WHETHER AN ARBITRAL TRIBUNAL CAN UPLIFT THE CORPORATE VEIL?
The principle of the 'separate legal entity' of the company states that the company has a separate legal identity from its shareholders, members, and directors. Thus the members of the company cannot be held liable for the wrong of the company.
The concept of separate legal entity was misused by the members of the company for carrying out their wrong act under the name of the company. In such cases, the court can lift the corporate veil of the company
The lifting or piercing of the veil is used to determine when the shareholders, members, or directors of the company can be held liable for the wrong of the company.
Grounds for the lifting of the corporate veil
There are two provisions, namely
- Statutory provision
- Judicial provision
Under the judicial provision
- Enemy Character
- Fraudulent Conduct
- Agency or Trust
- Public Interest
Under the statutory provision
- Misrepresentation in Prospectus
- Failure to give back application money
- Fraudulent Conduct
- Use of an improper name
Coming back to the question, whether the corporate veil could be lifted or pierced by the arbitral tribunal or not?
The answer to the question will be clear through the judgments held in the following cases
In the case of Booz Allen and Hamilton Inc v SBI Home Finance Limited and Ors, the Supreme Court laid down the list of non-arbitrable disputes which are as follows
- Disputes related to divorce
- Disputes related to criminal offenses
- Disputes related to testamentary matters
- Disputes related to insolvency and winding-up matters
The list of non- arbitrable cases given by the Supreme Court is only illustrative. As it doesn't exclude the lifting of the corporate veil from the jurisdiction of a tribunal.
Also in the case of A.Ayyasamy v A.Paramasivam and Ors, the Supreme Court held that the seriousness of the subject -matter decides whether the matter is arbitrable or non-arbitrable.
In the case of Balmer Lawrie and Company Ltd v. Saraswathi Chemicals Proprietors Saraswathi Leather Chemicals Ltd, the Delhi high court held that the corporate veil cannot be lifted by the arbitral tribunal.
As in this case, there is no point for the court to check the question of the lifting of the corporate veil. And the point that family of decree-holder has been exercising the matter of the judgment debtor comparing is no ground for lifting the corporate veil.
In the case of Sudhir Gopal v Indira Gandhi National Open University, the High Court of Delhi held that an arbitral tribunal doesn't have the jurisdiction to lift the corporate veil so as to stick non-signatory party to the arbitration agreement.
In the case of I.M.C Ltd v Board of Trustees of Deendayal Port Trust and Ors, the Gujarat High Court held that no law prohibits an arbitration from piercing the corporate veil on the basis of the doctrine of alter ego.
The arbitral tribunal has the jurisdiction to take up all disputes which a court can undertake. Nothing in the Arbitration & Conciliation Act,1996 excludes any type of dispute to be non-arbitrable.
The Gujarat high court summed up that the facts of each case determine whether the arbitral tribunal has the jurisdiction to lift the corporate veil or not.
As no clear view came out through these judgments whether the arbitral tribunal can uplift the corporate veil or not. Because both the high courts of Bombay and Delhi gave their different view on the topic. Now only the decision of the Supreme Court can find a way out of the case.