It is trite that a company is a separate legal entity, and is distinct from its members. As Lord Sumption observed in Prest v Petrodel Resources Ltd., “The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. But the fiction is the whole foundation of English company and insolvency law.” Equally sacrosanct is the principle that arbitration proceeds on the basis of an agreement between parties. After all, “like consummated romance, arbitration rests on consent”. However, practical considerations have led to the marginal dilution of these otherwise fundamental principles.
There are instances where a company and its members are not treated as separate legal entities (i.e. where the corporate ‘veil’ is pierced). Similarly, there are cases where arbitral proceedings enjoin non-signatories. A unique amalgam of these exceptions is found in cases where an arbitral award is sought to be executed against an entity that was never a party to the arbitral proceedings. For example, in Cheran Properties Limited v. Kasturi and Sons Limited and Ors. (“Cheran Properties”), applying the ‘group of companies’ doctrine expounded in Chloro Controls, and analysing Section 35 of the Arbitration and Conciliation Act, 1996 (“Act”) to ascertain who “persons claiming under them” would be for the purpose of binding such persons to the arbitral award, the Supreme Court permitted enforcement of an arbitral award against a third party/non-signatory. In this post, however, our focus is on whether Indian courts have pierced the corporate veil to execute an arbitral award against a third party to the arbitral proceedings when such third party’s unique relationship with the award debtor has been exploited to fraudulently circumvent or frustrate execution of the arbitral award.
Continue Reading The Pursuit of Enforcement – Can the Corporate Cloaks be Unravelled?