In A Cross-Border Arbitration Matter Supreme Court Of India Determines Jurisdiction

The Supreme Court of India, in DISORTHO S.A.S. VS MERIL LIFE SCIENCES PRIVATE LIMITED (Arbitration Petition No. 48 of 2023), allowed a petition presented by Disortho S.A.S., a Colombian firm, under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act), requesting appointment of an arbitral panel to settle disputes against Meril Life Science Private Limited, an Indian firm.

The dispute arose over an International Exclusive Distributor Agreement of 16th May 2016 for distributing medical products in Colombia. Meril Life Sciences was against the petition on the grounds that the arbitration clauses in the agreement did not vest The Indian Courts with the authority to appoint arbitrators. The main issue before the Supreme Court was to ascertain which court had the authority to appoint arbitrators in the light of possibly contradictory clauses in the Distributor Agreement.

The Supreme Court, after a thorough examination of Clauses 16.5 and 18 of the Distributor Agreement and judicial precedents, allowed the petition and appointed a sole arbitrator. The Court construed Clause 16.5, under which the contract would be governed by Indian law and subject to the jurisdiction of courts in Gujarat, India, along with Clause 18, under which conciliation and arbitration would take place in Bogota, Colombia in accordance with the rules of the Chamber of Commerce of Bogota. The Court's reasoning was that Bogota had been made the location for conciliation and arbitration, but that exclusive jurisdiction over disputes remained with the courts of Gujarat, India, including the authority to appoint arbitrators and serve as a go-between for the arbitration in Bogota. The Court used the three-step test from Sulamérica Cia Nacional De Seguros S.A. and Others v. Enesa Engenharia S.A. and Others (Click to Download) to ascertain the law applicable to the arbitration agreement.

The three-step test to identify the law applicable to the arbitration agreement is to consider (i) express choice, (ii) implied choice, and (iii) closest and most real connection.

On the law governing the arbitration agreement determines the validity, scope, and interpretation of the agreement the Supreme Court observed the following:

A distinction exists between the lex contractus (law governing the substantive contract), lex arbitri (law governing the arbitration agreement and the performance of this agreement), and lex fori (law governing the procedural aspects of arbitration).

The law of the arbitration specifies which court shall have supervisory jurisdiction over the arbitration.

Although parties may choose to distinguish between the law of the agreement to arbitrate and the law of the arbitration, such a distinction should be approached with caution and should not be easily made unless expressly so intended by the parties.

In order to settle disputes between inconsistent or conflicting contractual terms, the court must read the contract in its entirety, attempting to interpret all of its provisions and a term should only be excluded if obviously inconsistent or repugnant to the remaining agreement.

In determining the law applicable to the arbitration agreement in the absence of an express election, there is a strong presumption that the lex contractus is applicable and the selection of another state as the place of arbitration is not, without more, enough to overcome this presumption.

A place being designated as the "venue" of arbitration does not necessarily mean it is the "seat" of arbitration, particularly where the law applicable to the contract is otherwise.

Clause 16.5 directly provided that Indian law would apply to the agreement and all disputes arising under it would be governed by the courts in Gujarat, showing an implied choice of Indian law as the law applicable to the arbitration agreement.

Clause 18 designated Bogota as the venue for arbitration and specified the procedural rules of the Arbitration and Conciliation Centre of the Chamber of Commerce of Bogota DC, but this did not override the effect of Clause 16.5 regarding the governing law and jurisdiction.

The applicability of the A&C Act and the appointment jurisdiction of Indian courts are legal implications of Indian law governing the agreement.

Finding no explicit choice of law for the arbitration agreement, the Apex Court held that there was a strong presumption that the "Lex Contractus" i.e., The Indian law, governed the arbitration agreement, and the mere choice of Bogota as the venue was insufficient to displace this presumption in the absence of an explicitly chosen seat. Finally, after going through the submissions of both sides at the hearing, the Court named a retired High Court judge of Delhi as the sole arbitrator, with the place of arbitration to be mutually determined by the parties and the arbitrator and the arbitration to be conducted according to the rules of the Delhi International Arbitration Centre.

Coram: CJI. Sanjiv Khanna, J. Sanjay Kumar, and J. K.V. Viswanathan
Between: DISORTHO S.A.S. VERSUS MERIL LIFE SCIENCES PRIVATE LIMITED 2025 INSC 352
Date of Judgment: 18-03-2025