OIL AND NATURAL GAS CORPORATION LTD. versus M/S DISCOVERY ENTERPRISES PVT. LTD. & ANR. on 27 April 2022

SUPREME COURT REPORTS

[2022] 4 S.C.R.

AOIL AND NATURAL GAS CORPORATION LTD.

v.

M/S DISCOVERY ENTERPRISES PVT. LTD. & ANR.

(Civil Appeal No. 2042 of 2022)

APRIL 27, 2022

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[DR. DHANANJAYA Y CHANDRACHUD, SURYA KANTAND VIKRAM NATH, JJ.]

Arbitration – Group of companies doctrine – Invocation of –Held: An arbitration agreement entered into by a company within aCgroup of companies, can bind its non-signatory affiliates or sisterconcerns if the circumstances demonstrate a mutual intention of theparties to bind both the signatory and affiliated, non-signatoryparties – A non-signatory may be bound by the arbitrationagreement where: (i) there exists a group of companies; and (ii)parties have engaged in conduct or made statements indicating anDintention to bind a non-signatory – In deciding whether a companywithin a group of companies which is not a signatory to arbitrationagreement would nonetheless be bound by it, the law considers thefollowing factors: (i) mutual intent of the parties; (ii) relationshipof a non-signatory to a party which is a signatory to the agreement;E(iii) commonality of the subject matter; (iv) composite nature of thetransaction; and (v) performance of the contract.

Arbitration and Conciliation Act, 1996 – s.37 – Decision ofArbitral Tribunal that it lacks jurisdiction – Challenge to – Held: Ifthe arbitral tribunal accepts a plea that it lacks jurisdiction, theForder of the tribunal is amenable to a challenge in appeal u/s.37(2)(a)– In exercise of the appellate jurisdiction, the court must have duedeference to the grounds which weighed with the tribunal in holdingthat it lacks jurisdiction having regard to the object and spiritunderlying the statute which entrusts the arbitral tribunal with thepower to rule on its own jurisdiction – Decision of the tribunal thatGit lacks jurisdiction is not conclusive because it is subject to appellateremedy u/s.37(2)(a) – However, in exercise of this appellate power,the court must be mindful of the fact that the statute has entrustedthe arbitral tribunal with the power to rule on its own jurisdictionwith the purpose of facilitating the efficacy of arbitration as anHinstitutional mechanism for resolution of disputes.

Allowing the appeal, the Court

HELD: 1. A signed written agreement to submit a presentor future dispute to arbitration does not exclude the possibilityof an arbitration agreement binding a third party. A non-signatorymay be bound by the operation of the group of companies doctrineas well as by the operation of the principles of assignment, agencyand succession. A party, which is not a signatory to a contractcontaining an arbitration clause, may be bound by the agreementto arbitrate if it is an alter ego of a party which executed theagreement. This constitutes a departure from the ordinaryprinciple of contract law that every company in a group ofcompanies is a distinct legal entity. A non-signatory may be boundby the arbitration agreement where: (i) There exists a group ofcompanies; and (ii) Parties have engaged in conduct or madestatements indicating an intention to bind a non-signatory.[Para 23][955-H; 956-A-C]

2. In deciding whether a company within a group ofcompanies which is not a signatory to arbitration agreement wouldnonetheless 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 natureof the transaction; and (v) The performance of the contract.Consent and party autonomy are undergirded in Section 7 of theAct of 1996. However, a non-signatory may be held to be boundon a consensual theory, founded on agency and assignment oron a non-consensual basis such as estoppel or alter ego.[Para 26][957-G-H; 958-A-C]

3.1. In the present case, ONGC’s attempt at the joinder ofJDIL to the proceedings was rejected without adjudication ofONGC’s application for discovery and inspection of documentsto prove the necessity for such a joinder. By failing to considerthe application for discovery and inspection, the Tribunalforeclosed itself from inquiring into whether there was sufficientmaterial to establish the application of the group of companiesdoctrine. The application for discovery and inspection was indeedrelevant to the exercise which was being carried out by theTribunal. [Paras 26 and 30][958-C-D; 959-E-F]

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A3.2. The interim award of the first Arbitral Tribunal standsvitiated because of: (i) The failure of the arbitral tribunal to decideupon the application for discovery and inspection filed by ONGC;(ii) The failure of the arbitral tribunal to determine the legalfoundation for the application of the group of companies doctrine;and (iii) The decision of the arbitral tribunal that it would decideBupon the applications filed by ONGC only after the plea ofjurisdiction was disposed of. There was a fundamental failure ofthe first Arbitral Tribunal to address the plea raised by ONGCfor attracting the group of companies doctrine. Moreover, byleaving the application filed by ONGC for discovery andinspection unresolved, the first Arbitral Tribunal failed to allowCevidence which may have had a bearing on the issue of whetherJDIL could be considered to have an economic unity with DEPLand could hence be made a party to the arbitral proceedings.[Paras 50 and 51][974-B-F]

Chloro Controls India Pvt. Ltd. v. Severn Trent WaterPurification Inc. & Ors (2013) 1 SCC 641 : [2012] 13SCR 402 – relied on.

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Ameet Lalchand Shah & Ors. v. Rishabh Enterprises &Anr. (2018) 15 SCC 678 : [2018] 6 SCR 1001 –affirmed.

Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr. (2010)E5 SCC 306 : [2010] 5 SCR 284; Cheran Properties Ltd.v. Kasturi & Sons Ltd. & Ors (2018) 16 SCC 413 :[2018] 4 SCR 1063; MTNL v. Canara Bank & Ors.(2020) 12 SCC 767 : [2019] 11 SCR 660; DuroFelguera v. Gangavaram Port Limited (2017) 9 SCC729 : [2017] 10 SCR 285; referred to Reckitt BenckiserF(India) P Ltd. v. Reynders Label Printing (2019) 7 SCC62 : [2019] 8 SCR 966; Ssangyong Engineering andConstruction Company Limited v. National HighwaysAuthority of India (2019) 15 SCC 131 : [2019]7 SCR 522; M/s Dyna Technologies Pvt. Ltd. v. M/sCrompton Graves Ltd. (2019) 20 SCC 1 : [2019]G15 SCR 295; Associate Builders v. DDA (2015) 3 SCC49 : [2014] 13 SCR 895 – referred to.

Redfern and Hunter on International Arbitration, 5[th]Ed. – 2.13, pp. 89-90; Gary Born, InternationalCommercial Arbitration 2nd Edn., Vol. 1, at page1418; John Fellas, Compelling Signatories to Arbitrate H

OIL AND NATURAL GAS CORP. LTD. v. M/S DISCOVERY ENTERPRISESPVT. LTD. & ANR.

with Non-Signatories, New York Law Journal (March28, 2022) - referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2042of 2022.

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From the Judgment and Order dated 27.06.2012 of the High Courtof Judicature at Bombay in Arbitration Petition No. 814 of 2011.

K.M. Nataraj, ASG, Somiran Sharma, K. R. Sasiprabhu, TusharBhardwaj, Vishnu Sharma, Vinayak Sharma, Vinayak Maini, Advs. forthe appellant.

Shyam Divan, Sr. Adv., Rahul Narichania, Sr. Adv., Ajay Bhargava,Ms. Vanita Bhargava, Aseem Chaturvedi, Ms. Trishala Trivedi, MilindSharma for M/S. Khaitan & Co., Advs. for the respondents.

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The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

This judgment has been divided into sections to facilitate analysis.

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These are:

AFacts........................................................................3*A.1. Transferred cases arising out of the arbitration....11*BSubmissions of Counsel...............................................14*CAnalysis..................................................................21*GC.1.Group of Companies Doctrine............................21*C.2.Standard for Review of the Interim Arbitral Award...37*DConclusion...............................................................58*

* Denotes pagination as per the original Judgement.

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AA Facts

1. The appeal arises from a judgment dated 27 June 2012 of theHigh Court of Judicature at Bombay by which an appeal under Section37 of the Arbitration and Conciliation Act, 1996[1] has been dismissed. Oil& Natural Gas Corporation Limited[2] instituted an appeal against an interimBaward dated 27 October 2010[3] of the Arbitral Tribunal holding that thesecond respondent – Jindal Drilling and Industries Limited[4] was not aparty to the arbitration agreement and must be deleted from the array ofparties. The interim award was challenged in an appeal which wasdismissed by the impugned judgment.

C2. On 22 March 2006, ONGC awarded a contract to DiscoveryEnterprises Private Limited[5], the first respondent, which is acompanybelonging to the DP Jindal Group, for operating a floating, production,storage and offloading vessel[6]. Pursuant to the stipulation contained inclause 25.7.11 of the contract, a vessel called Crystal Sea was importedon 11 May 2006. ONGC paid the customs duty in the amount of Rs.55.78Dcrores on the understanding that the vessel would be re-exported afterwork was complete under duty drawback whose formalities would becompleted by DEPL. The vessel left Indian territorial waters and did notreturn. According to ONGC, DEPL failed to complete the formalitiesfor duty drawback and did not compensate ONGC for customs duty andEother expenses incurred in the amount of Rs.63.88 crores.

3. Clause 37 of the contract between ONGC and DEPL providesfor the settlement of disputes of the parties through arbitration. On 25April 2008, ONGC invoked arbitration against DEPL and JDIL andclaimed an amount of Rs.63.88 crores. An Arbitral Tribunal consistingFof Mr Justice SP Kurdukar (Retd.), Mr Justice MS Rane (Retd.)and MrS Venkateswaran (Senior Advocate) was constituted. In its statementof claim filed before the Arbitral Tribunal, ONGC set up the case thatDEPL and JDIL belonged to the DP Jindal Group of Companies andsince they constitute a single economic entity, the corporate veil shouldbe lifted to compel the non-signatory, JDIL, to arbitrate. According to G

1 "Act of 1996”

2 "ONGC”

3 “interim award”

4 "JDIL” or the “second respondent”

5 "DEPL”

H6 "vessel”

ONGC, DEPL is an alter ego and agent of JDIL. The statement ofclaim read thus:

“17. It is submitted the Respondent no.1 was awarded the contractby relying on the fact that it is Group Company of D P Jindalgroup of companies and that the Respondent No.2, M/s JindalDrilling & Industries Ltd has a vital business interest in theRespondent No.1, which can be said to be the alter ego ofRespondent No.2. In fact, the Respondent No.2 is the ultimatebeneficiary of the business of Respondent No.1. […] Presently,they are having three valid existing contracts with ONGC. DEPLhas close corporate unity with Jindal Group and in fact theshareholders are almost common. Respondent No.1 hasthroughout represented that they are group company of Jindalapart from their representation in the bid they have beenrepresenting that through the letter heads which clearly indicatedthat they belong to a single group of companies, namely DP JindalGroup of companies. M/s Jindal Drilling has also acknowledgedthat the contractor M/s DEPL is a group company of Jindal Groupin their website in an article titled “Key due diligence observations”.A copy of the said article is annexed herewith and marked asAnnexure 8. Since Respondent No. 1 is liable to compensateONGC for the losses suffered by it, ONGC has adjusted the saidamount from the monies payable to Jindal Drilling and IndustriesLimited as a security to satisfy the award to be passed in thiscase.

18. As stated above, Respondent No.2 was supplying vessels andrigs to ONGC under various contracts, for last many years. It is afact that the Respondent No.1 was formed as a group companywith the charter of introducing cutting-edge technology andsolutions to the oil and gas market in India. Respondent No.1 hasrepresented itself as a part of the DP Jindal group of companiesas seen from the company’s website (www.discoveryepl.com).A copy of the relevant extract from the website is attachedherewith and marked as Annexure A-9. The same web-basedrepresentation was made in categorical and unequivocal mannerby Respondent No.1 in the bid submitted by them in connectionwith the subject contract. The copy of the same is annexedherewith and marked as Annexure-10. The Directors of the A

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ARespondent No.1 are Mr. Manav Kumar and Mrs. Shilpa Agarwal,son and daughter in law of Shri Naresh Kumar who is the ManagingDirector of the Respondent No. 2 i.e, the Jindal Drilling andIndustries Ltd. The two companies operate out of the samepremises, same floor, same building i.e. Keshav Building, BandraKurla Complex. Copies of the Letter Head of both the companiesBaddressed to the claimant is enclosed herewith and marked asAnnexure A-11 (colly). More significantly a prominent JindalDrilling Executive has taken an active interest in the negotiationsconcerning the subject contract […]. It makes it abundantly clearthat the activities of DEPL i.e. Respondent No.1 contractor areCan extension of the activities of Respondent No.2 who has set upthe Respondent No. 1 company as an agency to carry out itsactivities. Therefore, it is submitted that the doctrine of groupcompany can be applied in this case - an arbitration agreementsigned by one company in a group of companies entitles (orobligates) other group non-signatory companies, if theDcircumstances surrounding the negotiation, execution of theagreement show that the mutual intention of all the parties was tobind non-signatories. This group companies constitute the same“economic reality”. This is evident when veil-piercing is done.Copies of documents evidencing close relationship between bothEthe companies are annexed herewith as indicated above.

19. In any case, Respondent No.1 can be considered as an agent/alter ego of Respondent No.2 because of its deep and pervasivefamily links, apart from the fact that Respondent No. 2 is theintended third-party beneficiary of this contract. The Arbitral Tribunal has to determine these questions in accordance withevidence and law. Further, there is corporate unity and crossshareholdings in both the companies by shareholders, common toboth the companies.

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21. It is submitted that this is a fit case where this Hon’ble Tribunalhas to pierce the corporate veil in order to see the acknowledgedthe realities of Respondent No.1 being a group company of DPJindal Group. As submitted above, there is a clause ‘corporateunity’ and applying the doctrine of group companies/alter ego/ultimate beneficiary. This Tribunal has to hold Respondent No.2

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also liable to compensate ONGC for the dues of respondentNo.1.The issue preferred to Tribunal is within the arbitrationagreement and under law and this Hon’ble Tribunal has jurisdictionto entertain and decide the dispute.”

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4. An application under Section 16 of the Act of 1996 was filed byJDIL seeking its deletion from the arbitral proceedings on the groundthat it is not a party to the arbitration agreement. ONGC responded tothe application. During the course of the proceedings, ONGC filed anapplication on 5 January 2009 for discovery and inspection to support itscase that DEPL is an alter ego of the Jindal Group of companies. Insupport of the application for discovery and inspection, ONGC pleadedthat:

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(i) DEPL and JDIL are group companies and that the formeris an agent or alter ego of the latter;

(ii) There exists corporate and functional unity between them;

(iii) DEPL is a corporate facade which has been created toDpromote and extend the business of JDIL;

(iv) JDIL is responsible for the acts of omission and commissionof DEPL on the basis of the group of companies doctrine;

(v) DEPL has been created by the Jindal Group to renderservices in the oil and gas sector and each entity of thegroup is strategically formed to render certain services; and E

(vi) DEPL is working under the “fraternal hood” of the groupbased on the admission on the corporate website of JDIL.

5. ONGC stated that the documentary evidence demonstratesthat there is a “close corporate unity and functional unity existing betweenthese two companies” and hence it was necessary to discover thedocuments set out in the schedule to the application. The documents ofwhich discovery was sought are tabulated below:

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“SCHEDULE OF DOCUMENTS

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1. Memorandum of Association of Respondent No.2.

2. Articles of Association of Respondent No.2.

3. Ledger account of Respondent No.2 for the financial years2003-04, 2004-05, 2005-06 and 2006-07.

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SUPREME COURT REPORTS

A4. Employees salary register of Respondent No.2 for the financialyears 2003-04, 2004-05, 2005-06 and 2006-07.

5. Titled document showing Respondent No.1’s rights/ownershipover the registered office premises at Suite 110, Tower-I, 70Najafgarh Road, B-39, New Delhi-110 015.

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6. Titled document showing Respondent No.2’s rights/ownershipover the office premises at 3rd Floor, Keshav Building, Banda-Kurla Complex, Banda (East), Mumbai-400 051.

7. Documents showing grant of telephone connection of thefollowing telephone and fax numbers at the Delhi office ofCRespondent No. 1 and the payment of the bills of the said telephoneand fax numbers by Respondent No. 1 from the calendar years2003 to 2007. (i) Telephone No.52531100, (ii) Fax No.52531191.

8. Documents showing grant of telephone connection of thefollowing telephone and fax numbers at the Mumbai office ofRespondent No. 2 and the payment of the bills of the said telephoneand fax numbers by Respondents from the calendar years 2003to 2007. (i) Telephone Nos.26592889 & 55020047, (ii) FaxNo.26592630.

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9. List of the contract bagged from ONGC so far the inception ofRespondent No.2.

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10. List of crew members in the Drilling Unit “Noble Ed-Holtawarded on 17.8.06 and Noble Charlie Yester on 2.12.06.”

6. ONGC led evidence in support of the statement of claim. Duringthe course of the examination, ONGC’s witness, Anindya BhattacharyaFwho was working as Chief Manager(MM) of ONGC, produceddocuments in support of claim. The production of documents was objectedto by JDIL on the ground of relevance and admissibility. During thearbitral meeting on 7 July 2009, the Tribunal recorded the followingminutes:

G“Per Tribunal :

The documents produced by the witness Anindya Bhattacharya(CW-1) along with his affidavit dated June 26[th] 2009 andannexures 1 to 10 are taken on record. Mr. Rahul Narichania, Ld.Advocate for Respondent No. 2 objects to these documents beingHtaken on record on the ground that the same are not relevant and

admissible as far as the Respondent No. 2 is concerned. He furtherstated that he will cross examine the witness on the documentswithout prejudice to his rights that the said documents were neitherrelevant nor admissible in evidence and ought not to be marked asexhibits.

The rival contentions will be decided while disposing of theapplication made under Section 16 of the Arbitration &ConciliationAct, 1996. It is also madeclear that merely because the witnesshas been cross examined on behalf of the Respondent No. 2 onthe documents, the documents do not automatically stand exhibited.

Mr. Rajiv Kumar objects to the procedure recorded above. TheClaimants do not waive any rights in this behalf.”

7. By its interim award dated 27 October 2010, the Arbitral Tribunalheld that it lacked the jurisdiction to arbitrate on the claim against JDIL,which was not a party to the arbitration agreement. The tribunal reliedon the judgment of this Court in Indowind Energy Ltd. v. Wescare (I)Ltd. & Anr.[7]. The conclusion of the Tribunal was that JDIL is not asignatory of the arbitration agreement and hence could not be impleadedas a party to the proceedings. The Arbitral Tribunal held:

“20. After considering rival contentions, the arbitral tribunal is ofthe opinion that it may not be permissible for it to go beyond theambit of section 7 of the act. The word ‘party’ is defined undersection 2(1)(h) means a party to an Arbitration Agreement andthe arbitration agreement has been defined under section 7 of theAct. […] To put it differently, this arbitral tribunal lacks thejurisdiction to investigate, enquire into and record anyfinding on the basis of claim petition paragraphs 17 to 21against M/s Jindal Ltd/ Respondent No.2. The arbitraltribunal is therefore of the opinion that the claim petitionof ONGC vis a vis M/s Jindal Ltd./ Respondent No.2 isuntenable for want of jurisdiction under the Act. The arbitraltribunal makes it clear that the position of M/s Jindal Ltd/respondent no.2 considered only on the basis of theprovisions contained in section 2(1)(h) and section 7 of theAct.”

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936SUPREME COURT REPORTS

A8. JDIL was accordingly struck off the array of parties. ONGCfiled an appeal under Section 37 before the Bombay High Court whichwas dismissed on 27 June 2012 with the following observations:

“16. As observed hereinabove, there is no evidence tenderedbefore Arbitral Tribunal that DEPL and JDIL had commonBshareholders and common board of directors. Even if that hadbeen the case, the Hon’ble Supreme Court of India in IndowindVersus Wescare case (supra) has held in terms that merelybecause two companies have common shareholders and directors,they do not become a single entity. In the instant case also, theArbitral Tribunal has correctly held that merely because the twoCcompanies may at one point of time have had a common addressand telephone number, it does not make them one economic unit.The mere fact that the son and daughter-in-law of the managingdirector of JDIL are directors in DEPL also does not and cannotestablish that these companies are one and the same. There isDalso no credible evidence to show that because of the allegednexus between the two companies, ONGC awarded the saidcontract to DEPL. Even assuming this to be correct, it does nottake the case of ONGC any further. JDIL is admittedly not aparty to the contract and cannot be liable under the said contractwhich is only between ONGC and DEPL. If ONGC wanted toEbind JDIL to the said contract, it should have asked JDIL to be aparty to the said contract. In fact, this court inquired from learnedAdvocate appearing for ONGC as to why ONGC did not insiston JDIL signing the said contract when admittedly there are othercontracts which are entered into between ONGC and JDIL.FHowever, the learned advocate appearing for ONGC had noanswer to the same. In response, he only submitted that ONGChas also filed suit being 2947 of 2011 in this court in which DEPLand JDIL have been arrayed as the defendants.”

9. The judgment of the High Court was challenged by ONGC

Gunder Article 136 of the Constitution. The Arbitral Tribunal delivered itsfinal award dated 6 June 2013[8] and, while allowing the claim of ONGC,held that it is entitled to recover an amount of Rs.63.87 crores and USD1,756,197.50 together with interest at 9% per annum and legal costs.The counter claim filed by DEPL was dismissed.

H8 “Arbitral Award in the first proceeding”

10. At this stage, it would also be necessary to note that in thecourse of its interim award, the Arbitral Tribunal dealt with the applicationsfiled by ONGC on 5 January 2009 for discovery of documents andinspection. The Arbitral Tribunal noted ONGC’s contention that itsapplication for discovery and inspection should be heard and disposed offirst on merits and that the application filed by JDIL under Section 16should be heard thereafter so that all relevant documents would emergebefore the Arbitral Tribunal. The Arbitral Tribunal, however, directedthat the application for discovery and inspection filed by ONGC be“deferred until the issue of the jurisdiction is decided”.

A.1. Transferred cases arising out of the arbitration

A.1. Transferred cases arising out of the arbitration

11. During the pendency of the arbitration between ONGC andDEPL, ONGC withheld a sum of US$14,772,408.54 towards recoveryof its claim of Rs.64.88 crores against four contracts with JDIL. By aletter dated 24 October 2007, JDIL sought the release of the sum withheldtogether with interest failing which it stated that it would exercise itsright to take legal recourse. ONGC replied to the letter on 5 May 2008stating that they are withholding the dues as an adjustment against thedues owed to ONGC by DEPL. Aggrieved by the deductions made byONGC under its four contracts for drilling services, JDIL invokedarbitration on 4 February 2010.AnArbitral Tribunal consisting of MsJustice Sujata Manohar (Retd.), Mr Justice BN Srikrishna (Retd.), andMr Justice MS Rane (Retd.) was constituted. In the meanwhile, ONGCinstituted a declaratory suit against JDIL and DEPL before the BombayHigh Court which is presently pending. The Arbitral Tribunal, by acommon award dated 9 October 2013,[9] directed ONGC to pay JDIL anamount of US$14,772,495.55/- together with interest at 4% per annumcalculated from the due date of each invoice till the date of payment orrealisation. The Arbitral Tribunal dealt with the submission of ONGCthat DEPL and JDIL belong to the same group thus entitling ONGC tomake the deductions. Rejecting the contention of ONGC, the ArbitralTribunal held:

“25. There is hardly any evidence to support the plea of theRespondent that DEPL and the Claimant are one and the samecompany. Both DEPL and the Claimant are group companies ofD.P. Jindal group of companies. Although the directors of DEPL

9 “Arbitral Award in the second proceeding”

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are the son and daughter-in-law of the managing director of theClaimant, and the two companies, for some time, shared a commonoffice and telephone numbers, that does not make the twocompanies one. Both are subsidiaries of the main company andboth have independent legal existence. DEPL was incorporatedin the year 2003. The Claimant is a public limited company listedon the stock exchange and was incorporated in the year 1983.

26. […] The facts of the present case are totally different and donot warrant lifting of corporate veil, assuming there is one. Theevidence in the present case does not justify the application of“lifting the corporate veil”. In respect of the contract which wasentered into by the Respondent with DEPL, the tender was floatedby ONGC in 2005 and the contract was entered into in 2006.There is no material to show that the Respondent awarded thecontract to DEPL because it was in fact the claimant and/ or wassupported by the claimant. The minutes of the meeting held bythe Respondents for short-listing of bidders in respect of thecontract have not been produced. The only witness produced byONGC was not present at the meetings held by the executivepurchase committee when the deliberations on the award of thecontract recommended bidder took place. […] There is noevidence to show that in order to secure the said contract, DEPLrepresented that it was a part of the Claimant group. […]

27. There is no guarantee or letter of “comfort” from the Claimantto the Respondent in respect of the liabilities, if any, of DEPLunder its contract with ONGC. […]

[…]

30. In the present case the Claimant and DEPL have throughoutmaintained their separate legal character. There is no evidence toindicate that they ever represented to the Respondent that theyare one company or that the Claimant will be liable under thecontract of the Respondent with DEPL.

31. In the present case the Respondent ONGC had earlier initiatedarbitration proceedings against both DEPL and the Claimant beforean Arbitral Tribunal […]. By its ‘interim final award’ dated 27-10-2010, the Arbitral Tribunal held that in the dispute between theRespondent and DEPL, the Claimant could not be impleaded.[…] The findings of the earlier arbitral tribunal and the High Court

in its order of 27 June 2012 support our present conclusions, andwe respectfully agree with the same.”

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12. DEPL was not a party to the above arbitral proceedings whichwere initiated by JDIL. ONGC instituted petitions[10] under Section 34 ofthe Act of 1996 for challenging the Arbitral Award in the secondproceeding in respect of the four contracts of JDIL. The petitions weredismissed by a Single Judge of the Bombay High Court on 28 April2015. ONGC filed an appeal[11] under Section 37 of the Act of 1996during the pendency of the special leave petition arising from the interimaward of the Arbitral Tribunal dated 27 October 2010, consisting ofMr Justice SP Kurdukar (Retd.), Mr Justice MS Rane (Retd.) and Mr SVenkateswaran. ONGC sought a transfer of the appeals lodged beforethe Bombay High Court against the judgment of the Single Judgedismissing the petitions under Section 34 for challenging the ArbitralAward in the second proceeding. The transferred cases[12] have come upbefore this Court together with the special leave petition arising out ofthe interim award dated 27 October 2010.

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B Submissions of Counsel

13. Mr KM Nataraj, Additional Solicitor General[13], appearing onbehalf of ONGC submitted that:

(i) The case of ONGC is that DEPL and JDIL constitute onesingle commercial entity and that ONGC is hence entitledby law to compel JDIL to participate in the arbitrationproceedings so as to enforce the award against it; E

(ii) Though evidence was available with ONGC to buttress theabove claim, it filed an application for discovery andinspection to secure material which was within thepossession, control and custody of JDIL. However, withthe deletion of JDIL from the array of parties, the applicationfor discovery and inspection has been rendered otiose; F

(iii) The Arbitral Tribunal has not enquired into the facts at all,Gdespite the contention of ONGC that JDIL is a necessaryparty; 10 Arbitration Petition No. 587, 767, 768 and 1045 of 2014

11 Arbitration Appeal Nos. 446 to 449 of 2015

12 Transferred Case (Civil) Nos. 47, 48, 49 and 50 of 2016

13 “ASG”

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A(iv)The Arbitral Tribunal has merely held, on the basis of thelegal principle underlying Section 7 of the Act of 1996 andprivity of contract, that JDIL which is not a signatory to thearbitration agreement cannot be impleaded in the arbitralproceedings; B(v)After the application for discovery and inspection wasopposed by JDIL, the Arbitral Tribunal deferred its decisionuntil the issue of jurisdiction was resolved on the applicationfiled by JDIL under Section 16 of the Act of 1996;

(vi) The interim award did not consider or hear the applicationfor discovery and inspection under Section 16. The decisionChas been rendered purely on the premise that anon-signatoryto the arbitration agreement cannot be impleaded as a party;

(vii) ONGC has been precluded from tendering evidence thatJDIL could be brought within the fold of arbitration on thebasis of the group of companies doctrine; D(viii) While the Arbitral Tribunal has relied on the decision of thisCourt in Indowind (supra), the subsequent decisions of thisCourt have accepted and applied the group of companiesdoctrine. These decisions are:

a.Chloro Controls India Pvt. Ltd. v. Severn TrentEWater Purification Inc. & Ors;[14]

b.Cheran Properties Ltd. v. Kasturi & Sons Ltd.& Ors;[15 ]and

c.MTNL v. Canara Bank & Ors.[16]. and

(ix) The decision in Indowind (supra) is not good law in viewFof the subsequent judgments of this Court. The ArbitralTribunal ought to have decided the jurisdictional issue afterparties were permitted to lead evidence, since the applicationof the group of companies doctrine and the lifting of thecorporate veil involves mixed questions of law and fact.GThe issue of jurisdiction and merits are inextricablyintertwined and a ruling premised exclusively on theapplication of Section 7 of the Act of 1996 was improper.

14 (2013) 1 SCC 641 [“Chloro Controls”]15 (2018) 16 SCC 413 [“Cheran Properties”]H16 (2020) 12 SCC 767 [“MTNL”]

14. Controverting the above submissions, Mr Shyam Divan, SeniorACounsel appearing on behalf of the JDIL has indicated in the followingtabulation:

(i) ONGC’s contentions;

(ii) JDIL’s response;

(iii) Findings in the interim award of the Arbitral Tribunal; andB

(iv) The order of the High Court.

The tabulated statement is reproduced below for convenience of reference:

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ABCDEFGH

[2022] 4 S.C.R.

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15. The following submissions have been urged by Mr ShyamDivan, Senior Counsel behalf of the respondent:

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(i) There is no disputing the factual position that DEPL is apart of the DP Jindal Group, yet JDIL has no shareholdingin DEPL. There is neither any cross shareholding nor anycommon directors; D

(ii) In 2010, DEPL ceased to be a part of the DP Jindal Group.However, JDIL continues to be a part of the DP JindalGroup of companies together with other group entities suchas Maharashtra Seamless Ltd. and Jindal Pipes Ltd.;

(iii) JDIL is not a party to the arbitration agreement as requiredunder Section 7 of the Act of 1996 and cannot be held liableEfor claims against DEPL since there is no evidence thatJDIL was a beneficiary of the contract between ONGCand DEPL. No letter of guarantee or of comfort was issuedby JDIL on behalf of DEPL in favour of ONGC; F

(iv) The Bombay High Court has correctly held that no evidencewas tendered before the Arbitral Tribunal that DEPL andJDIL had common shareholders or common directors;

(v) The arbitral award has discussed ONGC’s claim that DEPLand JDIL belong to the same group of companies and cameto the conclusion that there is not “a tickle of evidence”Gthat JDIL played any role in the negotiations leading up tothe contract or that thereafter JDIL participated in theexecution of the contract on behalf of the DEPL. Hence,the group of companies doctrine cannot be invoked to indictJDIL for the alleged acts and omissions of DEPL; H

944SUPREME COURT REPORTS

A(vi)Under Section 7 of the Act of 1996,theremust be anagreement between the parties to submit to arbitration. Theexpression ‘party’ is defined in Section 2(1)(h). Thekeywords in both the provisions are “party to an arbitrationagreement” and an agreement by the party to submit toarbitration. JDIL and DEPL are separate entities. DEPLBwas incorporated in 2003. JDIL was incorporated in 1983.Its shares are listed on the Bombay Stock Exchange. ThoughDEPL belonged to the DP Jindal Group of Companies, itceased to remain a part of the group in 2010. The fact thatDEPL and JDIL shared a common office is of no relevance.CONGC’s witness asserted that he came to know that MrGD Sharma (who signed on behalf of DEPL) is an employeeof JDIL only after the signing of the contract. Hence therewas no representation that JDIL was bidding for thecontract. The association of the executive of JDIL was torender assistance to DEPL and nothing more; and D

(vii) ONGC’s witness has no knowledge of the facts since hewas not:

a.Involved in the shortlisting of bidders; Eb.A part of the decision-making process for the awardof the contract;

c.A party to the deliberations by the tender committeefor the award of the contract; d.Present at the time when the approval was given forthe award of the contract; and F

e.Party to the deliberations within ONGC.

The witness stated that he has accessed the website ofDEPL for the first time in June 2008, after the award of thecontract on 22 March 2006. Hence it is not open to ONGCto claim that DEPL or JDIL represented to ONGC thatDEPL was a group company of JDIL or that ONGCawarded the contract because of any representation by JDILon its website.

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C.1. Group of Companies Doctrine

16. Section 7[17] provides for an arbitration agreement. For thepurpose of Part-I of the Act of 1996, an arbitration agreement is definedto mean an agreement by the parties to submit disputes between them inrespect of a defined legal relationship, to arbitration. An arbitrationagreement may either be in the form of an arbitration clause in a contractor take the form of a separate agreement. An arbitration agreement hasto be in writing but it may be contained in:

(i) A document signed by the parties;

(ii) An exchange of communication; and

(iii) An exchange of a statement of claim and defence in which an allegation that there exists an arbitration agreement isnot denied by the other party.

Sub-section (5) of Section 7 stipulates that the reference in acontract to a document containing an arbitration clause constitutes anarbitration agreement if:

(i) The contract is written; and

(ii) The reference is such as to make the arbitration clause apart of the contract.

17 “7. Arbitration agreement.—(1) In this Part, “arbitration agreement” means an agreement by the parties to submit toarbitration all or certain disputes which have arisen or which may arise between themin respect of a defined legal relationship, whether contractual or not.(2) An arbitration agreement may be in the form of an arbitration clause in a contract orin the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunicationincluding communication through electronic means which provide a record of theagreement; or(c) an exchange of statements of claim and defence in which the existence of theagreement is alleged by one party and not denied by the other.(5) The reference in a contract to a document containing an arbitration clause constitutesan arbitration agreement if the contract is in writing and the reference is such as to makethat arbitration clause part of the contract.”

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A17. The expression “party” is defined in Section 2(h) to mean aparty to an arbitration agreement. The interpretation of the term “parties”vis-à-vis an arbitration agreement under Section 7 has been dealt withby this Court in Indowind (supra) in the context of an application for theappointment of an arbitrator under Section 11(6). In that case, the secondrespondent company was the promoter of Indowind. The first and secondBrespondent had entered into an agreement of sale. In the agreement, theseller was described to include the first respondent and its subsidiaries.The second respondent was described as the buyer and as the promoterof Indowind. Under the agreement, the seller agreed to transfer businessassets for a consideration which was partly payable in money and partlyCby the issuance of shares. The sale agreement also incorporated a clauseto arbitrate any dispute. The Board of Directors of the first and secondrespondent approved of the agreement, but there was no approval bythe Board of Indowind. After a dispute arose, the first respondent instituteda petition under Section 11(6) against both the second respondent andIndowind for the appointment of an arbitrator. Indowind resisted theDpetition on the ground that it was not a party to the agreement betweenthe first and second respondent. The application was allowed by theChief Justice of the Madras High Court by observing that prima facieIndowind was a party after lifting the corporate veil and noticingIndowind’s intention to be bound by the sale agreement. Two issuesEwere framed by this Court for consideration:

“

(i) Whether an arbitration clause found in a document (agreement)between two parties, could be considered as a binding arbitrationagreement on a person who is not a signatory to the agreement;F(ii) Whether a company could be said to be a party to a contractcontaining an arbitration agreement, even though it did not signthe agreement containing an arbitration clause, with reference toits subsequent conduct”

GJustice RV Raveendran, speaking for the two-judge Bench inIndowind (supra) held that if Indowind had acknowledged or confirmedin any correspondence, agreement or document that it was a party tothe arbitration agreement between the first and second respondent orthat it was bound by the arbitration agreement contained in that contract,it could have been possible to say that Indowind is a party to the arbitrationH

agreement. That however was not the position. The decision in Indowind(supra) was in the context of an application under Section 11(6). A partywhich was not a signatory to the arbitration agreement had raised anobjection on the ground that the agreement to arbitration did not operatein relation to it. The Court refused to pierce the corporate veil and reliedon a strict interpretation of Section 7 to hold thus :

“17. It is not in dispute that Subuthi and Indowind are twoindependent companies incorporated under the Companies Act,1956. Each company is a separate and distinct legal entityand the mere fact that the two Companies have commonshareholders or common Board of Directors, will not makethe two Companies a single entity. Nor will the existenceof common shareholders or Directors lead to an inferencethat one company will be bound by the acts of the other. Ifthe Director who signed on behalf of Subuthi was also a Directorof Indowind and if the intention of the parties was that Indowindshould be bound by the agreement, nothing prevented Wescareinsisting that Indowind should be made a party to the agreementand requesting the Director who signed for Subuthi also to sign onbehalf of Indowind.

18. The very fact that the parties carefully avoided makingIndowind a party and the fact that the Director of Subuthi thougha Director of Indowind, was careful not to sign the agreement ason behalf of Indowind, shows that the parties did not intend thatIndowind should be a party to the agreement. Therefore the merefact that Subuthi described Indowind as its nominee or as acompany promoted by it or that the agreement was purportedlyentered by Subuthi on behalf of Indowind, will not make Indowinda party in the absence of a ratification, approval, adoption orconfirmation of the agreement dated 24-2-2006 by Indowind.

[….]

20. Wescare referred to several acts and transactions as also theconduct of Indowind to contend that an inference should be drawnthat Indowind was a party to the agreement or that it had affirmedand approved the agreement or acted in terms of the agreement.An examination of the transactions between the parties to decidewhether there is a valid contract or whether a particular party A

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Aowed any obligation towards another party or whether any personhad committed a breach of contract, will be possible in a suit orarbitration proceeding claiming damages or performance. But theissue in a proceeding under Section 11 is not whether there wasany contract between the parties or any breach thereof. A contractcan be entered into even orally. A contract can be spelt out fromBcorrespondence or conduct. But an arbitration agreement isdifferent from a contract. An arbitration agreement can comeinto existence only in the manner contemplated underSection 7. If Section 7 says that an arbitration agreementshould be in writing, it will not be sufficient for the petitionerCin an application under Section 11 to show that there existedan oral contract between the parties, or that Indowind hadtransacted with Wescare, or Wescare had performed certainacts with reference to Indowind, as proof of arbitrationagreement.

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24. It is no doubt true that if Indowind had acknowledgedor confirmed in any correspondence or other agreement ordocument, that it is a party to the arbitration agreementdated 24-2-2006 or that it is bound by the arbitrationEagreement contained therein, it could have been possibleto say that Indowind is a party to the arbitration agreement.But that would not be under Section 7(4)(a) but underSection 7(4)(b) or Section 7(5). Be that as it may. That isnot the case of Wescare. In fact, the delivery notes/invoicesissued by Wescare do not refer to the agreement dated 24-2-F2006. Nor does any letter or correspondence sent by Indowindrefer to the agreement dated 24-2-2006, either as an agreementexecuted by it or as an agreement binding on it…..”

18. Subsequently, in Chloro Controls (supra), a three-judgeGBench of this Court dealt with the provisions of Section 45, which falls inPart II of the Act of 1996 dealing with the enforcement of foreign arbitralawards. Section 45 postulates that notwithstanding anything containedin Part I, a judicial authority, when seized of an action in a matter inrespect of which the parties have made an agreement in writing forHarbitration shall at the request of one of the parties “or any person claiming through or under him” refer the parties to arbitration unless it finds thatthe agreement is void, inoperative or incapable of being performed.Interpreting the expressions “through or under” in Section 45, this Courtheld that though an arbitration normally would take place between partiesto the arbitration agreement, it could take place between a signatory toan arbitration agreement and a third party as well. This Court held thatthough the scope of the arbitration agreement is limited to parties whohave entered into it and those who claim under or through them, courtsunder the English law have developed the group of companies doctrine.In substance, the doctrine postulates that an arbitration agreement whichhas been entered into by a company within a group of companies, canbind its non-signatory affiliates or sister concerns if the circumstancesdemonstrate a mutual intention of the parties to bind both the signatoryand affiliated, non-signatory parties. Elaborating on the concept, the Courtheld:

“71. Though the scope of an arbitration agreement is limited tothe parties who entered into it and those claiming under or throughthem, the courts under the English law have, in certain cases, alsoapplied the “group of companies doctrine”. This doctrine hasdeveloped in the international context, whereby an arbitrationagreement entered into by a company, being one within a groupof companies, can bind its non-signatory affiliates or sister or parentconcerns, if the circumstances demonstrate that the mutualintention of all the parties was to bind both the signatories and thenon-signatory affiliates. This theory has been applied in a numberof arbitrations so as to justify a tribunal taking jurisdiction over aparty who is not a signatory to the contract containing the arbitrationagreement. [Russell on Arbitration (23rd Edn.)]

72. This evolves the principle that a non-signatory party could besubjected to arbitration provided these transactions were withgroup of companies and there was a clear intention of the partiesto bind both, the signatory as well as the non-signatory parties. Inother words, “intention of the parties” is a very significant featurewhich must be established before the scope of arbitration can besaid to include the signatory as well as the non-signatory parties.”

Noting that this would only be in exceptional cases, the Court inChloro Controls (supra) held that these exceptions would be examinedon the touchstone of:

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A(i)A direct relationship to the party signatory to the arbitrationagreement;

(ii) Direct commonality of the subject matter; and

(iii) Whether the agreement is of a composite transaction wherethe performance of a mother agreement may not be feasibleBwithout the execution or performance of a subsidiary orancillary agreement.

19. The principle for binding non-signatories as laid down in ChloroControls (supra) was applied in the context of a domestic arbitration inAmeet Lalchand Shah & Ors. v. Rishabh Enterprises & Anr.[18]. ACtwo-judge Bench of this Court, in the context of the application of thethen amended[19 ]provisions of Section 8 of the Act of 1996, observed thatthe 2015 amendment to Section 8 had brought it in line with Section 45of the Act of 1996. Prior to the amendment, Section 8(1) of the Act of1996 provided that a party to an arbitration agreement can make anDapplication to seek a reference to arbitration. The amended Section 8(1) clarified that a person claiming through or under a partyto thearbitration can also seek reference to arbitration notwithstanding anyjudicial precedent. In Ameet Lalchand (supra), the Court did not explicitlyinvoke the group of companies doctrine to bind a non-signatory, rather itrelied on Chloro Controls (supra) to hold that a non-signatory wouldEbe bound by the arbitration clause in the mother agreement, since it is aparty to an inter-connected agreement, executed to achieve a commoncommercial goal.

20. In Cheran Properties (supra), a three-judge Bench of thisCourt interpreted and applied the group of companies doctrine in theFcontext of the enforcement of a domestic arbitration award against anon-signatory to the arbitration agreement. The Court observed that thedecision by a two-judge Bench in Indowind (supra) was rendered beforethe evolution and application of the group of companies doctrine by athree-judge Bench in Chloro Controls (supra):G“23. As the law has evolved, it has recognised that modern businesstransactions are often effectuated through multiple layers andagreements. There may be transactions within a group of 18 (2018) 15 SCC 678H19 Arbitration and Conciliation (Amendment) Act, 2015 (“2015 amendment”)

companies. The circumstances in which they have entered intothem may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-signatorybound by an arbitration agreement, the court approaches the matterby attributing to the transactions a meaning consistent with thebusiness sense which was intended to be ascribed to them.Therefore, factors such as the relationship of a non-signatory to aparty which is a signatory to the agreement, the commonality ofsubject-matter and the composite nature of the transaction weighin the balance. The group of companies doctrine is essentiallyintended to facilitate the fulfilment of a mutually held intent betweenthe parties, where the circumstances indicate that the intent wasto bind both signatories and non-signatories. The effort is to findthe true essence of the business arrangement and to unravel froma layered structure of commercial arrangements, an intent to bindsomeone who is not formally a signatory but has assumed theobligation to be bound by the actions of a signatory.”

This Court in Cheran Properties (supra) also analysed academicliterature that scrutinised adjudicatory trends across the world. It notedthat the written intention to arbitrate between parties can extend to bindnon-signatories with the aim to target the creditworthy member of thegroup of companies. However, the principle of separate legal personalitiesof companies also has to be balanced. The corporate veil can be piercedto bind non-signatories upon a construction of the arbitration agreement,the intention at the time of entering the contract and the performance ofthe underlying contract:

“25. Does the requirement, as in Section 7, that an arbitrationagreement be in writing exclude the possibility of binding thirdparties who may not be signatories to an agreement between twocontracting entities? The evolving body of academic literature aswell as adjudicatory trends indicate that in certain situations, anarbitration agreement between two or more parties may operateto bind other parties as well. Redfern and Hunter explain thetheoretical foundation of this principle:

“… The requirement of a signed agreement in writing, however,does not altogether exclude the possibility of an arbitrationagreement concluded in proper form between two or moreparties also binding other parties. Third parties to an arbitration ABC

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Aagreement have been held to be bound by (or entitled to relyon) such an agreement in a variety of ways : first, by operationof the ‘group of companies’ doctrine pursuant to which thebenefits and duties arising from an arbitration agreement mayin certain circumstances be extended to other members of thesame group of companies; and, secondly, by operation ofBgeneral rules of private law, principally on assignment, agency,and succession…. [Id at p. 99.]”

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The group of companies doctrine has been applied to pierce thecorporate veil to locate the “true” party in interest, and moresignificantly, to target the creditworthy member of a group ofCcompanies [Op cit fn. 16, 2.40, p. 100.] . Though the extension ofthis doctrine is met with resistance on the basis of the legalimputation of corporate personality, the application of the doctrineturns on a construction of the arbitration agreement and thecircumstances relating to the entry into and performance of theDunderlying contract. [Id, 2.41 at p. 100.]”

This Court in Cheran Properties (supra) also distinguished theprinciple laid down in Chloro Controls (supra) from its application inthe context of Section 11(6) in Duro Felguera v. Gangavaram PortLimited[20]. In Duro Felguera (supra), a two-judge Bench of this CourtErefused to direct a joint arbitration in five different contracts betweensister concerns of one of the parties of the original arbitration agreement,by respecting the conscious intention of the parties to subject themselvesto separate arbitration agreements under their individual contracts. ThisCourt in Cheran Properties (supra) distinguished the factual situationin Duro Felguera (supra) by discerning the mutual intention of theFparties and performance of the contract:

“34. […..] The principle which underlies Chloro Controls [ChloroControls India (P) Ltd. v. Severn Trent Water Purification Inc.,(2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] is that an arbitrationagreement which is entered into by a company within a group ofGcompanies may bind non-signatory affiliates, if the circumstancesare such as to demonstrate the mutual intention of the parties tobind both signatories and non-signatories. In applying the doctrine,the law seeks to enforce the common intention of the parties,

where circumstances indicate that both signatories and non-signatories were intended to be bound. In Duro [Duro Felguerav. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC(Civ) 764] , the case was held to stand on a different footing sinceall the five different packages as well as the corporate guaranteedid not depend on the terms and conditions of the original packagenor on the memorandum of understanding executed between theparties. The judgment in Duro [Duro Felguera v. GangavaramPort Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] does notdetract from the principle which was enunciated in ChloroControls [Chloro Controls India (P) Ltd. v. Severn Trent WaterPurification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689].”

21. The group of companies doctrine was subsequently appliedby a two-judge Bench of this Court in Reckitt Benckiser (India) PLtd. v. Reynders Label Printing[21 ]for determining if a non-signatoryforeign company, within the same group of companies, could be impleadedin a domestic arbitration. This Court noted the principles formulated bythis Court in Chloro Controls (supra) and Cheran Properties (supra)and noted its inapplicability after assessing the following:

(i) the alleged common employee between the two companiesin the same group was factually established as having noconnection with the foreign company; and

(ii) a mere existence of an indemnity by the foreign company,in the absence of any other factors, would not signify itsintention to be bound by the arbitration agreement and/orof deriving benefits from the performance of the underlyingcontract.

22. In MTNL (supra), a two-judge Bench of this Court wasconsidering a situation in which MTNL had floated certain bonds to CanBank Financial Services Ltd[22 ]through a memorandum of understanding.The bond amount was placed in an FD by MTNL with Canfina. Canfinapaid back a part of the amount of the FD while the rest was not paid toMTNL. As a consequence, MTNL did not service the interest of thebonds. Canfina was a wholly-owned subsidiary of Canara Bank. Canfinahad transferred the bonds to Canara Bank. Subsequently, all three parties 21 (2019) 7 SCC 6222 “Canfina”

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Ahad participated in a meeting where the minutes indicated their view totake recourse to arbitration. A sole arbitrator was appointed to resolvethe dispute and notice was issued in the arbitration to MTNL, CanaraBank and Canfina. A dispute was raised on whether Canfina could bejoined as a party to the arbitral proceedings. In this backdrop, this Courtwhile dealing with the joinder of Canfina in the arbitration proceedingsBheld:

“10.3. A non-signatory can be bound by an arbitration agreementon the basis of the “group of companies” doctrine, where theconduct of the parties evidences a clear intention of the parties tobind both the signatory as well as the non-signatory parties. CourtsCand tribunals have invoked this doctrine to join a non-signatorymember of the group, if they are satisfied that the non-signatorycompany was by reference to the common intention of the parties,a necessary party to the contract.”

While elucidating the circumstances in which the group ofDcompanies doctrine could be invoked to bind the non-signatory, the Courtheld:

“10.5. The group of companies doctrine has been invoked by courtsand tribunals in arbitrations, where an arbitration agreement isentered into by one of the companies in the group; and the non-Esignatory affiliate, or sister, or parent concern, is held to be boundby the arbitration agreement, if the facts and circumstances ofthe case demonstrate that it was the mutual intention of all partiesto bind both the signatories and the non-signatory affiliates in thegroup. The doctrine provides that a non-signatory may beFbound by an arbitration agreement where the parent orholding company, or a member of the group of companiesis a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in thenegotiation or performance of the commercial contract, ormade statements indicating its intention to be bound byGthe contract, the non-signatory will also be bound andbenefitted by the relevant contracts. [ Interim award in ICCCase No. 4131 of 1982, IX YB Comm Arb 131 (1984); Award inICC Case No. 5103 of 1988, 115 JDI (Clunet) 1206 (1988). Seealso Gary B. Born : International Commercial Arbitration, Vol.HI, 2009, pp. 1170-1171.]

10.6. The circumstances in which the “group of companies”doctrine could be invoked to bind the non-signatory affiliate of aparent company, or inclusion of a third party to an arbitration, ifthere is a direct relationship between the party which is a signatoryto the arbitration agreement; direct commonality of the subject-matter; the composite nature of the transaction between theparties. A “composite transaction” refers to a transaction whichis interlinked in nature; or, where the performance of the agreementmay not be feasible without the aid, execution, and performanceof the supplementary or the ancillary agreement, for achievingthe common object, and collectively having a bearing on the dispute.

10.7. The group of companies doctrine has also been invoked incases where there is a tight group structure with strongorganisational and financial links, so as to constitute a singleeconomic unit, or a single economic reality. In such a situation,signatory and non-signatories have been bound together underthe arbitration agreement. This will apply in particular when thefunds of one company are used to financially support or restructureother members of the group. [ ICC Case No. 4131 of 1982, ICCCase No. 5103 of 1988.].”

On the facts, the Court held that Canfina was set up as a wholly-owned subsidiary of Canara Bank. The dispute arose out of thesubscription by Canfina of the bonds floated by MTNL which weresubsequently transferred by Canfina to its holding company, CanaraBank. MTNL had contended that it was constrained to cancel theallotment due to the non-payment of the sale consideration by Canfina.Hence, this Court held that it would be futile to decide the dispute onlybetween MTNL and Canara Bank in the absence of Canfina sinceindisputably, the original transaction emanated from the agreementbetween MTNL and Canfina and there was “a clear and direct nexus”between the issuance of the bonds, their subsequent transfer by Canfinato Canara Bank and the cancellation of allotment by MTNL. Canfinawas held to be a proper party to the proceedings.

23. Commentators have noted that a signed written agreement tosubmit a present or future dispute to arbitration does not exclude thepossibility of an arbitration agreement binding a third party. A non-signatory may be bound by the operation of the group of companies A

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Adoctrine as well as by the operation of the principles of assignment,agency and succession.[23 ]A party, which is not a signatory to a contractcontaining an arbitration clause, may be bound by the agreement toarbitrate if it is an alter ego of a party which executed the agreement.This constitutes a departure from the ordinary principle of contract lawthat every company in a group of companies is a distinct legal entity. ABnon-signatory may be bound by the arbitration agreement where:

(i) There exists a group of companies; and

(ii) Parties have engaged in conduct or made statementsindicating an intention to bind a non-signatory.

C24. Gary B. Born in his treatise on International CommercialArbitration indicates that:

“The principal legal basis for holding that a non-signatory is bound(and benefited) by an arbitration agreement … include both purelyconsensual theories (e.g., agency, assumption, assignment) andDnon-consensual theories (e.g. estoppel, alter ego).[24]”

Explaining the application of the alter ego principle in arbitration,Born also notes:

“Authorities from virtually all jurisdictions hold that a party whohas not assented to a contract containing an arbitration clauseEmay nonetheless be bound by the clause if that party is an ‘alterego’ of an entity that did execute, or was otherwise a party to, theagreement. This is a significant, but exceptional, departure fromthe fundamental principle … that each company in a group ofcompanies (a relatively modern concept) is a separate legal entityFpossessed of separate rights and liabilities[25].[……]

“the group of companies doctrine is akin to principles of agencyor implied consent, whereby the corporate affiliations amongdistinct legal entities provide the foundation for concluding thatGthey were intended to be parties to an agreement, notwithstandingtheir formal status as non-signatories[26].”

23 Redfern and Hunter on International Arbitration, 5th Ed. – 2.13, pp. 89-90

24 Gary Born, International Commercial Arbitration 2nd Edn., Vol. 1, at page 1418

25 Id.at page 1432H26 Id. at page 1450

25. Recently, John Fellas elaborated on the principle of binding anon-signatory to an arbitration agreement from the lens of the doctrineof estoppel. He situated the rationale behind the application of the principleof direct estoppel against competing considerations of party autonomyand consent in interpreting arbitration agreements. Fellas observed thatnon-signatory parties can be bound by the principle of direct estoppel toprohibit such a party from deriving the benefits of a contract whiledisavowing the obligations to arbitrate under the same:

“There are at least two distinct types of estoppel doctrinethat apply in the non-signatory context: “the directbenefits” estoppel theory and the “intertwined” estoppeltheory. The direct benefits theory bears the hallmark ofany estoppel doctrine- prohibiting a party from takinginconsistent positions or seeking to “have it both ways”by “rely[ing] on the contract when it works to its advantageand ignor[ing] it when it works to its disadvantage.” TepperRealty Co. v. Mosaic Tile Co., 259 F.Supp. 688,692 (SDNY 1966).The direct benefits doctrine reflects that core principle bypreventing a party from claiming rights under a contractbut, at the same time, disavowing the obligation to arbitratein the same contract.

[….]

[….]

By contrast, the intertwined estoppel theory looks not to whetherany benefit was received by the non-signatory, but rather at thenature of the dispute between the signatory and the non-signatory,and, in particular whether “the issues the non-signatory is seekingto resolve in arbitration are intertwined with the agreement thatthe estoppel [signatory party] has signed….the intertwined estoppeltheory has as its central aim the perseveration of the efficacy ofthe arbitration process is clear when one looks at the typical factpattern of an intertwined estoppel case.”[27]

26. In deciding whether a company within a group of companieswhich is not a signatory to arbitration agreement would nonetheless bebound by it, the law considers the following factors:

27 John Fellas, Compelling Signatories to Arbitrate with Non-Signatories, New YorkLaw Journal (March 28, 2022)

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A(i)The mutual intent of the parties;

(ii) The relationship of a non-signatory to a party which is asignatory to the agreement;

(iii) The commonality of the subject matter; B(iv)The composite nature of the transaction; and

(v) The performance of the contract.

Consent and party autonomy are undergirded in Section 7 of theAct of 1996. However, a non-signatory may be held to be bound on aconsensual theory, founded on agency and assignment or on a non-Cconsensual basis such as estoppel or alter ego.[28 ]These principles wouldhave to be understood in the context of the present case, where ONGC’sattempt at the joinder of JDIL to the proceedings was rejected withoutadjudication of ONGC’s application for discovery and inspection ofdocuments to prove the necessity for such a joinder.DC.2. Standard for Review of the Interim Arbitral Award

27. The interim award of the Arbitral Tribunal is substantiallypremised on the fact that JDIL is not a party to the contract dated 22March 2006. The Tribunal held that the agreement was only betweenONGC and DEPL. Adverting to Section 7 of the Act of 1996, the TribunalEheld that there must be a written agreement between the parties to submitto arbitration or in the specific manner envisaged under the provision.Before the Arbitral Tribunal, it was urged by ONGC that:

(i) There is a commonality of interest in the business betweenDEPL and JDIL; F

(ii) DEPL is a corporate facade created by JDIL for theirextended business;

(iii) The executives of JDIL were actively associated in thebidding process; and G(iv)The office of DEPL or JDIL were situated in the samebuilding.

The Arbitral Tribunal rejected the above submissions by holdingthat there was not a “tickle” of evidence on record to show that JDIL, which is a distinct corporate legal entity, “ever played any role to finditself in the contract between JDIL and ONGC”. The participation ofJDIL in the execution of the contract was held to be on behalf of DEPLand that the fact that the directors of DEPL are the son and daughter-in-law of the MD of JDIL was held not to be of relevance.

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28. The fundamental basis of the interim award is that in view ofthe provisions of Section 7 and the definition of the expression “party” inSection 2(1)(h), the provisions of the Act of 1996 could not be invokedor applied to a non-signatory to an arbitration agreement. The Tribunalheld that it has no jurisdiction to investigate, enquire into or record anyfindings on the basis of ONGC’s claim against JDIL.

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29. The Tribunal had, by its order dated 7 July 2009, specificallyheld that the objections of JDIL to the production of documents soughtby ONGC would be decided when the application under Section 16 wasresolved. Yet in the interim award, ultimately, the Tribunal has directedthat ONGC’s application dated 5 January 2009 would stand deferreduntil the issue of jurisdiction is decided. ONGC was justified in submittingthat its application for discovery and inspection should be heard first anddisposed of on merits after which appropriate orders as regards joinderof parties could be issued to DEPL and JDIL.

30. By failing to consider the application for discovery andinspection, the Tribunal has foreclosed itself from inquiring into whetherthere was sufficient material to establish the application of the group ofcompanies doctrine. The application for discovery and inspection wasindeed relevant to the exercise which was being carried out by theTribunal. ONGC’s primary submissions for impleading JDIL were that:

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(i) DEPL has been created by the DP Jindal Group with adefinite purpose to render services to the oil and gassector;

(ii) There is a close corporate and functional unity betweenDEPL and JDIL;

(iii) The executives of JDIL had been closely associated withGthe negotiation of the agreement;

(iv) The bid as well as the contract with DEPL were signed byGD Sharma who was an employee of JDIL;

(v) GD Sharma was signing letters on behalf of DEPL as theirauthorized signatory as well as on behalf of JDIL; H

A(vi)Mohan Ramanathan, who was the General Manager ofJDIL, used to visit the witness who deposed on behalf ofthe ONGC in connection with the subject contract; and

(vii) Naresh Kumar, the Managing Director of JDIL, hadnegotiated with the owners of the vessel in connection withBthe same tender.

31. Moreover, it was stated in the course of the evidence byONGC’s witness that almost all the senior officers of JDIL, including itsManaging Director, actively participated in matters relating to the hiringof the vessel, its deployment, performance and related issues. At a kick-Coff meeting held on 21 November 2005 between ONGC and DEPL,Mohan Ramanathan (General Manager, JDIL) was stated to have beenin attendance on behalf of the DEPL. It was in this backdrop that ONGCsought to assert that there exists corporate, financial and functional unitybetween DEPL and JDIL. The Arbitral Tribunal has not consideredwhether the group of companies doctrine would stand attracted. TheDArbitral Tribunal precluded itself from deciding as to whether theapplication for discovery and inspection should be allowed. The ArbitralTribunal effectively shut out material evidence which ONGC sought tobring on the record.

32. In this backdrop, the failure of the Arbitral Tribunal to allowEfor discovery and inspection goes to the root of the process in as muchas it disabled ONGC from pursuing its fundamental claim based on theapplication of the group of companies doctrine.

33. During the course of his submissions, Mr Shyam Divan, seniorcounsel urged that:F

(i) JDIL’s application under Section 16 was decided by theArbitral Tribunal after evidence was adduced;

(ii) The witness for ONGC deposed and the Tribunal hasevaluated the evidence and documentary material on record; G(iii)The Tribunal has entered a finding of fact that there isnothing to indicate the existence of a single economic unitcomprising JDIL and DEPL;

(iv) No directions could have been issued by the Tribunal onONGC’s application for discovery and inspection unless theHTribunal were to rule on the challenge to its jurisdiction which

had to be decided first and hence the Tribunal was justifiedin concluding that the application filed by ONGC fordiscovery and inspection would be considered subsequently; A

(v) The decision in Indowind (supra) continues to hold the field.The group of companies doctrine is only an exception tothe principle that a party who is not a signatory of theBagreement cannot be subjected to arbitration;

(vi) The broad approach of the court under Section 34 which isof non-interference with the arbitral award, must also governan appeal under Section 37; and the same standard mustapply to the latter as it applies to the former. The ArbitralCTribunal has ruled on its jurisdiction, pursuant to theapplication filed by JDIL under sub-section (1) of Section16. Under sub-section (5), if the Arbitral Tribunal rejectssuch a plea, it must continue with the arbitral proceedingsto make an arbitral award. Under sub-section (6), a partyDaggrieved by the arbitral award may make an applicationfor setting aside the award under Section 34.

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34. The arbitral tribunal has held that it does not have jurisdictionto entertain the claim against JDIL. The decision of the Arbitral Tribunalthat it lacks jurisdiction is subject to an appeal under Section 37(2)(a).Under sub-section (1) of Section 37, an appeal lies to the court (as definedunder Section 2(1)(e)) only from the following orders, namely:

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(i) An order refusing to refer the parties to arbitration underSection 8;

(ii) An order granting or refusing to grant any measure underSection 9; and F

(iii) An order setting aside or refusing to set aside an arbitralaward under Section 34.

Sub-section 2 of Section 37 stipulates that an “appeal shall alsolie” to the court from an order of the arbitral tribunal, inter alia, on theground of the arbitral tribunal accepting the plea referred to in sub-section(2) or sub-section (3) of Section 16. Hence, an appeal lies to the Courtfrom the decision of the Arbitral Tribunal that it lacks jurisdiction.

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35. Mr Shyam Divan, relied upon two recent decisions of thisCourt in Ssangyong Engineering and Construction Company H

ALimited v. National Highways Authority of India[29], and in M/s DynaTechnologies Pvt. Ltd. v. M/s Crompton Graves Ltd.[30]Both thesedecisions define the standard of review under Section 34. These decisionsindicate that a challenge to an arbitral award must be adjudicated withinthe confines of Section 34.Clause (b)(ii) of sub-section (2) of Section 34stipulates that an arbitral award may be set aside only if the court findsBthat it conflicts with the public policy of India. Prior to its substitution byAct 3 of 2016, the explanation stipulated that without prejudice to thegenerality of sub-clause (ii), an award is in conflict with the public policyof India if the making of the award was induced or affected by fraud orcorruption or was in violation of Section 75 or Section 81. As a result ofCthe substitution of the explanation by Act 3 of 2016, Parliament hasstipulated that an award conflicts with the public policy of India only ifone of three conditions is fulfilled, namely:

(i) The making of the award was induced or affected by fraudor corruption or was in violation of Section 75 or SectionD81;

(ii) The award is in contravention with the fundamental policyof Indian law; or

(iii) The award conflicts with the most basic notions of moralityor justice.E

36. In Ssangyong Engineering (supra), this Court held that theexpression “public policy of India” in Section 34 would mean “thefundamental policy of Indian law” as explained in Associate Buildersv. DDA[31]. Sub-section (2A) to Section 34, which was introduced by theAmending Act of 2016, provides for an additional ground of challenge inFthe case of a domestic award, namely the existence of a patent illegalityapparent on the face of the award. Justice R F Nariman, speaking forthe two-judge Bench, observed that:

“34. What is clear, therefore, is that the expression “public policyof India”, whether contained in Section 34 or in Section 48, wouldGnow mean the “fundamental policy of Indian law” as explained inparas 18 and 27 of Associate Builders [Associate Builders v.DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the 29 (2019) 15 SCC 131 [“Ssangyong Engineering”]30 (2019) 20 SCC 1H31 (2015) 3 SCC 49

fundamental policy of Indian law would be relegated to“Renusagar” understanding of this expression. This wouldnecessarily mean that Western Geco [ONGC v. Western GecoInternational Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]expansion has been done away with. In short, Western Geco[ONGC v. Western Geco International Ltd., (2014) 9 SCC 263: (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as underthe guise of interfering with an award on the ground that thearbitrator has not adopted a judicial approach, the Court’sintervention would be on the merits of the award, which cannotbe permitted post amendment. However, insofar as principlesof natural justice are concerned, as contained in Sections18 and 34(2)(a)(iii) of the 1996 Act, these continue to begrounds of challenge of an award, as is contained in para 30of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC49 : (2015) 2 SCC (Civ) 204] .

[…]

41. What is important to note is that a decision which is perverse,as understood in paras 31 and 32 of Associate Builders [AssociateBuilders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,while no longer being a ground for challenge under “public policyof India”, would certainly amount to a patent illegality appearingon the face of the award. Thus, a finding based on no evidenceat all or an award which ignores vital evidence in arrivingat its decision would be perverse and liable to be set asideon the ground of patent illegality. Additionally, a findingbased on documents taken behind the back of the partiesby the arbitrator would also qualify as a decision based onno evidence inasmuch as such decision is not based onevidence led by the parties, and therefore, would also haveto be characterised as perverse.”

37. In this backdrop, it has been held that:

(i) A mere contravention of substantive law is not a ground toset aside an award; AB

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A(ii)The court while exercising the power of judicial reviewshould not reappreciate evidence;

(iii) The construction of a contract is essentially a matter forthe arbitral tribunal to decide;

(iv) An award can be construed to be perverse only if it is basedBon no evidence or has ignored vital evidence;

(v) The illegality of an award must be of such a nature orcharacter so as to go to the root of the award; and

(vi) Judicial intervention under Section 34 would not bewarranted only because an alternative view on facts or theconstruction of the award is available.

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38. Mr KM Nataraj, ASG, urged that when an appeal arises underSection 37(2)(a) against an order of the arbitral tribunal accepting theplea under Section 16 that it has no jurisdiction, the parameters for theexercise of the appellate jurisdiction of the court would not be constrictedDby the principles which apply to a challenge to an arbitral award underSection 34. The ASG submitted that this is for a valid reason, which isthat upon the acceptance of a plea that there is a lack of jurisdiction, thematter goes out of the fold of arbitration. Such a determination cannotbe subject to the governing principles which apply to a challenge to anEarbitral award under Section 34.

39. Sub-section(1) of Section 37 provides for appeals to the courtagainst orders of the arbitral tribunal meeting one of the descriptionsspecified in clauses (a), (b) and (c). Sub-section (2) provides that anappeal shall also lie to the court from an order of the arbitral tribunalFaccepting a plea under sub-sections (2) or (3) of Section 16 (of a wantof jurisdiction) and for granting or refusing a measure under Section 17.It is true that Parliament has not specifically constricted the powers ofthe court while considering an appeal under clause (a) of sub-section (2)of Section 37 by the grounds on which an award can be challengedunder Section 34. The expression “arbitral award” is defined in SectionG2(1)(c) to include an interim award. The grounds of challenge to anarbitral award under Section 34 are specified by the parameters whichare spelt out in that provision. However, with regard to challenges to thejurisdiction of the tribunal, Section 16 stipulates that where the tribunalrejects a plea of a lack of jurisdiction, it must continue with the arbitralHproceedings and make an award and the remedy of a challenge to the award would lie under Section 34. However, if the arbitral tribunal acceptsa plea that it lacks jurisdiction, the order of the tribunal is amenable to achallenge in appeal under Section 37(2)(a). In the exercise of the appellatejurisdiction, the court must have due deference to the grounds whichhave weighed with the tribunal in holding that it lacks jurisdiction havingregard to the object and spirit underlying the statute which entrusts thearbitral tribunal with the power to rule on its own jurisdiction. The decisionof the tribunal that it lacks jurisdiction is not conclusive because it issubject to an appellate remedy under Section 37(2)(a). However, in theexercise of this appellate power, the court must be mindful of the factthat the statute has entrusted the arbitral tribunal with the power to ruleon its own jurisdiction with the purpose of facilitating the efficacy ofarbitration as an institutional mechanism for the resolution of disputes.

40. Now it is in this backdrop that the Court must approach thetask at hand. In the present batch of cases, there are two parallelproceedings arising out of the constitution of two sets of arbitral tribunals.In the first proceeding, the Arbitral Tribunal consisted of Mr Justice SPKurdukar, Mr Justice MS Rane and Mr S Venkateswaran. Both DEPLand JDIL were made parties by ONGC, which is the claimant. Theapplication filed by JDIL under Section 16 was allowed by the ArbitralTribunal by its interim award dated 27 October 2010. The appeal filedby ONGC was dismissed by the Bombay High Court on 27 June 2012.In pursuance of the arbitration proceedings, the Arbitral Tribunal made afinal award on 6 June 2013 in favour of ONGC against DEPL.

41. The second set of proceedings involved four agreementsbetween ONGC and JDIL which are tabulated below: - JDIL invoked the arbitration on 4 February 2010 and an ArbitralTribunal consisting of Ms Justice Sujata Manohar, Mr Justice BNSrikrishna and Mr Justice MS Rane was constituted. The Arbitral Tribunalrendered a final award on 9 October 2013 (the arbitral award in the A

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Asecond proceeding) in favour of JDIL and accepted its claim amountingtoUS$14,772,495.55 together with interest of 4% per annum from thedate of the invoice until payment or realisation. ONGC institutedproceedings under Section 34 before the Bombay High Court. By ajudgment dated 28 April 2015, a Single Judge of the Bombay High Courtupheld the arbitral award. The appeals against the judgment of the SingleBJudge under Section 37 were pending when ONGC applied for transferof the appeals to this Court. By an order dated 1 September 2016, theappeals have been transferred to this Court on the ground that “there issome connection” between the special leave petition arising from thejudgment of the Bombay High Court affirming the decision of the ArbitralCTribunal that it lacked jurisdiction on the claim against JDIL. Now at thisstage, it would be material to note that the Single Judge of the BombayHigh Court, while considering the challenge to the arbitral award dated9 October 2013 in favour of JDIL held that :

“In my view the arbitral tribunal has considered the evidence ledDby the parties in the impugned award independently and haverendered findings of facts that i) the petitioners had failed to provethat the said DEPL and the respondents herein were one and thesame company; ii) both the companies had independent legalexistence; iii) the petitioners had failed to produce any evidenceto prove that the petitioners had awarded the said contract toEDEPL because it was in fact the respondents herein and/or wassupported by the respondents; iv) there was no evidence to showthat in order to secure the said contract, DEPL had representedthat it was a part of the respondents group; v) the witness examinedby the petitioners was not present in the meeting held by theFExecutive Purchase Committee and did not produce Minutes ofMeeting held by the said Committee for short listing of the bidders;vi) the respondents herein had not issued any guarantee or letterof comfort from the respondents to the petitioners in respect ofthe liabilities, if any, of DEPL under its contract with the petitionersand vii) the petitioners had failed to provide any particulars of theGalleged fraud or that the said DEPL was incorporated in order todefraud the creditors. In my view, all the aforesaid findingsrendered by the arbitral tribunal are based on the pleadings,documents and the evidence led by the parties and are not perverseand thus no interference with such findings of facts is permissibleHunder Section 34 of the Arbitration Act.”

42. The Single Judge noted that ONGC had not denied the claimswhich were made by JDIL (the original claimant). The only defence ofONGC was that it was entitled to adjust the amount which was claimedby JDIL under the four contracts against ONGC’s claim qua DEPL. Inthe course of the Arbitral Award in the second proceeding, the ArbitralTribunal has also observed that the claims of JDIL were not disputed byONGC. The award of the Arbitral Tribunal noted that:

“The above claims of the Claimant are not denied by theRespondent ONGC. The defence of ONGC to the claims madeby the Claimant in these arbitration proceedings is essentially tothe effect that the Respondent is entitled to appropriate the sumspayable by it to the Claimant under these 4 contracts against theclaim of the Respondent against DEPL under its contract withDEPL.”

43. The basis on which ONGC claimed the above adjustmentwas that DEPL and JDIL constitute one economic entity and that DEPLis a group company of JDIL. The Arbitral Tribunal rejected the submissionof ONGC, observing thus :

“It is contended by Mr Rajiv Kumar, learned senior counsel forthe Respondent that the corporate veil should be lifted in order totreat the two companies as one because throughout, it was theClaimant which acted on behalf of DEPL. The Respondent hasplaced strong reliance on the case of State of UP v. RenusagarPower Co. and Another [1988 4 SCC 59]. The Supreme Courthas observed that in the expanding horizon of modern jurisprudence,lifting of corporate veil is permissible if two associated companiesare so inextricably mixed as to constitute one entity. Its frontiersare unlimited. It must, however, depend primarily on the realitiesof the situation. It held on the facts of that case that at no point oftime had the Respondent Renusagar showed any independentvolition and had been controlled fully by Hindalco which controlledeven day-to-day affairs of the Respondent. Even the profits ofthe Respondent had been treated as the profits of Hindalco. Thecourt held that the Respondent and Hindalco can be treated asone concern. The facts of the present case are totally differentand do not warrant lifting of corporate veil, assuming there is one.The evidence in the present case does not justify the applicationof “lifting the corporate veil”. In respect of the contract which A

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Awas entered into by the Respondent with DEPL, the tender wasfloated by ONGC in 2005 and the contract was entered into in2006. There is no material to show that the Respondent awardedthe contract to DEPL because it was in fact the Claimant and/orwas supported by the Claimant. The minutes of the meeting heldby the Respondents for short-listing of bidders in respect of thatBcontract have not been produced. The only witness produced byONGC was not present at the meetings held by the executivepurchase committees when deliberations on the award of thecontract to the recommended bidder took place [Of Answer toQuestion 39 in the cross-examination of the same witness in theCfirst arbitration between ONGC and DEPL relied upon in thisarbitration]. There is no evidence to show that in order to securethe said contract, DEPL represented that it was a part of theClaimant group. The Respondent contends that an employee ofthe Claimant namely Mr Mohan Ramanathan attended the pre-bid meeting and customs hearing in connection with their contractDwith DEPL. The Claimant in the evidence of its witness CW-2Ms. Dalvi has stated that Mr Ramanathan had attended the pre-bid meeting and customs hearing at the request of DEPL and as arepresentative of DEPL on account of his expertise in these areas.She has also stated that she was asked by Mr. Ramanathan toEattend the customs duty hearing on behalf of DEPL. The Claimanthas also pointed out that Mr. G.D. Sharma, an employee of theClaimant attended certain meetings and signed letters etc. onlyon behalf of DEPL and has signed these expressly on behalf ofDEPL.”

F44. The Tribunal also observed that JDIL had not furnished anyguarantee or letter of comfort to ONGC in respect of the liabilities ofDEPL. The emails addressed by the Managing Director of JDIL to theowners of the vessel were not from an official email address but frompersonal email addresses. The Arbitral Tribunal held that there was noGbasis for the allegation that DEPL was incorporated to defraud thecreditors. Thus, the Tribunal observed that JDIL and DEPL maintaineda separate legal character throughout.

45. In the earlier proceedings instituted by ONGC against bothDEPL and JDIL, the Arbitral Tribunal had by its interim award dated 27October 2010 upheld JDIL’s plea of a lack of jurisdiction and held thatH

JDIL could not be impleaded. In paragraph 31 of the Arbitral Award inthe second proceeding, dated 9 October 2013 between ONGC and JDIL,the Arbitral Tribunal adverted to the interim award 27 October 2010 inthe first proceeding and agreed with those findings. The relevant extractreads as follows:

“31. In the present case the Respondent ONGC had earlier initiatedarbitration proceedings against both DEPL and the Claimant beforean Arbitral Tribunal consisting of Justice Kurudukar [presidingarbitrator], Justice Rane and Mr Venkateshwaran, SeniorAdvocate. By its ‘interim final award’ dated 27-10-2010 theArbitral Tribunal held that in the dispute between the Respondentand DEPL, the Claimant could not be impleaded. It rejected thecontention of ONGC that the Claimant was liable under the saidcontract between ONGC and DEPL. The arguments advancedbefore us were also advanced before it. In fact the evidence ofRespondents witness Anindya Bhattarcharya is common in boththe arbitrations. That Arbitral Tribunalrejected the contention ofthe Respondent and directed that the name of Claimant should bedeleted from the said proceedings. The order has been upheld bythe High Court in the petition filed by ONGC under Section 16 ofthe Arbitration and Conciliation Act 1996 by its order dated 27June 2012. We are informed that an SLP is pending. There is nowa final award dated 6 June 2013 given by the aforesaid ArbitralTribunal in the arbitration proceedings between the Respondentand DEPL where the Respondents have been held entitled torecover from DEPL a sum of Rs 6387.37 lakhs as well as USdollars 1756197.50 with interest at 9% per annum as set out thereinand have been granted other reliefs as set out therein. After theClaimant took out the present arbitration proceedings, ONGC hasfiled a suit in the High Court being Suit Number 2947/2011 againstthe Claimant and DEPL. The findings of the earlier ArbitralTribunal and the High Court in its order of 27 June 2012support our present conclusions, and we respectfully agreewith the same.”

46. It is important to note that in the Arbitral Award in the secondproceeding, no issue of jurisdiction arose since only JDIL and ONGCwere parties and the claim of JDIL arose under four distinct contracts A

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Aof JDIL with ONGC. DEPL was not a party to that proceeding. Theexamination-in-chief of ONGC’s witness in the first arbitration proceedingwas treated as an affidavit in the subsequent arbitration involving theclaim by JDIL against ONGC. This Court has been informed that thecross-examination of the witness in the first arbitral proceeding leadingup to the interim award dated 27 October 2010 was also treated as aBcross-examination in the subsequent arbitration. JDIL also led evidence,inter alia, of its manager in support of its assertion that there wereneither any common directors between JDIL and DEPL nor did JDILhold any shares in DEPL.

47. The above narration indicates that the batch of cases whichChas-been transferred to this Court arises from a claim in arbitration byJDIL against ONGC under four contracts. The Arbitral Tribunal by itsaward dated 9 October 2013 (the Arbitral Award in the secondproceeding) allowed the claim. ONGC did not plead any defence to theclaim on merits. However, ONGC asserted a right to adjust the amountsDwhich were due to JDIL against the claims which ONGC had againstDEPL under a distinct contract. ONGC asserted that JDIL and DEPLform one common economic entity and that the group of companiesdoctrine would apply. Thus essentially, the grounds on which ONGCopposed JDIL’s application under Section 16 in the first arbitral proceedingoverlap with the basis on which ONGC sought adjustment of the claimsEdue to JDIL in the second arbitral proceeding. There is thus a significantdegree of overlap between the issues which arose before the first ArbitralTribunal in its interim award dated 27 October 2010 and those on whichthe Arbitral Tribunal rendered its Arbitral Award dated 9 October 2013in the second proceeding. As we have seen above, Arbitral Award in theFsecond proceeding relied on the findings contained in the interim awardof the first Arbitral Tribunal dated 27 October 2010. In opposing JDIL’sapplication under Section 16 before the Arbitral Tribunal consisting ofMr Justice SP Kurdukar, Mr Justice MS Rane and Mr S Venkateswaran,ONGC invoked the group of companies doctrine. In the course of itsGstatement of claim, ONGC pleaded that DEPL was awarded the contractby relying on the fact that it is a group company of the DP Jindal Groupof Companies and that JDIL has a vital business interest in DEPL, whichcan be said to be an alter ego of JDIL.

48. ONGC pleaded that it had a continuing business relationshipwith JDIL for the past several years and this was a major factor whichH

weighed with ONGC while deciding to award the contract in favour ofthe DEPL. On the date of the submission of the claim, ONGC had threesubsisting contracts with JDIL. ONGC claimed that DEPL has a closecorporate unity with the Jindal Group of Companies and that it hasconsistently represented that they are a group company within the DPJindal Group of Companies. According to ONGC, besides the letterheadsof DEPL which indicate that it belongs to the DP Jindal Group ofCompanies, JDIL has also acknowledged this position on its website.ONGC also indicated that since DEPL is liable to compensate ONGCfor the loss suffered by it, ONGC has adjusted the monies payable toJDIL as security to satisfy the award. ONGC led the evidence of itsChief Manager (MM), Anindya Bhattacharya. The witness for ONGCdeposed that:

(i) At the pre-bid conference which was held on 7 October2005, DEPL was represented by Mohan Ramanathantogether with two other persons and he is an employee ofJDIL;

(ii) In response to the second expression of interest dated 17October 2005, DEPL submitted its offer which was signedby GD Sharma on behalf of DEPL;

(iii) GD Sharma holds the position of Manager (Commercialand Development) with JDIL;

(iv) In response to ONGC’s invitation for sealed bids fromshortlisted parties on 31 October 2005, DEPL submitted itsbid under a cover letter dated 4 November 2005. Theannexure to the letter contained a resume of DEPL declaringthat it is a part of the DP Jindal Group of Companies whichhas a strong presence in the oil and gas sector and isengaged in off shore drilling for oil and gas;

(v) Both DEPL and JDIL shared a common addresses andtelephone numbers;

(vi) DEPL was created by the Jindal Group with the definitepurpose of rendering a particular service to the oil and gassector and DEPL has indicated on the website that it worksunder the “fraternal hood of the said group”;

(vii) DEPL is promoted and managed by the son and daughterin law of the Managing Director of JDIL; A

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A(viii) The bid submitted by DEPL was signed by GD Sharma asan authorized signatory who is an employee of JDIL;

(ix) The Managing Director of JDIL, Mr Naresh Kumar, hadnegotiated with the owners of the vessel for hiring on behalfDEPL; B

(x) DEPL was incorporated in 2003;

(xi) Mohan Ramanathan who attended the office of ONGC inconnection with the subject contract was the GeneralManager of JDIL; and C(xii)Almost all senior officers of JDIL including its ManagingDirector actively took part in matters relating to the hiringof the vessel, its deployment, performance and relatedissues. Therefore, a corporate, financial and functional unityexists between DEPL and JDIL.

D49. At the hearing before the first Arbitral Tribunal on 7 July 2009,the documents which were produced by ONGC’s witness were takenon the record. Counsel for JDIL objected to these documents on theground of relevance and admissibility but stated that he would cross-examine the witness without prejudice to those contentions. The firstArbitral Tribunal observed that the rival contentions would be decidedEwhile disposing of the application under Section 16. ONGC also filed anapplication for discovery and inspection before the first Arbitral Tribunaland the annexure to the application contained a schedule indicating thedisclosures which were sought. The order of the first Arbitral Tribunalnotes the submission of ONGC that the applications for discovery andFinspection must be decided first and it is only on the completion of theprocess that JDIL’s challenge to jurisdiction under Section 16 could beaddressed. The first Arbitral Tribunal deferred a decision on the twoapplications until the issue of jurisdiction was decided. The net result isthat the applications for discovery and inspection which were crucial toONGC’s claim that there existed functional, financial and economic unityGbetween DEPL and JDIL remained to be decided before the applicationunder Section 16 was taken up. There is merit in the submission whichwas been urged on behalf of the ONGC that the application for discoveryand inspection had to be decided before the plea of jurisdiction wasadjudicated upon. The application for discovery and inspection wasintended to facilitate ONGC in its plea that there existed functional,H

financial and economic unity between the two companies. The failure ofthe first Arbitral Tribunal to hear the application for discovery andinspection goes to the root of its interim award dated 27 October 2010holding an absence of jurisdiction qua JDIL. The interim award of theArbitral Tribunal in the first proceeding, dated 27 July 2010 refers to thedocuments which were produced by ONGC and to the submission thatneither DEPL nor JDIL had led any evidence to controvert thedocumentary and oral evidence adduced by ONGC. The first ArbitralTribunal upheld the plea of jurisdiction that JDIL is neither a party to thecontract nor had it submitted a bid to ONGC which resulted in theformation of the contract. The Tribunal held that the agreement wasonly between ONGC and DEPL and that in terms of Section 7, anagreement to arbitrate is between the parties to the agreement. Whileobserving that the arbitration agreement was only between DEPL andONGC, the Tribunal held that neither was there an arbitration agreementbetween ONGC and JDIL nor was JDIL a signatory to the agreementbetween ONGC and DEPL. After noting the documents which wererelied upon by ONGC, the Tribunal held that there was “no tickle ofevidence to indicate that JDIL”, a distinct incorporated legal entity, everplayed any role to find itself in the contract between JDIL and ONGC.The executives of JDIL who participated in the contractual dealing wereheld to be representatives of DEPL. Reading the interim award dated27 October 2010 of the first Arbitral Tribunal, the unmistakable impressionwhich emerges from the record is that the primary basis for thedetermination of an absence of jurisdiction is that the arbitration agreementwas between ONGC and DEPL. The legal foundation of the group ofcompanies doctrine has not been evaluated, on facts or law. True enough,the judgment of this Court in Cholo Controls (supra) is of 2013, CheranProperties (supra) is of 2018 and MTNL (supra) came in 2020.However, ONGC had clearly laid out the factual and legal foundationfor setting up a case in opposition to the plea of JDIL. The first ArbitralTribunal has made a fundamental error of law in not deciding theapplication by ONGC on discovery and inspection of documents beforeit ruled on jurisdiction. In doing so, the first Arbitral Tribunal’s interimaward dated 27 October 2010 goes against the principles of naturaljustice. The failure to consider the application for discovery and inspectionof documents results in a situation where vital evidence that could haveassisted the Tribunal in its determination of the challenge under Section16 was shut out. As a matter of fact, it emerged from the record that no A

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Aevidence was adduced by JDIL in support of its plea of the absence ofjurisdiction under Section 16. JDIL having taken the plea of absence ofjurisdiction was required to establish the grounds on which it set about toestablish its plea.

50. Based on the above discussion, the interim award of the firstBArbitral Tribunal stands vitiated because of:

(i) The failure of the arbitral tribunal to decide upon theapplication for discovery and inspection filed by ONGC;

(ii) The failure of the arbitral tribunal to determine the legalfoundation for the application of the group of companiesCdoctrine; and

(iii) The decision of the arbitral tribunal that it would decideupon the applications filed by ONGC only after the plea ofjurisdiction was disposed of.

DD Conclusion

51. For all the above reasons we have come to the conclusionthat there was a fundamental failure of the first Arbitral Tribunal toaddress the plea raised by ONGC for attracting the group of companiesdoctrine. Moreover, by leaving the application filed by ONGC forEdiscovery and inspection unresolved, the first Arbitral Tribunal failed toallow evidence which may have had a bearing on the issue of whetherJDIL could be considered to have an economic unity with DEPL andcould hence be made a party to the arbitral proceedings.

52. For the above reasons, we are of the view that:F

52. For the above reasons, we are of the view that:F

(i) The interim award of the Arbitral Tribunal dated 27 July2010 on the plea raised by JDIL under Section 16 has to beset aside;

(ii) The judgment of the Single Judge of the Bombay High CourtGdated 27 June 2012 dismissing ONGC’s appeal under Section37 would have to be set aside;

(iii) The plea by JDIL that the Arbitral Tribunal lacks jurisdictionwould have to be decided afresh. In this regard, this Courtwas informed that one of the three arbitrators has died andthat the Arbitral Tribunal cannot be reconstituted. WeH

PVT. LTD. & ANR. [DR. DHANANJAYA Y CHANDRACHUD, J.]

accordingly direct that ONGC and JDIL shall each nominatetheir arbitrators within a period of two weeks from the dateof this judgment while the two arbitrators shall nominateand appoint the third arbitrator. The Arbitral Tribunal soreconstituted shall decide afresh upon the plea of JDIL inregard to the absence of jurisdiction after furnishing to theparties the opportunity of leading any further evidence orseeking the production of further documentary material onthe record. The evidence and documentary evidence whichhas been already adduced before the earlier Arbitral Tribunalshall however form part of the record of the newlyconstituted Tribunal;

(iv) As regards the cases which have been transferred to thisCourt, we would order and direct that these cases beremitted back to the Bombay High Court. The decision onthose appeals which arose from the dismissal by the SingleJudge of the petition under Section 34 challenging the ArbitralAward dated 9 October 2013 in the second proceeding, infavour of JDIL, shall be held in abeyance and remainadjourned sine die until the Arbitral Tribunal which isreconstituted in terms of the above directions rules on itsjurisdiction and in the event that it rejects the plea challengingits jurisdiction, until the arbitral award is delivered in relationto ONGC’s claim against JDIL; and

(v) During the pendency of these proceedings, ONGC wasdirected to deposit the amount due under the Arbitral Awardin the second proceeding dated 9 October 2013, which waspermitted to be withdrawn by JDIL subject to furnishing abank guarantee which shall be kept alive during thependency of the proceedings before the Bombay HighCourt. The bank guarantee furnished by JDIL shall be keptalive to the satisfaction of the Prothonotary and Seniormaster of the Bombay High Court.

53. For the above reasons, we issue the following directions:

(i) The judgment of the Single Judge of the Bombay High Courtdated 27 June 2012 in Arbitration Petition No 814 of 2011 isset aside; A

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A(ii)The appeal filed by ONGC under Section 37 of the Act of1996 against the interim award of the Arbitral Tribunal dated27 October 2010 is allowed and the interim award of theTribunal dated 27 October 2010 shall stand set aside;

(iii) A fresh Arbitral Tribunal shall be constituted by ONGC andBJDIL each nominating their arbitrators within a period oftwo weeks from the date of this judgment and the twoarbitrators thereafter will jointly appoint the third arbitrator;

(iv) The present judgment will not have any bearing on the arbitralaward dated 6 June 2013 passed in favour of ONGC againstCDEPL;

(v) The transferred cases shall stand remitted back to theBomaby High Court. The hearing of the transferred casesis adjourned sine die so as to await the outcome of thearbitral proceedings between ONGC and JDIL in terms ofD(iii) above;

(vi) In pursuance of the interim orders of this Court, ONGCwas directed to deposit the amount due to JDIL under theArbitral Award in the second proceeding dated 9 October2013 which was permitted to be withdrawn by JDIL subjectEto furnishing a bank guarantee. The bank guaranteefurnished by JDIL shall be kept alive to the satisfaction ofthe Prothonotary and Senior master of the Bombay HighCourt pending the disposal of the arbitration appeals againstthe judgment of the Single Judge dated 28 April 2015dismissing the petition under Section 34 challenging theFarbitral award dated 9 October 2013; and

(vii) Upon the reconstitution of the Arbitral Tribunal, the plea ofJDIL under Section 16 shall be decided afresh. All the rightsand contentions in that regard are kept open to be decidedby the arbitral tribunal. The oral and documentary evidenceGwhich was produced before the earlier arbitral tribunal shallform part of the proceedings before the fresh ArbitralTribunal to be constituted in pursuance of the abovedirections. ONGC would be at liberty to pursue itsapplication for discovery and inspection and to seek furtherdirections before the Arbitral Tribunal. Parties would be atH

liberty to apply for leading further evidence before theArbitral Tribunal if they are so advised.

54. The appeal is allowed in the above terms. The transferredcases are remitted back to the Bombay High Court for disposal in thelight of the above directions.

55. Pending application(s), if any, stand disposed of.

Bibhuti Bhushan Bose

Appeal allowed.

(Assisted by : Neha Sharma, LCRA)

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