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DR.

RAM MANOHAR LOHIYA NATIONAL LAW


UNIVERSITY, LUCKNOW

“CONFLICT OF LAWS”

A PROJECT REPORT ON:

“DOMICILE OF CORPORATIONS”

SUBMITTED TO:
Mr. P. K. Gautam
(FACULTY OF CONFLICT OF LAWS)

SUBMITTED BY-
ANOOP KUMAR YADAV
ROLL NO. 11

7th Semester, B.A.LL.B (Hons.)

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ACKNOWLEDGEMENT

I would like to take this opportunity to express my sincere thanks to Mr. P.K. Gautam,
Faculty of Law, Dr. Ram Manohar Lohiya National Law University, and who gave me an
opportunity to write on this topic and also gave his valuable suggestions to complete this
project and without him this project would not have reached this shape.

I would also like to thank my family, without their love and support this project would
not have completed. Last but not the least; I would like to thank my friends who were
very helpful throughout the completion of the project.

Date: 27th Nov. 2009 Anoop Kumar Yadav


Roll no. 11

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CONTENTS.

INTRODUCTION. 4
DEFINITION OF DOMICILE. 5
THE PRINCIPLES OF DOMICILE 6
CORPORATIONS AND CONCEPT OF PIERCING THE
CORPORATE VEIL. 6
JURISDICTION OF ENGLISH COURTS. 7
POSITION IN INDIA. 9
BRUSSELS CONVENTION AND LUGANO CONVENTION. 12
CONCLUSION: 13
BIBLIOGRAPHY: 14

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INTRODUCTION.
In the eye of law, everyone is under the ambit and scope of the statutory provisions. No
one can escape the control of law of the land. Even the legal personalities like the
corporations and companies are under the purview of the law of the land.
The corporations though, not being natural personalities, are also under the
purview of the law of the land. They are also held responsible for the offences and civil
wrongs. But several times question arises as to the choice of law of the land under which
the corporations are to be governed.
For that purpose, it has to be understood whether the law of the nation which is
going to be applied, has the jurisdiction over the corporation and related matters. In other
words, it has to be understood whether the corporation has domicile of the nation whose
law is to be applied.
There are various theories and statutes, including international conventions, on the
domicile of a person, both natural and artificial.

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DEFINITION OF DOMICILE.
Etymologically, both domicile and residence have the same meaning and are related
concepts. But they are not the same. In the field of conflict of laws both are different
connotations1.
• Domicile cannot be defined with precision.
In a case Whicker v Hume2 domicile has been defined as ‘permanent home’. However, in
many reported cases where a person has lived in a place for 30 or 40 years and has not
been held to have acquired a domicile there.

• Domicile is ‘an idea of law’


Domicile diverges from the notion of permanent home in three ways:
1. Firstly, the elements required for the acquisition of a domicile go beyond
those required for the acquisition of a permanent home. Thus, to acquire a
domicile of choice in a country a person must intend to reside in it
permanently or indefinitely.
2. Secondly, the law attributes a domicile to everyone, whether they have a
permanent home or not. A vagrant, for example, has a domicile.
3. Thirdly, certain persons, for example children under 16, cannot acquire
independent domiciles. They may thus have permanent homes in places in
which they are not domiciled, because the person upon whom they are
dependent is domiciled elsewhere.

• Domicile connects a person with the law of a country


For these purposes England and Scotland, Victoria and New South Wales, California and
Texas, for example, are separate systems. So if X immigrates to the USA but cannot
decide whether he will live in Florida or Oregon, he does not acquire a domicile of
choice, and will retain his existing domicile until he does so.

1
Union of India v. Dudhnath Prasad AIR 2000 SC 525, (2000) 2 SCC 20.
2
(1858) 7 HLC 124, 160.

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THE PRINCIPLES OF DOMICILE
The basic principles are that:
1. no person can be without a domicile.
2. no person can at the same time for the same purposes have more than one
domicile.
3. an existing domicile is presumed to continue until it is proved that a new domicile
has been acquired.
The burden of proving a change of domicile lies on those who assert it. The change of a
domicile of origin must be proved beyond reasonable doubt: the change of a domicile of
choice may be proved on a balance of probabilities.
For the purpose of an English rule of the conflict of laws, the question where a
person is domiciled is determined according to English law.

CORPORATIONS AND CONCEPT OF PIERCING THE CORPORATE VEIL.


In English and Indian law, just like the law of other Common Law countries, it is
permissible in a limited class of cases to ‘pierce the corporate veil’; when this is done, the
person or entity who is found to be the alter ego of the corporation can be held liable for
the liability of the corporate entity. This kind of situation arises when fraud or tax evasion
practices have arisen.
In some jurisdictions, the liability of corporations have been taken into account by
taking the holding and subsidiary companies to be the same entity. However, there are no
cases on the point, which justify the reason behind holding the holding company and the
subsidiary company as the same entity.
In a case, the Court of Appeal of England was considering whether the judgment
of an American court by default could be enforced in England, and the question arose
whether that court had jurisdiction against English company. The English company in the
question, traded in the United States through separate companies, and the court was
invited to tear the corporate veil. Had it done so, the result would have been that the
foreign judgment would have been the judgment of a court having jurisdiction. The court
declined to do so as it found that there was nothing illegal in what had been done 3. This

3
Adams v. Cape Industries plc, [1990] Ch 433, [1991] 1 All ER 929.

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decision points to observation that in principle corporate veil can also be pierced even in
situation having foreign elements.

JURISDICTION OF ENGLISH COURTS.


The question arises as to the jurisdiction of the English courts on foreign companies. The
first and foremost question arises about the domicile and residence of corporations.

• Domicile and Residence of Corporations.


Questions regarding the ‘domicile’ and ‘residence’ of corporations are of utmost
importance. These concepts are usually applicable to natural persons. Applying the same
principles to the artificial persons has involved creation of rules which are also artificial.
The question arises mainly in fields of taxation to ascertain when a foreign corporation
can be made to bear income tax or any other tax in a country where the liability to pay tax
arises only if the person resides in the country. This question raises issues of taxation
laws which vary from country to country.
The basic rule is that a company is domiciled in the country under whose law it is
incorporated; and is resident where its central management and control is exercised. The
word domicile is used by anology to the domicile of natural persons, and by domicile of a
corporation is meant the place under whose law it has been incorporated4. A corporation
can not have more than one domicile5.
For the purpose of (English) taxation, the test is not the place where the company
has been incorporated but where it is resident, i.e., where its central management and
control is carried out6. Where the central management and control of the company is
divided between two places, it is resident in both places7.

• Status of Corporations.
In the case of foreign corporations, their incorporation, existence or dissolution under the
law of the country under which the corporation is incorporated is recognised in England.
4
Carl Zeiss Stifung v. Rayner & Keeler Ltd. (No.3) [1970] Ch 506, [1969] 3 All ER 897.
5
Saccharin Corpn Ltd. v. Chemische Fabrik Von Heyden Aktiengesellschaft [1911] 2 KB 516, P527.
6
De Beers Consolidated Mines Ltd. v. Howe (surveyor of Taxes) [1906] AC 455.
7
Swedish Central Railway Co Ltd v. Thompson [1925] AC 495; Union Corpn. Ltd. v Inland Revenue
Commrs [1952] 1 All ER 646 (CA).

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This principle is well settled. A foreign company dissolved by the law of the country in
which it was incorporated, ceases to exist, and no proceedings can be entertained in an
English court against it8. The basis of such recognition has been explained by Lord
Wright as a matter of comity of nations.
When a number of Arab states by a treaty created an organisation called the Arab
Monetary Fund, which was created as a corporate body by the laws of a friendly state, the
United Arab Emirates, it was recognised as such in England; though established by a
number of countries by a treaty between them, it was expressly conferred corporate status
in one of the participating countries9.

• Change of Governments.
The situation is different in cases where the government of a state has changed after a
civil war or insurrection, and the new government has either enacted laws effecting the
status of corporations or taken governmental action affecting the management of
corporations incorporated in that country. If such a situation arises, the court is faced with
a question whether it should accept the new laws or new governmental action. The
traditional view was that the answer of this question depends on whether the British
government had or had not recognised the new authority in that state.
A different result was reached in a case where the foreign government was not
recognised by the British government. When a mandate to a British bank in respect of an
account in England was revoked by a new junta which had seized power in Sierra Leone
after a coup d’etat, the revocation was not recognised as the British government had not
only not recognised the junta Government but had condemned the coup10.
The enactment of the (English) Foreign Corporations Act, 1991, has meant that
whether a foreign state is or is not recognised by the British Government is irrelevant in
ascertaining whether any law passed in such a territory has dissolved a corporation
incorporated in that country.

• Capacity and Internal Management of Corporations.

8
Lazard Brothers & Co. v. Midland Bank Ltd. [1933] AC 289.
9
Arab Monetary Fund v. Hashim (No.2) [1991] 2 AC 114, [1991] 1 All ER 871.
10
Sierra Leone Telecommunications Co. Ltd v. Barclays Bank Plc [1998] 2 All ER 821.

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The matters regarding the constitution of a corporation are governed by the law of the
place of incorporation. The capacity of a corporation to enter into a transaction is
determined by applying the constitution of the corporation, and the law applicable to the
transaction11.
This rule is an amalgam of two separate limitations on the power of a corporation
to enter into a particular transaction: limitation applicable to all persons that a transaction
not permissible by the lex loci contractus can not be entered into, and the rule basic in the
case of corporations that a corporation being a creature of a law, cannot do something
which is not permissible under that law.
When a company incorporated in England entered into a contract in California,
and under California law a shareholder was liable to third parties for the liabilities of the
company in proportion to his holding in the company, it was held that the shareholder
could not be held liable in an English court because of the provisions of Californian law;
it was English law which determined whether and to what extent a shareholder of a
company incorporated under English law could be held liable for the liability of the
company; and holding a shareholder liable in proportion to his shareholding was contrary
to the basic concepts of limited liability under English law12.

• Winding Up of Foreign Companies.


English courts can wind up a company incorporated in another country as an unregistered
company if there is sufficient connection between the company and England, and if there
are people who would benefit by making the order.
An English court had jurisdiction to wind up a foreign company when its directors
used to transact the business of the company from a hotel in London13.

POSITION IN INDIA.

The principles of Private International Law used to govern the conflict of law between
countries. But the rapid growth of international trade, commerce, investment and

11
Dicey & Morris, Conflict of Laws, thirteenth edn, r 154(2), p1110.
12
Risdon Iron and Locomotive Works v. Furness [1906] 1 KB 49 (CA).
13
Re Tavarishestvo Manufactur Ludvig-Rabenek [1944] 1 Ch 404.

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industries setting the pace of globalization and opening-up of the economies of nations
has added to the need of formulating, specific legal measures for protecting Indian
creditors as well. The question of choice of law arises in all cross border transactions due
to the following reasons:

(a) Development of international trade in which inter-country debtor-creditor


relations across the border develops;
(b) Development of transnational and multi- national institutions through building
up trans-border structures through permanent establishment, branches or
franchises;
(c) Development of business through chain organization structure of subsidiaries,
and joint venture and finally
(d) Development of complexities in modern business relations. Naturally, in all
trans-border insolvency situations there are claims of national creditor against
foreign debtor or national debtor to settle dues to foreign creditors.

The present Indian legal system does not contain any specific provision on any cross –
border relations, but is spread over various legislations. Some of specific issues in cross-
border relation are discussed bellow:

• Origin Of A Company:

The domicile of origin in the case of a company is the country where it is registered, i.e.,
the place or country of its incorporation. Thus, a company formed under the English
Companies Act has an English domicile if it is registered in England. Similarly, a
company incorporated under the Indian Companies Act will have an Indian domicile.
This has been recognized by the Indian Supreme Court in the case Technip SA v. SMS
Holding (Pvt.) Ltd. & Ors14, the court observed that:

“Questions as to the status of a corporation are to be decided according to the laws of its
domicile or incorporation subject to certain exceptions including the exception of
domestic public policy. This is because a corporation is a purely artificial body created by
14
Available at http://vlex.in/vid/technip-sms-holding-pvt-ltd-ors-29616426.

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law. It can act only in accordance with the law of its creation. Therefore, if it is a
corporation, it can be so only by virtue of the law by which it was incorporated and it is
to this law alone that all questions concerning the creation and dissolution of the
corporate status are referred unless it is contrary to public policy.”

In addition according to Indian Income Tax Act, a company registered outside India but
having its management and control in India, is considered an Indian Company for the
purpose of corporate taxation15. The domiciles of the shareholders have no influence in
determining the domicile of the company16.

• Indian Law on Corporate Insolvency:

Under the Indian Companies Act, the Indian courts have jurisdiction to entertain winding
up proceedings in respect of the following two categories of companies:
(a)When the company has been incorporated in India, and
(b) When it is an unregistered company17.

In respect of the former the Indian courts have jurisdiction irrespective of the fact that the
entire business of the company is carried on abroad, or that all its members are
foreigners. In such winding up proceedings, Indian as well as foreign creditors can prove
their debts18.There is no discriminative treatment of ‘foreign’ creditors in the sense that
only the creditors of the Indian branch are able to lodge proof of claim. The claims are
treated equally as per the provisions of section 530 of the Companies Act. Part X of the
Indian Companies Act deals with the winding up of the unregistered company. Section
584 of the Act relates to dissolved foreign companies. Foreign companies in India fall
within the meaning of unregistered companies. A bank incorporated in a foreign country
15
Section 2(26) of the Income-tax Act, 1961.
16
In Re Travancore National etc. Bank Ltd., (1939) Mad. 318, Rao, J., said that the domicile of a company
is the place considered by the law to be the centre of its affairs which in the case of (1) a trading company
is its principal place of business, i.e., the place where the administrative business of the corporation is
carried, and (2) in the case of other corporations, it is the place where its functions are discharged. In short,
the test of domicile of a company is the same under the Indian law as it is under the English law. It should
be kept in mind that the domicile of the company is entirely distinct and independent from the domicile of
its members or shareholders.
17
Part X of the Indian Companies Act.
18
Rajah of Vizianagaram v. Official Receiver and Liquidator, 1962 S.C. 500.

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is an unregistered company and winding up proceedings can be filed in India. Winding
up proceedings in respect of a foreign company not falling under section 584 of the
Companies Act can be filed under section 582 as an unregistered company.

Indian courts have the jurisdiction to wind up a foreign company whatever be the number
of its members, provided it has assets and an office in India19. It would make no
difference, even if an order for its winding up has been made by a court of competent
jurisdiction of the place of the company’s domicile. However, just because a winding up
order has been made by the court of domicile of a foreign company, it does not mean that
the Indian courts are bound to entertain its winding up proceedings. The court may
decline to exercise jurisdiction on practical considerations.

Though the jurisdiction of the Indian court is ‘territorial’ as opposed to ‘universal’ in the
sense that if the assets of the company are outside the jurisdiction of India, then the
Indian courts and the liquidator will need to obtain the consent of the relevant courts in
that jurisdiction for their actions to have effect.

BRUSSELS CONVENTION AND LUGANO CONVENTION.

Brussels Convention applies to the sixteen members of the European Union, who are
signatories and referred to as contracting states. If we go by the provisions of the Brussels
Convention and Lugano Convention, the jurisdiction of the contracting state will apply if
the corporation has its seat in England or other contracting state.

In its recent green paper of April 2009, the European Commission has proposed a radical
extension of the Brussels Regulation (the Regulation) to introduce, in effect, a
standardised set of jurisdictional rules for member states to apply to disputes involving
defendants domiciled in non-EU states(third state defendants), third state property and
activities carried out in a third state, as well as to jurisdiction agreements which provide
for disputes to be resolved by non-member state courts (third state courts).

19
Re Travancore National Bank Ltd., 1939 Mad. 318; In re Frontier Bank Ltd., 1951 Punj, 145; In the
matter of Indian Companies Act, 1913, 1949 Lah. 48.

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CONCLUSION:

The nature of the corporation continues to evolve through existing corporations pushing
new ideas and structures, courts responding, and governments regulating in response to
new situations. A question of long standing is that of diffused responsibility: for example,
if the corporation is found liable for a death, then how should the blame and punishment
for this be allocated across the shareholders, directors, management and staff of the
corporation, and the corporation itself?

The present law differs among jurisdictions, and is in a state of flux. Some argue
that the owners of the business - the shareholders - should be ultimately responsible for
such circumstances, forcing them to consider issues other than profit when investing, but
the modern corporation may have many millions of small shareholders who know
nothing about its business activities.

BIBLIOGRAPHY:
Text.
1.

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