In a significant judgment on Thursday, the Supreme Court called on courts across the country to invoke their suo motu powers in cases where legal professionals are found deliberately drafting misleading or ambiguous arbitration clauses in contracts.

A Bench comprising Justices Surya Kant and NK Singh emphasized that courts must adopt a strict judicial approach towards poorly drafted arbitration clauses and reject them at the very outset. The Court noted:

“Such cases, which prima facie disclose mala fides woven into the very Agreement they seek adjudication over, must be thrown out of the Court, as they have been indulged for far too long. We would complementarily urge the Courts to invoke their suo moto powers in appropriate cases wherein legal firms or counsel are found designing ‘arbitration clauses’ which deliberately mislead and misguide… To uphold the integrity of the arbitral process, the sanctity of such agreements must be preserved.”

The Court warned that accountability for such misconduct could soon extend to personal liability, with harsh punitive consequences for erring professionals. It stressed the need for greater professionalism and ethical responsibility in the Indian arbitration landscape:

“The time is not far when personal liability must be assigned for such unscrupulous acts, along with the sanctioning of the harshest punitive measures against the actors.”

The observations came during the hearing of a batch of appeals arising from three separate Delhi High Court judgments. The central issue in all the cases was whether the respective dispute resolution clauses constituted valid arbitration agreements.

In its judgment, the Supreme Court flagged a disturbing trend in commercial contracts—arbitration clauses that are ambiguous, poorly drafted, and sometimes deliberately misleading. It noted that arbitration, intended to be a speedy and efficient alternative to litigation, is increasingly being misused to delay and complicate dispute resolution.

Expressing concern over this pattern, the Bench observed:

“What is most shocking to our judicial conscience is the incontrovertible reality that the parties in the present cases have spent nigh a decade acrimoniously litigating over the method of dispute resolution itself, while their actual qualms against each other remain deeply buried under the surface—effectively stuck in limbo.”

The Court likened such prolonged pre-litigation wrangling to a traveller endlessly debating which path to take, while the actual journey remains stalled.

Reiterating the foundational requirement of a valid arbitration agreement, the Court held that the parties’ intent to arbitrate must be “conscious and unambiguous,” and clearly reflected in both the language and the broader contractual context. In the present case, the Bench found no express or implied intent to refer disputes to arbitration.

The Court also clarified that while finality in dispute resolution is essential, it does not, by itself, constitute arbitration. It acknowledged that there is no rigid formula for determining arbitral norms, but noted that the basic requirements—many of which were absent in the present clauses—must be evident for an agreement to qualify as an arbitration agreement.

“While we cannot delineate arbitral norms from stem to stern, we have short-listed some of these norms for the purposes of these appeals, which unfortunately do not find any explicit or implicit mention in the subject-dispute resolution clauses,” the judgment stated.

Senior Advocate Nakul Dewan and Advocates Deepak Khurana, Abhishek Bansal, Umesh Kumar Khaitan, Praveen Swarup, Pragyan Mishra, Devesh Maurya, and Pareena Swarup appeared for the petitioners.
On behalf of the respondents, Advocates Sandeep Devashish Das, Praveen Swarup, and Farrukh Rasheed made their submissions.