Chambers of Ishaan Garg
Ch. No. 217, Western Wing, District & Sessions Court, Tis Hazari, New Delhi, Delhi 110054
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The Supreme Court of India recently delivered a significant judgment in Disortho S.A.S. v. Meril Life Sciences Private Limited,2025 INSC 352, ARBITRATION PETITION NO.48 OF 2023,dated: MARCH 18, 2025that provides crucial clarity on determining jurisdiction in international commercial arbitration when contractual clauses conflict. This March 2025 ruling, authored by Chief Justice Sanjiv Khanna, addresses one of the most complex issues in cross-border dispute resolution: which courts have the authority to appoint arbitrators when parties have chosen different laws and venues for their agreement.
The Contractual Dilemma
The dispute arose from an International Exclusive Distributor Agreement signed in May 2016 between Disortho S.A.S., a Colombian company, and Meril Life Sciences Private Limited, an Indian company, for distributing medical products in Colombia. The agreement contained two seemingly contradictory clauses that created jurisdictional confusion:
Clause 16.5 stated that the agreement "shall be governed by and construed in accordance with the laws of India and all matter pertaining to this agreement...will be subject to the jurisdiction of courts in Gujarat, India".
Clause 18 provided for disputes to be resolved through "Arbitration by either party for final settlement in accordance with the Arbitration and Conciliation Center of the Chamber of Bogota DC" with arbitration taking place in Bogota and awards governed by Colombian law.
The Legal Framework: Multiple Laws in Play
The Supreme Court identified the complexity arising from three distinct legal systems that interact in cross-border arbitration:
· Lex-contractus: The law governing substantive contractual issues
· Lex arbitri: The law governing the arbitration agreement and its performance
· Lex-fori: The law governing procedural aspects of arbitration
The court emphasized that these legal systems "may either differ or align, depending on the parties' choices," and noted that there may be "internal splits within these legal systems".
International Precedents and the Three-Stage Test
The judgment extensively referenced the UK Supreme Court's decision in Enka Insaat v. OOO Insurance Company Chubb, which established a comprehensive framework for determining the law applicable to arbitration agreements. The court endorsed the three-stage inquiry from the earlier Sulamérica case:
1. Express choice of law governing the arbitration agreement
2. Implied choice by the parties
3. Closest and most real connection test
The court noted that "the law governing the arbitration agreement will be (a) the law chosen by the parties to govern it or (b) in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected".
Key Legal Principles Established
Presumption in Favor of Contract Law
The Supreme Court reaffirmed that when an arbitration agreement forms part of a larger contract, there is a strong presumption that the law governing the main contract (lex contractus) also governs the arbitration agreement. This presumption can only be displaced by specific factors such as:
· Risk of the arbitration agreement becoming ineffective under the contract's governing law
· Explicit legal provisions requiring arbitration agreements to be governed by the seat's law
· Clear indication that the seat was chosen as a neutral forum
Distinction Between Venue and Seat
The court clarified the important distinction between the venue (physical location) and seat (legal jurisdiction) of arbitration. The mere choice of a venue "does not, without more, sufficient to negate an inference that a choice of law to govern the contract was intended to apply to the arbitration agreement".
The Court's Analysis and Decision
Applying the established legal framework, the Supreme Court conducted a harmonious interpretation of both clauses rather than treating them as irreconcilably conflicting. The court concluded:
1. Indian law governs the arbitration agreement based on the express choice in Clause 16.5
2. Indian courts retain supervisory jurisdiction over the arbitration proceedings
3. Bogota serves as the venue for arbitration proceedings with Colombian procedural rules applying
4. The Arbitration and Conciliation Act, 1996 applies to these proceedings
The court emphasized that "Bogota has been designated as the venue for conciliation and arbitration, while the courts in Gujarat, India, retain exclusive jurisdiction over disputes".
Practical Resolution
In a practical turn, both parties consented during the hearing to hold the arbitration in India with a sole arbitrator. The Supreme Court appointed Justice S.P. Garg, a retired Delhi High Court judge, as the sole arbitrator, with the arbitration to be governed by Delhi International Arbitration Centre rules.
Broader Implications for International Commerce
This judgment provides several important takeaways for international commercial relationships:
Clarity in Drafting
The case underscores the critical importance of clear, consistent dispute resolution clauses in international agreements. Ambiguous or conflicting provisions can lead to expensive jurisdictional battles.
Predictability in Cross-Border Disputes
The court's adoption of internationally recognized principles from Enka Insaat and Sulamérica enhances predictability and aligns Indian jurisprudence with global best practices.
Harmonious Interpretation Approach
Rather than mechanically applying conflict rules, the court's approach of seeking harmony between clauses provides a more commercial and practical resolution method.
Conclusion
The Disortho v. Meril judgment represents a significant contribution to Indian arbitration jurisprudence, particularly in the context of international commercial disputes. By adopting well-established international principles while maintaining respect for party autonomy, the Supreme Court has provided much-needed clarity on jurisdictional issues in cross-border arbitration.
The decision reinforces that consistency and uniformity in applying legal principles are crucial for ensuring fairness and comity in international commerce and dispute resolution mechanisms. For practitioners and businesses engaged in international trade, this judgment offers valuable guidance on structuring dispute resolution clauses and understanding the interplay between different legal systems in arbitration agreements.
This ruling will likely serve as a foundational precedent for future cases involving conflicting jurisdiction and governing law clauses in international arbitration agreements, contributing to India's growing reputation as an arbitration-friendly jurisdiction.
