The Hon'ble Supreme Court of India in the case of Oil and Natural Gas Corporation Limited v. M/s Discovery Enterprises Private Limited and Anr1 , revisited 'group of companies' doctrine and laid down new yardsticks for its application in an arbitration agreement vide which a non-signatory to the arbitration agreement may be allowed to be made a party in the arbitration proceedings.
FACTS IN BRIEF
The Bombay High North platform of Oil and Natural Gas Corporation Limited (ONGC) located in Mumbai High North was affected due to a fire on 27 July 2005. Accordingly, an Expression of Interest (EOI) for charter hiring of a Floating, Production, Storage and Offloading Vessel (FPSO Vessel) was released in August 2005. Discovery Enterprises Private Limited (DEPL) responded to this EOI along with 7 (seven) other parties. From the response received from the various parties, ONGC shortlisted 3 (three) parties to whom formal tender enquiries were issued on 30 September 2005.
ONGC issued a second EOI on 17 October 2005 when 13 (thirteen) parties responded to the said EOI out of which ONGC short listed 6 (six) bidders including DEPL. ONGC found the DEPL bid to be the best and decided to award the contract to it. ONGC and DEPL entered into a contract for Charter hiring of FPSO Vessel on 22 March 2006 (Contract).
Pertinently in the context of the present case, the contract dated 22 March 2006 is only between ONGC and DEPL only. Jindal Drilling & Industries Limited (JDIL) is not a party to the said contract dated 22 March 2006.
Pursuant to the Contract, DEPL imported the FPSO Vessel for oil and gas processing at Mumbai High. In terms of the Contract, ONGC paid the customs duty which was to be claimed back / drawn back later based on certain conditions, post the completion of work and after submission of necessary documents by DEPL. The said imported vessel could not be commissioned or utilized as the operations failed and performance of the vessel were poor. The said poor performance couldn't be cured and finally the trial operations were cancelled on 1 July 2006. DEPL obtained port clearance from the customs department on 19 January 2007 to enable the vessel to go to Mumbai High for making it gas free and removing oil sludge from its tanks. Instead, the vessel did not stop for discharging the oil sludge but instead moved out of the Indian Territorial Waters on the instructions of the third-party owner. Therefore, this act of the vessel leaving the Indian territorial waters left ONGC in lurch and they raised the dispute against DEPL primarily for the customs duty that had to be claimed back/ drawn back.
In view of the aforesaid dispute, ONGC initiated an arbitration proceeding with DEPL and JDIL as parties to recover their dues. The Arbitral Tribunal consisted of Mr Justice S P Kurdukar (Retd.), Mr Justice M S Rane (Retd.) and Mr S Venkateswaran (Senior Advocate). ONGC made JDIL a party to the said arbitral proceedings on the following grounds:
- DEPL and JDIL are group companies and that the former is an agent or alter ego of the latter;
- there exists corporate and functional unity between them;
- DEPL is a corporate facade which has been created to promote and extend the business of JDIL;
- JDIL is responsible for the acts of omission and commission of DEPL on the basis of the group of companies doctrine;
- DEPL has been created by the Jindal Group to render services in the oil and gas sector and each entity of the group is strategically formed to render certain services; and
- DEPL is working under the "fraternal hood" of the group based on the admission on the corporate website of JDIL.
JDIL filed an application under Section 16 of the Arbitration and Conciliation Act 1996 (A&C Act) to be deleted from the array of Parties on the following contentions:
- JDIL was not a signatory to the arbitration agreement between ONGC & DEPL;
- JDIL had no common or cross shareholding with DEPL;
- both DEPL & JDIL are separate and distinct corporate entities incorporated under the Companies Act 1956;
- JDIL is a public listed company wherein all its financial documents are public records whereas DEPL was a privately held company; and
- JDIL never represented to ONGC or participated in the tender process on behalf of DEPL and also never guaranteed the performance of DEPL in any manner.
ONGC had also filed an application for discovery and inspection which was deferred by the Arbitral Tribunal till the question of jurisdiction was decided. The evidence was led by ONGC, after which the Arbitral Tribunal allowed the application filed by JDIL under Section 16 of A&C Act and deleted them from the array of parties vide the interim award dated 27 October 2010 (Interim Award). The said Interim Award was challenged before the Hon'ble Bombay High Court under Section 37 of the A&C Act which was dismissed vide judgement dated 27 June 2012. The present Special Leave Petition had been filed by ONGC against the said judgement of the Hon'ble Bombay High Court dated 27 June 2012.
In the meanwhile, JDIL had 4 (four) separate contracts with ONGC wherein ONGC withheld a sum of US$14,772,408.54 from JDIL towards recovery of its claim of INR 64.88 Crore against DEPL which was the subject matter of the above-mentioned arbitral proceedings. JDIL invoked arbitration against ONGC for such actions and the Arbitral Tribunal consisting of Ms Justice Sujata Manohar (Retd.), Mr Justice B N Srikrishna (Retd.), and Mr Justice M S Rane (Retd.) was constituted.
The aforesaid Tribunal vide final award dated 9 October 2019 allowed all the claims of JDIL and also noted that there is no evidence to support the plea of ONGC that JDIL & DEPL are one and the same company. ONGC filed a challenge to the aforesaid award under Section 34 of the A&C Act which was dismissed by the Hon'ble Bombay High Court. ONGC then challenged the same under Section 37 of the A&C Act, during the pendency of which, the appeals were transferred to the Supreme Court and tagged with the present SLP filed by ONGC challenging the judgement of the Hon'ble Bombay High Court dated 27 June 2012.
ANALYSIS BY THE SUPREME COURT
The Hon'ble Supreme Court while taking assistance of the precedents from its judgement in Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr., reported at (2010) 5 SCC 306; Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Ors., reported at (2013) 1 SCC 641; Cheran Properties Ltd. v. Kasturi & Sons Ltd. & Ors., reported at (2018) 16 SCC 413, MTNL v. Canara Bank & Ors., reported at (2020) 12 SCC 767; Ameet Lalchand Shah & Ors. v. Rishabh Enterprises & Anr, reported at (2018) 15 SCC 678; Duro Felguera v. Gangavaram Port Limited, reported at (2017) 9 SCC 729 and Reckitt Benckiser (India) P Ltd. v. Reynders Label Printing, reported at (2019) 7 SCC 62 noted as follows:
26. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors:
(i) the mutual intent of the parties;
(ii) the relationship of a non-signatory to a party which is a signatory to the agreement;
(iii) the commonality of the subject matter;
(iv) the composite nature of the transaction; and
(v) the performance of the contract.
Consent and party autonomy are undergirded in Section 7 of the A&C Act. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego.
Based on the above, the Hon'ble Supreme Court held that ONGC's attempt at the joinder of JDIL to the proceedings was rejected without adjudication of its application for discovery and inspection of documents to prove the necessity for such a joinder. The Supreme Court of India expounded on the group of companies doctrine in the present case deriving from the ratio held in Chloro case (supra).
In regards the power of a court to review the interim award especially where the Arbitral Tribunal holds that it lacks jurisdiction in an application under Section 16 of the A&C Act, the Hon'ble Supreme Court noted as follows:
In the exercise of the appellate jurisdiction, the court must have due deference to the grounds which have weighed with the tribunal in holding that it lacks jurisdiction having regard to the object and spirit underlying the statute which entrusts the arbitral tribunal with the power to rule on its own jurisdiction. The decision of the tribunal that it lacks jurisdiction is not conclusive because it is subject to an appellate remedy under Section 37(2)(a). However, in the exercise of this appellate power, the court must be mindful of the fact that the statute has entrusted the arbitral tribunal with the power to rule on its own jurisdiction with the purpose of facilitating the efficacy of arbitration as an institutional mechanism for the resolution of disputes.
Thereafter, in toto, the Hon'ble Supreme Court in the present matter primarily noted that the Arbitral Tribunal's decision to defer the application filed by ONGC for discovery and inspection till the disposal of application filed by JDIL under Section 16 of the A&C Act was erroneous as ONGC's application was intended to facilitate them in its plea that there existed functional, financial, and economic unity between the two companies.
In view of the aforesaid, the Hon'ble Supreme Court set aside the interim award dated 27 July 2010; and also set aside the subsequent judgment of the Single Judge of the Bombay High Court dated 27 June 2012 dismissing ONGC's appeal under Section 37 against the said interim award. The Hon'ble Supreme Court further remitted the matter back to the Arbitral Tribunal which is to be re-constituted. As far as the transferred cases in regards the arbitral proceedings initiated by JDIL again ONGC were concerned, the Hon'ble Supreme court remitted them back to the Hon'ble Bombay High Court where they will be held in abeyance and remain adjourned sine die until the Arbitral Tribunal which is reconstituted to decide its jurisdiction in reference to the plea of JDIL in the arbitral proceedings initiated by ONGC decides the said question. In effect, the appeal of ONGC in the aforesaid special leave petition was allowed as per the above directions.
At the outset, it is relevant to note herein that the Hon'ble Supreme Court did not pass an effective order stating that JDIL should indeed be a party to the arbitral proceedings but has left the said question to be decided by the Arbitral Tribunal which shall be re-constituted. Though, at the same time, by allowing the appeal of ONGC, the Hon'ble Supreme Court has enlarged the contours of 'group of companies' doctrine'. The above judgement has also raised the contours of court's power which has been exercised at the present stage by effectively noting that the aforesaid interim award was pre-mature in relation to other applications pending before it.
By remitting the matter back to the Arbitral Tribunal, it is relevant to note that the Hon'ble Supreme Court has effectively noted that a group company may be called upon and be made a party to an arbitration agreement and subsequently to the arbitration proceeding wherein it is neither a signatory nor has had any mutual shareholders or key personnel nor there was composite nature of transaction.
Though the Hon'ble Supreme Court has duly carved an exception to the effect that a signed written agreement to submit a present or future dispute to arbitration does not exclude the possibility of an arbitration agreement binding a third party, a non-signatory that may be bound by the operation of the 'group of companies' doctrine as well as by the operation of the principles of assignment, agency, and succession. A party which is not a signatory to a contract containing an arbitration clause, may be bound by the agreement to arbitrate if it is an alter ego of a party which executed the agreement. This constitutes a departure from the ordinary principle of contract law that every company in a group of companies is a distinct legal entity. A non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego. Further, the Hon'ble Supreme Court merely noted that an application for discovery and inspection should have been first adjudicated upon by the Arbitral Tribunal before deciding the application under Section 16 of the A&C Act and this became the cornerstone for the matter to be allowed to be remitted back to the Arbitral Tribunal. Therefore, effectively the Hon'ble Supreme Court has held that the Arbitral Tribunal is bound to adjudicate on all the evidence and applications relating to discovery as filed by the parties before deciding on the applicability of 'Group of Companies' Doctrine and subsequently passing an interim award under Section 16 of the A&C Act.
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