In a landmark decision with significant implications for international commercial arbitration, the Supreme Court of India in TDM Infrastructure Pvt Ltd v UE Development Indian Pvt Ltd & Ors, decided on 14 May, while making a distinction between nationality and the residence of a company, held that determining the nationality of parties is a crucial factor in the appointment of arbitrator.
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”2″ ]
In the case, the petitioner and respondents were companies incorporated under the Companies Act, 1956. However, the directors and shareholders of the petitioner company were residents of Malaysia, while the board of directors of the petitioner company also held its meetings in Malaysia. The petitioner and respondents entered into an arbitration agreement. Later, disputes and differences arose between the parties and the arbitration agreement was resorted to, where a notice regarding a proposal for the appointment of an arbitrator was given to the respondents by the petitioner. The respondents rejected the proposal, suggested their nominee and changed the venue of the arbitration from New Delhi to Kuala Lumpur. The change in venue was rejected by the petitioner.
The petitioner then moved an application in the Supreme Court of India for the appointment of arbitrator under sections 11(5) and (9) of the Arbitration and Conciliation Act, 1996. While dismissing the application, the Supreme Court held that because the arbitration was not an “international commercial agreement” as defined under section 2(1)(f) of the act, the Supreme Court has no jurisdiction to nominate an arbitrator. The Supreme Court further held that a company incorporated in India could only have an Indian nationality for the purpose of the act. Since both companies are incorporated in India and have been domiciled in India, the arbitration agreement entered into could not be viewed as an international commercial arbitration agreement.
The implication of this judgment is that an agreement between two Indian companies would qualify as a domestic arbitration agreement rather than an international commercial arbitration agreement. In the absence of any procedure for the appointment of an arbitrator in a domestic arbitration agreement, and if the parties fail to agree on an arbitrator, then, upon the request of a party, the appointment shall be made by the chief justice of the high court exercising the jurisdiction.
[/ihc-hide-content]
The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
