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2008 (5) TMI 412

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..... 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 subcontracted a portion thereof to the petitioner by three letters of awards dated 12-4-2002, 24-5-2002 and 29-8-2002. 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 langua .....

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..... ould 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 Ltd. v. Howe (Surveyor of Taxes) [1906] AC 455 which has been approved by this Court in V.V.R.N.M. Subbayya Chettiar v. CIT [1950] SCR 961 and McLeod Co. Ltd. v. State of Orissa [1984] 1 SCC 434. 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 .....

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..... 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. (2) to (4) ****** (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. (6) to (8)****** (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." 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 a .....

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..... 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. 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 .....

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..... anies 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. 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, pag .....

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..... 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. 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 V.V.R.N.M. Subbayya Chettiar s case ( supra ), this Court, while dealing with t .....

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..... ss the law will arbitrarily ascribe to him a domicile in one particular territory. In order to make the rule that nobody can be without a domicile effective, the law assigns what is called a domicile of origin to every person at his birth. This prevails until a new domicile has been acquired, so that if a person leaves the country of his origin with an undoubted intention of never returning to it again, nevertheless his domicile of origin adheres to him until he actually settles with the requisite intention in some other country."(p. 39) In Unit Construction Co. Ltd. s case ( 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 .....

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..... es 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 Co. 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 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 ques .....

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