Tdm Infrastructure Private Limited Vs. Ue Development
India Pvt. Ltd.
 INSC 931 (14 May 2008)
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION ARBITRATION APPLICATION NO. 2 OF 2008 TDM
Infrastructure Private Limited ...Petitioner Versus UE Development India
Private Limited ...Respondent ORDER
1. The parties hereto are
companies registered and incorporated under the Companies Act, 1956 (for short
"the Act"). Directors and shareholders of the petitioner - company,
however, are said to be residents of Malaysia. The Board of Directors of the
petitioner also sits at Malaysia.
2. A contract for rehabilitation
and upgrading was awarded to the respondent by the National Highway Authority
of India. Respondent 2 subcontracted a portion thereof to the petitioner by
three letters of awards dated 12.04.2002, 24.05.2002 and 29.08.2002.
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,
which read 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 or
re-enactment thereof that may be made from time to time 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."
3. Disputes and differences having
arisen between the parties, the said arbitration agreement was resorted to,
wherefor a notice dated 22.03.2007 was served by the petitioner through its
solicitors M/s. Shook Lin & Bok. A nominee was proposed. In response
thereto, the respondent herein through its solicitors M/s. Shearn Delamore &
Co. also 3 proposed its nominee by a letter dated 18.04.2007. Respondent,
however, proposed amendments to the original dispute resolution and arbitration
clause by suggesting change of venue of the arbitration to Kuala Lumpur,
Malaysia in stead and place of New Delhi and that the disputes be arbitrated in
terms of the Malaysian Law and the Malaysian Arbitration Act, 2005. The said
proposal of the respondent was rejected by the petitioner. Petitioner
thereafter proposed alternative nominee which was also rejected by the
respondent and in turn suggested its own nominee which was not acceptable to
4. By reason of this application
under Section 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996
(for short "the 1996 Act"), a prayer has been made for appointment of
a sole arbitrator to adjudicate upon the disputes and differences between the
parties arising out of or in relation to the aforementioned second and third
letters of award.
5. One of the contentions raised
by the respondent is that the petitioner - company being registered in India,
this Court has no jurisdiction to pass an order for appointing an arbitrator.
It was urged that the Company in law must be held to be situate in India
notwithstanding that the directors are foreign nationals as for all intent 4
and purport, the Company incorporated in India would always be controlled in
6. Mr. Sumeet Kachwah, learned
counsel appearing on behalf of the petitioner, would submit that in view of the
provisions 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 inasmuch as the term "central management" would mean that its
day to day management does not take place in India.
7. Drawing our attention to the
fact that the Indian Income Tax Act, 1961 contains a similar provision, it was
urged that the test which should be applied in a case of this nature is the
real business test as propounded by the House of Lords in De Beers Consolidated
Mines Limited v. Howe (Surveyor of Taxes) [(1906) AC 455] which has been
approved by this Court in V.V.R.N.M. Subbayya Chettiar v.
Commissioner of Income Tax, Madras
[1950 SCR 961] and McLeod and Company Ltd. v. State of Orissa and Others
[(1984) 1 SCC 434].
8. The terms
"nationality", "domicile" or "residents" must be
interpreted, Mr. Kachwah would submit, having regard to the text and context in
which they are used. Our attention in this behalf has been drawn to the
provisions of Section 1(4) of the English Arbitration Act, 1975 and Section 85
occurring in Part II of English Arbitration Act, 1996, which, however, has not
come into force.
9. Mr. Dhyan Chinappa, learned
counsel appearing on behalf of the respondent, on the other hand, would submit
that the interpretative tools for interpretation of the provisions of the 1996
Act and taxing statute are different.
It was urged that the jurisdiction
of this court must be determined having regard to the provisions contained in
Sections 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. v.
Bullock [1960 AC 351].
10. The 1996 Act was enacted to
consolidate and amend the law relating to domestic arbitration, international
commercial arbitration and enforcement of foreign arbitral awards as also to
define the law relating to conciliation and for matters connected therewith or
The preamble of the 1996 Act shows
that the Parliament of India intended to give effect to the rules framed by the
United Nations Commission on International Trade Law (UNCITRAL) known as
UNCITRAL Model Law on International Commercial Arbitration in 1985.
11. Before embarking on the
questions adverted to heretobefore, we may notice some provisions of the 1996
Sections 2(1)(a), 2(1)(b),
2(1)(f), 2(6), 2(7) and 2(8) of the 1996 Act read as under:
"2(1) In this Part, unless
the context otherwise requires,-- (a) "arbitration" means any
arbitration whether or not administered by permanent arbitral institution;
7 (b) "arbitration
agreement" means an agreement referred to in section 7;
(f) "international commercial
means an arbitration relating to
disputes arising out of legal relationships, whether contractual or not,
considered as commercial under the law in force in India and where at least one
of the parties is--
individual who is a national of, or habitually resident in, any country other
than India; or
corporate which is incorporated in any country other than India; or
a company or
an association or a body of individuals whose central management and control is
exercised in any country other than India; or
Government of a foreign country;
(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.
(8) Where this Part.-- 8 (a)
refers to the fact that the parties have agreed or that they may agree, or (b)
in any other way refers to an agreement of the parties, that agreement shall
include any arbitration rules referred to in that agreement."
Sections 11(1), 11(5) and 11(9)
read as under:
"11 - Appointment of
arbitrators (1) A person of any nationality may be an arbitrator, unless
otherwise agreed by the parties.
(5) Failing any agreement referred
to in sub-section (2), in an arbitration with a sole arbitrator, if the parties
fail to agree on the arbitrator within thirty days from receipt of a request by
one party from the other party to so agree the appointment shall be made, upon
request of a party, by the Chief Justice or any person or institution
designated by him.
(9) In the case of appointment of
sole or third arbitrator in an international commercial arbitration, the Chief
Justice of India or the person or institution designated by him may appoint an
arbitrator of a nationality other than the nationalities of the parties where
the parties belong to different nationalities."
9 Section 28 of the 1996 Act reads
"28 - Rules applicable to
substance of dispute (1) Where the place of arbitration is situate in India,--
(a) in an arbitration other than an international commercial arbitration, the
arbitral tribunal shall decide the dispute submitted to arbitration in
accordance with the substantive law for the time being in force in India;
(b) in international commercial
tribunal shall decided the dispute in accordance with the rules of law
designated by the parties as applicable to the substance of the dispute;
designation by the parties of the law or legal system of a given country shall
be construed, unless otherwise expressed, as directly referring to the
substantive law of that country and not to its conflict of laws rules;
designation of the law under clause (a) by the parties, the arbitral tribunal
shall apply the rules of law it considers to be appropriate given all the 10
circumstances surrounding the dispute.
(2) The arbitral tribunal shall
decide ex aequo et bono or as amiable compositeur only if the parties have
expressly authorised it to do so.
(3) In all cases, the arbitral
tribunal shall decide in accordance with the terms of the contract and shall
take into account the usages of the trade applicable to the transaction."
12. Whereas Part I of the 1996 Act
deals with domestic arbitration, Part II thereof deals with the Foreign Award.
The term "International
Commercial Arbitration" has a definite 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 registered in India, its central
management and control being exercised in Malaysia, it will come within the
purview of Clause (iii) of Section 2(1)(f) of the 1996 Act.
13. Whenever in an interpretation
clause, the word "means" is used the same must be given a restrictive
Arbitration" and "Domestic Arbitration" connote two different
things. The 1996 Act excludes domestic arbitration from the purview of
International Commercial Arbitration. The Company which is incorporated in a
country other than India is excluded from the said definition. 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 registered and incorporated under the Companies 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 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
12 A statute which provides for an
arbitration between the parties and a taxing statute must be interpreted
differently. The 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.
14. Part II of the 1996 Act deals
with enforcement of foreign awards.
The 1996 Act keeping in view the
scheme of the statute must be read in its entirety. It takes into consideration
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
Whether, thus, an agreement falls
within the purview of 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) of Section 2(1)(f). `Nationality' or
being 13 `habitually resident' in respect of a body corporate in any country
other than India should, in my view, receive a similar construction.
15. Determination of nationality
of the parties plays a crucial role in the matter of appointment of an
arbitrator. A company incorporated in India can only have Indian nationality
for the purpose of the Act. It cannot be said that a company incorporated in
India does not have an Indian nationality. Hence, where both parties have
Indian nationalities, then the arbitration between such parties cannot be said
to be an international commercial arbitration.
16. The learned counsel contends
that the word "or" being disjunctive, clause (iii) of Section 2(1)(f)
of the 1996 Act shall apply in a case where clause (ii) shall not apply. We do
not agree. The question of taking recourse to clause (iii) would come into play
only in a case where clause (ii) otherwise does not apply in its entirety and
not where by reason of an exclusion clause, consideration for construing an
agreement to be an international commercial arbitration agreement goes outside
the purview of its definition. Once it is held that both the companies are
incorporated in India, and, thus, they have been domiciled in India, the
arbitration agreement entered into by and between them would not be an 14
international commercial arbitration agreement and, thus, the question of
applicability of clause (iii) of Section 2(1)(f) would not arise.
The Chief Justice of India or his
designate, furthermore, having regard to Sub-section (9) of Section 11 of the
1996 Act must bear in 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
17. Only in a case where, however,
a body corporate which need not necessarily be a company registered and
incorporated under the Companies Act,
as for example, an association or a body of individuals, the exercise of
central management and control in any country other than India may have to be
taken into consideration.
18. Chapter VI of the 1996 Act
dealing with making of an arbitral award and termination of proceedings in this
behalf plays an important role. In respect of `international commercial
arbitration', clause (b) of Sub-section (1) of Section 28 of the 1996 Act would
apply, whereas in respect of any other dispute where the place of arbitration
is situated in India, clause (a) of Sub-section (1) thereof shall apply.
19. When, thus, both the companies
are incorporated in India, in my opinion, clause (ii) of Section 2(1)(f) will
apply and not the clause (iii) thereof.
20. Section 28 of the 1996 Act is imperative
in character in view of Section 2(6) thereof, which excludes the same from
those provisions which parties derogate from (if so provided by the Act). The
intention of the legislature appears to be clear that Indian nationals should
not be permitted to derogate from Indian law. This is part of the public policy
of the country.
21. Russell on Arbitration, 23rd
edition, page 357, in his commentary on English Arbitration Act, 1996, shows
that although a distinction has been made between a domestic and non-domestic
arbitration but the provisions relating to domestic arbitration had not been
brought into force.
22. Section 85 of the English
Arbitration Act, 1996 which provides for a modification of Part I in relation
to domestic arbitration agreement reads, thus:
16 "85. - Modification of
Part I in relation to domestic arbitration agreement.
case of a domestic arbitration agreement the provisions of Part I are modified
in accordance with the following sections.
purpose a "domestic arbitration agreement" means an arbitration agreement to
which none of the parties is - (a) an individual who is a national of, or
habitually resident in, a state other than the United Kingdom, or (b) a body
corporate which is incorporated in, or whose central control and management is
exercised in, a state other than the United Kingdom, and under which the seat of
the arbitration (if the seat has been designated or determined) is in the United
subsection (2)"arbitration agreement" and "seat of the arbitration" have the
same meaning as in Part I (see sections 3, 5(1) and 6)."
Sub-section (4) of Section 1 of
the English Arbitration Act, 1975 is also to the same effect.
23. It is of some significance to
notice that whereas the 1996 Act lays emphasis on one of the parties being
outside India; the English 17 Arbitration Act for the purpose of domestic
arbitration agreement excludes a body corporate which is incorporated and whose
central control or management is exercised in a State other than United
24. Thus, under the English
Arbitration Act, what is being 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
25. Reference to the provisions of
Indian Income Tax Act, 1961, in my opinion, is not apposite. Taxing statutes
are enacted for a different purpose. They provide for compulsory exaction.
Section 6 of the Income Tax Act clearly states the situation contemplated under
Clause (ii) of Sub-section (3) of Section 6 is only for the purpose of the said
It speaks about two contingencies,
viz., where the company is an Indian Company and control and management of
whose affairs may be situated wholly in India. The provision of the 1996 Act,
therefore, in my opinion, is not in pari materia with the provisions of the
Indian Income Tax Act.
26. Even in a case where taxing
statute applies, nationality or domicile of the assessee may have to be taken
27. The decisions which, thus,
have been relied upon by Mr. Kachwah are not applicable to the facts of the
28. An interpretation should
ensure certainty in determination of jurisdiction as to which court should a
disputant approach for appointment of an arbitrator under Section 11 of the
Act. Else, the question is always mooted as to whether a company is controlled
outside India or not and accordingly would have to be determined in each and
every case, if an objection is raised. The interpretation of the Act, as
suggested hereinbefore, would lead to determination of jurisdiction of either
the High Court or this Court with certainty.
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
definition of Patanjali Sastri J. (in the same case before the Madras High
Court) as follows:
"`Control and management'
signifies, in the present context, the controlling and directive power, `the
head and brain' as it is sometimes 19 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."
In that case, this Court, while
dealing with the definition contained in Section 4 of the Income Tax Act was
mainly concerned 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".
A difficulty in having a clear
definition of domicile has been noticed by this Court (albeit in a different
context) in Central 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
"That place is properly the
domicile of a person in which his habitation is fixed without any present
intention of removing therefrom."
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 20 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 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 wanderer 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 that 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
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 constitution 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 the board of directors and that
accordingly, if you found out that the board of a company habitually met in a
particular country, 21 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 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, the commissioners, if
the Court of Appeal were right as to the law, 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.
22 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
The domicile of a company being an
artificial person would depend upon the nature and purport of the statute. [See
McLeod and Company Ltd. (supra)].
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
personality. 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 23
nationality and the residence. Furthermore, there exists a dispute that all the
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.
29. For the reasons
aforementioned, I am of the opinion that this Court has no jurisdiction to
nominate an arbitrator. The application is dismissed with costs. Counsel's fee
assessed at Rs. 50,000/-.
[S.B. Sinha] New Delhi;