Dispute between two Indian-incorporated companies over appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. Petitioner claimed international commercial arbitration status via Malaysian control. Court held incorporation determines nationality, dismissed for want of jurisdiction.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
(2008] 8 S.C.R 775
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TDM INFRASTRUCTURE PRIVATE LIMITED
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UE DEVELOPMENT INDIA PRIVATE LIMITED (Arbitration Application No. 2 of 2008)
MAY 14, 2008
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[5.8. SINHA,J]
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ARBITRATION AND CONCILIATION ACT, 1996:
ss. 2(1)(f)(iii), 11(5),(a) and 28 - International Commercial Arbitration - Connotation of - Appointment of arbitrator - c Both parties to arbitration agreement registered under Indian Companies Act - HELD: A company incorporated in India can only have Indian nationality for purpose of the Act- Once both the Companies are incorporated in India and, thus, have been domiciled in India, arbitration agreement entered into by and D between the parties would not be an international commercial arbitration agreement and question of applicability of clause (iii) of s. 2(1 )(f) would not arise - In the instant case, Supreme Court. has no jurisdiction to appoint arbitrator - UNCITRAL Model Law on International Commercial Arbitration (1985). E
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INTERPRETATION OF STATUTES."
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Determination of jurisdiction - HELD: An interpretation should ensure certainty in determination of jurisdiction as to which court should a disputant approach for appointment of F an arbitrator u/s 11 of 1996 Act - In a matter involving determination of jurisdiction of a court, certainty must prevail which cannot be determined by entering into a disputed question of fact - Arbitration and Conciliation Act, 1996 - s. 11.
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V VR.N.M. Subbayya Chettiar v. Commissioner of Income Tax, Madras 1950 SCR 961; and McLeod and Com- pany Ltd. v. State of Orissa and Others (1984) 1 SCC 434 - held inapplicable.
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A Subbayya Chettiar v. IT Commissioner, Madras AIR 1951 SC 101; and Central Bank of India Ltd. v. Ram Narain AIR 1955 SC 36...: referred to.
De Beers Consolidated Mines Limited v. Howe (Surveyor Bof Taxes)(1906)AC455;_UnitConstruction_Co.Ltd.v.Bui- lock 1960 AC 35'1 - referred to.
Russell on Arbitration, 23rd edition, page 357- referred to.
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ORl.GINAL CIVIL JURISDICTION: Arbitration Petition No. 2 of 2008
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Sumeef Kachwah, Ashok Sagar, Dharmendra, Anuradha Sharma and Meenaks1i Aron for the Appellant.
Dhyan Chinappa and Gaurav Agrawal for the Respondent.
The following Order of the Court was delivered
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However, for the purpose of present petition, we are concerned with the second and third letters of award. The parties entered into those contracts containing an arbitration clause, Gwhichread as under:
"If the parties fail to settle the question, dispute or difference through negotiations, the same shall be referred to Arbitration as per the provisions of the Indian Arbitration Act, 1940 and the rules made thereunder and any statutory modifications H or re-enactment thereof that may be made from time to time
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TOM INFRASTRUCTURE PVT LTD. v. UE DEVELOPMENT INDIA PVT. LTD.
777
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and actually in force at the time of reference. The cost of arbitration shall be borne by the parties in the ratio to be agreed upon by the parties. The venue of the Arbitration shall be New Delhi. The language to be used in the arbitration proceedings shall be English."
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A behalf.ofthe petitioner, would submit thafin view of the provi" sions contained in Section 2(1 )(f) read with Section 11(6) of the 1996 Act, this Court alone has.the jurisdiction to appoint an arbitrator as the central management and control of the petitioner company is exercised in Malaysia inasmuchas the term "cen8 tral manag~nient" would mean that its day to day management does not take place in India. · ·
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It was urged that the jurisdiction of this court must be determined having regard to the provisions contained in Sections G 2(6), 11 (9) and 28 of the 1996 Act.
It was furthermore submitted that the English Courts, even in respect of a taxing statute, have deviated from its earlier stand · as would appear from a decision in Unit Construction Co. Ltd. H v. Bullock [1960 AC 351).
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A (iv) the Government of a foreign country;
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(6) Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue.
(7) An arbitral award made under this Part shall be considered domestic award.
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Sections 11(1), 11(5) and 11(9) read as under:
"11 - Appointment of arbitrators
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Section 28 of the 1996 Act reads as under:
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TOM INFRASTRUCTURE PVT LTD. v. UE DEVELOPMENT INDIA PVT. LTD.
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The term "International Commercial Arbitration" has a defi-
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A nite connotation. It inter alia means a body corporate which is incorporated in any country other than India. However, according to the petitioner, it is a company whose central management and control is exercised in any country other than India and, thus, despite the fact that the company is incorporated and 8registeredin India,itscentralmanagement andcontrolbeing exercised in Malaysia, it will come within the purview of Clause (iii) of Section 2(1 )(f) of the 1996 Act.
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"International Commercial Arbitration" and "Domestic Arbitration" connote two different things. The 1996 Act excludes domestic arbitration from the purview of International CommercialArbitration. The Company which is incorporated in a counDtryother thanIndiaisexcludedfromthesaiddefinition.The same cannot be included again on the premise that its central management and control is exercised in any country other than India. Although clause (iii) of Section 2(1 )(f) of the 1996 Act talks of a company which would ordinarily include a company Eregisteredandincorporated under theCompanies Act but the same also includes an association or a body of individuals which may also be a foreign company. Sub-section (6) of Section 2 of the 1996 Act leaves the parties free to determine certain issues. That freedom shall include the right of the parties to authorize any person including an institution, to determine the F same. Thus, in a case of this nature, the court shall not interpret the words in such a manner which would be opposed to the intention of the parties.
A statute which provides for an arbitration between the Gparties and a taxing statute must be interpreted differently.T~e term "International Commercial Arbitration" even does not find place in the UNCITRAL Model Law. It finds place only in the English Arbitration Act which has also not been given effect to.
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TOM INFRASTRUCTURE PVT LTD. v. UE 783 DEVELOPMENT INDIA PVT. LTD.
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statute must be read in its entirety. It takes into consideration A various situations. Power of this Court to appoint an arbitrator would arise in view of Sub-section (12) of Section 11 of the 1996 Act only if it is to be held that the dispute has arisen in relation to an international commercial arbitration.
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Whether, thus, an agreement falls within the purview ofB Section 2(1)(f) of the 1996 Act is the core question. Section 2(1)(f) speaks of legal relationship whether commercial or otherwise under the law in force in India. The relationship has to be between an individual who is a national of or habitually resident in any country other than India as specified in Clause (i) ofc Section 2(1 )(f). 'Nationality' or being 'habitually resident' in respect of a body corporate in any country other than India should, in my view, receive a similar construction.
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A Section 2(1)(f) would not arise.
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The Chief Justice of India or his designate, furthermore, having regard to_Sub-section (9) of Section 11 of the 1996 Act must bearin mind the nationality of an arbitrator. The nationality of the arbitrator may have to be kept in mind having regard to the nationality of the respective parties.
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TOM INFRASTRUCTURE PVT LTD. v. UE DEVELOPMENT INDIA PVT. LTD.
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"85. - Modification of Part I in relation to domestic arbitration agreement.
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Sub-section (4) of Section 1 of the English Arbitration Act, 1975 is also to the same effect.
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A considered is domestic arbitration agreement where a body corporate is incorporated in a State other than United Kingdom; whereas under the 1996 Act only a body corporate which is only incorporated in a State outside India shall be included within the meaning of the international commercial arbitration.
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In Subbayya Chettiar v. IT Commissioner, Madras [AIR 1951 SC 101), this Court, while dealing with the issue of Hindu Undivided Family and the residence of the family endorsed the Hdefinition of PatanjaliSastriJ.(inthesamecasebeforethe
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TDM INFRASTRUCTURE PVT LTD. v. UE
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DEVELOPMENT INDIA PVT. LTD.
Madras High Court) as follows:
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'"Control and management' signifies, in the present context, the controlling and directive power, 'the head and brain' as it is sometimes called, and 'situated' implies the functioning of such power at a particular place with some degree of permanence, while 'wholly' would seem to recognize the possibility of the seat of such power being divided between two distinct and separated places."
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In that case, this Court, while dealing with the definition contained in Section 4 of the Income Tax Act was mainly con- c cerned with a Hindu Undivided Family and not a Company. Furthermore, in the findings of Patanjali Sastri, J., there is a direct reference to "some degree of permanence".
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A difficulty in having a clear definition of domicile has been noticed by this Court (albeit in a different context) in Central D Bank of India Ltd. v. Ram Narain [AIR 1955 SC 36] stating:
"Writers on Private International Law are agreed that it is impossible to lay down an absolute definition of "domicile". The simplest definition of this expression has been given by Chitty, J. in Craignish v. Craignish wherein the learned Judge said:
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' "That place is properly the domicile of a person in which his habitation is fixed without any present intention of removing therefrom."
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But even this definition is not an absolute one. The truth is that the term "domicil" lends itself to illustrations but not to definition. Be that as it may, two constituent elements that are necessary by English law for the existence of domicil are: ( 1) a residence of a particular kind, and (2) an intention of a particular kind. There must be the factum and there must be the animus. The residence need not be continuous but it must be indefinite, not purely fleeting. The intention must be a present intention to reside for ever in the country where the residence has been taken up. It is also a well
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established proposition that a person may have no home but he cannot be without a domicil and the law may attribute to him a domicil in a country where in reality he has not. A person may be a vagrant as when he lives in a yacht or w-;nderer from one European hotel to another, but nevertheless the law will arbitrarily ascribe to him a domicil in one particular territory. In order to make the rule th.at nobody can be without a domicil effective, the law assigns what is called a domicil of origin to every person at his birth. This prevails until a new domicil has been acquired, so that if a person leaves the country of his origin with an undoubted intention of never returning to it again, nevetheless his domicil of origin adheres to him until he actually settles with the requisite intention in some other country."
D In Unit Construction Co. Ltd. (supra) on a question as to whether subsidiary companies of a holding company based in South Africa would be deemed to be domiciled in England, it was held:
"My Lords, I do not read the reference to the ordinary conE stitution of a limited liability company as evidencing an intention to make any addition to the test indicated by Lord Loreburn in the De Beers case. I think that all Sir Raymond Evershed was saying was that, in almost every case, the articles of association of a limited company vest the control of the company in F the board of directors and that accordingly, if you found out that the board of a company habitually met in a particular country, you would thus settle the residence of that company. He plainly had not in mind a case such as the present, where it would appear that the board of directors appointed under the articles G did not meet at all during the period relevant to the assessments now in. question, nor was he expressing any opinion as to what the right conclusion would be, if, for instance, the control was vested not in the board but in managing agents. It seems to me that, in the circumstances disclosed in the Case Stated, th~ H commissioners, if the Court of Appeal were right as to the iovt(
789
TOM INFRASTRUCTURE PVT LTD. v. UE DEVELOPMENT INDIA PVT. LTD .
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might, but for the admission made by the appellant company, have been compelled to find that the African subsidiaries had no residence anywhere. Moreover, it may well be asked what the position would have been had the business of each of the African companies been conducted by their duly appointed boards but, in disregard of the articles, all the board meetings had been held in London and all instructions had been issued from London. Logically, if the Court of Appeal were right, these meetings should be disregarded and the African subsidiaries could not be held to be resident in England, but counsel for the Crown shrank from carrying his argument to this logical conclusion. Counsel for the Crown suggested that, unless the application of Lord Loreburns principle was made in accordance with the Court of Appeals interpretation of it in the present case, the consequences would be disastrous and companies could vary their liability by moving control to and fro. My Lords, so they could, even on the Court of Appeals view, if they amended the relevant articles (not a very difficult process in the case of a hundred per cent subsidiary). Moreover the adoption of the interpretation of the law laid down by the Court of Appeal could lead to the strange consequences which I have already indicated. My Lords, I do not think that adherence to the test laid down by Lord Loreburn and to the application thereof which, as I think, has hitherto been adopted namely, that the question where the central control actually abides is a question of fact for the decision of the commissioners will lead to any disastrous consequences. The facts of the case before your Lordships are most unusual. It is surely exceptional for a parent company to usurp the control; it usually operates through the boards of the subsidiary companies, and had the commissioners found in the present case that that was what had in substance happened, it may well be that your Lordships could not have disturbed that finding. But they have found to the contrary, and, as I have already said, it seems to me that there was evidence justifying their conclusion."
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The domicile of a company being an artificial person would '
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In the said decision itself, however, it is noticed that the nationality of a company is determined by the law of the country in which it is incorporated and from which it derives its persons ality. However, for the purpose of taxation, test of residence may not be registration but where the company does its real business and where the central management and control exists. A distinction, thus, exists in law between a nationality and the residence. Furthermore, there exists a dispute that all the C Board meetings take place only in Malaysia. In a matter involving determination of jurisdiction of a court, certainty must prevail which cannot be determined by entering into a dispute question of fact.
R.P.
Application dismissed.
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2 issues framed by the court
Whether an agreement between two companies both incorporated in India is an 'international commercial arbitration' under Section 2(1)(f)(iii) because central management and control of one lies abroad.
Whether the Supreme Court has jurisdiction under Section 11 of the 1996 Act to appoint the arbitrator.
Colour shows how this judgement treated each authority
De Beers Consolidated Mines Limited v. Howe (Surveyor of Taxes)Referred¶7
(1906) AC 455
V.R.N.M. Subbayya Chettiar v. Commissioner of Income Tax, MadrasDistinguished¶27
1950 SCR 961 · Who else cites this
McLeod and Company Ltd. v. State of Orissa and OthersDistinguished¶27
(1984) 1 SCC 434 · Who else cites this
Subbayya Chettiar v. IT Commissioner, MadrasReferred¶28
AIR 1951 SC 101 · Who else cites this
Central Bank of India Ltd. v. Ram NarainReferred¶28
AIR 1955 SC 36 · Who else cites this
Unit Construction Co. Ltd. v. BullockReferred¶8
1960 AC 351
5 provisions across 1 enactments
TDM Infrastructure Private Limited
UE Development India Private Limited
S.B. Sinha
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
