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M/s Larsen and Toubro Limited Scomi Engineering Bhd v. Mumbai Metropolitan Region Development Authority

Arbitration Petition (Civil) · 2018 INSC 922Decided 3 Oct 2018
Arbitration Petition (Civil) No. 28 of 2017
Justice Rohinton Fali Nariman · Justice Navin Sinha

Background

A construction consortium, Larsen & Toubro (an Indian company) and Scomi Engineering Bhd (a Malaysian company), had contracted with the Mumbai Metropolitan Region Development Authority to build the Mumbai Monorail. Disputes arose over claims under the contract, and the consortium approached the Supreme Court directly under Section 11 of the Arbitration & Conciliation Act, a provision that lets a party come straight to the Supreme Court only when the dispute qualifies as an "international commercial arbitration" (i.e., at least one party is a foreign-incorporated entity). The key legal question was whether this consortium, which included a Malaysian company, qualified as such, or whether, because L&T was the lead partner with Indian-based management and control, the whole consortium should be treated as domestic for this purpose.

Decision Breakdown

The Supreme Court held that where a joint venture or unincorporated consortium is formed by companies from different countries, what matters for the "international commercial arbitration" test is where the consortium's central management and control is actually exercised, not merely whether one partner is foreign-incorporated. Since the Indian partner (L&T) was the lead/controlling member, the consortium's office was in Mumbai, and the Indian partner effectively led both the contract performance and any arbitration, the Court found that central management and control rested in India, meaning this was not an "international commercial arbitration" after all. Because of that, the Supreme Court itself had no jurisdiction to appoint an arbitrator under Section 11, and it dismissed the petition, while clarifying the petitioner remained free to approach the appropriate (non-Supreme Court) forum on the footing that this is a domestic arbitration.

Lesson Learnt

Having a foreign company as a partner in a consortium does not automatically make a contract dispute an "international commercial arbitration" eligible for direct Supreme Court intervention: courts look at where the consortium is actually managed and controlled from, and parties should be careful to approach the correct forum (ordinarily the relevant High Court) for domestic arbitration matters.

Official source (sci.gov.in)View Judgment (PDF)

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