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NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL (M.P.

ALTERNATIVE DISPUTE RESOLUTION IX TRIMESTER

CASE ANALYSIS
TDM INFRASTRUCTURE P. LTD. Vs UE DEVELOPMENT INDIA P. LTD.

SUBMITTED TO:

PROF. (Dr.) SURYA PRAKASH

SUBMITTED BY:

KRITI BHATNAGAR

2014BALLB44

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PREFACE

This project focuses on the analysis of the case TDM INFRASTRUCTURE P. LTD. Vs UE
DEVELOPMENT INDIA P. LTD. The project is divided into chapters as described below.

The first chapter, Research methodology, explains the statement of problem, objectives of
study and sources of study.

The second chapter discusses the material facts of the case.

The third chapter covers the provisions applied in the present case.

The fourth chapter has the arguments of both the parties.

The fifth chapter critically analyses the judgement of the Court with reasoning.

The sixth chapter discusses the implications of the judgement.

The seventh chapter contains the conclusion.

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ACKNOWLEDGEMENT
This project prepared by, Kriti Bhatnagar, acknowledges the assistance and guidance of Prof.
Surya Prakash without whose invaluable support this project would not have been possible.

KRITI BHATNAGAR

2014BALLB44

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CONTENTS

Preface 2

Acknowledgement 3

Research Methodology 5

Introduction 6

Material facts 7

Provisions applied 8

Arguments by the parties 11

Judgment of the court 13

Reasons for the Judgment 13

Cases referred 14

Critical Analysis 16

Implications of the Judgment 16

Conclusions 18

Bibliography 19

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RESEARCH METHODOLOGY

Statement of Purpose:

In this project, the researcher tries to study the case of TDM Infrastructure Private Limited
vs. UE Development India Private Limited by analyzing its material facts, contentions of
both the parties, and the judgment pronounced by the Supreme Court of India.

Aims and Objectives:

The project essentially seeks:

To list the material facts and issues of the case.

To discuss the contentions of both the parties.

To critically analyze the judgment of Supreme Court.

Sources of Data:

The researcher has mainly relied upon secondary sources especially websites.

Method of Analysis:

This project uses the analytical method as it scrutinizes the Supreme Court judgment in the
case of TDM Infrastructure Private Limited vs. UE Development India Private Limited by
weighing various aspects against each other.

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INTRODUCTION

The judgment of the Honble Supreme Court of India in the case of TDM Infrastructure
Private Limited vs. UE Development India Private Limited has taken a controversial form.
The judgment marked out the scope of International Commercial Arbitration (ICA) and
domestic arbitration by testing them on the criterion of nationality and domicile. In this
present era of globalization, when the contracts between the companies are becoming more
and more complex by the day and the jurisdictions are blending into each other, judgments
like the one rendered in the case may not find many supporters.

CASE

TDM INFRASTRUCTURE PRIVATE LIMITED versus UE DEVELOPMENT INDIA


PRIVATE LIMITED [2008(2) Arb. LR 439 (SC)]

Before S.B Sinha, J

ADVOCATES APPEARED:

Sumeet Kachwah, Ashok Sasar, Darmendra, Anuradha Sharma and Meenakshi


Arora-For the Appellant.

Dhyan Chinnappa and Gaurav Agarwal- For the Respondent.

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FACTS OF THE CASE

The parties were companies incorporated under the Indian Companies Act, 1956.

UE Development India Private Limited ("UED") was awarded a contract for


rehabilitation and upgrading by the National Highways Authority of India, a portion
of which it subcontracted to the TDM Infrastructure Private Limited ("TDM").

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.

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."

Disputes and differences having arisen between the parties, the said arbitration
agreement was resorted to.

The parties could not reach a consensus for the appointment of a nominee arbitrator.

TDM approached the Supreme Court for the appointment of an arbitrator in terms of
Section 11(5) and Section 11(9) of the Act which inter alia authorizes the Chief
Justice of India or any other person or institution designated by him to appoint an
arbitrator in case of an international commercial arbitration.

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PROVISIONS APPLIED

Section 2(1)(f) of Arbitration and Conciliation Act, 1956.

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

Section 11(5) of AC Act, 1956

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.

Section 11(6) of the AC Act, 1956.

Where, under an appointment procedure agreed upon by the parties,

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of hem
under that procedure; or

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(c) a person, including an institution, fails to perform any function entrusted to him or it
under that procedure, a party may request the Chief Justice or any person or institution
designated by him to take the necessary measure, unless the agreement on the appointment
procedure provides other means for securing the appointment.

Section 11(12) of the AC Act, 1956

(a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an
international commercial arbitration, the reference to Chief Justice'' in those sub-
sections shall be construed as a reference to the Chief Justice of India''.
(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any
other arbitration, the reference to Chief Justice in those sub-sections shall be construed as a
reference to the Chief Justice of the High Court within whose local limits the principal Civil
Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High
Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.

Section 28 of the AC Act, 1956

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 decide the dispute in accordance with the rules of law designated
by the parties as applicable to the substance of the dispute;

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(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 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.

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ARGUMENTS BY THE PARTIES

ARGUMENTS BY THE PETITIONER

i. 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.

ii. Drawing 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 test1 as propounded by the House of Lords in De Beers Consolidated
Mines Limited v. Howe (Surveyor of Taxes)2 [The company was established in South
Africa and its main business was carried on there, however the controlling board of
directors exercised its powers in the UK. The company was held to be resident in the
UK.] which has been approved by this Court in V.V.R.N.M. Subbayya Chettiar v.
Commissioner of Income Tax, Madras3 and McLeod and Company Ltd. v. State of
Orissa and Others.4

iii. The terms "nationality", "domicile" or "residents" must be interpreted, having regard
to the text and context in which they are used. Attention in this behalf must be drawn
to the provisions of Section 1(4) of the English Arbitration Act,5 1975 and Section 856
occurring in Part II of English Arbitration Act, 1996, which, however, has not come
into force.

1
a company resides where its real business is carried on and the real business is carried on
where the central management and control actually abides
2
[(1906) AC 455]
3
1950 SCR 961
4
(1984) 1 SCC 434
5
In this section domestic arbitration agreement means an arbitration agreement which does not
provide, expressly or by implication, for arbitration in a State other than the United Kingdom and to
which neither
(a)an individual who is a national of, or habitually resident in, any State other than the United
Kingdom; nor

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ARRGUMENTS BY THE RESPONDENT

i. 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 and purport,
the Company incorporated in India would always be controlled in India.7

ii. 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 stand8 as would appear from a decision in Unit Construction Co. Ltd.
v. Bullock.9

(b)a body corporate which is incorporated in, or whose central management and control is exercised
in, any State other than the United Kingdom;
is a party at the time the proceedings are commenced.

6
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.
7
Section 11(12) of the AC Act, 1956.
8
A company can come to be resident in a territory even if it does not hold directors meetings
there.
9
[1960 AC 351].

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DECISION OF THE COURT

The Court held that "When both the companies are incorporated in India, and have been
domiciled in India, the arbitration agreement entered into by and between them would not be
an international commercial arbitration agreement."

The Court further held 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. In a matter
involving jurisdiction of a Court, certainty must prevail, which cannot be determined by
entering into a disputed question of fact. Therefore the Court refused to appoint an arbitrator
in this case.

REASONING OF THE COURT

i. A statute which provides for 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.
ii. 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
iii. 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 international commercial arbitration agreement and, thus, the
question of applicability of clause (iii) of Section 2(1)(f) would not arise.
iv. 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.

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v. 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.
vi. Reference to the provisions of Indian Income Tax Act, 1961, is not apposite. Taxing
statutes are enacted for a different purpose. They provide for compulsory exaction.
Even in a case where taxing statute applies, nationality or domicile of the assessee
may have to be taken into consideration.

CASES REFERRED

In Subbayya Chettiar v. IT Commissioner, Madras,10 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 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, the 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 Narain11 stating:

10
AIR 1951 SC 101
11
AIR 1955 SC 36

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"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.
Craignish12 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 "domicile" 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 domicile are: (1) a residence of a particular
kind, and (2) an intention of 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 forever 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 domicile and the law may attribute to him a domicile 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 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."

12
1892

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CRITICAL ANALYSIS OF THE CASE

While incorporating an arbitration clause, it has to be kept in mind that when both the parties
to a dispute are Indian by virtue of either being incorporated in India or otherwise, the parties
cannot exclude the application of the Indian Arbitration Act 1996. Notwithstanding the fact
that the subject matter of the contract may be based outside India (for e.g. technology related
transactions); if the parties have Indian nationality or domicile then they may not be able to
subject their arbitration agreements or clauses subject to arbitration laws of other favorable
jurisdiction.

Further, even in arbitrations held outside India, the provisions of Part 1 of the Arbitration and
Conciliation Act (which permits courts to set aside domestic awards on broad public policy
grounds) would apply unless the parties by agreement express or implied exclude all or any
of its provisions. The intention of the legislature in passing the Act is clear that the Indian
nationals should not be permitted to derogate from Indian law as part of the public policy of
the country.

IMPLICATIONS OF THE JUDGMENT

The judgment has restricted the scope of international commercial arbitration in case of
domestic disputes. It is also a departure from the founding premise of arbitration mechanism
that the party autonomy is superlative.

The Supreme Court went against what is expressly written in the Act. Section 2(1)(f) clearly
uses the word OR after each sub-clause. This means that arbitration is an international
commercial arbitration if EITHER one of the parties is incorporated outside India OR its
management is controlled from outside India. The management of TDM in the present case is
situated in a country other than India. Section 2(1)(f) of the 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. Thus, the court has failed to provide for a solid reasoning to support its
decision.

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Any foreign party, as a kind of company in this case, would think twice before conducting
business with an Indian Company as the arbitration clause would then get subject to Indian
Courts even if the place of functioning and management of the company is different.

Also, the benefit of an international commercial arbitration lies in the fact that the arbitration
can take place in a neutral country and can be enforced against the parties in the countries
where the particular party has its assets and management.

In today's commercial environment where contracts are becoming more complex by the day
and boundaries of jurisdiction are blending into each other, judgments like the one rendered
in the case may not find many supporters. Nevertheless, those in business must take into
account the implications of the view taken by the Supreme Court of India.

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CONCLUSION

The decision of the Supreme Court in this case got criticism from various eminent
personalities as it restricted express wordings of the Arbitration and Conciliation Act, 1996.
Till now, the parties would be well advised to keep in mind that when both the parties to a
dispute are Indian by virtue of their incorporation in India, the parties cannot exclude the
provisions of the Act, notwithstanding the fact that the subject matter of the contract may be
based outside India.

Further, even in arbitrations held outside India, the provisions of Part 1 of the Arbitration and
Conciliation Act (which permits courts to set aside domestic awards on broad public policy
grounds) would apply unless the parties by agreement express or implied exclude all or any
of its provisions. A person can clearly find the intention of the legislature in passing the Act
that the Indian nationals should not be permitted to derogate from Indian law as part of the
public policy of the country.

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BIBLIOGRAPHY

The Arbitration and Conciliation Act, 1956.

www.lawteacher.net

www.lawyersclub.com

www.barandbench.com

www.indiakanoon.org

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