10-min, GMR Energy Ltd v. Doosan Power Systems India Provate Limited and Ors

GMR Energy Ltd v. Doosan Power Systems India Provate Limited and Ors

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GMR Energy Limited v. Doosan Power Systems India Private Limited & Ors.

CITATION2017 SCC OnLine Del 11625.

CORAM– Ms Justicr Mukta Gupta.

FACTS-

  •   GMR Chhattisgarh (“GCEL”) and Doosan India (“Doosan”) entered into 3 EPC contracts in 2010 (“EPC Contracts”) which provided for SIAC arbitrations in Singapore.
  • GMR Infrastructure Ltd. (“GIL”) furnished a corporate guarantee to Doosan, on behalf of GCEL in 2013 (“Corporate Guarantee”) containing an arbitration clause (SIAC administered, in Singapore).
  • Two MOUs were executed between Doosan and GMR Energy (“GE”) in 2015 where GE agreed to repay Doosan in instalments for GCEL’s liability under the EPC contracts. 
  • The MOUs did not contain arbitration clauses and were terminated before commencing arbitration.
  • Doosan invoked SIAC arbitration under the EPC contracts and the Corporate Guarantee making GCEL and GIL parties. 
  • Doosan sought GE’s joinder based on the MOUs and theories of joinder of non-parties including alter ego, group companies’ doctrine, and common directors, seeking repayment jointly and severally from GCEL, GIL and GE. 
  • In response, GE filed a suit seeking a permanent injunction against Doosan from continuing arbitration since GE was not a party to the arbitration agreement in the EPC Contracts and the Corporate Guarantee. 
  • The Court stayed the constitution of the SIAC tribunal. Doosan sought vacation of this order and applied under the Arbitration and Conciliation Act, 1996 (“AA”) to compel GE to participate in the arbitration.
  • In this hearing, GE’s motion for injunction and Doosan’s motion for vacation and arbitral reference were heard together and decided.

ISSUE

  • Impleading GMR Energy in the Arbitration Proceedings.
  • Applicability of Part II of the Act to Arbitration Proceedings.

JUDGEMENT

  • Delhi HC held that the Arbitration Proceedings would fall under Part II of the Act
  • The Delhi HC affirmed the finding of the Supreme Court of India (“Supreme Court”) in Atlas Exports Industries v. Kotak &Co,[ 1999 (7) SCC 61] wherein the Supreme Court had to determine whether the fact of two Indian parties having a foreign seated arbitration would be opposed to public policy under Section 23 read with Section 28 of the Contract Act. 
  • The Supreme Court answered in affirmative, meaning that there is no prohibition for two Indian parties to opt for a foreign seat of arbitration.
  • The Madhya Pradesh High Court also affirmed the ruling in Sasan Power Limited v. North American Coal Corporation (India) (P) Ltd,[2015 SCCOnline M.P. 741]  which had relied on Atlas Exports to reach the same conclusion.
  • The Delhi HC also dismissed GMR Energy’s contention that the decision in Atlas Exports is under the 1940 Arbitration Act, hence not applicable under the Act. 
  • On this issue, reliance was placed on the Supreme Court’s decision in Fuerst Day Lawson v. Jindal Exports Ltd,[ 2011 (8) SCC 333 ] wherein it was held that the new statute is more favourable to international arbitration than its previous incarnation.

Applicability of Part II of the Act to the Arbitration Proceedings:

  • The EPC Agreements, as well as the Corporate Guarantee, prescribe: (a) governing law of the contract as Indian law; (b) the arbitration shall be conducted in Singapore, and (c) the arbitration shall be as per SIAC Rules.
  •  It was contended that since the relationship between GCEL, GIL and Doosan India is domestic, and hence all parties being Indian, Part I of the Act would apply in view of the recent amendment to Section 2 (1) (f) (iii) of the Act. 
  • As the arbitration is between two Indian parties, it cannot be termed as international commercial arbitration and Indian substantive law cannot be derogated from by and between two Indian parties as held in Bharat Aluminium Company and Ors v. Kaiser Aluminium Technical Service, Inc and Ors.[2012 (9) SCC 552].
  • Since two Indians cannot contract out of the law of India and the Act is substantive law, exclusion of Part I of the Act which Doosan India seeks to do would be hit by Section 28 of the Contract Act.
  • Part II of the Act would not apply merely because the place of arbitration is out of India. Once the arbitration is between two Indian parties, it ceases to be an “international commercial arbitration”, and therefore automatically ceases to be “considered as commercial under the law enforced in India” which is the principal condition for defining “a foreign award” under Section 44 of the Act. Accordingly, Section 45 Application is not maintainable.

 

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