In a judgment issued on 18 March 2025, the Supreme Court of India (“Supreme Court”), reinforced that when arbitration agreements contain seemingly inconsistent provisions on governing law and venue, courts must harmonize them to uphold contractual intent.
The dispute in this case arose from an International Exclusive Distributor Agreement executed between the petitioner, a company incorporated in Colombia, and the respondent, an Indian company. Under the agreement, the governing law clause provided that the contract would be governed by Indian law, with exclusive jurisdiction vested in the courts of Gujarat, India. However, the arbitration clause set out a dispute resolution mechanism providing for conciliation and arbitration before the Conciliation and Arbitration Centre of the Chamber of Commerce in Bogotá, Colombia, with awards to be rendered under Colombian law. Conflicting interpretations of these clauses led the petitioner to approach the Supreme Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitral tribunal. Respondent opposed the petition, arguing that Indian courts lacked jurisdiction since Bogotá had been designated as the arbitration venue.
The Supreme Court noted that in international arbitration, three distinct legal systems often interact – the law of the contract, the law of the arbitration agreement, and the procedural law of the court. When these do not align, courts must carefully determine which law governs the arbitration agreement. Referring to international precedents, the Supreme Court emphasized that the law governing the arbitration agreement is identified through a three-step test: first, by express choice of the parties; second, by implied choice; and if neither exists, by the law having the closest connection.
Applying this framework, the Supreme Court found that neither clause expressly provided the governing law of the arbitration agreement. However, the governing law clause created a strong presumption that Indian law, i.e., the law of the contract, was intended to govern the arbitration agreement. The dispute resolution clause, although requiring arbitration in Bogotá and application of Colombian law to the award, did not override or displace the clear governing law stipulation. The Supreme Court clarified that the reference to Bogotá only amounted to a designation of venue and did not by itself determine the juridical seat of arbitration. In the absence of an express seat, the supervisory jurisdiction was found to lie with Indian courts, as the arbitration agreement itself was rooted in Indian law.
On this basis, the Supreme Court concluded that the Indian courts had jurisdiction under the Arbitration Act to appoint an arbitrator. In the course of proceedings, both parties agreed that arbitration could be held in India under the Delhi International Arbitration Centre rules and consented to appointment of a sole arbitrator. Accordingly, a retired judge was appointed as the arbitrator, with the venue to be decided mutually by the parties.
This judgment affirms that the governing law of the contract (here, Indian law) presumptively extends to the arbitration agreement, unless clearly displaced. It also draws a distinction between the “venue” of arbitration and its “seat,” holding that designating a foreign venue does not by itself transfer supervisory jurisdiction away from the courts chosen in the agreement. Distributors and franchisors entering into agreements with differing jurisdictions of arbitrations and governing laws must draft such clauses with precision, ensuring clarity to avoid procedural uncertainties and conflicts that may lead to delays and administrative burdens like in the present case.
Disha Mohanty, IDI Country Expert for distribution in India
Vipasha Verma
