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Supreme Court of India holds that an arbitration agreement will be governed by Indian law where foreign location is not the seat but is only the venue of arbitration, and the substantive contract is governed by Indian law
In a recent judgment, the Supreme Court of India (“Supreme Court”) in Disortho S.A.S vs. Meril Life Sciences Private Limited[1] has exercised jurisdiction under section 11 (6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) and appointed a sole arbitrator, wherein the dispute settlement clause in the contract, provided for disputes to be settled by arbitration in Bogota DC, Colombia, in accordance with the rules of the Arbitration and Conciliation Centre of the Chamber of Commerce of Bogota DC.
Brief facts
Disortho S.A.S (“Disortho”), a Colombian company, and Meril Life Sciences Private Limited (“Meril”), an Indian company, entered into an International Exclusive Distributor Agreement (“Contract”) for distribution of medical products in Colombia.
The Contract specified that it would be governed and construed in accordance with the laws of India, and all matters arising in consequence of the Contract would be subject to the jurisdiction of the Courts in Gujarat, India.
The dispute settlement clause in the Contract required disputes to be resolved through conciliation, failing which by arbitration to be conducted at Bogota DC, Colombia, in accordance with the Rules of the Arbitration and Conciliation of the Chamber of Commerce of Bogota DC.
When disputes arose between the parties, Disortho filed an arbitration petition under Section 11(6) of the Arbitration Act, before the Supreme Court seeking the appointment of an arbitrator. Meril opposed the petition on jurisdictional grounds contending that Indian Courts do not have jurisdiction.
Decision of the Supreme Court
The Supreme Court considered judicial precedents which discussed various legal systems which come into play in such trans-border arbitrations, viz., the law governing the substantive contract; the law governing the arbitration agreement; the law governing the performance of the arbitration agreement and the law governing the procedural aspects of arbitration.
As regards determining the law that governs the arbitration agreement, the Supreme Court considered the principles laid down by the UK Supreme Court in Enka Insaat Ve Sanayi AS and OOO Insurance Company Chubb[2] and held that the conclusions set out therein, including, that where the law governing the arbitration agreement is not specified, the law governing the substantive contract will generally apply to the arbitration agreement, which is part of the substantive contract, and that the choice of a different country as the seat of the arbitration is not, without more, sufficient to negate an inference that law governing the substantive contract was intended to apply to the arbitration agreement, state the correct legal position, except on aspects where Courts in India have taken a different view.
Interpreting the clauses in the Contract, based on principles laid down in various earlier judgements, the Supreme Court concluded that the seat of arbitration has not been expressly designated by the parties and Bogota DC is only the venue for arbitration. The Supreme Court further held that since the Contract stipulated that it would be governed and construed in accordance with the laws of India, and that all matters arising in consequence of the Contract would be subject to the jurisdiction of the Courts in Gujarat, India, it has jurisdiction over matters relating to the appointment of the arbitrator. The Supreme Court held that the designation of Bogota DC as the venue for arbitration and choice of the Rules of the Arbitration and Conciliation of the Chamber of Commerce of Bogota DC will not take away the jurisdiction expressly conferred on the Indian courts.
Noting that the Contract does not expressly identify a separate law governing the arbitration agreement, the Supreme Court held that by implication, Indian law governs the arbitration agreement. The Supreme Court further held that use of the premises of the arbitration centre at Bogota DC for the arbitration proceedings, will not imply that Colombian law will govern the arbitration agreement. The Supreme Court also held that the applicability of Colombian law is limited to the arbitration proceedings and matters relating to the award.
Conclusion
The judgement is an addition to the earlier judgements of the Supreme Court, wherein the Supreme Court had discussed the complexity involved in interpretation, when different legal systems come into play in contracts involving parties from different jurisdictions. The judgement underscores the importance of carefully drafting arbitration clauses, especially in international contracts, to avoid jurisdictional ambiguities.
This Prism is prepared by:
Vinod Kumar |
Saibarath |
For more details, please contact [email protected]
[1] Arbitration Petition No.48 of 2023
[2] (2020) UK SC 38. This judgement followed the principles of Sulamerica Cia Nacional De Seguros S.A. and others Vs Enesa Engenharia S.A and Others (2012) EWCA Civ 638
