Op EdsOP. ED.

The doctrine of the ‘corporate veil’ is the legal assumption that the acts of a corporation are not the actions of its shareholders, so that the shareholders are exempt from liability for the corporation’s actions. However, Courts sometimes apply common law principles to ‘pierce the corporate veil’ and hold promoters/shareholders personally responsible for the corporation’s wrongful acts. This article examines whether these common law principles extend themselves to the arbitration of disputes.


Company laws of all economically advanced countries make available corporate vehicles through which businesses can be carried on with the benefit of limited liability. For most shareholders this means that once they have paid for their shares the worst fate that can befall them in the event the company becomes insolvent is that they will lose the value of their investment. Their other assets remain unaffected. In the event of the success of the company, its shareholders are entitled to receive all residual benefits in the form of dividend and/or share price appreciation. The irony from the perspective of its trade and financial creditors is apparent, companies require credit to work, yet creditors do not partake in the potentially unlimited returns of the company in the event of its success. They are at all times limited to the fixed returns agreed between themselves and the company .

Otto Kahn-Freund in his seminal piece, Some Reflections on Company Law Reform analysed modern company law issues such as the abuse of the corporate entity and allocation of shares in return for overvalued assets from the perspective of a creditor. Kahn-Freund noted with amusement how the position of law recognised a ‘metaphysical’ distinction between one man in his individual capacity as a shareholder and his capacity as a company when it came to recovering the dues of trade creditors. Describing the judgment in Solomon v. Solomon as catastrophic, Kahn-Freund had suggested two remedies (a) requiring higher capital inputs by shareholders at the time of forming private companies to protect the interest of its creditors; and (b) fixing liability upon shareholders based on their controlling interest in the company. Neither of these suggestions were ever implemented in the United Kingdom as they were perceived as a barrier to the organic growth of small companies.

In India, we are seeing a push towards encouraging free enterprise through the STARTUP INDIA initiative and the MAKE IN INDIA initiative. Companies can now be set up in just one day. The environment is apt to revisit Kahn-Freund’s concerns and examine the doctrine of piercing the corporate veil. Given the vastness of the subject the authors are limiting their inquiry only to an analysis of the doctrine of piercing the corporate veil in relation to the arbitration of disputes.


The authors Gower and Davies state that the doctrine of lifting the veil plays but a small role in British Company Law. They assert that instances in which ‘the veil has been lifted’ usually turn on the provisions of a particular statute or on the contracts executed between the parties .

Does the legislative environment in India lend itself to piercing of the corporate veil in aide of arbitration? Chapter I of Part I of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”) contains the general provisions of the 1996 Act. Section 2(1) defines various terms appearing in the 1996 Act with the qualification “unless the context otherwise requires”. Section 2(1)(h) defines the term party to mean ‘a party to an arbitration agreement ’.

In the year 2014, the 246th Law Commission submitted its Report on ‘Amendments to the Arbitration and Conciliation Act, 1996’. While the Law Commission suggested changes to Section 7 of the 1996 Act, none of the Law Commission’s recommendations were directed to the language of sub-section (1) and sub-section (4)(a) of Section 7 and in particular to the referential terms: ‘parties’ and ‘document signed by the parties’ therein. Ultimately, the only amendment included in the statute book was an amendment to sub-section 4(b) of Section 7 whereby the words ‘including communication through electronic means’ was inserted.

The Commission recommended the need to amend Section 2(h) and Section 8(1) to bring them in line with the wording of Section 45 and Section 54 of the 1996 Act . The recommendations were suggested with the view to extend the ratio of the judgment of the Supreme Court of India in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc to arbitrations conducted under Part I of the 1996 Act.

Following the recommendations of the Law Commission, Section 8(1) of Chapter II of Part I of the 1996 Act dealing with the Power of a Judicial Authority to refer parties to arbitration where there is an arbitration agreement was amended to bring it in line with Section 45 of Chapter I of Part II of the 1996 Act. Post amendment Section 8(1) reads:

(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

However, in spite of the recommendations of the Law Commission there was no amendment made to Section 2(1)(h) of the 1996 Act i.e. the provision which defines the term a party to an arbitration agreement. Without the amendment to Section 2(1)(h) the amendment to Section 8(1) is indeed an anomaly.

At first glance the use of the phrase ‘any person claiming through or under him’ with reference to a ‘party to the arbitration agreement’ is suggestive of a legislative policy allowing for ‘non-signatories’ to an arbitration agreement to seek the reference of a matter filed before a judicial authority to arbitration. But the manner in which the provision is drafted presents limited practical application. The term ‘any person claiming through or under him’ is suggestive of two circumstances: (a) the person (making the application for reference) has acquired the interest of a party to a matter, and/or (b) the person is an heir or a subsidiary/holding/associate company of a party to a matter. In both instances, one fails to understand how the provision has benefited by the addition. The acquisition of a company does not affect the right of the transferee company to seek reference of a matter to arbitration . An heir was by virtue of Section 40 of the 1996 Act entitled to commence and/or continue and/or enforce and/or was bound by an award passed in an arbitration. Where such acquisition of a company being a party to a matter before a judicial authority is sanctioned by the Tribunal, the provisions of Section 232 of the Companies Act, 2013 ensure that the rights, liabilities of the transferor company become those of the transferee company. The relevant provisions of the Companies Act, 2013 also contain the stipulation that proceedings initiated by the transferor company may be continued by the transferee company .

One could also argue that the amendment to Section 8(1) far from furthering the intentions of the judgment in Chloro Controls actually is a step in the wrong direction. The following illustration would demonstrate this point: Company A1 is the holding company of Company A2. Company B enters into an agreement with Company A2, which contains an agreement to arbitrate disputes. Disputes arise and Company B initiates a matter before a judicial authority against Company A1 realising as is commonly the case that A2 has no assets of its own and seeking the lifting of the corporate veil of Company A2 on the ground that Companies A1 & A2 are a single economic unit, or Company A2 is a façade or sham, or that Company A2 is an agency for the business of Company A1. The provision as drafted would allow Company A2 to interrupt such proceedings before a judicial authority and seek to enforce the agreement to arbitrate disputes between Company B and Company A2.

Another oddity observed is that the provision specifies a special period of limitation within which the application would have to be made by a person claiming under or through a party to a matter. Section 8(1) requires the application by a person seeking a reference of the matter to arbitration to be made before the submission of a party’s first statement on the substance of the dispute. In Jadavji Narsidas Sha & Co. v. Hirachand Chaturbhai a Division Bench of the Bombay High Court regarded the filing of an affidavit-in-reply setting out a party’s defence in a summary suit as being the submission of its first statement on the substance of the dispute. But there appears no logical reason for the imposition of this time limit for an application when made by a person claiming through or under a party in a matter before a judicial authority as such person is under no obligation under the Code of Civil Procedure, 1908 to ‘submit a first statement on the substance of the dispute’ not being a party to the proceeding.

That said, the amendments aforementioned have received wide spread acknowledgement for encouraging one to look beyond the identity of the ‘party’ or ‘signatory’ to the arbitration agreement and consider an application for reference to arbitration by ‘non-signatories’ or including ‘non-signatories’ to an arbitration agreement.

In the next part of this article the authors shall evaluate the approach adopted by Courts with the view of assessing whether a norm for lifting the veil can be identified with reference to the arbitration of disputes.


A leading case on the doctrine of piercing the corporate veil in the United Kingdom was the case of Adams v. Cape Industries Plc. . This case raised almost every known reason for piercing the corporate veil known to modern company law including that the corporate structure was a sham or façade that the companies were a group of companies forming a single economic unit and even the principle of the interest of justice in order to make the parent company liable for the obligations of a subsidiary towards involuntary tort victims. The question ultimately boiled down to whether the holding company was bound by judgments passed in the United States of America against its subsidiary and a company it was associated with. The Court rejected the argument that Cape the holding company was doing business or was present in the United States through its wholly owned subsidiaries or through a company (CPC) with which it was observed to have close business links.

A leading authority on the doctrine of piercing the corporate veil in India is the judgment of the Supreme Court of India in Life Insurance Corporation of India v. Escorts Ltd. . In this case the Supreme Court was called upon to consider whether a portfolio investment scheme framed under Section 73(3) of the Foreign Exchange Regulation Act, 1973 for the purpose of encouraging investment in Indian companies by non-resident Indians read with the other provisions of the Act permitted authorities to look beyond the corporate identity of the investor and identify the ‘real’ owners of the portfolio. The examination by the authorities was undertaken in order to ascertain whether there had been a transgression of the maximum of 1% investment by an individual non-resident Indian. The allegation of the Revenue was that a single individual Mr Swraj Paul had made investments in the scheme far in excess of the 1% limit through his family trust and through thirteen companies forming the Caparo group of companies which it was alleged were controlled by him. The Court ruled that the statutory framework read with the scheme of the portfolio concerned only permitted a limited lifting of the corporate veil for the purpose of inquiring into identifying the nationality of the shareholders but did not permit or allow any further scrutiny to determine the individual identity of each shareholder.

In the context of arbitration, the inquiry into this issue eventually leads one to the case of Indowind Energy Ltd. v. Wescare (India) Ltd. where the Supreme Court of India was called upon to consider an agreement for sale dated 24th February, 2006 between Wescare and Subuti. The agreement defined Wescare and its subsidiary RCI Power India as the sellers and defined Subuti and its nominee as the buyers and promoters of Indowind. The agreement contemplated the transfer of business assets by the seller to the buyer in return for part payment in cash and part payment via the issuance of shares. Disputes arose between the parties and Wescare filed 3 separate applications under Section 9 of the 1996 Act seeking various reliefs against Subuti and Indowind. All of these applications came to be rejected with a prima facie observation that Indowind had not signed the agreement for sale. Wescare thereafter filed an application under Section 11 of the 1996 Act seeking the appointment of an arbitrator to determine the disputes between the parties. Subuti resisted the application on the ground that ‘the agreement did not contemplate any transaction between itself and Wescare’ and hence the application did not indicate any cause of action against it. Indowind asserted that it was not a party to the agreement for sale. The learned Chief Justice of the Madras High Court allowed the application and observed that by lifting the corporate veil one would see that Subuti and Indowind were ne and the same person. Interestingly, only Indowind challenged the judgment of the Chief Justice. The Supreme Court of India upheld Indowind’s challenge and held that there was no arbitration agreement between Indowind and Wescare that met the requirements of Section 7 of the 1996 Act. The Court observed that the fact that Subuti and Indowind had common directors/shareholders made no difference for the purpose of seeking a reference to arbitration and actually observed negligence on the part of Wescare in not insisting that Indowind also sign the agreement.

The contractual terms between Subuti and Wescare are discussed in great detail in the judgment of the High Court of Judicature at Madras. The Madras High Court had observed that under the agreement for sale Indowind was described as the nominee of Subuti and agreed to ‘give’ consideration by issuing share capital to Wescare . Under Clauses 4.4 to 4.6 of the agreement for sale Indowind agreed to pay Wescare for the purchase of certain machinery. Thereafter, pursuant to the agreement for sale, Indowind passed two crucial resolutions to give effect to the terms of the agreement. An Extraordinary General Body Resolution was passed by the shareholders of Indowind on 15.04.2006 whereby the allotment of shares to Wescare was approved. The Board of Directors of Indowind passed a resolution approving the part purchase of machinery under the agreement for sale on 17.04.2006. The authors would submit that the analysis of the Madras High Court of the contractual terms are well informed and correctly exposit the true intention of the parties from the agreement between the parties, namely, that Indowind would be covered by the agreement for sale. The authors would submit that in addition to the analysis of the contractual terms between the parties if one were to apply the statutory scheme contained in the Specific Relief Act, 1963 and in particular the provisions of Section 15(h) and Section 19(e) of the Specific Relief Act, 1963 dealing with circumstances when a company can seek specific performance of an agreement entered into by its promoters one would necessarily conclude that Indowind was bound by the agreement for sale. The conduct of Indowind in passing the aforementioned resolutions clearly indicates that it had accepted the contract and had communicated such acceptance to the other party to the contract . It is submitted that if Indowind could seek the specific performance of the agreement for sale it would most certainly have to be willing to abide by it and hence it’s terms could also be enforced against it . The authors would therefore respectfully submit that both the terms of the contract between the parties as well as the statutory framework supported a conclusion that disputes between the parties were arbitrable.

In Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. the Supreme Court was called upon to consider whether the arbitration agreements contained in some of the agreements between the parties governed all the joint venture agreements. The Court analysed the corporate structure of the several parties to the dispute before it and came to the conclusion that the disputes essentially arose between two groups, namely: (a) the Chloro Control or Kocha Group, and (b) the Severn Trent Group.

These groups had entered into seven separate agreements with the intention of carrying on business by joint venture in the form of the appellant and Severn Trent De Nora LLC. In its analysis the Supreme Court determined that the shareholders agreement dated 16.11.1995 was the principle agreement between the parties. Under this agreement the Severn Trent Group appointed the appellant as its distributor in India for the products manufactured by it . In furtherance of this principle agreement the parties entered into an International Distributors Agreement, a Managing Director’s Agreement, an Export Sales Agreement, a trademark licence and technical know-how agreement and a Supplemental Agreement.

Disputes between the parties commenced following the allegation by the Severn Trent Group that the Chloro Control Group had failed to remedy certain issues and grievances raised by them whereupon they took the decision to terminate the joint venture. The appellant then filed a derivative suit before the High Court of Judicature at Bombay whereupon the Severn Trent Group made an application under Sections 8 and 5 of the 1996 Act seeking a reference of the dispute to arbitration. The Supreme Court concluded that in the present case the fact that one or some of the parties were not signatories to all the agreement would not be of much significance since all the agreements flow from one principle agreement. The Court opined that all the sub-agreements were executed in order to attain the object of the principle agreement. The intention of the parties being to attain one common goal it was necessary to construe that the disputes under one or more or all the agreements must be sent to a common arbitration . It would thus appear that the Court concluded from the terms of the agreements between the parties that there was an intention to refer all disputes between all the parties to arbitration. From the reported version of the judgment available with the authors it would appear that the decision in Indowind was not placed before the Supreme Court for its consideration.

In Rakesh Kathotia v. Milton Global , a Division Bench of the High Court of Judicature at Bombay was hearing an appeal from the dismissal of an application under Section 9 of the 1996 Act. The learned Single Judge had rejected the application on the ground that there was no identity between the parties to the arbitration agreement and the application. It was the contention of the appellant that a Joint Venture Agreement (JVA) dated 14.07.2001 entered into between two groups, namely, the Vaghani Group and the Subhkam Group required the transfer of the entire manufacturing and distribution business of the Vaghani Group to be transferred to a Joint Venture Company (JVC) incorporated between the groups. The appellant argued that the Vaghani Group had formed an entity Respondent 2 and were carrying on business in competition with the JVC. From the contractual documents before it the Court held that Respondent 2 would be covered by the terms of the JVA between the parties and hence the application under Section 9 could not have been dismissed on the ground that Respondent 2 was not a party to the arbitration agreement.

The judgment in Chloro Controls was followed by the Supreme Court of India in Purple Medical Solutions (P) Ltd. v. MIV Therapeutics Inc. The judgment is significant as the ratio in Chloro Controls was sought to be applied to an application filed under Section 11 of the 1996 Act. Differences between the parties had their genesis in a Share Purchase Agreement (SPA) entered into on 11.07.2011 and a License Royalty Agreement entered on the same date. Under the SPA, the first respondent was required to transfer 99.96% of its share capital to the petitioner. The transfer of shares was restrained by an order and Injunction passed by the District Court of Massachusetts in a claim filed by a third party. The petitioner came to learn of this order on 12.07.2011 just one day after the execution of the SPA. The petitioner was assured by the respondents that the dispute before the Court of Massachusetts would be settled and was thereby induced to make payment towards the purchase price of the shares. The respondents however did not discharge the claim before the District Court of Massachusetts and on 23.07.2013, coercive proceedings were commenced against the petitioner and Respondent 1 a company in which it had by now acquired a substantial stake. The Supreme Court applying the ratio of the judgment in Chloro Control held that the consent of Respondent 2 to arbitrate disputes under the agreements between the parties could be inferred from the nature of the transaction between the parties .

The judgment in Chloro Control was sought to be applied in a challenge to an arbitral award in a petition under Section 34 of the 1996 Act in ONGC v. Jindal Drilling and Industries Ltd. before the High Court of Judicature at Bombay. The arbitral tribunal had dismissed a claim filed before it on the grounds of lack of jurisdiction. It was the case of the petitioner that it had awarded a contract to a company by the name DEPL basis the representation that this entity was a sister concern of the respondent. The Court found no contractual or circumstantial evidence in support of these allegations and hence agreed with the Tribunal’s findings that there was no material produced in support of the aforesaid allegations. It was in such circumstances that the Court refused to apply the ratio of the judgment in Chloro Control .

GMR Energy Limited v. Doosan Power Systems India (P) Ltd. was an interesting case for it was a suit filed before the Delhi High Court seeking an injunction restraining the defendants from initiating or continuing an arbitration before the Singapore International Arbitration Centre (SIAC). The suit sought an injunction on the ground that the plaintiff was not a party to the arbitration agreements. The defendants filed an application seeking reference of the suit to arbitration under Section 45 of the 1996 Act. The defendants contended that the plaintiff had by virtue of two MOU’s guaranteed the liability of GCEL. These contentions were accepted by the Court and also noted that the GMR group of companies operated as a single group concern and the plaintiff had in fact made part-payment of the obligations of GCEL.

In Cheran Properties Ltd. v. Kasturi and Sons Ltd. , the Supreme Court of India was hearing appeals from a judgment of the National Company Law Appellate Tribunal. The third respondent, KSL, SPIL and Hindcorp entered into a share purchase agreement on 19.07.2004. Under this agreement SPIL would allot 240 lakh equity shares to KSL at a price fixed under the agreement in order to discharge the book debts of SPIL. KSL was to sell 243 lakh equity shares to KCP. The object being to take over the business, shares and liabilities of SPIL. Since the transaction was not completed by KCP disputes broke out between the parties, which were referred to arbitration. An award was passed against KCP. KCP challenged the award unsuccessfully losing at every stage right up to the Supreme Court. The award having attained finality, KSL initiated proceedings under Section 111 of the Companies Act, 1956 seeking a rectification of the register. The NCLT allowed the application and KCP’s appeal against this order was dismissed. In passing its order, the NCLT had concluded that the appellant was a nominee of KCP. These conclusions were based on an evaluation of the proceedings during the course of the arbitration and the provisions of the share purchase agreement, which allowed KCP to nominate any person for the purpose of acquiring the shares of SPIL provided they agreed to abide by the terms of the agreement between the parties. It was the appellant’s principal contention that the award could not be enforced against it, as it was not a party to the arbitration. The Court however, opined that in modern business transactions where parties enter into multiple layers of transactions through groups of companies. The Court held that the intention of the parties ought to be gathered from the transactional documents and the intention of the parties ought to be given effect including if necessary, by binding non-signatory parties by the outcome of the arbitration proceedings. Accordingly, the Court derived a contractual intent to bind the appellant and upheld the decision of the NCLT and the NCLAT and dismissed the appeal.

Before parting with this decision, it would be necessary to bring the attention of the reader to a distinction sought to be created by the Court between seeking to apply ‘the group of companies principle’ in a Section 11 situation as in Indowind and in a post arbitration case as in the case at hand. The Court concluded that the statutory framework, namely, Section 35 of the 1996 Act allowed it to execute an Award against persons claiming under or through a party to an arbitration but the scheme of the 1996 Act did not authorise such considerations in the context of an application under Section 11 of the 1996 Act . The authors respectfully differ with these observations of the Supreme Court . In proceedings under Section 8 as well as in proceedings under Section 11 of the 1996 Act, the judicial authority or court is required to give a finding on the existence of an arbitration agreement’ . There was additionally no distinction between the language of Section 8 and Section 35 at the time of the judgment since Section 8 of the 1996 Act had already been amended by Act 3 of 2016. The authors would state that once an intent can be seen or derived from the transaction between the parties or observed in their conduct there is nothing in the language of the 1996 Act that prevents a judicial authority or court from giving effect to that intention and appointing an arbitrator in a dispute covering signatory parties as well as non-signatory parties. It is also pertinent to note that the decision of the Supreme Court in this case did not benefit from having the opportunity to consider the judgment of the Supreme Court in Purple Medical Solutions which itself did not have the opportunity of considering Indowind .

In Ameet Lalchand Shah v. Rishabh Enterprises , the Supreme Court of India was called upon to consider the validity of an order dismissing an application under Section 8 of the 1996 Act. Rishabh had entered into two contracts with Juwi India, namely, an equipment and material supply contract and an engineering, installation and commissioning contract, both of which contained an arbitration agreement. Rishabh then entered into a sale and purchase agreement with Astonfield for purchasing CIS Photovoltaic products and an equipment lease agreement whereby Dante Energy agreed to lease the solar power plant of Rishabh at Jhansi. These two agreements did not contain arbitration agreements. Owing to disputes between the parties, Dante Energy invoked arbitration and nominated an arbitrator. In response Rishabh filed a suit before the High Court of Judicature at Delhi alleging fraud and seeking a declaration that the aforementioned agreements were void. The Supreme Court considered the terms of the various agreements as well as the pleadings in the plaint filed by Rishabh and concluded that clearly the four agreements were inter-connected. The Court opined that while there were several agreements covering several different parties these were all executed for the same commercial object of commissioning a solar power project in Jhansi. The Court therefore referred disputes under all four agreements to an arbitrator to be appointed by the parties.

The Courts have also had an opportunity of considering intervention by third parties in arbitration proceedings as was the case in Nirmala Jain v. Jasbir Singh as well as impleadment of third parties to arbitration agreements as was the case in Starlog Enterprises Ltd. v. Board of Trustees of Kandla Port . In Nirmala Jain a Division Bench of the Delhi High Court was deciding an appeal where the principle ground for challenge to an order under Section 9 of the 1996 Act was that it allowed a third party to the arbitration proceedings to intervene in the arbitral proceedings. Dismissing the appeal, the Court held that there was no absolute proposition of law that third parties/non-signatories could not be made parties to an arbitration. The Court observed that given the commonality of the subject-matter and the composite nature of the transaction between the parties there was nothing wrong with the order under challenge. In Starlog an arbitral tribunal passed an order in July 2019 impleading a third party in an arbitration that had commenced in the year 2014. The impleaded party sought to challenge the order of the Tribunal by filing a writ petition before the High Court of Judicature of Gujarat at Ahmedabad. This proceeding was dismissed as not maintainable and the Gujarat High Court left the parties to raise all the contentions on merits before an appropriate forum at the appropriate time.

In MTNL v. Canara Bank , MTNL sought to oppose the inclusion of CANFINA as Respondent 2 in arbitral proceedings contending that there was no arbitration agreement between MTNL and CANFINA. The Supreme Court referred to several documents to ascertain the intention of the parties including: the contractual documents between MTNL and Canara Bank, Minutes of Meetings between Cabinet Secretaries with respect to the arbitration of disputes and to earlier proceedings between the parties. The Court observed that arbitration agreements are to be construed according to the general principles of construction of statutes, statutory instruments, and other contractual documents. The intention of the parties must be inferred from the terms of the contract, conduct of the parties, and correspondence exchanged, to ascertain the existence of a binding contract between the parties. If the documents on record show that the parties were ad idem, and had actually reached an agreement upon all material terms, then it would be construed to be a binding contract . The meaning of a contract must be gathered by adopting a common sense approach and must not be allowed to be thwarted by a pedantic and legalistic approach. A commercial document has to be interpreted in such a manner so as to give effect to the agreement, rather than to invalidate it. An arbitration agreement is a commercial document inter parties, and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities. The Supreme Court stated that a non-signatory can be bound by an arbitration agreement on the basis of the ‘group of companies’ doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. The Courts and Tribunals have invoked this doctrine to join a non-signatory member of the group, if they are satisfied that the non-signatory company/ party was by reference to the common intention of the parties, a necessary party to the contract. The Court held that a non-signatory entity of a group of companies could be bound by an arbitration agreement if it was found that it had been engaged in the negotiation or performance of the transaction or made statements indicating its intention to be bound by the contract. Non-signatory parties could also be bound if they were found to be bound and/or benefitted from the relevant contract. The Court also observed the need to have a common arbitration where a ‘composite transaction’ required several different agreements to be performed in order to attain a common objective. Ultimately, the Court concluded that from the material before it no gainful arbitral proceedings could be conducted in the absence of CANFINA and thus referred the parties to the arbitration.


Like a consummated romance arbitration rests on consent. The analysis above clearly articulates consent as the cornerstone of arbitration. However, consent need not always be express and it may be implied from the transactional documents and the conduct of the parties as well as by the conduct of non-parties/non-signatories. The authors, therefore, propose that terminology such as ‘group of companies’, ‘vessel of fraud’, ‘sham or bogus’ etc commonly used in proceedings where parties seek to question or challenge the separate corporate identity of a company whilst applicable to civil proceedings where such questions arise, do not have a natural home in the sphere of arbitration. In the sphere of arbitration, the enquiry must exclusively concentrate on whether or not consent to arbitrate can be observed whether expressly or by necessary implication from the nature of the transaction, the contract, the correspondence and conduct of the parties.

*Advocate, Bombay High Court (mikhailbehl@gmail.com)

**Advocate, Bombay High Court and former Visiting Professor at Government Law College, Mumbai (anupamsurve@gmail.com).

[1] Definition of ‘corporate veil’: Black’s Law Dictionary (11th Edn.).

[2] Definition of ‘piercing the corporate veil’: Black’s Law Dictionary (11th Edn.).

[3] Gower and Davies: Principles of Modern Company Law (8th Edn.) (Ch. 8, pp. 193–209).

[4] (1944) 7 Modern Law Review 54.

[5] 1896 AC 22.

[6] UK Company Law Review: Strategic Framework, Ch. 5.2.

[7] Gower and Davies: Principles of Modern Company Law (8th Edn. ) (Ch. 8 at p. 195).

[8] https://www.startupindia.gov.in (viewed on 26.08.2020).

[9] https://www.makeinindia.com/policy/new-initiatives (viewed on 26.08.2020).

[10] Gower and Davies: Principles of Modern Company Law (8th Edn.) (Ch. 8 at pp 208-209).

[11] Arbitration and Conciliation Act, 1996

[12] What constitutes an arbitration agreement being defined in Section 7 of the 1996 Act.

[13] Report No. 246 of the Law Commission of India: Amendments to the Arbitration and Conciliation Act, 1996 [at p. 42].

[14] Act 3 of 2016.

[15] Pertaining to New York Convention Awards.

[16] Pertaining to Geneva Convention Awards.

[17] See paras 61 to 64 of the 246th Report of the Law Commission on Amendments to the Arbitration and Conciliation Act, 1996 (August,2014).

[18] (2013) 1 SCC 641.

[19] Order 22 Rule 10 of the Code of Civil Procedure, 1908.

[20] See also Order 22 Rule 1 of the Code of Civil Procedure, 1908.

[21] Section 232 (4) of the Companies Act, 2013.

[22] Section 232(3)(c) of the Companies Act, 2013.

[23] (2013) 1 SCC 641.

[24] 1953 SCC OnLine Bom 65.

[25] Malhotra: Commentary on the Law of Arbitration (Fourth EdN.) (pp. 152-154).

[26] [1990] Ch 433: [1990] 2 WLR 657 (HL).

[27] (1986) 1 SCC 264.

[28] (2010) 5 SCC 306.

[29] Wescare (I) Ltd. v. Subuthi Finance Ltd., 2008 SCC OnLine Mad 539 at para 12.

[30] Clause 4.2 of the Agreement for Sale dated 24.02.2006.

[31] Wescare was seeking enforcement of its agreement with Subuti.

[32]See proviso to Section 15(h) of the Specific Relief Act, 1963.

[33] See Section 16(b) and (c) of the Specific Relief Act, 1963.

[34] See Section 19(e) of the Specific Relief Act, 1963.

[35] (2013) 1 SCC 641.

[36] Clause 7 of the Shareholders Agreement.

[37] (2013) 1 SCC 641 at paras 73 to 76.

[38] (2010) 5 SCC 306.

[39] 2014 SCC Online Bom 1119.

[40] (2013) 1 SCC 641.

[41] (2015) 15 SCC 622.

[42] (2013) 1 SCC 641.

[43] The judgment however does not consider Indowind, (2010) 5 SCC 306.

[44] (2013) 1 SCC 641.

[45] 2015 SCC Online Bom 1707.

[46] (2013) 1 SCC 641.

[47] 2017 SCC Online Del 11625.

[48] (2018) 16 SCC 413.

[49] (2010) 5 SCC 306

[50] (2018) 16 SCC 413  para 29.

[51] It is necessary to note that these observations were made prior to the enactment of Act 33 of 2019 whereby Section 11(6-A) of the 1996 Act came to be deleted from the statute book.

[52] Malhotra: Commentary on the Law of Arbitration (Fourth Edn, at. page 317).

[53] Malhotra: Commentary on the Law of Arbitration (Fourth Edn., at page 449).

[54] See Sections 4 & 6 of Act 3 of 2016. The authors would state that irrespective of the deleting of Section 11(6-A) by virtue of Act 33 of 2019 since the High Court or the Supreme Court is required to evaluate the mechanism contained in the arbitration agreement the Courts would have to come to a prima facie finding that there was an arbitration agreement in existence.

[55] Garware Wall Ropes Ltd.  v. Coastal Marine Construction and Engineering Ltd., (2019) 9 SCC 209.

[56] (2015) 15 SCC 622.

[57] (2010) 5 SCC 306.

[58] 2018 SCC Online SC 487.

[59] (2019) SCC Online Del 11342.

[60] R/Special Civil Application No. 14146 of 2019 decided by the  High Court of Judicature of Gujarat at Ahmedabad on 18.05.2020.

[61] (2019) SCC Online Del 11342.

[62] R/Special Civil Application No. 14146 of 2019 decided by High Court of Judicature of Gujarat at Ahmedabad on 18.05.2020.

[63] 2019 SCC Online SC 995.

[64] Ibid at para 9.4.

[65] The Court subsequently on the constitution of the Administrative Mechanism for the Resolution of CPSE’s Disputes (AMRCD) referred the three government bodies to the AMRCD with the understanding that if disputes were not settled by 15.01.2020 there would be an arbitration of these disputes. See (2019) 10 SCC 32.

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Much like sovereign democracy, corporate democracy plays to the will of the majority. The majority rule enforces a contractual bargain among shareholders that puts collective decision-making ahead of individual interests. By placing business decisions in the hands of the Board of Directors, it introduces an element of efficiency. However, what is to prevent a tyranny of the majority that steamrolls minority shareholders? Here, company law intervenes to moderate the behaviour of dominant shareholders to ensure they do not adversely affect the interests of the minority. Minority shareholders can resort to various remedies under company law, such as oppression, prejudice and mismanagement, to restore the balance of power.

While Indian company law has incorporated versions of shareholder remedies since the mid-20th century, the design of the remedies as they currently operate finds place in Sections 241 and 242 of the Companies Act, 2013 (“the 2013 Act”). No sooner than these provisions took effect,[1] they faced a litmus test in one of India’s fiercest corporate battles in recent times. On 24-10-2016, the Board of Tata Sons Ltd., the holding company of the revered Tata group of companies, ousted its Executive Chairman, Mr Cyrus Mistry, from the position. The Shapoorji Pallonji group, of which Mr Mistry is a part, is a minority shareholder in Tata Sons. The group promptly initiated action under Sections 241 and 242 of the 2013 Act against Tata Sons and its controlling shareholders, being two Tata trusts.

The Shapoorji Pallonji group challenged various decisions taken by Tata Sons. These included several business decisions taken in various Tata group companies (referred to as “legacy issues”), the amendments to the articles of association of the holding company Tata Sons to enhance the powers of the Tata shareholders and ultimately the removal of Mr Mistry as the Executive Chairman and thereafter as a Director of Tata Sons. While the dispute was pending adjudication, Tata Sons converted itself from a public company into a private one, a matter also contested legally. After marathon hearings, the Mumbai Bench of the National Company Law Tribunal (“NCLT”) issued a 368-page ruling[2] declining to grant any relief to the minority shareholders.

[Read more]

†  Associate Professor, Faculty of Law, National University of Singapore. I would like to thank Souryaditya Sen for research assistance. Errors or omissions remain mine.

** This Article was first published in Supreme Court Cases. It has been reproduced with the kind permission of Eastern Book Company

[1]  Ministry of Corporate Affairs, Government of India, Notification S.O. 1934(E) dated 1-6-2016 (being also the effective date).

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, Whole Time Member, passed an order finding the promoters of New Delhi Television Ltd. (“NDTV”)  Dr Prannoy Roy, Chairman (“Noticee 2”), Radhika Roy, Managing Director (“Noticee 3”) and RRPR Holdings (P) Ltd. (“Noticee 1”)  grossly violated the provisions of Section 12-A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 read with Regulations 3(a), (b), (c), and (d) and 4(1) of the SEBI (Prohibition of Fraudulent Trade Practices relating to Securities Market) Regulations, 2003. Further, Dr Pronnoy Roy and Radhika Roy were additionally found to have violated Clause 49(1)(d) of the Equity Listing Agreement read with Section 21 of the Securities Contracts (Regulation) Act, 1956. 

In view of such findings and in order to protect the interest of investors and the securities market the Board passed following Directions against the Noticees:

(i) All the Noticees are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 2 years. During the said period of restraint/prohibition, the existing holding, including units of mutual funds, of the Noticees shall remain frozen; 

(ii) Dr Prannoy Roy and Radhika Roy are restrained from holding or occupying position as Director or any key managerial personnel in NDTV for a period of 2 years; and 

(iii) Dr Prannoy Roy and Radhika Roy are restrained from holding or occupying position as Director or any key managerial personnel in any other listed company for a period of 1 year.

The backdrop

In August and December of 2017, SEBI received complaints from a shareholder of NDTV alleging, inter alia, that RRPR Holdings, which is one of the promoters of NDTV, and Dr Pronnoy Roy and Radhika Roy, who are promoters as well as Directors of NDTV, have violated the provisions of SEBI Act and the rules and regulations made thereunder by omitting to disclose material information to the shareholders of NDTV about certain loan agreements entered into by them. 

NDTV is a company listed on BSE and NSE, and the three Noticees together constituted for 63.17% aggregate promoters shareholding in NDTV during the period of investigation, i.e., 14-10-2008 to 22-11-2017. 

Upshot of findings in the investigation

(a) The Noticees entered into three loan agreements, one with ICICI Bank Ltd. (a rupee term loan not exceeding Rs 375 crores) and two with Vishvapradhan Commercial Private Ltd. (“VCPL”) (total amounting to more than Rs 400 crores, interest-free and payable at the end of 10 years period). These loan agreements contained material and price sensitive information, in as much as action/decision on many important matters pertaining to NDTV were made subject to prior written consent of the ostensible lender and without the knowledge of the minority shareholders of NDTV. 

(b) Further, under the VCPL agreements and the two call option agreements executed as supplementary to the said loan agreements, beneficial interest in 30% shares of NDTV was effectively vested in VCPL. All these information were profoundly material and price sensitive information which would have influenced the investment decision of the investors in the shares of NDTV, had they been made aware of this information at that time. 

(c) Terms of the loan agreements were devised to affect the interest of shareholders of NDTV. Although various clauses in the loan agreements deceitfully created binding obligations on NDTV, the Noticees consented to such clauses behind the back of the shareholders of NDTV to further their own private interests. 

(d) Having held the dominant position and being majority shareholders of NDTV, the Noticees manifestly assured VCPL to ensure swift compliance of such clauses of the loan agreements pertaining to NDTV, thereby taking all other shareholders for granted and also compromising the interest of shareholders of NDTV. 

(e) In order to conceal the said information from the investors so that the investors continue to trade in the shares of NDTV blissfully ignorant of the fact that the promoters of the company have already vested their voting rights to the extent of 30% in favour of a third external party, Noticees 2 and 3 chose to act in flagrant breach of Code of Conduct of NDTV. If the said information regarding loan agreements had been disclosed by Noticees 2 and 3 to the Board of Directors of NDTV, then the company was bound to intimate the same to the stock exchanges which in turn, would have disseminated such information on their websites for information of the general public. 

(f) The loan agreements were unmistakably structured as a scheme to defraud the investors by camouflaging the information about the adversarial terms and conditions impinging upon the interest of NDTV’s shareholders, thereby inducing innocent investors to continue to trade in the shares of NDTV oblivious to such adversarial developments in the shareholding of NDTV.  

Observation on fiduciary duty and conflict of interest

It was argued that Noticees 2 and 3 could not have acted in terms of the loan agreements in view of their statutory fiduciary duty towards NDTV. That even if the agreements entered into by Noticees 2 and 3 contained provisions prejudicial to NDTV or its investors, yet such agreements were unenforceable if they were in violation of the statutory fiduciary duty of Noticees 2 and 3 as Directors of NDTV.  

In Board’s opinion, the question of enforceability of an agreement by the Courts would arise only in case of breach of the agreement by any of the parties. However, if the parties to an agreement decide to honour the undertakings and covenants provided for in such agreement out of their own volition, such agreements can always be performed by the parties, provided agreement is not prohibited by law. In the present case, the VCPL loan agreements, even though prejudicial to the interest of NDTV and creating conflict for Noticees 2 and 3 in the discharge of their fiduciary duties on the Board of NDTV, these agreements had been dutifully complied by the Noticees, till date. The Noticees, being fully aware and conscious about their pivotal role and positions in NDTV, still agreed/consented and executed agreements containing clauses which have an adversarial effect on the shareholders of NDTV. It restricts NDTV from raising fresh capital, making any restructuring, going for a merger, etc., without the prior written consent of ICICI/VCPL. It certainly amounts to acting in breach of fiduciary duties by Noticees 2 and 3. 

Shareholder’s vote, right to property, and freedom to exercise thereof

It was also contended that Noticess were also shareholders of NDTV, and a shareholder’s vote being a right to property, prima facie may be exercised by him as he thinks fit in his own interest. 

Rejecting the contention, the Board stated that it is to be understood that the case against the Noticees was not that they could not have entered into such loan agreements or exercised their voting rights the way they desired to, but the case against the Noticees was that they entered into certain transactions with a third party whereby they agreed to comply with certain conditions which bind NDTV and the interest of its shareholders too. In other words, by entering into such transaction, Noticees brought their personal interest in conflict with the interest of NDTV.

Based on such findings, the Securities and Exchange Board of India passed directions as aforementioned against Dr Prannoy Roy, Chairman, NDTV Ltd.; Radhika Roy, Managing Director, NDTV Ltd.; and RRPR Holdings (P) Ltd. all promoters of NDTV Ltd. It was directed that the directions made in the order shall come into effect with immediate effect. [NDTV Ltd, In re, 2019 SCC OnLine SEBI 47, decided on 14-6-2019]