Author: Mohit Mishra*, Bhavik Kaushik*
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Introduction
“It is high time that arbitration clauses are phrased with precision and not couched in ambiguous phraseology… legal fraternity must refrain from practices resulting in a criminal wastage of judicial time.”
— Supreme Court in SDMC v. SMS (2024)
This comment reflects the judiciary’s ongoing concern about poorly drafted or “pathological” arbitration clauses—those containing ambiguity, gaps, or inconsistent terms. Yet, the very source of such ambiguity often lies in the courts’ own inconsistent interpretation of pathological clauses. For instance, in a 2024 decision, a clause expressly stating that “arbitration is optional” was nevertheless upheld; conversely, in the recent decision of BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Limited, the Court held that an optional arbitration clause is not binding. Despite India’s ambitions to position itself as a global arbitration hub, its courts continue to grapple with the same fundamental question: how to reconcile legal certainty with arbitration-friendly interpretation. The result is a jurisprudence swinging between formalist literalism and liberal pragmatism. This creates great uncertainty for parties and practitioners.
From Formalism to Liberalism: The Early Judicial Struggle
Pathological clauses are hardly a modern phenomenon. Under the Arbitration Act of 1940, Indian courts approached arbitration with caution, emphasizing textual precision and the need for an unmistakable “consensus ad idem.”
Early decisions such as Brindaban Chandra Datta v. Bisweswar Lal, ILR (1937) 1 Cal. 606 (Referred in case of Jyoti Brothers v. Durga Mining Company, 1956 SCC OnLine Cal 188) upheld optional arbitration clauses only where both parties were clearly bound. Courts demanded explicit language— “arbitrator,” “reference,” or “dispute”—and struck down vague references to chambers or officials as uncertain. The judicial instinct was to protect jurisdiction, not to promote arbitration.
However, a competing trend soon emerged. In Ram Lal Jagannath v. Punjab, the court shifted towards liberal interpretation, focusing on substance over form and emphasizing the parties’ intention to arbitrate. This more functional approach sought to uphold commercial efficacy, but its momentum was short-lived.
The pendulum swung again in Union of India v. D.N. Revri, where the Supreme Court urged a commercial common-sense interpretation, stating that contracts must be construed to give effect, not defeat, their purpose. The ruling hinted at a pro-arbitration outlook but stopped short of establishing doctrinal clarity.
The 1996 Act: A Fresh Start or Old Habits Recast?
The Arbitration and Conciliation Act, 1996, modelled on modelled on the UNCITRAL Model Law, was meant to cleanse the system of interpretative rigidity. The Supreme Court in K.K. Modi v. K.N. Modi articulated the essential elements of an arbitration agreement—binding intention, arbitrability, enforceability, and impartial adjudication.
Yet, despite this modern statute, judicial inconsistency persisted. Clauses using phrases like “may be referred to arbitration” were invalidated for want of binding consent (Wellington Associates v. Kirit Mehta), while others without the word “arbitration” were salvaged through contextual reading (R.M. Investments v. Boeing Co.).
The judiciary oscillated between formalism (requiring textual clarity) and liberalism (prioritizing intention). The lack of a coherent interpretative framework meant that outcomes often turned on judicial attitude rather than legal principle.
When ‘May’ Meets ‘Shall’: The Jagdish Chander Doctrine
The watershed moment in India’s pathological clause jurisprudence came in Jagdish Chander v. Ramesh Chander (2007). The partnership deed in question stated that disputes “shall be referred for arbitration if the parties so determine.” The Court held the clause invalid, its conditional phrasing made arbitration optional, not mandatory.
The judgment crystallized the formalist position: unless parties express a clear, binding, and present intention to arbitrate, no valid arbitration agreement exists. The mere mention of “arbitration” is not enough.
While doctrinally sound, Jagdish Chander cast a long shadow. Its strict focus on linguistic preciseness discouraged courts from salvaging defective clauses even where party intent was evident. It also blurred the line between invalid and inoperative agreements, leading to additional disputes at the pre-arbitral stage.
Liberal Resurgence: The Enercon Approach
A corrective shift came with Enercon (India) Ltd. v. Enercon GmbH (2014), where the Supreme Court rescued an otherwise unworkable clause that provided for three arbitrators but described the appointment process for only two. Invoking the “officious bystander” test, the Court supplied the missing term to make the clause workable, emphasizing that arbitration law favors giving effect to agreements rather than defeating them.
Similarly, in Pricol Ltd. v. Johnson Controls, the Court upheld a clause referring disputes to the “Singapore Chamber of Commerce”—interpreted to mean SIAC—based on reasonable construction. These judgments reaffirmed the favor validitatis principle, promoting interpretation that sustains, rather than destroys, arbitration agreements.
However, the principle underlines in Jagdish Chander still exists. In cases where clauses used both “shall” and “may” or required mutual consent post-dispute, courts struck them down as uncertain. Even as the liberal approach gained ground, the absence of an explicit overruling left doctrinal ambiguity intact.
Judicial Overreach and the Autonomy Paradox
However, some of the liberal rulings lead to critique for judicial overreach. In ACC Ltd. v. Global Cements Ltd., the Court effectively rewrote an arbitration clause by appointing a substitute arbitrator where both named arbitrators had died—despite no contractual basis for such substitution.
While the decision sought to preserve party intent, it blurred the boundary between curative construction and judicial rewriting, constraining party autonomy in the name of pro-arbitration zeal.
This tension—between salvaging defective clauses and respecting contractual limits—illustrates the central paradox of Indian arbitration: liberalism without discipline can be as destabilizing as formalism without flexibility.
The SDMC Case: A Judicial Call to Precision
The Supreme Court’s recent decision in SDMC v. SMS (2024) signalled a turning point. The clause in question, titled “Mediation by Commissioner,” was found not to constitute an arbitration agreement. The Court observed the absence of procedural intent, lack of arbitral terminology, and the purely administrative character of the process.
What makes SDMC v. SMS (2024) remarkable is not its outcome but its epilogue, a public admonition to the legal fraternity. The Court lamented the “decade-long litigation” caused by vague clauses and warned that professional negligence in drafting may attract liability.
This rare judicial censure reflects a deeper frustration: India’s arbitration problem is not merely doctrinal but professional stemming from careless drafting and inconsistent judicial messaging. Yet, despite such strong criticism, courts have increasingly upheld optional arbitration clauses that were previously invalidated in Jagdish Chander, as seen in cases like Tarun Dhameja. These decisions signal a shift towards broadly interpreting party intent to sustain even “optional” arbitration clauses, relying on the pro-arbitration rationale in Vidya Drolia Case. However, this shift cannot be regarded as definitive, since Jagdish Chander has not been overruled—only “distinguished”—leaving the conflicting precedents unresolved.
At the Crossroads: Two Schools, One Dilemma
India’s jurisprudence today reflects two parallel approaches:
- Formalist: privileging textual precision, emphasizing “consensus ad idem,” and rejecting ambiguity.
- Liberal: guided by favor validitatis and substance over form, seeking to uphold party intention.
Neither has fully prevailed. The continuing authority of Jagdish Chander coexists uneasily with Enercon and Vidya Drolia, producing interpretative schizophrenia.
For practitioners, this means uncertainty in enforcement; for investors, unpredictability in dispute resolution; and for India’s arbitration ecosystem, an enduring reputational cost.
A Doctrinal Cure: Toward Clause-Sensitive Interpretation
What India needs is not another legislative amendment but a jurisprudential recalibration. A principle-driven, clause-sensitive framework should be guided by three interpretative canons:
- Favor Validitatis: Where intention to arbitrate is discernible, courts should prefer validation over nullification.
- Reasonable Reader Standard: Clauses must be interpreted as a commercial reader would, not as a linguist parsing syntax.
- Severability and Good Faith Construction: Defects in form should not invalidate substance; courts should sever unworkable portions rather than strike down entire clauses.
Adoption of these principles would align India with arbitration-friendly jurisdictions such as France and Singapore, which salvage defective clauses through purposive interpretation, unlike Russia’s rigid textualism.
Moreover, this interpretative reset must be matched by professional accountability—law firms and drafters must ensure clarity in designation of institutions, procedure, and consent. Arbitration cannot thrive on judicial sympathy for poor drafting.
Conclusion: The Path Ahead
The persistence of pathological clauses in Indian arbitration is symptomatic of a deeper malaise—a reluctance to commit to one interpretative philosophy. Courts oscillate between textual fidelity and functional validation, creating uncertainty that undermines both investor confidence and arbitration’s foundational principle of consent. Judicial consistency, professional rigor, and a doctrinal commitment to uphold arbitration’s core ethos—party autonomy and enforceability is very important to Indian’s future arbitration landscape.
Pathological clauses are not just drafting errors; they are mirrors reflecting the maturity of a jurisdiction’s arbitration culture. Whether India chooses to cure the pathology or continue diagnosing it case by case will determine its place in the global arbitral order.
* Mohit Mishra is a legal researcher and professional based in India. He holds a bachelor’s degree in law from Dr. Ram Manohar Lohiya National Law University, Lucknow, and a master’s degree in law from the National Law University, Delhi. With a keen interest in arbitration, particularly in the Indian context, Mohit is dedicated to exploring alternative dispute resolution mechanisms and contributing to the development of this specialized field.
* Bhavik Kaushik is a an Assistant Professor at Lloyd Law College, Noida, U.P., a legal researcher and professional based in India. He holds a bachelor’s degree in law from the University of Petroleum and Energy Studies, Dehradun, and a master’s degree in law from the National Law University, Delhi. His vast research focuses on arbitration and criminal jurisprudence; his keen interests lie in various aspects of arbitration and allied fields of law.