Where one party habitually resides in a foreign country, arbitration becomes an international commercial arbitration even when the business is being carried through an office in India: SC

Supreme Court: The Division Bench of R.F. Nariman* and B.R. Gavai, JJ., addressed an important case regarding nature of arbitration under Arbitration and Conciliation Act, 1996. The Bench ruled,

“If at least one of the parties was either a foreign national, or habitually resident in any country other than India; or by a body corporate which was incorporated in any country other than India; or by the Government of a foreign country, the arbitration would become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country carry on business in India through a business office in India.”

In the instant case the respondents were appointed as Distributor for the appellant, Amway India Enterprises (P) Ltd. for undertaking sale, distribution and marketing of its products in India with the name, “Sindhia Enterprises”. As a dispute arose between the parties, the respondents, after making repeated attempts to resolve the dispute amicably, invoked arbitration clause on 28-07-2020. Since the parties could not reach to finality regarding appointment of the Arbitrator, the respondents approached Delhi High for appointment of a sole arbitrator under Section 11(6) of the Act, 1996.

The main plea taken by the appellant was that a petition before the High Court was not maintainable as the dispute relates to international commercial arbitration, being covered by Section 2(1)(f)(i) of the Arbitration Act inasmuch as the respondents were husband and wife who were both nationals of and habitually resident in the United States of America. This plea was turned down by the High Court. The High Court, while relying on Larsen & Toubro Ltd. – SCOMI Engineering Bhd v. MMRDA, (2019) 2 SCC 271, wherein the Supreme Court was concerned with a consortium consisting of an Indian company and a foreign company and the Court took note of the fact that the office of an unincorporated entity, i.e. the consortium, being in Mumbai, as one of the factors for arriving at the conclusion that the arbitration proceedings would not be international commercial arbitration, the High Court held that the matter would fall within the purview of domestic arbitration and appointed Justice Brijesh Sethi, a retired Judge of the Delhi High Court as the sole arbitrator.

Whether the distributorship of husband and wife was a separate entity?  

The High Court opined that since the central management and control of the proprietorship was exercised only in India, the dispute was not an international commercial arbitration as the Code of Ethics and Rules of Conduct issued by the appellant under Clause 3.17.1 had contemplated and recognised that a husband and wife shall operate their Distributorship as single entity.

Contrary to that, the Supreme Court observed that under “authorised signature”, the entity’s name was filled in as Sindhia Enterprises and the proprietor was filled in as Ravindranath Rao Sindhia.  Noticing the application form, together with the Code of Ethics, the Bench said that a husband and wife were entitled not to two, but a single distributorship, as it had been made clear under clause 3.17 of the Code of Ethics that they were to operate only as a single entity. The form that was filled in made it clear further that the respondents applied to become a distributor as a sole proprietorship, where the husband, Ravindranath Rao Sindhia, was the sole proprietor / “primary applicant” and the wife, Indumathi Sindhia, was a “co-applicant”. The Bench Said,

“A sole proprietary concern is equated with the proprietor of the business, while a proprietary concern is only the business name in which the proprietor of the business carries on the business. In the event of the death of the proprietor of a proprietary concern, it is the legal representatives of the proprietor who alone can sue or be sued in respect of the dealings of the proprietary business.”

The provisions of Order XXX, enabled the proprietor of a proprietary business to be sued in the business names of his proprietary concern. The real party who was being sued was the proprietor of the said business. The said provision did not have the effect of converting the proprietary business into a partnership firm. Consequently, the Bench reached to the conclusion that a suit by or against a proprietary concern was by or against the proprietor of the business.

Conclusion

The Bench opined that the argument that there was no international flavour to the transaction between the parties had no legs to stand on. As, an analysis of Section 2(1)(f) would show that whatever be the transaction between the parties, if it happen to be entered into between persons, at least one of whom was either a foreign national, or habitually resident in, any country other than India; or by a body corporate which was incorporated in any country other than India; or by the Government of a foreign country, the arbitration become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country referred to in Section 2(1)(f) carry on business in India through a business office in India.

In the light of above, the Bench opined that the High Court had no jurisdiction to appoint an arbitrator; therefore, the impugned judgment was set aside.

[Amway India Enterprises (P) Ltd. v. Ravindranath Rao Sindhia, 2021 SCC OnLine SC 171, decided on 04-03-2021]


Kamini Sharma, Editorial Assistant has put this report together 

*Judgment by: Justice R.F. Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearance before the Court by:

For Appellant: Sr. Adv. Parag Tripathi,

For Respondent/s: Adv. Manmeet Arora

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