Readers familiar with the Indian Arbitration and Conciliation Act, 1996, (Act) are aware that Indian seated arbitrations are divided into two categories viz, pure domestic arbitration and international commercial arbitration. Broadly speaking, the hallmark of an 'international commercial arbitration' is where one of the parties is incorporated abroad or whose central management and control resides outside India.
The consequence of an Indian seated arbitration being regarded as an 'international commercial arbitration' is important for two reasons. First, because parties have complete autonomy to choose foreign law as governing their relationship. And secondly, because the grounds of judicial review are narrower than that applicable to domestic arbitration. In particular, the ground of 'patent illegality' available to challenge a domestic award, is expressly excluded to awards rendered in an "international commercial arbitration'.
The Supreme Court in a recent case held that a dispute between a consortium comprising of an international contractor executing a project in India and an Indian counter-part, was not an 'international commercial arbitration', because control and management of the consortium was in India.
Facts of the Case
A consortium comprising of an Indian company viz, M/s Larsen and Toubro ("L&T") and Scomi Engineering Bhd, ("Scomi") a company incorporated in Malaysia, entered into an agreement with Mumbai Metropolitan Region Development Authority ("MMRDA") for a monorail project in Mumbai.
Disputes arose between the parties. MMRDA refused to appoint an arbitrator compelling the consortium to apply to the Supreme Court for appointment of an arbitrator. Under Section 11 of the Act, the Supreme Court is the statutorily designated authority for appointment of arbitrators in case of party default relating to an 'international commercial arbitration'. In the case of a pure domestic arbitration, the Act confers jurisdiction on the High Courts to make default appointments of arbitrators.
The consortium contended that the putative arbitration would be an 'international commercial arbitration', as Scomi was based in Malaysia. MMRDA responded by arguing that the consortium was an unincorporated association and not a body corporate. In addition, MMRDA contended that since central management and control of the consortium was vested in L&T and exercised by its Mumbai office, the arbitration would be a domestic arbitration, falling outside the jurisdiction of the Supreme Court. MMRDA argued that claims could only be made by the consortium as a collective whole and not as separate entities.
Findings and Analysis of the Supreme Court
The Supreme Court after considering the rival arguments agreed with MMRDA that the consortium was not a body corporate but an unincorporated association. The Supreme Court on finding that control and management of the consortium vested with L&T (the lead partner who was based in India), held that the arbitration could not be regarded as an "international commercial arbitration" and consequently that it had no jurisdiction to appoint an arbitrator.
The Court clarified that Section 2(1)(f)(iii) of the Act referred to two distinct categories of persons, i.e., an "association" which was distinct and separate from a "body of individuals". A consortium consisting of two or more body corporates, where one of them is incorporated in a foreign country, would therefore amount to an unincorporated "association' but not a "body of individuals", falling within the ambit of Section 2(1)(f)(iii).
The judgement whilst unexceptional in finding on the facts that control and management of the consortium resided in India, does not however deal with the antecedent and more fundamental issue of whether an unincorporated association has capacity to sue. No argument appears to have been advanced by MMRDA that the consortium was not a 'party' to the arbitration agreement given that the judgement in terms finds the consortium to be an unincorporated association. Curiously, MMRDA's argument that claims had to be made by the consortium as a whole and not by L&T and Scomi in their individual capacity, appears to have been endorsed by the Supreme Court.
The door is therefore left ajar for the Court to clarify in a subsequent case whether an unincorporated association would have status and capacity to arbitrate.
Posted on 25 October 2018 by Zarir Bharucha
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