India: Indian Proprietors Habitually Residing In Foreign Nations Subject To Provisions For International Commercial Arbitration: Supreme Court Of India

In its recent judgment of Amway India Enterprises Pvt. Ltd. v. Ravindranath Rao Sindhia & Anr.¹, the Supreme Court ruled that if a proprietor is a habitual resident of a foreign country, the arbitration involving such sole proprietorship would be classified as international commercial arbitration.

Background

Ravindranath Rao Sindhia and his wife ("Respondents") were involved in the distribution and marketing of Amway ("Appellant") products from 1998, registered as a sole proprietorship under the name, 'Sindhia Enterprises'. Disputes emerged between the parties concerning the operations of the Appellant. Upon failure of attempts to amicably resolve the disputes, the Respondents issued an arbitration notice under the arbitration clause contained in the terms and conditions of the 'Amway Direct Seller Application Form' ("Application Form") on 28 July 2020.

Since the Appellants failed to act in terms of the arbitration notice, the Respondents approached the High Court of Delhi ("High Court") for the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The maintainability of the Respondents' petition was challenged by the Appellants contending that the present matter constituted international commercial arbitration under Section 2 (1) (f) (i) of the Arbitration Act, since the Respondents were nationals and habitual residents of the United States of America.

The High Court turned down the Appellant's objection holding that the central management and control of the Respondents' distributorship was in India. Consequently, the High Court appointed an arbitrator under Section 11(6) of the Arbitration Act. Aggrieved by the decision, the Appellant challenged the decision of appointment of a sole arbitrator before the Hon'ble Supreme Court of India.

Contentions of the Parties

The Appellant contended that the present case fell under the definition of 'international commercial arbitration' as provided under Section 2 (1) (f) (i) of the Arbitration Act i.e., on account of the Respondents being nationals of or habitual residents of a country other than India. Thus, the High Court did not have jurisdiction to allow the said petition, which ought to be preferred under Section 11 (6) read with Section 11 (9) instead, being an international commercial arbitration.

Supporting the order of the High Court, the Counsel on behalf of the Respondents submitted that the Respondents being husband and wife, would have to be pigeonholed under "association or body of individual" under Section 2 (1) (f) (iii) of the Arbitration Act instead i.e., an association or body of individuals whose central management and control is exercised in any country other than India. Also, the business to be conducted by the Respondents was restricted to India. Therefore, the arbitration would be a domestic arbitration, since the central management of the Respondents is situated in India.

Findings

The Supreme Court noted that the primary question before it lay in a very narrow compass and the evidence before it would be decisive in adjudicating the specific provision under which the case would be categorised.

The Supreme Court took note of the document titled 'Code of Ethics of Amway Direct Sellers' under the 'Rules of Conduct', which stated that a husband-and-wife distributorship would fall under a single distributorship and would operate as a single entity. Further, the 'legal entity authorisation form' filled by the Respondents to take up the Appellant's distributorship was executed in the name of a sole proprietorship, 'Sindhia Enterprises'.

The above documents evidenced that the Respondents had entered into the distributorship program as a sole proprietorship concern, to be operated as a single entity in the capacity of co-applicants. The Supreme Court based reliance on the decision in a case titled, 'Ashok Transport Agency v. Awdhesh Kumar'² ("Ashok Transport"), wherein the Supreme Court clearly held that a sole proprietary concern is equated with the proprietor of the business.

In Ashok Transport, the Supreme Court led an exhaustive discussion on the nature of a sole proprietorship and how it differs from a partnership. The Court noted relevant excerpts of the judgement, as per which a proprietary concern is only the business name in which the proprietor of the business carries on such business. A suit by or against a proprietary concern is by or against the proprietor of such business. In the event of the death of the proprietor, the sole proprietorship ceases to be in existence and only the legal representatives of the proprietor can be sued in such a situation.

The Supreme Court thus concluded that the argument that there is no international flavour to the transaction between the parties before it had no legs to stand on. An analysis of Section 2 (1) (f) of the Arbitration Act shows that whatever be the transaction between the parties, if it happens to be entered into between persons, at least one of whom is either a foreign national or habitually resident in a country other than India; or by a body corporate which is incorporated in any country other than India; or by a government of a foreign country, the arbitration becomes an international commercial arbitration.

* The authors would like to acknowledge the research and assistance rendered by Harshvardhan Korada, a student of Amity Law School, Delhi.

Footnotes

1. 2021 SCC OnLine SC 171

2. (1998) 5 SCC 567

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