On 19 February 2026, a Supreme Court Bench comprising the CJI Surya Kant, Joymalya Bagchi and Vipul M. Pancholi, in Himadri Speciality Chemicals Ltd. v. Jindal Coke Ltd. (a coal tar supply dispute), was particularly scornful of contradictory seat/venue clauses in a contract between the parties, one of which was to be decided by the courts of Odisha and the arbitration was to take place in Delhi. Such an arrangement, the Supreme Court said in (2026) 3 SCC 68, was “deliberately, mischievously designed,” constituting “professional misconduct” and “generating disputes.”
While the comments were directed against a set of established commercial law firms and their top management, who presumably knew exactly what they were doing when incorporating the clause, the Bench was referring to a long-dated practice in Indian courts. The popular perception of commercial litigation tends to lean towards betrayal, duplicity, fraud, and one party taking advantage of another. But in practice, one sees that the most frequent causes of litigation are much less spectacular , they include contradictory clauses in a contract that go unnoticed and unchallenged for years.
Ambiguity Is Not a Technicality, It Is a Business Cost
Indian law firms have long regarded drafting as a stylistic exercise, but the recent trend among the higher courts has been to identify business costs associated with ambiguities. In South Delhi Municipal Corporation v. SMS Limited, decided on 15th May 2025, the Supreme Court laid down an “elemental test” for arbitration clauses, requiring that they manifest an intent to create binding adjudicative effect, contain elements of a valid arbitration agreement, and follow certain arbitral norms, lest they “waste judicial time and effort.”
Equally instructive was the ruling of the Supreme Court in BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Ltd., 2025 INSC 874 delivered on 18th July 2025, which observed that a provision allowing either party to “seek arbitration” was not sufficient to constitute an arbitration agreement, as it created the situation where a party had to prove that an agreement to arbitrate had in fact been concluded. In other words, if both parties believed that arbitration had been agreed to, but the arbitration agreement itself did not exist, a party seeking arbitration would bear the burden and the costs of proving that such an agreement did, in fact, exist. This is a situation that seldom arises in practice but is nonetheless worth knowing about.
Arbitration clauses that fail to meet the standard requirements often emerge when the business relationship between the parties breaks down, with both sides incurring considerable litigation expenditures contesting the validity, seat, or jurisdiction of the arbitration before proceeding to the actual dispute resolution. Termined prematurely and with considerable costs to both sides, such arbitration proceedings are referred to in the literature as “pathological,” a term coined by the former Secretary-General of the ICC’s International Court of Arbitration Frédéric Eisemann in 1974. Frequently discussed in the pages of the American Review of International Arbitration (ARIA) published by the Columbia Law School, pathological arbitration clauses continue to be a persistent issue, in part due to the leniency displayed by arbitral tribunals throughout history.
The Force Majeure Lesson Nobody Learned Until It Was Too Late
If arbitration clauses have long been a source of litigation, force majeure clauses may rank highest in the list of Indian businesses’ costly lessons. The most notable case illustrating the business costs associated with the invocation of force majeure is Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80. In this case, the Supreme Court ruled on the dispute between electricity generators and regulators concerning long-term coal supply agreements. When electricity producers were unable to meet their obligations due to a change in Indonesian export policy and a resulting increase in coal prices, the generators invoked the force majeure clause in their supply contracts in order to avoid penalties.
The Supreme Court ruled that an increase in the price of goods, however significant, is not an event or circumstance of force majeure unless the contract specifically provides otherwise. Furthermore, in construing the terms of a force majeure clause, the Court expressed its view on the interpretive principles that should be applied to such provisions. Since a force majeure clause derogates a contracting party from its obligation to perform, its wording must be strictly construed in favor of the non-invoking party. Having accepted fixed prices in their electricity purchase agreements, the generators accepted the risk of price fluctuations and consequently failed to relieve themselves of their obligations under the contract. Several generators sold off their shares in the relevant power plants.
It was, in fact, the COVID-19 pandemic that served as a wake-up call to thousands of Indian businesses that were parties to force majeure clauses. Even when the pandemic was not explicitly mentioned in such a clause, Indian courts were reluctant to consider it an event or circumstance of force majeure. In Airports Authority of India v. Delhi International Airport Ltd., 2025:DHC:1523, the Delhi High Court ruled that a force majeure clause was in fact a provision allowing for the suspension of performance for a limited period of time (“eclipse” doctrine). By and large, Indian courts have adopted a similar approach to force majeure clauses, distinguishing between events or circumstances preventing performance (rendering a contract void) and those only hindering or making performance difficult (rendering a contract voidable). In either case, it is the party invoking the force majeure clause that bears the burden of proving that such a clause applies.
This approach did not come without its difficulties, as many businesses found themselves at the receiving end of force majeure provisions that did not contemplate a global pandemic, and, even if they did, had no documented internal procedures for responding to one. Indian courts consistently ruled that, for a force majeure event to qualify for the relief claimed by a party, there must be documentary evidence substantiating this claim (correspondence with suppliers), as well as documenting any attempts to find an alternate supplier, if applicable. Businesses unable to present such documentary evidence, as many did during the pandemic, were unable to successfully claim force majeure despite the obvious business difficulties occasioned by the pandemic.
What This Actually Costs, In Real Terms
Having reviewed several illustrative cases, one is tempted to conclude that the costs of badly drafted contracts are rarely, if ever, captured by one particularly damaging indemnity clause. More often than not, poorly drafted contracts incur litigation costs through prolonged proceedings, as the parties struggle to understand one another’s positions and the meaning of a particular clause. Furthermore, businesses suffer from forum uncertainty, being unable to immediately ascertain which jurisdiction applies to their dispute, as was the situation in the Himadri-Jindal Coke dispute. Perhaps most notably, businesses find themselves unable to reach satisfactory settlements because one party realizes that the litigation posture it has adopted is not as strong as it had projected, and the other is quick to take advantage. In all these ways, poorly drafted contracts adversely impact the wider economy by increasing the number of disputes and placing greater burdens on companies, especially those that are not economically endowed. The Supreme Court’s comment in South Delhi Municipal Corporation v. SMS Limited about arbitration clauses “wasting judicial time” serves as a fitting reminder that this particular problem has attracted the Court’s close attention.
What Actually Prevents This
The most obvious solution to the problems identified in this note is better drafting practices. Arbitration and jurisdictional clauses contained in the same contract must be cross-examined for consistency because, as the Himadri-Jindal Coke case so vividly demonstrates, they can contradict each other, defeating the very purpose of the arbitration clause and generating disputes instead. Where an arbitration clause is brief and clearly states the seat of arbitration and the governing law, it may be better to rely on such brevity rather than on a detailed but multi-jurisdictional agreement that was stitched together using three different templates, as the accused in the Himadri–Jindal Coke case was advised by the Supreme Court. In other words, when it comes to arbitration, less can be more, as long as it is consistent with the parties’ intentions.
When drafting force majeure clauses, businesses must operate on the assumption that an event or circumstance of force majeure is about to occur. Consequently, specific events or circumstances must be listed, and the procedural steps that the notifying party must take upon the occurrence of any such event or circumstance must be specified. Furthermore, a force majeure clause must indicate whether it suspends performance or allows for its termination, since, in the absence of such specification, courts will adopt the narrower interpretation and rule that a force majeure event only suspends performance (the “eclipse” doctrine articulated by the Delhi High Court in Airports Authority of India v. Delhi International Airport Ltd., 2025:DHC:1523).
Given that force majeure clauses are strictly construed in favor of the non-invoking party, businesses must establish an evidentiary discipline when responding to such an event. This may be particularly difficult when the contractual obligations impacted by a force majeure event are novel to the parties, as was the situation for many businesses during the COVID-19 pandemic. In such situations, businesses must be prepared to demonstrate to the satisfaction of the other party that the force majeure clause, as interpreted by them, applies to the current circumstance. During the pandemic, many businesses failed to appreciate the evidentiary rigor required by the courts, and consequently, even those businesses that were negatively affected by the pandemic were unable to successfully claim force majeure.
Another obvious solution is for junior lawyers who draft contracts to seek the advice of their seniors when confronted with complex drafting issues. It is the experience of litigation practitioners that the ability to prevent disputes by carefully wording contracts is developed through exposure to disputes in a courtroom. In this respect, the most valuable lesson that Indian lawyers can learn from the cases discussed in this note is that pathological clauses, to use the term introduced by Frédéric Eisemann, continue to arise, decade after decade, due to the failure of junior lawyers to understand the potential consequences of their drafting errors. In other words, one rarely sees a contract dispute that was not, in one way or another, precipitated by one-sided contractual language.
