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Arbitral Tribunal Permitted by Delhi HC to decide Alter Ego Issue

The Arbitral Tribunal was permitted by the Delhi High Court to decide the issue of lifting of corporate veil in a case whose facts did not point out fraud.
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The Arbitral Tribunal was permitted by the Delhi High Court to decide the issue of lifting of corporate veil in a case whose facts did not point out fraud.

The Suit was filed by the GMR Energy Limited against the Dossan Power Systems India Pvt. Ltd. The suit was filed seeking the permanent injunction so as to prevent the Dossan from going to Singapore International Arbitral Centre (SIAC) for initiating arbitration proceeding against them.

The Arbitrations agreements signed between Dosan India, GMR Chhatisgarh Energy Limited (GCEL) and GMR Infrastructure Limited (GIL) did not had GMR Energy as a signatory. However, due to the various MoU signed by the GMR Energy with the Dossan in which GMR Energy has accepted its liability to pay was roped into the arbitration proceedings by the Dossan. The GMR Energy has however contended that they are nothing but just the alter ego of GCEL and GIL owing to the corporate governance norm and family shareholding and because of this they have sought the relief of lifting corporate veil.

The GMR defended the step of filing the suit by submitting that the question of lifting of corporate veil comes under the purview of Courts and not of Arbitral Tribunal. GMR had relied on various precedents to support that non-signatory to the arbitration agreement cannot be made a party to the arbitration agreement.

The Court was of opinion that the issue of alter ego is not a non-arbitrable issue. It further noted that the GMR Energy was holding 100% stakes in GCEL during pendency of dealings which were transferred again during pendency of dispute.

The Court however held that these kinds of cases fall under the category (2) as laid down by the Supreme Court in case of National Insurance Company Limited vs. Boghara Polyfab (P) Ltd. The court stated that the identification of categories for considering an application under Section 11 of the Arbitration and Conciliation Act. The Court further stated that the issues in category (2) can either be decided by the Chief Justice or his designate or they can ask arbitral tribunal to decide on same.

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Reviewed by:
Mehak Sharma
Published on 16th Nov, 2017
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