2020 (2) TMI 1753 - HC - Indian Laws

Enforcing foreign arbitral award against non-signatory company controllers via 'corporate veil' claims blocked; Section 48 limits execution scope.

In execution of a foreign arbitral award, the dominant issue was whether non-signatory 'additional respondents' could be impleaded and made personally ... Enforcement and execution of the Foreign Award - Seeking leave of this Court to amend the Execution Application in accordance with the draft amendments set out in the Schedule annexed to this Chamber Summons - lifting of Corporate Veil - HELD THAT:- The party against whom the Foreign Award is to be enforced, is required to be given an opportunity as to why the Foreign Award should not be enforced against it. The provision also contemplates a case where the enforcement of the Foreign Award may be refused by the Court and which includes where the subject matter of the difference is not capable of settlement by arbitration under the law of India or the enforcement of the Award is contrary to the public policy of India. The Additional Respondents not being parties to the foreign arbitration proceedings and/or the Foreign Award, the Chamber Summons appears to evade this provision - The Foreign Award was enforceable only against the Judgment Debtor who was the party to the arbitration agreement and against whom the Foreign Award was passed. The Foreign Award cannot be enforced against the Additional Respondents who are neither parties to the arbitration agreement nor to the Award. The Award Holder has not been able to produce a Single judgment where, as in the present case, the Additional Respondents are to be made personally liable to satisfy the decree passed against the Respondent/Judgment Debtor. In fact, the judgment relied upon by the Award Holder viz. Bhatia Industries And Infrastructure Ltd. [2016 (9) TMI 967 - BOMBAY HIGH COURT] is entirely distinguishable on facts as in that case, the attachment was alleged to be made in respect of coal which belonged to BIIL and not the Judgment Debtor (BIL) - Considering that the ratio decidendi arrived at in the case of Bhatia Industries And Infrastructure Ltd. does not apply to the present case, the precedent relied upon by the Award Holder cannot apply in the facts and circumstances of the present case. It is immaterial that the factual allegations raised by the Award Holder in the Chamber Summons have not been dealt with by the Respondent and the Additional Respondents. In any event, these factual allegations are in the form of mere assertions, allegations, surmises and conjectures and cannot be accepted without the same being established in trial - the relief sought for in the present Chamber Summons being in circumvention of the provisions of the Arbitration and Conciliation Act, 1996 viz. Section 48 cannot be granted. Having considered the purport of the Chamber Summons which is taken out in execution of the Foreign Award, it would be appropriate to dismiss the Chamber Summons which as mentioned has been only taken out in desperation by the Award Holder who has otherwise not been able to enjoy the fruits of the Foreign Award in its favour. The Chamber Summons is accordingly, disposed of. ISSUES PRESENTED AND CONSIDERED 1) Whether a foreign award, already held enforceable as a decree, can be executed by amending the execution application so as to fasten joint and several personal liability on non-award parties, namely group entities and individuals, on the basis of alleged diversion/siphoning and by lifting the corporate veil. 2) Whether such an attempt is barred by foundational limitations of execution law, including that an executing court cannot go behind or beyond the decree, and whether the proposed course circumvents the statutory scheme governing enforcement of foreign awards, particularly the requirement that enforcement is against the party to the arbitration agreement/award and with opportunity contemplated by the enforcement provision. 3) Whether the relief sought required adjudication through a separate substantive proceeding (trial) rather than being decided within execution, and whether delay and laches in seeking impleadment/amendment affected maintainability. ISSUE-WISE DETAILED ANALYSIS Issue 1: Execution against non-award parties by lifting the corporate veil and imposing personal liability Legal framework (as discussed by the Court): The Court considered the doctrine of piercing the corporate veil as explained in the Supreme Court decision it discussed, emphasizing that it is an exception applied restrictively and requires impropriety linked to misuse of the corporate form to evade or conceal liability, not mere common ownership/control. Interpretation and reasoning: The Court held that the amendment sought was not directed at identifying specific assets allegedly belonging to the judgment-debtor but held in another name; instead it sought to make additional entities and individuals personally liable to satisfy the decretal foreign award despite their not being parties to the arbitration agreement or the award. The Court found that the applicant could not cite any authority where, in execution, third parties were made personally liable for the decretal liability merely by lifting the corporate veil. The decision relied on by the applicant concerning veil-lifting in execution was found distinguishable because it involved determining whether the attached property truly belonged to the judgment-debtor, not imposing the decree's liability upon another entity. Other authorities discussed were also distinguished on their facts, including where relief was limited to restraining transfer of assets or where personal liability arose from an undertaking. Conclusions: The Court concluded that the corporate veil could not be lifted in the manner sought to impose personal and joint/several liability on non-award parties in execution; the additional entities and individuals could not be proceeded against as judgment-debtors for the foreign award. Issue 2: Limits of execution and circumvention of foreign award enforcement scheme Legal framework (as discussed by the Court): The Court examined the enforcement provision for foreign awards and held it contemplates enforcement against the party against whom the award is invoked, with an opportunity to resist enforcement as contemplated thereunder. The Court also applied the execution principle that an executing court cannot go behind or beyond the decree. Interpretation and reasoning: Since the additional entities and individuals were neither parties to the arbitration agreement nor parties to the award, the Court held the award 'cannot be enforced' against them. The Court characterized the chamber summons as an attempt to evade the statutory enforcement mechanism by adding non-award parties at the execution stage, thereby depriving them of the opportunity envisaged for a party against whom a foreign award is sought to be enforced. Further, by attempting to execute against third parties and impose the award liability upon them, the executing court would be proceeding behind and/or beyond the decree. Conclusions: The Court held the relief sought was impermissible because it circumvents the statutory enforcement scheme for foreign awards and violates the settled limits of execution jurisdiction; the foreign award remained enforceable only against the party to the arbitration agreement and against whom it was made. Issue 3: Need for a separate substantive proceeding; effect of delay/laches and preliminary objections Legal framework (as discussed by the Court): The Court treated the application as effectively seeking tracing and imposition of personal liability based on allegations of fraud/siphoning, matters which it considered would require proof and could not be accepted on 'bare assertions' without establishment in trial. It also addressed limitation/delay objections in the context of maintainability. Interpretation and reasoning: The Court held that whether veil-lifting could be justified on the alleged facts would in any event require a trial, and that the present execution amendment route was not the proper mechanism; such liability could only be determined in a substantive suit. The Court also found 'gross delay and laches' because the applicant relied on disclosures and financial material available from 2014-2015 but filed the chamber summons only in 2019. While the Court noted limitation arguments, it treated the preliminary objections as sustainable particularly because veil-lifting to convert third parties into judgment-debtors was not permissible in execution. Conclusions: The Court held the chamber summons was not maintainable; allegations of fraud/siphoning were not to be adjudicated in this execution amendment in the absence of trial, and the delay reinforced refusal of relief. The requested amendment and consequential execution reliefs were rejected and the chamber summons dismissed.