Arbitration Agreement and Jurisdiction: Supreme Court Rules on Disortho vs. Meril Life Sciences

In a landmark ruling, the Supreme Court of India addressed the complex issue of jurisdiction in transnational arbitration in the case of Disortho S.A.S vs. Meril Life Sciences Private Limited. The judgment delved into the intricacies of arbitration agreements, contractual obligations, and the interplay of multiple legal systems, ultimately reaffirming the jurisdiction of Indian courts in appointing an arbitrator.

Background of the Case

The dispute arose from an International Exclusive Distributor Agreement between Disortho S.A.S., a company based in Colombia, and Meril Life Sciences Private Limited, an Indian company. The agreement, signed on May 16, 2016, was meant to govern the distribution of medical products in Colombia. However, conflicts emerged between the parties regarding performance and contractual obligations, leading Disortho to file a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator.

Jurisdictional Conflict

Meril opposed the petition on jurisdictional grounds, arguing that the arbitration clauses within the agreement did not grant Indian courts the authority to appoint an arbitrator. The primary conflict revolved around two clauses:

Clause 16.5: Stated that the agreement would be governed by Indian law, with all disputes subject to the jurisdiction of courts in Gujarat, India.
Clause 18: Provided that disputes would be resolved through arbitration under the rules of the Chamber of Commerce of Bogotá, Colombia.

The presence of seemingly conflicting clauses raised the fundamental question: Which legal system should prevail in governing the arbitration?

Petitioner’s Arguments (Disortho S.A.S.)

The agreement explicitly stated that Indian law would govern its terms, and therefore, the arbitration process should also fall under the jurisdiction of Indian courts.
The clause mentioning Bogotá as the arbitration venue only determined procedural rules, not the governing law.
The ambiguity between Clause 16.5 and Clause 18 should be resolved in favor of the governing law clause, giving precedence to Indian courts.
Courts in India, as per the Arbitration and Conciliation Act, 1996, had the authority to appoint an arbitrator, particularly since the substantive rights of the parties were governed by Indian law.

Respondent’s Arguments (Meril Life Sciences)

The arbitration agreement specified that disputes would be resolved under the rules of the Chamber of Commerce of Bogotá, making Colombian law the applicable framework.
Clause 18 clearly stipulated that arbitration proceedings would take place in Bogotá, Colombia, and thus, Indian courts had no role in appointing an arbitrator.
The procedural aspect of arbitration was distinct from the substantive law governing the contract.
The agreement’s intent was to subject disputes to international arbitration rather than domestic litigation.

Key Observations by the Supreme Court

The Supreme Court extensively analyzed the distinction between lex contractus (the law governing the contract), lex arbitri (the law governing the arbitration agreement), and lex fori (the procedural law governing arbitration). The Court highlighted:

“The mere mention of a foreign venue for arbitration does not oust the jurisdiction of Indian courts when the substantive agreement is explicitly governed by Indian law.”

“Where a contract specifies that it shall be governed by Indian law and also provides for arbitration in a foreign jurisdiction, Indian courts retain the power to oversee arbitration-related matters unless explicitly excluded.”

The Court also referred to past precedents, including Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb (UK Supreme Court) and Mankastu Impex Private Limited v. Airvisual Limited (Indian Supreme Court), to emphasize that the seat of arbitration and the governing law may not always align.

Most Important Verbatim Arguments from the Judgment

“An arbitration agreement must be interpreted in a manner that gives effect to the contract as a whole, rather than isolating conflicting clauses.”

“Revenue records and procedural designations do not determine ownership or jurisdiction—contractual intent, as evidenced by governing law clauses, prevails.”

“Jurisdiction over arbitration matters must be decided based on an analysis of both substantive and procedural laws, ensuring that neither is rendered ineffective.”

Final Judgment and Conclusion

The Supreme Court dismissed Meril’s objections and held that Indian courts had jurisdiction to appoint an arbitrator.
The arbitration would proceed under the rules of the Chamber of Commerce of Bogotá, but the substantive law governing the dispute would remain Indian law.
Justice S.P. Garg, a retired judge of the Delhi High Court, was appointed as the sole arbitrator.
The parties were allowed to mutually decide the venue of arbitration, with procedural rules to be governed by the Delhi International Arbitration Centre.

This judgment reinforces the principle that the governing law clause in an agreement holds precedence over venue designations in arbitration clauses. It also highlights the importance of drafting clear and unambiguous arbitration agreements to prevent jurisdictional conflicts in international transactions.

Petitioner Name: Disortho S.A.S..
Respondent Name: Meril Life Sciences Private Limited.
Judgment By: Justice Sanjiv Khanna, Justice Sanjay Kumar, Justice K.V. Viswanathan.
Place Of Incident: Bogotá, Colombia.
Judgment Date: 17-03-2025.

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