[Rohan Deshpande practices as a Counsel at the Bombay High Court.]
The Bombay High Court in Aslam Deshmukh v. ASAP Fluids Pvt. Ltd. (decided on February 22, 2019) was concerned with a question whether the proceedings for appointment of an arbitrator arose out of a domestic or an international commercial arbitration. The question under the Indian Arbitration and Conciliation Act, 1996 (‘Act’) is not an academic one – as under the mandate of section 11(12)(a) of the Act, only the Supreme Court of India can appoint an arbitrator in an international commercial arbitration to the exclusion of all other courts in the country. In the past, an appointment made by a High Court in an international commercial arbitration has been held to be inherently without jurisdiction, and a defect which is incurable even by the consent of parties.
What constitutes an ‘international commercial arbitration’ is set out under section 2(1)(f) of the Act. One of the constituent factors is when the arbitration relates to disputes where at least one of the parties is an individual ‘habitually resident’ outside India; it was this very limb which the Court had to consider in ASAP Fluids. The Court held in the affirmative, i.e, that the applicant was habitually resident outside India, and the application for appointment of an arbitrator was held to be not maintainable.
However, in doing so, the Court conflated the concept of habitual residence with that of ‘ordinary residence’ and deemed that the two were “similar in meaning”. Respectfully, it is the view of the author that the approach of the Court is erroneous. Further, considering that ASAP Fluids is one of the first decisions which has directly interpreted the term habitual residence under section 2(1)(f), it continues to be relevant and has the potential to shape future discourse.
Akin to various Hague Conventions, habitual residence is not defined under the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’), as well as the Act, which is substantially based on the Model Law. The Court thus looked to judicial interpretation by English courts, as the term appears in English statutes giving effect to the Hague Conventions as well as domestic legislation. In fact, section 85(2)(a) of the English Arbitration Act, 1996 adverts to it, but since the provision has never been notified, there is no jurisprudence in context thereof. Nonetheless, English courts have been frequently called upon to interpret the term inter alia in relation of child abduction and family law cases.
In coming to the aforesaid conclusion in ASAP Fluids, the Court primarily relied on In re Bates (cited as Mother v. Father), which in turn, refers to Kapur v. Kapur,  FLR 920 (summary). Kapur is one of the earliest English decisions to hold that there was no real distinction between habitual and ordinary residence. But even previously, the terms were interchangeably used by the House of Lords in Shah v. Barnet London Borough. In Nessa v. Chief Adjudicating Officer, the House of Lords, after referring to Kapur,expressed obiter that they were “not satisfied” that the terms are always synonymous, but deemed that it was unnecessary to decide so in that case.
Subsequently, the 2005 decision of the House of Lords in Mark v. Mark (citing Ikimi v. Ikimi) deemed that it was “common ground” that the two concepts of residence are interchangeable. Much of the further discourse was thus shaped by this understanding of the law; indeed even past editions of standard commentaries on private international law including Cheshire, North and Fawcett and Dicey, Morris and Collins suggested the same.
However, recent English jurisprudence suggests that the two concepts of residence are not the same. The UK Supreme Court (‘UKSC’) in In the matter of A (Children) (AP) (2013), while interpreting the terms of the Family Law Act, 1986 and the Brussels II Regulation, noted that the Law Commissions of England and Scotland deliberately adopted habitual rather than ordinary residence. In doing so, it was the purpose of the Family Law Act, 1986 to adopt a concept which was the same as that adopted in the Hague and European Conventions. The UKSC further opined that the test derived from Shah should be eschewed when determining habitual residence.
Continuing in the trend of preferring the European construction of the term, the UKSC then indicated in In the matter of B (A child) (2016) that at a given point in time, a person can have only one habitual residence – contrary to the previous exposition in Mark v. Mark. These significant developments have again altered the understanding under private international law. Cheshire, in its 2017 edition, notes that habitual residence under European law differs from ordinary residence, because a person can only have one habitual residence, while he may have more than one ordinary residence, and that it is likely ‘that the term “habitual” connotes something different than ordinary residence’.
This would be the correct understanding, since the very fact that a person may be ordinarily resident in more than one place at a given point in time manifests that the threshold of satisfaction with the test of ordinary residence is a lesser one than what is required to constitute habitual residence. Additionally, for being habitually resident at a given place, it is required that there must be some degree of integration into the social and family environment of that place – a requirement hitherto not applied in context of ordinary residence.
For the purpose of the present analysis, similar to the ruling in A (Children), specific legislative intent is evident in India, since the explicit term used in section 2(1)(f) is habitual residence [a term used in article 1(4)(b) of the Model Law], and not ordinary residence. The legislature cannot be deemed to be oblivious to the difference, since ordinary residence is a frequently used term in Indian statutes (inter alia, the Guardians and Wards Act, 1890; the Representation of the People Act, 1950; the Income Tax Act, 1961). In equating the two, the Court lost sight of the settled principle of statutory interpretation, viz., that unless there is an ambiguity, it would not be open to the court to depart from the normal rule of literal or grammatical construction and read words into the statute.
The decision in ASAP Fluids is also contrary to the ruling of the Supreme Court of India in Fuerst Day Lawson v. Jindal Exports, that the Act is a complete, self-contained code; once it is held to be so, it carries with it ‘a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done’.
More importantly, considering that the result of being ‘habitually resident’ outside India mandates that the arbitration is an ‘international commercial arbitration’ under section 2(1)(f), the distinction between the two concepts of residence cannot be lost sight of. If interpreted interchangeably, a propositus who fails to meet the test of habitual residence outside India, but conforms to that of ordinary residence (on which these is substantive jurisprudence in India in context of other statutes, some of which is cited within ASAP Fluids itself) may be deemed to covered within the ambit of section 2(1)(f).
Thus, without the necessary animus, a propositus would be governed by the provisions applicable solely to international commercial arbitration. Various unintended consequences under the Act (not limited to the exclusive right to appoint an arbitrator being vested in the Supreme Court of India) would then flow. These include substantive measures such as being deprived of challenging an arbitral award on the ground of ‘patent illegality’ by virtue of the bar under section 34(2A); not being governed by the time limit of twelve months for passing an award under section 29A(1); fees of the arbitrator not being subject to the provisions of section 11(14) read with the Fourth Schedule of the Act; even the forum for seeking interim reliefs from a court under Section 9, and challenging an award under section 34, would stand modified as per section 2(1)(e)(ii) of the Act.
In light of the foregoing, it is the view of the author that habitual residence ought not to have been equated with ordinary residence by the Court in ASAP Fluids, and that the ruling is likely to further complicate the jurisprudence under section 2(1)(f) of the Act in the case of individuals.
– Rohan Deshpande