By its decision dated 18th March, 2025 the Supreme Court held that if a contract omits to specify the law governing an arbitration agreement (lex arbitri), the law governing the contract (lex contractus) would govern the arbitration proceedings as opposed to, the law of the venue of arbitration (lex fori).
Facts
By a Distributorship Agreement (the ‘Agreement’), the Respondent appointed the Petitioner as an exclusive distributor of its medical products in Colombia. On account of differences and disputes, the Petitioner approached the Supreme Court of India (the
‘Supreme Court’) for appointment of an arbitral tribunal. The Respondent opposed Petitioner’s application on the grounds that since the venue of the arbitration was Colombia, Colombian law would govern the arbitration and not Indian courts. The Respondent challenged the jurisdiction of the Supreme Court.
The Agreement was governed by Indian laws.
The Party’s conferred jurisdiction on the courts in Gujarat.
The Dispute Settlement clause provided for conciliation in accordance with the
Rules of Arbitration and Conciliation of the Chamber of Commerce of Bogota
Distrito Capital (“Bogotá, D.C.”).
To the extent conciliation remained incomplete, arbitration for final settlement would be conducted in accordance with the Arbitration and Conciliation Centre of the Chamber of Bogota DC. The venue of the arbitration was Bogotá, D.C.
Decision
After hearing both Parties, the Supreme Court held that in case of inconsistencies in a contract, the contract must be viewed and interpreted as a whole and concluded that:
the Parties had expressly chosen Indian law to be the lex contractus.
the Parties had expressly conferred jurisdiction on the Courts in Gujarat.
although Bogotá, D.C. was the venue of the arbitration, it was not the seat of arbitration (the location mutually agreed by the parties to be the legal place of arbitration and which also determines the procedural framework of the arbitration).
Considering the overall facts and circumstances, it was held that Indian Courts had jurisdiction to appoint an arbitral panel.
Arbitration Clauses:
Inconsistencies in arbitration clauses can prove fatal in high stake cross-border disputes. Unless drafted with utmost clarity, inconsistent clauses can lead to undue litigation and resultant delays and costs.