Limits on Arbitral Power to Pierce the Corporate Veil and Award Unliquidated Damages: Commentary on M/s Sugesan Transport Pvt Ltd v M/s E.C. Bose & Co Pvt Ltd, 2025 MHC 2699 (Madras High Court)

I. Introduction

The judgment of the Madras High Court in M/s. Sugesan Transport Pvt Ltd, rep. by its Director v. M/s. E.C. Bose and Company Pvt Ltd, 2025 MHC 2699, is a significant decision in Indian arbitration law. It clarifies three important doctrinal points:

The jurisdictional limits of an arbitral tribunal in piercing the corporate veil or applying the alter ego doctrine to bind non-signatory entities;
The status of a financing Memorandum of Understanding (MoU) as an independent financial agreement in light of prior findings of the NCLAT and the Supreme Court;
The strict requirements under Sections 73 and 74 of the Indian Contract Act, 1872, for awarding unliquidated damages in arbitration, and the prohibition on arbitrary “equitable” awards.

The case arises from a short-term financial assistance arrangement between the petitioner, M/s Sugesan Transport Pvt Ltd (Sugesan), and the respondent, M/s E.C. Bose & Company Pvt Ltd (ECBose), in connection with a work order issued by Kolkata Port Trust/Haldia Port Trust (KOPT/Haldia) for shore handling operations. A dispute emerged over repayment of margin money of Rs.2.50 crores and alleged losses following termination of the port contract and forfeiture of a performance bank guarantee of Rs.3.52 crores.

An arbitral tribunal passed an award directing:

ECBose to pay Sugesan Rs.2.50 crores without interest, and
Sugesan to pay ECBose Rs.3.52 crores plus heavy interest as damages on ECBose’s counter-claim.

Sugesan challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), primarily on:

The arbitral tribunal’s assumption of power to lift the corporate veil and treat a sister concern as Sugesan’s alter ego; and
Grant of substantial unliquidated damages to ECBose without adequate pleadings or proof, contrary to Sections 73 and 74 of the Contract Act.

Justice N. Anand Venkatesh partly allowed the Section 34 petition, substantially reshaping the award and laying down clear limits on arbitral powers.

II. Summary of the Judgment

1. Outcome

The High Court:

Set aside the portion of the arbitral award granting ECBose’s counter-claim of Rs.3.52 crores (with interest) as damages; and
Modified the award to direct ECBose (respondent) to:

Pay Rs.2,50,00,000/- to Sugesan (petitioner) with interest at 12% per annum from 11.12.2015 (date of MoU) till date of actual payment.

2. Core Holdings

No power in arbitral tribunals to lift the corporate veil or apply alter ego to bind non-signatories The Arbitrator exceeded jurisdiction by treating M/s Collate Consultants Pvt Ltd — a separate company that had its own MoUs with ECBose — as the “sister concern/alter ego” of Sugesan, and then imputing Collate’s putative obligation to supply equipment as a contractual duty of Sugesan under the MoU dated 11.12.2015. The Court held, relying on Sudhir Gopi v IGNOU (Delhi High Court), that:
- The arbitral tribunal’s jurisdiction flows strictly from the arbitration agreement under Section 7 of the Arbitration Act;
- It cannot extend to non-signatories by piercing the corporate veil or using alter ego concepts; this is a power reserved to courts; and
- The Arbitrator’s approach violated Section 34(2)(b)(ii) (public policy) and Section 34(2A) (patent illegality) of the Arbitration Act.
The MoU dated 11.12.2015 is an independent, standalone financial agreement The National Company Law Appellate Tribunal (NCLAT), in the insolvency proceedings, had already held that the MoU of 11.12.2015 was a pure financial arrangement (loan/margin money) and a stand-alone agreement de hors other aspects. The Supreme Court, in Civil Appeal No. 2914 of 2020 (judgment dated 27.02.2023), affirmed the NCLAT’s view. The High Court held that:
- The Arbitrator was bound by that finding and could not re-characterise the MoU as inseparable from the shore-handling performance contract;
- The MoU did not impose any contractual obligation on Sugesan to supply equipment to ECBose; and
- Hence, Sugesan could not be held guilty of breach of the MoU for alleged non-supply of equipment.
Unliquidated damages cannot be awarded without pleadings and proof under Section 73 Contract Act ECBose had only a broad, speculative counter-claim (Rs.75 crores) alleging “loss of earning opportunity”; the Arbitrator himself found it uncertain and inadequately supported. Nevertheless, the Arbitrator awarded Rs.3.52 crores as damages, equating it to the encashed performance bank guarantee. The High Court held:
- Mere breach (even if assumed) is not actionable per se; damages require proof of loss which:
  - arises naturally from the breach, or
  - is within the contemplation of parties (Hadley v Baxendale rule, reflected in Section 73);
- ECBose had not pleaded or proved actual loss traceable to Sugesan’s alleged breach;
- The Arbitrator’s use of the forfeited bank guarantee amount as a proxy for damages was arbitrary, without a pleaded basis, and risked double recovery (since ECBose had already initiated independent arbitration against KOPT over the same encashment); and
- The tribunal cannot award damages merely because a sum “feels just” or equitable; it must be grounded in the contract and evidence.
Interest must be awarded on the financial debt Having held that the MoU is a financial arrangement and that Sugesan is entitled to refund of Rs.2.50 crores, the Court held that Sugesan is also entitled to interest at 12% p.a. from the date of the MoU. The Arbitrator’s refusal to grant any interest was interfered with as legally unsustainable.
Court’s power to modify an award under Section 34 – severability Relying on the Supreme Court’s decision in Gayatri Balasamy v ISG Novasoft Technologies Ltd, the Court held:
- The invalid portion of the award (ECBose’s counter-claim and associated interest) was severable from the valid portion (Sugesan’s principal claim);
- Hence, the Court could modify the award by excising the invalid portion and retaining/reshaping the rest, instead of setting aside the entire award or remitting it.

III. Factual and Contractual Background

1. Port Contract and Need for Bank Guarantee

Kolkata Port Trust / Haldia Port Trust issued a Letter of Intent (LOI) dated 09.10.2015 to ECBose for shore handling operations at Berths 2 and 8. Under the tender, ECBose was required to furnish a performance bank guarantee (PBG) of Rs.3.52 crores within 30 days.

ECBose lacked sufficient funds to provide margin money for the PBG and therefore approached Sugesan for financial assistance. It was also asserted (by ECBose) that there was an understanding to execute the work together and share profits and losses.

2. MoU Dated 11.12.2015 – The Core Arbitration Agreement

On 11.12.2015, Sugesan and ECBose executed a Memorandum of Understanding whereby:

Sugesan agreed to advance Rs.2.50 crores to ECBose to be used as margin money to secure the PBG for Rs.3.52 crores;
ECBose undertook to repay Rs.2.50 crores within 30 days, but in any event not later than 89 days from the MoU (Clause 1.5);
ECBose gave collateral in the form of:
- a promissory note; and
- a post-dated cheque;
The parties contemplated forming a Special Purpose Vehicle (SPV) “alliance” to execute the port work and to route future jobs through it.

Importantly, the original MoU (Ex.C.1) does not expressly impose any obligation on Sugesan to supply equipment or machinery. The key immediate obligation was financial: advance of Rs.2.5 crores by Sugesan and its timely return by ECBose.

3. Collate Consultants MoUs and Equipment Supply

Subsequently, a third entity, M/s Collate Consultants Pvt Ltd, entered into two separate MoUs with ECBose dated:

09.01.2016; and
09.02.2016 (part of Ex.C.19 series).

These Collate–ECBose MoUs related to:

mobilisation and supply of equipment and machinery necessary for executing the port contract; and
included their own arbitration clauses (Clause 4.6 and 7.6 respectively).

The Arbitrator noted that:

The same individual signed for Sugesan (in Ex.C.1) and for Collate (in Ex.C.19 series); and
The same witnesses signed both documents.

On this basis, the Arbitrator concluded that Collate was a sister concern or alter ego of Sugesan and that failure of Collate to supply equipment equated to a breach by Sugesan of the MoU dated 11.12.2015.

When equipment was allegedly not supplied/commissioned within the time required by KOPT, the port contract was terminated by letter dated 10.02.2016 and the PBG of Rs.3.52 crores was forfeited.

4. Arbitral Proceedings and Award

Sugesan invoked arbitration under Clause 3.6 of the MoU and claimed:

Rs.2.50 crores (the financial assistance); and
Interest at 24% per annum.

ECBose filed a defence and a counter-claim of Rs.75 crores (with 24% interest), alleging:

The parties had agreed to execute the port contract together and share profits and losses;
Sugesan failed to provide the required equipment, causing termination of the work order and forfeiture of the PBG; and
ECBose thereby lost significant earning opportunities (Rs.69.75 crores) and suffered damages.

The Arbitrator framed five issues, including:

Whether the bank guarantee clause of the MoU formed an independent short-term financial agreement, de hors the rest of the MoU;
Whether Sugesan was entitled to Rs.2.50 crores (with interest);
Whether Sugesan/ECBose committed material breach of the MoU;
Whether breach of the MoU caused termination of the port contract; and
Whether ECBose was entitled to its counter-claim.

The arbitral award (01.12.2020) held broadly:

Sugesan was entitled to Rs.2.50 crores, but without interest;
ECBose’s counter-claim was partly allowed:
- Damages of Rs.3.52 crores (the PBG amount) plus 18% interest from 10.02.2016 till date of award; and
- Post-award interest at 12% p.a. on the aggregated sum, if not paid within 3 months.

Effectively, netting out both directions, the Arbitrator cast a substantial net liability on Sugesan.

IV. Detailed Analysis of the High Court’s Reasoning

A. Precedents and Authorities Cited

1. Sudhir Gopi v. Indira Gandhi National Open University, 2017 SCC OnLine Del 8345

This Delhi High Court judgment is central to the present case. The Court in Sudhir Gopi held:

Arbitration is founded on consent. An arbitral tribunal’s jurisdiction is confined to the parties to the arbitration agreement under Section 7 of the Arbitration Act.
An arbitration agreement must be in writing and is established by:
- a signed document; or
- exchange of communications; or
- pleadings in which existence of an arbitration agreement is asserted by one party and not denied by the other.
Where a person is not a party to the arbitration agreement, an arbitral tribunal cannot, by itself, extend its jurisdiction to that person by:
- piercing the corporate veil, or
- applying the alter ego doctrine.
The judgment distinguishes two broad legal bases for binding non-signatories:
- Implied consent (third-party beneficiaries, assignment, guarantors, etc.); and
- Disregard of corporate personality (agency, alter ego, group of companies, etc.).
Crucially, it emphasises that courts, not arbitral tribunals, may in appropriate cases compel a non-signatory to arbitrate by lifting the corporate veil or applying alter ego. An arbitrator, being a creature of the arbitration agreement, lacks such autonomous power.

Justice Venkatesh adopts this reasoning almost verbatim. He concludes:

“The Arbitral Tribunal certainly does not have the jurisdiction to lift the corporate veil since its jurisdiction is confined by the arbitration agreement.”

2. Chloro Controls India Pvt Ltd v. Severn Trent Water Purification Inc., (2013) 1 SCC 641

Cited through excerpts in Sudhir Gopi, Chloro Controls is the Supreme Court’s leading authority on binding non-signatories to arbitration. It recognises:

Theories of implied consent (third-party beneficiaries, assignment, guarantors); and
Doctrines such as agency, alter ego, group of companies, and estoppel, which may justify binding non-signatories.

However, Chloro Controls is primarily about the jurisdiction of courts (under Sections 8 and 45 of the Arbitration Act) to refer parties to arbitration, not about arbitral tribunals unilaterally expanding their own jurisdiction. The Madras High Court, following Sudhir Gopi, underscores this distinction: even if doctrines like alter ego are recognised in Indian law, the entity competent to apply them to non-signatories in the arbitration context is the court, not the tribunal.

3. NCLAT and Supreme Court decisions on the MoU’s character

In the corporate insolvency resolution process (CIRP) of ECBose before NCLT/NCLAT, a key question was whether Sugesan’s claim under the MoU was a financial debt. The NCLAT, New Delhi, held that:

The relationship between Sugesan and ECBose under the MoU dated 11.12.2015 was a standalone financial arrangement — in effect, a loan/margin funding;
This MoU was separate from (and not inextricably intertwined with) the shore-handling contract with KOPT or any equipment supply arrangements.

The Supreme Court, by judgment dated 27.02.2023 in Civil Appeal No. 2914 of 2020, affirmed the NCLAT order and directed the parties to work out their rights in arbitration, thereby cementing the MoU’s character as an independent financial transaction.

Madras High Court notes that the Arbitrator failed to fully internalise this binding characterization, and insists that:

“In view of this decision… this Court has to reiterate the finding that the MoU dated 11.12.2015 constituted an independent financial arrangement between the parties de hors the other terms of the MoU.”

4. M/s Prime Store v. Sugam Vanijya Holdings Pvt Ltd, Arb.O.P.(Com.Div.) Nos.257 of 2021 & 209 of 2022 (Madras HC, 08.10.2025)

Justice Venkatesh refers extensively to his own earlier decision in Prime Store for the law on damages under Sections 73 and 74 of the Contract Act. That decision (extracts reproduced in this judgment) summarises:

Section 73 governs unliquidated damages:
- Compensation is payable only for “loss or damage caused” by breach;
- Such loss must arise naturally in the usual course of things, or as was in the contemplation of both parties at the time of contracting (Hadley v Baxendale test);
- “Mere breach” is not actionable per se; there must be a breach plus legal injury (loss).
Section 74 governs cases where:
- A sum is named in the contract as payable in case of breach (liquidated damages); or
- A stipulation by way of penalty is included.
In either case, the court may award “reasonable compensation” up to the ceiling amount, but Section 74 does not waive the requirement of legal injury; it only relaxes the requirement of strict proof of actual loss in some situations.

Prime Store draws on classic authorities:

Hadley v Baxendale (1853) 156 ER 145 – foreseeability and remoteness of damages;
Fateh Chand v Balkishan Dass, AIR 1963 SC 1405 – leading case on Section 74; and
Kailash Nath Associates v DDA, (2015) 4 SCC 136 – modern restatement that even under Section 74, some legal injury must be shown.

Madras High Court here uses Prime Store as the doctrinal backbone for rejecting ECBose’s unsubstantiated damages claim.

5. Gayatri Balasamy v. ISG Novasoft Technologies Ltd.

The Court relies on the Supreme Court’s decision in Gayatri Balasamy for the proposition that:

A court under Section 34 of the Arbitration Act is not confined to either upholding an award in toto or setting it aside in toto;
Where an award is divisible and the invalid portion is severable from the valid portion, the court may:
- sever and nullify the offending part; and
- modify the remaining award to the extent necessary to give effect to the lawful adjudication.

On this basis, Justice Venkatesh treats the counter-claim portion as severable from the principal claim and proceeds to modify the award accordingly.

B. Legal Reasoning: Step-by-Step

1. Scope of the Arbitrator’s Jurisdiction and Non-Signatories

The central jurisdictional issue was whether the Arbitrator could treat Collate Consultants Pvt Ltd as the alter ego of Sugesan and then fasten on Sugesan the obligations to supply equipment under Collate–ECBose MoUs.

Key points in the Court’s reasoning:

Arbitration agreement defines arbitral jurisdiction Under Section 7 of the Arbitration Act, the arbitration agreement:
- Is the source of the tribunal’s authority; and
- Defines who is a “party” to the arbitration (Section 2(1)(h)).
Here, the relevant arbitration agreement was contained in the MoU dated 11.12.2015 (Ex.C.1) between only two signatories: Sugesan and ECBose. Collate was not a party.
Separate MoUs with Collate have separate arbitration clauses The Collate–ECBose MoUs (09.01.2016 and 09.02.2016) contained their own arbitration clause. Any dispute regarding equipment supply under those MoUs was, in principle, arbitrable between ECBose and Collate, not between ECBose and Sugesan.
Arbitrator cannot pierce corporate veil or apply alter ego to a non-signatory Even if Collate was a sister concern or closely controlled by the same persons behind Sugesan:
- That does not automatically make Sugesan legally bound by Collate’s obligations;
- As per Sudhir Gopi, an arbitral tribunal has no power to:
  - disregard corporate personality;
  - pierce the corporate veil; or
  - apply alter ego,
  to draw in non-signatories.
Justice Venkatesh expressly states:
“An Arbitrator will not have the power to pierce the corporate veil so as to bind another entity, which was not a party to the agreement… This exercise can never be done by the Arbitral Tribunal, which is a creature under an agreement with a limited jurisdiction…”
Result under Section 34 Because the Arbitrator used alter ego and veil-piercing to impose Collate’s failures on Sugesan:
- He exceeded the scope of his jurisdiction under the arbitration agreement; and
- This constituted a “patent illegality” on the face of the award and was contrary to India’s public policy (Section 34(2)(b)(ii)).

2. Characterisation of the MoU as an Independent Financial Transaction

The Arbitrator had taken the view that:

The financial assistance (margin money for the PBG) could not be separated from the overall commercial arrangement of performing the port contract; and
Thus, the MoU could not be treated as a stand-alone financial agreement.

However:

NCLAT had already held that the Sugesan–ECBose MoU was an independent financial arrangement — a loan-type transaction; and
The Supreme Court, in Civil Appeal No. 2914 of 2020, affirmed that conclusion.

The High Court holds that the Arbitrator’s view must give way to these binding determinations:

The MoU is a short-term financial agreement relating to Rs.2.50 crores, repayable within a fixed time;
The references in the MoU to forming an SPV and working together in future do not, in the absence of clear contractual clauses, convert this into a mixed obligations contract imposing an immediate equipment-supply duty on Sugesan;
Therefore, the contention that Sugesan breached the MoU by not supplying equipment is misconceived.

Accordingly, the Court states that the MoU:

“constituted an independent financial arrangement between the parties de hors the other terms of the MoU.”

3. Consequence: No Breach of MoU by Sugesan

Since:

The MoU did not contain an obligation on Sugesan to supply equipment; and
The Arbitrator’s attribution of Collate’s obligations to Sugesan was invalid;

it follows that:

Sugesan did not commit breach of the MoU dated 11.12.2015; and
ECBose’s case of damages for breach collapses at the foundational level.

The Court thus holds:

“the petitioner cannot be mulcted with breach of the MoU dated 11.12. [2015] since it did not contemplate the supply of equipment by the petitioner.”

4. Damages for Breach: Application of Sections 73 and 74 Contract Act

Even assuming arguendo a breach by Sugesan, the Court finds that the Counter-Claim fails independently because it does not satisfy the legal requirements for damages:

Absence of proper pleadings and evidence ECBose pleaded, in only a vague manner (paragraph 18 of its statement of defence), that it lost earning opportunities amounting to Rs.69.75 crores and hence sought Rs.75 crores. The Arbitrator himself found the counter-claim to be within the realm of uncertainty. Yet he awarded Rs.3.52 crores as damages — not because ECBose proved that particular quantum of loss, but simply by choosing the amount of the forfeited PBG as an arbitrary measure.
No liquidated damages clause – Section 74 inapplicable The MoU did not contain any clause stipulating a sum payable in case of breach. Thus:
- Section 74 (liquidated damages/penalty) does not come into play; and
- The case must be tested squarely under Section 73 (unliquidated damages).
Section 73: breach without loss is not actionable Following Prime Store and authorities like Hadley v Baxendale and Kailash Nath:
- A mere breach is not actionable unless accompanied by loss or damage caused to the aggrieved party;
- The loss must arise naturally or be within the parties’ contemplation at the time of contract;
- ECBose neither pleaded nor proved specific, quantifiable loss caused by Sugesan’s conduct.
Arbitrary use of PBG amount as damages Awarding Rs.3.52 crores (the PBG amount) as damages is flawed because:
- This amount includes Rs.2.50 crores of Sugesan’s own money (margin for the PBG) which ECBose must in any event repay;
- ECBose had already initiated separate arbitration against KOPT regarding alleged illegal encashment of the PBG, raising the risk of double recovery;
- There was no causal analysis showing that but for Sugesan’s conduct, the PBG would not have been forfeited by KOPT.
The Court states emphatically:
“The Arbitral Tribunal cannot award an amount, which it may think just to a party in the interest of justice. There must be a basis for fixing the quantum of damages subject to the party properly pleading and proving the claim.”

Therefore, even apart from the jurisdictional error, ECBose’s counter-claim for damages fails substantively for lack of legal and evidentiary foundation under Section 73.

5. Entitlement to Interest on Rs.2.50 Crores

Once the Court holds that:

The MoU is a short-term financing arrangement; and
ECBose is bound to repay Rs.2.50 crores to Sugesan;

it follows logically that interest must be awarded. Otherwise, the financing party would be deprived of the time value of money despite the borrower’s default.

The Court therefore:

Rejects the Arbitrator’s decision to deny interest as unsustainable; and
Fixes interest at 12% per annum from 11.12.2015 till actual payment.

Although the initial claim was for 24% p.a., the Court exercises discretion to award a moderate rate (12%), consistent with principles of reasonableness under Section 31(7) of the Arbitration Act and general commercial norms.

6. Modification of the Award under Section 34 – Severability

Armed with the Supreme Court’s ruling in Gayatri Balasamy, the Court examines whether the invalid portions of the award are severable from the valid ones. It concludes that:

The award on Sugesan’s principal claim for Rs.2.50 crores (but wrongly without interest) is a valid and independent part of the award; and
The award allowing ECBose’s counter-claim and its related interest components is legally unsustainable and severable.

Hence the Court does not remand the matter or set aside the award in its entirety. Instead, it:

Strikes down the counter-claim award (Rs.3.52 crores + interest); and
Modifies the award to direct ECBose to pay Sugesan:
- Rs.2.50 crores; plus
- Interest at 12% per annum from 11.12.2015 till the date of actual payment.

V. Complex Concepts Simplified

1. Arbitration Agreement and Non-Signatories

An arbitration agreement is a written agreement by which parties agree to resolve disputes through arbitration instead of courts. Only parties who have consented to this agreement can normally be made subject to arbitration. A non-signatory is someone who did not sign or clearly assent to the arbitration clause. Courts can, in some narrow situations, bind non-signatories (for example, when they clearly intended to be bound), but an arbitral tribunal itself cannot unilaterally do so beyond the parties before it.

2. Corporate Veil and Alter Ego Doctrine

Corporate veil refers to the legal separation between a company and its shareholders or other related companies. The company is an independent legal “person.”
Piercing the corporate veil or applying the alter ego doctrine means disregarding this separateness and holding controlling individuals or related entities responsible for the company’s acts or obligations, usually when the corporate form is being abused for fraud or wrongdoing.

In the arbitration context, the Madras High Court makes clear that only courts may exercise this exceptional power to bind non-signatories to arbitration. Arbitrators, whose jurisdiction is created and limited by the contract, may not expand their own authority in this way.

3. Special Purpose Vehicle (SPV)

An SPV is a separate legal entity (often a company) created to undertake a specific project or set of transactions. In consortium or joint venture arrangements, parties sometimes agree to form an SPV to carry out the project, pool resources, and share profits/losses. Here, the MoU contemplated creation of an SPV between Sugesan and ECBose for performing the shore-handling contract, but the SPV was not in fact formed and the MoU’s immediate obligation remained the short-term financing.

4. Performance Bank Guarantee (PBG)

A Performance Bank Guarantee is a promise by a bank to pay the beneficiary (e.g., KOPT) a specified sum if the contractor (here, ECBose) fails to perform its contractual obligations. To obtain the PBG, the contractor deposits margin money with the bank — in this case, Rs.2.50 crores provided by Sugesan, enabling a PBG of Rs.3.52 crores.

5. Unliquidated vs Liquidated Damages

Unliquidated damages (Section 73) – where the contract does not specify a fixed sum payable on breach. The injured party must plead and prove:
- that a breach occurred; and
- the nature and quantum of loss caused by such breach.
Liquidated damages / penalty (Section 74) – where the contract does specify a sum payable on breach, or a penal stipulation. The court/arbitrator may award “reasonable compensation” up to that sum, but still requires that:
- some legal injury or loss exists; Section 74 does not allow windfall gains without injury.

In this case, because the MoU did not contain any liquidated-damages clause, ECBose’s claim was one of unliquidated damages under Section 73, requiring full proof of loss — which it failed to supply.

6. CIRP and Effect of NCLAT/SC Findings

CIRP (Corporate Insolvency Resolution Process) is a process under the Insolvency and Bankruptcy Code (IBC) where creditors seek resolution of a corporate debtor’s insolvency. NCLT/NCLAT determine, among other things, whether a creditor’s claim is a “financial debt.” Here, NCLAT and the Supreme Court decided that Sugesan’s claim under the MoU was a financial debt, solidifying its character as a loan-like financial transaction. The Arbitrator could not later re-characterise the same MoU as an indivisible performance contract.

VI. Impact and Broader Significance

1. Clear Limits on Arbitral Jurisdiction over Non-Signatories

By adopting the reasoning in Sudhir Gopi, the Madras High Court firmly holds that:

Arbitrators cannot pierce the corporate veil or invoke alter ego to add non-signatories or bind separate companies; and
Such jurisdictional expansions, if needed, must be effected by courts (e.g., under Sections 8, 11, 45, etc.).

This will have practical consequences in multi-entity commercial structures, especially where:

Projects are executed through SPVs or multiple group entities;
Different entities sign different but related contracts (as here, with Collate’s MoUs).

Parties can no longer assume that an arbitral tribunal will simply “see through” the corporate structure to bind the desired entity. Contract drafting will need to be more precise to ensure that all intended participants are signatories to the relevant arbitration clause.

2. Reinforcement of Contractual Characterisation from Insolvency Forums

The judgment underscores that when NCLAT (and then the Supreme Court) characterises a particular transaction as a financial debt or as a distinct type of contract, those findings are highly persuasive — if not binding — in subsequent arbitration between the same parties about the same MoU.

This enhances the inter-relationship between insolvency adjudication and arbitration, cautioning arbitrators to give due weight to prior determinations by specialised tribunals and appellate courts.

3. Stricter Discipline in Awarding Damages in Arbitration

The decision sends a strong message to arbitral tribunals:

They cannot award unliquidated damages based on intuition or perceived fairness alone;
The claimant must:
- plead specific heads of loss,
- link them causally to the alleged breach, and
- adduce some evidence of quantum (or at least of a rational method to estimate such quantum);
Tribunals cannot:
- pick an arbitrary figure (e.g., encashed PBG) without legal reasoning; or
- compensate a party for losses already being pursued in separate proceedings.

This strengthens the fidelity of arbitral awards to the statutory framework of Sections 73 and 74 of the Contract Act and reduces the risk of “equity-based” awards being struck down for patent illegality.

4. Confirmation of Courts’ Power to Modify, Not Just Set Aside, Awards

By applying Gayatri Balasamy to modify (rather than completely set aside) the award, the Court:

Avoids wasteful re-arbitration on issues already correctly decided (Sugesan’s principal claim);
Ensures speedy and final resolution; and
Reaffirms that Indian courts under Section 34 have a flexible toolbox:
- set aside,
- partially set aside,
- sever, or
- modify,
depending on the severability of the award’s components.

5. Commercial Takeaways for Parties and Draftspersons

Draft clearly who bears which obligation: If the financier is not meant to supply equipment, the contract should avoid ambiguous language linking financing and execution responsibilities.
Ensure key entities are signatories to the arbitration clause: Where a sister concern is intended to supply equipment or take on critical obligations, consider making it a co-signatory with a direct arbitration obligation.
Plead damages with particularity: In arbitration, always:
- specify heads of loss;
- show how they flow from the alleged breach; and
- provide at least some evidentiary basis and calculation methodology.
Beware of parallel claims: If compensation is sought against one party (e.g., KOPT) for a forfeited guarantee, do not expect a tribunal to also award the same sum as damages against another party (e.g., a financier) without exposing the award to Section 34 challenge.

VII. Conclusion

The Madras High Court’s decision in M/s Sugesan Transport Pvt Ltd v M/s E.C. Bose & Co Pvt Ltd is a carefully reasoned and doctrinally significant judgment in Indian arbitration law. It crystallises three important propositions:

Arbitral tribunals cannot pierce the corporate veil or apply alter ego to bind non-signatories. Their jurisdiction is circumscribed by the arbitration agreement and the parties thereto. The power to disregard corporate personality in order to extend arbitration to non-signatories lies with the courts, not with arbitrators.
A financing MoU can be a stand-alone financial agreement even if embedded in a broader commercial relationship. Once the NCLAT and Supreme Court classified the MoU as a financial arrangement (financial debt), the Arbitrator was bound to treat it as such and could not recast it as an inseparable part of an equipment-supply and execution arrangement.
Damages in arbitration must comply with Sections 73 and 74 of the Contract Act. Mere breach is not actionable without proof of resulting loss. Unliquidated damages cannot be awarded arbitrarily; tribunals must rely on pleadings, evidence, and established legal tests of causation and foreseeability. Section 74 does not permit “penalty-like” windfalls without legal injury.

By severing and nullifying the flawed counter-claim portion and at the same time enhancing the principal award with appropriate interest, the Court achieves a balanced, legally coherent outcome. The judgment will serve as an important guidepost for:

arbitrators, in understanding the limits of their jurisdiction and the rigour required in awarding damages;
courts, in exercising Section 34 powers to modify and partially set aside awards; and
commercial parties and lawyers, in structuring multi-party, multi-contract transactions and arbitration clauses with greater precision.

In sum, Sugesan Transport is a notable precedent ensuring that arbitration in India remains both party-autonomous and firmly anchored in the statutory framework of contractual and corporate law.