The Supreme Court on Thursday delivered sharp remarks on “self-created confusion” in arbitration agreements, criticising law firms for drafting ambiguous jurisdiction and venue clauses that generate avoidable litigation.
The case arose from an appeal challenging a High Court order concerning an agreement that contained both an exclusive jurisdiction clause (Jaipur courts) and an arbitration clause specifying Delhi as the venue, without expressly designating the “seat” of arbitration.
Senior advocate Jayant Mehta appearing for the appellant, argued that there exists a “dichotomy of views” among High Courts on how such clauses should be interpreted. It was submitted that clarity was needed from the Supreme Court to settle the law.
However, the Bench of Chief Justice of India, Justice Surya Kant,Justice Joymalya Bagchi, and Justice Vipul M. Pancholi expressed strong disapproval of the manner in which arbitration clauses are being drafted.
“You first create this confusion when you enter into agreements…Why can’t you have a simple clause? If arbitration is to be conducted at a particular place, say so clearly. One line is enough.”
On mishaps in drafting and the trend of luxury drafting, the Bench remarked:
“This kind of luxury drafting is generating litigation in this country. Enough is enough now…We are fighting hard to how to prevent, how to control it. Only because the two parties are business entities, big business houses, they can afford. They don’t have time to read anything. They have some kind of their own establishment official. All this is so-called… I see that. It’s time to simplify arbitration agreements. And I bow down as a student of law.
The Court went further, questioning professional standards: “To my mind, this is professional misconduct, misguiding a party and generating litigation is serious misconduct on the part of law firms who indulge in it…What right do they have to sit and draft these clauses when they do not understand the difference between venue, seat and governing law?”
While acknowledging that the issue may require authoritative determination in an appropriate case, the Bench declined to interfere in the present matter.
“Though some arguable points have been raised which may require consideration in an appropriate proceeding, we are not inclined to interfere,” the Court said.
Noting that a senior advocate had already been appointed as arbitrator and both parties were willing to proceed with arbitration, the Court allowed the process to continue.