Association or Body of Individuals

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A bench of Justice Prateek Jalan held that the subsequent shareholders here cannot be treated as a consortium or partnership.

The Delhi High Court held this in the case of M/S Ktc India Pvt. Ltd v. Randhir Brar & Ors.

In the present case a dispute arose between the petitioner and the respondents (fifteen individuals out of which thirteen were termed as “subsequent shareholders”).
Ktc India Pvt. Ltd (Petitioner) filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 in the High Court and sought the appointment of an arbitrator to resolve disputes arising from a Shareholders Agreement.
A key preliminary question was whether the petition was maintainable in the court, given that one of the parties to the Agreement, Mr. Nicholas Valladares, is neither a national nor a habitual resident of India.
The main issue here was whether Section 2(1)(f)(iii) would be applicable in this case or not.

The Court held that it is a settled position of law that the respondents cannot be held to constitute an “association or body of individuals” under Section 2 (1)(f)(iii) of the Arbitration Act.
The Court observed that the thirteen individuals were listed separately, and it is not the case involving a consortium or partnership.
Hence, the Court held that the “Subsequent shareholders” didn’t constitute a single entity as each shareholder subscribes to a specific number of shares, retains the right to exit the company individually under defined conditions and undertakes individual rights and obligations.
It held that treating these shareholders as a single association under Section 2(1)(f)(iii) of the Arbitration Act would be analogous to considering shareholders in a company as a collective entity solely because of their shareholding.
Consequently, the Cout held that the status of Respondent no. 5 is that of a resident of a country other than India and hence the High Court lacked the jurisdiction to entertain the petition under Section 11 of the Act.

Section 2 (1) (f) of the Arbitration and Conciliation Act, 1996 lays down the definition of the term “international commercial arbitration”.
It 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:
- an individual who is a national of, or habitually resident in, any country other than India; or
- a body corporate which is incorporated in any country other than India; or
- an association or a body of individuals whose central management and control is exercised in any country other than India; or
- the Government of a foreign country
As per Section 11 (9) of the Arbitration and Conciliation Act, 1996 provides that in the case of appointment of sole or third arbitrator in an international commercial arbitration, [the Supreme Court or the person or institution designated by that Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

Meera & Co v. CIT (1997)
- The Court in this case interpreted the term in the context of Income Tax Act, 1961.
- In this case the Court held that “association of persons” is not something distinct and separate from a “body of individuals”.
  - It has been added to obviate any controversy as to whether only combination of human beings are to be treated as a unit of assessment.
Ramanlal Bhailal Patel v. State of Gujarat (2008)
- The Court interpreted the term in the context of Bombay General Clauses Act, 1904 and the Gujarat Agricultural Lands Ceiling Act, 1960.
- The Court held in this case that the terms “association of persons” and “body of individuals” (which are interchangeable) have a legal connotation and refer to an entity having rights and duties.
- It was held that where there is a combination of individuals by volition of the parties, engaged together in some joint enterprise or venture, it is known as “association of persons/body of individuals”.

Larsen & Toubro SCOMI Engineering BHD v. Mumbai Metropolitan Region Development Authority (2019)
- In this case the contracting parties were a consortium comprising an Indian company and a Malaysian company on one side, and the Mumbai Metropolitan Region Development Authority (MMRDA) on the other.
- In these circumstances, the Court came to the conclusion that the consortium was an unincorporated association, of which the Indian company was the lead partner and had the determining voice, i.e., that the central management and control of the consortium was exercised in India.
- The Supreme Court therefore held that petition under Section 11 of the Act would not come before the Supreme Court and hence it was dismissed.
Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020)
- In this case again the disputes arose under the contract between the consortium and the respondent, HSCC India Ltd.
- The Court held that the lead member of the consortium was a foreign entity and hence the requirements of Section 2(1) (f) were satisfied.