Governing Law In International Arbitration: Insights From The DISORTHO Judgment
Introduction:
In the case of Disortho S.A.S. v. Meril Life Sciences Private Limited[1], the Supreme Court of India on 18 March 2025, addressed how to determine the governing law for an arbitration agreement when the agreement itself doesn’t specify anything. This decision, delivered by a bench that included Chief Justice Sanjiv Khanna, Justice Sanjay Kumar, and Justice KV Viswanathan, highlights the importance of the lex contractus, the law that governs the main agreement over merely the selection of the arbitration venue.
Table of Contents
Background:
The dispute arose when Disortho S.A.S. (“Disortho”), a foreign entity established in Colombia, entered into a contractual relationship with Meril Life Sciences Private Limited (“Meril”), an Indian firm. As tensions heated, Disortho asked for an arbitral tribunal to be appointed arguing that the main contract was governed by Indian laws and thus Indian courts reasonably have the authority to appoint an arbitrator. In contrast, Meril argued that since the arbitration proceedings were scheduled to be conducted in Colombia, the Colombian law, the lex fori should govern the arbitration process.
When an arbitration agreement is silent on its governing law, what criteria should determine which law applies? The Supreme Court was required to reconcile two conflicting clauses embedded within the main contract and determine whether the courts in India retained supervisory jurisdiction despite the intended arbitration venue being overseas.
Issue:
The disagreement revolved around a contract that had two conflicting provisions for handling disputes. Clause 16.5 clearly stated that Indian law would govern the contract and that any disputes would be exclusively handled by the courts in Gujarat. This wording strongly suggested that all issues, including those related to the arbitration agreement, should be interpreted through the lens of Indian legal principles. On the flip side, Clause 18 called for arbitration according to the rules of the Arbitration and Conciliation Centre of the Chamber of Commerce in Bogota, Colombia, indicating that the proceedings would take place in Bogota and any resulting award would follow Colombian law.
To tackle this conflict, the Supreme Court turned to the structured method laid out in the pivotal case of Sulamérica Cia Nacional De Seguros S.A. v. Enesa Engenharia S.A[2]. The court’s three-step test kicked off by checking if the parties had clearly chosen a governing law for their arbitration agreement. If such a choice was made, it would need to be followed strictly. If there wasn’t a clear choice, the court then looked for an implied one, usually drawn from the law that governed the main contract. If neither an explicit nor an implicit preference was found, the court moved on to the “closest and most real connection” test. This last step required a thorough assessment of factors like the parties’ intentions, the nature of their business dealings, and other relevant context, all aimed at figuring out which legal system had the strongest and most genuine link to the arbitration agreement.
Court’s Reasoning:
In this scenario neither Clause 16.5 nor Clause 18 resolved which law would actually govern the arbitration agreement itself. The Court thus moved on to the second leg of the matter, which is the implied choice test. As Clause 16.5 expressly made the governing law of the whole contract Indian, the conclusion had to be that the arbitration agreement was supposed to be governed by Indian law. The simple naming of Bogota as the venue of arbitration under Clause 18 would not suffice to oust the strong hint of Indian law. While clause 18 provided detail about the mechanics of the arbitration such as venue and law applicable to tariffication, it did not have the power to dislodge the strong presumption set by Clause 16.5.
Meril has argued that the courts of Colombia have jurisdiction over the arbitration process since the arbitration is scheduled to be held in Colombia. The Supreme Court however was not persuaded by this argument. There is actually no automatic link between the place of arbitration and the courts of the seat. Here, even though the arbitration is slated to take place in Bogota, the key contractual relationship—and hence the arbitration agreement—was one which was governed by Indian law per Clause 16.5. One interesting feature of the judgment is that the Court sought to reconcile the conflicting clauses rather than looking them as standalone. The Court determined that these provisions were not really inconsistent and could be read in harmony.
SC’s Ruling:
The Supreme Court in the present case highlighted that the arbitration shall take place at a venue to be agreed between the parties and the arbitrator. That said, arbitration proceedings would be conducted under the Delhi International Arbitration Centre Rules and fee schedule applicable to international arbitrations will be followed. Pursuant to this, the Court designated Mr. Justice S.P. Garg, a retired judge of the Delhi High Court, as the sole arbitrator. This judgment not only settles the current dispute but also will serve as the law in similar cases coming up in times to come.
Supreme Court did follow that and allowed the petition ruling in favor of DISORTHO S.A.S. Adopting the three steps test, the Court held that the arbitration agreement will be governed by Indian law. It thus declared the Indian courts to have international competence in appointing an arbitrator even though the arbitration was to be held in Colombia.
To accomplish its task, the Court accepted the appointment of Mr. Justice S.P. Garg, Retired Judge of Delhi High Court, as the Sole Arbitrator. The arbitration to take place at such venue that is to be mutually acceptable to both the parties and the arbitrator. On the other side of the coin, the court maintained that the arbitration will be under the Rules of Delhi International Arbitration Centre and fee as per that of any other international arbitration order. This not only puts to rest the immediate dispute but establishes a precedent likely to be followed in future similar litigation.
It upholds the idea articulated in a proliferation of writings that the law of the contract with the closest and most real connection — another way of saying the lex contractus — should play a substantial role in determining the law governing an arbitration agreement when parties have not made a clear choice on the matter. Also, it makes clear that the physical location of arbitration (that is, the venue) is not an automatic indication of the law governing the arbitration agreement. Rather, it necessitates a couple of steps to infer the parties’ true intentions.
Conclusion:
In DISORTHO S.A.S. vs. Meril Life Sciences Private Ltd., the Indian Supreme Court delivered a rule for determining the choice of law governing an arbitration agreement in cases where no specific law is selected by the parties. Following a three-step analysis starting from an express choice, going through an implied choice, and ultimately weighing the closest and most genuine connection, the Court held that the lex contractus or law governing the main contract should govern the arbitration agreement over merely designating an arbitration seat.
[1] Arbitration Petition No.48 of 2023.
[2] [2012] EWCA Civ 638.
King Stubb & Kasiva,
Advocates & Attorneys
New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Mangalore | Pune | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com
By entering the email address you agree to our Privacy Policy.