Arbitrator Has No Power To Lift Corporate Veil, Says Delhi HC [Read Judgment]

Arbitral Tribunal cannot bind other parties who have not agreed to arbitrate, the court said.

Holding that an arbitral tribunal does not have the power to lift the corporate veil, the Delhi High Court, in Sudhir Gopi vs IGNOU, has also observed that mere failure of a corporate entity to meet its contractual obligations is no ground for piercing the corporate veil.

In the instant case, a sum of $664,070, along with pre award and future interest at the rate of 12% per annum, was awarded by the arbitral tribunal in favour of IGNOU against Sudhir Gopi and UEIT jointly and severally.

This award was assailed before the high court contending that UEIT is a limited liability company and although Sudhir Gopi is the principal shareholder as well as the chairman and managing director of UEIT, he is not personally liable for the contractual liability of UEIT.

With regard to the question of jurisdiction, Justice Vibhu Bhakru agreed with the contention that the arbitral tribunal, being a creature of limited jurisdiction, has no power to extend the scope of the arbitral proceedings to include persons who have not consented to arbitrate and an arbitrator would not have the power to pierce the corporate veil so as to bind other parties who have not agreed to arbitrate.

“An arbitral tribunal has no jurisdiction to lift the corporate veil; its jurisdiction is confined by the arbitration agreement - which includes the parties to arbitration - and it would not be permissible for the arbitral tribunal to expand or extend the same to other persons,” the court said.

Setting aside the tribunal order, the court observed that only in cases where it is established that an individual(s) and/or other entities have used a corporate form for a wrongful purpose, to perpetuate a fraud, circumvent a statute or some other misdeeds, the courts can decide to ignore the corporate personality and hold the directors, shareholders and/or officers (alter egos) responsible for the obligations of the corporate entity.

“There is no quarrel with the proposition that a court could, in given cases, lift the corporate veil. This decision is not an authority for the proposition that such power could be exercised by an arbitral tribunal,” the court said referring to Purple Medical Solutions Pvt Ltd case.

Read the Judgment here.