The Moment ‘Seat’ is Determined, It Becomes an Exclusive Jurisdiction Clause – Supreme Court’s Landmark Ruling in Disortho S.A.S. vs. Meril Life Sciences

Summary of the Judgment

Case Name: Disortho S.A.S. vs. Meril Life Sciences Pvt. Ltd.
Date of Judgment: 18 March 2025
Bench: Hon’ble Chief Justice Sanjiv Khanna, Hon’ble Justice Sanjay Kumar, Hon’ble Justice K.V. Viswanathan
Advocates: Not specified in the document
Acts and Sections Involved:
- Arbitration and Conciliation Act, 1996 (A&C Act), Section 11(6)
Cited Judgments:
- M/s. Arif Azim Co. Ltd. v. M/s. Micromax Informatics Fze (2024 INSC 850)
- Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2023 INSC 1051)
- Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb (2020 UK SC 38)
- Sulamérica Cia Nacional De Seguros S.A. v. Enesa Engenharia S.A. (2012 EWCA Civ 638)
- Melford Capital Partners (Holdings) LLP v. Frederick John Wingfield Digby (2021 EWHC 872 (Ch))
- BNA v. BNP and Another (2019 SGCA 84)
- Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. (2020) 5 SCC 399
- BALCO v. Kaiser Aluminium Technical Services Inc. (2016 4 SCC 126)
- Roger Shashoua v. Mukesh Sharma (2009 EWHC 957 (Comm))

Introduction

The Supreme Court of India in the case of Disortho S.A.S. vs. Meril Life Sciences Pvt. Ltd. examined a complex issue of arbitration in the context of a transnational commercial dispute. The crux of the dispute revolved around the interpretation of conflicting jurisdictional clauses in the International Exclusive Distributor Agreement ("Distributor Agreement") executed between the parties.

While Clause 16.5 of the agreement conferred jurisdiction on Indian courts, Clause 18 stipulated arbitration under the Chamber of Commerce of Bogotá, Colombia. The judgment is significant in the domain of international arbitration and jurisdictional conflicts, addressing the seat vs. venue distinction, lex arbitri vs. lex contractus, and the supervisory jurisdiction of courts in India.

Factual Background

Disortho S.A.S., a Colombian company, entered into a distributor agreement with Meril Life Sciences Pvt. Ltd., an Indian entity, for the distribution of medical products in Colombia. When disputes arose, Disortho filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator.

Meril Life Sciences opposed this on the ground that the arbitration clause in the agreement (Clause 18) mandated arbitration proceedings under the Arbitration and Conciliation Center of the Chamber of Commerce of Bogotá.

The core question before the Supreme Court was: Does the Indian court have jurisdiction to appoint an arbitrator under Section 11(6) of the A&C Act, given the conflicting clauses?

Key Legal Issues and Court’s Analysis

1. Conflict Between Clause 16.5 and Clause 18

Clause 16.5 stated that the entire agreement is governed by Indian law, and all matters pertaining to it shall be subject to the jurisdiction of courts in Gujarat, India. However, Clause 18 prescribed that disputes be submitted to arbitration under Bogotá’s Chamber of Commerce.

The Court employed contract interpretation principles to reconcile the two clauses rather than discarding one altogether. Relying on Arnold v. Britton (2015 AC 1619), the Court emphasized that an agreement should be read holistically, and a reasonable interpretation must be adopted.

"A clause should not be dismissed as redundant unless it is manifestly inconsistent with or repugnant to the rest of the agreement."

2. Distinction Between Lex Contractus, Lex Arbitri, and Lex Fori

The Court highlighted the distinction between:

Lex contractus: The law governing the substantive contract (Indian law in this case).
Lex arbitri: The law governing the arbitration agreement, which could be different from the contract law.
Lex fori: The law governing the procedural aspects of arbitration.

Relying on Sulamérica Cia (2012 EWCA Civ 638) and Melford Capital (2021 EWHC 872 (Ch)), the Court determined that the arbitration agreement is governed by Indian law, thereby granting jurisdiction to Indian courts to appoint an arbitrator.

3. Seat vs. Venue of Arbitration

A crucial point of deliberation was whether Bogotá was merely the venue of arbitration or the seat. Citing Roger Shashoua v. Mukesh Sharma (2009 EWHC 957 (Comm)), the Court reasoned that mere designation of a location for arbitration proceedings does not automatically make it the juridical seat.

Since the contract did not explicitly designate the seat of arbitration, and Indian courts were conferred jurisdiction under Clause 16.5, the Court ruled in favour of India as the seat.

"The moment ‘seat’ is determined, it would be akin to an exclusive jurisdiction clause whereby only the jurisdictional courts of that seat alone will have the jurisdiction to regulate the arbitral proceedings."

4. Application of the A&C Act and Appointment of Arbitrator

The Court reaffirmed that when the seat of arbitration is in India, Part I of the A&C Act applies, granting Indian courts jurisdiction over procedural aspects, including the appointment of an arbitrator under Section 11(6).

The Court, in its final order, appointed Mr. Justice S.P. Garg, retired judge of the High Court of Delhi, as the sole arbitrator to resolve the disputes. Furthermore, the arbitration was directed to be governed by the Delhi International Arbitration Centre (DIAC) rules.

Conclusion

This judgment reinforces India’s pro-arbitration stance while providing clarity on key legal principles, including:

Harmonization of conflicting jurisdictional clauses
Priority of lex contractus over lex arbitri where no explicit choice is made
Seat vs. venue distinction in arbitration
Application of Indian arbitration law even when arbitration is conducted overseas

From a practical standpoint, businesses entering into cross-border contracts must ensure clear drafting of arbitration clauses, explicitly specifying the seat, governing law, and jurisdiction of courts to avoid disputes. This case also sets a precedent for Indian courts asserting jurisdiction where Indian law governs arbitration agreements, thereby increasing India’s role as a key player in international dispute resolution.

Key Takeaways

Drafting of arbitration clauses should be precise, specifying the seat, applicable law, and jurisdiction of courts.
The law governing the contract does not automatically govern the arbitration agreement unless explicitly stated.
Indian courts will assert jurisdiction over arbitration agreements governed by Indian law, even if the arbitration takes place abroad.
A venue is not necessarily the seat; courts will examine the intention of the parties and surrounding contractual clauses.

This judgment thus serves as a guiding precedent for Indian legal professionals navigating the complex interplay of contract law and international arbitration principles.