February 17 2009
In TDM Infrastructure Private Limited v UE Development India Private Limited(1) the Supreme Court has ruled that if two companies are incorporated in India, an arbitration between such parties cannot be an international commercial arbitration as defined under the Arbitration and Conciliation Act 1996.
Both parties were companies that had been incorporated in India under the provisions of the Companies Act 1956. The National Highway Authority awarded a contract for rehabilitation and upgrading to the respondent, UE Development India Private Limited, which subcontracted with the petitioner, TDM Infrastructure Private Limited. The parties executed three contracts, each containing arbitration clauses.
The petitioner filed an application before the court under Sections 11(5) and (6) of the Arbitration and Conciliation Act for the appointment of a sole arbitrator to adjudicate on the disputes that had arisen between the parties. The petitioner submitted that its central management and control were exercised in Malaysia and that in view of Section 2(1)(f)(iii) of the act, the court had jurisdiction over the appointment of an arbitrator.
The respondent contended that since the petitioner was incorporated in India, the court had no jurisdiction to issue an order appointing an arbitrator. Section 2(1)(f) of the act states that:
"unless the context otherwise requires,... 'international commercial arbitration' means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, [which are] considered as commercial under the law in force in India and where at least one of the parties is:
(i) an individual who is a national of, or habitually resident in, any country other than India;
(ii) a body corporate which is incorporated in any country other than India;
(iii) a company or an association or a body of individuals whose central management and control [are] exercised in any country other than India; or
(iv) the government of a foreign country."
The court held that Section 2(1)(f)(iii) does not apply where both parties are companies incorporated in India. For the purposes of Section 28, substantive Indian law will apply to an arbitration that is not an international commercial arbitration where the place of arbitration is in India.
The implication of this decision is that if two companies incorporated in India enter into an arbitration agreement, a dispute between them cannot culminate in international commercial arbitration. Accordingly, even if the central management and control of such companies are exercised outside India, they will not be permitted to derogate from substantive Indian law.
For further information on this topic please contact Anirudh Das or Sulabh Rewari at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 2692 0500) or by fax (+ 91 11 2692 4900) or by email (firstname.lastname@example.org or email@example.com).
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