Understanding Seat and Venue in Arbitration and Its Impact on Jurisdiction in International Commercial Disputes

Introduction 

The Supreme Court bench comprising Chief Justice Sanjiv Khanna and Justices Sanjay Kumar & K.V. Viswanathan in a recent decision in Disortho S.A.S. versus Meril Life Sciences Private Limited¹ has held that the explicitly designated “seat” of arbitration, even if termed “venue,” determines jurisdiction.  This case, involving a Colombian company (Disortho) seeking Indian court intervention to appoint arbitrators against an Indian company (Meril). The case hinged on a fundamental jurisdictional question: did the agreement’s clauses empower Indian courts to act? To resolve this, the court had to delve into two critical questions, the first of which was: How to determine the law and the seat that governs an arbitration agreement and How to resolve conflicts between competing or inconsistent clauses?

How to determine the law and the seat that governs an arbitration agreement 

The court’s answer lay in reaffirming the primacy of the explicitly designated “seat.” Echoing the principles established in the Shashoua case Principle², alongside other international jurisprudence, the Supreme Court declared that the “seat,” even when referred to as “venue,” dictates jurisdictional authority. This effectively superseded the “Closest Connection Test,” emphasizing the parties’ autonomy in selecting the arbitral seat. The court further clarified that  Part I of the 1996 Arbitration Act applies when the seat is in India, or when Indian law governs. Conversely, Indian courts lack jurisdiction over agreements with a foreign seat, particularly those post-dating September 2012, or older agreements where a foreign seat or law was explicitly or implicitly chosen. But, how crucial is the “seat” in determining jurisdiction?

The court opined that  “seat” emerges as the linchpin of jurisdictional authority, acting as an exclusive jurisdiction clause. The concept of concurrent jurisdiction is dismissed, and the “Closest Connection Test” is no longer the primary determinant. Instead, the court favored the “Shashoua Principle,” where an explicitly designated place, even if termed “venue,” is deemed the seat, absent compelling counter-evidence. This shift is significant because it brings clarity and predictability to jurisdictional matters. Why is this shift from “Closest Connection Test” to “Shashoua Principle” so important? The  court explained that the explicit stipulation of a procedural law (“curial law”) strongly indicates the designated place as the seat. The court further directed that the courts must respect the parties’ choices, even when presented as “venue,” and avoid imputing unintended omissions. How should a court approach an arbitration agreement, especially concerning the seat?

The court further established that  “Closest Connection Test” retains its relevance in the absence of explicit or implicit seat designation. Additionally, the “Forum Non Conveniens” doctrine offers a solution when multiple places qualify as the seat, allowing courts to select the most appropriate jurisdiction based on factors such as the agreement, the dispute, and the parties’ intentions. 

How to resolve conflicts between competing or inconsistent clauses?

When faced with seemingly irreconcilable clauses, in the given situation, where Clause 16.5 mandated Indian law and Gujarat jurisdiction while Clause 18 designated Bogota as the arbitration venue. The court emphasized harmonization over outright rejection, seeking to give effect to all provisions. This approach, fundamentally, raises a question: How can seemingly contradictory clauses be reconciled to reflect the parties’ true intentions?

To achieve this, the court relied on established legal principles, notably drawing from cases like Arnold v. Britton³. and authoritative texts like Chitty on Contracts⁴. These sources emphasize a holistic approach to contract interpretation, where the court considers the contract as a unified document, rather than a collection of isolated parts. The core of this approach is the “reasonable person” perspective: how would a person with all the background knowledge available to the parties at the time of contracting understand the agreement? This involves looking beyond the literal words, considering the commercial purpose of the contract, the surrounding circumstances, and the common understanding of the terms used. The aim is to find an interpretation that makes commercial sense and aligns with the parties’ presumed intentions, avoiding absurd or impractical outcomes.

Ultimately, while acknowledging Bogota as the arbitration venue and its procedural rules, the court clarified that Indian law governed the agreement, ensuring the applicability of the Arbitration and Conciliation Act (A&C Act) and the jurisdiction of Indian courts for arbitrator appointments. 

This determination opens the door to critical questions concerning the impact of such irregularities on the validity of the subsequent arbitral award. Specifically, it necessitates an examination of how Indian courts interpret and apply provisions within the A&C Act, such as Section 11(6) and Section 34(2)(a)(v), in cases involving contested arbitrator appointments. 

Therefore, to fully address the original question regarding the potential invalidation of an arbitral award due to an erroneous arbitrator appointment, it is imperative to delve into recent High Court judgments that have grappled with similar issues. 

Building upon the Hala Kamel Zabal⁵ precedent, the High Court of Delhi, in Suresh Shah v. TATA Consultancy⁶, further clarified the implications of an erroneous arbitrator appointment in an International Commercial Arbitration (ICA). Specifically, the court addressed whether such an error, where the High Court appoints an arbitrator instead of the Supreme Court as mandated by Section 11(6) of the Arbitration & Conciliation Act (A&C Act), could transform the ICA into a domestic arbitration, thereby invoking the “patent illegality” challenge under Section 34(2A). The court decisively rejected this notion, emphasizing that the nature of an ICA, as defined by Section 2(1)(f) of the A&C Act, is determined by the foreign nationality, residence, or incorporation of at least one party, a non-derogable provision. Therefore, a procedural lapse in the appointment process does not alter the fundamental character of the arbitration. The Court held that despite the erroneous appointment, the arbitration remains an ICA, and consequently, challenges under Section 34(2A), which are exclusive to domestic arbitrations, are inapplicable. Essentially, the court reiterated that procedural irregularities do not expand the grounds for challenging an ICA award, reinforcing the principle that the substantive nature of the arbitration, as defined by Section 2(1)(f), prevails over appointment-related procedural errors. This solidifies the understanding that while procedural compliance is important, it does not alter the fundamental nature of an ICA, nor does it allow for challenges under provisions solely applicable to domestic arbitrations.

Conclusion 

The Disortho v. Meril ruling solidifies the ‘seat’ as paramount in jurisdictional determination, fostering clarity and predictability in Indian arbitration. By prioritizing party autonomy and emphasizing harmonious contract interpretation. This decision reinforces party autonomy and clarifies when Indian courts have authority, potentially attracting more India-seated arbitrations.

The principles embodied in the judgement will likely shape future arbitral practices, encouraging parties to draft precise arbitration agreements and fostering greater confidence in India as a reliable arbitration hub. This ruling is poised to influence how international businesses perceive India as a venue for resolving disputes, potentially leading to an increase in India-seated arbitrations.

However, the ruling leaves a complex hypothetical question unanswered: What happens when parties explicitly designate a “venue” in one jurisdiction, a “curial law” of a second jurisdiction, and a “governing law” of a third, all while remaining silent on the “seat”? While Disortho v. Meril provides clarity in many scenarios, this complex interplay of jurisdictional indicators poses a challenge for future courts. Would the court then revert to a modified “Closest Connection Test,” or would another principle emerge to reconcile these conflicting indicators? The answer to this question will be crucial in further refining the jurisprudence surrounding international commercial arbitration in India, and ensuring that the Indian legal framework remains adaptive to the evolving complexities of global commerce.

Citations 

1. Disortho S.A.S. versus Meril Life Sciences Private Limited 2025 LiveLaw (SC) 317
2. Shashoua case Principle [2009] EWHC 957 (Comm)
3. Arnold v. Britton 2015 AC 1619
4. Chitty on Contracts Hugh Beale, Chitty on Contracts, Sweet and Maxwell, Vol. 1, 33rd Ed. (2019)
5. Hala Kamel Zabal 2024 SCC Online Del 5604
6. Suresh Shah v. TATA Consultancy MANU/DE/1420/2014