Supreme Court: ‘Lex Contractus’ Is Strong Indicator Of Law Governing Arbitration Agreement Being Part Of Main Contract Unless There Are Contrary Indications
|The Supreme Court allowed an Arbitration Petition of a company incorporated in Bogota, Colombia against a company incorporated in Gujarat, India.
The Supreme Court enunciated that the ‘lex contractus’ is a strong indicator of the law governing the arbitration agreement which is a part of the main contract, unless there are indications to the contrary.
The Court was deciding an Arbitration Petition filed by a company incorporated in Bogota, Colombia against a company incorporated in Gujarat, India.
The three-Judge Bench comprising CJI Sanjiv Khanna, Justice Sanjay Kumar, and Justice K.V. Viswanathan observed, “The law of seat would govern the procedure of arbitration. However, it does not necessarily follow that the said law would govern the law of formation of the arbitration agreement, its validity, etc. Therefore, where the arbitration agreement is a part of the main contract, the lex contractus is a strong indicator of the law governing the arbitration agreement unless there are indications to the contrary. The choice of a seat different from the lex contractus is not, by itself, enough to displace this presumption.”
Senior Advocate Preetesh Kapur represented the Petitioner while Senior Advocate Nakul Dewan represented the Respondent.
Facts of the Case
The Petitioner i.e., Disortho S.A.S. and the Respondent i.e., Meril Life Science Private Limited (companies/parties) executed an International Exclusive Distributor Agreement in the year 2016 for the purpose of distribution of medical products in Colombia. Later, disputes emerged between the said parties. The Petitioner filed a Petition before the Apex Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) for the appointment of an Arbitral Panel in terms of the Clauses of the said Distributor Agreement. The Respondent opposed this Petition on jurisdictional grounds, contending that the said Clauses do not grant Indian Courts the jurisdiction to appoint Arbitrators.
Reasoning
The Supreme Court in the above regard, noted, “We are of the view that matters such as filling vacancies on arbitral tribunals and the removal of an arbitrator through the exercise of supervisory jurisdiction, in the absence of a clear mechanism within the arbitration agreement, should be normally governed by the law applicable to the arbitration agreement itself, rather than by the procedural rules that govern the arbitration process. It is, after all, the lex arbitri that governs the arbitration and its associated processes. However, as noticed above, this may not be the position in all cases as the mutually agreed terms may stipulate otherwise.”
The Court emphasised that consistency and uniformity in applying legal principles are crucial for ensuring fairness and comity in international commerce and dispute resolution mechanisms.
“At this stage, there is a strong presumption that the lex contractus, i.e., Indian law, governs the arbitration agreement. As explained earlier, this presumption may be displaced if the arbitration agreement is rendered non-arbitrable under Indian law. But that is not the case here”, it said.
Moreover, the Court observed that the mere choice of ‘place’ is not sufficient, in the absence of other relevant factors, to override the presumption in favour of the lex contractus.
“In this case, it is important to note that no seat of arbitration has been explicitly chosen. In conclusion, at this second stage of the inquiry, we find that the parties have impliedly agreed that Indian law governs the arbitration agreement, and the controversy can be resolved accordingly”, it added.
The Court further reiterated 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”, it also noted.
The Court, therefore, affirmed the applicability of the A&C Act under Section 11(6) of the Arbitration and Conciliation Act. It held that the procedural rules of the arbitration would be the rules of the Conciliation and Arbitration Centre of the Chamber of Commerce of Bogota DC, with Bogota DC as the venue of arbitration.
“However, during the course of the hearing, the learned counsel for both parties, Meril and Disortho, unanimously stated that, should the present application under Section 11(6) of the Arbitration and Conciliation Act, 1996, be allowed, the parties are agreeable to the arbitration being held in India. Furthermore, the parties have consented to the appointment of a sole arbitrator to adjudicate and decide the disputes in question”, it said.
Hence, the Court appointed Justice S.P. Garg, retired Judge of the Delhi High Court as the Sole Arbitrator. It clarified that the venue of the arbitration shall be decided mutually by the parties and the Arbitrator, and that the Arbitration shall be governed by the Rules applicable to the Delhi International Arbitration Centre attached to the Delhi High Court.
Accordingly, the Apex Court allowed the Arbitration Petition.
Cause Title- Disortho S.A.S. v. Meril Life Sciences Private Limited (Neutral Citation: 2025 INSC 352)
Appearance:
Petitioner: Senior Advocate Preetesh Kapur, Advocates Shaunak Kashyap, and Nistha Gupta.
Respondent: Senior Advocate Nakul Dewan, AOR Pranaya Goyal, Advocates Marylou Bilawala, Abinash Pradhan, Chiranjivi Sharma, Garima Agarwal, Rubeka Himayat, Nehal Gupta, and Rohan Naik.