2024 (9) TMI 1300 - SC - Indian Laws

Supreme Court upholds arbitral award making holding company jointly liable with subsidiary as single economic entity

OPG Power Generation Private Limited Versus Enexio Power Cooling Solutions India Private Limited & Anr.

The SC dismissed an appeal challenging an arbitral award in a commercial dispute. The court held that the holding company was properly made jointly and ... Whether the arbitral award is in conflict with the public policy of India, or/ and is vitiated by patent illegality appearing on the face of the award? Gita Power (R-2) could have been subjected to arbitration and made jointly and severally liable along with OPG for the award or not - time limitation of Enexio's claim for the outstanding principal amount - counterclaim in respect of the cost of repair/replacement of gearboxes and fan modules could be treated as barred by time or not - preservity of arbitral award for payment of the outstanding principal amount with interest - adoption of different yardstick for adjudging the counterclaim than what was adopted for adjudging the claim. HELD THAT:- It is concluded as follows: (i) Though the ACC Unit /project was of OPG, Gita Power, as the holding company of OPG, had actively participated in the formation of the contract for the project. Not only did it place purchase order(s) on Enexio but made advance payment(s) thereunder to Enexio, which were subsequently affirmed by OPG. The two, therefore, not only acted as a single economic entity but as agents of each other. Hence, the arbitral tribunal was justified in holding that Gita Power was bound by the arbitration agreement and jointly and severally liable along with OPG to pay the awarded amount. (ii) The claim of Enexio was an indivisible claim for compensation in lieu of goods supplied, and work done, based on breach of the contract, therefore limitation for the claim was governed by Article 55, and not by Articles 14, 18 and 113, of the Schedule to the 1963 Act. (iii) The claimant’s claim for the outstanding principal amount matured on 19 March 2016. Therefore, limitation started to run from that date. However, even if we count limitation from 21 September 2015 (as found by the Tribunal) it will have no material bearing on the award for the reason indicated below. (iv) The limitation for the claim as well as counterclaim(s), other than those relating to cost of repair/replacement of gear boxes and fan modules, stood extended, under Section 18 of the 1963 Act, on the basis of acknowledgement made in the minutes of meeting dated 19 April 2018, and, therefore, those were within limitation as on the date of : (a) commencement of arbitration (i.e. 2 May 2019); and (b) the date of filing counterclaim (i.e. 15 July 2019) and were rightly considered on merit. (v) The counterclaims qua cost of repair /replacement of gear boxes and fan modules were rightly held barred by time as in respect thereof there was no recital in the minutes of meeting dated 19 April 2018. (vi) Rejection of prayer to declare debit notes invalid, on ground of limitation, had no adverse impact on the claimant’s claim for compensation, which was well within the extended period of limitation. Thus, there is no palpable error in the arbitral award as to be termed ‘patently illegal’ / ‘perverse’, or in conflict with public policy of India. Therefore, the Division Bench of the High Court was justified in setting aside the judgment and order of the Single Judge and restoring the arbitral award. Appeal dismissed. Issues Involved:1. Whether Gita Power (R-2) could have been subjected to arbitration and made jointly and severally liable along with OPG for the award.2. Whether Enexio's claim for the outstanding principal amount was barred by limitation.3. Whether the counterclaim in respect of the cost of repair/replacement of gearboxes and fan modules could be treated as barred by time.4. Whether the arbitral award for payment of the outstanding principal amount with interest is perverse because it makes no adjustment for debit note(s) entries even though the prayer to declare them as invalid was rejected as barred by time.5. Whether the reasoning of the arbitral tribunal is flawed and vitiated by adopting a different yardstick for adjudging the counterclaim than what was adopted for adjudging the claim.Detailed Analysis:Issue 1: Whether Gita Power (R-2) could have been subjected to arbitration and made jointly and severally liable along with OPG for the award.The tribunal found that Gita Power (R-2) and OPG acted as a single economic entity. Gita Power had actively participated in the formation of the contract, issued purchase orders, and made advance payments. The tribunal applied the 'Group of Companies' doctrine, concluding that both Gita Power and OPG were bound by the arbitration agreements and were jointly and severally liable to Enexio.Issue 2: Whether Enexio's claim for the outstanding principal amount was barred by limitation.The claim was governed by Article 55 of the Limitation Act, 1963, which provides a three-year limitation period for compensation for breach of contract. The tribunal found that the project was completed on 21 September 2015, and the limitation period started from this date. The limitation was extended by an acknowledgment of liability in the minutes of the meeting dated 19 April 2018, making the claim within the limitation period as on 2 May 2019.Issue 3: Whether the counterclaim in respect of the cost of repair/replacement of gearboxes and fan modules could be treated as barred by time.The tribunal found that the counterclaims for the cost of repair/replacement of gearboxes and fan modules were barred by limitation as they were not included in the ongoing negotiations reflected in the minutes of the meeting dated 19 April 2018. The limitation period for these counterclaims started from 21 September 2015 and expired before the counterclaims were filed on 15 July 2019.Issue 4: Whether the arbitral award for payment of the outstanding principal amount with interest is perverse because it makes no adjustment for debit note(s) entries even though the prayer to declare them as invalid was rejected as barred by time.The tribunal held that the rejection of the declaratory relief regarding debit notes did not affect Enexio's claim for the outstanding principal amount. The issuance of debit notes was a unilateral act by the employer and did not extinguish the contractor's right to claim the outstanding amount. The tribunal was within its remit to adjudicate whether the amounts in the debit notes should be adjusted against the outstanding principal amount payable to Enexio.Issue 5: Whether the reasoning of the arbitral tribunal is flawed and vitiated by adopting a different yardstick for adjudging the counterclaim than what was adopted for adjudging the claim.The tribunal did not reject the counterclaims for liquidated damages and customs duties as barred by limitation but on merits. The tribunal applied the principle of acknowledgment under Section 18 of the Limitation Act, 1963, to extend the limitation period for the claim based on the minutes of the meeting dated 19 April 2018. The tribunal's reasoning was found to be intelligible and based on a possible view of the matter, and thus not perverse.Summary of Conclusions:1. Gita Power was bound by the arbitration agreement and jointly and severally liable with OPG.2. Enexio's claim was within the limitation period extended by acknowledgment.3. Counterclaims for repair/replacement of gearboxes and fan modules were barred by limitation.4. Rejection of declaratory relief on debit notes did not affect the claim for the outstanding principal amount.5. The tribunal's reasoning was not flawed or perverse, and the award was not in conflict with public policy of India.