Summary
On a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 by a Colombian distributor against an Indian company, where the agreement chose Indian law and the courts of Gujarat but provided for conciliation and arbitration at the Chamber of Commerce of Bogota with the award to conform to Colombian law, the Supreme Court held that Indian law governs the arbitration agreement, that Bogota was only the venue and no seat had been chosen, that Indian courts retain supervisory and appointment jurisdiction, and appointed a sole arbitrator with the parties' consent.
Issues
- Whether Indian courts have jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 to appoint arbitrators where the contract is governed by Indian law and subject to the courts of Gujarat, but arbitration is to be conducted at the Arbitration and Conciliation Centre of the Chamber of Commerce of Bogota with the award conforming to Colombian law.
- How the law governing the arbitration agreement (lex arbitri) is to be determined when it is not expressly chosen, and how conflicting dispute resolution clauses are to be reconciled.
- Whether the designation of Bogota as the place of arbitration makes it the seat so as to confer supervisory jurisdiction on the Colombian courts.
Provisions considered
- Section 11(6), Arbitration and Conciliation Act, 1996Applicability affirmed: since Indian law governs the arbitration agreement and the courts in Gujarat have exclusive jurisdiction over disputes under Clause 16.5, Indian courts possess the appointment jurisdiction; the Court appointed a sole arbitrator with the consent of both parties. (¶¶ 2, 32, 34, 35)
- Section 2(2), Arbitration and Conciliation Act, 1996Noted as an instance of a provision of the law of a seat that can displace the presumption that the lex contractus governs the arbitration agreement: Part I of the Act applies to arbitrations seated in India, and, per Arif Azim, also where the arbitration agreement is governed by Indian law. (¶¶ 14, 21, 24)
Held
- Four choices of law must be distinguished: the law governing the arbitration (which determines supervisory jurisdiction, interim measures and matters such as filling vacancies or removing an arbitrator), the proper law of the arbitration agreement (its validity, scope and interpretation), the proper law of the contract, and the procedural rules; the first two components of the lex arbitri are inherently intertwined and, unless the parties have provided otherwise, it is prudent not to divide them, and such supervisory matters should normally be governed by the law applicable to the arbitration agreement rather than by the procedural rules. (¶¶ 6, 7, 8, 9, 11)
- The principles summarised in Enka Insaat v. Chubb and the three-stage inquiry in Sulamerica (express choice, implied choice, closest and most real connection, taken separately and in that order) state the correct legal position except where Indian courts have taken a different view: absent an express choice, the law chosen for the contract will generally govern an arbitration agreement forming part of it, and the choice of a different seat is not by itself enough to negate that inference, though the presumption may be displaced where the law of the seat requires the arbitration agreement to be governed by that law, where the agreement would be ineffective or the dispute non-arbitrable under the lex contractus, or where the seat was deliberately chosen as a neutral forum; the closest-connection test and the presumption in favour of the seat apply only when the governing law cannot otherwise be ascertained. (¶¶ 13, 14, 15, 16, 17, 18, 19)
- Under Indian precedent, Part I of the Act applies where the seat is in India or the arbitration agreement is governed by Indian law; once a seat is determined it operates as an exclusive jurisdiction clause and the doctrine of concurrent jurisdiction stands rejected; an express designation of a place anchoring the proceedings, with no significant contrary indicia, is the seat even if labelled the venue (Enercon, Mankastu Impex, Roger Shashoua, Arif Azim). (¶¶ 20, 21, 22, 23, 24)
- Competing or inconsistent clauses must be read with the contract as a whole so as to give effect to each; a clause is not to be rejected as redundant unless it is manifestly inconsistent with or repugnant to the rest of the agreement, the old rule preferring the earlier clause no longer governs, and the meaning is that which a reasonable person with the parties' background knowledge would derive from the document (Arnold v. Britton; Chitty on Contracts). (¶¶ 26, 27, 28)
- Clause 16.5 unambiguously subjects the agreement to Indian law and all matters arising from it to the jurisdiction of the courts in Gujarat; the parties, aware of Clause 18, designated Bogota as the venue for conciliation and arbitration while the Gujarat courts retain exclusive jurisdiction, which, absent a divergence in lex arbitri, includes jurisdiction over appointments and supervisory powers. Applying the three-step test, there was no express choice of law for the arbitration agreement, the implied choice was the lex contractus (Indian law) since the dispute is not non-arbitrable under Indian law, and no seat was explicitly chosen. (¶¶ 29, 30, 31)
- The stipulation that the award shall be in law and conform to Colombian law pertains only to the arbitral proceedings or the award and does not override Clause 16.5; the Act therefore applies and Indian courts have appointment jurisdiction under Section 11(6), with the rules of the Bogota Centre as the procedural rules and Bogota as the venue. (¶¶ 32, 33)
Result
Arbitration petition allowed; with the consent of both parties the arbitration to be held in India before Mr. Justice S.P. Garg (retired, Delhi High Court) as sole arbitrator under the rules of the Delhi International Arbitration Centre with its fee schedule for international arbitrations, the venue to be fixed by the parties and the arbitrator.