The Supreme Court has provided clarity on identifying the law applicable to arbitration agreements. The ruling addresses conflicts arising from multiple arbitration clauses in international commercial contracts governed by Indian law. It establishes guidelines for resolving such disputes effectively. This decision strengthens the legal framework for arbitration in cross-border agreements.
New Delhi: The Supreme Court reaffirmed the supervisory jurisdiction of Indian courts over disputes arising from agreements governed by Indian law, even if the arbitration is designated to take place at a foreign center.
This decision clarifies the relationship between conflicting arbitration clauses in international commercial agreements that fall under Indian law.
A bench comprising Chief Justice of India Sanjiv Khanna and Justices Sanjay Kumar and KV Viswanathan stated,
“We reiterate that the use of the premises at the Centre, or any other location designated by the Director of the Centre in Bogota, does not imply that Colombian law governs the arbitration agreement. While Clause 18 specifies that the award shall conform to Colombian law, this provision pertains solely to the arbitration proceedings or the award itself. It does not override or diminish the effect of Clause 16.5, which explicitly states that Indian law shall govern the agreement and the related disputes. The legal implications of this include the applicability of the Arbitration and Conciliation Act and the appointment jurisdiction of Indian courts.”
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The dispute originated from an international exclusive distributor agreement signed on May 16, 2016, between Disortho and Meril. This agreement granted Disortho exclusive rights to distribute Meril’s medical products in Colombia.
However, disagreements between the parties led Disortho to file a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitral tribunal.
The core of the dispute revolved around two conflicting clauses in the agreement:
- Clause 16.5: Stated that the agreement would be governed by Indian law, with disputes subject to the jurisdiction of courts in Gujarat, India.
- Clause 18: Provided for arbitration in Bogota, Colombia, under the rules of the Bogota Chamber of Commerce, with Colombian law governing the arbitration award.
Meril contested the petition, arguing that the arbitration clauses did not grant Indian courts jurisdiction to appoint arbitrators.
The Supreme Court’s judgment explored the complexities of international arbitration law, particularly the interaction among three legal systems: lex contractus (law governing the contract), lex arbitri (law governing the arbitration agreement), and lex fori (procedural law of arbitration).
The Court emphasized the significance of the law chosen by the parties in determining the validity, scope, and interpretation of arbitration agreements.
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It ruled that Clause 16.5 of the agreement, which designated Indian law as the governing law, applied to the arbitration agreement. The selection of Bogota as the venue for arbitration did not override this provision, as no explicit seat of arbitration had been chosen.
The Court concluded that the parties had implicitly agreed that Indian law would govern the arbitration agreement.
The judgment stated,
“Clause 16.5 is clear and unambiguous. It explicitly states that the entire agreement shall be governed by and construed in accordance with the laws of India, and all matters arising from the agreement shall fall under the jurisdiction of the courts in Gujarat, India. Given this, it is reasonable to assume that, when drafting this clause, the parties were fully aware of Clause 18, which provides for arbitration and conciliation under the Arbitration and Conciliation Centre of the Chambers of Commerce in Bogota. In our view, Bogota has been designated as the venue for conciliation and arbitration, while the courts in Gujarat, India, retain exclusive jurisdiction over disputes,”
The Court ruled that Indian courts maintained supervisory jurisdiction over the arbitration proceedings, as explicitly outlined in Clause 16.5. While Bogota was designated as the venue for arbitration and the procedural rules of the Bogota Chamber of Commerce would apply, this did not diminish the supervisory authority of Indian courts.
The Court emphasized the importance of interpreting conflicting clauses in a way that gives effect to both provisions. It rejected the argument that Clause 18 negated the jurisdiction of Indian courts, maintaining that the two clauses could coexist harmoniously.
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The judgment stated,
“The legal implications of this would include the applicability of the Arbitration and Conciliation Act (A&C Act) and the appointment jurisdiction of Indian courts. We do not interpret the final portion of Clause 18 as undermining the legal impact of Clause 16.5. Therefore, we affirm the applicability of the A&C Act under Section 11(6) of the Arbitration and Conciliation Act,
During the proceedings, both parties agreed that if the Court granted the petition, arbitration could take place in India. They also consented to the appointment of a sole arbitrator. In light of this agreement, the Court appointed Justice SP Garg, a retired judge of the Delhi High Court, as the sole arbitrator.
The arbitration will be conducted under the rules of the Delhi International Arbitration Centre, with the venue to be mutually decided by the parties and the arbitrator.
Disortho was represented by Senior Advocate Preetesh Kapur and Advocates Shaunak Kashyap and Nistha Gupta from M/s. Mitter & Mitter Co., while Meril was represented by Advocates Pranaya Goyal, Marylou Bilawala, Abinash Pradhan, Chiranjivi Sharma, Rubeka Himayat, Garima Agrawal, and Nehal Gupta from Wadia Ghandy & Co.
Case Title: Disotho SAS v. Meril Life Sciences Private Limited