Arbitration Dispute Involving Consortium of an Indian and Foreign Company

M/S Larsen and Toubro Limited v. Mumbai Metropolitian Region Development Authority Arb. Petition (C) no. 28 of 2017 decided on 3 October 2018, the court dealt with the issue whether a consortium of an Indian company and a Malaysian company is a “body corporate” or “body of individuals” under “section 2(f) of the Arbitration and Conciliation Act, 1996”

Factual Matrix

On 09 January, 2009, A Consortium including, a company-based in India and the other based in Malaysia entered into an agreement with the respondent company for a construction contract commissioning of a Monorail system in Mumbai, India including “operation and maintenance for a period of 3 years”.

The agreement contains an arbitration clause and since the dispute arose between the parties. “The applicants filed a petition under Section 11 of the Act”

Issues

  1. Whether the consortium formed by the company incorporate in India and a company formed outside India can be termed as “body corporate” as stipulated under section 2(1)(f)(ii) or a “body of individuals” under “section 2(1)(f)(iii) of the Arbitration and Conciliation Act, 1996”?
  2. Whether the arbitration proceeding in this case would be considered as “International Commercial Arbitration”?

Arguments raised by the Applicant

It has been contented that the consortium comprising the Indian company and the Malaysian company are jointly and severally liable to the employer

The consortium would be a body corporate since the “either of the parties to the agreement being a body corporate incorporated in Malaysia under Section 2(1)(f)(ii) of the Act”.

The applicants have raised several claims during the working of the agreement which get rejected by the respondent company.

Arguments raised by the Respondent

The respondent relayed upon the construction contract and the consortium agreement in which it has been clearly shown that the applicants are “body of individuals” under “section (2)(f)(iii) of the Act”. It has been further contented that since the lead company is incorporated in India and the management and control is maintained in India, “section 2(1)(f) of the Act” would not apply.

Further, the learned counsel of the respondent relied on the order made by the High Court dated 20 October, 2016 between same parties arising out of the same agreement in which an interim order was challenged dated 18 August, 2016. The order was upheld and the court held that the parties can made claim only as a consortium and not as two entities separately. The order become final and cannot be challenged.

Judgement

The Supreme Court held –

  • Both the companies comprising “L&T, an Indian Company and M/s Scomi Engineering Bhd, a Malaysian Company” would jointly and severally liable to the employer and collectively referred as a “contractor”
  • As relayed on the definition clause, here the consortium be referred as “un-incorporated”. Both parties entered into the contract with the respondent company in partnership for the purpose of the contract.
  • The Indian company is the “lead consortium, and the Supervisory Board” (Malaysia Company) established under the “Consortium Agreement” clearly states that the lead partner should influence the proceeding.

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