Arbitration has become a cornerstone of dispute resolution in India, prized for its flexibility and efficiency in handling commercial conflicts. Yet, a subtle but critical detail often escapes attention: the governing law of the arbitration agreement. This law shapes the agreement’s validity, scope, and enforceability. A recent legislative shift in the United Kingdom, overturning the Enka v Chubb ruling, has sparked fresh debate on this topic. What does this change mean for India, a nation with its own evolving arbitration landscape? This article explores the UK’s amendment, contrasts it with Indian judicial approaches, and considers its implications for Indian arbitration.
The UK’s Legislative Shift: From Enka v Chubb to Section 6A
In the UK, the case of Enka Insaat VF Sanayi AS v. OOO Insurance Co. Chubb established a structured method to identify the governing law of arbitration agreements when parties didn’t explicitly choose one. Drawing from the earlier Sulamerica case, it outlined a three-step process:
- Express Choice: Check if the parties explicitly selected a governing law for the arbitration agreement.
- Implied Choice: If no express choice exists, assume the law of the main contract applies, as the arbitration clause is embedded within it.
- Closest Connection: If applying the main contract’s law undermines the arbitration agreement, default to the law of the seat, deemed the most closely connected.
This approach balanced party autonomy with practicality. However, the UK Parliament recently amended the English Arbitration Act, 1996, introducing Section 6A via the English Arbitration Act, 2025. This new provision simplifies the process: the governing law is what the parties expressly agree on, or, absent such agreement, the law of the seat applies. The change reflects trade practices where parties often specify a seat but not a separate governing law for the arbitration clause, aiming to enhance legal certainty.
India’s Evolving Stance on Governing Law
Indian courts have grappled with similar questions, producing a patchwork of precedents. Early on, in National Thermal Power Corp v. Singer Co. [(1992) 3 SCC 551], the Supreme Court ruled that the proper law of the contract governs the arbitration agreement unless the parties state otherwise. This mirrored the Sulamerica logic, prioritizing the main contract’s law.
A shift came in 2012 with BALCO v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552]. A Constitution Bench held that choosing India as the seat of arbitration triggers Part I of the Arbitration and Conciliation Act, 1996, automatically applying Indian law to the arbitration agreement. This seat-centric view suggested a departure from the earlier approach, aligning with practical considerations in international arbitration.
Yet, clarity proved elusive. In 2023, a three-judge bench in Disortho SAS v. Meril Life Sciences Private Limited revisited the issue, reaffirming the Sulamerica three-step test. It ruled that absent an express choice, the proper law of the contract governs, citing consistency with Enka. Despite referencing BALCO, the decision leaned toward pre-BALCO principles, leaving practitioners questioning whether India favors a seat-based or contract-based default.
Should India Emulate the UK?
The UK’s shift to a seat-centric default offers appealing simplicity. By tying the governing law to the seat unless specified otherwise, it reduces ambiguity—a boon for international trade where seat designation is common. The English Law Commission, in its Final Report, argued this aligns with party intent and market norms, dismissing the Enka test’s reliance on implied choice as overly complex.
For India, however, the picture is murkier. A key hurdle is the unresolved debate over determining the seat when it’s not explicitly stated. In Union of India v. Hardy Exploration and Production (India) INC [(2018) 7 SCC 374], the Supreme Court held that a venue doesn’t automatically become the seat without additional indicators—like the arbitration’s legal or procedural context. Conversely, BGS SGS SOMA JV v. NHPC Ltd. [(2020) 4 SCC 234] ruled that the venue is the seat unless the contract suggests otherwise. These conflicting rulings from co-equal benches muddy the waters, making a seat-centric default riskier in India than in the UK.
An Expert Committee tasked with reforming the Arbitration and Conciliation Act, 1996 proposed embedding the term “seat” in sections like 2(2) and 20 to clarify its role. Yet, it sidestepped the Hardy–BGS conflict, leaving the issue dangling. Adopting the UK’s model now could amplify confusion rather than resolve it, as parties might litigate the seat’s identity before even addressing the governing law.
A Path Forward for India
Given these challenges, India might fare better by retaining its current approach—at least for now. The Disortho ruling, echoing Enka and Sulamerica, provides a workable framework: prioritize express choice, then the proper law, and adjust if necessary. This avoids over-reliance on a seat that Indian courts can’t consistently define.
Still, the UK’s amendment offers a lesson in proactive clarity. India could eventually adopt a similar rule, but only after settling the seat-determination debate through legislation or a larger Supreme Court bench. Meanwhile, the onus falls on parties drafting contracts. Explicitly stating both the governing law and the seat—ideally in the arbitration clause itself—can preempt disputes, saving time and costs.
Conclusion
The UK’s legislative overruling of Enka v Chubb underscores the value of certainty in arbitration, a goal India shares but struggles to achieve amid judicial inconsistencies. While the seat-centric approach suits the UK’s trade-driven context, India’s arbitration ecosystem demands caution. Sticking with the Disortho framework makes sense until the seat conundrum is resolved. For businesses and legal practitioners, the takeaway is clear: spell out your choices in the contract. In arbitration, as in life, precision today prevents headaches tomorrow.
References
- National Thermal Power Corp v. Singer Co., (1992) 3 SCC 551
- BALCO v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552
- Disortho SAS v. Meril Life Sciences Private Limited, (2023) [Supreme Court of India, exact citation pending]
- Union of India v. Hardy Exploration and Production (India) INC, (2018) 7 SCC 374
- BGS SGS SOMA JV v. NHPC Ltd., (2020) 4 SCC 234
- Arbitration and Conciliation Act, 1996, Government of India