Recently, the Delhi High Court has held that all the members of a Joint Venture are jointly and severally liable to the third parties and there is no need to separately include individual members as a party before the Arbitral Tribunal in an Arbitration Petition against the Joint Venture. The High Court held that a Joint Venture is a quasi-partnership where two or more entities jointly undertake a particular transaction or contract for mutual profit.
The decision came in an Enforcement Petition1 filed by the ITD Cementation India Ltd. (i.e., Decree Holder) for enforcement of an Arbitral Award against a Joint Venture namely SSJV-ZVS Joint Venture. While in the Enforcement Petition one of the constituents (namely SSJV Projects Pvt. Ltd.) of the Joint Venture was impleaded as a Judgment Debtor before the Court, the said constituent was not impleaded as a separate Respondent before the Arbitral Tribunal and hence not put to a notice. Under these circumstances, the SSJV (i.e., constituent of the Joint Venture) filed an application seeking striking-off its name from the array of the parties. It was contended on behalf of the SSJV that since it was not impleaded as a Respondent before the Arbitral Tribunal and was a separate and distinct legal entity duly incorporated under law, the execution proceedings were not maintainable against it. The reliance was placed on a judgment of the Delhi High Court in Consulting Engineers Group Ltd. v. National Highways Authority of India2. The said judgment held that an individual member of a consortium/ Joint Venture cannot invoke arbitration or seek interim measures and it would be the Joint Venture alone which would have the authority to invoke the dispute resolution clause3. While on the contrary, the Decree Holder asserted that by virtue of being one of the constituents of the Joint Venture the SSJV was also liable towards the enforcement of the arbitral award.
Rejecting the argument of the SSJV, the High Court at the outset distinguished the judgment in Consulting Engineers (supra) by merely holding that the facts in the case ran contrary to the argument raised on behalf of the SSJV. The High Court referred with affirmation to the concept of a Joint Venture as explained in Corpus Juris Secundum. The Court accepted the definition of the term Joint Venture (sometimes used inter-changeably with Joint adventure) as defined in the aforesaid book as a special combination of two or more persons to carry on a single business enterprise for profit. The Court also explained the essential elements of the relationship between the parties and constituents of a Joint Venture would be:
- Common purpose
- Joint management and control
- Interest in, and contribution to, property or subject matter of enterprise
- Sharing of losses, profits and expenses
- Existence of relation in particular transactions
Thereafter, the High Court proceeded to deal with the subject of liability of Joint Ventures to third persons and parties. The Court noted that generally one member of a Joint Venture or enterprise is liable for the acts of another, and such liability is a vicarious one founded on the voluntary relationship that has arisen between the parties wholly from their contract. It is further held that the members of a Joint Venture are also liable on contracts with third parties which have been duly entered into on behalf and for the purposes of the Joint Venture and for debts arising out of such contracts. The Court also noted that the liability of Joint Ventures on a contract is Joint and several.
After examining the conspectus of law on Joint Venture as well as relevant extracts on the topic of Joint Venture from the Corpus Juris Secundum, the High Court held that the Joint Venture may be recognised as a quasi-partnership where two or more entities jointly undertake a particular transaction or contract for mutual profit. The Court further held that a Joint Venture is not strictly understood in law to be a legal person and by virtue of entering into a contract it binds itself to the various obligations that stands placed thereunder. Under the facts of the case, the High Court held that the contract was executed by the Joint Venture itself acting for and on behalf of all its constituents and therefore, the Decree Holder is entitled in law to proceed against the Joint Venture and its constituents jointly and severally. It was also held that the Decree Holder was not obliged to array the individual members of the Joint Venture as party Respondents to the Arbitration and as long as the Joint Venture itself was before the Arbitral Tribunal. The same was held to be sufficient for the purposes of adjudication of disputes between the parties. Since the individual members of a Joint Venture cannot escape from the liability which stands raised or arises from the Venture. Thus, Joint Venture and its members are jointly and severally liable.
Conclusion
The present decision of the High Court runs contrary to the proposition of law in its previous decision in Consulting Engineers (supra), where the High Court while refusing to allow one individual member of a Joint Venture to initiate the arbitration proceedings essentially recognised the joint venture to be a distinct legal entity. The Hon’ble Supreme Court in Gammon India Ltd. v. Commissioner of Customs, Mumbai4 has held that a Joint Venture itself is a legal entity and therefore, action by only one of the parties to the Joint Venture could not be construed as action on the part of the Joint Venture. As a natural corollary to the said principle of law, the Joint Venture being a different and separate legal entity from its members, the liability or debts of a Joint Venture cannot generally be construed to be the liability or debts of its members thereby holding them jointly and severally responsible to such liabilities or debts in contradiction to the doctrine of corporate veil.
Footnotes
1. Judgment dated 07.03.2023 in OMP (ENF) (COMM.) No. 188 of 2021
2. 2022 SCC OnLine Del 3253 : (2022) 295 DLT 263
3. The High Court in Consulting Engineers (supra) was dealing with a question whether the member/ constituent of a Joint Venture has an independent right to invoke arbitration proceedings or seek interim measures. The High Court, after referring to the terms of the contract held that a constituent of the Joint Venture does not have an independent right in its individual capacity to invoke the arbitration proceedings since it was not a party to the contract in its individual capacity and contract was executed between the Joint Venture on the one hand and the Respondent therein on other hand.
4. (2011) 12 SCC 499
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