The Supreme Court has expressed strong disapproval of the prevalent practice of poorly drafted arbitration clauses in commercial agreements, emphasizing the need for precision and clarity to ensure the effectiveness of dispute resolution mechanisms. In a recent judgment, the apex court called for stringent actions against those responsible for drafting ambiguous or misleading arbitration clauses, including lawyers and legal firms, warning of potential personal liability and penalties.

A bench of Justices Surya Kant and N Kotiswar Singh delivered the judgment, urging judicial forums across the country to reject cases involving "shoddily drafted arbitration clauses" at the threshold. The Court observed that such cases constitute a "criminal wastage of judicial time" and have been allowed to persist for far too long. It has called upon the judicial forums to take suo motu actions in cases where clauses are designed deliberately to mislead and misguide.

The Supreme Court highlighted that despite India's progress in arbitration law, challenges remain, primarily due to the poor drafting of arbitration clauses. The court noted that arbitration, conceived as a mechanism for speedy and effective dispute resolution, is often misused to complicate and prolong the resolution of disputes. The ambiguity embedded in such agreements raises serious concerns and undermines the integrity of the arbitral process.

To address this issue, the Supreme Court has directed courts to adopt a strict approach towards poorly drafted arbitration clauses, rejecting them at the outset. The court has also urged the legal fraternity to frame arbitration clauses with precision, avoiding ambiguous phraseology. It has cautioned against practices that result in a "criminal wastage of judicial time".

The Supreme Court has warned that the time is not far when personal liability would need to be attached to such unscrupulous acts, along with sanctioning the harshest punishments and measures against the actors. The court observed that the drafting of arbitration clauses in commercial agreements in India leaves much to be desired and stressed the need for greater professionalism and ethical responsibility in the Indian arbitration landscape.

The judgment arose from a batch of appeals from three separate judgments of the Delhi High Court, where the central question was whether the dispute resolution clauses constituted valid arbitration agreements between the parties. The Supreme Court found that in some cases, there was no express intent on the part of the parties to submit disputes to arbitration.

The Supreme Court's observations have significant implications for businesses, lawyers, and contract drafters in India. It sends a strong message that the legal system will not tolerate careless or unclear drafting of dispute resolution clauses. The decision also highlights the need for companies and legal professionals to be more careful and precise when preparing legal contracts, especially regarding arbitration clauses. The Supreme Court aims to restore arbitration's intended purpose of quick and fair resolution of business disputes and prevent its misuse.