Must scrap shoddy arbitration clauses, penalise drafters: SC

NEW DELHI: Arbitration is hailed as the best way to settle commercial disputes , and efforts are being made to make India a global hub of arbitration. However, poor drafting of arbitration clauses in India often leads to parties litigating for years over the method of dispute resolution itself. SC Thursday said those responsible for such poor drafting — including lawyers — should be penalised, and that courts should reject shoddily drafted clauses at the very threshold.

Taking note of the fact that a legal dispute between Municipal Corporation of Delhi (MCD) and three private contractors went on for a decade on the issue of whether the agreement allowed arbitration proceedings or not, a bench of Justices Surya Kant and N K Singh said the courts must show an unwavering tendency towards rejecting shoddily drafted clauses and must be thrown out of the court.

“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. The manner in which ambiguity is embedded into such agreements raises serious concerns,” SC said.

The bench said it is high time arbitration clauses be worded with piercing precision and clarity, and not couched in ambiguous phraseology which is a responsibility of every legal counsel and advisor.

In the present case, the court said the willful and wanton wastage of judicial time was highly deplorable.