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TMI Blog2025 (3) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... n courts, as explicitly outlined in Clause 16.5. The use of the premises at the Centre, or any other location designated by the Director of the Centre in Bogota, does not imply that Colombian law governs the arbitration agreement. Although Clause 18 specifies that the award shall conform to Colombian law, this provision pertains solely to the arbitration proceedings or the award matters. It does not override or diminish the effect of Clause 16.5, which clearly stipulates that Indian law shall govern the agreement and the related disputes. The legal implications of this would include the applicability of the A&C Act, and the appointment jurisdiction of Indian courts. We do not interpret the final portion of Clause 18 as undermining the legal impact of Clause 16.5. Therefore, the applicability of the A&C Act under Section 11(6) of the Arbitration and Conciliation Act affirmed. In accordance with Clause 16.5 and 18, the procedural rules of the arbitration would be the rules of the Conciliation and Arbitration Centre of the Chamber of Commerce of Bogota DC, with Bogota DC as the venue of arbitration. Conclusion - Indian law governs the arbitration agreement, and Indian courts have j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent that has not been resolved; it will be committed to Arbitration by either party for final settlement in accordance with the Arbitration and Conciliation Center of the Chamber of Bogota DC. The Arbitral Tribunal shall consist of one (1) arbitrator in cases of minor or no value E according to the Rules of Conciliation and Arbitration Center of the Chamber of Commerce of Bogota DC. Also, in the event of greater amount, the Court of conformity shall comply with the Regulations of the Center for Conciliation and Arbitration of the Chamber of Commerce of Bogota DC., With three (3) arbitrators appointed by the Centre and by drawing lots. The arbitration will take place in Bogota DC. On the premises of Center for Conciliation and Arbitration of the Chamber of Commerce of Bogota DC., or at the place where the Director of the Centre as determined in this city. The award shall be in law and standard will be applicable Colombian law governing the mailer, Expenditure in the conciliation and arbitration proceedings shall be borne equally." 3. What initially appeared to be a straightforward question has, in fact, become a vexed one, primarily for two salient reasons. First, there exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arbitrable in India but arbitrable in another jurisdiction. Additionally, it determines whether the arbitration agreement extends to third parties, such as parent or sister concerns. See the Group of Companies Doctrine, Cox and Kings Ltd. v. SAP India Pvt. Ltd. and Another, 2023 INSC 1051 Equally, it plays a key role in determining the validity of the arbitration agreement itself-some national laws may render the agreement void or unenforceable, thereby affecting the arbitrability of the dispute, while others may uphold its enforceability. Finally, this law serves as a guiding principle when the dispute resolution mechanism is unclear, inconsistent or when conflicting dispute resolution clauses are bundled together in the same agreement. 6. In our opinion, the law governing the arbitration may differ from both the lex contractus and the lex fori. This is assuming that the law governing the (i) agreement to arbitrate, and (ii) arbitration itself, are the same, which is most often the case. As explained earlier, the former relates to validity, scope, and interpretation of the arbitration agreement, while the later relates to inter alia the supervisory jurisdiction by national cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oving an , arbitrator for misconduct). (emphasis supplied)" 7. This ratio distinguishes between four choices of law - (i) the law governing the arbitration, (ii) the proper law of arbitration agreement, (iii) the proper law of contract, and (iv) the procedural rules which apply in the arbitration. These choices are either expressly provided or implied by the parties involved. The passage also highlights the subtle distinction between the proper law of arbitration agreement (i.e., law governing the agreement to arbitrate) and the law governing the arbitration as a whole. The law governing the agreement to arbitrate determines the validity, scope, and interpretation of the agreement. In contrast, the law governing the arbitration itself is concerned with determining which court has supervisory jurisdiction over the arbitration. This jurisdictional framework pertains to the conduct of the arbitration, the rules governing interim measures, and the provisions under which the court may exercise its supervisory authority, such as in the removal of arbitrators. 8. While parties may elect to differentiate between the lex arbitri - the law governing the agreement to arbitrate and the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 UK SC 38. the UK Supreme Court examined this legal issue and divergent opinions surrounding it. One line of precedents suggest that the lex contractus should govern the arbitration agreement. Although the arbitration agreement is separable from the main contract, it is not completely detached from it. Conversely, there is case law indicating that the law of the seat of arbitration should typically govern the arbitration agreement. Enka Insaat (supra) follows the principles stipulated in Sulamérica Cia Nacional De Seguros S.A. and Others v. Enesa Engenharia S.A. and Others, [2012] EWCA Civ 638. which it observes straddles both views. The Court ultimately establishes the following principles: "X Conclusions on applicable law 170. It may be useful to summarise the principles which in our judgment govern the determination of the law applicable to the arbitration agreement in cases of this kind: i) Where a contract contains an agreement to resolve disputes arising from it by arbitration, the law applicable to the arbitration agreement may not be the same as the law applicable to the other parts of the contract and is to be determined by applying English common law ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties to attempt to resolve a dispute through good faith negotiation, mediation or any other procedure before referring it to arbitration will not generally provide a reason to displace the law of the seat of arbitration as the law applicable to the arbitration agreement by default in the absence of a choice of law to govern it. ( emphasis supplied ) " 14. The conclusions in Enka Insaat (supra) summarizes the tie breaker rules. Sub-paragraph (i) explains that the law governing the arbitration agreement may differ from the law governing the contract. The former should be determined through conflict of law rules. Sub-paragraph (ii) states that the law governing the arbitration agreement is the law chosen by the parties. If no such choice is made, the law most closely connected to the agreement applies. However, sub-paragraph (ii) must be read alongside sub-paragraph (iii), which clarifies that the law chosen for the arbitration agreement is determined by interpreting the agreement, and if necessary, the entire contract using rules of contractual interpretation. Sub-paragraph (iv) states that when the law governing the arbitration agreement is not specified, the law of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally provide reason to displace the law of the seat of arbitration Recently enacted Arbitration Act, 2025, in the United Kingdom, which subject to significant exceptions takes a different position from that in Enka Insaat (supra). 15. We believe the above conclusions state the good and correct legal position, except on the aspects where the Courts in India have taken a different view. Consistency and uniformity in applying legal principles are crucial for ensuring fairness and comity in international commerce and dispute resolution mechanisms. 16. Earlier, Sulamérica Cia (supra) had laid down this three-fold test to determine the law governing the arbitration agreement: " 25. Although there is a wealth of dicta touching on the problem, it is accepted that there is no decision binding on this court. However, the authorities establish two propositions that were not controversial but which provide the starting point for any enquiry into the proper law of an arbitration agreement. The first is that, even if the agreement forms part of a substantive contract ( as is commonly the case ) , its proper law may not be the same as that of the substantive contract. The second is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Singapore references Sulamérica Cia (supra) and notes sharply divided legal opinions. Some argue that the choice of law, often expressed in broad and general terms, would usually distinguish the main contract from the arbitration agreement. The opposing view is that courts would require additional factors to apply a governing law different from that of the seat of arbitration. However, BCY (supra) favours the first view. The argument of severability, it was observed, would be ineffective. The doctrine simply ensures that the arbitration clause remains enforceable even if the main contract is found to be invalid. It is designed to prevent arbitration from being avoided by denying the existence of the underlying contract. This, however, does not mean that the arbitration clause is completely insulated or detached from the main contract.20 18. BCY (supra) acknowledges that the seat of arbitration is chosen based on a desire for a neutral forum. The law of seat would govern the procedure of arbitration. However, it does not necessarily follow that the said law would govern the law of formation of the arbitration agreement, its validity, etc. Therefore, where the arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading S.A. and Another (2002) 4 SCC 105. There is also a discussion on applicability of Section 9 of the A&C Act to international commercial arbitrations. It was observed that Part 1 of the A&C Act and its provisions apply when the arbitration takes place in India-i.e., (i) when the seat of arbitration is in India; or (ii) when the arbitration agreement is governed Indian law. The Court also referred to Sulamérica Cia (supra) and Roger Shashoua (1) v. Sharma [2009] EWHC 957 (Comm). 22. In Mankastu Impex Private Limited v. Airvisual Limited, (2020) 5 SCC 399 the agreement stipulated that all disputes arising out of the contract shall be referred to and finally resolved by arbitration administered in Hong Kong. The contract was to be governed by the laws of India and the courts in Delhi shall have jurisdiction. Clause 17 reads as under: "17. Governing law and dispute resolution 17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction. 17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration agreement are the laws of India. (ii) Arbitration agreements executed after 06.09.2012 where the seat of arbitration is outside India, Part I of the Act, 1996 and the provisions thereunder will not be applicable and would fall beyond the jurisdiction of Indian courts. (iii) Even those arbitration agreements that have been executed prior to 06.09.2012 Part I of the Act, 1996 will not be applicable, if its application has been excluded by the parties in the arbitration agreement either explicitly by designating the seat of arbitration outside India or implicitly by choosing the law governing the agreement to be any other law other than Indian law. (iv) 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. The notional doctrine of concurrent jurisdiction has been expressly rejected and overruled by this Court in its subsequent decisions. (v) The 'Closest Connection Test' for determining the seat of arbitration by identifying the law with which the agreement to arbitrate has its closest and most real connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent either in the form of 'venue' or 'curial law', there the closest connection test may be more suitable for determining the seat of arbitration. (x) Where two or more possible places that have been designated in the arbitration agreement either expressly or impliedly, equally appear to be the seat of arbitration, then in such cases the conflict may be resolved through recourse to the Doctrine of Forum Non Conveniens, and the seat be then determined based on which one of the possible places may be the most appropriate forum keeping in mind the nature of the agreement, the dispute at hand, the parties themselves and their intentions. The place most suited for the interests of all the parties and the ends of justice may be determined as the 'seat' of arbitration." 25. We now turn our attention to the two clauses of the Distributor Agreement. Clause 16.5 stipulates that the agreement shall be governed by and construed in accordance with laws of India. It further provides that all matters arising from the agreement shall be subject to the jurisdiction of the courts in Gujarat, India. Clause 18, which deals with the settlement of disputes, outlines both a conciliation and arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions [...]." 28. The interpretation of a contract involves determining the meaning that a reasonable person, with all relevant background knowledge available to the parties at the time of the contract, would derive from the document. A similar principle is outlined in Chitty on Contracts, Hugh Beale, Chitty on Contracts, Sweet and Maxwell, Vol. 1, 33rd Ed. (2019) which, when discussing inconsistent terms, observes: "Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the purpose of the contract as gathered from the instrument as a whole and the available background, and that part which would defeat it must be rejected. The old rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitration agreement. We begin by applying the three-step test developed by Sulamérica Cia (supra). First, neither Clause 16.5 nor Clause 18 explicitly stipulates the governing law of the arbitration agreement. Therefore, we proceed to the next step of the test, which involves identifying the parties' implied choice of law for the arbitration agreement. At this stage, there is a strong presumption that the lex contractus, i.e., Indian law, governs the arbitration agreement. As explained earlier, this presumption may be displaced if the arbitration agreement is rendered non-arbitrable under Indian law. But that is not the case here. Furthermore, the mere choice of 'place' is not sufficient, in the absence of other relevant factors, to override the presumption in favor of the lex contractus. In this case, it is important to note that no seat of arbitration has been explicitly chosen. In conclusion, at this second stage of the inquiry, we find that the parties have impliedly agreed that Indian law governs the arbitration agreement, and the controversy can be resolved accordingly. 32. We reiterate that the use of the premises at the Centre, or any other location designated b ..... 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