The Supreme Court has held that if a party is national/ habitual resident of any country other than India but centrally manages business from India, dispute shall fall under International Commercial Arbitration.
The division bench headed by Justice R.F.Nariman, in the case of Amway India Enterprises Pvt. Ltd. v. Ravindranath Rao Sindhia stated that arbitrations of this nature of has been addressed under Section-2(1) (f)(i) of the Arbitration and Conciliation Act,1996.
Brief Facts of the Case
The petitioner in the year 1998, undertook as an incharge of a distributor for the marketing and sale of marketing and distribution of the products in India and were registered with the proprietorship.’Sindhai Enterprises’and registered under Amway Direct Seller. As the parties could not appoint an arbitrator, the respondents approached the Delhi High Court for the appointment of a sole arbitrator under Section 11(6) of the Act, 1996. The plea taken to the appellant was that a petition before the High Court was not maintainable as the dispute relates to international commercial arbitration, under Section 2(1) (f) (i) of the Arbitration Act as the respondents were both habitually residing in Unites States of America.
The High Court relied on M/S Larsen and Toubro Limited SCOMI Engineering BHD Vs. Mumbai Metropolitan Region Development Authority, 2018 Latest Caselaw 723 SC in which the Supreme Court was concerned with a consortium consisting of an Indian company and a foreign company and the Court took note of the fact that the office of an unincorporated entity, that is the consortium, being in Mumbai, as one of the the factors for arriving at the conclusion that the arbitration proceedings would not be international commercial arbitration, held that the matter would fall within the purview of domestic arbitration and appointed Justice Brijesh Sethi, a retired Judge of the Delhi High Court as the sole arbitrator.
In April, 2019 upon logging the petitioners noticed that they could not access their Amway Business Owner account. They could only access their account as a Preferred Customer. Later the petitioner raised a query with their Major Accounts Manager, who informed them that their accounts had been reclassified as Preferred Customer, as they have not completed their criteria of corded re-sale related purchase in the last 12 months.
The petitioner realized that this was a criteria in the fresh set of terms and conditions issued by the respondent in December, 2016, which was compulsorily required to be accepted by all the Amway Direct Sellers. By clicking on the ‘By clicking here you agree to abide by the new Terms & Conditions’ button, immediately upon logging in on the respondent’s website, to proceed further to their account. The petitioner made multiple requests to restore their Amway Business Owner account. The petitioners attempted to resolve the dispute and differences by mutual discussion with representatives of the respondent from April till December, 2019. However the respondent failed to consider the petitioners request for restoration of their Amway Direct Seller.
Supreme Court's Observation
The bench said that a sole proprietary concern is equated with the proprietor of the business, while a proprietary concern is only the business name in which the proprietor of the business carries on 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 off the proprietary business. The petitioner on June, 2020 referred the matter for redressal and review to Mr. Jon Sherk, Vice President and Deputy General Counsel of Amway Global in January 2020. The petitioners were communicated about the rejection of their request for restoration of their ADS account on June 26, 2020. The respondent now has, with effect from July, 2020 notified a new code of Ethics & Rules of conduct wherein the respondent has now been given benefit of a 2 year period for establishing sales, in accordance with the DSG, and carved out a provision for restoration of the Amway Direct Seller account."
The petitioners caused issuance of notice invoking the arbitration clause. To which the respondent replied through letter in August 2020 wherein the respondent communicated that the name of the Arbitrator as recommended by the petitioners was not acceptable by it and sought time to respond with the name of another arbitrator.
To this, the bench ruled, if at least one of the parties was either a foreign national,or habitually resident in any country other than India, or by the Government of a foreign country, the arbitration would become an international commercial arbitration notwithstanding the fact that the individual, body corporate, or government of a foreign country carry on business in India through a business office in India.
The respondents have applied to become distributors of Amway products in India as a sole proprietorship concern under the code of ethics. The high court viewed that the management and the power to control of the proprietor was practised in India, the dispute would not fall under international commercial arbitration. Contrary to this, the Supreme Court said that husband and wife were not two, but a single distributorship as of the Code of Ethics that they operate as a single entity.
The bench opined that as Section 2 (1)(f) would show the transaction between the parties, at least one party of a foreign national, habitually residing in some foreign national, this would automatically fall under international commercial arbitration.
The appeal was accordingly allowed.
CASE TITLE: RAJNIKANT PUNJALAL SHAH KARTA OF RAJNIKANT PUNJALAL SHAH HUF V/S MANAGER, BANK OF BARODA
CASE DETAILS: R/SPECIAL CIVIL APPLICATION NO. 10377 of 2020
CORAM:Justice R.F.Nariman
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