How to Identify the Governing Law of an Arbitration Agreement

Arbitration has emerged as a preferred mechanism for resolving commercial disputes due to its efficiency, flexibility, and confidentiality. However, identifying the governing law of an arbitration agreement is often a complex and contentious issue, especially in cases involving cross-border disputes. In international commercial arbitration, determining the governing law is essential to resolving disputes concerning the validity, scope, and enforceability of the arbitration agreement.

The Supreme Court of India, in the case of Disortho S.A.S. v. Meril Life Sciences Pvt. Ltd., (2025) INSC 352, dealt with the intricate question of identifying the governing law of an arbitration agreement in the context of conflicting contractual clauses. This article analyzes the legal principles established by the Supreme Court of India and explores the broader framework for determining the governing law of an arbitration agreement.

Nature of an Arbitration Agreement

An arbitration agreement is a contract between parties to submit disputes to arbitration rather than litigation. It is a distinct and independent agreement, separate from the underlying contract, even if it forms part of that contract. Therefore, it is possible for an arbitration agreement to be governed by a different law than the law applicable to the main contract.

Key Legal Systems in Arbitration Agreements

When disputes arise under an arbitration agreement, three distinct legal systems often come into play:

Lex Contractus – The law governing the substantive contract.

Lex Arbitri – The law governing the arbitration agreement and the performance of the arbitration.

Lex Fori – The law governing the procedural aspects of arbitration, usually the law of the seat of arbitration.

Distinguishing between these legal systems is critical for resolving disputes concerning the validity, scope, and enforcement of an arbitration agreement.

Factual Background of Disortho S.A.S. v. Meril Life Sciences Pvt. Ltd.

The case of Disortho S.A.S. involved an International Exclusive Distributor Agreement between Disortho S.A.S., a company incorporated in Colombia, and Meril Life Sciences Pvt. Ltd., a company based in Gujarat, India. The agreement contained two key clauses that created a conflict regarding the governing law and jurisdiction:

Clause 16.5 – Stipulated that the agreement would be governed by Indian law and that disputes would be subject to the jurisdiction of the courts in Gujarat, India.

Clause 18 – Provided for arbitration to be conducted in Bogotá, Colombia, under the rules of the Chamber of Commerce of Bogotá, with Colombian law governing the dispute.

The petitioner sought the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, in Indian courts. However, the respondent argued that Colombian courts had exclusive jurisdiction based on the arbitration clause.

Issues Raised

• The core issue before the Supreme Court was how to reconcile the conflict between Clause 16.5 and Clause 18 regarding the governing law of the arbitration agreement. The Court was required to determine:
• Whether the governing law of the arbitration agreement was Indian law (as per Clause 16.5) or Colombian law (as implied under Clause 18).
• Whether the seat of arbitration or the governing law of the contract should prevail in determining the jurisdiction for appointing an arbitrator.
• Whether the arbitration agreement could be governed by a different law from the substantive contract.

Judicial Reasoning and Analysis

1. The Presumption in Favour of Lex Contractus

The Supreme Court applied the principle laid down in Sulamérica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A. [(2012) EWCA Civ 638] and Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb [(2020) UK SC 38], which established a strong presumption that the governing law of the main contract (lex contractus) also governs the arbitration agreement, unless there is a clear intention to apply a different law.

The Court observed that Clause 16.5 contained an express choice of Indian law as the governing law of the contract.

Since the arbitration agreement formed part of the main contract, the presumption favoured Indian law as the governing law of the arbitration agreement.

2. Seat v. Governing Law Distinction

• The Court emphasized the distinction between the law governing the arbitration agreement and the procedural law (lex fori) applicable to the arbitration.
• The seat of arbitration determines the procedural framework and the supervisory jurisdiction of the courts.
• The governing law determines the validity, interpretation, and enforceability of the arbitration agreement.

While Bogotá was designated as the seat of arbitration, this did not override the express choice of Indian law as the governing law of the arbitration agreement.

3. Interpretation of Conflicting Clauses

To resolve the conflict between Clause 16.5 and Clause 18, the Court applied the principle of harmonious construction:

• The Court noted that Clause 16.5 explicitly referred to Indian law, while Clause 18 addressed the venue and procedural rules for arbitration.
• The Court held that the substantive governing law (Indian law) could coexist with the procedural rules of Colombian law for the conduct of arbitration.

4. Applicability of Indian Arbitration Law

The Court reaffirmed the principle that the choice of seat does not automatically displace the governing law of the arbitration agreement:

• Indian Arbitration and Conciliation Act, 1996, was held to apply to the arbitration agreement since Indian law was the governing law.
• Therefore, Indian courts retained the jurisdiction to appoint arbitrators under Section 11(6) of the Arbitration Act.

5. Role of Party Autonomy

The Court highlighted the importance of party autonomy in arbitration agreements:

• Parties are free to choose the governing law and the procedural law independently.
• In the absence of an express choice, the law most closely connected to the arbitration agreement applies.
• The fact that the parties had agreed to arbitration in Bogotá did not diminish the effect of the express choice of Indian law as the governing law.

Key Legal Principles Established

• Presumption of Lex Contractus – The law governing the substantive contract is presumed to govern the arbitration agreement unless there is a clear intention to the contrary.
• Distinct Role of Lex Arbitri and Lex Fori – The governing law of the arbitration agreement and the procedural law of arbitration may be different.
• Party Autonomy – The parties' express and implied intentions determine the governing law and the seat of arbitration.
• Harmonious Construction – Conflicting contractual clauses must be harmonized to give effect to the parties' intentions.
• Role of the Seat – The choice of a seat of arbitration determines procedural law and supervisory jurisdiction but does not automatically override the governing law of the arbitration agreement.

Application of the Ruling

The principles established in Disortho S.A.S. have significant implications for future arbitration cases:

• Indian courts have clarified the importance of express choice of law and the role of party autonomy.
• The ruling provides a framework for resolving conflicts between the governing law of the contract and the arbitration agreement.
• The judgment strengthens India's position as a pro-arbitration jurisdiction by upholding party autonomy and reinforcing the validity of arbitration agreements governed by Indian law.

Conclusion

The Supreme Court's decision in Disortho S.A.S. v. Meril Life Sciences Pvt. Ltd. provides a comprehensive framework for identifying the governing law of an arbitration agreement. By balancing the principles of party autonomy, lex contractus, and lex arbitri, the Court has reinforced the importance of consistency and clarity in arbitration agreements.

This judgment will serve as a guiding precedent for resolving similar conflicts in international commercial arbitration, ensuring greater predictability and fairness in arbitration proceedings.

Click Here to Read the Official Judgment

Important Link