A Bench of the Supreme Court headed by Justice S B Sinha has ruled that if two Indian companies choose to resolve a dispute by arbitration, they cannot resort to international commercial arbitration. The nationality of the parties is an important factor in the appointment of an arbitrator and the Chief Justice of India or the person who has been designated by him to appoint an arbitrator must bear the nationality of the parties in mind while appointing an arbitrator.
Under the Companies Act, any company which is incorporated in India is an Indian company. Such a compant therefore, though not being a natural person, has Indian nationality irrespective of the nationality of its shareholders, promoters or directors.
TDM Infrastructure Pvt. Ltd. had prayed for international commercial arbitration. However, the court said that allowing such a prayer would in effect be allow domestic law to be sidestepped. Nonetheless, for the purpose of taxation, the test is where the company does its business and not where it is incorporated.
Sinha J went on to say: “A company incorporated in India can only have Indian nationality… Hence, where both parties have Indian nationalities, then the arbitration between such parties cannot be said to be an ICA. … 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.”