Supreme Court grapples with 'pathological' arbitration clauses that delay justice
Arbitration clauses are designed to provide swift, private dispute resolution. Yet some clauses achieve the opposite, spawning preliminary legal battles over whether the parties agreed to arbitrate, what form it should take, or whether the mechanism can even function.
The Supreme Court's ruling in South Delhi Municipal Corporation v. SMS Ltd. exemplifies this problem. Three similar concession agreements contained dispute-resolution provisions that different Delhi High Court benches interpreted differently on arbitration eligibility. The parties spent nearly a decade litigating over the dispute resolution method itself while the underlying commercial disputes remained frozen.
Such defective clauses are termed "pathological arbitration clauses." Legal experts identify four essential functions: binding the parties, excluding state court jurisdiction during arbitration, conferring authority on arbitrators, and enabling enforceable awards. Recent Indian decisions reveal that not all drafting defects are equally fatal—some go to clause validity itself, while others permit judicial intervention.
