November 21, 2017

Clyde & Co Clasis Singapore and Clasis Law, New Delhi secure a landmark judgment

Clyde & Co and Clasis Law secure a landmark judgment for Doosan India from the Delhi High Court sending GMR Energy Limited back to SIAC

GMR Energy Limited (GEL) had filed a suit for permanent injunction against Doosan Power Systems India Private Limited (Doosan India) before the Hon’ble Delhi High Court in relation to an on-going arbitration between GMR Chhattisgarh Energy Limited (GCEL) and GMR Infrastructure Limited (GIL) for the development of a 1350MW coal fired thermal power plant at Raikheda, Chhattisgarh under their EPC contracts.  GEL sought a decree of permanent injunction restraining Doosan India from continuing the USD100 million SIAC Arbitration in Singapore, claiming that it was not a signatory to the arbitration agreement entered into by GCEL, GIL with Doosan India.

The Hon’ble Delhi High Court had initially granted an ex-parte injunction in favour of GEL. However, in a comprehensive judgment passed by the Hon’ble Delhi High Court under Section 45 of the Arbitration and Conciliation Act, 1996 (Act), it referred GEL- a non-signatory to an arbitration agreement to submit to on-going arbitration proceedings in a Singapore seated arbitration governed by the SIAC rules.

The doctrine of alter ego was applied by the Hon'ble Delhi High Court while subjecting the non-signatory GEL to the on-going arbitration in Singapore.

The Hon'ble Delhi High Court relied on various precedents of the Hon’ble Supreme Court of India and other High Courts, including the High Court of Singapore and determined that the following (main) issues arose between the parties:-

  • In the backdrop that both the parties are Indian, whether the arbitration in Singapore falls under Part I or Part II of the Act?;
  • Whether the Arbitral Tribunal constituted in Singapore under the SIAC Rules has the jurisdiction to pierce the corporate veil?; and
  • Whether the Court must form a prima-facie opinion on the issue of alter ego or return a finding?

The Hon’ble Court extensively elucidated upon the laws applicable to arbitration and discussed the scope of designating a ‘seat’ of arbitration while affirming that the arbitration proceedings in the present case will fall under Part II of the Act.

Further, the contention raised by the plaintiff that in the absence of the word ‘place’ or ‘seat’ in the arbitration clause, Singapore was only the venue between the parties, was rejected. Placing reliance on various judgments passed by the Hon’ble Supreme Court of India clarifying the said position, the Hon'ble Delhi High Court observed that the arbitration is to be governed by SIAC Rules and consequently, Singapore will be the seat of arbitration.

The plea that two Indian parties cannot choose a foreign seated arbitration was rejected by placing reliance on the previous judgments passed by the Hon’ble Supreme Court of India and the Madhya Pradesh High Court wherein two Indian parties were allowed to proceed with foreign seated arbitrations.

Further, the Hon’ble Delhi High Court went on to examine the scope of lifting the corporate veil on grounds other than fraud, i.e. on the principle of alter ego. It was observed by the Hon'ble Delhi High Court that modern jurisprudence recognizes certain circumstances besides fraud wherein lifting of the corporate veil is permissible. It was also observed that the issue of alter ego does not fall within the category of non-arbitrable disputes and therefore, a tribunal in a foreign seated arbitration can go into issues which are arbitrable as also a Court.

The Hon’ble Delhi High Court also rendered a prima-facie view and observed that the arbitration was not a Court referred arbitration and therefore, it was in the domain of the Arbitral Tribunal to decide the issue of alter ego.  

The judgment pronounced by the Hon’ble Delhi High Court is indicative of the legislative intent to achieve ease-of-doing business in India by adopting a pro-arbitration approach. The issues determined also clarify the concomitant ambiguity of two Indian parties choosing a foreign seated arbitration. The debate regarding determination of ‘seat’ in the absence of a specific designation has also found formal expression in the judgment. It is also clear that in international arbitration jurisprudence, the issue of alter ego stands astride the jurisdiction of Courts and Tribunal

**Clyde & Co Singapore office, led by Partner, June Yeum and Associates Danna Er, Gerald Leong and James Song are representing Doosan Power Systems India Private Limited in the SIAC arbitration.

** Clasis Law, New Delhi office led by Partner, Sumeet Lall and Associate, Sidhant Kapoor represented Doosan Power Systems India Private Limited before the Hon’ble Delhi High Court.