SC concerned over drafting of arbitration clauses, says process misused

The Supreme Court on Thursday expressed concern over drafting of arbitration clauses in commercial agreements and said the arbitration process was being misused to complicate and prolong matters.

A bench of Justices Surya Kant and N Kotiswar Singh raised "serious concerns" over the manner in which ambiguity was embedded into such agreements and instructed courts to show an "unwavering tendency" towards rejecting shoddily drafted clauses at the very threshold.

"The drafting of arbitration clauses in commercial agreements in India leaves much to be desired. Despite arbitration being introduced as a means of ensuring speedy and effective dispute resolution, it is evident and ironic that, in certain cases, the process has been misused to further complicate and prolong the resolution of disputes," it said.

"Whether this stems from administrative oversight or deficient legal advice is a matter best left for separate consideration," the bench added.

The top court said "willful and wanton" wastage of judicial time is highly deplorable and it is high time that arbitration clauses are worded with piercing precision and clarity, and that they are not couched in ambiguous phraseology.

"This is a responsibility and onus that every legal counsel, advisor, and practitioner must shoulder most dutifully."  The bench then decided to "advise, if not caution and warn" the legal fraternity against engaging in such practices that result in a criminal wastage of precious judicial time.

"Indeed, their professional credentials will not earn any stripes if they indulge in such juggling of words," the bench said.

The observations came on petitions challenging the judgments delivered by the Delhi High Court pertaining to multiple Concession Agreements executed between the Municipal Corporation of Delhi and certain private contractors for the development of parking and commercial complexes.

The apex court said cases, which prima facie disclose mala fides woven into the agreement they seek adjudication over, must be thrown out of the court.

"Equally, the courts or judicial fora of our country, as a matter of judicial best policy, must show an unwavering tendency towards rejecting shoddily drafted clauses at the very threshold. We would complementarily urge the courts to invoke their suo motu powers in appropriate cases wherein legal firms or counsel are found designing arbitration clauses' which deliberately mislead and misguide," it added.

The time, the bench went on, was not far when personal liability must be assigned for such unscrupulous acts, along with the sanctioning of the harshest punitive measures against the actors.

"We are confident that these steps are vital to infuse probity, transparency, and professionalism into Indian arbitration. Needless to say, to uphold the integrity of the arbitral process, the sanctity of such agreements must be preserved," the bench said.