Introduction1
- Note from the editors: This post was received and accepted by the 2024-25 HIALSA VPs of Publications, and revised and published by the 2025-26 HIALSA VPs of Publications. ↩︎
It was assumed settled that curial intervention is exclusively within a seat court’s remit. That stipulating Indian law as the Law Governing the Arbitration Agreement (“LGAA”) cannot be sufficient to exercise supervisory power. However, a 3-judge bench of the Supreme Court of India (“SCI”) in Disortho v Meril Life Sciences (“Disortho”) appointed a sole arbitrator because LGAA was Indian law, without firstly ascertaining India as the seat. Further, the SCI held that that LGAA and the Law Governing the Arbitration (“LGA”) are subsumed under lex arbitri and that the default position in Indian law should be one where LGA and LGAA are presumed to be the same. On the contrary, the established understanding of lex arbitri in international arbitration is limited to LGA i.e., law of the seat.
The precedent massively broadens Indian courts’ scope of curial intervention. It also impinges upon express intent of parties who have opted for a non-India seat. Amongst other circumstances, the holding is of concern where one, the LGAA (either explicit or implicit) is Indian law, and it is used to eclipse the LGA. Two, where the arbitration agreement does not specify a seat in clear terms, and the LGA is derived from LGAA.
Law Preceding Disortho
The Indian Arbitration & Conciliation Act (“the Act”) is divided into four parts. Part I contains all the supervisory powers of the Indian courts over arbitrations. Except for a few provisions such as interim reliefs, Section 2(2) of the Act states that Part I only applies to arbitrations whose ‘place’ is in India. Even though ‘place’ as per Section 20(2) and (3) of the Act can mean both seat and venue, the SCI in BALCO v Kaiser Aluminum (“BALCO”) and PASL Winds v GE Power(“PASL”) clarified that the decisive criterion to attract Parts I is whether the seat of arbitration is in India or not.
Briefly put, the crux of BALCO is that the Act’s approach is exclusively seat centric and not subject-matter centric i.e., the seat of an arbitration is the sole determinant of applicability of Part I.
Following BALCO, a 3-judge bench of the SCI held in PASL that two Indian parties can opt for a foreign-seated arbitration. This is because the applicability of Part I is solely contingent on the territory of the arbitration and not on any other factor such as nationality. The SCI observed that Section 2(2) and 44 of the Act are modelled after Article I of theConvention on the Recognition and Enforcement of Foreign Arbitral Awards (“NYC”). That is, as per Section 2(2), Part I applies when the award is domestic. Further, as per Section 44, Part II applies if the award is a foreign award.
Despite these clear and binding precedents, another 3-judge bench of the SCI in Arif Azim v Micromax (“Arif Azim”) held that Part I will also apply to arbitrations where the LGAA is Indian Law. Following Arif Azim came Disortho.
Facts in Disortho
Disortho was a company incorporated in Bogota, Colombia whereas the Respondent was a company incorporated in Gujarat, India. Parties had executed an agreement for distribution of medical products in Colombia. The arbitration clause of the Agreement was invoked by Disortho when the dispute arose. Owing to non-cooperation by the Respondent, Disortho filed an application for appointment of arbitrators, and the main question was whether the SCI had jurisdiction.
The relevant clauses read –
“16.5. This Agreement shall be governed by and construed in accordance with the laws of India and all matters pertaining to this agreement….will be subject to jurisdiction of courts in Gujarat, India”.
“18…if the dispute … has not been resolved; it will be committed to Arbitration by either party…in accordance with the Arbitration and Conciliation Centre of the Chamber of Bogota DC…. The award shall be in law and standard will be applicable Colombian law governing the matter…”
The SCI held that lex contractus in clause 16.5 (miscellaneous clause) will be the LGAA and Part I also applies to arbitrations where LGAA is Indian law. It further observed that LGAA and LGA are same in the case and thus courts in India have exclusive jurisdiction to appoint arbitrators. The SCI did not delve into the possibility that clause 18 (dispute resolution clause) could possibly have stated Colombian law to be the LGAA/ LGA.
Analyzing the Holdings
Tampering of the ‘Territoriality Principle’
Law preceding Disortho indicates that any appointment of arbitrator without discerning India as the seat tampers with the territorial scheme of the Act. Some damage was already done in Arif Azim by extending Part I’s applicability to arbitrations where LGAA is Indian law. Disortho created an additional avenue by holding that LGA and LGAA should be presumed the same.
The SCI in Disortho itself stated that per Section 2(2), Part I applies to India-seated arbitrations [¶14]. It is thus surprising that they then affirmed that Part I will also apply to arbitrations where LGAA is Indian law. The part below will show how the presumption that LGA and LGAA are the same is erroneous. However, even if we assume this to be correct – Indian courts will not have the jurisdiction to appoint arbitrators unless India is the seat i.e., you will first have to discern what the LGA is. This is where such powers of appointment and removal of arbitrators are strictly derivable from. Part I and Section 5 of the Act clearly states that no judicial authority shall intervene except where provided in the Part. The LGAA cannot be used to create another avenue of curial intervention.
Transgression from the seat principle would mandate an explicit denotation in the legislative scheme. For instance, Section 2(4)(a) & (b) of the Arbitration Act, 1996 explicitly empowers the courts in United Kingdom to exercise jurisdiction where no seat is designated/ determined and the arbitration has some connection to the area. As noted above, the SCI in PASL explained that the parts division within the Act is based on the NYC. Article I(1), NYC makes it clear that the convention mainly applies to recognition and enforcement of awards made in a State other than where enforcement is sought. While, the territoriality principle was supplemented by the principle of nationality of arbitral awards, the same was not adopted by India.
Lex Arbitri: The “Indian” Understanding
The SCI explicated the difference between LGAA and LGA. It referred to Redfern & Hunter’s explanation that LGAA relates to scope, validity, and interpretation of arbitration agreement whereas LGA relates to supervisory jurisdiction exercised by the courts. Furthermore, it also affirmed the position taken in Paul Smith v. H & S International i.e., LGA refers to a “body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the conduct of the arbitration….and the provisions under which the court may exercise its supervisory authority”.
Despite the differences being clear, it chose the erroneous position that LGA and LGAA should be presumed same. The only explanation provided by SCI was that LGA and LGAA may have an overlapping nature. For instance, the SCI observed that while matters such as filling tribunals’ vacancies and removal of arbitrators are functions of supervisory jurisdiction, such matters should normally be governed by the LGAA, absent a clear mechanism within the arbitration agreement [¶8,11]. However, the statute only supplies the authority to perform such supervisory functions to seat courts, on the basis that LGA is Indian law. The separate scope and functions of LGA and LGAA is clear and thus no reason for conflation arises.
Further, the SCI placed reliance on Sulamerica v Enesa to extend the lex contractus to LGAA. Even otherwise, the Indian approach is largely that lex contractus also governs the LGAA. Thus, logically an Indian court ought to appreciate the difference between scope and purpose of LGA and LGAA, because the said approach presumes LGA and LGAA to be different. There are separate applicable laws wherein lex contractus usually governs LGAA while law of the seat is the LGA. Disortho’s position would be more suited to a jurisdiction that follows the lex fori approach in determining the LGAA. This is because law of the seat governs both LGA and LGAA and thus the distinction is not very material in such jurisdictions.
Way Forward
The perils of an overbroad extension of Indian courts’ jurisdiction to international arbitrations have been stated at great length. The simple way forward for future courts is to return to the statute derived reasoning in the binding precedents of BALCO and PASL. If law laid in Disortho persists, parties who seek to avoid curial intervention by Indian courts while retaining it as the LGAA will have to give an explicit contrary indica stating that LGA and LGAA are different. Nevertheless, most existing arbitration clauses will lack this detail.