TDM INFRASTRUCTURE PRIVATE LIMITED v. UE DEVELOPMENT INDIA PRIVATE LIMITED

D The following Order of the Court was delivered \

1. The parties hereto are companies registered and in- ..,... corporated under the Companies Act, 1956 (for short "the Act"). Directors and shareholders of the petitioner - company, how- ever, are said to be residents of Malaysia. The Board of Direc- E tors 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 subcontracted a portion thereof to the petitioner by three letters of awards dated 12.04.2002, 24.05.2002 and ,,.._ F 29.08.2002. ' However, for the purpose of present petition, we are con- cerned 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 differ- __..., I • ence through negotiations, the same shall be referred to Arbi- tration 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

p. 777 Copy page pinpoint

DEVELOPMENT INDIA PVT. LTD.

and actually in force at the time of reference. The cost of arbi- A tration 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, where- for 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 Mis. Shearn Delamare & Co. also 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 arbitra- tion to Kuala Lumpur, Malaysia in stead and place of New Delhi and that the disputes be arbitrated in terms of the Malaysian D Law and the Malaysian Arbitration Act, 2005. The said pro- posal of the respondent was rejected by the petitioner. Peti- tioner thereafter proposed alternative nominee which was also rejected by the respondent and in turn suggested its own nomi- nee which was not acceptable to the petitioner. E

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 --l. I arbitrator to adjudicate upon the disputes and differences be- tween the parties arising out of or in relation to the aforemen- F tioned 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. G 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 and purport, the Company incorporated in India would always be controlled in India.

6. Mr. Sumeet Kachwah, learned counsel appearing on H

p. 778 Copy page pinpoint

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 ar- bitrator as the central management and control of the petitioner company is exercised in Malaysia inasmuchas the term "cen- 8 tral manag~nient" 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 testwhich should be applied in a case of this nature is the real C business test as propounded by the House of Lords iri De Beers · Consolidated Mines Limited y. Howe (Surveyor of Taxes). ((1906) AC455] which has been approv1ed by this Court in II. 11.R.NM. Subbayya Chettiar v. Commissioner of Income Tax, Madras [1950 SCR 961] and McLeod and Company Ltd. D 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 E 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 ).._

F 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 de- termined 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).

p. 780 Copy page pinpoint

A (iv) the 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. B (7) An arbitral award made under this Part shall be considered domestic award. ' """' (8) Where this Part.-

c (a) refers to the fact that the partie~s 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." D Sections 11(1), 11(5) and 11(9) read as under: "·t- "11 - Appointment of arbitrators (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. E (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 )._ ·, F to so agree the appointment shall be made, upon request of a party, by the Chie~f 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 G Justice of India or the person or institution designated A. by him may appoint an arbitrator of a nationality other ' than the nationalities of the parties where the parties belong to different nationalities." Section 28 of the 1996 Act reads as under: H

p. 781 Copy page pinpoint

DEVELOPMENT INDIA PVT. LTD. -t' "28 - Rules applicable to substance of dispute A (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 B accordance with the substantive law for the time being in force in India; .,. (b) in international commercial arbitration- (i) the arbitral tribunal shall decided the dispute in c accordance with the rules of law designated by the parties as applicable to the substance of the dispute; (ii) any designation by the parties of the law or l legal system of a given country shall be D ~ construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules; (iii) failing any designation of the law under clause E (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute . . _._ ( (2) The arbitral tribunal shall decide ex aequo et bona or F 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 G ,,.. to the transaction." I

12Copy pinpoint12. 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 defi- H

p. 782 Copy page pinpoint

A nite connotation. It inter alia means a body corporate which is incorporated in any country other than India. However, accord- ing to the petitioner, it is a company whose central manage- ment and control is exercised in any country other than India and, thus, despite the fact that the company is incorporated and 8 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. • '"'I'

13Copy pinpoint13. Whenever in an interpretation clause, the word "means" is used the same must be given a restrictive meaning. c "International Commercial Arbitration" and "Domestic Ar- bitration" connote two different things. The 1996 Act excludes domestic arbitration from the purview of International Commer- cialArbitration. The Company which is incorporated in a coun- try other than India is excluded from the said definition. The D same cannot be included again on the premise that its central management and control is exercised in any country other than " -t-·

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 E 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 is- sues. That freedom shall include the right of the parties to au- thorize 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 parties and a taxing statute must be interpreted differently. T~e G term "International Commercial Arbitration" even does not find ~ I place in the UNCITRAL Model Law. It finds place only in the English Arbitration Act which has also not been given effect to.

14Copy pinpoint14. Part II of the 1996 Act deals with enforcement of for- H eign awards. The 1996 Act keeping in view the scheme of the

p. 783 Copy page pinpoint

DEVELOPMENT INDIA PVT. LTD.

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. Whether, thus, an agreement falls within the purview of B , Section 2(1)(f) of the 1996 Act is the core question. Section ~ 2(1)(f) speaks of legal relationship whether commercial or oth- erwise under the law in force in India. The relationship has to be between an individual who is a national of or habitually resi- dent in any country other than India as specified in Clause (i) of c Section 2(1 )(f). 'Nationality' or being 'habitually resident' in re- spect of a body corporate in any country other than India should, in my view, receive a similar construction.

15Copy pinpoint15. Determination of nationality of the parties plays a cru- D .I- cial role in the matter of appointment of an arbitrator. A com- pany incorporated in India can only have Indian nationality for the purpose of the Act. It cannot be said that a company incor- porated in India does not have an Indian nationality. Hence, where both parties have Indian nationalities, then the arbitra- tion between such parties cannot be said to be an international commercial arbitration.

16Copy pinpoint16. 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 in- ternational commercial arbitration agreement goes outside the G >- purview of its definition. Once it is held that both the companies i are incorporated in India, and, thus, they have been domiciled in India, the arbitration agreement entered irito by and between them would not be an international commercial arbitration agree- ment and, thus, the question of applicability of clause (iii) of H

p. 784 Copy page pinpoint

r A 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 bearin mind the nationality of an arbitrator. The national- ity of the arbitrator may have to be kept in mind having regard to B the nationality of the respective parties. I

17Copy pinpoint17. Only in a case where, however, a body corporate which ~ need not necessarily be a company registered and incorpo~ rated under the Companies Act, as for example, an associa- ',

c tion or a body of individuals, the exercise of central manage- ment and control in any country other than India may have to be taken into consideration.

18Copy pinpoint18. Chapter VI of the 1996 Act dealing with making of an arbitral award and termination of proceedings in this behalf plays D an important role. In respect of 'international commercial arbi- \

tration', 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.

19Copy pinpoint19. When, thus, both the companies are incorporated in India, in my opinion, ~lause (ii) of Section 2(1)(f) will apply and not the clause (iii) thereof. _,l_

20Copy pinpoint20. _Section 28 of the 1996 Act is imperative in character F 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.

21Copy pinpoint21. Russell on. Arbitration, 23rd edition, page 357, in his commentary on English Arbitration Act, 1996, shows that al- "'"' l

\--- though a distinction has been made between a domestic and non-domestic arbitration but the provisions relating to domes- tic arbitration had not been brought into force. H

p. 785 Copy page pinpoint

DEVELOPMENT INDIA PVT. LTD. -~ 22. Section 85 of the English Arbitration Act, 1996 which A provides for a modification of Part I in relation to domestic arbi- tration agreement reads, thus: "85. - Modification of Part I in relation to domestic arbitration agreement. B (1) In the case of a domestic arbitration agreement the ; provisions of Part I are modified in accordance with ~- the following sections. (2) For this purpose a "domestic arbitration agreement" means an arbitration agreement to which none of c the parties is - (a) an individual who is a national of, or habitually resident in, a state other than the United Kingdom, or D ~ (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 E determined) is in the United Kingdom. (3) In subsection (2)"arbitration agreement" and "seat of the arbitration" have the same meaning ...... as in Part I (see sections 3, 5(1) and 6)." F " Sub-section (4) of Section 1 of the English Arbitration Act, 1975 is also to the same effect.

23Copy pinpoint23. It is of some significance to notice that whereas the 1996 Act lays emphasis on one of the parties being outside India; the English Arbitration Act for the purpose of domestic G arbitration agreement excludes a body corporate which is in- 1" corporated and whose central control or management is exer- cised in a State other than United Kingdom.

24Copy pinpoint24. Thus, under the English Arbitration Act, what is being H

786 SUPREME COURT REPORTS [2008) 8 .S.C.R.

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.

25Copy pinpoint25. Reference to the provisions of Indian Income Tax Act, 1961, in my opinion, is not apposite. Taxing statutes are en- acted for a different purpose. They provide for compulsory ex- action. Section 6 of the Income Tax Act clearly states the situ a- -.,· tion contemplated under Clause (ii) of Sub-section (3) of Sec- c tion 6 is only for the purpose of the said Act. It speaks about .two contingencies, viz., where the company is an Indian Com- pany and control and management of whose affairs may be situ- ated wholly in India. The provision of the 1996Act, therefore, in my opinion, is not in pari materia with the provisions of the In- D dian Income Tax Act. \

26Copy pinpoint26. Even in a case where taxing statute applies, national- T ity or domicile of the assessee may have to be taken into con- sideration.

27Copy pinpoint27. lhe decisions which, thus, have been relied upon by E Mr. Kachwah are not applicable to the facts of the present case. .

28Copy pinpoint28. An interpretation should ensure certainty in determi- nation of jurisdiction as to which court should a disputant ap- proach for appointment of an arbitrator under Section 11 of the F Act" Else, the question is always mooted as to whether a com- ~-

pany 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 hereinbe- fore, would lead to determination of jurisdiction of either the High G 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 H

p. 787 Copy page pinpoint

DEVELOPMENT INDIA PVT. LTD.

Madras High Court) as follows: A '"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 B 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 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". 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: .i "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 E Judge said: ' "That place is properly the domicile of a person in which his habitation is fixed without any present .A-. intention of removing therefrom." F 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 G 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 H

p. 788 Copy page pinpoint

A 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 B 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, c 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 con- E stitution of a limited liability company as evidencing an inten- tion 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 asso- ciation 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, you would thus settle the residence of that company. He plainly had not in mind a case such as the present, where it would ap- pear 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, th~ H commissioners, if the Court of Appeal were right as to the iovt(

p. 789 Copy page pinpoint

DEVELOPMENT INDIA PVT. LTD . ._,,, 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 conclu- c sion. Counsel for the Crown suggested that, unless the appli- cation 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 D .I 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 in- terpretation of the law laid down by the Court of Appeal could lead to the strange consequences which I have already indi- cated. My Lords, I do not think that adherence to the test laid E 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 F 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 hap- pened, it may well be that your Lordships could not have dis- G t turbed 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." The domicile of a company being an artificial person would ' H

p. 790 Copy page pinpoint

A 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 person- s 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 ex- ists. 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 involv- ing determination of jurisdiction of a court, certainty must pre- vail which cannot be determined by entering into a dispute ques- tion of fact.

29Copy pinpoint29. For the reasons aforementioned, I am of the opinion 0 \ that this Court has no jurisdiction to nominate! an arbitrator. The application is dismissed with costs. Counsel's fee assessed +· at Rs. 50,0Q,0/-. R.P. Application dismissed.