Supreme Court on Determining the Law Governing Arbitration Agreements

In the case of Disortho S.A.S. v. Meril Life Sciences Pvt. Ltd. [2025 INSC 352], decided on March 18, 2025, the Supreme Court of India addressed a crucial issue in cross-border arbitration—determining the law applicable to arbitration agreements. The judgment provided clarity on the interaction between the governing law of a contract (lex contractus), the law governing the arbitration agreement (lex arbitri), and the law governing procedural aspects (lex fori).

Facts of the Case

The dispute arose from an International Exclusive Distributor Agreement dated May 16, 2016, between Disortho S.A.S., a Colombian company, and Meril Life Sciences Pvt. Ltd., an Indian company. The agreement contained:

• Clause 16.5: Stating that the agreement shall be governed by Indian law and disputes would be subject to the jurisdiction of courts in Gujarat, India.
• Clause 18: Providing that disputes unresolved through conciliation would be arbitrated under the rules of the Chamber of Commerce of Bogotá, Colombia, with the arbitration taking place in Bogotá.

Disortho filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitral tribunal. Meril objected, arguing that Indian courts lacked jurisdiction.

Key Issues Before the Court

1. Which law governs the arbitration agreement—Indian law (as per Clause 16.5) or Colombian law (as per Clause 18)?
2. Does the Indian judiciary have jurisdiction to appoint an arbitrator despite the arbitration venue being in Bogotá?
3. How should conflicting clauses in an agreement be harmonized?

Arguments Presented

Petitioner’s Arguments (Disortho S.A.S.):

• Clause 16.5 clearly states that Indian law governs the agreement and grants jurisdiction to Indian courts.
• The agreement does not explicitly state that Colombian law governs the arbitration clause; hence, the lex contractus (Indian law) should apply.
• The Supreme Court should appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act.

Respondent’s Arguments (Meril Life Sciences Pvt. Ltd.):

• Clause 18 establishes Bogotá as the arbitration venue and mandates the application of Colombian arbitration rules, implying that Colombian law should govern the arbitration agreement.
• Arbitration-related matters should be determined in Bogotá, not India.

Supreme Court’s Reasoning

The Court extensively analyzed principles from domestic and international precedents, including:

1. The Three-Law Framework in Arbitration:
   
   
   • Lex contractus: Governs the substantive obligations of the contract.
   • Lex arbitri: Governs the arbitration agreement’s validity and interpretation.
   • Lex fori: Governs procedural aspects such as court intervention.
2. Harmonizing Conflicting Clauses:
   
   
   • The Court cited Melford Capital Partners v. Digby [2021 EWHC 872] and Paul Smith Ltd. v. H&S International Holdings Inc. [1991] 2 Lloyd’s Rep 127 to emphasize that an arbitration agreement is distinct from the main contract but remains subject to the law chosen for the contract unless clearly stated otherwise.
3. Presumption in Favor of Lex Contractus:
   
   
   • The Court applied Enka Insaat Ve Sanayi AS v. Chubb [2020 UKSC 38], which holds that in the absence of an explicit choice of law for the arbitration agreement, the governing law of the contract applies unless displaced by strong contrary indications.
   • Clause 16.5 clearly stipulated Indian law, supporting the presumption that the arbitration agreement was also governed by Indian law.
4. Supervisory Jurisdiction of Courts:
   
   
   • Applying Mankastu Impex v. Airvisual (2020) 5 SCC 399, the Court held that while Bogotá was the arbitration venue, it was not necessarily the juridical seat. Since Indian law governed the arbitration agreement, Indian courts retained jurisdiction to appoint an arbitrator.

Conclusion and Judgment

The Supreme Court held that:

• The arbitration agreement is governed by Indian law, as per Clause 16.5.
• Indian courts have jurisdiction to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act.
• The arbitration will take place in Bogotá but under Indian law’s supervision.
• Mr. Justice S.P. Garg (Retd.) was appointed as the sole arbitrator, with the arbitration proceedings to follow the rules of the Delhi International Arbitration Centre.

This judgment reinforces the principle that the governing law of an arbitration agreement must be expressly chosen or determined based on the contract’s closest connection. It also clarifies that the venue of arbitration does not equate to the seat of arbitration, which determines the courts’ supervisory jurisdiction.

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