Arbitrator doesn’t have the power to lift the corporate veil, so as to bind non-signatory party to arbitration agreement

Delhi High Court: A Single Bench of Vibhu Bhakhru,J. Held that an arbitrator will not have the power to lift the corporate veil so as to bind other party, who have not agreed to arbitration agreement.

An educational project “agreement” was entered into between IGNOU and UEIT. IGNOU stated that they were entitled to receive fees, but UEIT neglected the contention and failed to remit the same, IGNOU terminated the agreement and invoked arbitration clause and claimed for dues in reply to this statement of claim a joint counter claim for compensation was made by UEIT and Sudhir Gopi, managing director of the company stating that, IGNOU enrolled students from other institutes which operate illegally outside the trade free zones, and IGNOU has also withhold the mark-sheets of students stating that work at center is suspended. Arbitration tribunal ordered in favor of IGNOU, making both Gopi and UEIT liable stating that Gopi holds 99 shares out of 100 and is face of the company and made no distinction between himself and UEIT by making joint claims.

The Court held that IGNOU’s claim is bad in reference to “mis- joinder” of parties as Gopi is not a party to the agreement as “an arbitration agreement must be in writing” as per Section 7(3) of the Arbitration and Conciliation Act, 1996 and here Gopi has not signed the agreement in his personal capacity, court further stated that just because a person holds maximum share and is face of the company, it doesn’t make him personally bound as company is an “independent juristic entity” and therefore arbitrator cannot lift the corporate veil and bind the non-signatories to an arbitration agreement. Court allowed the petition and set aside the award of arbitration tribunal. [Sudhir Gopi v. Indira Gandhi National Open University, 2017 SCC OnLine Del 8345 , decided on 16.05.2017]

 

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