been used to evade the obligation. The doctrine of group of companies has been accepted as exception to Salomon principle of separate identity of each company. In doctrine of group company, the presumption of the agency and the trusteeship may justify depending upon the facts of the case. Therefore as observed and discussed in the judgment of the Hon'ble Apex Court in case of State of U.P. & Ors. Vs. Renusagar Power Co. & Ors., reported in 1991 (70) Company Cases 127, when there is evidence of a general tendency to ignore the separate legal entities of various companies within a group and to look instead at the economic entity of the whole group. Thus when the parent company owns all the shares of the subsidiaries and having so much so that there are other such subsidiaries, which are bound hand and foot to the parent company. That is exactly the case in the facts of the case when JRE is created Page 63 of 66 C/SCA/5694/2018 JUDGMENT as special purpose vehicle for the completion of the project, for which, the bid was given by the petitioner. Further when such issues of alter ego arise particularly in modern trend of economic activities, the Courts have to pierce the veil to serve the real aim and object of the Act and the Court has to look at the business realities of the situation depending upon the facts of the case and may not confine them to narrow legalistic view. Therefore horizon of the doctrine of lifting of corporate veil is expanding in modern times and it has been accepted as exception to Salomon principles of distinct legal entity of the company. Therefore the submissions which have been made by learned Senior Counsel, Shri Soparkar, cannot be accepted.
59. Therefore the submission made by learned Senior Counsel, Shri Soparkar relying on the judgment of the Hon'ble Apex Court in case of Balwant Rai Saluja (supra) that the corporate veil could be lifted only on limited ground cannot be readily accepted. Even in this judgment also, as stated above, it leaves to a specific scope for the lifting or piercing corporate veil when it has Page 64 of 66 C/SCA/5694/2018 JUDGMENT been observed that it may not be possible to enumerate the classes of cases where lifting of corporate veil is permissible, meaning thereby, such a ground cannot be said to be exhaustive but only illustrative.
60. Therefore the present petition deserves to be dismissed and according stands dismissed. However it is reiterated that the observations made are only for the purpose of deciding the present petition prima facie and all contentions that may be raised before the Hon'ble Arbitral Tribunal are permitted to be raised for consideration of the Hon'ble Arbitration Tribunal. Notice is discharged. Interim relief, if any, stands vacated.
Sd/ (RAJESH H.SHUKLA, J.) FURTHER ORDER After the judgment and order has been pronounced, learned advocate Shri Dhaval Shah for the petitioner has requested for stay of the operation of the order, which is opposed by the learned Senior Counsel, Shri P.K. Jani and learned advocate Shri Dhaval Vyas for the respondents. Page 65 of 66
C/SCA/5694/2018 JUDGMENT In the background of the facts and circumstances, as there is no stay except the time, which has been granted to file the defence statement, the request is declined.
Sd/ (RAJESH H.SHUKLA, J.) Gautam Page 66 of 66