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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 ..... isortho has filed this petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 Hereinafter referred to as, "A&C Act", for appointment of an arbitral panel in terms of Clauses 16.5 and 18 of the Distributor Agreement. Meril has opposed the petition on jurisdictional grounds, contending that these clauses do not grant Indian Courts jurisdiction to appoint arbitrators. The clauses 16.5 and 18 read: "16. Miscellaneous 16.5. This Agreement shall be governed by and construed in accordance with the laws of lndia and all matter pertaining to this agreement or the matters arising as a consequence of this agreement with be subject to the jurisdiction of courts in Gujarat, India. 18. Direct Settlement of Disputes The Parties mutually agree and pact that any dispute, controversy or claim arising during this Agreement related to subscription, execution, termination, breach, as well as noncontractual relationships, related to the clauses mentioned above; They may be submitted to conciliation in accordance with the Rules of Arbitration and Conciliation of the Chamber of Commerce of Bogota DC., or instead. of this city, where the Director of the Centre so determine. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We will refer to this split later in this judgment. Secondly, when contractual clauses conflict, as is the case here, the resolution becomes legalistic and complicated. 4. In the interest of avoiding prolixity, we deem it unnecessary to separately address each argument raised or delve into the extensive body of jurisprudence surrounding the issue. It suffices to note that a similar, though not in pari materia, question was examined by this Court in M/s. Arif Azim Co. Ltd. v. M/s. Micromax Informatics Fze. (2024) INSC 850 This judgment references earlier precedents of this Court on the subject, and we will discuss these judgments subsequently. 5. We begin by referring to Redfern and Hunter's Commentary on International Arbitration. Blackaby KC, Nigel, Constantine Partasides, and Alan Redfern, Redfern and Hunter on International Arbitration, 7th Edition (2022), Oxford University Press. Chapter 7, titled "Agreement to Arbitrate", emphasizes the cardinal importance of parties' chosen law. It is stated that the law governing the arbitration agreement sets the rules and norms that determine the validity, scope, and interpretation of the agreement. This chosen law assumes paramount sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (2) the proper law of the arbitration agreement, or (3) the procedural rules which will apply in the arbitration. These three regimes depend on the choice, express or presumed, of the parties. In this case it is common ground that both the contract and the arbitration agreement are governed by English law. The procedural rules applicable to the arbitration are not rules derived from English law. On the contrary, the procedural regime is the comprehensive and sophisticated ICC rules which apply by virtue of the parties' agreement. What then is the law governing the arbitration? It is, as Martin Hunter and Alan Redfern, International Commercial Arbitration, p. 53, trenchantly explain, 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. The law governing the arbitration comprises the rules governing interim measures (e.g. Court orders for the preservation or storage of goods), the rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into difficulties (e.g. filling a vacancy in the composition of the arbitral tribunal if there is no ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be governed by English Law but the procedural rules shall be the rules of ICC. 10. This position is also clear from the judgment of Christopher Clark, J. in Ace Capital Limited v. CMS Energy Corporation, 2008 EW SC 1843 Comm. which had examined Paul Smith (supra) to observe that the law governing the arbitration decides the extent of the court's supervisory jurisdiction. Agreeing on the approach adopted in Ace Capital (supra), the judgment in Milford Capital (supra) states that it is the appropriate lodestar. 11. We are of the view that matters such as filling vacancies on arbitral tribunals and the removal of an arbitrator through the exercise of supervisory jurisdiction, in the absence of a clear mechanism within the arbitration agreement, should be normally governed by the law applicable to the arbitration agreement itself, rather than by the procedural rules that govern the arbitration process. It is, after all, the lex arbitri that governs the arbitration and its associated processes. However, as noticed above, this may not be the position in all cases as the mutually agreed terms may stipulate otherwise. 12. At this juncture, the pertinent question that arises is: how d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal factors which may, however, negate such an inference and may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat are: (a) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country's law; or (b) the existence of a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective. Either factor may be reinforced by circumstances indicating that the seat was deliberately chosen as a neutral forum for the arbitration. vii) Where there is no express choice of law to govern the contract, a clause providing for arbitration in a particular place will not by itself justify an inference that the contract (or the arbitration agreement) is intended to be governed by the law of that place. viii) In the absence of any choice of law to govern the arbitration agreement, the arbitration agreement is governed by the law with which it is most closely connected. Where the parties have chosen a seat of arbitration, this will generally be the law of the seat, even if this diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration agreement. The factors mentioned in sub-para (vi) are not exhaustive and there may be other additional factors negating the presumption. Sub-para (vii) deals with cases where a particular place is chosen as the venue in contrast to the seat of arbitration. A place being chosen, does not by itself justify an inference that the arbitration agreement is intended to be governed by the law of this venue. Sub-para (viii) states that in the absence of any choice of law governing the arbitration agreement, the arbitration agreement will be governed by the law with which it is most closely connected. The close connection test applies only when the law governing the arbitration agreement cannot be ascertained even after applying the earlier paragraphs. In such a case, the law applicable to the seat of arbitration will be the law having the closest connection to the arbitration even if it differs from the parties' contractual obligations. For the Indian Law relating to closest connection test see Arif Azmi (supra) The closest connection test and a presumption in favour of seat in terms of sub-para (viii) will only apply when the contract does not stipulate the lex contractus. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Sulamérica Cia (supra) observes that the law governing the arbitration agreement may differ from the law of the contract. However, it is reasonable to presume that the parties intended for their entire relationship to be governed by the same system of law throughout the contract. In this context, a distinction is made between a stand-alone arbitration agreement and one that is embedded within a contract. In the former, a choice of seat of arbitration becomes highly significant, and the law of the seat would likely govern the arbitration agreement. However, when the arbitration agreement forms part of a contract, the express choice of a lex contractus strongly indicates the parties' intention. It would generally be inferred that the arbitration is governed by the same law as the substantive contract. However, this presumption is rebuttable as previously highlighted. Even when the arbitration agreement is part of the contract, the court must conduct a three-step inquiry: first, looking at the express choice of law; second, considering any implied choice; and third, determining the closest and most real connection. Second step is applied when the first step is negative, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic of China. 20. In Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1 this Court affirmed the principle that the parties may agree to hold arbitration in a particular place or country (Country X), but subject it to the procedural laws of another country (Country Y). The Court also distinguished between the venue and seat of arbitration. It accepted the notion that the parties could agree on the law of one country to govern the arbitration, irrespective of where the arbitration takes place. Reference was made to Braes of Doune Wind Farm (Scotland) Ltd. v. Alfred McAlpine Business Services Ltd., [2008] EWHC 426 and the Court of Appeal's decision in C v. D [2007] EWCA Civ 1282. Reference was also made to Sulamérica Cia (supra), with which the court agreed. In that case, despite the venue of the arbitration proceedings being London, it was held that the seat of arbitration was not necessarily London. In international commercial arbitration, the venue can differ from the seat. The argument for concurrent jurisdiction was rejected. 21. In Arif Azim (supra), this Court has examined the arbitration regime change following the Constitution Bench judgment in BALCO v. Kaiser Alu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as the seat. Given this, along with the application of a supranational body of arbitration rules, and the absence of any significant contrary indications, London was determined to be the juridical seat, with English law as the curial law. 24. In Arif Azim (supra), the Shashoua principle was applied to the dispute resolution clause. The dispute resolution specified that any disputes or differences arising from the agreement, including its validity and applicability, would be referred to arbitration under the UAE Arbitration and Conciliation Rules. The venue for the arbitration was designated as Dubai, UAE. A separate clause related to law and jurisdiction stated that the agreement would be governed by and construed in accordance with the laws of the UAE, subject to the non-exclusive jurisdiction of the Dubai courts. In this factual background, it was held that the courts in Dubai, UAE, not Indian courts, would have the jurisdiction to appoint an arbitrator. The conclusions drawn by the Court are as follows: "E. CONCLUSION 71. From the above exposition of law, the following position of law emerges: (i) Part I of the Act, 1996 and the provisions thereunder only applies where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy of rules has been stipulated in an arbitration agreement or clause, such stipulation is a positive indicium that the place so designated is actually the 'seat', as more often than not the law governing the arbitration agreement and by extension the seat of the arbitration tends to coincide with the curial law. (viii) Merely because the parties have stipulated a venue without any express choice of a seat, the courts cannot sideline the specific choices made by the parties in the arbitration agreement by imputing these stipulations as inadvertence at the behest of the parties as regards the seat of arbitration. Deference has to be shown to each and every choice and stipulations made by the parties, after all the courts are only a conduit or means to arbitration, and the sum and substance of the arbitration is derived from the choices of the parties and their intentions contained in the arbitration agreement. It is the duty of the court to give weight and due consideration to each choice made by the parties and to construe the arbitration agreement in a manner that aligns the most with such stipulations and intentions. (ix) We do not for a moment say that, the Closest Connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the rest of the agreement. Only when such a reconciliation is not possible will the court consider one clause to prevail over an incorporated standard. This approach marks a slight departure from the principle that prioritizes the first clause in the event of conflicting terms. While we do not need to explore these principles exhaustively, it is significant to note that a clause should not be dismissed as redundant unless it is manifestly inconsistent with or repugnant to the rest of the agreement. This is particularly important in the present case, as both parties have agreed to these clauses. We must seek to interpret the clauses in a manner that harmonizes their provisions, giving effect to each wherever possible. 27. In Arnold v. Britton, 2015 AC 1619 the Supreme Court of United Kingdom observed as under: "When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onciliation under the Arbitration and Conciliation Centre of the Chambers of Commerce in Bogota. In our view, Bogota has been designated as the venue for conciliation and arbitration, while the courts in Gujarat, India, retain exclusive jurisdiction over disputes. This must, unless there is a divergence in lex arbitri, include jurisdiction over appointments and act as a conduit for the arbitration in Bogota, Colombia. 30. The law governing the arbitration agreement, being Indian law, means that its validity, scope, and interpretation will be determined in accordance with Indian law. But which national courts-those in India or Colombia-exercise supervisory jurisdiction over the arbitration proceedings? Does the A&C Act apply to these arbitration proceedings? Upon a consistent reading of the Distributor Agreement, it is clear that only the courts in Gujarat, India, are referenced. While it is acknowledged that the venue for arbitration is Bogota, Colombia, and that the procedural rules of the Arbitration and Conciliation Centre at the Chambers of Commerce in Bogota are to apply, this does not diminish the supervisory powers of Indian courts, as explicitly outlined in Clause 16.5. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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