The Governing Law Perplexity: Determining Supervisory Jurisdiction in International Commercial Arbitration

[Aashima Soni is a third-year B.B.A., LL.B (Hons.) student and Arjuna Singh is a third-year B.A. LL.B student from Symbiosis Law School, Pune and Government Law College, Mumbai respectively.]

Keywords: Arbitration, International Developments.

   I.      Introduction

In cross-border commercial contracts, arbitration has emerged as a globally acclaimed method for dispute resolution. However, the arbitral process is often complicated by procedural complexities, primarily when the chosen lex arbitri is vaguely defined. This piece compares India’s and the United Kingdom’s (‘U.K.’) approaches to judicial supervision in arbitration that is determined by lex arbitri, by examining key developments like India’s Disortho S.A.S. v. Meril Life Sciences (‘Disortho’) and the legislative enactment of the English Arbitration Act, 2025 (‘2025 Act’). It explores both models to determine which legal framework offers greater consistency and reliability in the context of international commercial arbitration.

II.         The Principle of Lex Arbitri and Judicial Supervision

Lex arbitri is understood as the procedural law governing the arbitration, or the ‘law of the seat of arbitration’ in common parlance. Crucially, it anchors judicial supervision within the chosen seat’s legal system, granting courts their exclusive authority. It operates independently from the substantive law that governs contractual obligations, i.e., the lex contractus.

Issues arise when the arbitration clause is unclear on the seat or when the lex contractus differs from the seat. This then becomes an issue of judicial scrutiny over whether the supervisory jurisdiction is determined by the seat or the lex contractus. Both Indian and English courts have followed different methods in such determination.

III.         The U.K. Approach: Seat as the Anchor of Judicial Supervision

The U.K. has shifted from a subjective to a clearer framework in determining the law governing the arbitration agreement (‘LGAA’). To understand this evolving shift, it is instructive to start with the landmark case Sulamérica Cia Nacional De Seguros S.A. v. Enesa Engenharia S.A. (‘Sulamérica’) and then examine the 2025 Act.  

A.    Pre-2025 Act Framework

The Supreme Court of the U.K. (‘UKSC’) in Sulamérica established a three-prong test to determine the LGAA. Firstly, the express law chosen by the parties is considered. Secondly, the implied choice is assessed if no express choice exists. Lastly, if neither of the choices is identified, the arbitration agreement is governed by the law having the ‘closest and most real connection’. 

Two main concerns arise from this approach. First, the lex contractus should not be automatically considered as the LGAA. This assumption should be applied in a limited sense, particularly when the law of the chosen seat could render the arbitration clause unenforceable. Second, ambiguity persists when determining which legal system should apply most closely to the arbitration clause, the lex contractus or the lex arbitri, when these differ.

Further, in Enka Insaat Ve Sanayi A.S. v. OOO Insurance Company Chubb (‘Enka’), the UKSC reaffirmed the framework laid out in Sulamérica, to clarify that importance is to be given to the lex contractus while deciding the implied choice. This principle allows considerable interpretive flexibility to the judiciary, potentially disregarding the parties’ actual intentions.

B.    Post-2025 Act Framework

Finally, the English Arbitration Act, 2025, particularly through the introduction of Section 6A, has provided significant legislative clarity on determining the LGAA. It clarified that the legal framework governing the primary contract, though it encompasses the arbitration clause, does not automatically extend to that clause for determining its applicable law. It crystallises the law of the arbitral seat to be treated as the LGAA. This ensures a clear regime for deciding the applicable law even when the arbitration clause is silent on these matters.

Subsection (2) of Section 6A resolves the complexity by negating the assumption that the lex contractus is also the LGAA. This approach, endorsed by the English Law Commission, effectively legislatively overrules the pre-amendment Enka ruling.

  IV.         The Indian Approach: From BALCO to Disortho

The Indian courts have developed a coherent approach over the past decade to determine which courts have supervisory jurisdiction in arbitration. However, the Supreme Court in Disortho has unsettled this by relying heavily on English conflict-of-laws principles that India’s courts had moved away from.

The position was initially clarified by Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (‘BALCO’), by ruling that once parties choose a juridical seat, only the courts of that seat have supervisory authority. The Court adopted the Shashoua principle, presuming the designated venue is the seat unless clearly indicated otherwise. This ended the prior confusion where Indian courts would routinely intervene in foreign-seated arbitrations.

A.    Pre-Disortho Position

This Supreme Court in BGS SGS Soma JV v. NHPC Ltd (‘BGS SGS Soma’), further clarified that only courts at the seat, which the parties designate, have exclusive authority over all interim measures and matters post-award, treating the seat as an exclusive jurisdiction clause for the arbitration process. A three-fold criterion was established to determine when a designated “venue” is the juridical seat. Firstly, the arbitration agreement must specify only one place; secondly, the arbitral proceedings must be firmly fixed to that place without any scope for change; and lastly, no other conflicting indications suggest the place is merely a venue and not the seat.

In Arif Azim Co. Ltd. v. Micromax Informatics FZE (‘Arif Azim’), the Court reaffirmed these principles and again endorsed the Shashoua principle, holding that Dubai, the designated venue in the arbitration clause, as the functional seat, rightly ousting Indian courts from supervisory jurisdiction once the seat is determined, “akin to an exclusive jurisdiction clause.” 

Together, these rulings establish a seat-centric model, harmonising it with international standards such as Article V(1)(a) of the New York Convention (‘NY Convention’) and Article 34(2) of the UNCITRAL Model Law, which recognise the law of the seat as the LGAA where parties have not expressly chosen otherwise.

B.    Disortho: A Stark Departure from Arif Azim

In sharp contrast, in the recent Disortho case, the Apex court took a different turn. The case involved an international distributor agreement between two parties with two conflicting clauses. Clause 16.5 designated Indian law and Gujarat courts' jurisdiction over the contract, while Clause 18 provided for arbitration in Bogotá under Colombian law.

The Court held that Indian courts retained exclusive supervisory jurisdiction and reconciled the conflicting clauses by viewing Bogotá only as an arbitration venue, rather than the juridical seat, because Indian law governed the arbitration agreement under Clause 16.5, and there was no explicit seat designation.

The Court’s approach in Disortho represents a troubling regression from established Indian jurisprudence. Its reliance on English cases like Sulamérica and Enka is problematic not only because these precedents have been statutorily superseded in the U.K., but because it contradicts the seat-centric framework painstakingly developed through BALCO, BGS SGS Soma, and Arif Azim. By prioritising the lex contractus (Indian law) over the designated arbitral venue (Bogotá), Disortho dismantles this presumption without adequately addressing why these binding Indian precedents should be distinguished or overruled.

The Court failed to apply the three-fold criterion from BGS SGS Soma. Under that framework, Bogotá should have been recognised as the juridical seat because: (i) the arbitration agreement specified only one place, Bogotá, with no alternatives; (ii) the proceedings were firmly fixed to that location, as the clause mandated that “arbitration will take place in Bogota DC” at the premises of the Conciliation and Arbitration Centre of the Chamber of Commerce of Bogotá; and (iii) no conflicting indications suggested Bogotá was merely a convenient venue.

The Arif Azim precedent, decided merely months before Disortho, explicitly affirmed this methodology and treated such designations as tantamount to exclusive jurisdiction clauses. By ignoring this recent authoritative guidance, Disortho creates interpretive confusion and undermines the predictability that international commercial parties require when structuring their dispute resolution mechanisms.

Further, the Court’s reliance on Melford Capital Partners v. Wingfield Digby (‘Melford’) to prioritise lex contractus as the basis for judicial supervision is questionable because the cases differ fundamentally. Melford addressed whether arbitration was the appropriate forum, a classic arbitrability and forum selection issue rather than a dispute between competing courts over supervisory control.

Similarly, applying Arnold v. Britton to emphasise strict textual interpretation, while the factual matrix of the precedent involved a domestic landlord-tenant dispute, rather than dealing with reconciling overlapping jurisdiction and arbitration clauses in an international commercial contract, warrants closer scrutiny.

Had the court adopted the reasoning from BGS SGS Soma and Arif Azim, Bogotá would have been acknowledged as the official seat of arbitration. This designation would have vested procedural authority solely in the Colombian judiciary, thereby excluding Indian courts from any supervisory role, and would have reflected international arbitration norms by recognising the seat as the jurisdictional anchor.

V.         Choosing the Prudent Path: Avoidance of Midnight Clauses and Upholding Separability of Arbitration Agreements

The U.K.’s 2025 Act, particularly Section 6A, offers India a compelling blueprint for addressing jurisdictional ambiguities. By statutorily entrenching that the law of the seat governs arbitration agreements unless parties expressly choose otherwise, the U.K. eliminated interpretive uncertainties from Sulamérica and Enka, recognising that judicial precedent alone can produce inconsistent outcomes.

Disortho exemplifies how courts can revert to formalistic contract interpretation despite the existence of a binding precedent. While the Indian Expert Committee’s push to insert “seat” in key provisions of the Arbitration and Conciliation Act, 1996, as reflected in the Draft Amendment Bill, 2024, marks a positive step, a comprehensive codification modelled on Section 6A remains long overdue. Such a statutory framework would effectively codify the seat-centric approach from BGS SGS Soma, and Arif Azim, preventing regression to lex contractus reasoning and reinforcing the autonomy of arbitration agreements in alignment with international best practices.

Complementing legislative clarity, judicial interpretation must also evolve. Courts should abandon the erroneous assumption that lex contractus automatically governs arbitration clauses. Unlike substantive contract terms, arbitration agreements establish a distinct procedural mechanism, superseding court jurisdiction and requiring stricter formalities, such as being in writing under the NY Convention and express consent under arbitral rules. Arbitration clauses can also bind non-signatories through doctrines like estoppel, group of companies, and third-party beneficiaries, unlike ordinary contract terms, which require express privity.

While Arif Azim respected this distinction by treating the named venue as the juridical seat, Disortho resorted to formalistic contract reasoning, disregarding the nuances of arbitration agreements and thereby risking the collapse of the separability principle. Hence, to foster legal clarity and global alignment, the judiciary should refine its interpretive lens and promote careful wording of arbitration agreements to avoid ‘midnight clauses’.

VI.         Conclusion

A forward-looking arbitration framework requires clear intent and consistent legal interpretation. For India, this means shifting from rigid reliance on contract law toward principled adjudication of arbitration clauses.

Legislative reforms explicitly distinguishing venue from seat, modelled on the U.K.’s Section 6A, are essential. Such statutory clarity would prevent interpretive regressions, such as Disortho, and codify the seat-centric principles of Arif Azim and other Indian precedents. This would enhance India’s attractiveness as a global arbitration hub by promoting predictability and consistency, aligning with international best practices.