New Delhi May 19: The Supreme Court has ruled that two Indian companies locked in a dispute cannot seek international commercial arbitration, as it tantamounts to condoning the home country's law.
While dismissing a plea by TDM Infrastructure Pvt Ltd for international commercial arbitration (ICA), a bench headed by Justice S B Sinha said: "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."
Stating that determination of nationality of the parties played a crucial role in the matter of appointment of an arbitrator, the court said the Chief Justice of India or his designate must bear in mind the nationality of an arbitrator.
Noting that the domicile of a company being an artificial person would depend upon the nature and purport of the statute, it said 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.
"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," Justice Sinha observed, adding a distinction, thus, exists in law between a nationality and the residence.