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The Top Court in a matter of appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”) held that Delhi High Court had no jurisdiction to make an appointment in the given case, holding it to be a matter of International Commercial Arbitration. 

A Division Bench of Justice R.F. Nariman and Justice B.R. Gavai, while allowing the present Appeal, observed, “…an analysis of Section 2(1)(f) would show that whatever be the transaction between the parties, if it happens to be entered into between persons, at least one of whom is either a foreign national, or habitually resident in, any country other than India; or by a body corporate which is incorporated in any country other than India; or by the Government of a foreign country, the arbitration becomes an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country referred to in Section 2(1)(f) carry on business in India through a business office in India.” 

Appellants had submitted before the Delhi High Court that a petition for appointment of Arbitrator under Section 11(6) of the Act is not maintainable, since the respondents - husband and wife, are both nationals and habitually resident of the United States of America, the matter being covered under Section 2(1)(f)(i) of the Act. This plea was turned down by the Court considering the judgment in Larsen & Toubro Ltd - SCOMI Engineering Bhd v. MMRDA, (2019) 2 SCC 271, thereby appointing retired Justice Brijesh Sethi, as the Sole Arbitrator in the matter. 

Relevant Provision

Section 2(f) of the Act deals with International Commercial Arbitration. It states that an 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

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

Shri Parag Tripathi, Senior Advocate appearing for the appellants, argued that the case is governed by Section 2(1)(f)(i) and not by Section 2(1)(f)(iii). “Once it is found that a party to an arbitration agreement is an individual who is a national of, or habitually resident in, any country other than India, it is not necessary to go to any other sub-clauses of Section 2(1)(f),” Learned Counsel submits.

Counsel for the Respondents, Ms. Manmeet Arora, submitted that the husband and wife herein, would have to be pigeonholed under ‘association or body of individuals’ under Section 2(1)(f)(iii) and not under Section 2(1)(f)(i) and that there was no ‘International flavour’ whatsoever as the business to be conducted can be conducted only in India, an exception being made only for personal use. Most importantly, the address of the sole proprietorship in all the correspondence between the parties was the address of the Bangalore office of the sole proprietorship. 

Strong reliance was placed on Larsen & Toubro Ltd - SCOMI Engineering Bhd v. MMRDA, (2019) 2 SCC 271 and ‘Code of Ethics of Amway Direct Sellers’.

Issue: Whether Section 2(1)(f)(i) is applicable in which case, there is no requirement to go into sub clause (iii) OR considering it an ‘association or a body of individuals’ with central management being run through Bangalore Office under sub clause (iii), the same can be put under Domestic Arbitration, holding appointment of Arbitrator by Delhi High Court valid?

Court observed, “A reading of the application form as filled in, together with the Code of Ethics, would show that a distributorship may be taken up either in individual capacity, a sole proprietorship concern, partnership firm, or company. When it comes to a husband and wife’s distributorship, they are entitled not to two, but to a single distributorship, it being made clear under clause 3.17 of the Code of Ethics that they are to operate only as a single entity. The form that was filled in made it clear that the respondents applied to become a distributor as a sole proprietorship, it being made clear that the husband, Ravindranath Rao Sindhia, was the sole proprietor / primary applicant, the wife, Indumathi Sindhia, being a co-applicant.

With respect to the applicability of dictum laid down under Larsen & Toubro Ltd - SCOMI Engineering Bhd v. MMRDA, (2019) 2 SCC 271, the Bench clarified that in the said case the employer MMRDA employed L&T (Indian Company) and SCOMI (Malaysian Company) in collaboration/as consortium for a particular project, with central management and control being vested with Larsen and Toubro in India (sub clause 3 not attracted). On the other hand, the respondents herein have themselves applied to become distributors of Amway products in India as a ‘sole proprietorship’ under the relevant forms and the Code of Ethics as issued. 

Citing Ashok Transport Agency v. Awadhesh Kumar, (1998) 5 SCC 567, Court elaborated on how a sole proprietary concern is equated with the proprietor of the business; “A suit by or against a proprietary concern is by or against the proprietor of the business. In the event of the death of the proprietor of a proprietary concern, it is the legal representatives of the proprietor who alone can sue or be sued in respect of the dealings of the proprietary business. The provisions of Rule 10 of Order XXX which make applicable the provisions of Order XXX to a proprietary concern, enable the proprietor of a proprietary business to be sued in the business names of his proprietary concern. The real party who is being sued is the proprietor of the said business. The said provision does not have the effect of converting the proprietary business into a partnership firm.”

Case Title: Amway India v. Ravindranath Rao | Civil Appeal No. 810 of 2021