A US couple ran an Indian business. Which court can appoint the arbitrator?
The Supreme Court says a sole proprietorship is legally identical to its owner. So when the owners are US nationals, the arbitration is international—and only the Supreme Court can appoint the arbitrator.
30
days.
The Supreme Court says a sole proprietorship is legally identical to its owner. So when the owners are US nationals, the arbitration is international—and only the Supreme Court can appoint the arbitrator.
Ravindranath and Indumathi, US nationals, ran an Amway distributorship in India as a sole proprietorship. When their account was downgraded, they went to the Delhi High Court to appoint an arbitrator. Amway objected: "This is international commercial arbitration—only the Supreme Court can do that." The question: is a sole proprietorship an "Indian" entity or just a mask for its owners?
The Supreme Court's answer, delivered in March 2021, rests on a single, unshakeable legal fact: a sole proprietorship has no life of its own. It is its owner. And when the owner is a foreign national, the arbitration becomes international — shifting jurisdiction from the High Court to the Supreme Court alone.
When the account went silent
Ravindranath Rao Sindhia and his wife Indumathi became Amway India distributors in 1998. They operated through Sindhia Enterprises, a sole proprietorship based in Bangalore. Over two decades, they built a network of about 1,500 sellers — a substantial business by any measure.
Then, in April 2019, they logged in and the screen showed something they had never seen before. Their account status had been downgraded. Where the word "Distributor" had once appeared, it now read "Customer." The cursor blinked on the screen as they stared at the change. Amway said they hadn't met new purchase criteria introduced in 2016. The Sindhias said they were never told about the change.
They tried to negotiate. Amway didn't budge. So the Sindhias invoked the arbitration clause in their distributor agreement — a standard provision that promised disputes would be resolved by an arbitrator instead of a court.
They sent a notice to Amway on 28 July 2020, invoking arbitration. The clock began to tick. Under the law, Amway had 30 days to nominate an arbitrator. The days passed. The deadline came and went. The silence from Amway's side was complete — no nomination, no reply, no letter, no call. The Sindhias did what any businessperson would do: they filed a petition in the Delhi High Court asking it to appoint one. That petition, filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the provision that lets a court appoint an arbitrator when one party refuses), seemed routine.
It was anything but.
"You walked into the wrong building"
Amway argued that the Sindhias had walked into the wrong building. Since both Ravindranath and Indumathi were US nationals living in the United States, their dispute with Amway India qualified as "international commercial arbitration" under Section 2(1)(f) of the Arbitration Act (the definition section that decides which court has jurisdiction).
Under Section 11(9) of the Act (the provision that says only the Supreme Court can appoint an arbitrator in international commercial arbitration), the Delhi High Court had no power to act. Only the Supreme Court could appoint the arbitrator.
The Sindhias countered that they weren't individuals — they were a sole proprietorship. Sindhia Enterprises, they said, was an "association or body of individuals" with its central management and control in India. That would bring them under Section 2(1)(f)(iii) (the clause that treats an association with Indian management as a domestic entity), keeping the case in the High Court.
The Delhi High Court agreed with the Sindhias. On 3 December 2020, the Court allowed the petition and appointed Justice Brijesh Sethi (retired) as the sole arbitrator. The order was typed, signed, and filed. The courtroom fell silent as the judge pronounced the order. But Amway had already decided to appeal. Within weeks, the physical file of the High Court order — a slim folder of stapled papers — was being carried to the Supreme Court.
What a sole proprietorship is not
The Supreme Court bench — Justice R.F. Nariman and Justice B.R. Gavai — began with a foundational question: what exactly is a sole proprietorship in law?
The answer came from a 1998 precedent, Ashok Transport Agency v. Awadhesh Kumar. In that case, the court had held that a sole proprietary concern has no separate legal identity from its proprietor. It is not a distinct juristic person. It is, for all legal purposes, the individual who owns it. The smell of old paper from the law report seemed to fill the courtroom as the principle was read out.
That case had arisen in a very different context — a motor accident claim where the question was whether a proprietorship could be sued as a separate entity. But the principle was universal. The Supreme Court had laid down a clear rule: you cannot treat a sole proprietorship as if it were a company or a partnership. It has no independent existence. It is a mask, and behind the mask is always the face of the owner.
If the Sindhias were individuals — and they were — then the entity through which they did business was irrelevant. The court was not dealing with an association or a company. It was dealing with two US nationals who happened to run an Indian distributorship.
Section 2(1)(f)(i) of the Arbitration Act defines international commercial arbitration as an arbitration where at least one party is an individual who is a national of, or habitually resident in, a country other than India. The Sindhias ticked both boxes. They were US nationals. They lived in the USA.
The arbitration was international. Period.
The High Court's error
The Delhi High Court had treated Sindhia Enterprises as an "association of individuals" under Section 2(1)(f)(iii), which would make the arbitration domestic if the association's central management was in India. But the Supreme Court said that logic collapsed on a simple point: a sole proprietorship is not an association. An association implies two or more persons. A sole proprietorship has one.
The High Court had also relied on the Larsen & Toubro-SCOMI precedent. In that case, the Supreme Court had held that a joint venture between an Indian company and a Malaysian company was not international commercial arbitration because the joint venture's central management was in India. But that case involved a consortium of two companies — a very different structure from a single individual operating a proprietorship.
The Larsen & Toubro-SCOMI principle, the bench said, applied to associations and bodies of individuals. It did not apply to a sole proprietor. The Sindhias could not hide behind their business structure to change the nature of the arbitration.
The question left unanswered
The judgment was clear on the core issue: the Delhi High Court had no jurisdiction. The petition should have been filed before the Supreme Court under Section 11(6) read with Section 11(9).
But the bench left one question unanswered. It noted that Article 142 of the Constitution (the Supreme Court's power to do complete justice) might allow it to transfer the case back to the High Court or continue with the already-appointed arbitrator. However, since neither party had argued this point, the court declined to decide it. The judges' voices were measured as they left that door slightly ajar.
The appeal was allowed. The High Court's order was set aside. The Sindhias would have to start over — this time before the Supreme Court.
What this means for every foreign national with an Indian business
For practitioners, the ratio (the court's central reasoning) is straightforward. When a foreign national operates through a sole proprietorship in India, that proprietorship does not domesticate the arbitration. The owner's nationality and residence control the jurisdictional question.
This matters because Section 11(9) gives the Supreme Court exclusive power to appoint arbitrators in international commercial arbitration. The High Courts have no role. Filing in the wrong court means delay, wasted costs, and starting from scratch.
The judgment also clarifies the boundary between two sub-clauses of Section 2(1)(f). Clause (i) applies to individuals. Clause (iii) applies to associations and bodies of individuals. A sole proprietorship falls into the first category, not the third. This distinction, though simple, had been overlooked by the High Court — and the Supreme Court's correction is now binding law.
For the Sindhias, the practical consequence is harsh. They built a business over two decades. They lost their distributor status in a single notice. And when they tried to fight back, they discovered that the most basic question — which court? — had no easy answer. The arbitrator appointed by the High Court was now without authority. The entire process had to begin again.
THE PLAY: Before filing a Section 11 petition, check the nationality and residence of every party — not just the business entity — because a sole proprietorship is legally invisible.
The courtroom in the Supreme Court, on the day the judgment was delivered, was quiet as the bench read out the operative order. The file of the case — Civil Appeal No. 810 of 2021 — was thin, but the principle it contained was weighty. A sole proprietorship, the court said, is not a shield. It is a mirror. And when the mirror reflects a foreign national, the arbitration becomes international — no matter where the business is run.
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