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                                                        REPORTABLE

               IN THE SUPREME COURT OF INDIA

                 CIVIL ORIGINAL JURISDICTION

          ARBITRATION APPLICATION NO. 2 OF 2008

TDM Infrastructure Private Limited                       ...Petitioner

                                     Versus

UE Development India Private Limited                     ...Respondent

                             ORDER

1.    The parties hereto are companies registered and incorporated

under the Companies Act, 1956 (for short "the Act"). Directors and

shareholders of the petitioner - company, however, are said to be

residents of Malaysia. The Board of Directors of the petitioner also sits

at Malaysia.

2.    A contract for rehabilitation and upgrading was awarded to the

respondent by the National Highway Authority of India. Respondent

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subcontracted a portion thereof to the petitioner by three letters of awards

dated 12.04.2002, 24.05.2002 and 29.08.2002.

     However, for the purpose of present petition, we are concerned

with the second and third letters of award. The parties entered into those

contracts containing an arbitration clause, which read as under:

            "If the parties fail to settle the question, dispute              or difference through negotiations, the same              shall be referred to Arbitration as per the              provisions of the Indian Arbitration Act, 1940              and the rules made thereunder and any statutory              modifications or re-enactment thereof that may              be made from time to time and actually in force              at the time of reference. The cost of arbitration              shall be borne by the parties in the ratio to be              agreed upon by the parties. The venue of the              Arbitration shall be New Delhi. The language              to be used in the arbitration proceedings shall              be English."

3.    Disputes and differences having arisen between the parties, the

said arbitration agreement was resorted to, wherefor a notice dated

22.03.2007 was served by the petitioner through its solicitors M/s. Shook

Lin & Bok.      A nominee was proposed.           In response thereto, the

respondent herein through its solicitors M/s. Shearn Delamore & Co. also

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proposed its nominee by a letter dated 18.04.2007.            Respondent,

however, proposed amendments to the original dispute resolution and

arbitration clause by suggesting change of venue of the arbitration to

Kuala Lumpur, Malaysia in stead and place of New Delhi and that the

disputes be arbitrated in terms of the Malaysian Law and the Malaysian

Arbitration Act, 2005. The said proposal of the respondent was rejected

by the petitioner.   Petitioner thereafter proposed alternative nominee

which was also rejected by the respondent and in turn suggested its own

nominee which was not acceptable to the petitioner.

4.    By reason of this application under Section 11(5) and 11(6) of the

Arbitration and Conciliation Act, 1996 (for short "the 1996 Act"), a

prayer has been made for appointment of a sole arbitrator to adjudicate

upon the disputes and differences between the parties arising out of or in

relation to the aforementioned second and third letters of award.

5.    One of the contentions raised by the respondent is that the

petitioner - company being registered in India, this Court has no

jurisdiction to pass an order for appointing an arbitrator. It was urged

that the Company in law must be held to be situate in India

notwithstanding that the directors are foreign nationals as for all intent

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and purport, the Company incorporated in India would always be

controlled in India.

6.     Mr. Sumeet Kachwah, learned counsel appearing on behalf of the

petitioner, would submit that in view of the provisions contained in

Section 2(1)(f) read with Section 11(6) of the 1996 Act, this Court alone

has the jurisdiction to appoint an arbitrator as the central management

and control of the petitioner company is exercised in Malaysia inasmuch

as the term "central management" would mean that its day to day

management does not take place in India.

7.     Drawing our attention to the fact that the Indian Income Tax Act,

1961    contains a similar provision, it was urged that the test which

should be applied in a case of this nature is the real business test as

propounded by the House of Lords in De Beers Consolidated Mines

Limited v. Howe (Surveyor of Taxes) [(1906) AC 455] which has been

approved by this Court in V.V.R.N.M. Subbayya Chettiar v.

Commissioner of Income Tax, Madras [1950 SCR 961] and McLeod and

Company Ltd. v. State of Orissa and Others [(1984) 1 SCC 434].

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8.    The terms "nationality", "domicile" or "residents" must be

interpreted, Mr. Kachwah would submit, having regard to the text and

context in which they are used. Our attention in this behalf has been

drawn to the provisions of Section 1(4) of the English Arbitration Act,

1975 and Section 85 occurring in Part II of English Arbitration Act,

1996, which, however, has not come into force.

9.    Mr. Dhyan Chinappa, learned counsel appearing on behalf of the

respondent, on the other hand, would submit that the interpretative tools

for interpretation of the provisions of the 1996 Act and taxing statute are

different.

     It was urged that the jurisdiction of this court must be determined

having regard to the provisions contained in Sections 2(6), 11(9) and 28

of the 1996 Act.

     It was furthermore submitted that the English Courts, even in

respect of a taxing statute, have deviated from its earlier stand as would

appear from a decision in Unit Construction Co. Ltd. v. Bullock [1960

AC 351].

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10.     The 1996 Act was enacted to consolidate and amend the law

relating to domestic arbitration, international commercial arbitration and

enforcement of foreign arbitral awards as also to define the law relating

to conciliation and for matters connected therewith or incidental thereto.

       The preamble of the 1996 Act shows that the Parliament of India

intended to give effect to the rules framed by the United Nations

Commission on International Trade Law (UNCITRAL) known as

UNCITRAL Model Law on International Commercial Arbitration in

1985.

11.     Before embarking on the questions adverted to heretobefore, we

may notice some provisions of the 1996 Act.

       Sections 2(1)(a), 2(1)(b), 2(1)(f), 2(6), 2(7) and 2(8) of the 1996

Act read as under:

             "2(1) In this Part, unless the context otherwise               requires,--

                (a) "arbitration" means any arbitration                  whether or not administered by permanent                  arbitral institution;

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  (b) "arbitration agreement" means            an    agreement referred to in section 7;

  (f) "international commercial arbitration"    means an arbitration relating to disputes    arising out of legal relationships, whether    contractual or not, 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; or

     (ii) a body corporate which is       incorporated in any country other than       India; or

     (iii) a company or an association or a       body of individuals whose central       management and control is exercised in       any country other than India; or

     (iv) the Government of a foreign country;

(6) Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue.

(7) An arbitral award made under this Part shall be considered domestic award.

(8) Where this Part.--

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        (a) refers to the fact that the parties have          agreed or that they may agree, or

        (b) in any other way refers to an agreement          of the parties,

        that agreement shall include any arbitration          rules referred to in that agreement."

Sections 11(1), 11(5) and 11(9) read as under:

     "11 - Appointment of arbitrators             (1) A person of any nationality may be an             arbitrator, unless otherwise agreed by the             parties.

            (5) Failing any agreement referred to in             sub-section (2), in an arbitration with a             sole arbitrator, if the parties fail to agree             on the arbitrator within thirty days from             receipt of a request by one party from the             other party to so agree the appointment             shall be made, upon request of a party, by             the Chief Justice or any person or             institution designated by him.

            (9) In the case of appointment of sole or             third arbitrator in an international             commercial arbitration, the Chief Justice             of India or the person or institution             designated by him may appoint an             arbitrator of a nationality other than the             nationalities of the parties where the             parties belong to different nationalities."

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Section 28 of the 1996 Act reads as under:

     "28 - Rules applicable to substance of dispute

           (1) Where the place of arbitration is             situate in India,--

              (a) in an arbitration other than an                international commercial arbitration,                the arbitral tribunal shall decide the                dispute submitted to arbitration in                accordance with the substantive law                for the time being in force in India;

              (b) in international commercial                arbitration--

                 (i) the arbitral tribunal shall                   decided the dispute in accordance                   with the rules of law designated by                   the parties as applicable to the                   substance of the dispute;

                 (ii) any designation by the parties                   of the law or legal system of a                   given country shall be construed,                   unless otherwise expressed, as                   directly referring to the substantive                   law of that country and not to its                   conflict of laws rules;

                 (iii) failing any designation of the                   law under clause (a) by the parties,                   the arbitral tribunal shall apply the                   rules of law it considers to be                   appropriate      given     all    the

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                          circumstances     surrounding     the                            dispute.

                   (2) The arbitral tribunal shall decide ex                     aequo et bono or as amiable compositeur                     only if the parties have expressly                     authorised it to do so.

                   (3) In all cases, the arbitral tribunal shall                     decide in accordance with the terms of                     the contract and shall take into account                     the usages of the trade applicable to the                     transaction."

12.   Whereas Part I of the 1996 Act deals with domestic arbitration,

Part II thereof deals with the Foreign Award.

     The term "International Commercial Arbitration" has a definite

connotation. It inter alia means a body corporate which is incorporated

in any country other than India. However, according to the petitioner, it

is a company whose central management and control is exercised in any

country other than India and, thus, despite the fact that the company is

incorporated and registered in India, its central management and control

being exercised in Malaysia, it will come within the purview of Clause

(iii) of Section 2(1)(f) of the 1996 Act.

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13.   Whenever in an interpretation clause, the word "means" is used the

same must be given a restrictive meaning.

     "International    Commercial         Arbitration"   and   "Domestic

Arbitration" connote two different things.         The 1996 Act excludes

domestic arbitration from the purview of International Commercial

Arbitration. The Company which is incorporated in a country other than

India is excluded from the said definition. The same cannot be included

again on the premise that its central management and control is exercised

in any country other than India. Although clause (iii) of Section 2(1)(f)

of the 1996 Act talks of a company which would ordinarily include a

company registered and incorporated under the Companies Act but the

same also includes an association or a body of individuals which may

also be a foreign company. Sub-section (6) of Section 2 of the 1996 Act

leaves the parties free to determine certain issues. That freedom shall

include the right of the parties to authorize any person including an

institution, to determine the same. Thus, in a case of this nature, the

court shall not interpret the words in such a manner which would be

opposed to the intention of the parties.

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     A statute which provides for an arbitration between the parties and

a taxing statute must be interpreted differently. The term "International

Commercial Arbitration" even does not find place in the UNCITRAL

Model Law. It finds place only in the English Arbitration Act which has

also not been given effect to.

14.   Part II of the 1996 Act deals with enforcement of foreign awards.

The 1996 Act keeping in view the scheme of the statute must be read in

its entirety. It takes into consideration various situations. Power of this

Court to appoint an arbitrator would arise in view of Sub-section (12) of

Section 11 of the 1996 Act only if it is to be held that the dispute has

arisen in relation to an international commercial arbitration.

     Whether, thus, an agreement falls within the purview of Section 2

(1)(f) of the 1996 Act is the core question. Section 2(1)(f) speaks of

legal relationship whether commercial or otherwise under the law in

force in India. The relationship has to be between an individual who is a

national of or habitually resident in any country other than India as

specified in Clause (i) of Section 2(1)(f).        ‘Nationality’ or being

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‘habitually resident’ in respect of a body corporate in any country other

than India should, in my view, receive a similar construction.

15.   Determination of nationality of the parties plays a crucial role in

the matter of appointment of an arbitrator. A company incorporated in

India can only have Indian nationality for the purpose of the Act. It

cannot be said that a company incorporated in India does not have an

Indian nationality. Hence, where both parties have Indian nationalities,

then the arbitration between such parties cannot be said to be an

international commercial arbitration.

16.   The learned counsel contends that the word "or" being disjunctive,

clause (iii) of Section 2(1)(f) of the 1996 Act shall apply in a case where

clause (ii) shall not apply. We do not agree. The question of taking

recourse to clause (iii) would come into play only in a case where clause

(ii) otherwise does not apply in its entirety and not where by reason of an

exclusion clause, consideration for construing an agreement to be an

international commercial arbitration agreement goes outside the purview

of its definition. Once it is held that both the companies are incorporated

in India, and, thus, they have been domiciled in India, the arbitration

agreement entered into by and between them would not be an

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international commercial arbitration agreement and, thus, the question of

applicability of clause (iii) of Section 2(1)(f) would not arise.

     The Chief Justice of India or his designate, furthermore, having

regard to Sub-section (9) of Section 11 of the 1996 Act must bear in

mind the nationality of an arbitrator. The nationality of the arbitrator

may have to be kept in mind having regard to the nationality of the

respective parties.

17.   Only in a case where, however, a body corporate which need not

necessarily be a company registered and incorporated under the

Companies Act, as for example, an association or a body of individuals,

the exercise of central management and control in any country other than

India may have to be taken into consideration.

18.   Chapter VI of the 1996 Act dealing with making of an arbitral

award and termination of proceedings in this behalf plays an important

role. In respect of ‘international commercial arbitration’, clause (b) of

Sub-section (1) of Section 28 of the 1996 Act would apply, whereas in

respect of any other dispute where the place of arbitration is situated in

India, clause (a) of Sub-section (1) thereof shall apply.

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19.      When, thus, both the companies are incorporated in India, in my

opinion, clause (ii) of Section 2(1)(f) will apply and not the clause (iii)

thereof.

20.      Section 28 of the 1996 Act is imperative in character in view of

Section 2(6) thereof, which excludes the same from those provisions

which parties derogate from (if so provided by the Act). The intention of

the legislature appears to be clear that Indian nationals should not be

permitted to derogate from Indian law. This is part of the public policy

of the country.

21.      Russell on Arbitration, 23rd edition, page 357, in his commentary

on English Arbitration Act, 1996, shows that although a distinction has

been made between a domestic and non-domestic arbitration but the

provisions relating to domestic arbitration had not been brought into

force.

22.      Section 85 of the English Arbitration Act, 1996 which provides for

a modification of Part I in relation to domestic arbitration agreement

reads, thus:

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            "85. - Modification of Part I in relation to              domestic arbitration agreement.

            (1) In the case of a domestic arbitration              agreement the provisions of Part I are modified              in accordance with the following sections.

            (2) For this purpose a "domestic arbitration              agreement" means an arbitration agreement to              which none of the parties is -

            (a) an individual who is a national of, or              habitually resident in, a state other than the              United Kingdom, or

            (b) a body corporate which is incorporated in,              or whose central control and management is              exercised in, a state other than the United              Kingdom, and under which the seat of the              arbitration (if the seat has been designated or              determined) is in the United Kingdom.

            (3) In subsection (2)"arbitration agreement" and              "seat of the arbitration" have the same meaning              as in Part I (see sections 3, 5(1) and 6)."

     Sub-section (4) of Section 1 of the English Arbitration Act, 1975 is

also to the same effect.

23.   It is of some significance to notice that whereas the 1996 Act lays

emphasis on one of the parties being outside India; the English

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Arbitration Act for the purpose of domestic arbitration agreement

excludes a body corporate which is incorporated and whose central

control or management is exercised in a State other than United

Kingdom.

24.   Thus, under the English Arbitration Act, what is being considered

is domestic arbitration agreement where a body corporate is incorporated

in a State other than United Kingdom; whereas under the 1996 Act only a

body corporate which is only incorporated in a State outside India shall

be included within the meaning of the international commercial

arbitration.

25.   Reference to the provisions of Indian Income Tax Act, 1961, in my

opinion, is not apposite.     Taxing statutes are enacted for a different

purpose.       They provide for compulsory exaction.      Section 6 of the

Income Tax Act clearly states the situation contemplated under Clause

(ii) of Sub-section (3) of Section 6 is only for the purpose of the said Act.

It speaks about two contingencies, viz., where the company is an Indian

Company and control and management of whose affairs may be situated

wholly in India. The provision of the 1996 Act, therefore, in my opinion,

is not in pari materia with the provisions of the Indian Income Tax Act.

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26.   Even in a case where taxing statute applies, nationality or domicile

of the assessee may have to be taken into consideration.

27.   The decisions which, thus, have been relied upon by Mr. Kachwah

are not applicable to the facts of the present case.

28.   An interpretation should ensure certainty in determination of

jurisdiction as to which court should a disputant approach for

appointment of an arbitrator under Section 11 of the Act. Else, the

question is always mooted as to whether a company is controlled outside

India or not and accordingly would have to be determined in each and

every case, if an objection is raised. The interpretation of the Act, as

suggested hereinbefore, would lead to determination of jurisdiction of

either the High Court or this Court with certainty.

     In Subbayya Chettiar v. IT Commissioner, Madras [AIR 1951 SC

101], this Court, while dealing with the issue of Hindu Undivided Family

and the residence of the family endorsed the definition of Patanjali Sastri

J. (in the same case before the Madras High Court) as follows:

            "‘Control and management’ signifies, in the              present context, the controlling and directive              power, ‘the head and brain’ as it is sometimes

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           called, and ‘situated’ implies the functioning of             such power at a particular place with some             degree of permanence, while ‘wholly’ would             seem to recognize the possibility of the seat of             such power being divided between two distinct             and separated places."

     In that case, this Court, while dealing with the definition contained

in Section 4 of the Income Tax Act was mainly concerned with a Hindu

Undivided Family and not a Company. Furthermore, in the findings of

Patanjali Sastri, J., there is a direct reference to "some degree of

permanence".

     A difficulty in having a clear definition of domicile has been

noticed by this Court (albeit in a different context) in Central Bank of

India Ltd. v. Ram Narain [AIR 1955 SC 36] stating:

         "Writers on Private International Law are agreed       that it is impossible to lay down an absolute definition       of "domicile". The simplest definition of this       expression has been given by Chitty, J. in Craignish       v. Craignish wherein the learned Judge said:               "That place is properly the domicile of a person           in which his habitation is fixed without any present           intention of removing therefrom."           But even this definition is not an absolute one. The       truth is that the term "domicil" lends itself to       illustrations but not to definition. Be that as it may,       two constituent elements that are necessary by       English law for the existence of domicil are: (1) a       residence of a particular kind, and (2) an intention of

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     a particular kind. There must be the factum and there       must be the animus. The residence need not be       continuous but it must be indefinite, not purely       fleeting. The intention must be a present intention to       reside for ever in the country where the residence has       been taken up. It is also a well established proposition       that a person may have no home but he cannot be       without a domicil and the law may attribute to him a       domicil in a country where in reality he has not. A       person may be a vagrant as when he lives in a yacht or       wanderer from one European hotel to another, but       nevertheless the law will arbitrarily ascribe to him a       domicil in one particular territory. In order to make       the rule that nobody can be without a domicil       effective, the law assigns what is called a domicil of       origin to every person at his birth. This prevails until       a new domicil has been acquired, so that if a person       leaves the country of his origin with an undoubted       intention of never returning to it again, nevetheless       his domicil of origin adheres to him until he actually       settles with the requisite intention in some other       country."

     In Unit Construction Co. Ltd. (supra) on a question as to whether

subsidiary companies of a holding company based in South Africa would

be deemed to be domiciled in England, it was held:

           "My Lords, I do not read the reference to the             ordinary constitution of a limited liability             company as evidencing an intention to make             any addition to the test indicated by Lord             Loreburn in the De Beers case. I think that all             Sir Raymond Evershed was saying was that, in             almost every case, the articles of association of             a limited company vest the control of the             company in the board of directors and that             accordingly, if you found out that the board of a             company habitually met in a particular country,

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you would thus settle the residence of that company. He plainly had not in mind a case such as the present, where it would appear that the board of directors appointed under the articles did not meet at all during the period relevant to the assessments now in question, nor was he expressing any opinion as to what the right conclusion would be, if, for instance, the control was vested not in the board but in managing agents. It seems to me that, in the circumstances disclosed in the Case Stated, the commissioners, if the Court of Appeal were right as to the law, might, but for the admission made by the appellant company, have been compelled to find that the African subsidiaries had no residence anywhere. Moreover, it may well be asked what the position would have been had the business of each of the African companies been conducted by their duly appointed boards but, in disregard of the articles, all the board meetings had been held in London and all instructions had been issued from London. Logically, if the Court of Appeal were right, these meetings should be disregarded and the African subsidiaries could not be held to be resident in England, but counsel for the Crown shrank from carrying his argument to this logical conclusion. Counsel for the Crown suggested that, unless the application of Lord Loreburns principle was made in accordance with the Court of Appeals interpretation of it in the present case, the consequences would be disastrous and companies could vary their liability by moving control to and fro. My Lords, so they could, even on the Court of Appeals view, if they amended the relevant articles (not a very difficult process in the case of a hundred per cent subsidiary). Moreover the adoption of the interpretation of the law laid down by the Court of Appeal could lead to the strange consequences which I have already indicated.

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           My Lords, I do not think that adherence to the             test laid down by Lord Loreburn and to the             application thereof which, as I think, has             hitherto been adopted namely, that the question             where the central control actually abides is a             question of fact for the decision of the             commissioners will lead to any disastrous             consequences. The facts of the case before             your Lordships are most unusual. It is surely             exceptional for a parent company to usurp the             control; it usually operates through the boards             of the subsidiary companies, and had the             commissioners found in the present case that             that was what had in substance happened, it             may well be that your Lordships could not have             disturbed that finding. But they have found to             the contrary, and, as I have already said, it             seems to me that there was evidence justifying             their conclusion."

     The domicile of a company being an artificial person would

depend upon the nature and purport of the statute. [See McLeod and

Company Ltd. (supra)].

     In the said decision itself, however, it is noticed that the nationality

of a company is determined by the law of the country in which it is

incorporated and from which it derives its personality. However, for the

purpose of taxation, test of residence may not be registration but where

the company does its real business and where the central management

and control exists.      A distinction, thus, exists in law between a

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nationality and the residence. Furthermore, there exists a dispute that all

the Board meetings take place only in Malaysia. In a matter involving

determination of jurisdiction of a court, certainty must prevail which

cannot be determined by entering into a dispute question of fact.

29.   For the reasons aforementioned, I am of the opinion that this Court

has no jurisdiction to nominate an arbitrator.         The application is

dismissed with costs. Counsel’s fee assessed at Rs. 50,000/-.

                                            ...............................J.                                              [S.B. Sinha]

New Delhi; May 14, 2008