IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, J.
Sudhir Gopi - Petitioner
Versus
Indira Gandhi National Open University & Anr. - Respondents
O.M.P. (COMM) 22 of 2016
Decided On : 16-05-2017
Arbitration and Conciliation Act, 1996 - Section 34 - Arbitration - Lifting corporate veil - Power of - Arbitral tribunal has proceeded to disregard the corporate personality of UEIT - It has lifted the corporate veil only for the reason that UEIT's business was being conducted by beneficiary - A corporate veil can be pierced only in rare cases where the Court comes to the conclusion that the conduct of the shareholder is abusive - Corporate fagade of UEIT was not used by Mr. Sudhir Gopi to perpetuate a fraud - Mere failure of a corporate entity to meet its contractual obligations - This cannot be ground for piercing the corporate veil - Arbitral tribunal has mentioned in the passing that UEIT was used for improper purpose - There is no foundation for such observation - Held, decision of the arbitral tribunal to pierce the corporate veil is fundamentally flawed - Petition is allowed - Impugned award to the extent that the petitioner is held liable for the awarded amounts, is set aside.
Vibhu Bakhru, J.
I.A. No. 1239/2016
1. For the reasons stated in the application, the delay in re-filing the present petition is condoned.
2. The application stands disposed of.
O.M.P. (COMM) 22/2016
3. Shri Sudhir Gopi, Chairman and Managing Director of Universal Empire Institute of Technology (UEIT) has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) for setting aside the arbitral award dated 20.07.2015 (hereafter “the impugned award”) delivered by the sole arbitrator.
4. By the impugned award, a sum of USD 664,070 along with pre award and future interest at the rate of 12% per annum has been awarded in favour of respondent no.1 (hereafter “IGNOU”) and against Shri Sudhir Gopi (the petitioner) and UEIT (respondent No.2), jointly and severally.
5. The impugned award was rendered in the context of the disputes that had arisen in relation to an agreement dated 16.11.2005 as renewed by an agreement dated 01.05.2009 entered into between IGNOU and UEIT.
6. UEIT had also made an application under Section 34 of the Act challenging the impugned award (O.M.P. (COMM) 25/2016), which was rejected by this Court by an order dated 14.09.2016. The limited controversy involved in the present petition is whether the impugned award to the extent that it makes Mr. Sudhir Gopi jointly and severally liable along with UEIT for the amount awarded in favour of IGNOU, is sustainable considering that Mr. Sudhir Gopi was not a signatory to the agreement in question. UEIT is a limited liability company and it is Mr. Gopi's case that although he is the principal shareholder as well as the Chairman and Managing Director of UEIT, he is not personally liable for the contractual liability of UEIT. Further, that he is not a party to the arbitration agreement and, therefore, the impugned award inasmuch as it holds him liable, is without jurisdiction.
7. Briefly stated, the relevant facts necessary to address the aforesaid controversy are as under:-
7.1 IGNOU is a statutory university established under the Indira Gandhi National Open University Act, 1985. It is stated that IGNOU has developed educational programmes for distant learning, which are offered in over 35 countries across the globe.
7.2 UEIT is company incorporated under the applicable laws in Dubai, United Arab Emirates (UAE). UEIT and IGNOU agreed to collaborate for a distant educational project in Dubai, UAE. For the aforesaid purpose, IGNOU and UEIT entered into an agreement dated 16.11.2005 whereby UEIT agreed to act as a Partner Institute (PI) of IGNOU on the terms and conditions as indicated in the said agreement. Essentially, UEIT was to run a centre in Dubai for implementing IGNOU’s distant learning programme and enrol students in different programmes offered by IGNOU. UEIT was to advertise the programmes at its own cost and admit students conforming to the eligibility criteria as prescribed by IGNOU. In terms of the agreement, the parties thereto - that is, UEIT and IGNOU - agreed to share the fees collected from the students enrolled under the various programmes run by IGNOU. The initial term of the said agreement was for three years. However, IGNOU and UEIT entered into another agreement dated 01.05.2009 on similar terms, thus, effectively renewing the earlier agreement for a further period (The contract between the parties is hereafter referred to as “the Agreement”).
7.3 Disputes arose between the parties in connection with the Agreement. It is IGNOU’s case that it was entitled to receive its share of fee within a period of four weeks of the same being collected, which UEIT failed and neglected to remit. The invoices raised by IGNOU for the initial years were paid but invoices raised for admissions, re-admission and re-registration of students after July 2008 remained outstanding and only certain ad hoc payments were made.
7.4 UEIT has its own tale of woe. UEIT, inter alia, claimed that IGNOU had enrolled students from other in
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