The doctrine of corporate personality is one of the cardinal principles of company law. A company has a distinct legal personality from its shareholders, and this principle is known as the "corporate veil". However, in certain situations, courts are permitted to lift the corporate veil and determine the true nature of the party involved in a particular dispute. This principle of "lifting the corporate veil" has evolved over the years, and includes doctrines like "alter ego", "directing mind", etc.
This principle has also been accepted to be applicable in arbitrations, to the effect that courts have lifted the corporate veil and allowed non-signatories to an arbitration agreement to be impleaded as parties in an arbitration.1 In the context of arbitrations, this has often been referred to as the "group of companies" doctrine. As per the said doctrine, a non-signatory may be bound by an arbitration agreement where the parent company, holding company, or any sister affiliate of the non-signatory is a signatory to the arbitration agreement, and the non-signatory entity has been engaged in the negotiation or performance of the commercial contract to which its sister concern is a party.2 In such a scenario, the corporate veil of the signatory may be lifted to join the non-signatory to the arbitration proceedings.
However, can an arbitral tribunal, on its own accord and without any judicial interference, lift the corporate veil of a party to the arbitration agreement in an arbitral proceeding? The Arbitration and Conciliation Act, 1996 ("the Act") is silent on this question of law, and there are conflicting views propounded by various High Courts in this regard. This article will analyse such conflicting views, and will attempt to reconcile the divergence in light of the recent pronouncements of the Supreme Court of India ("Supreme Court"). This article will not focus on the factors which would justify the lifting of the corporate veil, but solely on whether an arbitral tribunal has the power lift the corporate veil.
B. Joinder of non-signatories to an arbitration agreement by courts
The question of binding non-signatories to an arbitration agreement was dealt with by a three-judge bench of the Supreme Court in Chloro Controls India Private Limited v. Severn Trent Water Purifications Inc. and Others3 ("Chloro Controls"), wherein it was held that non-signatories could be subjected to arbitration if there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. It was also held that non-signatories could also be subjected to arbitration without their prior consent only in exceptional circumstances, and only when it would serve the ends of justice. This decision was in the context of Section 45 of the Act, but the Supreme Court has since held this principle to be applicable even in a domestic arbitration under Part I of the Act.4
The Supreme Court in Chloro Controls relied on the "group of companies" doctrine. This doctrine originates from an International Chamber of Commerce ("ICC") arbitration, namely Dow Chemical v. Isover-Saint-Gobain5 ("Dow Chemical"). In Dow Chemical, the arbitral tribunal held that a group of companies, despite the separate legal status of each of the individual component companies, represented a single economic entity, which was a relevant factor to consider by the arbitral tribunal when ruling on its jurisdiction. Although there has been considerable debate regarding the applicability of the "group of companies" doctrine in several jurisdictions, the Supreme Court has been receptive of this doctrine, and has applied it in many of its decisions.6
C. Lifting of the corporate veil by arbitral tribunals – two conflicting views
1. Arbitral tribunal not empowered to lift the corporate veil
The High Court of Judicature at Bombay ("Bombay High Court") in Oil and Natural Gas Corporation Ltd. v. Jindal Drilling and Industries Limited,7 ("Jindal Drilling") observed that an arbitral tribunal has no power to lift the corporate veil. In Jindal Drilling, the claimant had impleaded Jindal Drilling and Industries Limited ("Jindal") as respondent in the arbitration proceedings, even though Jindal had not signed the arbitration agreement under which the arbitral tribunal was constituted. The claimant had argued that the two respondents in the arbitration proceedings were part of the same economic entity. Justice R.D. Dhanuka opined that the since Jindal was not a signatory to the arbitration agreement between the two concerned parties, it could not have been subjected to arbitral proceedings under such arbitration agreement. It was also held that only courts had the power to lift the corporate veil, that too only in exceptional cases.
This question was also explored by the High Court of Delhi ("Delhi High Court") in Sudhir Gopi v. Indira Gandhi National Open University and Others8 ("Sudhir Gopi"). Herein, Justice Vibhu Bakhru ("Justice Bakhru") observed that arbitration, as a mechanism, was based on the consent of parties, and therefore, the arbitral tribunal would have no jurisdiction over a party in the absence of such party's consent. It was also observed that an arbitral tribunal is a creature of limited jurisdiction, and thus has no power to extend the scope of the arbitral proceedings to include persons who have not consented to arbitrate.
The decision of the Supreme Court of India in Chloro Controls was held to be inapplicable to the present case, as Chloro Controls pertained to the power of the court to bind non-signatories to an arbitration agreement. It was thereby held that courts would have the power to determine whether in a given case the corporate veil should be lifted and the persons behind the corporate veil be held liable for the obligations of the corporate entity. However, it was reiterated that no such power was vested in an arbitral tribunal, whose jurisdiction would be confined by the arbitration agreement.
Justice Bakhru made another interesting observation in Sudhir Gopi. He observed that the courts determine the question of lifting the corporate veil in arbitrations based on domestic law and the judicial standards of the country. In this respect, it was observed that the laws of most countries are not identical and the case law emanating from courts in other countries, cannot be readily followed.
The decision in Sudhir Gopi was cited with approval by a Single Judge of the Bombay High Court in NOD Bearings Pvt. Ltd. v. Bhairav Bearing Corporation9 ("NOD Bearings"), wherein the power to lift the corporate veil was held to be exclusively in the domain of courts, and not arbitral tribunals.
2. Arbitral tribunal has the power to lift the corporate veil
However, Justice Mukta Gupta of the Delhi High Court took a different approach to this question in GMR Energy Limited v. Doosan Power Systems India Private Limited and Others10 ("GMR Energy"). In this case, the Bench referred to paragraph 106 of the Chloro Controls decision, wherein it was held that the question of the formal validity of the arbitration agreement did not include determining the parties which would be subject to the arbitration. Thus, it was observed that once the validity of the arbitration agreement was determined, it was a different step to establish which parties were bound by the arbitration agreement.
It was also observed in this case that the determination of the alter ego of a company was not mentioned in the list of non-arbitrable disputes propounded in A. Ayyasamy v. A. Paramasivam.11 The Delhi High Court also referred to a decision of the Singapore High Court in Aloe Vera of America, Inc. v. Asianic Food (S) Pte. Ltd. and Another,12 ("Asianic Food") wherein it was held that the determination of the alter ego of a company did not have any public interest element, and was thus an arbitrable dispute. Therefore, it was held that the issue of alter ego can be decided by the court as well as the arbitral tribunal.
It is pertinent to note that despite arguments being raised disputing the validity of the Sudhir Gopi decision, the Delhi High Court in GMR Energy steered clear of making any observation on the correctness of Sudhir Gopi. The only explicit distinction was that Sudhir Gopi dealt with a domestic arbitration under Part I of the Act, while GMR Energy dealt with an application under Section 45 of the Act (which is a part of Part II of the Act).
A Division Bench of the High Court of Gujarat ("Gujarat High Court") in IMC Limited v. Board of Trustees of Deendayal Port Trust13 ("IMC Limited") has explicitly disagreed with the decisions of Jindal Drilling and Sudhir Gopi. The Gujarat High Court herein held that nothing in law prohibited an arbitral tribunal from lifting the corporate veil on the basis of the doctrine of alter ego. It was observed that ordinarily, every civil or commercial dispute which is capable of being decided by a civil court, is in principle capable of being adjudicated upon and resolved by arbitration, unless the jurisdiction of the arbitral tribunal is excluded either expressly or by necessary implication. Thus, it was held that it was for the arbitral tribunal to decide whether a case was made out for impleading a third party by lifting of the corporate veil, after due consideration of the "group of companies" doctrine.
3. Analysis of the divergence of views
Section 16 of the Act is based on the principle of 'kompetenz-kompetenz', as per which an arbitral tribunal can rule on its own jurisdiction. It will be detrimental to the policy of minimal judicial interference in the arbitral process, if parties are forced to resort to the court's intervention in order to implead non-signatories in an arbitration by filing an application under either Section 8 or Section 11 of the Act (both have the same ambit with respect to judicial interference).14
In any case, any decision of the arbitral tribunal pertaining to its jurisdiction under Section 16 of the Act can be challenged under Section 34 of the Act. If at all the arbitral tribunal has erred in lifting the corporate veil, the court under Section 34 of the Act can set aside the award passed by such arbitral tribunal. However, if the arbitral tribunal has rightfully impleaded a non-signatory to the arbitral proceedings, in line with the principles elucidated in Chloro Controls, the courts should not interfere with the subsequent award passed by the arbitral tribunal.
4. Passing observations made by the Supreme Court in subsequent judgments
The Supreme Court in Chloro Controls has clearly settled that the determination of the validity of the arbitration agreement does not include determining which parties will be subject to the arbitration agreement. The recent decision of the Supreme Court in Vidya Drolia v. Durga Trading Corporation15 ("Vidya Drolia") has clarified that jurisdictional issues, concerning whether certain parties are bound by a particular arbitration under the "group of companies" doctrine in a multiparty arbitration, raise complicated factual questions, which are best left for the arbitral tribunal to handle.
The Supreme Court in Mahanagar Telephone Nigam Ltd v. Canara Bank and Others16 ("Canara Bank") has observed that both courts and tribunals have invoked the "group of companies" doctrine to bind non-signatories to an arbitration agreement. However, the Supreme Court made this observation in reference to the Dow Chemical arbitration, which was an arbitration before an international arbitral institution. Therefore, the said observation of the Supreme Court will be considered to be obiter dicta.
The question relating to an arbitral tribunal's power to lift the corporate veil has not been settled yet. Single Benches in Sudhir Gopi (Delhi High Court), Jindal Drilling (Bombay High Court) and NOD Bearings (Bombay High Court) have opined that arbitral tribunals cannot lift the corporate veil, whereas a Division Bench of the Gujarat High Court has held that there is no such restriction on the arbitral tribunal. A similar decision was also reached by a Single Judge of the Delhi High Court in GMR Energy. It is pertinent to note that all the aforesaid decisions were passed prior to the decisions of the Supreme Court in Canara Bank and Vidya Drolia. Even though the observations made by the Supreme Court in both the aforesaid decisions regarding the "group of companies" doctrine were obiter dicta at best, these observations can be helpful in settling the judicial position on this issue.
1. Cheran Properties Limited v. Kasturi and Sons Limited and Others, (2018) 16 SCC 413; Filatona Trading v. Navigator Equities,  EWCA Civ 109.
2. Mahanagar Telephone Nigam Ltd. v. Canara Bank and Others, (2020) 12 SCC 767.
3. (2013) 1 SCC 641.
4. Ameet Lal Chand Shah v. Rishabh Enterprises, (2018) 15 SCC 678.
5. ICC Case No. 4131.
6. Ameet Lal Chand Shah v. Rishabh Enterprises, (2018) 15 SCC 678; Cheran Properties Limited v. Kasturi and Sons Limited and Others, (2018) 16 SCC 413; Mahanagar Telephone Nigam Ltd. v. Canara Bank and Others, (2020) 12 SCC 767.
7. (2015) 7 Bom CR 62.
8. 2017 SCC OnLine Del 8345.
9. 2019 SCC OnLine Bom 366.
10. 2017 SCC OnLine Del 11625.
11. (2016) 10 SCC 386.
12.  SGHC 78.
13. (2020) 4 ARBLR 221 (Gujarat).
14. Vidya Drolia v. Durga Trading Corporation, 2020 SCC OnLine SC 1018.
15. 2020 SCC OnLine SC 1018.
16. (2020) 12 SCC 767.
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