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2021 (4) TMI 1281
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....Power Limited, (hereafter referred to as 'Indiabulls') was desirous of developing a 5x270 MW thermal power plant at Amravati, Maharashtra (hereafter referred to as the 'Project'). Respondent no. 2 (hereafter 'Elena') is a wholly owned subsidiary of Indiabulls. 3. On 19.05.2008, Indiabulls invited bids for execution of Civil and Structural Works, Boiler Turbine Generator Package (hereafter 'BTG Works'), which was a part of the Project. Shapoorji submitted its bid in response to the said invitation, which was subsequently revised. The revised bid was accepted and a Letter of Award (hereafter 'the LoA') dated 06.02.2010 for the contract of execution of the BTG Works at an estimated price of Rs. 180 Crores, was awarded to Shapoorji. The LoA was signed on behalf of Elena but the letterhead carried the name "Indiabulls". 4. Thereafter, on 26.03.2010 Shapoorji and Elena entered into the 'Contract for BTG Civil and Structural Works' (hereafter 'BTG Contract') for execution of BTG Works. The BTG Contract expressly included the LoA as one of the contract documents. The initial scope of work for the BTG Works was subsequently increased....
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....s were entered into by Indiabulls and therefore, there was no arbitration agreement existing between Indiabulls and Shapoorji for reference of disputes arising out of the said Contract(s)/Work Orders, to arbitration. Indiabulls further stated that insofar as, the Work Order dated 18.10.2012 is concerned, the said Work Order did not include any arbitration clause. Further the amount payable under the said Work Order had been paid and its obligations in respect of the said Work Order stood discharged. 11. Elena also responded simultaneously by sending a letter dated 23.10.2019 through a common advocate, inter alia, stating that "the Contract(s)/Work Orders/LOIs mentioned by Shapoorji in its notice invoking arbitration were separate and distinct". Whilst Elena admitted existence of the arbitration agreement for reference of disputes under the BTG Contract (LoA dated 06.02.2010, Contract dated 26.03.2010, and Work Order dated 29.03.2010) for execution of BTG Works, it disputed the existence of any arbitration agreement for referring the disputes arising in relation to Work Order dated 03.01.2012. In addition, it is stated that it had no connection with the Letter of Intent dated 14.01....
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....lf of Indiabulls. Second, he submitted that the revised offer made by Shapoorji to Indiabulls was a part of the BTG Contract and the said offer was obviously, accepted by Indiabulls as Elena could not have independently accepted the revised offer that was not made to it. Since there is no dispute that Shapoorji's offer to Indiabulls was accepted and the said offer formed a part of the contract, it was not open for Elena to contend to the contrary. 15. Next, he submitted that in terms of the BTG Contract, the Bank Guarantees for due performance of the works were issued by Shapoorji. However, they were not in favour of Elena but in favour of Indiabulls. This also indicated that, Indiabulls was the true beneficiary of the works contracted to Shapoorji. In addition, the Free Issue Material was to be made at the rates approved by Indiabulls. The payments for the contracts were made directly by Indiabulls to Shapoorji. He submitted that in the circumstances, even though Indiabulls had not signed the BTG Contract, it would nonetheless, be bound by the arbitration clause. 16. He submitted that the BTG Contract also included a clause which contemplated an obligation to perform extra w....
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....d the term 'Employer' as under: "1.12 Employer Employer shall mean ELENA POWER & INFRASTRUCTURE LIMITED a company incorporated under the Companies Act, 1956 having its registered office at E-29, First Floor, Connaught Place, New Delhi-110001 and corporate office at Indiabulls House, 448-451, Udyog Vihar, Phase V, Gurgaon, Haryana-122001, to whom the work of construction of 5x270 MW Power plant is awarded by the Owners, which expression shall, unless repugnant to the context or contrary to the meaning thereof, include its successors, executors and permitted assignees." 19. The GCC referred to Indiabulls as the 'Owner'. Thus, the essential question to be addressed is whether Indiabulls can be compelled to arbitrate even though it is not a signatory to the BTG Contract. 20. Undisputedly, Sub-section (3) of Section 7 of the A&C Act requires the arbitration agreement to be in writing. Sub-section (4) of Section 7 of the A&C Act further provides that that an arbitration agreement is in writing if it is contained in (a) a document signed by parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication (including communication through elect....
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....ond 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." 23. In addition to the above, the Supreme Court had also referred to the Group of Companies doctrine and applied the same for compelling certain parties to arbitrate in that case. 24. According to Gary B. Born, the principal legal basis for holding that a non-signatory be bound by an arbitration agreement is to "include both purely consensual theories (Eg. agency, assumption, assignment) and non-consensual theories (Eg. estoppel, alter ego)". (see International Commercial Arbitration, Volume I, (Third Edition), p. 1531). 25. In several cases, implied consent is used as a basis to hold that non-signatories are bound by the arbitration agreement. It is well settled that in cases where the signatory is an agent of the principal (non-signatory), the principal can be compelled to arbitrate even though it is not a party to the agreement. This rests on the principle that the arbitration agreement may not hav....
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.... of obligations." 29. Gary B. Born in his book, International Commercial Arbitration, Volume I, (Third Edition), p. 1546, had explained the concept of alter ego as under: "Definitions of "alter ego" vary materially in different legal systems, and are applied in a number of different contexts. Nonetheless, the essential theory of the "alter ego" doctrine in most jurisdictions is that one party so thoroughly dominates the affairs of another party, and has sufficiently misused such control, that it is appropriate to disregard the two companies' separate legal forms, and to treat them as a single entity. In the context of arbitration agreements, demonstrating an "alter ego" relationship under most developed legal systems requires convincing evidence that one entity dominated the day-to-day actions of another and/or that it exercised this power to work fraud or other injustice or inequality on a third party or to evade statutory or other legal obligations. The "alter ego" doctrine differs from principles of agency or implied consent in that the parties' intentions are not decisive; rather, the doctrine rests on overriding considerations of equity and fairness, which mandate....
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....ein. The reasons for binding the non-signatory siblings were several. The court stated: "Considering that it is indisputable-and in fact not disputed-that Dow Chemical Company has and exercises absolute control over its subsidiaries having either signed the relevant contracts or, like Dow Chemical France [one of the subsidiary companies], effectively and individually participated in their conclusion, their performance, and their termination" and "irrespective of the distinct juridical identity of each of its members, a group of companies constitutes one and the same economic reality of which the arbitral tribunal should take account when it rules on its own jurisdiction" 35. The award was subsequently upheld by the Paris Cour d'appel; and it rejected Isover-Saint-Gobain's application for annulment of the award. [See: Societe Isover-Saint-Gobain v. Societe Dow Chem. France, 1984 Rev. arb. 98 (Paris Cour d'appel), Judgment of 21 October 1983]. 36. Several judicial decisions in the United States have also approved this view, albeit not always specifically relying upon the Group of Companies doctrine. [See also: Freeman v. Complex Computing Company, Inc., U.S. District ....
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.... sole arbitrator to resolve the disputes between the parties. In the proceedings before the learned Arbitrator, the wholly owned subsidiary of Canara Bank-CANFINA, was joined in as a party. This was objected to by Canara Bank. The learned Arbitrator ruled in favour of Canara Bank and passed an interim award holding that CANFINA had not appeared before this Court when the disputes were referred to arbitration and thus, was not a party to the Arbitration Agreement. MTNL filed an application before this Court seeking clarification of the order whereby this Court had referred the parties to arbitration. The said application was withdrawn. Thereafter, MTNL filed another application for recalling certain orders passed in the Writ Petition. The said application was also dismissed by this Court. Aggrieved by certain orders passed by this Court, MTNL filed a Special Leave Petition before the Supreme Court. One of the principal controversies raised before the Supreme Court was, whether CANFINA, who was a subsidiary of Canara Bank and was also the initial subscribers to the bonds issued to MTNL, should be made a party to the arbitration. The Supreme Court applied the doctrine of 'Group of....
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....non-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the non-signatory affiliates in the group. The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts. [Interim award in ICC Case No. 4131 of 1982, IX YB Comm. Arb 131 (1984); Award in ICC Case No. 5103 of 1988, 115 JDI (Clunet) 1206 (1988). See also Gary B. Born: International Commercial Arbitration, Vol. I, 2009, pp. 1170-1171.] 10.6. The circumstances in which the "group of companies" doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a dire....
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....se. Thereafter, Rishabh Enterprises entered into an agreement with Astonfield Renewable Pvt. Ltd. (appellant no. 2) for purchasing CIS Photovoltaic products, which were to be leased to Dante Energy Pvt. Ltd. (appellant no. 3). Dante Energy Pvt. Ltd. agreed to pay lease rent for the equipment. This agreement included an arbitration clause. Disputes arose between the parties. Ameet Lal Chand (appellant no. 1 before the Supreme Court), an individual, was stated to be the promoter of both Astonfield Renewables Pvt. Ltd. and Dante Energy Pvt. Ltd. He also exercised control over both companies. It is also material to note that the arbitration clause contained in the agreements were identical. The Supreme Court found that all four agreements were inter-connected. The Court referred to its earlier decision in Chloro Controls (supra) and observed as under: "24. In a case like the present one, though there are different agreements involving several parties, as discussed above, it is a single commercial project, namely, operating a 2 MWp Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. Commissioning of the Solar Plant, which is the commercial understanding between ....
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....ur of Indiabulls and not Elena. Thus, Indiabulls had secured itself against performance of the BTG Contract by Shapoorji. 45. It is also not disputed that Indiabulls had directly issued Letters of Credit to Shapoorji and made certain payments to Shapoorji, which were due under the BTG Contract. In the given facts, this Court finds it difficult to accept that Indiabulls can avoid its obligation to arbitrate even though it has been a direct beneficiary of the BTG contract and to some extent been directly involved with Shapoorji in negotiating and execution of the contract. 46. As noted above, Shapoorji had submitted its offer to Indiabulls on 01.02.2010 and the same was followed by a revised offer dated 06.02.2010. Shapoorji's bid was accepted and the same was communicated by the LoA dated 06.02.2010. It is important to note that the LoA was issued on a letterhead carrying the name 'Indiabulls'. However, it was signed on behalf of Elena. 47. Clause 8 of the said LoA is relevant and is set out below: "8.0 CONTRACT AGREEMENT The Contractor shall enter into a formal contract agreement within one month from the date of issuance of the LOA with Indiabulls Power Ltd. (El....
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....used to include such a word, clause, or sentence." (emphasis supplied) 48. Oxford Advanced Learner's Dictionary, 7th Edn., defines the meaning of parenthesis as: "a word, sentence, etc. that is added to a speech or piece of writing, especially in order to give extra information. In writing, it is separated from rest of the text using brackets, commas or dashes." 49. The Complete Plain Words by Sir Ernest Gowers, 1986 Revised Edn. by Sidney Greenbaum and Janet Whitcut, gives the purpose of parenthesis as follows: "Parenthesis.--The purpose of a parenthesis is ordinarily to insert an illustration, explanation, definition, or additional piece of information of any sort into a sentence that is logically and grammatically complete without it. A parenthesis may be marked off by commas, dashes or brackets. The degree of interruption of the main sentence may vary from the almost imperceptible one of explanatory words in apposition, to the violent one of a separate sentence complete in itself." (emphasis supplied) 50. The Merriam-Webster Online Dictionary defines "parenthesis" as follows: "1 a: an amplifying or explanatory word, phrase, or sentence inserted in a passage ....
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....ding to the respondent, only the rules of arbitration of the International Chamber of Commerce would apply in accordance with the agreement between the parties. It is contended by the respondent that this Court will have no jurisdiction much less under Section 11(6) of the Act to appoint an arbitrator, particularly, because it has been specifically agreed in Articles 22 and 23 which are as under: "Article 22. Governing Laws--22.1: This agreement shall be governed by and construed in accordance with the laws of The Republic of Korea. Article 23. Arbitration--23.1: All disputes arising in connection with this agreement shall be finally settled by arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of agreement then in force of the International Chamber of Commerce." 51. While interpreting the words in the brackets as appearing in Article 23.1, the Supreme Court held as under: "15. If we see the language of Article 23.1 in the light of Article 22.1, it is clear that the parties had agreed that the disputes arising out of the agreement between them would be finally settled by the arbitration in Seoul, Korea. Not only that,....
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.... exclusive jurisdiction. All disputes arising out of this LoA shall be resolved amicably. In the event that the dispute cannot be resolved amicably, the same shall be referred for arbitration in accordance with the Arbitration and Conciliation Act, 1996 as prevalent in India. Each party shall nominate one Arbitrator and the two Arbitrators so nominated shall jointly nominate a third presiding Arbitrator. The Arbitrators shall give a reasoned Award. The place of arbitration shall be New Delhi, India and the Language of arbitration shall be English. The Parties agree that any arbitration award shall be final and binding upon the Parties. The Parties hereto agree that the Contractor shall be obliged to carry out its obligations under the Contract even in the events dispute is referred to Arbitration." 54. In view of the above, there is material on record to impute that Indiabulls is a party to the arbitration agreement. There is also merit in Mr. Mukhopadhyay's contention that since Shapoorji had made a revised offer to Indiabulls and it is not disputed that the same was accepted, it must follow that the resultant contract was also made with Indiabulls. Clearly, a third party....
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....orks whether during the progress of the Works or after its completion or whether before or after the termination, abandonment or breach of the Contract, it shall, in the first place, be referred to and settled by the Owner, who, within a period of 30 (thirty) days after being requested to do so, shall give written notice of his decision to the Supplier. 3.2 Save as hereinafter provided, such decision in respect of every matter so referred shall be final and binding upon the parties and the completion of the entire work under the Contract and shall forthwith be given effect to by the Supplier who shall comply with all such decisions, with all due diligence, whether he requires conciliation and/or arbitration as hereinafter provided or not. 3.3 If after the Owner has given written notice of his decision to the Supplier and no claim to conciliation and/or arbitration has been communicated to him by the Supplier within 30 (thirty) days from the receipt of such notice, the said decision shall become final and binding on the Supplier. 3.4 in the event of the Owner failing to notify his decision, as aforesaid, within 30 (thirty) days after being requested, or in the event of the Sup....
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....son for its inaction and knowingly accepted benefits of contract. 59. The next aspect to be examined is whether the relationship between Indiabulls and Elena and their conduct, is sufficient to compel Indiabulls to be a party to the arbitration regarding the disputes raised by Shapoorji. In this regard, it is not disputed that Elena is a wholly owned subsidiary of Indiabulls. Indisputably, Elena is a separate legal entity by virtue of it being incorporated as a company. However, it is well settled that the corporate veil can be pierced in certain circumstances as noticed hereinbefore. In the present case, Shapoorji had claimed that Elena was a Special Purpose Vehicle (SPV) for executing the Project. Therefore, it had no other purpose but to facilitate setting up the Thermal Power Plant. Although, this averment was denied by the respondents; they have not produced any material which would effectively counter the said assertion. There is no assertion that Elena is engaged in any other business other than its participation in execution of the projects for Indiabulls. This Court is inclined to accept the contention that Elena is a Special Purpose Vehicle and it would be apposite to tr....
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....e and control over TEA, and that TEA was under-capitalized. Those allegations are not sufficient of themselves to "pierce a corporate veil" so as to visit upon parent corporations the obligations of a subsidiary. Walkovszky v. Carlton, 18 N.Y. 2d 414, 276 N.Y.S. 2d 585, 223 N.E.2d 6 (1966). But the petition alleges more than that. It alleges that the subcontract between plaintiff's and TEA obligated TEA to make certain payments to plaintiffs upon termination of the main contract; and that defendants decided that TEA would breach those obligations, sending implementing instructions to TEA. Petition, 38. These allegations, even in the absence of allegations of fraud requiring Rule 9(b) particularity, are sufficient to state a claim for alter ego liability. Gorrill v. Iceland Air/Flugleidir, 761 F.2d 847, 853 (2d Cir. 1985) (construing New York law)." 63. In Thomson-CSF, S.A. v. American Arbitration Association: 64 F.3d 773 (2d Cir. 1995), it was held that the corporate parent must exert a degree of control over the subsidiary that there is abandonment of separate corporate structures, intermingling of corporate finances and directorship and in essence, the subsidiary must ceas....