How to determine which law governs arbitration agreement? Supreme Court answers

The Supreme Court on Tuesday reaffirmed the supervisory jurisdiction of Indian courts in disputes arising from agreements governed by Indian law, even when the arbitration is agreed to be governed by a foreign centre. [Disotho SAS v. Meril Life Sciences Private Limited].The decision clarifies the interplay between conflicting arbitration clauses in international commercial agreements governed by Indian law. A bench of Chief Justice of India Sanjiv Khanna and Justices Sanjay Kumar and KV Viswanathan held, “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. Although Clause 18 specifies that the award shall conform to Colombian law, this provision pertains solely to the arbitration proceedings or the award matters. It does not override or diminish the effect of Clause 16.5, which clearly stipulates that Indian law shall govern the agreement and the related disputes. The legal implications of this would include the applicability of the A&C Act, and the appointment jurisdiction of Indian courts.”.The dispute arose from an international exclusive distributor agreement signed on May 16, 2016, between Disortho and Meril. The agreement granted Disortho exclusive rights to distribute Meril’s medical products in Colombia. However, disagreements between the parties led to Disortho filing a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitral tribunal.The crux of the dispute centered on 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 delved into the complexities of international arbitration law, addressing the interaction between 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 emphasised the importance of parties’ chosen law in determining the validity, scope and interpretation of arbitration agreements.It held that Clause 16.5 of the agreement, which designated Indian law as the governing law, applied to the arbitration agreement. The choice of Bogota as the venue for arbitration did not override this provision, as no explicit seat of arbitration was chosen. The Court found that the parties had impliedly agreed that Indian law would govern the arbitration agreement.“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 judgment said. .The Court ruled that Indian courts retained supervisory jurisdiction over the arbitration proceedings, as explicitly stated in Clause 16.5. While Bogota was designated as the venue for arbitration, the procedural rules of the Bogota Chamber of Commerce would apply, but this did not diminish the supervisory powers of Indian courts..Emphasis was laid on the need to interpret conflicting clauses in a manner that gives effect to both provisions. The Court rejected the argument that Clause 18 negated the jurisdiction of Indian courts, stating that the two clauses could coexist harmoniously.“The legal implications of this would include the applicability of the 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,” the judgment said. However, during the proceedings, both parties agreed that if the Court allowed the petition, the arbitration could be held in India. They also consented to the appointment of a sole arbitrator. In light of this consensus, 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 decided mutually 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.Merlin was represented by Advocates Pranaya Goyal, Marylou Bilawala, Abinash Pradhan, Chiranjivi Sharma, Rubeka Himayat, Garima Agrawal and Nehal Gupta from Wadia Ghandy & Co..[Read Judgment]