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2003 DIGILAW 1240 (DEL)

RAM KISHAN v. FREEWAY MARKETING (INDIA) (P) LTD.

2003-12-11

MAHMOOD ALI KHAN

body2003
JUDGMENT MAHMOOD ALI KHAN, J. - This application is filed under section 34 of the Arbitration and Conciliation Act (for short the Act) for setting aside the award dated 31.10.2002 rendered by the sole arbitrator, Mr. Justice (Retd) K. Ramamoorthy so far as it is based on the finding on issue No. 6, that the respondent No. 2 is not liable to pay the awarded amount personally. The facts of the case may be stated as follows : 1.1 The respondent No. 1 is a company incorporated under the Indian Companies Act and respondent No. 2 is its President, Managing Director and CEO. Respondent No. 1 entered into an agreement, dated 7.5.1999, for having premises situated at Block A, House No. 1, Dr. Jha Road, Okhla, New Delhi, fitted. The said contract contained an arbitration clause for reference of the dispute which may arise between the parties. The petitioner executed the contract and certain disputes with regard to the payment of the running account bills and final bill submitted by the petitioner to the respondent have arisen. The respondent No. 1 did not have any assets in India, and it would have been impossible to recover money found due against it in the award passed against it. The petitioner, to safeguard its interest, filed a petition under section 9 of the Act bearing OMP No. 329/99 before this court. The court issued notice to the respondents and by an ex parte order, restrained respondent No. 2 from leaving the country during the pendency of that proceeding. With the consent of the parties this court referred the dispute between the parties to the arbitration of Mr. Justice (Retd) K. Ramamoorthy on 5.9.2001. The respondents had filed two applications bearing IA Nos. 12645/2000 and 58/2001 for recall of the interim ex parte restraint order passed against the respondents in the said proceeding. In the latter application, inter alia, it was stated that respondent No. 2 would make himself available after visiting his family and Mauritius, London, Hongkong and Singapore for business purpose. The petitioner conveyed its no objection provided the respondent No. 2 is permitted to travel abroad subject to securing the claim of the petitioner to the extent of Rs. 76,59,714. In the latter application, inter alia, it was stated that respondent No. 2 would make himself available after visiting his family and Mauritius, London, Hongkong and Singapore for business purpose. The petitioner conveyed its no objection provided the respondent No. 2 is permitted to travel abroad subject to securing the claim of the petitioner to the extent of Rs. 76,59,714. In reply, the respondent No. 2 offered to furnish surety of his mother that in case the respondent No. 2 failed to return to India within 30 days, she would make herself liable to the extent of the amount which would be finally found due from the respondents No. 1 and 2. With the consent of the parties, the court directed the property bearing No. 6, Nizamuddin East, New Delhi, which is owned by the mother of the respondent No. 2 be accepted as security to the extent of Rs. 76,00,000 and interest thereon; and that would be charged for the amount which was ultimately awarded by the arbitrator. The respondent No. 2 undertook to execute the necessary surety bonds, to the satisfaction of the Joint Registrar. Subject to furnishing of the surety bond the respondent No. 2 was allowed to go abroad, but before the Joint Registrar the mother of the respondent No. 2 resiled from her undertaking and declined to furnish the surety bond. As a result, the court clarified that the permission granted to the respondent No. 2 to go outside India was conditional. The respondent No. 2 thereafter filed another application for recalling the order, inter alia, stating that he was not a party to the agreement between the petitioner and the respondent No. 1 and could not be restrained from leaving the country and could not be held personally liable for the debts of the respondent No. 1 which had a distinct legal entity and he himself was not a necessary party to the petition. The petitioner traversed this claim of the respondent No. 2 and pleaded that the respondent No. 1 did not have any asset in India; respondent No. 2 was the only person in control and in-charge of the affairs of the respondent No. 1 company; respondent No. 2 owns 10 shares in the said company worth Rs. 100 and another 10 shares worth Rs. 100 were owned by his father. Shares numbering 2,02,375 of the value of Rs. 100 and another 10 shares worth Rs. 100 were owned by his father. Shares numbering 2,02,375 of the value of Rs. 20,23,750 in the respondent No. 1 company were owned by Broken Hill Holdings Ltd. which was a company incorporated in Mauritius and which is wholly and completely held by respondent No. 2 and further that the remaining 6,45,075 shares of the value of Rs. 64,50,750 in the said company were owned by Nikama Holdings Ltd. which is again a company incorporated in Mauritius and which is wholly and completely held by respondent No. 2. Respondent No. 2 had held out himself to be the same as the respondent No. 1 for all intents and purposes. Respondent No. 2 had also issued cheques towards payment of certain running account bills. The cheque was dishonoured and a criminal complaint under section 138 of the Negotiable Instruments Act was filed against both the respondents in which they have been granted bail. Notice under section 251 of the Cr PC has been framed and served on both the respondents. The appeal filed against the order of the Magistrate has since been dismissed by the Sessions Judge. The OMP was finally disposed of by order dated 1.11.2002 and the respondent No. 2 was restrained from leaving the country during the pendency of the arbitration proceeding. In the meantime, the arbitration proceedings before the sole arbitrator appointed by this court by order dated 5.9.2001 continued. The petitioner submitted various claims of money as detailed in paragraph 14 of the petition against the respondents. The respondent No. 2 raised counter claim before the arbitrator. During the pendency of the arbitration proceedings the petitioner realised that inadvertently, respondent No. 2 had not been made a party to the arbitration proceedings although he had given consent to the appointment of the arbitrator by this court. Accordingly, an application was filed for impleading him as respondent No. 2 which was allowed by the arbitrator. During the pendency of the arbitration proceedings the petitioner realised that inadvertently, respondent No. 2 had not been made a party to the arbitration proceedings although he had given consent to the appointment of the arbitrator by this court. Accordingly, an application was filed for impleading him as respondent No. 2 which was allowed by the arbitrator. In the application, it was alleged that respondent No. 1 is in the nature of sole proprietorship business of respondent No. 2, and he had given consent to the reference of the dispute to the arbitrator, and in the affidavit it filed before this court, he also undertook to make himself liable to the payment of the amount that may be found due against the respondent No. 1 company and imposed by the arbitrator in the award. Respondent No. 1 did not file reply to the amended statement of claim. The arbitrator framed six issues in which issue No. 6 is as under : Whether the second respondent is personally liable for the claims mentioned by the claimant in the claim petition ? During the hearing, the statement of respondent No. 2 was recorded in which he admitted that he was controlling the two Mauritian companies, Broken Hill Company and Nikama Holdings Company in which he and his family were beneficiaries, and those two companies had invested money in respondent No. 1. The arbitrator announced the award on 30.10.2002 holding that respondent No. 1 company was liable to pay the amount quantified in the award to the petitioner. It further held that respondent No. 2 was not personally liable to make the payment. The petitioner is aggrieved by this finding of the award and has assailed it in this application. The case of respondent No. 2, in short, is that it is the Director, President and CEO of respondent No. 1 company which has a distinct legal entity incorporated as a private limited company under the Indian Companies Act, 1956. According to respondent No. 2, out of the total subscribed shares of 8,44,770 in respondent No. 1 company, shares numbering 2,02,375 of the value of Rs. 20,23,750 were owned by Broken Hill Holdings Ltd., which is a company incorporated in Mauritius and the remaining shares numbering 6,45,075 of the value of Rs. 64,50,750 were owned by Nikama Holdings Ltd. which is also a company incorporated in Mauritius. 20,23,750 were owned by Broken Hill Holdings Ltd., which is a company incorporated in Mauritius and the remaining shares numbering 6,45,075 of the value of Rs. 64,50,750 were owned by Nikama Holdings Ltd. which is also a company incorporated in Mauritius. Both these Mauritian companies have separate and distinct legal entities. Respondent No. 2 held only 10 shares of the value of Rs. 100 in the Mauritian companies. It was emphatically denied that the two Mauritian companies were owned or controlled by respondent No. 2. The execution of the agreement between the petitioner and respondent No. 1 for having the said premises fitted is not denied. It is also admitted that clause 25 of Part A of section 3 of the said agreement contains the arbitration clause. It is admitted that the notice dated 30.9.2001 was served on respondent No. 1 only invoking the arbitration clause for nominating the arbitrator. Respondent No. 2 was neither a party to the agreement nor was the arbitration invoked against him. The facts relating to the petition filed under section 9 of the Act are not relevant. Respondent No. 2 has raised objection before this court as well as before the arbitrator that he was personally not liable for the debts of respondent No. 1 company. It was denied that respondent No. 1 did not have any assets in India. The short ground on which the award dated 31.10.2002 is challenged - is the finding of the arbitrator on issue No. 6 that respondent No. 2 is not personally liable for the debts of respondent No. 1. As per pleading in the petition, respondent No. 1 company was set up with the funds of respondent No. 2 through two companies incorporated in Mauritius which are admittedly controlled by him. The respondent No. 2 chose to limit his share held in respondent No. 1 company to a meagre Rs. 100 while choosing to invest his own money in the said company through two companies controlled by him, which were incorporated outside India, and this fact, showed that the purpose of incorporating respondent No. 1 company was with a view to defraud and defeat the claims of the creditors against the respondent No. 2 by seeking refuge behind the mask of corporateness of respondent No. 1. The intention was to defraud the creditors is also indicated by the fact that the respondent No. 1 company, admittedly, did not own any asset in India despite having ample funds invested by the Mauritian companies. The Supreme Court had held that when the legal entity is used to defeat the public convenience, justify public wrongs, protect fraud or defeat claim, the law with regard to the corporation is merely an association of persons and the lifting of the corporate veil so as to make the person or persons behind such company to be liable for the company's debts and wrongdoing. Award as much as it holds respondent No. 2 not to be personally liable is offending judicial conscience and is in conflict with the Public Policy of India so that the award to the said extent was liable to be set aside. Counsel for the petitioner had taken [us] through the various proceedings and orders passed by this court in the petition which were filed by the petitioner before reference was made by the sole arbitrator for adjudication. The said petition was filed with a prayer that respondent No. 2 be restrained from leaving India. The respondent contested the said petition. With the consent of the parties, he was allowed to visit Mauritius, U.K. and some other countries on his furnishing a surety of his mother for a sum of Rs. 76 lakhs. Respondent No. 2 did not avail of this order, and his mother declined to furnish the surety of her property situated in Nizamuddin East for securing the amount of the bond. Later, the court, with the consent of the parties, referred the dispute between the parties to the sole arbitrator. The petitioner submitted the statement of claims against the respondent No. 1 company for the money which was due against it under the running account bills and the final bills for the fittings provided on its premises under the agreement. Subsequently, on the application of the petitioner, respondent No. 2 was also made a party to the arbitration proceedings by the arbitrator. The case of the petitioner is that the two Mauritian companies : M/s. Broken Hill Company and M/s. Nikama Holdings Company were in the nature of proprietorship concerns of the respondent No. 2 and his family. They were controlled and owned by him, and they had invested money in the respondent No. 1. The case of the petitioner is that the two Mauritian companies : M/s. Broken Hill Company and M/s. Nikama Holdings Company were in the nature of proprietorship concerns of the respondent No. 2 and his family. They were controlled and owned by him, and they had invested money in the respondent No. 1. Respondent No. 1 did not own any asset. Respondent No. 2 is President and CEO of respondent No. 1 and is controlling the business of the respondent No. 1. Respondent No. 2 as such, for all practical purposes is the owner of respondent No. 1 which he had set up in order to defraud the creditors. For these reasons, it was stated that the corporate veil of the respondent No. 1 may be lifted in order to hold that respondent No. 1 is the cover company of respondent No. 2 who is personally liable to pay the debts owed by respondent No. 1 to the petitioner. The first and foremost argument of the counsel for the petitioner is that issue No. 6 framed by the sole arbitrator did not arise from the pleadings and it ought not to have been framed. The argument is devoid of any merit. The petitioner and respondent No. 1 had entered into an agreement for having the premises of respondent No. 1 fitted. Respondent No. 2 had signed it as its CEO and President of the respondent No. 1. The dispute between the parties was referred for arbitration by this court in the proceeding under section 9 of the Act with the consent of the parties. The dispute between the parties was about the payment of money by respondent No. 2 due under the various bills to the petitioner. The application was filed for restraining respondent No. 2 from leaving the country as the respondent No. 2 was the owner and controller of respondent No. 1 company through his two Mauritian companies; and as such, was liable to pay the debts of respondent No. 1 which were to be determined by the arbitrator. It is obvious that the reference was made of the claim of the petitioner against the respondent No. 1 company and respondent No. 2 which has arisen in execution of the agreement. The petitioner had submitted the statement of claim before the sole arbitrator initially against respondent No. 1 and against respondent No. 2 also subsequently. It is obvious that the reference was made of the claim of the petitioner against the respondent No. 1 company and respondent No. 2 which has arisen in execution of the agreement. The petitioner had submitted the statement of claim before the sole arbitrator initially against respondent No. 1 and against respondent No. 2 also subsequently. Indeed, the respondent No. 2 was not a party to the agreement and the arbitration agreement, contained therein; but since the dispute was referred with the consent of the parties to the petition under section 9 of the Act respondent No. 2 was also a party to arbitral reference. Though the relief claimed in the petition under section 9 of the Act was that the respondent No. 2 should be stopped from leaving the country; but the real dispute raised was that respondent No. 2 was personally liable to make the payment of the amount outstanding against respondent No. 1 under the agreement. Reference was made with the consent of the parties. The order of the court does not show that the parties had confined the reference only to the dispute which had arisen under the contract and not to the dispute which had also arisen under the petition under section 9 of the Act. The dispute raised in the petition under section 9 of the Act was obviously about the liability of respondent No. 2 for payment of the debts of the respondent No. 1 by respondent No. 2. The entire dispute as such was referred for arbitration. Evidently, the dispute between the petitioner and respondent No. 1 arose in execution of the contract, dated 7.5.1999, and the dispute between the petitioner and respondent No. 2 arose because of the contentions raised in the petition that the person behind the corporate veil of the respondent No. 1 was none other than respondent No. 2 and, therefore, he should be held personally liable to the liabilities of respondent No. 1. The relief which was claimed in the petition under section 9 of the Act flowed from a decision on this contention. In the order of the court, there is no mention that reference was only in regard to the dispute under the contract dated 7.5.1999, and not to the dispute which was raised in the petition. The relief which was claimed in the petition under section 9 of the Act flowed from a decision on this contention. In the order of the court, there is no mention that reference was only in regard to the dispute under the contract dated 7.5.1999, and not to the dispute which was raised in the petition. Respondent No. 1 contested the claim by filing reply, but respondent No. 2 did not file any reply but relied upon the reply of respondent No. 1. The parties consciously agreed to refer all the disputes to the sole arbitrator for decision. Therefore, it is now too late in a day for respondent No. 2 to contend that respondent No. 2 is not a party to the reference for the arbitration. He could not be heard saying that only the dispute between the petitioner and respondent No. 1 in relation to the agreement, dated 7.5.1999 was referred and the reference of the dispute between him and the petitioner is beyond the provision of the Act. Reference to section 7 which defines arbitration agreement, to my view, is not relevant, since the reference was made by this court with the consent of the parties which included the petitioner, respondent No. 1 and respondent No. 2. The first argument of respondent No. 2, therefore, failed. As such, the question whether respondent No. 2 was personally liable to make the payment of the amount which is found due against respondent No. 1 is one of the issues which arose before the arbitrator, and issue No. 6 was rightly framed by the arbitrator. The main thrust of the arguments of the learned counsel for the petitioner is that respondent No. 1 company did not own any assets in India; and in fact, it is the front company set up by respondent No. 2 through two Mauritian companies, Broken Hill Company and Nikama Holdings Company, which are owned and controlled by him and his family as per statement made by respondent No. 2 before the arbitrator in order to defraud the creditors, of respondent No. 1. For this reason, it is urged, the arbitrator ought to have torn the corporate veil of respondent No. 1 and found that respondent No. 2 actually owed the debts, which he was liable to pay to the petitioner. For this reason, it is urged, the arbitrator ought to have torn the corporate veil of respondent No. 1 and found that respondent No. 2 actually owed the debts, which he was liable to pay to the petitioner. It is submitted that since respondent No. 1 was incorporated by respondent No. 2 for defrauding the creditors, the finding of the arbitrator that respondent No. 2 is not personally liable to pay the debts, impinged on the Public Policy of India; therefore, the finding of the arbitrator could be challenged under section 34(2)(b)(ii) of the Act. Counsel for the petitioner has castigated the award on the ground that since the reference was made by the court in a proceeding under section 9 of the Act in which both the respondents were parties, and with the consent of the parties, the reference so far as it concerns respondent No. 2 is not outside the arbitration agreement and that in the amended statement of claim, clear allegations were made against respondent No. 2 as being the person behind the corporate veil of respondent No. 1 and he should be made personally liable to the debts incurred by respondent No. 1. The second contention is that respondent No. 2 did not file any reply to the statement of claim submitted on behalf of the petitioner, thereby he shall be deemed to have impliedly admitted the allegations made against him; therefore, issue No. 6 did not arise out of the pleadings and ought not to have been framed by the arbitrator. The arguments of the counsel for the respondents, on the other hand, are also two-fold. Firstly, respondent No. 1 company being a separate and independent legal entity from that of respondent No. 2 and it having entered into a contract with the petitioner which stipulated the adjudication of the dispute arising therein by arbitration, respondent No. 2 being not a party to the arbitration agreement reference could not have been made against him to the arbitrator. The second contention is that respondent No. 2 was only a CEO and President of respondent No. 1 company which has a separate legal entity, and which had entered into an agreement with the petitioner; and, therefore, respondent No. 2 cannot be held personally liable to the debts of respondent No. 1. The second contention is that respondent No. 2 was only a CEO and President of respondent No. 1 company which has a separate legal entity, and which had entered into an agreement with the petitioner; and, therefore, respondent No. 2 cannot be held personally liable to the debts of respondent No. 1. Further argument of the counsel for respondents is that respondent No. 2 owned only small number of shares in the Mauritian companies and the Mauritian company had promoted respondent No. 1 company and also invested the money in it. Respondent No. 2 was only President and CEO of respondent No. 1. The agreement between the parties which contained the arbitration agreement was executed between the petitioner and respondent No. 1. Respondent No. 2 issued a cheque in favour of the petitioner as authorised signatory of respondent No. 1. Respondent No. 2 as such, could not be held liable to pay the debts of respondent No. 1 personally. The core question is whether it is a case where the corporate veil of respondent No. 1 is to be lifted and it is found out as to who is the real player behind respondent No. 1 who should be held responsible for the liabilities incurred by respondent No. 1. It is not disputed that respondent No. 1 is a company incorporated under the Indian Companies Act and has a separate legal entity from its officers and shareholders. But the question remains to be answered is whether in the peculiar facts alleged by the petitioner, the arbitrator should have gone behind the curtain of corporateness of respondent No. 1 in order to find [out] the real persons who were working in the name of respondent No. 1 and making them personally liable to acts and omissions of respondent No. 1. Counsel for the petitioner has referred to the judgment of the Division Bench of this court in PNB Finance limited v. Shital Prasad Jain and otters AIR 1982 Del 125 : (1981) 19 DLT 368 (Del) in support of his argument. Counsel for the petitioner has referred to the judgment of the Division Bench of this court in PNB Finance limited v. Shital Prasad Jain and otters AIR 1982 Del 125 : (1981) 19 DLT 368 (Del) in support of his argument. The Division Bench has referred to the judgment of the Supreme Court in The Commissioner of Income-tax, Madras v. Sri Meenakshi Mills Limited, Madurai AIR 1967 SC 819 where it was observed as under : "It is well established that in a matter of this description, the Income-tax authorities are entitled to pierce the veil of the corporate entity and to look at the reality of the transaction. It is true that from the juristic point of view, the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But in certain exceptional cases the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation." 7.1 It also referred to another judgment of the Supreme Court in fuggilal Kamiapat v. Commissioner of Income-tax, U.P. (1969) 2 Comp LJ 188 (SC) : AIR 1969 SC 932 where it was held as under : "From a juristic point of view, the corporation may be a legal personality distinct from its members. But the court is entitled to lift the mask of corporate entity, if the conception is used for tax eviction, or to circumvent tax obligation, or to perpetrate the fraud." 7.2 The Division Bench also cited English case in Gilford Motor Company Limited v. Home (1933) Ch 935 where Home - a former employee of the plaintiff had covenanted not to solicit its customers. But he attempted to evade this obligation by forming a company which undertook the soliciting by carrying on parallel business for the sale of spare parts of Gilford vehicles. The plaintiff sought injunction against Home as well as the newly formed company on the ground that the latter was merely a creature of the former and he was committing breaches of the covenant by the agency of the defendant company. The plaintiff sought injunction against Home as well as the newly formed company on the ground that the latter was merely a creature of the former and he was committing breaches of the covenant by the agency of the defendant company. It was resisted that the company was not a party to the covenant. Lord Hanworth observed as under : "I have not any doubt on the evidence I have had before me that the defendant company was the channel through which the defendant Home was carrying on his business. Of course, in law, the defendant company is a separate entity from the defendant Home; but I cannot help feeling quite convinced that at any rate, one of the reasons for the creation of that company was the fear of Mr. Home that he might commit breaches of the covenant in carrying on the business, as, for instance, in sending out circulars as he was doing, and that he might possibly avoid that liability if he did it through the defendant company." 7.3 Court also referred to another English judgment in Jones v Lipman (1962) 1 WLR 832 where the first defendant attempted to avoid completing the sale of the house to the plaintiff by conveying it to a company which was defendant No. 2 formed for that purpose. In an action for specific performance of the contract, the court treated the company as a mere sham, and ordered both the defendant and his company specifically to perform the contract with the plaintiff. Russel, J., adverting to Gilford Motor v. Home (1933) All ER Rep 109 (CA), supra, observed as under : "Those comments on the relationship between the individual and the company apply even more forcibly (forcefully) to the present case. The defendant company is the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity. The Gilfords's case illustrates that an equitable remedy is rightly to be granted directly against the creature in such circumstances." 7.4 The Division Bench referred to Palmer's Company Law, vol. The Gilfords's case illustrates that an equitable remedy is rightly to be granted directly against the creature in such circumstances." 7.4 The Division Bench referred to Palmer's Company Law, vol. 1, 22nd Edition, at pages 160 to 162, on the question of lifting the veil behind the company as legal persona where it was stated that generally speaking, the courts are more inclined in appropriate circumstances to 'lift the veil' of corporateness where questions of control are in issue, than where a question of ownership arises. But certain instances have been stated in which the veil of corporateness was rifted. Some of them were as follows : 1. In certain matters pertaining to the law of taxes, death duties and stamps, particularly, where the question of the 'controlling interest is in issue. 2. The courts have further shown themselves willing to 'lift the veil' where the device of incorporation is used for some illegal or improper purpose. 7.5 It was observed by the Division Bench that the doctrine of piercing the corporate veil is not confined to cases of tax assessment only; and the court may invoke this doctrine wherever necessary in the interest of justice to prevent the corporate entity from being used as an instrument of fraud. It was held 'in other words, the fundamental principle of corporate personality itself may be disregarded having regard to the exigencies of the situation and for the ends of justice'. Counsel also cited the judgment of the Supreme Court in Oil and Natural Gas Corporation Limited v. Saw Pipes Ltd. (2003) 3 Comp LJ 1 (SC) : (2003) 5 SCC 705 where the Supreme Court succinctively [succinctly ?] elaborated the true scope of the phrase against Public Policy of India used in section 34(2)(b)(ii) of the Act in the following words : "Therefore, in our view, the phrase 'Public Policy of India' used in section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to be public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. What is for public good or in public interest or what would be injurious or harmful to be public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view, in addition to narrower meaning given to the term 'public policy' in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co. (1994) 1 Comp LJ 58 (SC)], it is required to be held that the award could be set aside, if it is patently illegal. The result would be - award could be set aside if it is contrary to : (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) in addition, if it is patently illegal." Counsel for the respondent, conversely, referred to the judgment of the Supreme Court in Sukalu Ram Gond v. State of M.P. and others (1994) 5 SCC 570 where it was held that the arbitrator cannot assume jurisdiction on the basis of either acquiescence of the parties or consent to the adjudication of the dispute without any reference. A person not a party to a reference but who participated in the award proceeding with objection and continued to participate in the proceedings under protest is not bound by the award as being without authority. He also referred to a decision of Company Law Board, Principal Bench at New Delhi in Bhadresh Kantilal Shah v. Magotteaux International (2000) 2 Comp LJ 323 (CLB) which to my mind, does not have any binding or persuasive value. Now I revert to the moot question as to whether the learned arbitrator in the peculiar facts and circumstances of the case, should have gone behind the mask of corporate veil worn by respondent No. 1 and found out as to who was the real person or persons who had dealt with the petitioner and incurred liability; and whether such a person [can ?] be made liable to pay the debt of respondent No. 1. It is noteworthy that respondent No. 1 was promoted and incorporated in India by two Mauritian companies M/s. Broke Hill Company and M/s. Nikam Holdings Company. It is noteworthy that respondent No. 1 was promoted and incorporated in India by two Mauritian companies M/s. Broke Hill Company and M/s. Nikam Holdings Company. Respondent No. 2 in the statement made before the arbitrator has unmistakably admitted that he is the owner and controller of those two Mauritian companies. He also admitted that he and his family were he beneficiaries of those companies. It is also not denied that investment in respondent No. 1 was made by those two Mauritian companies. In other words, it is clearly admitted by respondent No. 2 that respondent No. 1 was a company which in India was controlled and owned by him and his family. Indeed, respondent No. 2 and his father held small number of shares in the company, but the fact remains that respondent No. 2 made clear admission that he was controlling and owning those two Mauritian companies who in turn set up respondent No. 1 company in India. In other words, it was respondent No. 2 who was the owner and controller and beneficiary of respondent No. 1 company. It is not denied that respondent No. 1 did not own any assets or property in India. He is a non-resident Indian. He does not have his house in India. Even his family is not residing in India. Respondent No. 2 was President and CEO of respondent No. 1 company. The contract was entered into with the petitioner by respondent No. 1 through him. He knew about the financial capability of respondent No. 1 to honour the commitment made under the contract. He also knew that respondent No. 1 company had a legal entity of its own and normally, no liability incurred by it could be fastened on respondent No. 2 and its other directors or officers. Respondent No. 2 knew as to what would be the liability of respondent No, 1 under the contract dated 7.5.1999 and he also knew whether respondent No. 1 was in a position to discharge its liability or not. The petitioner at the time of the execution of the contract could not have asked the petitioner to furnish as security for due payment of it. It is surprising that respondent No. 1 company which had the investment made by the two Mauritian companies did not conduct any business and acquire assets in India. The petitioner at the time of the execution of the contract could not have asked the petitioner to furnish as security for due payment of it. It is surprising that respondent No. 1 company which had the investment made by the two Mauritian companies did not conduct any business and acquire assets in India. Being an NRI, it was easier for respondent No. 2 to pass on the buck to respondent No. 1 and walk away leaving the creditors of respondent No. 1 in lurch. Therefore, as contended by the petitioner, the learned arbitrator ought to have considered the submissions of the petitioner in regard to the tearing of the mask of the corporateness of respondent No. 1 and to look for the real person behind it. The contention of the petitioner was that respondent No. 1 company was incorporated in order to save respondent No. 2 from incurring any liability and being made personally liable for it. The purpose was to play fraud upon the creditors of respondent No. 1. Following the judgments cited above, the learned arbitrator, therefore, ought to have considered the liability of respondent No. 2 to discharge the debt of respondent No. 1 by going behind the veil of the corporate entity of respondent No. 1 and decide as to who was the person behind it who tried to play fraud upon the petitioner in order to dupe it of his outstanding bills against respondent No. 1, and run away to a place beyond the reach of the court and thereafter, decide whether the respondent No. 2 can be made liable to pay debt of respondent No. 1. The principles of law laid down in ONGC (2003) 3 Comp LJ 1 (SC)., supra, by the Supreme Court show [that] there is no escape from holding that the award, dated 10.10.2002 made and published by the sole arbitrator to the extent it held that respondent No. 2 is not personally liable for the amount due from respondent No. 1 is in violation of the Public Policy of India. The Public Policy of India is certainly not to help persons like respondent No. 2 to commit fraud upon the innocent clients and take refuge behind the corporate entity of respondent No. 1, when the question of discharging of libility comes up. The Public Policy of India is certainly not to help persons like respondent No. 2 to commit fraud upon the innocent clients and take refuge behind the corporate entity of respondent No. 1, when the question of discharging of libility comes up. For the reasons stated above, and in the light of the judgment of the Supreme Court in ONGC (2003) 3 Comp LJ 1 (SC), supra, it has to be held that the award, dated 30.10.2002 rendered by the sole arbitrator so far as it related to issue No. 6 is against the Public Policy of India and is unsustainable. Accordingly, it is set aside. In accordance with the provision of sub-section (4) of section 34 of the Act, the award is remitted back to the sole arbitrator for re-deciding the issue No. 6 afresh and pass appropriate award. The record of the arbitration proceedings shall be returned to the sole arbitrator. Parries shall appear before the sole arbitrator on 20.12.2003. Proceedings shall be conducted expeditiously. Matter be relisted before the court on 5.5.2004, after the award is made and published in the light of the above directions by the sole arbitrator.