Legislative overruling of Enka v Chubb: Key takeaways for arbitration in India

One of the recent amendments to the English Arbitration Act, 1996 vide the English Arbitration Act, 2025 was the legislative overruling of Enka Insaat VE Sanayi AS v. OOO Insurance Co. Chubb, which dealt with the determination of the law governing arbitration agreements.

Enka upheld the decades-old test to determine the governing law, which was postulated in Sulamerica Cia Nacional de Seguros SA and others v Enesa Engelharia SA. These decisions have held that in the absence of an express stipulation of the governing law, the law governing the main contract impliedly ought to govern the arbitration agreement by virtue of it being part of the main contract.

However, the 2025 Amendment Act has recently introduced Section 6A to the Act, which states that the governing law is the law that the parties expressly agree on, failing which the law of the seat would be applicable. This amendment has far-reaching consequences as the principles laid out in Enka and Sulamerica have also been followed in other major arbitral jurisdictions like India. 

This piece analyses the impact of the Amendment Act on Indian jurisprudence and the feasibility of sustaining this interpretation within the framework of the Arbitration and Conciliation Act, 1996.

Enka upholds the three-step test adopted by Sulamerica for determining the governing law (detailed analysis can be found here and here). It states that the governing law can be determined by (i) an express choice of law; (ii) in the absence of express choice, the implied choice would be the proper law by virtue of the arbitration agreement being part of the main contract and (iii) if the application of the proper law makes the arbitration agreement invalid, the law of the seat being most closely connected can be applied to determine the governing law. Another instance where the seat determines the governing law is when a particular country's law mandates that the law of the seat applies.

The position in India

The early approach of Indian courts in determining the governing law can be seen in National Thermal Power Corp v. Singer Co. In Singer, the Supreme Court held that proper law also applies to the arbitration agreement, unless there are contrary stipulations to the same. This aligns with the principles set out in Sulamerica and Enka. However, the Constitution Bench of the Supreme Court in BALCO v. Kaiser Aluminium Technical Services Inc held that Part I of the Arbitration Act, 1996 would automatically apply by virtue of India being the seat of the arbitration. The consequence of this decision is whenever parties choose India as the seat, the governing law would automatically be Indian law, by virtue of Section 2(2) and 7 of the Indian Act (being under Part I). This position has also been upheld in the subsequent decisions of the Supreme Court.

However, a very recent three-judge bench of the Supreme Court in Disortho SAS v. Meril Life Sciences Private Limited, while dealing with the determination of governing law, held that the proper law will apply to the arbitration agreement in the absence of an express choice, thereby upholding the principles in Enka and Sulamerica. While a vague reference was made to BALCO, Disortho does not deal with the implied overruling of the principles set out in Singer. Therefore, it can be reasonably presumed that Indian courts, moving forward, would apply the principles set out in Disortho in issues dealing with the determination of governing law, as BALCO did not decide on this issue. Therefore, the current position of law in India is akin to the rulings in Enka and Sulamerica despite the seat-centric approach adopted in BALCO. 

While India has adopted the principles in Enka and Sulamerica, it needs to be seen whether the Indian courts need to rethink this approach in the backdrop of the UK Amendment Act. In order to understand this, the reasons for the legislative overruling of Enka need to be closely analysed. 

The English Law Commission, in its Final Report, stated that the implied choice rule in Enka is wrong as it is inconsistent to state that an express choice of the entire contract would only impliedly apply to a part of the contract. Further, the Law Commission identified that it would be strange to suggest that an express choice of the seat, which is most closely connected to the governing law, as Enka suggests, could be negated by an implied application of any foreign law being the proper law.   

The authors argue that the inconsistency pointed out by the Law Commission does not justify making the law of the seat applicable to arbitration agreements when there is no express choice. The Law Commission also does not provide reasons as to why the proper law being applicable to arbitration agreements would have an adverse impact. Through empirical data, the Law Commission found that the adoption of the seat-centric approach for the determination of governing law is primarily owing to the existing trade practice in the UK (refer paragraphs 12.41-12.43). The Law Commission observed that while many factors dictate the choice of governing law, parties’ choice of the law of the seat is deliberately intended to apply to the arbitration agreement as well. 

This seat-centric approach does not revolve around the validity of the principles in Enka, as the Law Commission has also noted that in cases where there is an absence of an express choice of the governing law and the seat, the test laid down in Enka has to be resorted to.

In this backdrop, the existing position in India must be analysed to understand whether the principles in Enka and Sulamerica can continue to be applied. In India, the majority of commercial contracts set out the proper law, but fail to expressly designate the governing law and the seat. This absence of the express choice of seat has led to contradictory views in the determination of the seat in India.

This is evidenced by decisions of co-ordinate benches of the Supreme Court in Union of India v. Hardy Exploration and Production (India) INC and BGS SGS SOMA JV v. NHPC Ltd. The Supreme Court in Hardy held that the venue of an arbitration can become the seat only if there are additional factors concomitant to it and not otherwise. However, in BGS, the venue was automatically determined to be the seat unless there was a contrary indication in the contract. 

The Indian government has appointed an Expert Committee to recommend changes to the Indian Act. Despite the existing contradictions, one of the major changes suggested by the Expert Committee is to incorporate the word “seat” in Sections 2(2), 20(1), 20(2), 28(1) and 31(4) of the Indian Act. However, the Expert Committee did not recognise the inherent conflict between Hardy and BGS. This controversy has been dealt with in further detail in Chapters 6 and 7 of Commercial Dispute Resolution – State of the Law in India. 

In light of this existing controversy, adopting the approach as set out in Singer and Disortho would reduce further complexities and increase certainty in the determination of the governing law. Further, this approach need not change given that the three-step approach of Enka and Sulamerica is still found acceptable despite the legislative overruling.

While the authors envision the scenario of the principles of Enka and Sulamerica being resorted to in the absence of the seat being expressly designated, it is opined that there is no need for the Indian courts to modify their existing approach, especially in light of the controversy in the determination of the seat in India. 

The judgment in Disortho, which was rendered after the Expert Committee’s recommendations on the amendments to the Indian Act, had relied upon the principles set out in Enka and Sulamerica despite the Expert Committee’s recommendation to adopt a seat-centric approach. It remains to be seen whether future amendments to the Indian Act adopt the ratio in Disortho despite the recommendations of the Expert Committee. According to the authors, the view taken in Disortho has to be adopted in light of the existing controversy in the determination of the seat in India. In any event, the authors opine that as a matter of abundant caution, parties necessarily need to curate the governing law and the seat to avoid needless litigation.

Varun Venkatesan and Ramkishore Karanam are advocates practicing at the Madras High Court.