1

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No. 2042 of 2022

Oil and Natural Gas Corporation Ltd. …Appellant

Versus

M/s Discovery Enterprises Pvt. Ltd. & Anr. …Respondents

With

T.C.(C) No. 48/2016

With

T.C.(C) No. 47/2016

With

T.C.(C) No. 49/2016

And With

T.C.(C) No. 50/2016

2

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J.

This judgment has been divided into sections to facilitate analysis. These are:

A Facts .................................................................................................................... 3

A.1. Transferred cases arising out of the arbitration ................................................. 11

B Submissions of Counsel .................................................................................... 14

C Analysis .............................................................................................................. 21

C.1. Group of Companies Doctrine..................................................................... 21

C.2. Standard for Review of the Interim Arbitral Award ...................................... 37

D Conclusion ......................................................................................................... 58

PART A

3

A Facts

1 The appeal arises from a judgment dated 27 June 2012 of the High Court of

Judicature at Bombay by which an appeal under Section 37 of the Arbitration and

Conciliation Act, 1996

1

has been dismissed. Oil & Natural Gas Corporation Limited

2

instituted an appeal against an interim award dated 27 October 2010

3

of the Arbitral

Tribunal holding that the second respondent – Jindal Drilling and Industries Limited

4

was not a party to the arbitration agreement and must be deleted from the array of

parties. The interim award was challenged in an appeal which was dismissed by the

impugned judgment.

2 On 22 March 2006, ONGC awarded a contract to Discovery Enterprises

Private Limited

5

, the first respondent, which is a company belonging to the D P

Jindal Group, for operating a floating, production, storage and offloading vessel

6

.

Pursuant to the stipulation contained in clause 25.7.11 of the contract, a vessel

called Crystal Sea was imported on 11 May 2006. ONGC paid the customs duty in

the amount of Rs. 55.78 crores on the understanding that the vessel would be re-

exported after work was complete under duty drawback whose formalities would be

completed by DEPL. The vessel left Indian territorial waters and did not return.

According to ONGC, DEPL failed to complete the formalities for duty drawback and

1

“Act of 1996”

2

“ONGC”

3

“interim award”

4

“JDIL” or the “second respondent”

5

“DEPL”

6

“vessel”

PART A

4

did not compensate ONGC for customs duty and other expenses incurred in the

amount of Rs. 63.88 crores.

3 Clause 37 of the contract between ONGC and DEPL provides for the

settlement of disputes of the parties through arbitration. On 25 April 2008, ONGC

invoked arbitration against DEPL and JDIL and claimed an amount of Rs. 63.88

crores. An Arbitral Tribunal consisting of Mr Justice S P Kurdukar (Retd.), Mr Justice

M S Rane (Retd.) and Mr S Venkateswaran (Senior Advocate) was constituted. In its

statement of claim filed before the Arbitral Tribunal, ONGC set up the case that

DEPL and JDIL belonged to the DP Jindal Group of Companies and since they

constitute a single economic entity, the corporate veil should be lifted to compel the

non-signatory, JDIL, to arbitrate. According to ONGC, DEPL is an alter ego and

agent of JDIL. The statement of claim read thus:

"17. It is submitted the Respondent no.1 was awarded the

contract by relying on the fact that it is Group Company of D

P Jindal group of companies and that the Respondent No.2,

M/s Jindal Drilling & Industries Ltd has a vital business

interest in the Respondent No.1, which can be said to be the

alter ego of Respondent No.2. In fact, the R espondent No. 2

is the ultimate beneficiary of the business of Respondent No.

1. […] Presently, they are having three valid existing contracts

with ONGC. DEPL has close corporate unity with Jindal

Group and in fact the shareholders are almost common.

Respondent No. 1 has throughout represented that they are

group company of Jindal apart from their representation in the

bid they have been representing that through the letter heads

which clearly indicated that they belong to a single group of

companies, namely DP Jindal Group of companies. M/s

Jindal Drilling has also acknowledged that the contractor M/s

DEPL is a group company of Jindal G roup in their website in

an article titled "Key due diligence observations". A copy of

the said article is annexed herewith and marked as Annexure

8. Since Respondent No. 1 is liable to compensate ONGC for

PART A

5

the losses suffered by it, ONGC has adjusted the said amount

from the monies payable to Jindal Drilling and Industries

Limited as a security to satisfy the award to be passed in this

case.

18. As stated above, Respondent No. 2 was supplying

vessels and rigs to ONGC under various contracts, for last

many years. It is a fact that the Respondent No.1 was formed

as a group company with the charter of introducing cutting-

edge technology and solutions to the oil and gas market in

India. Respondent N o.1 has represented itself as a part of the

DP Jindal group of companies as seen from the company's

website (www.discoveryepl.com). A copy of the relevant

extract from the website is attached herewith and marked as Annexure A-9. The same web -based representation was

made in categorical and unequivocal manner by Respondent

No.1 in the bid submitted by them in connection with the

subject contract. The copy of the same is annexed herewith

and marked as Annexure- 10. The Directors of the

Respondent No.1 are Mr. Manav Kumar and Mrs. Shilpa

Agarwal, son and daughter in law of Shri Naresh Kumar who

is the Managing Director of the Respondent No. 2 i.e, the

Jindal Drilling and Industries Ltd. The two companies operate

out of the same premises, same floor, same building i.e.

Keshav Building, Bandra Kurla Complex. Copies of the L etter

Head of both the companies addressed to the claimant is

enclosed herewith and marked as Annexure A-11 (colly).

More significantly a prominent Jindal D rilling Executive has

taken an active interest in the negotiations concerning the

subject contract […]. It makes it abundantly clear that the

activities of DEPL i.e. R espondent No. 1 contractor are an

extension of the activities of R espondent No. 2 who has set

up the Respondent No. 1 company as an agency to carry out

its activities. Therefore, it is submitted that the doctrine of

group company can be applied in this case - an arbitration

agreement signed by one company in a group of companies

entitles (or obligates) other group non- signatory companies, if

the circumstances surrounding the negotiation, execution of

the agreement show that the mutual intention of all the parties

was to bind 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 both the companies are annexed

herewith as indicated above.

PART A

6

19. In any case, R espondent No. 1 can be considered as an

agent/ alter ego of Respondent No. 2 because of its deep and

pervasive family links, apart from the fact that Respondent

No. 2 is the intended third- party beneficiary of this contract.

The Arbitral Tribunal has to determine these questions in

accordance with evidence and law. Further, there is corporate

unity and cross shareholdings in both the companies by

shareholders, common to both the companies.

[…]

21. It is submitted that this is a fit case where this Hon’ble

Tribunal has to pierce the corporate veil in order to see the

acknowledged the realit ies of Respondent No.1 being a group

company of DP Jindal Group. As submitted above, there is a

clause ‘corporate unity’ and applying the doctrine of group

companies/alter ego/ultimate beneficiary. This Tribunal has to

hold Respondent No. 2 also liable to compensate ONGC for

the dues of respondent No.1. The issue preferred to T ribunal

is within the arbitration agreement and under law and this

Hon’ble Tribunal has jurisdiction to entertain and decide the

dispute.”

4 An application under Section 16 of the Act of 1996 was filed by JDIL seeking

its deletion from the arbitral proceedings on the ground that it is not a party to the

arbitration agreement. ONGC responded to the application. During the course of the

proceedings, ONGC filed an application on 5 January 2009 for discovery and

inspection to support its case that DEPL is an alter ego of the Jindal Group of

companies. In support of the application for discovery and inspection, ONGC

pleaded that:

(i) DEPL and JDIL are group companies and that the former is an agent or alter

ego of the latter;

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

PART A

7

(iii) DEPL is a corporate facade which has been created to promote and extend

the business of JDIL;

(iv) JDIL is responsible for the acts of omission and commission of DEPL on the

basis of the group of companies doctrine;

(v) DEPL has been created by the Jindal Group to render services in the oil and

gas sector and each entity of the group is strategically formed to render

certain services; and

(vi) DEPL is working under the “fraternal hood” of the group based on the

admission on the corporate website of JDIL.

5 ONGC stated that the documentary evidence demonstrates that there is a

“close corporate unity and functional unity existing between these two companies”

and hence it was necessary to discover the documents set out in the schedule to the

application. The documents of which discovery was sought are tabulated below:

“SCHEDULE OF DOCUMENTS

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 years

2003- 04, 2004- 05, 2005- 06 and 2006- 07.

4. Employees salary register of Respondent No.2 for the

financial years 2003- 04, 2004- 05, 2005- 06 and 2006- 07.

5. Titled document showin g Respondent No.1's

rights/ownership over the registered office premises at Suite

110, Tower-I, 70 Najafgarh Road, B-39, New Delhi-110 015.

6. Titled document showing Respondent No.2's

rights/ownership over the office premises at 3rd Floor,

PART A

8

Keshav Building, Banda-Kurla Complex, Banda (East),

Mumbai-400 051.

7. Documents showing grant of telephone connection of the

following telephone and fax numbers at the Delhi office of

Respondent No. 1 and the payment of the bills of the said

telephone and fax numbers by Respondent No. 1 from the

calendar years 2003 to 2007. (i) Telephone No. 52531100, (ii)

Fax No.52531191.

8. Documents showing grant of telephone connection of the

following telephone and fax numbers at the Mumbai office of

Respondent No. 2 and the payment of the bills of the said

telephone and fax numbers by Respondents from the

calendar years 2003 to 2007. (i) Telephone Nos.26592889 &

55020047, (ii) Fax No.26592630.

9. List of the contract bagged from ONGC so far the inception

of Respondent No.2.

10. List of crew members in the Drilling Unit “Noble Ed-

Holt awarded on 17.8.06 and Noble Charlie Yester on

2.12.06.”

6 ONGC led evidence in support of the statement of claim. During the course of

the examination, ONGC’s witness, Anindya Bhattacharya who was working as Chief

Manager (MM) of ONGC, produced documents in support of claim. The production

of documents was objected to by JDIL on the ground of relevance and admissibility.

During the arbitral meeting on 7 July 2009, the Tribunal recorded the following

minutes:

“Per Tribunal :

The documents produced by the witness Anindya

Bhattacharya (CW-1) along with his affidavit dated June 26

th

2009 and annexures 1 to 10 are taken on record. Mr. Rahul

Narichania, Ld. Advocate for Respondent No. 2 objects to

these documents being taken on record on the ground that

the same are not relevant and admissible as far as the

Respondent No. 2 is concerned. He further stated that he will

cross examine the witness on the documents without

PART A

9

prejudice to his rights that the said documents were neither

relevant nor admissible in evidence and ought not to be

marked as exhibits.

The rival contentions will be decided while disposing of the

application made under Section 16 of the Arbitration &

Conciliation Act, 1996. It is also made clear that merely

because the witness has been cross examined on behalf of

the Respondent No. 2 on the documents, the documents do

not automatically stand exhibited.

Mr. Rajiv Kumar objects to the procedure recorded above.

The Claimants do not waive any rights in this behalf. ”

7 By its interim award dated 27 October 2010, the Arbitral Tribunal held that it

lacked the jurisdiction to arbitrate on the claim against JDIL, which was not a party to

the arbitration agreement. The tribunal relied on 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 a signatory of the arbitration agreement and hence could not be

impleaded as a party to the proceedings. The Arbitral Tribunal held:

“20. After considering rival contentions, the arbitral tribunal is

of the opinion that it may not be permissible for it to go

beyond the ambit of section 7 of the act. The word 'party' is

defined under section 2(1)(h) means a party to an Arbitration

Agreement and the arbitration agreement has been defined

under section 7 of the Act. […] To put it differently, this

arbitral tribunal lacks the jurisdiction to investigate,

enquire into and record any finding on the basis of claim

petition paragraphs 17 to 21 against M/s Jindal Ltd/

Respondent No.2. The arbitral tribunal is therefore of the

opinion that the claim petition of ONGC vis a vis M/s

Jindal Ltd./ Respondent No.2 is untenable for want of

jurisdiction under the Act. The arbitral tribunal makes it

clear that the position of M/s Jindal Ltd/ respondent no.2

considered only on the basis of the provisions contained

in section 2(1)(h) and section 7 of the Act."

(emphasis supplied)

7

(2010) 5 SCC 306 [“Indowind”]

PART A

10

8 JDIL was accordingly struck off the array of parties. ONGC filed an appeal

under Section 37 before the Bombay High Court which was dismissed on 27 June

2012 with the following observations:

“16. As observed hereinabove, there is no evidence tendered

before Arbitral Tribunal that DEPL and JDIL had common

shareholders and common board of directors. Even if that had

been the case, the Hon'ble Supreme Court of India in

Indowind Versus Wescare case (supra) has held in terms that

merely because two companies have common shareholders

and directors, they do not become a single entity. In the

instant case also, the Arbitral Tribunal has correctly held that

merely because the two companies may at one point of time

have had a common address and telephone number, it does

not make them one economic unit. The mere fact that the son

and daughter-in-law of the managing director of JDIL are

directors in DEPL also does not and cannot establish that

these companies are one and the same. There is also no

credible evidence to show that because of the alleged nexus

between the two companies, ONGC awarded the said

contract to DEPL. Even assuming this to be correct, it does

not take the case of ONGC any further. JDIL is admittedly not

a party to the contract and cannot be liable under the said

contract which is only between ONGC and DEPL. If ONGC

wanted to bind JDIL to the said contract, it should have asked

JDIL to be a party to the said contract. In fact, this court

inquired from learned Advocate appearing for ONGC as to

why ONGC did not insist on JDIL signing the said contract

when admittedly there are other contracts which are entered

into between ONGC and JDIL. However, the learned

advocate appearing for ONGC had no answer to the same. In

response, he only submitted that ONGC has also filed suit

being 2947 of 2011 in this court in which DEPL and JDIL

have been arrayed as the defendants.”

9 The judgment of the High Court was challenged by ONGC under Article 136

of the Constitution. The Arbitral Tribunal delivered its final award dated 6 June 2013

8

and, while allowing the claim of ONGC, held that it is entitled to recover an amount

8

“Arbitral Award in the first proceeding”

PART A

11

of Rs.63.87 crores and USD 1,756,197.50 together with interest at 9% per annum

and legal costs. The counter claim filed by DEPL was dismissed.

10 At this stage, it would also be necessary to note that in the course of its

interim award, the Arbitral Tribunal dealt with the applications filed by ONGC on 5

January 2009 for discovery of documents and inspection. The Arbitral Tribunal noted

ONGC’s contention that its application for discovery and inspection should be heard

and disposed of first on merits and that the application filed by JDIL under Section

16 should be heard thereafter so that all relevant documents would emerge before

the Arbitral Tribunal. The Arbitral Tribunal, however, directed that 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

11 During the pendency of the arbitration between ONGC and DEPL, ONGC

withheld a sum of US$14,772,408.54 towards recovery of its claim of Rs.64.88

crores against four contracts with JDIL. By a letter dated 24 October 2007, JDIL

sought the release of the sum withheld together with interest failing which it stated

that it wou ld exercise its right to take legal recourse. ONGC replied to the letter on 5

May 2008 stating that they are withholding the dues as an adjustment against the

dues owed to ONGC by DEPL. A ggrieved by the deductions made by ONGC under

its four contracts for drilling services, JDIL invoked arbitration on 4 February 2010.

An Arbitral Tribunal consisting of Ms Justice Sujata Manohar (Retd.), Mr Justice B N

PART A

12

Srikrishna (Retd.), and Mr Justice M S Rane (Retd.) was constituted. In the

meanwhile, ONGC instituted a declaratory suit against JDIL and DEPL before the

Bombay High Court which is presently pending. The Arbitral Tribunal, by a common

award dated 9 October 2013,

9

directed ONGC to pay JDIL an amount of

US$14,772,495.55/ - together with interest at 4% per annum calculated from the due

date of each invoice till the date of payment or realisation. The Arbitral Tribunal dealt

with the submission of ONGC that DEPL and JDIL belong to the same group thus

entitling ONGC to make the deductions. Rejecting the contention of ONGC, the

Arbitral Tribunal held:

"25. There is hardly any evidence to support the plea of the

Respondent that DEPL and the C laimant are one and the

same company. Both DEPL and the Claimant are group

companies of D.P. Jindal group of companies. Although the

directors of DEPL are the son and daughter-in-law of the

managing director of the Claimant, and the two companies,

for some time, shared a common office and telephone

numbers, that does not make the two companies one. Both

are subsidiaries of the main company and both have

independent legal existence. DEPL was incorporated in the

year 2003. The Claimant is a public limited company listed on

the stock exchange and was incorporated in the year 1983.

26. […] The facts of the present case are totally different and

do not warrant lifting of corporate veil, assuming there is one.

The evidence in the present case does not justify the

application of “ lifting the corporate veil”. In respect of the

contract which was entered into by the Respondent with

DEPL, the tender was floated by ONGC in 2005 and the

contract was entered into in 2006. There is no material to

show that the Respondent awarded the contract to DEPL

because it was in fact the claimant and/ or was supported by

the claimant. The minutes of the meeting held by the

Respondents for short-listing of bidders in respect of the

contract have not been produced. The only witness produced

9

“Arbitral Award in the second proceeding”

PART A

13

by ONGC was not present at the meetings held by the

executive purchase committee when the deliberations on the

award of the contract recommended bidder took place. […]

There is no evidence to show that in order to secure the said

contract, DEPL represented that it was a part of the Claimant

group. […]

27. There is no guarantee or letter of “comfort” from the

Claimant to the R espondent in respect of the liabilities, if any,

of DEPL under its contract with ONGC. […]

[…]

30. In the present case the Claimant and DEPL have

throughout maintained their separate legal character. There is

no evidence to indicate that they ever represented to the

Respondent that they are one company or that the C laimant

will be liable under the contract of the R espondent with DEPL.

31. In the present case the Respondent ONGC had earlier

initiated arbitration proceedings against both DEPL and the

Claimant before an Arbitral Tribunal […]. By its ‘interim final

award’ dated 27- 10-2010, the Arbitral Tribunal held that in the

dispute between the Respondent and DEPL, the C laimant

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, and we respectfully agree

with the same.”

12 DEPL was not a party to the above arbitral proceedings which were initiated

by JDIL. ONGC instituted petitions

10

under Section 34 of the Act of 1996 for

challenging the Arbitral Award in the second proceeding in respect of the four

contracts of JDIL. The petitions were dismissed by a Single Judge of the Bombay

High Court on 28 April 2015. ONGC filed an appeal

11

under Section 37 of the Act of

1996 during the pendency of the special leave petition arising from the interim award

of the A rbitral Tribunal dated 27 October 2010, consisting of Mr Justice S P

10

Arbitration Petition No. 587, 767, 768 and 1045 of 2014

11

Arbitration Appeal Nos. 446 to 449 of 2015

PART B

14

Kurdukar (Retd.), Mr Justice M S Rane (Retd.) and Mr S Venk ateswaran. ONGC

sought a transfer of the appeals lodged before the Bombay High Court against the

judgment of the Single Judge dismissing the petitions under Section 34 for

challenging the Arbitral Award in the second proceeding. The transferred cases

12

have come up before this Court together with the special leave petition arising out of

the interim award dated 27 October 2010.

B Submissions of Counsel

13 Mr K M Nataraj, Additional Solicitor General

13

, appearing on behalf of ONGC

submitted that:

(i) The case of ONGC is that DEPL and JDIL constitute one single commercial

entity and that ONGC is hence entitled by law to compel JDIL to participate in

the arbitration proceedings so as to enforce the award against it;

(ii) Though evidence was available with ONGC to buttress the above claim, it

filed an application for discovery and inspection to secure material which was

within the possession, control and custody of JDIL. However, with the deletion

of JDIL from the array of parties, the application for discovery and inspection

has been rendered otiose;

(iii) The Arbitral Tribunal has not enquired into the facts at all, despite the

contention of ONGC that JDIL is a necessary party;

12

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

13

“ASG”

PART B

15

(iv) The Arbitral Tribunal has merely held, on the basis of the legal principle

underlying Section 7 of the Act of 1996 and privity of contract, that JDIL which

is not a signatory to the arbitration agreement cannot be impleaded in the

arbitral proceedings;

(v) After the application for discovery and inspection was opposed by JDIL, the

Arbitral Tribunal deferred its decision until the issue of jurisdiction was

resolved on the application filed by JDIL under Section 16 of the Act of 1996;

(vi) The interim award did not consider or hear the application for discovery and

inspection under Section 16. The decision has been rendered purely on the

premise that a non-signatory to the arbitration agreement cannot be

impleaded as a party;

(vii) ONGC has been precluded from tendering evidence that JDIL could be

brought within the fold of arbitration on the basis of the group of companies

doctrine;

(viii) While the Arbitral Tribunal has relied on the decision of this Court in Indowind

(supra), the subsequent decisions of this Court have accepted and applied

the group of companies doctrine. These decisions are:

a. Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification

Inc. & Ors;

14

b. Cheran Properties Ltd. v. Kasturi & Sons Ltd. & Ors;

15

and

c. MTNL v. Canara Bank & Ors.

16

. and

14

(2013) 1 SCC 641 [“Chloro Controls”]

15

(2018) 16 SCC 413 [“Cheran Properties”]

PART B

16

(ix) The decision in Indowind (supra) is not good law in view of the subsequent

judgments of this Court. The Arbitral Tribunal ought to have decided the

jurisdictional issue after parties were permitted to lead evidence, since the

application of the group of companies doctrine and the lifting of the corporate

veil involves mixed questions of law and fact. The issue of jurisdiction and

merits are inextricably intertwined and a ruling premised exclusively on the

application of Section 7 of the Act of 1996 was improper.

14 Controverting the above submissions, Mr Shyam Divan, Senior Counsel

appearing on behalf of the JDIL has indicated in the following tabulation:

(i) ONGC’s contentions;

(ii) JDIL’s response;

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

(iv) The order of the High Court.

The tabulated statement is reproduced below for convenience of reference:

“ONGC CONTENTION JDIL RESPONSE INTERIM AWARD HIGH COURT ORDER

JDIL has substantial

business interest in

DEPL.

None of these

assertions are based on

fact and no evidence

led by ONGC points to

towards this.

Further JDIL is a

publicly listed company

at BSE and its annual

reports, etc. are in

public domain. It can be

Para 16, Page

178 of SLP

• Not a tickle of

evidence to

show that

JDIL ever

played any

role to find

itself in the

contract

between

Para 16 Page 14 of SLP

• There is no evidence

tendered before

Arbitral Tribunal that

DEPL and JDIL had

common shareholders

and common Board of

Directors. Even if that

had been the case, the

Hon'ble Supreme

DEPL is an alter ego of

JDIL.

JDIL is the ultimate

beneficiary in the

business with DEPL.

DEPL has close

corporate unity with

JDIL.

16

(2020) 12 SCC 767 [“MTNL”]

PART B

17

seen that there is no

benefit being derived by

JDIL from DEPL.

Further, it was

incorporated in 1983

and DEPL was

incorporated way later

in 2003.

No Letter of Guarantee

or Letter of Comfort was

issued by JDIL on

behalf of DEPL in

favour of ONGC.

JDIL is not a party to

the arbitration

agreement and there is

nothing on record to

show that there was

intention on part of any

party to include JDIL

and this was not a part

of a composite

transaction wherein

JDIL had even a minute

part to play.

ONGC has not shared

any document such as

Minutes of Meeting, etc.

to show that it indeed

awarded the contract to

DEPL because of JDIL.

Further, if ONGC did

award the tender to

DEPL because of JDIL

as alleged, this clearly

shows impropriety on

the part of ONGC and

such action is against

equity and natural

justice.

DEPL and

ONGC.

• The

executives of

JDIL

participated in

the negotiations,

etc. on behalf

of DEPL as

their

signatures

duly signify.

• The personal

relationship

between the

directors of

DEPL and MD

of JDIL is of

no

consequence.

• Clearly JDIL is

not party to

the arbitration

agreement.

Para 20 Page 180

of SLP

• None of the

documents on

the record

would satisfy

the

requirement of

clauses a, b &

c of sub -

section 7.

Court of India in

Indowind Versus

Wescare case (supra)

has held that merely

because two

companies have

common shareholders

and Directors, they do

not become a single

entity.

• Merely because the

two companies may, at

one point of time, have

had a common

address and telephone number or that the son

and daughter-in-

law of

the Managing Director

of the JDIL are

Directors in DEPL, it

does not make them

one economic unit.

• There is also no

credible evidence to

show that because of

the alleged nexus

between the two

companies, ONGC

awarded the said

contract to DEPL.

• JDIL is admittedly not a

party to the contract.

Further the Hon'ble

Court specifically

asked the counsel of

ONGC whether they

wanted to bind JDIL

and did they not insist

on JDIL signing the

said Contract, the

counsel for ONGC had no answer.

Shareholders of JDIL

and DEPL are almost

common.

Through letterheads,

articles on the website

of DEPL, bid

documents submitted

by DEPL to ONGC,

has represented that it

is a part of the DP

Jindal Group of DEPL

DEPL is a part of DP

Jindal Group of

Companies which is an

admitted fact. But JDIL

and DEPL are two

separate corporate

entities. There is no

relation between the

PART B

18

Companies.

two. There are other

companies of DP Jindal

Group of Companies as

well including MSL,

Jindal Pipes, etc.

The directors of DEPL

are related to the MD

of JDIL (Son and

daughter-in-law).

There is no bar on the

directorship of any

person and this is not

an evidence on the

basis of which doctrine

of group companies can

be invoked. This is just

an allegation unfounded

in law and fact.

It was a separate

venture started by Mr.

Manav Kumar on his

own.

An Arbitration

agreement signed by

one company in a

group of companies

binds other non-

signatory companies,

when the underlying

contract is intended to

benefit the non-

signatory as in the

instant case.

There are no underlying

contracts wherein JDIL

has any interest. JDIL

was never a party or

had any benefits arising

from the contract

between DEPL and

ONGC.

ONGC and JDIL have

four separate contracts

which are a part of TC

47-50 of 2016

proceedings.

JDIL and DEPL have

offices in the same

building/same premises.

A lot of businesses

have common business

address (Eg. Tata

Companies). Just on

the basis of the same, it

certainly cannot be said

that they are one and

the same. Especially

todays’ time of co-

working spaces, a lot of

companies operate out

of the same premises.”

PART B

19

15 The following submissions have been urged by Mr Shyam Divan, Senior

Counsel behalf of the respondent:

(i) There is no disputing the factual position that DEPL is a part of the D P Jindal

Group, yet JDIL has no shareholding in DEPL. There is neither any cross

shareholding nor any common directors;

(ii) In 2010, DEPL ceased to be a part of the D P Jindal Group. However, JDIL

continues to be a part of the D P Jindal Group of companies together with

other group entities such as Maharashtra Seamless Ltd. and Jindal Pipes

Ltd.;

(iii) JDIL is not a party to the arbitration agreement as required under Section 7 of

the Act of 1996 and cannot be held liable for claims against D EPL since there

is no evidence that JDIL was a beneficiary of the contract between ONGC

and DEPL. No letter of guarantee or of comfort was issued by JDIL on behalf

of DEPL in favour of ONGC;

(iv) The Bombay High Court has correctly held that no evidence was tendered

before the A rbitral Tribunal that DEPL and JDIL had common shareholders or

common directors;

(v) The arbitral award h as discussed ONGC’s claim that DEPL and JDIL belong

to the same group of companies and came to the conclusion that there is not

“a tickle of evidence” that JDIL played any role in the negotiations leading up

to the contract or that thereafter JDIL participated in the execution of the

PART B

20

contract on behalf of the DEPL. Hence, the group of companies doctrine

cannot be invoked to indict JDIL for the alleged acts and omissions of DEPL;

(vi) Under Section 7 of the Act of 1996, there must be an agreement between the

parties to submit to arbitration. The expression ‘party’ is defined in Section

2(1)(h). The key words in both the provisions are “party to an arbitration

agreement” and an agreement by the party to submit to arbitration. JDIL and

DEPL are separate entities. DEPL was incorporated in 200 3. JDIL was

incorporated in 1983. Its shares are listed on the Bombay Stock Exchange.

Though DEPL belonged to the DP Jindal Group of C ompanies, it ceased to

remain a part of the group in 2010. The fact that DEPL and JDIL shared a

common office is of no relevance. ONGC’s witness asserted that he came to

know that Mr G D Sharma (who signed on behalf of DEPL) is an employee of

JDIL only after the signing of the contract. H ence there was no representation

that JDIL was bidding for the contract. The association of the executive of

JDIL was to render assistance to DEPL and nothing more; and

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

a. Involved in the shortlisting of bidders;

b. A part of the decision- making process for the award of the contract;

c. A party to the deliberations by the tender committee for the award of

the contract;

d. Present at the time when the approval was given for the award of the

contract; and

e. Party to the deliberations within ONGC.

PART C

21

The witness stated that he has accessed the website of DEPL for the first time in

June 2008, after the award of the contract on 22 March 2006. Hence it i s not open to

ONGC to claim that DEPL or JDIL represented to ONGC that DEPL was a group

company of JDIL or that ONGC awarded the contract because of any representation

by JDIL on its website.

C Analysis

C.1. Group of Companies Doctrine

16 Section 7

17

provides for an arbitration agreement. For the purpose of Part -I of

the Act of 1996, an arbitration agreement is defined to mean an agreement by the

parties to submit disputes between them in respect of a defined legal relationship, to

arbitration. An arbitration agreement may either be in the form of an arbitration

clause in a contract or take the form of a separate agreement. An arbitration

agreement has to be in writing but it may be contained in:

(i) A document signed by the parties;

(ii) An exchange of communication; and

17

“7. Arbitration agreement.—

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain

disputes which have arisen or which may arise between them in 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 or in 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 telecommunication including communication

through electronic means which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one

party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if

the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

PART C

22

(iii) An exchange of a statement of claim and defence in which an allegation that

there exists an arbitration agreement is not denied by the other party.

Sub-section (5) of Section 7 stipulates that the reference in a contract to a document

containing an arbitration clause constitutes an arbitration agreement if:

(i) The contract is written; and

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

17 The expression “ party” is defined in Section 2(h) to mean a party to an

arbitration agreement. The interpretation of the term “parties” vis-à-vis an arbitration

agreement under Section 7 has been dealt with by this Court in Indo wind (supra) in

the context of an application for the appointment of an arbitrator under Section

11(6). In that case, the second respondent company was the promoter of Indowind.

The first and second respondent had entered into an agreement of sale. In the

agreement, the seller was described to include the first respondent and its

subsidiaries. The second respondent was described as the buyer and as the

promoter of Indowind. Under the agreement, the seller agreed to transfer business

assets for a consideration which was partly payable in m oney and partly by the

issuance of shares. The sale agreement also incorporated a clause to arbitrate any

dispute. The Board of Directors of the first and second respondent approved of the

agreement, but there was no approval by the Board of Indowind. After a dispute

arose, the first respondent instituted a petition under Section 11(6) against both the

second respondent and Indowind for the appointment of an arbitrator. Indowind

PART C

23

resisted the petition on the ground that it was not a party to the agreement between

the first and second respondent. The application was allowed by the Chief Justice of

the Madras High Court by observing that prima facie Indowind was a party after

lifting the corporate veil and noticing Indowind’s intention to be bound by the sale

agreement. Two issues were 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 arbitration agreement on a person who is not a

signatory to the agreement;

(ii) Whether a company could be said to be a party to a

contract containing an arbitration agreement, even though it

did not sign the agreement containing an arbitration clause,

with reference to its subsequent conduct”

Justice R V Raveendran, speaking for the two- judge Bench in Indowind (supra)

held that if Indowind had acknowledged or confirmed in any correspondence,

agreement or document that it was a party to the arbitration agreement between the

first and second respondent or that 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 arbitration agreement. That however was not the position. The decision in

Indowind (supra) was in the context of an application under Section 11(6). A party

which was not a signatory to the arbitration agreement had raised an objection on

the ground that the agreement to arbitration did not operate in relation to it. The

Court refused to pierce the corporate veil and relied on a strict interpretation of

Section 7 to hold thus :

PART C

24

“17. It is not in dispute that Subuthi and Indowind are two

independent companies incorporated under the Companies

Act, 1956. Each company is a separate and distinct legal

entity and the mere fact that the two Companies have

common shareholders or common Board of Directors,

will not make the two Companies a single entity. Nor will

the existence of common shareholders or Directors lead

to an inference that one company will be bound by the

acts of the other. If the Director who signed on behalf of

Subuthi was also a Director of Indowind and if the intention of

the parties was that Indowind should be bound by the

agreement, nothing prevented Wescare insisting that

Indowind should be made a party to the agreement and

requesting the Director who signed for Subuthi also to sign on

behalf of Indowind.

18. The very fact that the parties carefully avoided making

Indowind a party and the fact that the Director of Subuthi

though a Director of Indowind, was careful not to sign the

agreement as on behalf of Indowind, shows that the parties

did not intend that Indowind should be a party to the

agreement. Therefore the mere fact that Subuthi described

Indowind as its nominee or as a company promoted by it or

that the agreement was purportedly entered by Subuthi on

behalf of Indowind, will not make Indowind a party in the

absence of a ratification, approval, adoption or confirmation of

the agreement dated 24- 2-2006 by Indowind.

[….]

20. Wescare referred to several acts and transactions as also

the conduct of Indowind to contend that an inference should

be drawn that Indowind was a party to the agreement or that

it had affirmed and approved the agreement or acted in terms

of the agreement. An examination of the transactions

between the parties to decide whether there is a valid

contract or whether a particular party owed any obligation

towards another party or whether any person had committed

a breach of contract, will be possible in a suit or arbitration

proceeding claiming damages or performance. But the issue

in a proceeding under Section 11 is not whether there was

any contract between the parties or any breach thereof. A

contract can be entered into even orally. A contract can be

spelt out from correspondence or conduct. But an arbitration

agreement is different from a contract. An arbitration

agreement can come into existence only in the manner

PART C

25

contemplated under Section 7. If Section 7 says that an

arbitration agreement should be in writing, it will not be

sufficient for the petitioner in an application under

Section 11 to show that there existed an oral contract

between the parties, or that Indowind had transacted with

Wescare, or Wescare had performed certain acts with

reference to Indowind, as proof of arbitration agreement.

[…]

24. It is no doubt true that if Indowind had acknowledged

or confirmed in any correspondence or other agreement

or document, that it is a party to the arbitration

agreement dated 24-2-2006 or that it is bound by the

arbitration agreement contained therein, it could have

been possible to say that Indowind is a party to the

arbitration agreement. But that would not be under

Section 7(4)(a) but under Section 7(4)(b) or Section 7(5).

Be that as it may. That is not the case of Wescare. In fact,

the delivery notes/invoices issued by Wescare do not refer to

the agreement dated 24- 2-2006. Nor does any letter or

correspondence sent by Indowind refer to the agreement

dated 24- 2-2006, either as an agreement executed by it or as

an agreement binding on it…..”

(emphasis supplied)

18 Subsequently, in Chloro Controls (supra), a three- judge Bench of this Court

dealt with the provisions of Section 45, which falls in Part II of the Act of 1996

dealing with the enforcement of foreign arbitral awards. Section 45 postulates that

notwithstanding anything contained in Part I, a judicial authority, when seized of an

action in a matter in respect of which the parties have made an agreement in writing

for arbitration 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 that the

agreement is void, inoperative or incapable of being performed. Interpreting the

expressions “through or under” in Section 45, this Court held that though an

arbitration normally would take place between parties to the arbitration agreement, it

PART C

26

could take place between a signatory to an arbitration agreement and a third party

as well. Th is Court held that though the scope of the arbitration agreement is limited

to parties who have entered into it and those who claim under or through them,

courts under the English law have developed the group of companies doctrine. In

substance, the doctrine postulates that an arbitration agreement which has been

entered into by a company within a group of companies, can bind its non- signatory

affiliates or sister concerns if the circumstances demonstrate a mutual intention of

the parties to bind both the signatory and affiliated, non-signatory parties.

Elaborating on the concept, the Court held:

“71. Though the scope of an arbitration agreement is limited

to the parties who entered into it and those claiming under or

through them, the courts under the English law have, in

certain cases, also applied the “group of companies doctrine”.

This doctrine has developed in the international context,

whereby an arbitration agreement entered into by a company,

being one within a group of companies, can bind its non-

signatory affiliates or sister or parent concerns, if the

circumstances demonstrate that the mutual intention of all the

parties was to bind both the signatories and the non- signatory

affiliates. This theory has been applied in a number of

arbitrations so as to justify a tribunal taking jurisdiction over a

party who is not a signatory to the contract containing the

arbitration agreement. [Russell on Arbitration (23rd Edn.)]

72. This evolves the principle that a non- signatory party could

be subjected to arbitration provided these transactions were

with group of companies and there was a clear intention of

the parties to bind both, the signatory as well as the non-

signatory parties. In other words, “intention of the parties” is a

very significant feature which must be established before the

scope of arbitration can be said to include the signatory as

well as the non- signatory parties."

PART C

27

Noting that this would only be in exceptional cases, the Court in Chloro Controls

(supra) held that these exceptions would be examined on the touchstone of:

(i) A direct relationship to the party signatory to the arbitration agreement;

(ii) Direct commonality of the subject matter; and

(iii) Whether the agreement is of a composite transaction where the performance

of a mother agreement may not be feasible without the execution or

performance of a subsidiary or ancillary agreement.

19 The principle for binding non- signatories as laid down in Chloro Controls

(supra) was applied in the context of a domestic arbitration in Ameet Lalchand

Shah & Ors. v. Rishabh Enterprises & Anr.

18

. A two-judge Bench of this Court, in

the context of the application of the then amended

19

provisions of Section 8 of the

Act of 1996, observed that the 2015 amendment to Section 8 had brought it in line

with Section 45 of the Act of 1996. Prior to the amendment, Section 8(1) of the Act

of 1996 provided that a party to an arbitration agreement can make an application to

seek a reference to arbitration. The amended Section 8 (1) clarified that a

person

claiming through or under a party to the arbitration can also seek reference to

arbitration notwithstanding any judicial precedent. In Ameet Lalchand (supra), the

Court did not explicitly invoke the group of companies doctrine to bind a non-

signatory, rather it relied on Chloro Controls (supra) to hold that a non- signatory

would be bound by the arbitration clause in the mother agreement , since it is a party

to an inter-connected agreement, executed to achieve a common commercial goal.

18

(2018) 15 SCC 678

19

Arbitration and Conciliation (Amendment) Act, 2015 (“2015 amendment”)

PART C

28

20 In Cheran Properties (supra), a three-judge Bench of this Court interpreted

and applied the group of companies doctrine in the context of the enforcement of a

domestic arbitration award against a non- signatory to the arbitration agreement. The

Court observed that the decision by a two- judge Bench in Indowind (supra) was

rendered before the evolution and application of the group of companies doctrine by

a three- judge Bench in Chloro Controls (supra):

“23. As the law has evolved, it has recognised that modern

business transactions are often effectuated through multiple

layers and agreements. There may be transactions within a

group of companies. The circumstances in which they have

entered into them may reflect an intention to bind both

signatory and non- signatory entities within the same group. In

holding a non- signatory bound by an arbitration agreement,

the court approaches the matter by attributing to the

transactions a meaning consistent with the business sense

which was intended to be ascribed to them. Therefore, factors

such as the relationship of a non- signatory to a party which is

a signatory to the agreement, the commonality of subject-

matter and the composite nature of the transaction weigh in

the balance. The group of companies doctrine is essentially

intended to facilitate the fulfilment of a mutually held intent

between the parties, where the circumstances indicate that

the intent was to bind both signatories and non- signatories.

The effort is to find the true essence of the business

arrangement and to unravel from a layered structure of

commercial arrangements, an intent to bind someone who is

not formally a signatory but has assumed the obligation to be

bound by the actions of a signatory.”

This Court in Cheran Properties (supra) also analysed academic literature that

scrutinised adjudicatory trends across the world. It noted that the written intention to

arbitrate between parties can extend to bind non- signatories with the aim to target

the creditworthy member of the group of companies. However, the principle of

separate legal personalities of companies also has to be balanced. The corporate

PART C

29

veil can be pierced to bind non- signatories upon a construction of the arbitration

agreement, the intention at the time of entering the contract and the performance of

the underlying contract:

“25. Does the requirement, as in Section 7, that an arbitration

agreement be in writing exclude the possibility of binding third

parties who may not be signatories to an agreement between

two contracting entities? The evolving body of academic

literature as well as adjudicatory trends indicate that in certain

situations, an arbitration agreement between two or more

parties may operate to bind other parties as well. Redfern and

Hunter explain the theoretical foundation of this principle:

“… The requirement of a signed agreement in writing,

however, does not altogether exclude the possibility of

an arbitration agreement concluded in proper form

between two or more parties also binding other

parties. Third parties to an arbitration agreement have

been held to be bound by (or entitled to rely on) such

an agreement in a variety of ways : first, by operation

of the ‘group of companies’ doctrine pursuant to which

the benefits and duties arising from an arbitration

agreement may in certain circumstances be extended

to other members of the same group of companies;

and, secondly, by operation of general rules of private

law, principally on assignment, agency, and

succession…. [Id at p. 99.] ”

The group of companies doctrine has been applied to pierce

the corporate veil to locate the “true” party in interest, and

more significantly, to target the creditworthy member of a

group of companies [ Op cit fn. 16, 2.40, p. 100.] . Though the

extension of this doctrine is met with resistance on the basis

of the legal imputation of corporate personality, the

application of the doctrine turns on a construction of the

arbitration agreement and the circumstances relating to the

entry into and performance of the underlying contract. [Id,

2.41 at p. 100.]”

PART C

30

This Court in Cheran Properties (supra) also distinguished the principle laid down

in Chloro Controls (supra) from its application in the context of Section 11(6) in

Duro Felguera v. Gangavaram Port Limited

20

. In Duro Felguera (supra), a two-

judge Bench of this Court refused to direct a joint ar bitration in five different

contracts between sister concerns of one of the parties of the original arbitration

agreement, by respecting the conscious intention of the parties to subject

themselves to separate arbitration agreements under their individual contracts. This

Court in Cheran Properties (supra) distinguished the factual situation in Duro

Felguera (supra) by discerning the mutual intention of the parties and performance

of the contract:

“34. […..] The principle which underlies Chloro

Controls [Chloro Controls India (P) Ltd. v. Severn Trent Water

Purification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689]

is that an arbitration agreement which is entered into by a

company within a group of companies may bind non-

signatory affiliates, if the circumstances are such as to

demonstrate the mutual intention of the parties to bind 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

Felguera v. Gangavaram Port Ltd., (2017) 9 SCC 729 :

(2017) 4 SCC (Civ) 764] , the case was held to stand on a

different footing since all the five different packages as well as

the corporate guarantee did not depend on the terms and

conditions of the original package nor on the memorandum of

understanding executed between the parties. The judgment

in Duro[Duro Felguera v. Gangavaram Port Ltd., (2017) 9

SCC 729 : (2017) 4 SCC (Civ) 764] does not detract from the

principle which was enunciated in Chloro Controls[Chloro

Controls India (P) Ltd. v. Severn Trent Water Purification Inc.,

(2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689].”

20

(2017) 9 SCC 729 [“Duro Felguera”]

PART C

31

21 The group of companies doctrine was subsequently applied by a two -judge

Bench of this Court in Reckitt Benckiser (India) P Ltd. v. Reynders Label

Printing

21

for determining if a non- signatory foreign company, within the same group

of companies, could be impleaded in a domestic arbitration. This Court noted the

principles formulated by this 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 companies in the same

group was factually established as having no connection 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 its intention to be bound by the arbitration

agreement and/or of deriving benefits from the performance of the underlying

contract.

22 In MTNL (supra), a two-judge Bench of this Court was considering a situation

in which MTNL had floated certain bonds to Can Bank Financial Services Ltd

22

through a m emorandum of u nderstanding. The bond amount was placed in an FD

by MTNL with Canfina. Canfina paid back a part of the amount of the FD while the

rest was not paid to MTNL. A s a consequence , MTNL did not service the interest of

the bonds. Canfina was a wholly-owned subsidiary of Canara Bank. Canfina had

transferred the bonds to Canara Bank. Subsequently, all three parties had

21

(2019) 7 SCC 62

22

“Canfina”

PART C

32

participated in a meeting where the minutes indicated their view to take recourse to

arbitration. A sole arbitrator was appointed to resolve the dispute and notice was

issued in the arbitration to MTNL, Canara Bank and Canfina. A dispute was raised

on whether C anfina could be joined as a party to the arbitral proceedings. In this

backdrop, this Court while dealing with the joinder of Canfina in the arbitration

proceedings held:

“10.3. A non-signatory can be bound by an arbitration

agreement on the basis of the “group of companies” doctrine,

where the conduct of the parties evidences a clear intention

of the parties to bind both the signatory as well as the non-

signatory parties. Courts and tribunals have invoked this

doctrine to join a non- signatory member of the group, if they

are satisfied that the non- signatory company was by

reference to the common intention of the parties, a necessary

party to the contract.”

While elucidating the circumstances in which the group of companies doctrine could

be invoked to bind the non- signatory, the C ourt held:

“10.5. The group of companies doctrine has been invoked by

courts and tribunals in arbitrations, where an arbitration

agreement is entered into by one of the companies in the

group; and the non- signatory affiliate, or sister, or parent

concern, is held to be bound by the arbitration agreement, if

the facts and circumstances of the case demonstrate that it

was the mutual intention of all parties to bind both the

signatories and the non- signatory affiliates in the group. The

doctrine provides that a non- signatory may be bound by

an arbitration agreement where the parent or holding

company, or a member of the group of companies is a

signatory to the arbitration agreement and the non-

signatory entity on the group has been engaged in the

negotiation or performance of the commercial contract,

or made statements indicating its intention to be bound

by the contract, the non-signatory will also be bound and

benefitted by the relevant contracts. [ Interim award in ICC

Case No. 4131 of 1982, IX YB Comm Arb 131 (1984); Award

in ICC Case No. 5103 of 1988, 115 JDI (Clunet) 1206 (1988).

PART C

33

See also Gary B. Born : International Commercial Arbitration,

Vol. I, 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

a parent company, or inclusion of a third party to an

arbitration, if there is a direct relationship between the party

which is a signatory to the arbitration agreement; direct

commonality of the subject-matter; the composite nature of

the transaction between the parties. A “composite

transaction” refers to a transaction which is interlinked in

nature; or, where the performance of the agreement may not

be feasible without the aid, execution, and performance of the

supplementary or the ancillary agreement, for achieving the

common object, and collectively having a bearing on the

dispute.

10.7. The group of companies doctrine has also been invoked

in cases where there is a tight group structure with strong

organisational and financial links, so as to constitute a single

economic unit, or a single economic reality. In such a

situation, signatory and non- signatories have been bound

together under the arbitration agreement. This will apply in

particular when the funds of one company are used to

financially support or restructure other members of the group.

[ ICC Case No. 4131 of 1982, ICC Case No. 5103 of 1988.] .”

(emphasis supplied)

On the facts, the Court held that Canfina was set up as a wholly-owned subsidiary of

Canara Bank. The dispute arose out of the subscription by Canfina of the bonds

floated by MTNL which were subsequently transferred by C anfina to its holding

company, Canara Bank. MTNL had contended that it was constrained to cancel the

allotment due to the non- payment of the sale consideration by Canfina. Hence, this

Court held that it would be futile to decide the dispute only between MTNL and

Canara Bank in the absence of C anfina since indisputably, the original transaction

emanated from the agreement between MTNL and Canfina and there was “a clear

PART C

34

and direct nexus” between the issuance of the bonds, their subsequent transfer by

Canfina to Canara Bank and the cancellation of allotment by MTNL . Canfina was

held to be a proper party to the proceedings.

23 Commentators have noted that a signed written agreement to submit a

present or future dispute to arbitration does not exclude the possibility of an

arbitration agreement binding a third party. A non- signatory may be bound by the

operation of the group of companies doctrine as well as by the operation of the

principles of assignment, agency and succession.

23

A party, which is not a signatory

to a contract containing an arbitration clause, may be bound by the agreement to

arbitrate if it is an alter ego of a party which executed the agreement. This

constitutes a departure from the ordinary principle of contract law that every

company in a group of companies is a distinct legal entity. A non-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 statements indicating an intention

to bind a non- signatory.

24 Gary B. Born in his treatise on International Commercial Arbitration indicates

that:

“The principal legal basis for holding that a non-

signatory is bound (and benefited) by an arbitration

agreement … include both purely consensual theories

23

Redfern and Hunter on International Arbitration, 5

th

Ed. – 2.13, pp. 89- 90

PART C

35

(e.g., agency, assumption, assignment) and non-

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 who has not assented to a contract containing

an arbitration clause may nonetheless be bound by

the clause if that party is an ‘alter ego’ of an entity that

did execute, or was otherwise a party to, the

agreement. This is a significant, but exceptional,

departure from the fundamental principle … that each

company in a group of companies (a relatively

modern concept) is a separate legal entity possessed

of separate rights and liabilities

25

.

[……]

“the group of companies doctrine is akin to principles

of agency or implied consent, whereby the corporate

affiliations among distinct legal entities provide the

foundation for concluding that they were intended to

be parties to an agreement, notwithstanding their

formal status as non- signatories

26

.”

25 Recently, John Fellas elaborated on the principle of binding a non- signatory to

an arbitration agreement from the lens of the doctrine of estoppel. He situated the

rationale behind the application of the principle of direct estoppel against competing

considerations of party autonomy and consent in interpreting arbitration agreements.

Fellas observed that non- signatory parties can be bound by the principle of direct

estoppel to prohibit such a party from deriving the benefits of a contract while

disavowing the obligations to arbitrate under the same :

24

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

25

Id. at page 1432

26

Id. at page 1450

PART C

36

“There are at least two distinct types of estoppel

doctrine that apply in the non- signatory context:

“the direct benefits” estoppel theory and the

“intertwined” estoppel theory. The direct benefits

theory bears the hallmark of any estoppel

doctrine- prohibiting a party from taking

inconsistent positions or seeking to “have it both

ways” by “rely[ing] on the contract when it works

to its advantage and ignor[ing] it when it works to

its disadvantage.” Tepper Realty Co. v. Mosaic Tile

Co., 259 F.Supp. 688,692 (SDNY 1966). The direct

benefits doctrine reflects that core principle by

preventing a party from claiming rights under a

contract but, at the same time, disavowing the

obligation to arbitrate in the same contract.

[….]

By contrast, the intertwined estoppel theory looks not

to whether any benefit was received by the non-

signatory, but rather at the nature of the dispute

between the signatory and the non- signatory, and, in

particular whether “the issues the non- signatory is

seeking to resolve in arbitration are intertwined with

the agreement that the estoppel [signatory party] has

signed….the intertwined estoppel theory has as its

central aim the perseveration of the efficacy of the

arbitration process is clear when one looks at the

typical fact pattern of an intertwined estoppel case.”

27

(emphasis supplied)

26 In deciding whether a company within a group of companies which is not a

signatory to arbitration agreement would nonetheless 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;

27

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

PART C

37

(iv) The composite nature of the transaction; and

(v) The performance of the contract.

Consent and party autonomy are undergirded in Section 7 of the Act of 1996.

However, a non-signatory may be held to be bou nd on a consensual theory,

founded on agency and assignment or on a non- consensual basis such as estoppel

or alter ego.

28

These principles would have to be understood in the context of the

present case, where ONGC’s attempt at the joinder of JDIL to the proceedings was

rejected without adjudication of ONGC’s application for discovery and inspection of

documents to prove the necessity for such a joinder.

C.2. Standard for Review of the Interim Arbitral Award

27 The interim award of the A rbitral Tribunal is substantially premised on the fact

that JDIL is not a party to the contract dated 22 March 2006. The Tribunal held that

the agreement was only between ONGC and DEPL. Adverting to Section 7 of the

Act of 1996, the Tribunal held that there must be a written agreement between the

parties to submit to arbitration or in the specific manner envisaged under the

provision. Before the A rbitral Tribunal, it was urged by ONGC that:

(i) There is a commonality of interest in the business between DEPL and JDIL;

(ii) DEPL is a corporate fa cade created by JDIL for their extended business;

(iii) The executives of JDIL were actively associated in the bidding process; and

(iv) The office of DEPL or JDIL were situated in the same building.

28

Gary Born, supra note 24, at page 1418

PART C

38

The Arbitral Tribunal rejected the above submissions by holding that 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 find itself in the contract between JDIL and ONGC”.

The participation of JDIL in the execution of the contract was held to be on behalf of

DEPL and 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.

28 The fundamental basis of the interim award is that in view of the provisions of

Section 7 and the definition of the expression “ party” in Section 2(1)(h), the

provisions of the Act of 1996 could not be invoked or applied to a non- signatory to

an arbitration agreement. The Tribunal held that it has no jurisdiction to investigate,

enquire into or record any findings on the basis of ONGC’s claim against JDIL.

29 The Tribunal had, by its order dated 7 July 2009, specifically held that the

objections of JDIL to the production of documents sought by ONGC would be

decided when the application under Section 16 was resolved. Yet in the interim

award, ultimately, the Tribunal has directed that ONGC’s application dated 5

January 2009 would stand deferred until the issue of jurisdiction is decided. ONGC

was justified in submitting that its application for discovery and inspection should be

heard first and disposed of on merits after which appropriate orders as regards

joinder of parties could be issued to DEPL and JDIL.

30 By failing to consider the application for discovery and inspection, the Tribunal

has foreclosed itself from inquiring into whether there was sufficient material to

PART C

39

establish the application of the group of companies doctrine. The application for

discovery and inspection was indeed relevant to the exercise which was being

carried out by the Tribunal. ONGC’s primary submissions for impleading JDIL were

that:

(i) DEPL has been created by the DP Jindal Group with a definite purpose to

render services to the oil and gas sector;

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

(iii) The executives of JDIL had been closely associated with the negotiation of

the agreement;

(iv) The bid as well as the contract with DEPL were signed by G D Sharma who

was an employee of JDIL;

(v) G D Sharma was signing letters on behalf of DEPL as their authorized

signatory as well as on behalf of JDIL;

(vi) Mohan Ramanathan, who was the G eneral Manager of JDIL, used to visit the

witness who deposed on behalf of the ONGC in connection with the subject

contract; and

(vii) Naresh Kumar, the Managing Director of JDIL, had negotiated with the

owners of the vessel in connection with the same tender.

31 Moreover, it was stated in the course of the evidence by ONGC’s witness that

almost all the senior officers of JDIL, including its Managing Director, actively

participated in matters relating to the hiring of the vessel, its deployment,

performance and related issues. At a kick-off meeting held on 21 November 2005

PART C

40

between ONGC and DEPL, Mohan Ramanathan (General Manager, JDIL) was

stated to have been in attendance on behalf of the DEPL. It was in this backdrop

that ONGC sought to assert that there exists corporate, financial and functional unity

between DEPL and JDIL. The Arbitral Tribunal has not considered whether the

group of companies doctrine would stand attracted. The Arbitral Tribunal precluded

itself from deciding as to whether the application for discovery and inspection should

be allowed. The Arbitral Tribunal effectively shut out material evidence which ONGC

sought to bring on the record.

32 In this backdrop, the failure of the Arbitral Tribunal to allow for discovery and

inspection goes to the root of the process in as much as it disabled ONGC from

pursuing its fundamental claim based on the application of the group of companies

doctrine.

33 During the course of his submissions, Mr Shyam Divan, senior counsel urged

that:

(i) JDIL’s application under Section 16 was decided by the Arbitral Tribunal after

evidence was adduced;

(ii) The witness for ONGC deposed and the Tribunal has evaluated the evidence

and documentary material on record;

(iii) The Tribunal has entered a finding of fact that there is nothing to indicate the

existence of a single economic unit comprising JDIL and DEPL;

PART C

41

(iv) No directions could have been issued by the Tribunal on ONGC’s application

for discovery and inspection unless the Tribunal were to rule on the challenge

to its jurisdiction which had to be decided first and hence the Tribunal was

justified in concluding that the application filed by ONGC for discovery and

inspection would be considered subsequently;

(v) The decision in Indowind (supra) continues to hold the field . The group of

companies doctrine is only an exception to the principle that a party who is

not a signatory of the agreement cannot be subjected to arbitration;

(vi) The broad approach of the court under Section 34 which is of non-

interference with the arbitral award, must also govern an appeal under

Section 37; and the same standard must apply to the latter as it applies to the

former. The Arbitral Tribunal has ruled on its jurisdiction, pursuant to the

application filed by JDIL under sub-section (1) of Section 16. Under sub-

section (5), if the Arbitral Tribunal reject s such a plea, it must continue with

the arbitral proceedings to make an arbitral award. Under sub- section (6), a

party aggrieved by the arbitral award may make an application for setting

aside the award under Section 34.

34 The arbitral tribunal has held that it does not have jurisdiction to entertain the

claim against JDIL. The decision of the Arbitral Tribunal that 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 defined under Section 2(1)(e)) only from the following

orders, namely:

PART C

42

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

(ii) An order granting or refusing to grant any measure under Section 9; and

(iii) An order setting aside or refusing to set aside an arbitral award under Section

34.

Sub-section 2 of Section 37 stipulates that an “appeal shall also lie” to the court from

an order of the arbitral tribunal, i nter alia, on the ground 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 Court from the decision of the Arbitral Tribunal that it

lacks jurisdiction.

35 Mr Shyam Divan, relied upon two recent decisions of this Court in

Ssangyong Engineering and Construction Company Limited v. National

Highways Authority of India

29

, and in M/s Dyna Technologies Pvt. Ltd. v. M/s

Crompton Graves Ltd.

30

Both these decisions define the standard of review under

Section 34. These decisions indicate that a challenge to an arbitral award must be

adjudicated within the confines of Section 34. Clause (b)(ii) of sub- section (2) of

Section 34 stipulates that an arbitral award may be set aside only if the court finds

that it conflicts with the public policy of India. Prior to its substitution by Act 3 of

2016, the explanation stipulated that without prejudice to the generality of sub-

clause (ii), an award is in conflict with the public policy of India if the making of the

award was induced or affected by fraud or corruption or was in violation of Section

75 or S ection 81. As a result of the substitution of the explanation by Act 3 of 2016,

29

(2019) 15 SCC 131 [“Ssangyong Engineering”]

30

(2019) 20 SCC 1

PART C

43

Parliament has stipulated that an award conflicts with the public policy of India only if

one of three conditions is fulfilled, namely:

(i) The making of the award was induced or affected by fraud or corruption or

was in violation of Section 75 or Section 81;

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

(iii) The award conflicts with the most basic notions of morality or justice.

36 In Ssangyong Engineering (supra), this Court held that the expression

“public policy of India” in Section 34 would mean “the fundamental policy of Indian

law” as explained in Associate Builders v. DDA

31

. Sub-section (2A) to Section 34,

which was introduced by the Amending Act of 2016, provides for an additional

ground of challenge in the case of a domestic award, namely the existence of a

patent illegality apparent on the face of the award. Justice R F Nariman , speaking

for the two-judge Bench, observed that:

“34. What is clear, therefore, is that the expression “public

policy of India”, whether contained in Section 34 or in Section

48, would now mean the “fundamental policy of Indian law” as

explained in paras 18 and 27 of Associate Builders [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]

i.e. the fundamental policy of Indian law would be relegated to

“Renusagar” understanding of this expression. This would

necessarily mean that Western Geco [ONGC v. Western

Geco International 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 29 of Associate Builders [Associate

Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,

would no longer obtain, as under the guise of interfering with

an award on the ground that the arbitrator has not adopted a

31

(2015) 3 SCC 49

PART C

44

judicial approach, the Court's intervention would be on the

merits of the award, which cannot be permitted post

amendment. However, insofar as principles of natural

justice are concerned, as contained in Sections 18 and

34(2)(a)(iii) of the 1996 Act, these continue to be grounds

of challenge of an award, as is contained in para 30

of Associate Builders [Associate Builders v. DDA, (2015) 3

SCC 49 : (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 [Associate Builders v. DDA, (2015) 3 SCC 49 :

(2015) 2 SCC (Civ) 204] , while no longer being a ground for

challenge under “public policy of India”, would certainly

amount to a patent illegality appearing on the face of the

award. Thus, a finding based on no evidence at all or an

award which ignores vital evidence in arriving at its

decision would be perverse and liable to be set aside on

the ground of patent illegality. Additionally, a finding

based on documents taken behind the back of the parties

by the arbitrator would also qualify as a decision based

on no evidence inasmuch as such decision is not based

on evidence led by the parties, and therefore, would also

have to be characterised as perverse.”

(emphasis supplied)

37 In this backdrop, it has been held that:

(i) A mere contravention of substantive law is not a ground to set aside an

award;

(ii) The court while exercising the power of judicial review should not

reappreciate evidence;

(iii) The construction of a contract is essentially a matter for the arbitral tribunal to

decide;

PART C

45

(iv) An award can be construed to be perverse only if it is based on no evidence

or has ignored vital evidence;

(v) The illegality of an award must be of such a nature or character so as to go to

the root of the award; and

(vi) Judicial intervention under Section 34 would not be warranted only because

an alternative view on facts or the construction of the award is available.

38 Mr K M Nataraj, ASG, urged that when an appeal arises under Section

37(2)(a) against an order of the arbitral tribunal accepting the plea under Section 16

that it has no jurisdiction, the parameters for the exercise of the appellate jurisdiction

of the court would not be constricted by the principles which apply to a challenge to

an arbitral award under Section 34. The ASG submitted that this is for a valid

reason, which is that upon the acceptance of a plea that there is a lack of

jurisdiction, the matter goes out of the fold of arbitration. Such a determination

cannot be subject to the governing principles which apply to a challenge to an

arbitral award under Section 34.

39 Sub-section (1) of Section 37 provides for appeals to the court against orders

of the arbitral tribunal meeting one of the descriptions specified in clauses (a), (b)

and (c). Sub-section (2) provides that an appeal shall also lie to the court from an

order of the arbitral tribunal accepting a plea under sub- sections (2) or (3) of Section

16 (of a want of jurisdiction) and for granting or refusing a measure under Section

17. It is true that Parliament has not specifically constricted the powers of the court

while considering an appeal under clause (a) of sub- section (2) of Section 37 by the

PART C

46

grounds on which an award can be challenged under Section 34. The expression

“arbitral award” is defined in Section 2(1)(c) to include an interim award. The

grounds of challenge to an arbitral a ward under Section 34 are specified by the

parameters which are spel t out in that provision. However, with regard to challenges

to the jurisdiction of the tribunal, Section 16 stipulates that where the t ribunal rejects

a plea of a lack of jurisdiction, it must continue with the arbitral proceedings and

make an award and the remedy of a challenge to the award would lie under Section

34. However, if the arbitral tribunal accepts a plea that it lacks jurisdiction, the order

of the tribunal is amenable to a challenge in appeal under Section 37(2)(a ). In the

exercise of the appellate jurisdiction, the court must have due deference to the

grounds which have weighed with the tribunal in holding that it lacks jurisdiction

having regard to the object and spirit underlying the statute which entrusts the

arbitral tribunal with the power to rule on its own jurisdiction. The decision of the

tribunal that it lacks jurisdiction is not conclusive because it is subject to an appellate

remedy under Section 37(2)(a) . However, in the exercise of this appellate power, the

court must be mindful of the fact that the statute has entrusted the arbitral tribunal

with the power to rule on its own jurisdiction with the purpose of facilitating the

efficacy of arbitration as an institutional mechanism for the resolution of disputes.

40 Now it is in this backdrop that the C ourt must approach the task at hand. In

the present batch of cases, there are two parallel proceedings arising out of the

constitution of two sets of arbitral tribunals. In the first proceeding, the A rbitral

Tribunal consisted of Mr Justice S P Kurdukar, Mr Justice M S Rane and Mr S

PART C

47

Venkateswaran. Both DEPL and JDIL were made parties by ONGC, which is the

claimant. The application filed by JDIL under Section 16 was allowed by the A rbitral

Tribunal by its interim award dated 27 October 2010. The appeal filed by ONGC was

dismissed by the Bombay High Court on 27 June 2012. In pursuance of the

arbitration proceedings, the A rbitral Tribunal made a final award on 6 June 2013 in

favour of ONGC against DEPL.

41 The second set of proceedings involved four agreements between ONGC and

JDIL which are tabulated below: -

S. No. Date of the

Agreement

Particulars

1. 23 December 2003 Agreement for Charter Hire of Drilling Unit NCY

2. 9 December 2004 Agreement for hiring of 2 sets of steerable downhole mud motors

Equipment, Drilling jars and directional drilling services

3. 2 December 2006 Agreement for Charter Hire of Drilling Unit NCY

4. 17 August 2006 Agreement for Charter Hire of Drilling Unit “Noble Ed-Holt”

JDIL invoked the arbitration on 4 February 2010 and an Arbitral Tribunal consisting

of Ms Justice Sujata Manohar, Mr Justice B N Srikrishna and Mr Justice M S Rane

was constituted. The Arbitral Tribunal rendered a final award on 9 October 2013 (the

arbitral award in the second proceeding) in favour of JDIL and accepted its claim

amounting to US$14,772,495.55 together with interest of 4% per annum from the

date of the invoice until payment or realisation. ONGC instituted proceedings under

Section 34 before the Bombay High Court. By a judgment dated 28 April 2015, a

Single Judge of the Bombay High Court upheld the arbitral award. The appeals

against the judgment of the Single Judge under Section 37 were pending when

PART C

48

ONGC applied for transfer of the appeals to this Court. By an order dated 1

September 2016, the appeals have been transferred to this Court on the ground that

“there is some connection” between the special leave petition arising from the

judgment of the Bombay High Court affirming the decision of the A rbitral Tribunal

that it lacked jurisdiction on the claim against JDIL. Now at this stage, it would be

material to note that the Single Judge of the Bombay High C ourt, while considering

the challenge to the arbitral award dated 9 October 2013 in favour of JDIL held that :

“In my view the arbitral tribunal has considered the evidence

led by the parties in the impugned award independently and

have rendered findings of facts that i) the petitioners had

failed to prove that the said DEPL and the respondents herein

were one and the same company; ii) both the companies had

independent legal existence; iii) the petitioners had failed to

produce any evidence to prove that the petitioners had

awarded the said contract to DEPL because it was in fact the

respondents herein and/or was supported by the

respondents; iv) there was no evidence to show that in order

to secure the said contract, DEPL had represented that it was

a part of the respondents group; v) the witness examined by

the petitioners was not present in the meeting held by the

Executive Purchase Committee and did not produce Minutes

of Meeting held by the said Committee for short listing of the

bidders; vi) the respondents herein had not issued any

guarantee or letter of comfort from the respondents to the

petitioners in respect of the liabilities, if any, of DEPL under its

contract with the petitioners and vii) the petitioners had failed

to provide any particulars of the alleged fraud or that the said

DEPL was incorporated in order to defraud the creditors. In

my view, all the aforesaid findings rendered by the arbitral

tribunal are based on the pleadings, documents and the

evidence led by the parties and are not perverse and thus no

interference with such findings of facts is permissible under

Section 34 of the Arbitration Act.”

PART C

49

42 The Single Judge noted that ONGC had not denied the claims which were

made by JDIL (the original claimant). The only defence of ONGC was that it was

entitled to adjust the amount which was claimed by JDIL under the four contracts

against ONGC’s claim qua DEPL. In the course of the Arbitral Award in the second

proceeding, the Arbitral Tribunal has also observed that the claims of JDIL were not

disputed by ONGC. The award of the A rbitral Tribunal noted that:

“The above claims of the Claimant are not denied by the

Respondent ONGC. The defence of ONGC to the claims

made by the Claimant in these arbitration proceedings is

essentially to the effect that the Respondent is entitled to

appropriate the sums payable by it to the Claimant under

these 4 contracts against the claim of the Respondent against

DEPL under its contract with DEPL.”

43 The basis on which ONGC claimed the above adjustment was that DEPL and

JDIL constitute one economic entity and that DEPL is a group company of JDIL. The

Arbitral Tribunal rejected the submission of ONGC, observing thus :

“It is contended by Mr Rajiv Kumar, learned senior counsel for

the Respondent that the corporate veil should be lifted in

order to treat the two companies as one because throughout,

it was the Claimant which acted on behalf of DEPL. The

Respondent has placed strong reliance on the case of State

of UP v. Renusagar Power Co. and Another [1988 4 SCC 59].

The Supreme Court has observed that in the expanding

horizon of modern jurisprudence, lifting of corporate veil is

permissible if two associated companies are so inextricably

mixed as to constitute one entity. Its frontiers are unlimited. It

must, however, depend primarily on the realities of the

situation. It held on the facts of that case that at no point of

time had the Respondent Renusagar showed any

independent volition and had been controlled fully by

Hindalco which controlled even day-to-day affairs of the

Respondent. Even the profits of the Respondent had been

treated as the profits of Hindalco. The court held that the

Respondent and Hindalco can be treated as one concern.

The facts of the present case are totally different and do not

warrant lifting of corporate veil, assuming there is one. The

evidence in the present case does not justify the application

PART C

50

of “lifting the corporate veil”. In respect of the contract which

was entered into by the Respondent with DEPL, the tender

was floated by ONGC in 2005 and the contract was entered

into in 2006. There is no material to show that the

Respondent awarded the contract to DEPL because it was in

fact the Claimant and/or was supported by the Claimant. The

minutes of the meeting held by the Respondents for short-

listing of bidders in respect of that contract have not been

produced. The only witness produced by ONGC was not

present at the meetings held by the executive purchase

committees when deliberations on the award of the contract

to the recommended bidder took place [Of Answer to

Question 39 in the cross-examination of the same witness in

the first arbitration between ONGC and DEPL relied upon in

this arbitration]. There is no evidence to show that in order to

secure the said contract, DEPL represented that it was a part

of the Claimant group. The Respondent contends that an

employee of the Claimant namely Mr Mohan Ramanathan

attended the pre- bid meeting and customs hearing in

connection with their contract with DEPL. The Claimant in the

evidence of its witness CW-2 Ms. Dalvi has stated that Mr

Ramanathan had attended the pre- bid meeting and customs

hearing at the request of DEPL and as a representative of

DEPL on account of his expertise in these areas. She has

also stated that she was asked by Mr. Ramanathan to attend

the customs duty hearing on behalf of DEPL. The Claimant

has also pointed out that Mr. G.D. Sharma, an employee of

the Claimant attended certain meetings and signed letters

etc. only on behalf of DEPL and has signed these expressly

on behalf of DEPL.”

44 The Tribunal also observed that JDIL had not furnished any guarantee or

letter of comfort to ONGC in respect of the liabilities of DEPL. The emails addressed

by the Managing Director of JDIL to the owners of the vessel were not from an

official email address but from personal email addresses . The Arbitral Tribunal held

that there was no basis for the allegation that DEPL was incorporated to defraud the

creditors. Thus, the Tribunal observed that JDIL and DEPL maintained a separate

legal character throughout.

PART C

51

45 In the earlier proceedings instituted by ONGC against both DEPL and JDIL,

the Arbitral Tribunal had by its interim award dated 27 October 2010 upheld JDIL’s

plea of a lack of jurisdiction and held that JDIL could not be impleaded. In paragraph

31 of the Arbitral Award in the second proceeding, dated 9 October 2013 between

ONGC and JDIL, the A rbitral Tribunal adverted to the interim award 27 October

2010 in the first proceeding and agreed with those findings. The relevant extract

reads as follows:

“31. In the present case the Respondent ONGC had earlier

initiated arbitration proceedings against both DEPL and the

Claimant before an Arbitral Tribunal consisting of Justice

Kurudukar [presiding arbitrator], Justice Rane and Mr

Venkateshwaran, Senior Advocate. By its ‘interim final award’

dated 27- 10-2010 the Arbitral Tribunal held that in the dispute

between the Respondent and DEPL, the Claimant could not be

impleaded. It rejected the contention of ONGC that the Claimant

was liable under the said contract between ONGC and DEPL.

The arguments advanced before us were also advanced before

it. In fact the evidence of Respondents witness Anindya

Bhattarcharya is common in both the arbitrations. That Arbitral

Tribunal rejected the contention of the Respondent and directed

that the name of Claimant should be deleted from the said

proceedings. The order has been upheld by the High Court in the

petition filed by ONGC under Section 16 of the Arbitration and

Conciliation Act 1996 by its order dated 27 June 2012. We are

informed that an SLP is pending. There is now a final award

dated 6 June 2013 given by the aforesaid Arbitral Tribunal in the

arbitration proceedings between the Respondent and DEPL

where the Respondents have been held entitled to recover from

DEPL a sum of Rs 6387.37 lakhs as well as US dollars

1756197.50 with interest at 9% per annum as set out therein and

have been granted other reliefs as set out therein. After the

Claimant took out the present arbitration proceedings, ONGC has

filed a suit in the High Court being Suit Number 2947/2011

against the Claimant and DEPL. The findings of the ear lier

Arbitral Tribunal and the High Court in its order of 27 June

2012 support our present conclusions, and we respectfully

agree with the same.”

(emphasis supplied)

PART C

52

46 It is important to note that in the Arbitral Award in the second proceeding, no

issue of jurisdiction arose since only JDIL and ONGC were parties and the claim of

JDIL arose under four distinct contracts of JDIL with ONGC. DEPL was not a party

to that proceeding. The examination- in-chief of ONGC’s witness in the first

arbitration proceeding was treated as an affidavit in the subsequent arbitration

involving the claim by JDIL against ONGC. This Court has been informed that the

cross- examination of the witness in the first arbitral proceeding leading up to the

interim award dated 27 October 2010 was also treated as a cross -examination in the

subsequent arbitration. JDIL also led evidence, inter alia, of its manager in support

of its assertion that there were neither any common directors between JDIL and

DEPL nor did JDIL hold any shares in DEPL.

47 The above narration indicates that the batch of cases which has been

transferred to this C ourt arises from a claim in arbitration by JDIL against ONGC

under four contracts. The Arbitral Tribunal by its award dated 9 October 2013 (the

Arbitral Award in the second proceeding) allowed the claim. ONGC did not plead

any defence to the claim on merits. However, ONGC asserted a right to adjust the

amounts which were due to JDIL against the claims which ONGC had against DEPL

under a distinct contract. ONGC asserted that JDIL and DEPL form one common

economic entity and that the group of companies doctrine would apply. Thus

essentially, the grounds on which ONGC opposed JDIL’s application under Section

16 in the first a rbitral proceeding overlap with the basis on which ONGC sought

adjustment of the claims due to JDIL in the second arbitral proceeding. There is thus

PART C

53

a significant degree of overlap between the issues which arose before the first

Arbitral Tribunal in its interim award dated 27 October 2010 and those on which the

Arbitral Tribunal rendered its Arbitral Award dated 9 October 2013 in the second

proceeding. As we have seen above, Arbitral Award in the second proceeding relied

on the findings contained in the interim award of the first Arbitral Tribunal dated 27

October 2010. In opposing JDIL’s application under Section 16 before the Arbitral

Tribunal consisting of Mr Justice S P Kurdukar, Mr Justice M S Rane and Mr S

Venkateswaran, ONGC invoked the group of companies doctrine. In the course of

its statement of claim, ONGC pleaded that DEPL was awarded the contract by

relying on the fact that it is a group company of the DP Jindal G roup of Companies

and that JDIL has a vital business interest in DEPL, which can be said to be an alter

ego of JDIL.

48 ONGC pleaded that it had a continuing business relationship with JDIL for the

past several years and this was a major factor which weighed with ONGC while

deciding to award the contract in favour of the DEPL. On the date of the submission

of the claim, ONGC had three subsisting contracts with JDIL. ONGC claimed that

DEPL has a close corporate unity with the Jindal Group of Companies and that it

has consistently represented that they are a group company within the DP Jindal

Group of Companies. According to ONGC, besides the letterheads of DEPL which

indicate that it belongs to the DP Jindal Group of Companies , JDIL has also

acknowledged this position on its website. ONGC also indicated that since DEPL is

liable to compensate ONGC for the loss suffered by it , ONGC has adjusted the

PART C

54

monies payable to JDIL as security to satisfy the award. ONGC led the evidence of

its Chief Manager (MM), Anindya Bhattacharya. The witness for ONGC deposed

that:

(i) At the pre- bid conference which was held on 7 October 2005, DEPL was

represented by Mohan Ramanathan together with two other persons and he

is an employee of JDIL;

(ii) In response to the second expression of interest dated 17 October 2005,

DEPL submitted its offer which was signed by G D Sharma on behalf of

DEPL;

(iii) G D Sharma holds the position of Manager (Commercial and Development)

with JDIL;

(iv) In response to ONGC’s invitation for sealed bids from shortlisted parties on 31

October 2005, DEPL submitted its bid under a cover letter dated 4 November

2005. The annexure to the letter contained a resume of DEPL declaring that it

is a part of the DP Jindal Group of Companies which has a strong presence in

the oil and gas sector and is engaged in off shore drilling for oil and gas;

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

(vi) DEPL was created by the Jindal Group with the definite purpose of rendering

a particular service to the oil and gas sector and DEPL has indicated on the

website that it works under the “fraternal hood of the said group”;

(vii) DEPL is promoted and managed by the son and daughter in law of the

Managing Director of JDIL;

PART C

55

(viii) The bid submitted by DEPL was signed by G D Sharma as an authorized

signatory who is an employee of JDIL;

(ix) The Managing Director of JDIL, Mr Naresh Kumar, had negotiated with the

owners of the vessel for hiring on behalf DEPL;

(x) DEPL was incorporated in 2003;

(xi) Mohan Ramanathan who attended the office of ONGC in connection with the

subject contract was the General Manager of JDIL; and

(xii) Almost all senior officers of JDIL including its Managing Director actively took

part in matters relating to the hiring of the vessel, its deployment, performance

and related issues. Therefore, a corporate, financial and functional unity

exists between DEPL and JDIL.

49 At the hearing before the first Arbitral Tribunal on 7 July 2009, the documents

which were produced by ONGC’s witness were taken on the record. Counsel for

JDIL objected to these documents on the ground of relevance and admissibility but

stated that he would cross-examine the witness without prejudice to those

contentions. The first Arbitral Tribunal observed that the rival contentions would be

decided while disposing of the application under Section 16. ONGC also filed an

application for discovery and inspection before the first Arbitral Tribunal and the

annexure to the application contained a schedule indicating the disclosures which

were sought. The o rder of the first Arbitral Tribunal notes the submission of ONGC

that the applications for discovery and inspection must be decided first and it is only

on the completion of the process that JDIL’s challenge to jurisdiction under Section

PART C

56

16 could be addressed. The first Arbitral Tribunal deferred a decision on the two

applications until the issue of jurisdiction was decided. The net result is that the

applications for discovery and inspection which were crucial to ONGC’s claim that

there existed functional, financial and economic unity between DEPL and JDIL

remained to be decided before the application under Section 16 was taken up.

There is merit in the submission which was been urged on behalf of the ONGC that

the application for discovery and inspection had to be decided before the plea of

jurisdiction was adjudicated upon. The application for discovery and inspection was

intended to facilitate ONGC in its plea that there existed functional, financial and

economic unity between the two companies. The failure of the first Arbitral Tribunal

to hear the application for discovery and inspection goes to the root of its interim

award dated 27 October 2010 holding an absence of jurisdiction qua JDIL. The

interim award of the Arbitral Tribunal in the first proceeding, dated 27 July 2010

refers to the documents which were produced by ONGC and to the submission that

neither DEPL nor JDIL had led any evidence to controvert the documentary and oral

evidence adduced by ONGC. The first Arbitral Tribunal upheld the plea of

jurisdiction that JDIL is neither a party to the contract nor had it submitted a bid to

ONGC which resulted in the formation of the contract. The Tribunal held that the

agreement was only between ONGC and DEPL and that in terms of Section 7, an

agreement to arbitrate is between the parties to the agreement. While observing that

the arbitration agreement was only between DEPL and ONGC, the Tribunal held

that neither was there an arbitration agreement between ONGC and JDIL nor was

JDIL a signatory to the agreement between ONGC and DEPL. After noting the

PART C

57

documents which were relied upon by ONGC, the Tribunal held that there was “no

tickle of evidence to indicate that JDIL”, a distinct incorporated legal entity , ever

played any role to find itself in the contract between JDIL and ONGC. The

executives of JDIL who participated in the contractual dealing w ere held to be

representatives of DEPL. Reading the interim award dated 27 October 2010 of the

first Arbitral Tribunal, the unmistakable impression which emerges from the record is

that the primary basis for the determination of an absence of jurisdiction is that the

arbitration agreement was between ONGC and DEPL. The legal foundation of the

group of companies doctrine has not been evaluated, on facts or law. True enough,

the judgment of this Court in Cholo Controls (supra) is of 2013, Cheran Properties

(supra) is of 2018 and MTNL (supra) came in 2020. However, ONGC had clearly

laid out the factual and legal foundation for setting up a case in opposition to the

plea of JDIL. The first Arbitral Tribunal has made a fundamental error of law in not

deciding the application by ONGC on discovery and inspection of documents before

it ruled on jurisdiction. In doing so, the first Arbitral Tribunal’s interim award dated 27

October 2010 goes against the principles of natural justice. The failure to consider

the application for discovery and inspection of documents results in a situation

where vital evidence that could have assisted the Tribunal in its determination of the

challenge under Section 16 was shut out. As a matter of fact, it emerged from the

record that no evidence was adduced by JDIL in support of its plea of the absence

of jurisdiction under Section 16. JDIL having taken the plea of absence of jurisdiction

was required to establish the grounds on which it set about to establish its plea.

PART D

58

50 Based on the above discussion, the interim award of the first Arbitral Tribunal

stands vitiated because of :

(i) The failure of the arbitral tribunal to decide upon the application for discovery

and inspection filed by ONGC;

(ii) The failure of the arbitral tribunal to determine the legal foundation for the

application of the group of companies doctrine; and

(iii) The decision of the arbitral tribunal that it would decide upon the applications

filed by ONGC only after the plea of jurisdiction was disposed of.

D Conclusion

51 For all the above reasons we have come to the conclusion that there was a

fundamental failure of the first Arbitral Tribunal to address the plea raised by ONGC

for attracting the group of companies doctrine. Moreover, by leaving the application

filed by ONGC for discovery and inspection unresolved, the first Arbitral Tribunal

failed to allow evidence which may have had a bearing on the issue of whether JDIL

could be considered to have an economic unity with DEPL and could hence be

made a party to the arbitral proceedings.

PART D

59

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

(i) The interim award of the A rbitral Tribunal dated 27 July 2010 on the plea

raised by JDIL under Section 16 has to be set aside;

(ii) The judgment of the Single Judge of the Bombay High Court dated 27 June

2012 dismissing ONGC's appeal under Section 37 would have to be set

aside;

(iii) The plea by JDIL that the A rbitral Tribunal lacks jurisdiction would have to be

decided afresh. In this regard, this Court was informed that one of the three

arbitrators has died and that the A rbitral Tribunal cannot be reconstituted. We

accordingly direct that ONGC and JDIL shall each nominate their arbitrators

within a period of two weeks from the date of this judgment while the two

arbitrators shall nominate and appoint the third arbitrator. The A rbitral Tribunal

so reconstituted shall decide afresh upon the plea of JDIL in regard to the

absence of jurisdiction after furnishing to the parties the opportunity of leading

any further evidence or seeking the produc tion of further documentary

material on the record. The evidence and documentary evidence which has

been already adduced before the earlier A rbitral Tribunal shall however form

part of the record of the newly constituted Tribunal;

(iv) As regards the cases which have been transferred to this Court, we would

order and direct that these cases be remitted back to the Bombay High Court.

The decision on those appeals which arose from the dismissal by the Single

Judge of the petition under Section 34 challenging the A rbitral Award dated 9

PART D

60

October 2013 in the second proceeding, in favour of JDIL, shall be held in

abeyance and remain adjourned sine die until the A rbitral Tribunal which is

reconstituted in terms of the above directions rules on its jurisdiction and in

the event that it rejects the plea challenging its jurisdiction, until the arbitral

award is delivered in relation to ONGC’s claim against JDIL; and

(v) During the pendency of these proceedings, ONGC was directed to deposit the

amount due under the Arbitral Award in the second proceeding dated 9

October 2013, which was permitted to be withdrawn by JDIL subject to

furnishing a bank guarantee which shall be kept alive during the pendency of

the proceedings before the Bombay High Court. The bank guarantee

furnished by JDIL shall be kept alive to the satisfaction of the P rothonotary

and Senior master 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 Court dated 27 June

2012 in Arbitration Petition No 814 of 2011 is set aside;

(ii) The appeal filed by ONGC under Section 37 of the Act of 1996 against the

interim award of the Arbitral Tribunal dated 27 October 2010 is allowed and

the interim award of the Tribunal dated 27 October 2010 shall stand set aside;

(iii) A fresh A rbitral Tribunal shall be constituted by ONGC and JDIL each

nominating their arbitrators within a period of two weeks from the date of this

PART D

61

judgment and the two arbitrators thereafter will jointly appoint the third

arbitrator;

(iv) The present judgment will not have any bearing on the arbitral award dated 6

June 2013 passed in favour of ONGC against DEPL ;

(v) The transferred cases shall stand remitted back to the Bomaby High Court.

The hearing of the transferred cases is adjourned sine die so as to a wait the

outcome of the arbitral proceedings between ONGC and JDIL in terms of (iii)

above;

(vi) In pursuance of the interim orders of this Court, ONGC was directed to

deposit the amount due to JDIL under the A rbitral Award in the second

proceeding dated 9 October 2013 which was permitted to be withdrawn by

JDIL subject to furnishing a bank guarantee. The bank guarantee furnished by

JDIL shall be kept alive to the satisfaction of the P rothonotary and Senior

master of the Bombay High Court pending the disposal of the arbitration

appeals against the judgment of the Single Judge dated 28 April 2015

dismissing the petition under Section 34 challenging the arbitral award dated

9 October 2013; and

(vii) Upon the reconstitution of the Arbitral Tribunal, the plea of JDIL under Section

16 shall be decided afresh. All the rights and contentions in that regard are

kept open to be decided by the arbitral tribunal. The oral and documentary

evidence which was produced before the earlier arbitral tribunal shall form

part of the proceedings before the fresh Arbitral Tribunal to be constituted in

PART D

62

pursuance of the above directions. ONGC would be at liberty to pursue its

application for discovery and inspection and to seek further directions before

the Arbitral Tribunal. Parties would be at liberty to apply for leading further

evidence before the A rbitral Tribunal if they are so advised.

54 The appeal is allowed in the above terms. The transferred cases are remitted

back to the Bombay High Court for disposal in the light of the above directions.

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

….…………………………...............................J.

[Dr Dhananjaya Y Chandrachud]

….…………………………...............................J.

[Surya Kant]

….…………………………...............................J.

[Vikram Nath]

New Delhi;

April 27, 2022