Disortho S.A.S vs Meril Life Sciences Pvt. Ltd: Case Summary
Factual Matrix
Disortho S.A.S (‘Petitioner’), a foreign entity incorporated in Colombia, and Meril Life Science Private Limited (‘Respondent’), an Indian entity, executed an International Exclusive Distributor Agreemen (‘Distributor Agreement’). This agreement established a contractual framework between both the parties for international commercial dealings and appointed the Petitioner as the exclusive distributor of Respondent’s medical products in Colombia. Disputes arose between the parties after the execution of the Distributor Agreement. Consequently, the Petitioner filed a petition before the Supreme Court of India under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘A&C Act’) for the appointment of an arbitral panel, in accordance with Clauses 16.5 and 18 of the Distributor Agreement. The Respondent opposed the petition on the grounds that these clauses do not grant jurisdiction to Indian courts to appoint arbitrators but instead confer such jurisdiction to the courts in Bogota, Colombia.
The relevant excerpts of these clauses are provided below for reference:
“16. Miscellaneous
16.5. This Agreement shall be governed by and construed in accordance with the laws of lndia and all matter pertaining to this agreement or the matters arising as a consequence of this agreement with be subject to the jurisdiction of courts in Gujarat, India.
18. Direct Settlement of Disputes
The Parties mutually agree and pact that any dispute, controversy or claim arising during this Agreement related to subscription, execution, termination, breach, as well as non-contractual relationships, related to the clauses mentioned above; They may be submitted to conciliation in accordance with the Rules of Arbitration and Conciliation of the Chamber of Commerce of Bogota DC., or instead. of this city, where the Director of the Centre so determine.
Similarly, the Parties mutually agree and pact that if the dispute or difference has not been settled in conciliation, or to the extent that has not been resolved; it will be committed to Arbitration by either party for final settlement in accordance with the Arbitration and Conciliation Center of the Chamber of Bogota DC. The Arbitral Tribunal shall consist of one (1) arbitrator in cases of minor or no value E according to the Rules of Conciliation and Arbitration Center of the Chamber of Commerce of Bogota DC. Also, in the event of greater amount, the Court of conformity shall comply with the Regulations of the Center for Conciliation and Arbitration of the Chamber of Commerce of Bogota DC., With three (3) arbitrators appointed by the Centre and by drawing lots. The arbitration will take place in Bogota DC. On the premises of Center for Conciliation and Arbitration of the Chamber of Commerce of Bogota DC., or at the place where the Director of the Centre as determined in this city. The award shall be in law and standard will be applicable Colombian law governing the mailer, Expenditure in the conciliation and arbitration proceedings shall be borne equally.”
Test to Determine Jurisdiction in a Trans-Border Arbitration
There is a difference of opinion, both internationally and domestically, regarding the appropriate test for determining jurisdiction in trans-border arbitration cases, owing to the existence of three distinct legal regimes.
(i) lex contractus, the substantive law governing the contract1Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb, 2020 UK SC 38;
(ii) lex arbitri, the law governing the arbitration agreement and its performance. This determines which court exercises supervisory jurisdiction2Melford Capital Partners (Holdings) LLP and Others v. Frederick John Wingfield Digby, [2021] EWHC 872 (Ch)
(iii) lex fori, the procedural law of the forum overseeing the arbitration.
In Sulamérica Cia Nacional De Seguros S.A. and Others v. Enesa Engenharia S.A. and Others3Sulamérica Cia Nacional De Seguros S.A. and Others v. Enesa Engenharia S.A. and Others [2012] EWCA Civ 638 the UK Supreme Court established a three-fold test to determine the law governing the arbitration agreement:
1. Express Choice: If the parties have explicitly mentioned a specific law to govern the arbitration agreement, then that law applies.
2. Implied Choice: If no express choice is mentioned in the arbitration agreement, then the contract is examined as a whole, and the law chosen to govern the main contract is presumed to apply to the arbitration agreement, unless evidence suggests otherwise. This can also be rebutted by factors such as the seat’s legal provisions mandating its own law.
3. Closest Connection: If neither an express nor implied choice is clear, then the law with the closest and most real connection to the arbitration agreement is chosen. Generally, the law of the seat prevails as a default due to its close connection to the arbitration process.
The High Court of Singapore in BCY v. BCZ4 BCY v. BCZ [2016] SGHC 249 referred the Sulamérica three-step test and noted two opposing views: one side argues that the broad choice of law for the main contract (lex contractus) generally covers the arbitration agreement, while the other insists on considering additional factors to determine the law governing the arbitration agreement, which may lead to applying the law of the arbitration seat (lex arbitri) instead of the main contract’s governing law. The court favored the first view and emphasized that while the arbitration clause is separable and remains valid even if the main contract fails, it is not entirely independent of the main contract. The seat in arbitration agreements is often chosen for neutrality and governs the procedure but does not necessarily determine the formation or validity of the agreement. Thus, lex contractus is a strong indicator of the governing law unless clear evidence suggests otherwise.
In BNA v. BNP and Another5BNA v. BNP and Another, [2019] SGCA 84, the Singapore Court of Appeal endorsed the Sulamérica and BCY three-step test and clarified that the seat, arbitral institution, rules, and governing law of the arbitration agreement all can differ.
The Supreme Court of India in Enercon (India) Ltd. v. Enercon GmbH6Enercon (India) Ltd. v. Enercon GmbH (2014) 5 SCC 1 clarified that the parties can choose to hold arbitration in one country (e.g., Country X) while subjecting it to the procedural laws of another (e.g., Country Y). The Court also provided a distinction between ‘venue’ (the physical location of proceedings) and ‘seat’ (the legal jurisdiction governing the arbitration) of the arbitral proceedings and affirmed that the governing law of the arbitration can differ from the venue’s law, regardless of where hearings take place. The court also agreed with precedents such as Sulamérica Cia . In this case, despite the venue of the arbitration proceedings being London, it was held that the seat of arbitration was not necessarily London.
In Mankastu Impex Private Limited v. Airvisual Limited7Mankastu Impex Private Limited v. Airvisual Limited, (2020) 5 SCC 399, the Supreme Court of India examined a contract where Indian law served as the lex contractus and jurisdiction was vested in the courts of Delhi. Clause 17 of the contract separated the governing law (India) from the arbitration process (Hong Kong), and prompted the Court to distinguish between lex contractus and lex arbitri. The court ruled that Hong Kong law applied to the arbitration agreement due to the explicit choice of Hong Kong as the arbitration venue and, accordingly, denied the Indian courts’ jurisdiction to appoint an arbitrator.
In M/s. Arif Azim Co. Ltd. v. M/s. Micromax Informatics Fze8M/s. Arif Azim Co. Ltd. v. M/s. Micromax Informatics Fze, (2024) INSC 850 the Supreme Court of India used the Shashoua principle to interpret a dispute resolution clause that required arbitration under the UAE Arbitration and Conciliation Rules for all disputes arising from the agreement, including its validity and applicability, with Dubai, UAE, as the venue. A separate clause stated that the agreement was governed by UAE law, with Dubai courts exercising non-exclusive jurisdiction. The Court determined Dubai as the juridical seat, and reasoned that it was explicitly designated as the arbitration venue, the UAE arbitration rules were applicable, and there was no contrary indication suggesting otherwise.
Judgement
The Supreme Court of India, while addressing the jurisdictional dispute analyzed Clauses 16.5 and 18 of the Distributor Agreement to determine the applicable law and supervisory authority over the arbitration process. Clause 16.5 unequivocally states that the agreement is governed by Indian law and that all matters rising from it will fall under the jurisdiction of Gujarat courts. In contrast, Clause 18 provides for conciliation and arbitration in Bogota, Colombia, under the rules of the Arbitration and Conciliation Centre of the Chamber of Commerce of Bogota, with Colombian law governing the award. The Court identified an apparent conflict between these provisions.
The Court placed reliance on Milford Capital Holdings9Melford Capital Partners (Holdings) LLP and Others v. Frederick John Wingfield Digby, [2021] EWHC 872 (Ch) and held that a contract must be interpreted as a whole and give effect to all provisions unless they are manifestly inconsistent or repugnant. The court rejected the outdated practice of prioritizing an earlier clause over a later one and instead adopted the approach from Arnold v. Britton10 Arnold v. Britton, 2015 AC 1619, that the interpretation of the contract hinges on what a reasonable person, with knowledge of the contract’s context, would understand from the language of the contract. This involves assessing the natural meaning of the words, the contract’s other provisions, its overall purpose, the circumstances at execution, and commercial common sense. Applying this, the Court found that Clause 16.5 places a mandate of Indian law and Gujarat’s jurisdiction to be unambiguous, which suggested that the parties were aware of Clause 18 and intended Bogota as the venue, not the seat of arbitration, thereby giving Gujarat courts supervisory authority.
The Court applied the three-step test from Sulamérica Cia to determine the law governing the arbitration agreement. First, it noted that neither clause explicitly specified the law, which led to approaching the second step, i.e., identifying an implied choice. In this case, the Court found a strong presumption that Indian law, as the lex contractus under Clause 16.5, governed the arbitration agreement unless there were factors such as non-arbitrability under Indian law or a neutral seat designation to override it. The mere selection of Bogota as a place, without additional indicators, was insufficient to displace this presumption.
Furthermore, no seat was expressly chosen in this case. Consequently, the third step i.e. determining the closest connection was inapplicable, as the implied choice of law was deemed sufficient. The Court also reasoned that Clause 18’s reference to Colombian law for the award only applies to the arbitration proceedings and outcome, not the arbitration agreement’s governance, which remains under Indian law under Clause 16.5. This delineation led to the conclusion that the A&C Act is applicable, and Indian courts have the authority to appoint arbitrators under Section 11(6). Hence, Bogota’s role as a venue, with its procedural rules, does not diminish the supervisory powers of Gujarat courts.
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