Bombay High Court
Integrated Sales Services Limited, ... vs Shri. Arun Dev S/O. Govindvishnu ... on 4 January, 2017
Bench: B. P. Dharmadhikari, A.S. Chandurkar
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
Arbitration Appeal NO.3 OF 2016
IN
Misc. Civil Application No.1319 of 2015
IN
International Arbitration Award dated 28/03/2010
Integrated Sales Services Limited,
A Company registered under the Laws
of Hong Kong, having its registered
Office at 16/F, Jonsim Place, 228,
Queen Road, East, Wanchal, Hong Kong,
Through its power of attorney holder
Mr M. Bharath s/o B. K. Muralidhara,
Aged about 29 years, residing at 428, 3 rd cross,
AGS Layout, Bangalore - 560061. .... APPELLANT.
VERSUS
1. Arun Dev s/o Govindvishnu
Uppadhyaya,
aged about 65 years,
occ. Business,
resident of Behind Saraf
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Chambers, Mount Road, Sardar,
Nagpur.
2. Gemini Bay Transcription Pvt. Ltd.
241/A, Opp. Fidvi Complex,
near Residency School, Residency Road,
Nagpur - 440 001,
through its Directors :
(i) Ratan Ram Pathak,
101, Sai Krupa Towers, Nelson Square,
Chhindwara Road,
Nagpur - 440 030.
(ii) Naresh Kumar Kopisetti,
LIG 96, Sugat Nagar,
Post-Uppalwadi,
Nagpur - 440 026. ... RESPONDENTS
*****
Mr. D.V. Chauhan, Advocate for the Appellant.
Mr. Sunil Manohar, Senior Advocate with Mr. A.G. Gharote, Advocate for
Respondent no.1.
Mr. A.S. Jaiswal, Senior Advocate with Mr. Shyam Dewani, Advocate for
respondent no.2 [I].
*****
CORAM : B. P. DHARMADHIKARI
AND
A.S. CHANDURKAR, JJ.
Date of reserving
the judgment : 13th October, 2016
Date of pronouncing
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the judgment : 04th January, 2017
J U D G M E N T [Per A.S. Chandurkar, J.] :
01. This appeal filed under Section 50 (1) (b) of the Arbitration &
Conciliation Act, 1996 [hereinafter referred to as "the said Act"] takes
exception to the judgment of learned Single Judge dated 18th April, 2016
in Misc. Civil Application No. 1319 of 2015 to the extent it holds that the
Award dated 28th March, 2010 passed by the International Arbitration
Tribunal is not enforceable in India against the respondents herein.
Facts
02. On 18th September, 2000, a Representation Agreement was
entered into between Integrated Sales Services Ltd. [ISSL], a Company
based in Hongkong - the appellant herein and DMC Management
Consultants Ltd [DMC MCL], a Company whose principal business
address was stated to be at Nagpur. As per this Agreement, ISSL as the
Representative was to assist DMC MCL - the Company to sell its goods
and services to prospective customers and in consideration thereof, was
to receive commission. This Agreement was made subject to laws of the
State of Missouri, USA. As per Clause 8 (d) (ii) of the Representation
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Agreement, in case of disputes, the same were to be referred to a sole
arbitrator to be appointed by agreement between the parties or failing
such agreement, to be appointed according to the rules of the American
Arbitration Association. This Agreement was signed by Mr. Terry L.
Peteete as Director of ISSL and Mr. Rattan Pathak as Managing Director
of DMC MCL. This Agreement, which came into force on 3rd October,
2000, came to be subsequently amended by the parties. As per said
amendment, the rates of commission were varied and the amended
agreement was to be adjudicated under Hongkong law. This amended
agreement was signed by Mr. Terry L. Peteete on behalf of ISSL and Mr.
Arun Dev Upadhyaya on behalf of DMC MCL - respondent no.1 herein.
Thereafter, there was a further amendment to the Representation
Agreement and it was agreed that the first amendment had become null
and void and that the original agreement executed between the parties
would continue to operate. It was further agreed that the agreement
would be subject to laws of the State of Delaware, USA, by amending
Clause 8 (d) (1) of the Representation Agreement.
03. Thereafter certain disputes arose between the parties.
According to the appellant, ISSL had brought two prospective customers,
namely Med Quist Transcriptions Ltd. and Assist Med Inc. According to
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ISSL, the respondent no.1 had formed DMC Global Inc [DMCG] as a
Corporation for getting tax advantages. With a view to avoid payment of
commission to ISSL, DMC MCL executed contracts with Gemini Bay
Consulting Ltd [GBC] and Gemini Bay Transcription Pvt. Ltd [GBT]. On
this basis, ISSL invoked the arbitration clause and claimed various reliefs
against DMC MCL, DMCG, the respondent no.1 herein, GBT and GBC. In
response to the aforesaid proceedings, the respondent no.1 submitted
his statement taking the stand that the respondent no.1 was not a
signatory to any agreement entered into between DMC MCL and ISSL. It
was stated by the respondent no.1 that only in his capacity as a Director
of DMC MCL, there was a dealing with ISSL. It was stated that the
respondent no.1 could not be identified as "alter ego" of DMC MCL.
04. The arbitration proceedings took place outside India. The Sole
Arbitrator on 23rd December, 2009 determined four issues pertaining to
jurisdiction of the International Arbitration Tribunal. It was held that the
Representation Agreement would be governed by Delaware law.
However, the decision with regard to piercing of corporate veil was
postponed till the parties led evidence. It was further held that the
International Arbitration Tribunal had jurisdiction to decide whether a non-
signatory party to the Representation Agreement would be subject to its
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jurisdiction. It was observed that the parties to the proceedings were free
to contest the claims and that their decision not to participate in the
arbitration proceedings could expose them to an adverse award.
Thereafter, on 28th March, 2010, the Sole Arbitrator made his
Award by holding that the alter ego doctrine was being invoked as a
justification for lifting the corporate veil. It was further held that the
respondent no.1, DMC MCL, GBC and GBT had colluded together for
breaching the Representation Agreement by terminating it abruptly. It
was, thus, held that ISSL was entitled to be paid damages to the extent of
$6948100-00. The parties made liable to pay the damages were DMC
MCL, DMCG, the respondent no.1 herein, GBC and GBT.
05. After this Award was passed, ISSL filed execution proceedings
before the District Court at Nagpur. By order dated 13th October, 2015,
the execution proceedings were converted into miscellaneous civil
proceedings for adjudication in terms of provisions of Sections 46 to 49 of
the said Act. Thereafter, the learned Principal District Judge, Nagpur, by
Judgment dated 5th November, 2015 decided the application filed under
Section 47 of the said Act and recognized the Award dated 28th March,
2010 as a decree of the court which could be enforced under Part-II of
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Chapter-I of the said Act.
06. The appellant herein filed an application under Section 49 of
the said Act before this Court in view of amendment to the Explanation to
Section 47 of the said Act. The parties agreed that the judgment dated
5th November, 2015 passed by the learned Principal District Judge would
not survive in view of the aforesaid amended provisions. The parties
were thereafter heard by the learned Single Judge and by Judgment
dated 18th April, 2016, it was held that the Award dated 28th March, 2010
was a foreign award within the meaning of Section 44 of the said Act. It
was further held that the International Arbitration Tribunal had no
jurisdiction to pass an Award against non-signatories to the
Representation Agreement by recording a finding that they were "alter
ego" of DMC MCL. It was also held that the Court acting under Section
49 of the said Act could go behind the foreign award and could refuse to
make it a decree of the Court. Accordingly, it was held that the Award
dated 28th March, 2010 was not enforceable in India to the extent it
operated against respondent nos. 1 and 2 herein who were non-
signatories. The Award was made enforceable against DMC MCL alone.
Being aggrieved by the aforesaid judgment to the extent it has
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been held that the Award dated 28th March, 2010 is unenforceable in
India against the respondents herein, the decree holder has challenged
the same. It is required to be stated that when this appeal was heard for
admission, a preliminary objection was raised on behalf of the respondent
no.1 to the maintainability of the same. This Court by order dated 23rd
June, 2016 held that the adjudication by the learned Single Judge was in
exercise of original jurisdiction and, therefore, the appeal as filed under
Section 50 (1) (b) of the said Act was maintainable. The respondent no.1
assailed this order before the Honourable Supreme Court. By judgment
dated 30th September, 2016, in Arun Dev Upadhyaya vs. Integrated
Sales Service Ltd. & anr. [2016 (9) SCALE 427], the Honourable
Supreme Court after taking into consideration the provisions of Sections
5 and 3 of the Commercial Courts, Commercial Division and Commercial
Appellate Division of High Courts Act, 2015 held that a Letters Patent
Appeal was maintainable before the Division Bench and the appeal as
filed ought to be treated as an appeal filed under Section 50 (1) (b) of the
said Act. It was observed that the appeal was required to be adjudicated
within the said parameters. Pursuant thereto, we have heard Shri D.V.
Chauhan, learned Advocate for the appellant, Shri Sunil Manohar,
learned Senior Advocate with Shri A.G. Gharote, learned Advocate for the
respondent no.1, and Shri A.S. Jaiswal, learned Senior Advocate with
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Shri Shyam Dewani, learned Advocate for respondent No.2 [I].
Submissions of parties
07. Shri D.V. Chauhan, the learned Advocate for the appellant,
while challenging the findings recorded by the learned Single Judge,
made the following submissions:-
[a] It was submitted that the finding recorded in the impugned
judgment that the International Arbitration Tribunal was not competent to
rule on its own jurisdiction was not sustainable. In that regard, the learned
counsel submitted that in the Representation Agreement dated 18th
September, 2000 as amended by the second amendment, the laws of
Delaware State were made applicable and it was on that basis that the
International Arbitrator had adjudicated the claim. Reference was made to
the International Centre for Dispute Resolution Arbitration Rules and
especially Article 15 in relation to jurisdiction of the Arbitral Tribunal. It
was submitted that under Article 15 (1) of the said Rules, the Arbitral
Tribunal had the power to rule on its own jurisdiction including any
objection with regard to the existence, scope or validity of the arbitration
agreement. The learned counsel referred to the order dated 23rd
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December, 2009 passed by the Arbitrator wherein it was held by the
Arbitrator that as the validity of the agreement had not been challenged by
either of the parties, the Arbitral Tribunal had jurisdiction to decide
whether a non-signatory to the agreement could be subjected to
arbitration. Reference was also made to Article 28 (1) of the said Rules to
urge that the laws of the State of Delaware were applicable. It was
submitted that while passing the Award, the Arbitrator had followed the
precedents of the Delaware Court of Chancery.
Reference was then made to the Uniform Arbitration Act and
especially Chapter-57 thereof. Reference was also made to Clauses
5709, 5713, 5714 (5), 5715 and 5719 in that regard. Though the remedy
of appeal to challenge the award was available to the respondents, the
same had not been availed. The learned counsel sought to derive support
for the aforesaid submissions by placing reliance upon the judgment of the
Honourable Supreme Court in Sasan Power Limited Vs. North
American Coal Corporation India Pvt. Ltd. [2016 SCC OnLine SC 855]
and especially para 38 thereof, to indicate that Part-II of the said Act does
not deal with any matter pertaining to any step anterior to the making of a
foreign arbitral award. The learned counsel also relied upon the judgment
of the Honourable Supreme Court of the State of Delaware in James &
Jackson, LLC Vs. Willie Gary, LLC dated 14th March, 2006, wherein it
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was held that the Arbitrator had jurisdiction to determine the aspect of
substantive arbitability. Reference was also made to the judgment of Court
of Chancery of the State of Delaware in Legend Natural Gas II Holdings
vs. Mark E. Hargis to contend that under the American Arbitration
Association Rules, the Arbitrator was empowered to decide the question
of arbitability. It was, thus, submitted that the finding recorded in
paragraph 24 of the impugned judgment that the International Arbitration
Tribunal was not competent to rule on its own jurisdiction was contrary to
law.
[b] That, the finding recorded that under Section 49 of the said Act,
that it was open for the Court to review the decision resulting in an Award
by the International Arbitration Tribunal was contrary to law. It was urged
that under Section 48 of the said Act, there was no such power available
with the Court to review a foreign award on merits. In that context, the
learned counsel placed reliance upon the judgment of the Honourable
Supreme Court in Shri Lal Mahal Ltd. Vs. Progetto Grano SPA [(2014)
2 SCC 433], wherein it was held that Section 48 of the said Act does not
give an opportunity to have a second look at the foreign award at the
stage of its enforcement. Reference was then made to the judgment of
learned Single Judge dated 8th April, 2015 in the case of POL India
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Projects Ltd. Vs. Aurelia Reederei Eugen Friedrich Gmbh
Schiffahrtsgesellschaft & Company Kg, wherein it was held that the
award having become final, issues decided therein could not be
challenged while raising objection under Section 48 of the said Act to the
enforcement of the foreign award. The learned counsel also relied upon
the Judgment of learned Single Judge dated 28th January, 2014 in Mitsui
OSK Lines Ltd.,(Japan) Vs. Orient Ship Agency Pvt. Ltd., wherein after
referring to the judgment of the Honourable Supreme Court in Shri Lal
Mahal Ltd. [supra], the scope of interference under Section 48 (2) of the
said Act was reiterated. It was, therefore, submitted that the power to
review the award was not saved by Section 48 of the said Act.
[c] That, the learned Single Judge erred in holding that the
International Arbitration Tribunal had no jurisdiction to lift the corporate
veil. It was submitted that the respondents had not furnished any proof on
record as required under Section 48 (1) of the said Act and had merely
relied upon the judgment of learned Single Judge in the case of ONGC
Ltd. Vs. M/s. Jindal Drilling & Industries Ltd. [ (2015) 7 Bom CR 62].
The learned counsel distinguished the aforesaid judgment of learned
Single Judge and submitted that the observations made in paragraph 47
thereof that the Arbitral Tribunal had no power to lift corporate veil which
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could be done only by a Court if a strong case was made out, was not the
ratio of the aforesaid judgment. It was submitted that no American Law
was pointed out that barred the lifting of the corporate veil by the
International Arbitration Tribunal. The conclusion recorded by the learned
Single Judge in that regard was, therefore, not liable to be sustained.
[d]
That the foreign award could not have been held to be contrary
to the provisions of Section 48(1) (c) (d) and (e). In that regard, it was
submitted that the respondents had urged before the learned Single
Judge that the enforcement of the foreign award ought to be refused in
view of the grounds mentioned in Clauses (b), (c) and (d) of Section 48 (1)
of the said Act while the said foreign award has been held to be hit by the
conditions mentioned in Clauses (c), (d) and (e) of Section 48 (1) of the
said Act. It was submitted that while challenging the enforcement of the
foreign award, though reference was made to the ground under Section
48 (1) (b) of the said Act, there was no finding recorded in that regard.
Further, the ground under Section 48 (1) (e) of the said Act was not
canvassed; but the foreign award has been held to be hit by the said
clause. It was then submitted that there were neither sufficient pleadings
nor any proof, whatsoever, to substantiate the grounds as urged under
Section 48 (1) (c) and (d) of the said Act. It was submitted that the
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respondents having been held liable under the foreign award, there was
no question of applying the provisions of the Companies Act, 1956. The
appellant was, in fact, a decree holder and it was seeking to exercise the
power of enforcement of such foreign award. The learned counsel further
submitted that the individual liability of the respondents had been
adjudicated by the International Arbitration Tribunal as they were not
signatories to the agreement. He also referred to the pleadings of the
parties before the Arbitral Tribunal to urge that the stand taken there was
distinct from the stand that was now taken in proceedings for enforcement
of the foreign award. He drew attention of the Court to the grounds in
paragraph 14 of the objections filed on behalf of respondent no.1 before
the learned Single Judge. He also referred to the grounds raised by the
respondent no.2 before the learned Single Judge. He also urged that the
respondent Nos.1, 2 (i) and (ii) were also individually liable to satisfy the
award.
On these grounds it was urged that the appeal deserves to be
allowed.
08. Shri Sunil Manohar, learned Senior Advocate for the
respondent no.1 opposed the appeal and made the following
submissions :-
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[a] The Appellate Court, while entertaining an appeal under
Section 50 (1) of the said Act acts as a Court of Correction, which
jurisdiction was akin to the jurisdiction exercised by the Letters Patent
Court. While exercising such appellate jurisdiction, the Court would be
exercising the powers of a Court of error. Even if the final order was in
favour of the respondents, findings if any against the respondents could
also be corrected. All questions of fact and law were open to be urged
before the appellate Court. Reasons assigned by learned Single Judge
could also be substituted. In that regard, the learned Senior Advocate
placed reliance upon the judgments of the Honourable Supreme Court in
Baddula Lakshmaiah & ors, [1996 (3) SCC 52] and Gaudiya Mission
vs. Shobha Bose & anr, [(2008) 17 SCC 714].
[b] That the existence of an agreement containing the arbitration
clause to which the respondent no.1 was a party was sine qua non before
the International Arbitral Tribunal could proceed in the matter against the
respondent no.1. It was submitted that even the appellant did not dispute
the fact that there was no agreement between the appellant and the
respondent no.1 and that the only agreement that was relied upon by the
appellant was the agreement between DMC MCL and the appellant. A
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copy of the original agreement as required by provisions of Section 47 (1)
(b) of the said Act was never produced. It was urged that the only manner
in which the International Arbitrator derives authority is either by consent
of parties as agreed or under Section 45 of the said Act, pursuant to an
order of a judicial authority. There was no other manner in which the
International Arbitrator could assume jurisdiction. Reliance in that regard
was placed on the judgments of the Honourable Supreme Court in Chloro
Controls India Private Limited vs. Severn Trent Water Purification
Inc. & ors. [(2013) 1 SCC 641] and Deutsche Post Bank Home Finance
Limited vs. Taduri Sridhar & anr. [(2011) 11 SCC 375]. It was then
submitted that there would be no presumption whatsoever as regards
consent of a party with whom there was no such agreement. In support of
this contention, the learned Senior Counsel referred to the judgment of the
Honourable Supreme Court in Harsha Constructions vs. Union of India
& ors., [(2014) 9 SCC 246]. Reference was also made to the Uniform
Arbitration Act which contemplates requirement of an agreement in writing
between the parties as well as Article 1 of the International Centre for
Dispute Resolution Resolution Arbitration Rules. In the aforesaid
backdrop, it was thus submitted that the learned Single Judge ought to
have dismissed the proceedings in limine on account of non-satisfaction of
the requirements of Section 44 (a) and Section 47 (1) (b), considering the
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fact that such satisfaction has to be recorded under Section 49 of the said
Act.
[c] That the respondent no.1 had duly met the requirements of the
provisions of Section 48 (1) (b), (c) and (d) of the said Act. The
respondent no.1 in his objection before the International Arbitrator had
specifically pleaded the absence of any arbitration agreement to which the
respondent no.1 was a party. In absence of any such agreement, there
was no occasion for the International Arbitrator to proceed against the
respondent no.1 and hold the respondent no.1 liable. It was for this
reason that the respondent no.1 had not subsequently participated in the
arbitration proceedings. Similarly, what was not stated in the agreement
between the appellant and DMC MCL was beyond the scope of the
submission to arbitration. On these counts, the enforcement of the foreign
award against the respondent no.1 was liable to be refused.
[d] That in any event the Award in question could not be called a
foreign award insofar as the respondent no.1 was concerned. According
to the learned Senior Advocate, in view of provisions of Section 44 (a) of
the said Act, at the highest the Award in question could be termed to be a
foreign award between DMC MCL and the appellant. It was not a foreign
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award between the appellant and the respondents as they were not
parties to the arbitration agreement. On this count, it was submitted that
though the learned Single Judge had held the entire award to be a foreign
award, said finding needs to be corrected by this Court by holding that the
same was not a foreign award between the appellant and the
respondents.
[e] That the International Arbitrator acted beyond his jurisdiction
by piercing the corporate veil. Referring to the response of the
respondent no.1 to the statement of claim made before the International
Arbitrator, it was submitted that a specific stand in that regard had been
taken and it had been specifically pleaded by the respondent no.1 that
DMC MCL was not the alter-ego of the respondent no.1. This specific
stand, though taken, was not adjudicated by the International Arbitrator.
By referring to the preliminary order dated 23 rd December, 2009, it was
submitted that though the International Arbitrator had postponed the
consideration of the question as to whether the corporate veil could be
pierced till the parties led evidence, such final decision was taken by the
International Arbitrator without having any such authority or jurisdiction in
that regard. There was no consent given by the respondent no.1 to the
International Arbitrator to pierce the corporate veil. The International
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Arbitrator also failed to decide its own competence to entertain the dispute
and whether the same was arbitrable. It was then submitted that it was
only the Court and not the International Arbitral Tribunal that could lift the
corporate veil. In support of said submission, the learned Senior
Advocate placed reliance upon the judgment of the Honourable Supreme
Court in Shin - Etsu Chemical Company Ltd. vs. Vindhya Telelinks
Ltd. & ors. [2005 (7) SCC 234]. He also referred to the decision of the
Division Bench of this Court in Hemant D. Shah & ors. vs. Chittaranjan
D. Shah & ors. in Appeal No.658 of 2006, arising out of Arbitration
Petition No.295 of 2006, decided on 5 th September, 2006 wherein it was
held that the exercise of lifting the corporate veil could not be done in
proceedings under section 9 of the said Act. It was submitted that this
decision of the Division Bench was affirmed by the Honourable Supreme
Court.
[f] That the International Award was contrary to the fundamental
policy of India and hence under provisions of Section 48 (2) (b) of the said
Act its enforcement ought to have been refused. The judgment of the
Honourable Supreme Court in Shri Lal Mahal (supra) was sought to be
distinguished by relying upon a subsequent judgment in Oil and Natural
Gas Corporation Limited vs. Western GECO International Limited,
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[(2014) 9 SCC 263] and it was urged that the concept of fundamental
policy of Indian law had been widened by the Honourable Supreme Court
in its subsequent decision. The learned Senior Advocate also relied on
the decision in Associate Builders vs. Delhi Development Authority,
[2015 (3) SCC 49] to buttress his submission. In that regard, reference
was made to Part II, Chapter I of the said Act as well as First Schedule to
the said Act and it was submitted that the same contemplated an
agreement in writing by which parties undertake to resolve all or any of
the differences between them through arbitration. Said provisions
contemplate a defined legal relationship between such parties. This
position of law being settled, anything contrary to the same would be
against the fundamentals of law and public policy of India.
It was thus submitted that the ultimate conclusion arrived at by
the learned Single Judge did not call for any interference.
09. Shri A. S. Jaiswal, learned Senior Advocate for the respondent
no.2(i) also opposed the appeal and made the following submissions:-
[a] That the respondent no.2(i) was also not a party to the
arbitration agreement. The respondent no.2(i) had signed the
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Representation Agreement and the document of second amendment in his
capacity as Director of DMC MCL. The respondent no.2 was an
independent entity from DMC MCL as well its respective shareholders.
Reference in that regard was made to the certificate dated 25 th October,
2009 issued by the Company Secretary to that effect. Hence, there was
no question of the respondent no.2(i) being held liable.
[b] That the International Arbitrator exceeded his jurisdiction in
piercing the corporate veil. The finding recorded as to the co-relation
between DMC MCL and GBT was perverse. There was no evidence
received in that regard and the attribution to the knowledge of respondent
no.2(i) was hardly of any legal consequence. The International Arbitrator
assumed power to go into these aspects without having any jurisdiction to
do so. The respondent no.1 was joined as a party in his individual
capacity and not respondent no.2(i).
[c] That the respondent no.2 could not have been saddled with
any liability whatsoever. Commission if any was payable only by DMC
MCL. There was no question whatsoever of the respondent no.2
inheriting the business of Medquist and Assist Med from DMC MCL.
Business could never be inherited and that it could only be transferred.
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Reference was not made to any legal provision on the basis of which
terms and conditions of the Representation Agreement could be inherited
by the respondent no.2. Referring to the term "subrogation" as explained
in Black's Law Dictionary, it was urged that the alleged breach at the
instance of DMC MCL had been wrongly inputted to all the respondents.
[d]
That as per Article 1 of the International Centre for Dispute
Resolution Arbitration Rules and Clause 5701 of the Uniform Arbitration
Act, a written agreement with an arbitration clause was contemplated. The
respondent no.2 was not a signatory to any such agreement with the
appellant. The judgments in James & Jackson as well as in Legend
Natural Gas II Holdings (supra) relied upon by the learned Counsel for
the appellant were sought to be distinguished by urging that the emphasis
was on parties agreeing for arbitration. As regards the decision in POL
India Projects Ltd. (supra), it was submitted that the provisions of the
English Arbitration Act with regard to loss of right to object had been relied
upon. There was no such provision in Delaware law with regard to losing
one's right to object. Reliance was then placed on the decision of the
Delhi High Court in C.P. No.278/2002 decided on 16 th December, 2003 -
Marina World Shipping Corporation Ltd. vs. Jindal Exports (P) Ltd. to
urge that even if a losing party had not challenged the award as provided
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under foreign law, challenge to such award on grounds as set out in
Section 47 and 48 of the said Act could be raised.
It was therefore submitted that the appeal deserved to be
dismissed.
10.
In reply, it was submitted by the learned Counsel for the
appellant that the scope of the present appeal was limited to the
provisions of Section 50(1)(b) of the said Act as observed by the
Honourable Supreme Court in paragraph 24 of its decision in Arun Dev
Upadhyaya (supra). No new findings as sought to be urged at the behest
of the respondents could be invited. It was urged that the judgments
relied upon by the respondent no.1 in that regard were not applicable. As
regards the contention with regard to absence of an agreement between
the appellant and the respondents, it was submitted that the respondents
had been sued as alter-ego of DMC MCL which was a signatory to the
Representation Agreement. The only objection as pleaded and raised by
the respondent no.1 was of being a non-signatory to the aforesaid
agreement. The objection as regards the right and authority to lift the
corporate veil under Delaware law was never pleaded. Reference was
made to the specific prayers made in the claim statement by the appellant.
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It was then submitted that the objection as to absence of notice under
Section 48 (1)(b) of the said Act was not pleaded before the International
Arbitrator. Reference was made to various e-mail messages sent to the
respondent no.1 prior to and during the arbitration proceedings. There
was no question of any consent of the respondents being obtained prior to
piercing the corporate veil as they had been sued as alter-ego of DMC
MCL and that the corporate veil of DMC MCL had been lifted. Reference
was then made to the observations in paragraph 11 of the judgment of the
learned Judge to submit that the grounds based on provisions of Section
48 (2)(b) of the said Act were urged only on behalf of DMC MCL and that
in paragraph 38 of the said judgment this contention had been turned
down. The judgments relied upon by the learned Senior Advocates for the
respondents were sought to be distinguished. Reliance was then placed
on the judgment of the Supreme Court of British Columbia in C.E.
International Resources Holdings LLC Vs. Yeap Soon Sit, S.A.
Minerals Partnership and Tantalum Technology Inc. dated 1st
October, 2013 as well as extract 2.51 from Redfern and Hunter on
International Arbitration.
Consideration
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11. Since the learned Senior Advocate on behalf of respondent
no.1 has submitted that the scope of the present appeal filed under
Section 50 (1) (b) of the said Act would be wide and akin to the jurisdiction
which the Court would exercise while entertaining a Letters Patent Appeal,
said aspect can be considered at the outset. As noted earlier, by order
dated 30th September 2016, this Court had decided the preliminary
objection to the maintainability of the present appeal. Said preliminary
objection had been rejected and this order was assailed before the
Honourable Supreme Court. The Honourable Supreme Court in Arun Dev
Upadhyaya (supra), after considering the provisions of Sections 5 and 13
of the Commercial Courts, Commercial Division and Commercial Appellate
Division of the High Courts Act, 2015 along with Section 50 of the said Act
observed as under :-
"24........ A conspectus reading of Sections 5 and 13 of the
Act and Section 50 of the 1996 Act which has remained
unamended leads to the irresistible conclusion that a
Letters Patent Appeal is maintainable before the Division
Bench. It has to be treated as an appeal under Section
50 (1) (b) of the 1996 Act and has to be adjudicated within
the said parameters."
Considering the aforesaid observations of the Honourable
Supreme Court that a Letters Patent Appeal would be maintainable and
the present being an appeal under Section 50 (1) (b) of the said Act, it has
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to be adjudicated within the said parameters.
12. Chapter I of Part II of the said Act lays down the manner in
which certain foreign awards can be enforced. The modalities for seeking
enforcement of a foreign award as well as grounds on which such
enforcement can be refused by the Court have been laid down therein.
After the Court arrives at the satisfaction that the foreign award is
enforceable under Chapter I, the award is deemed to be a decree of the
Court. The provisions of Section 48 of the said Act now stand judicially
interpreted as per various decisions of the Honourable Supreme Court of
India to which we shall refer to a bit later. Suffice it to say that as Section
50 (1)(b) of the said Act provides for an appeal from an order of the Court
refusing to enforce a foreign award under Section 48 of the said Act, the
appellate Court would be required to examine the challenges to such
order in the light of the scope of the provisions of Section 48 of the said
Act. While undertaking such exercise, the appellate Court can examine
whether the enforcement of a foreign award deserves to be refused on the
touchstone of Section 48 of the said Act or not. In that context, the
findings recorded by learned Single Judge while refusing to enforce a
foreign award would be open to correction as observed by the Honourable
Supreme Court in Baddula Lakshmaiah (supra). In the light of the
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aforesaid, the challenges as raised can be considered.
13. It is not in dispute that the appellant and DMC MCL were the
only signatories to the Representation Agreement. The arbitration
proceedings were however initiated against DMC MCL as well as the
respondent nos.1 and 2 herein. Perusal of the statement of claim filed by
the appellant before the International Arbitral Tribunal indicates that the
respondents herein were made parties in the arbitration proceedings. In
paragraph 62 of the claim statement it was pleaded by the appellant as
under :-
"62. Accordingly, each Respondent is fully obligated to
Claimant ISS as the alter ego of the others, and the
corporate veil of each should be pierced under Delaware
corporation law, and all corporate Respondents should be
considered continuation corporations of DMC Management
Consultants, and each Respondent should be bound to the
agreement to this arbitration to the full extent and in the
same manner as DMC Management Consultants. "
Prayer clause (a) made in the claim statement of the appellant
reads as under :-
"a. Declaring that Delaware law applies to all
issues relating to the construction and performance
of the Representation Agreement at issue herein and all
other issues arising out of that contract, including
piercing of the corporate veil, disregard of the corporate
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form of Respondents, alter ego theory applicable to
Respondents and otherwise; and...."
14. The respondent no.1, while responding to the statement of
claim denied the assertions made in the statement of claim and stated that
the respondent no.1 could not be identified as an alter ego of DMC MCL,
GBC or GBT. Further stand opposing the claim as made was based on
the fact that the respondent no.1 had made certain dealings only with Mr.
Terry Peteete and his wife Mrs. Rama during his tenure as Director of
DMC MCL. The International Arbitrator on 23 rd December, 2009 in his
ruling and order observed that only the appellant and DMC MCL filed
briefs. Other non-signatory parties had failed to file relevant briefs on the
matters and had only submitted affidavits. Thereafter, while determining
the applicability of Delaware Law as the substantive law controlling the
agreement, the International Arbitrator postponed the decision on the
question of piercing the corporate veil and joinder non-signatory parties.
According to the Tribunal, until all such evidence was received, a finding
could not be recorded on the same. In the same order, it was stated that
participation of the respondent no.1 along with the GBC and GBT would
not jeopardize in any way their claim and the same would not constitute a
waiver of rights or claims as non-signatory parties. The decision not to
participate in those proceedings was stated to expose such parties to an
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adverse award or an award by default. It is common ground that
thereafter the respondents did not participate in the arbitration
proceedings.
15. From the aforesaid it is clear that as per the statement of claim
made by the appellant before the International Arbitrator, the appellant
proceeded against the respondents on the footing that they were not
signatories to the agreement and hence called upon the Arbitrator to
pierce the corporate veil and apply the alter ego doctrine. This stand was
opposed on the plea that being non-signatories to the arbitration
agreement, they had no concern with the proceedings that were
essentially between the appellant and DMC MCL. After ruling on the
applicability of substantive law, the Arbitrator proceeded to postpone the
decision on the aspects of piercing of the corporate veil and joinder of
non-signatory parties. Thereafter, the respondents did not participate in
the proceedings which culminated into the award dated 28 th March, 2010.
Admittedly, this award was not subjected to any further challenge by the
respondents herein as permissible under the Rules framed by the
American Arbitration Association.
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16. If the award passed by the International Arbitration Tribunal is
perused, it can be seen that the Arbitrator has followed the precedents of
Delaware Court of Chancery. On the basis of said precedents the
International Arbitrator has proceeded to consider whether the "alter ego"
doctrine would be applicable and whether the corporate veil should be
lifted. It is in that context that the learned Counsel for the appellant has
sought to rely upon the judgment of the Supreme Court of the State of
Delaware in James and Jackson (supra). Therein, the Supreme Court of
the State of Delaware while considering the question as to whether the
issue of substantive arbitrability should be decided by an arbitrator or a
Court adopted the majority view of jurisdictions other than the United
States Supreme Court that where the arbitration clause provides that
arbitration would be conducted in accordance with the rules of the
American Arbitration Association, the same is clear evidence of the
parties intent that the arbitrator shall determine the aspect of substantive
arbitrability. As per clause 8 (d) (ii) of the Representation Agreement the
signatories to the same had agreed to resolve their disputes through an
arbitrator to be appointed in accordance with the American Arbitration
Agreement.
In Legend Natural Gas II Holdings (supra), the Court of
Chancery of the State of Delaware accepted that the issue of substantive
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arbitrability must be decided by the Arbitrator. Here too, the agreement
included the arbitration clause by which disputes were to be resolved as
per the rules of the American Arbitration Association. Similarly, the
Supreme Court of British Colombia in C.E. International Resources
Holdings (supra) held that a party to an arbitration agreement would
include a person claiming through or under a party and non-signatories
were held to be bound by arbitration agreement in various ways which
include piercing the corporate veil.
From the aforesaid, it can be gathered that in the State of
Delaware while conducting the arbitration proceedings in accordance with
the Rules of the American Arbitration Association, it was permissible for
the Arbitrator to decide the issue of substantive arbitrability and while
doing so it was permissible to bind non-signatories to an arbitration
agreement in various ways including piercing the corporate veil or
invoking the alter ego doctrine.
17. While opposing the application for enforcement of the foreign
award, the respondent no.1 had relied upon the provisions of Section 48
(1) (a), (c) and (d) of the said Act along with the objection under Section
48 (2) of the said Act. These objections are based on the footing that the
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respondent no.1 was not a signatory to the Representation Agreement
entered into by the appellant with DMC MCL. The emphasis was on the
aspect that being a non-signatory to the said agreement, it was not open
for the International Arbitrator to entertain and decide issues pertaining to
the respondent no.1 without its consent so as to lift the corporate veil or
apply the alter ego doctrine.
The respondent no.2 had also opposed the enforcement
proceedings on the ground that it was not a signatory to the
Representation Agreement and that, in fact, it had been incorporated after
execution of said agreement. There was no proper opportunity made
available to the respondent no.2 in the arbitration proceedings and that
the liability of DMC MCL, if any, could not have been extended to the
respondent no.2 by piercing the corporate veil.
18. Chapter I of Part II of the said Act specifically deals with the
modality for enforcement of certain foreign awards. It would be apposite
at this stage to refer to paragraph 121 of the judgment of the Constitution
Bench in Bharat Aluminium Company Vs. Kaiser Aluminium
Technical Services Inc. [ (2012) 9 SCC 552] wherein it has been
observed thus:-
"121. Generally speaking, regulation of arbitration
consists of four steps:
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(a) the commencement of arbitration;
(b) the conduct of arbitration;
(c) the challenge to the award; and
(d) the recognition or enforcement of the award;
In our opinion, the aforesaid delineation is self-evident in
Part I and Part II of the Arbitration Act, 1996. Part I of the
Arbitration Act, 1996 regulates arbitrations at all the four
stages. Part II, however, regulates arbitration only in
respect of commencement and recognition or enforcement
of the award."
It is then observed that the regulation of conduct of arbitration
and challenge to an award under Part II of the said Act would have to be
done by the Courts of the country in which the arbitration is being
conducted. We are not oblivious of the fact that the law laid down by the
Constitution Bench would apply prospectively and hence we have referred
only to the interpretation of Part I and Part II of the said Act.
Section 44 of the said Act defines the term "foreign award".
Section 45 of the said Act confers power on a judicial authority to refer
parties to arbitration. In Sasan Power Ltd. [supra], it has been held that
the scope of enquiry under Section 45 is confined only to the question
whether the arbitration agreement is "null and void, inoperative or
incapable of being performed." Under Section 46 of the said Act, any
foreign award enforceable under Chapter I of Part II is treated as binding
for all purposes on the persons as between whom it was made. The
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expression "persons as between whom it was made" in Section 46 is
relatable to parties to an agreement in Section 44 of the said Act as well
as non-signatory parties to such agreement.
19. Under Section 47 (1) of the said Act, the party applying for
enforcement of a foreign award is required to produce before the Court
amongst other things stipulated therein, such evidence as would be
necessary to prove that the award was a foreign award. The provisions of
Section 48 (1) of the said Act on the other hand contemplate refusal to
enforce a foreign award only if the party against whom it is invoked
furnishes to the Court proof that requirements of sub-clauses (a) to (e)
therein are satisfied. Thus, while the party applying for enforcement of a
foreign award is required to give evidence as would be necessary to prove
that the award was a foreign award, the party resisting its enforcement is
required to give proof to the Court that the grounds stipulated have been
duly made out. The distinction between evidence and proof is that proof
stands on a higher degree or pedestal than evidence. This distinction
between evidence and proof has been explained in Black's Law Dictionary
- Sixth Edition in the following manner:-
"Proof is the perfection of evidence; for without evidence
there is no proof, although there may be evidence which
does not amount to proof."
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Thus, a party resisting enforcement of a foreign award is
expected to furnish proof of a somewhat higher degree and thus casts a
greater burden on such party than the burden on the party who seeks
enforcement of a foreign award who is only expected to produce
necessary evidence. This view stands fortified by the observations of the
Full Bench of this Court in R.S. Jiwani, Mumbai Vs. Ircon International
Ltd., Mumbai [2010 (1) Mh. L.J. 547] where in the context of Section 34
(2) of the said Act, it has been stated that the word "proof" needs to be
understood in the sense in which it is defined in the Evidence Act because
proof depends upon the admissibility of evidence. What is required is
production of such material on which the Court can reasonably act to
reach the supposition that a fact exists.
Further, while Section 48 (1) (a) refers to parties to the
agreement referred to in Section 44 of the said Act, Section 48 (1) (b) of
the said Act makes reference to a party against whom the award is
invoked. The distinction between a party to an agreement and a party
against whom the award is invoked is relevant inasmuch as while the
provisions of Section 48 (1) (a) are relatable to signatories to the
arbitration agreement, the object of Section 48 (1) (b) is to take within its
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compass parties against whom the award is sought to be invoked which
may include non-signatories to the arbitration agreement. In other words,
a non-signatory to the agreement could also be a party against whom the
award is sought to be invoked. Thus, enforcement of a foreign award
against a party who is a non-signatory to the agreement but a party to the
award is also statutorily recognized. The distinction though subtle in
nature, the same appears to have been deliberately made to indicate the
areas intended to be covered by said provisions.
20. Thus, if the provisions of Section 48 (1) (b) of the said Act are
construed to include a party against whom the award is sought to be
invoked in contrast with parties to an agreement as referred to in Section
48 (1) (a) of the said Act, we find that Section 48 (1) (b) contemplates an
award being passed against a non-signatory party. If that be so, the
International Arbitral Tribunal in a given case would have the jurisdiction
to pass an award against a non-signatory party by applying the 'alter ego'
doctrine. In that context, therefore, the International Arbitral Tribunal
would have the necessary authority to decide the question of its
jurisdiction including the question of existence and validity of an
arbitration agreement. To hold otherwise would result in curtailing the
scope of the provisions of Section 48 (1) (b) of the said Act.
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The absence of any provision like Section 16 of the said Act in
Part-II of the said Act is, in our view, relevant for the purposes of Section
45 of the said Act. This aspect has been considered in Chloro Controls
India (P) Ltd. wherein it has been observed that determination of such
fundamental issues under Section 45 of the said Act by a judicial forum is
the legislative intent. However, absence of such provision in Part-II of the
said Act cannot lead to a presumption of exclusion of the competence of
the International Arbitral Tribunal to rule on its jurisdiction when
international arbitration is held outside India. It is to be noted that in
Chloro Controls India (P) Ltd., the Honourable Supreme Court was
dealing with international arbitration that had taken place in India which
permitted invocation of provisions of Section 45 of the said Act. But in a
case where international arbitration takes place outside India and there is
no occasion to invoke provisions of Section 45 of the said Act, it would not
be practically feasible nor desirable to start with a presumption that the
jurisdiction of an International Arbitral Tribunal to rule on its own
jurisdiction as well as to rule on the existence and validity of an arbitration
agreement stands excluded. In fact, in paragraph 84 of the judgment in
Chloro Controls India (P) Ltd. [supra], the Honourble Supreme Court
has taken judicial note of the positive effect of the kompetenz-kompetenz
principle in majority of countries. The International Arbitrator could, thus,
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be the first judge while deciding the question of its jurisdiction and as
regards existence/validity of the arbitration agreement. Moreover, Article
15 of the International Centre for Dispute Resolution Arbitration Rules
specifically empowers the Arbitral Tribunal to rule on its own jurisdiction
including on the objections with regard to the existence, scope or validity
of the arbitration agreement.
Hence, for aforesaid reasons, we find ourselves unable to
uphold the finding recorded by the learned Single Judge while answering
Question No.2 in the impugned judgment, that the International Arbitral
Tribunal had no jurisdiction to pass an award against the respondents
who were non-signatories to the arbitration agreement after holding that
they were 'alter ego' of DMC MCL. We, however, uphold the finding
recorded while answering question no.3 that the decision of the
International Arbitral Tribunal on the question of its own jurisdiction is
tenative in nature and is subject to the provisions of Section 49 of the said
Act. Needless to state that satisfaction of the Court as contemplated by
Section 49 of the said Act would be arrived at after the party applying for
enforcement of the foreign award has produced evidence as required by
Section 47 of the said Act and after the party against whom the award is
sought to be enforced has failed to make out any ground contemplated by
Section 48 of the said Act for refusal of enforcement of such foreign
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award. For recording such satisfaction under Section 49 of the said Act, a
review on the merits of the dispute would not be permissible.
21. If the objections raised by the respondents to the application
for enforcement are perused, it becomes clear that the same are based on
the footing that the respondents were not signatories to the arbitration
agreement entered into by the appellant with DMC MCL. The objections
proceed on the basis that as the respondents were not parties to the
aforesaid agreement they had never consented to permit the Arbitrator to
go into the issue of lifting the corporate veil or to apply the alter ego
doctrine. There was no consent to adopt the course as followed by the
International Arbitrator.
From the material on record, however, it can be seen that
except for pleadings in the objection to the application for enforcement of
the award, there is no proof furnished as required by provisions of Section
48 (1) of the said Act. In absence of any proof whatsoever being
furnished by the respondents to substantiate their plea for refusal to
enforce the foreign award, mere pleadings in that regard would not
suffice. As noted above, requirement of furnishing proof stands at a
higher degree than producing necessary evidence for enforcing a foreign
award. Under sub-Section (1) of Section 48 of the said Act, enforcement
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of a foreign award may be refused only if such party furnishes proof in that
regard. Use of the word "may" in the matter of enforcement of a foreign
award in Section 48 (1) of the said Act indicates availability of discretion
with the Court in the said matter. However, use of the word "only" in the
requirement of furnishing proof indicates the pre-condition in that regard.
Thus, merely on the basis of pleadings between the parties
before the Arbitrator and grounds raised by way of objection to the
enforcement application, the enforcement of the foreign award is sought to
be opposed. Separate incorporation and existence as a distinct legal
entity are aspects leading to the application of the "alter ego" doctrine and
hence mere fact of such separate incorporation would not amount to
"proof" to deny enforcement of an award. To put it differently, the findings
recorded by the International Arbitral Tribunal would constitute evidence
in support of such conclusion and hence for purposes of refusal of
enforcement, proof of a higher degree would be required. Considering
the statutory requirements of aforesaid provisions, we find that mere legal
submissions would not take place of proof as required. We, therefore,
find that there is no proof furnished by respondents to justify their
opposition to the enforcement of the foreign award. It may be noted that
the parties have consciously declined to lead evidence as recorded in
paragraph 4 of the judgment under appeal.
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22. There is no difficulty in accepting the position that arbitration
proceedings have to take place between parties to the agreement which
contains an arbitration clause. The decisions in Deutsche Post Bank
Home Finance Ltd. Indowind Energy Ltd. and Harsha Constructions
[supra] emphasize the existence of a written agreement containing an
arbitration clause before such party can be subjected to arbitration
proceedings. Further, two companies having common shareholders
would not make the said two companies a single entity and there can be
no inference that one company would be bound by the acts of the other.
However, this position is subject to the legally recognized
exception that in appropriate cases the corporate veil of a company can
be pierced. In India, the concept of lifting the corporate veil is now a
recognized exception to the rule that a corporation in law has a separate
and distinct legal entity of its own. In Tata Engineering & Locomotive
Co. Ltd. vs. State of Bihar & ors., [AIR 1965 SC 40], it has been
observed that the doctrine that a Corporation or a company has a legal
and separate entity of its own has been subjected to certain exceptions by
the application of the fiction that the veil of the Corporation can be lifted
and its face can be examined in substance. The aforesaid exception as
recognized in the aforesaid decision has been consistently applied
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thereafter. A recent decision of the Honourable Supreme Court of India in
State of Rajasthan & ors. vs. Gotan Lime Stone Khanij Udyog Private
Limited & anr., [ (2016) 4 Supreme Court Cases 469] reiterates this legal
position in India. In Chloro Controls India (P) Ltd. (supra), the
Honourable Supreme Court of India while considering the scope and
ambit of the provisions of Section 45 of the said Act has observed in clear
terms that reference of non-signatory parties to arbitration is neither
unknown to arbitration jurisprudence nor is the same impermissible. The
concept of lifting the corporate veil and application of the alter ego
doctrine have, thus, been judicially recognized in India.
23. The International Arbitrator in his award after applying
precedents available under Delaware law proceeded to decide the aspect
of substantive arbitrability as the Representation Agreement referred to
applicability of American Arbitration Association Rules. Thereafter, on the
basis of available precedents, he proceeded to pierce the corporate veil
and applied the alter ego doctrine. The award has been shown to have
been passed after due notice to the parties against whom it was sought to
be invoked. This exercise could be undertaken only against non-
signatory parties. The non-signatory parties have suffered the award on
merits. The signatory to the Representation Agreement has not
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challenged the award. Though it has been observed by the Delhi High
Court in Marina World Shipping Corporation Ltd. [supra] that failure to
challenge the foreign award under the applicable law would not preclude
a losing party from resisting its enforcement under Section 48 of the said
Act, grounds stipulated by Section 48 are required to be made out. From
the grounds enumerated in Section 48 of the said Act, it can be clearly
gathered that it is the intention of the Parliament to honour private
agreements and international adjudication through arbitration. Effort
appears to be to ensure least interference to the extent possible. Hence
the requirement of furnishing proof of specified grounds at the instance of
the party seeking avoidance of enforcement of a foreign award. Scope for
avoiding enforcement of a foreign award appears to have been kept
deliberately narrow. Thus, errors which can be corrected under Delaware
law in appeal against such award cannot by themselves constitute
grounds to assail the execution of the award under Section 48 of the said
Act. The submissions based on subrogation and alleged breach at the
instance of DMC MCL being wrongly inputted to all the respondents are
without any proof and touch the merits of the findings of the International
Arbitral Tribunal.
24. The learned Single Judge while considering aforesaid
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objections to the prayer for enforcement of the foreign award has recorded
a finding that the enforcement of said award was liable to be refused
under provisions of Section 48 (1) (c), (d) and (e). There is no dispute
between parties that in the application raising objections to the
enforcement of the award, there were no pleadings with regard to grounds
in relation to Section 48 (1) (e) of the said Act. An objection based on
Section 48 (1) (e) of the said Act was also not urged before us. There was
some dispute between the parties with regard to ground as contemplated
by Section 48 (1) (b) of the said Act being canvassed for consideration
before the learned Single Judge. The objection raised by the respondent
no.1 to the statement of claim does not indicate such ground based on
Section 48 (1) (b) of the said Act being pleaded. A plea regarding
absence of notice has been raised by the respondent no.2 in its objection
dated 5th March, 2016. However, in paragraphs 5 to 7 thereof, it has
been stated that despite not being a signatory to the Representation
Agreement, it was compelled to participate in the arbitration proceedings
which it did by engaging Counsel. Nevertheless, as said ground based
on aforesaid clause finds place in the judgment of learned Single Judge
as being urged and as invocation of the said ground is also based on the
plea that the respondents were not signatories to the arbitration
agreement, we have taken the same into consideration.
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Hence, for foregoing reasons, the finding recorded by the
learned Single Judge that the award passed by the International Arbitral
Tribunal is hit by the provisions of Section 48 (1) (c), (d) and (e) of the
said Act cannot be sustained. We also do not find the said award being
hit by the provisions of Section 48 (1) (b) of the said Act. The respondents
have not furnished any proof in support of their objections that would
enable us to refuse enforcement of the foreign award under Section 48 (1)
(b) to (d) of the said Act.
25. The provisions of Section 48 (2) (b) of the said Act have been
the subject-matter of judicial interpretation. In Shri Lal Mahal Ltd. (supra),
the Honourable Supreme Court while considering the scope of the
provisions of Section 48 (2) (b) of the said Act as it stood prior to its
amendment held that the application of "public policy of India" doctrine for
the purposes of Section 48 (2) (b) was more limited than the application of
the expression in respect of an award of a domestic Arbitral Tribunal. In
paragraph 29 of the said report, it observed thus :-
"We accordingly hold that enforcement of foreign award
would be refused under Section 48 (2) (b) only if such
enforcement would be contrary to (1) fundamental policy
of Indian law; or (2) the interests of India; or (3) justice or
morality. The wider meaning given to the expression
"public policy of India" occurring in Section 34 (2) (b) (ii) in
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Saw Pipes is not applicable where objection is raised to
the enforcement of the foreign award under Section 48 (2)
(b)."
Thereafter in Oil and Natural Gas Corporation Ltd . (supra),
a Bench of three learned Judges of the Honourable Supreme Court of
India while considering the provisions of Section 34 (2) (b) of the said Act,
considered the question as to what would constitute the "fundamental
policy of Indian law". In that context a reference was made to three
distinct and fundamental juristic principles to be the part and parcel of the
fundamental policy of Indian law. These were adopting a judicial
approach, determining rights and obligations of parties before it in
accordance with the principles of natural justice, application of mind to the
attendant facts and circumstances of the dispute and the principle of
reasonableness in the decision. In its subsequent decision in Associate
Builders (supra), which was again a case relating to a domestic award,
the Honourable Supreme Court, after referring to its earlier decision in Oil
and Natural Gas Corporation Ltd . (supra), reiterated the aforesaid tests
laid down in said decision and further observed that if an award was
against justice or morality, the same was liable to be set aside. It further
held that even in case of patent illegality the award would be vulnerable.
The scope of the expression "fundamental policy of Indian law" thus
stands duly interpreted by the Honourable Supreme Court in the aforesaid
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decisions.
26. It is, however, to be noted that the provisions of Section 48 (2)
of the said Act have been amended by Act No.3 of 2016, which
amendment has come into force on 23 rd October, 2015. Explanations 1
and 2 have been substituted in place of the existing explanation. Section
48 (2) of the said Act, as amended now reads thus :-
"Enforcement of an arbitral award may also be refused if
the Court finds that -
(a) the subject-matter of the difference is not
capable of settlement by arbitration under the
law of India; or
(b) the enforcement of the award would be
contrary to the public policy of India.
[Explanation 1 - For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy
of India, only if, -
(i) the making of the award was induced or
affected by fraud or corruption or was in
violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental
policy of Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.]
[Explanation 2 - For the avoidance of doubt,
the test as to whether there is a contravention with the
fundamental policy of Indian law shall not entail a review
on the merits of the dispute.]."
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Judicial interpretation of the expression "fundamental policy of
Indian law" as laid down in the decisions referred to herein above has now
become part of the statutory provision itself. The explanations being
clarificatory in nature and for avoidance of doubt, it is obvious that same
would have to be treated as being in existence since the enactment of the
principal provision itself. Explanation 2 as added now prohibits a review
on the merits of the dispute while considering a challenge to the
enforcement of a foreign award on the ground that it is in contravention
with the fundamental policy of Indian law.
27. Considering the expression "public policy of India" in the
aforesaid context, we do not find any sufficient material on record to
conclude that while making the foreign award, there was lack of judicial
approach or that the rights and obligations of parties before the
International Arbitrator were decided in breach of principles of natural
justice. Similarly, the award having been shown to have been passed
after taking into consideration applicable Delaware Law, it cannot be said
that it suffers from non-application of mind to the attendant facts and
circumstances of the dispute or that there is absence of reasonableness
in the decision.
In Associate Builders (supra), the Honourable Supreme
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Court has cautioned that while applying the "public policy" test, the Court
does not act as a Court of appeal and a possible view by the arbitrator
has necessarily to pass the muster. Similarly, disregarding the binding
effect of a judgment of a superior Court has been considered violative of
the fundamental policy of Indian law. Thus, if the principle of lifting the
corporate veil as an exception to the existence of a distinct corporate
personality of a Company or its shareholders is well recognized in India
and the International Arbitral Tribunal after following precedents of the
State of Delaware has applied the same while passing the award, this
exercise would not violate the fundamental policy of India to the extent of
disregarding binding precedents. We are also not required to "have a
second look at the foreign award" so as to enter into its merits, as
observed in Shri Lal Mahal Ltd. (supra).
28. The decision in Hemant D. Shah [supra] holds that third
party property in which neither of the parties to the agreement has any
right, title or interest cannot be the subject matter of dispute in pending
arbitration proceedings between parties to the agreement. In the facts of
the present case, the ratio of aforesaid decision cannot be made
applicable to the case in hand. In Jindal Drilling & Industries Ltd.
[supra], the Court was dealing with challenge raised to a domestic award
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under Section 34 of the said Act. The arbitral tribunal had recorded a
finding that on the evidence led by parties, no case had been made out to
lift the corporate veil. The learned Single Judge found that this finding
was not perverse for being interfered with under Section 34 of the said
Act.
Since we have found in the facts of the present case that the
International Arbitral Tribunal by applying precedents under Delaware law
was justified in piercing the corporate veil, we do not find that the
aforesaid decision assists the case of the respondents. Similarly, in the
view that we have taken, the ratio of the decision of the Honourable
Supreme Court in Shin-Etsu Chemical Company Ltd. [supra] does not
support the stand of the respondents. In Khardah Company Ltd. Vs.
Raymon & Company [AIR 1962 SC 1810] on which reliance was placed
before the learned Single Judge, while considering proceedings under
Section 33 of the Arbitration Act, 1940, it was held that in the absence of
an arbitration agreement, the question of acquiescence would not arise.
There would be no question of estoppel from challenging the validity of
the award. We do not find the ratio of said decision assisting the case of
the respondents.
29. Though it was submitted on behalf of the respondent no.1 that
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the finding recorded by learned Single Judge that the entire award in
question was a foreign award was incorrect and said finding was required
to be corrected by holding that it was a foreign award only between the
appellant and DMC MCL, we are not in a position to accept said
submission. Once it is found that the respondents were joined as parties
to the arbitration proceedings of which they had notice and after piercing
the corporate veil of DMC MCL, the International Arbitrator has proceeded
to pass the award, it cannot be said that it was a foreign award only
between signatories to the arbitration agreement. By applying the
precedents of the State of Delaware, the Arbitrator had proceeded to
pierce the corporate veil and pass award against all the parties. The said
finding recorded by the learned Single Judge that the award was a foreign
award qua all the respondents, therefore, does not deserve to be
interfered with.
Conclusions
30. Thus, from the material on record and on the basis of the
respective contentions of the parties, we find that the appellant has
produced before the Court the necessary material as contemplated by
Section 47 (1) of the said Act. In fact, learned Single Judge has on the
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basis of aforesaid material passed decree in terms of award dated 28th
March, 2010 against DMC MCL. We further find that the respondents
have failed to make out any ground under Section 48 of the said Act which
would enable the Court to refuse enforcement of the foreign award against
them. Thus, on being satisfied that the foreign award is enforceable
under Chapter I of Part II of the said Act in terms of provisions of Section
49 of the said Act, the foreign award dated 28th March, 2010 is deemed to
be a decree of the Court.
31. As a sequel to the aforesaid, the following order is passed:-
ORDER
[a] The judgment of learned Single Judge in Miscellaneous Civil Application No. 1319 of 2015 dated 18th April, 2016 to the extent the foreign award dated 28th March, 2010 passed by the International Arbitration Tribunal in ICDR Case No. 50-181-T-00327-09 has been held to be unenforceable in India against the respondents is set aside.
[b] It is held that the aforesaid foreign award dated ::: Uploaded on - 04/01/2017 ::: Downloaded on - 06/01/2017 01:42:11 ::: aa3.16 53 28th March, 2010 is enforceable against the respondents.
[c] Decree in terms of aforesaid foreign award dated 28th March, 2010 is passed against the respondents.
[d] The Arbitration Appeal is allowed in aforesaid terms with parties left to bear their own costs.
32. At this stage, learned Counsel for the respondents seeks stay to the implementation of this judgment. This request is opposed by the learned Counsel for the appellant. However, in the facts of the case, the implementation of the present judgment is stayed for a period of six weeks from today and the stay shall cease to operate automatically thereafter.
Judge Judge
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