‘Association’ Referred To In Section 2(1)(f)(iii) Of The Arbitration And Conciliation Act Would Include A Consortium Of Companies, One Of Which Is A Foreign Company: SC [Read Judgment]

The Supreme Court has held that an ‘association’ referred to in Section 2(1)(f)(iii) of the Arbitration and Conciliation Act, 1996, would include a consortium consisting of two or more bodies corporate, at least one of whom is a body corporate incorporated in a country other than India.

Consortium of M/s Larsen and Toubro, an Indian company, together with Scomi Engineering Bhd, a Company incorporated in Malaysia, filed a petition under Section 11 of the Act before the Supreme Court, for appointing an arbitrator.

The contention put forth by Senior Advocate Gopal Jain, on behalf of the consortium, was that, since one of the parties to the arbitration agreement was a body corporate incorporated in Malaysia, it would attract Section 2(1)(f)(ii) of the Act.

On the other hand, Senior Advocate Shyam Divan, who appeared for MMRDA, contended that they are really an un-incorporated association and would, therefore, fall within Section 2(1)(f)(iii) as being an association or a body of individuals, provided the central management and control is exercised in any country other than India. It was also brought to notice that a Bombay High Court order has attained finality inter parties that it is not open for the companies (of the consortium) to rely upon their status as independent entities while dealing with MMRDA and they will have to deal with it as a consortium only.

It is in this contextual background, the bench comprising Justice RF Nariman and Justice Navin Sinha said: “Section 2(1)(f)(iii) of the Act refers to two different sets of persons: an “association” as distinct and separate from a “body of individuals”. For example, under Section 2(31) of the Income Tax Act, 1961, “person” is defined as including, under sub clause (v), an association of persons, or body of individuals, whether incorporated or not. It is in this sense, that an association is referred to in Section 2(1)(f)(iii) which would therefore include a consortium consisting of two or more bodies corporate, at least one of whom is a body corporate incorporated in a country other than India.”

The bench further said prior to the deletion of the expression “a company or”, there were three sets of persons referred to in Section 2(1)(f)(iii) as separate and distinct persons who would fall within the said sub-clause. “This does not change due to the deletion of the phrase “a company or” for the reason given by the Law Commission. This is another reason as to why “an association” cannot be read with “body of individuals” which follows it but is a separate and distinct category by itself, as is understood from the definition of “person” as defined in the Income Tax Act referred to above,” it said.

The bench dismissed the petition filed by consortium by agreeing with the contentions raised by Senior Advocate Shyam Divan. Holding that there is no “international commercial arbitration” as defined under Section 2(1)(f) of the Act, the bench said: “The Indian company is the lead partner, and that the Supervisory Board constituted under the Consortium Agreement makes it clear that the lead partner really has the determining voice in that it appoints the Chairman of the said Board (undoubtedly, with the consent of other members); and the fact that the Consortium’s office is in Wadala, Mumbai as also that the lead member shall lead the arbitration proceedings, would all point to the fact that the central management and control of this Consortium appears to be exercised in India and not in any foreign nation.”