Chief Justice Sanjiv Khanna, delivering the judgment alongside Justices Sanjay Kumar and K.V. Viswanathan, noted that what initially appeared to be a "straightforward question has, in fact, become a vexed one," citing the complex interaction between different legal systems in transnational disputes.
The case involved a Colombian company and an Indian firm that had executed an International Exclusive Distributor Agreement with contradictory dispute resolution clauses - one specifying Indian law and courts in Gujarat, and another providing for arbitration in Bogota, Colombia.
The Court thoroughly examined international jurisprudence on the "law governing the arbitration agreement" versus the "law governing the arbitration itself," adopting the three-step test established in prior cases: first examining express choice, then implied choice, and finally the closest and most real connection.
"Unless the parties have provided otherwise, it is prudent not to divide lex arbitri," the Court observed, emphasizing that these concepts are "inherently intertwined as a part and parcel of the lex arbitri."
The ruling establishes that when the law applicable to an arbitration agreement is not explicitly specified, the law governing the main contract would generally apply. This presumption may be displaced only in specific circumstances, such as when the law of the seat mandates that the arbitration agreement must be governed by that country's law.
"A clause should not be dismissed as redundant unless it is manifestly inconsistent with or repugnant to the rest of the agreement," Justice Khanna wrote, emphasizing the importance of harmonizing contractual provisions.
The Court ultimately held that Indian law governed the arbitration agreement despite the specification of Bogota as the venue for arbitration. During the hearing, both parties agreed to hold the arbitration in India, leading the Court to appoint Justice S.P. Garg, a retired judge of the Delhi High Court, as the sole arbitrator.
This judgment provides vital clarity for international businesses on how Indian courts will interpret conflicting jurisdictional clauses in arbitration agreements, reinforcing India's growing prominence in international commercial arbitration.
Read The Judgment Here
keywords: International arbitration, lex arbitri, cross-border disputes, arbitration agreement, lex contractus, Indian arbitration law
