Arbitrator cannot Lift Corporate Veil: Delhi HC

In the present case, there is no foundation that the corporate faзade of UEIT was used by Mr Sudhir Gopi to perpetuate a fraud. Mere failure of a corporate entity to meet its contractual obligations is no ground for piercing the corporate veil. Although the arbitral tribunal has mentioned in the passing that UEIT was used for improper purpose, however, there is no foundation for such observation. It was never IGNOU’s case that UEIT was set up or used to perpetuate a fraud on IGNOU and at any rate, no particulars – that are required to be pleaded to set up a case of fraud – to indicate that a fraud had been perpetuated were pleaded by IGNOU. Thus, the decision of the arbitral tribunal to pierce the corporate veil is fundamentally flawed. It falls foul of the fundamental policy of Indian law that recognises that a company is an independent juristic person.

Mr Mirza had earnestly contended that the alter ego doctrine would be applicable and the arbitral tribunal had proceeded on the basis of the said doctrine. This contention is bereft of any merit. The alter ego doctrine is conceptually no different from the concept of piercing of corporate veil. These doctrines are applied to disregard corporate personality only in cases where it is found that corporate form is being used to perpetuate a fraud, circumvent statute or for a wrongful purpose. The alter ego doctrine is essentially to prevent shareholders from misusing corporate laws by a device of a sham corporate entity for committing fraud.

In cases where it is established that an individual(s) and/or other entities have used a corporate form for a wrongful purpose; to perpetuate a fraud; circumvent a statute; or some other misdeeds, the Courts may decide to ignore the corporate personality and hold the directors, shareholders and/or officers (alter egos) responsible for the obligations of the corporate entity. However, as stated earlier, in the facts of the present case, there is no ground to disregard the corporate form of UEIT.