Attributing Personal Liability to Drafters: A Doctrinal Incompatibility
Introduction: Unprecedented Epilogue
The Supreme Court in South Delhi Municipal Corporation v. SMS Ltd. (“SDMC”) addressed the deleterious effects of an ambiguously drafted dispute resolution clause. In this case, the dispute resolution clause was titled ‘mediation’ while the substantive content provided for a step-wise procedure for reference of disputes to the Municipal Corporation of Delhi’s (“MCD”) Commissioner. This inherent contradiction gave rise to ambiguous interpretations, and because of it, the parties litigated for over a decade to decide the appropriate mode of dispute resolution. Besides giving finality to the issue, the Supreme Court concluded with an epilogue denouncing ambiguous drafting and resultant wastage of time in determining the mode of dispute resolution. As a corrective measure, it implored courts to use suo motu powers for ascribing personal liability on law firms and counsels in cases of intentionally ambiguous drafting.
In this piece, we engage with the Supreme Court’s novel proposal to hold lawyers personally liable for ambiguously drafted dispute resolution clauses. While the intent to address ambiguous clauses is understandable, relying on suo motu powers for enforcement raises serious legal and practical concerns. Although there is substantial scholarship on the misconduct of advocates, this piece focuses on developing a framework for affixing liability to transactional lawyers. First, we examine the practical difficulties in furthering the Supreme Court’s objective. Second, we analyse the anachronism in the current legal structure governing advocates. At last, we propose a framework for extending professional standards to transaction lawyers in India, drawing on comparative insights from the United States and the United Kingdom.
Practical Difficulties Associated With The Epilogue
Poorly drafted clauses which lack specificity or lead to contradictory interpretations are known as pathological arbitration clauses (or ambiguous arbitration clauses). Such clauses regularly feature in contracts in various forms. For instance, parties misname the arbitral institution or the applicable rules to arbitration. In Jyoti Brothers v. Shree Durga Mining Co., the parties referred to the Chamber of Commerce at Madras for conducting arbitral proceedings. However, in that period, five different Chambers of Commerce existed in Madras. The Court invalidated such a clause for vagueness.
The Supreme Court’s underlying reason in SDMC cannot be ignored. Due to the prevalence of such clauses and insufficient regulatory clarity on consequences for incorrect drafting, the Supreme Court’s proposal acquires salience. Structural uncertainty in arbitration clauses not only disrupts party intent but also directly impacts the time and cost of litigation. This concern is manifested in Henry Schein, Inc. v. Archer & White Sales, Inc., where the dispute regarding an ambiguous arbitration clause had stretched for more than seven years. Not to mention, Queen Mary University’s report of 2006 on Corporate Attitudes and Practices substantiates these concerns by signifying corporations’ aversion to long-drawn litigation and associated costs. Thus, precisely drafted clauses are essential to protect party interests and predictability. Against this backdrop, the Supreme Court’s epilogue appropriately initiates steps towards correcting professional conduct.
However, the Supreme Court’s proposed intervention is partly unsuitable. Precisely, it is erroneous to assume that dispute resolution clauses are intentionally poorly drafted. In a traditional deal-making process, dispute resolution clauses are negotiated and reviewed at the tail-end of negotiations. Adding to that, tight deadlines in executing deals leave little room for adequate consideration of clauses. Hence, ambiguity arises due to practical difficulties rather than intentional misconduct.
Additionally, liability on drafters can risk conservatism in drafting techniques and prompt law firms and counsel to adopt standard form arbitration clauses. Using a standardised format for drafting arbitration clauses is counterintuitive since arbitration clauses require independent analysis. Not to mention, the Supreme Court’s suggestion of imposing “harshest punitive measures” can functionally be unviable, as complex transactions entail complex arbitration clauses. In several cases, parties use multi-tiered dispute resolution clauses, where the mechanism is layered into several stages, like negotiation or mediation before arbitration. From a practical viewpoint, interpretational differences are inevitable. Hence, “harshest punitive measures” imposed without necessary guidelines would be counterproductive and against the Supreme Court’s proposal
In addition to these practical difficulties, the subsequent section will foreground legal inconsistencies with the Supreme Court’s proposal.
Suo Motu Cognisance: Finding The Grounds
At the outset, it is disproportionate for the Supreme Court to use its suo motu powers to ascribe liability. In the Supreme Court Bar Association v. Union of India, the Supreme Court subjected its suo motu powers to the Bar Council of India’s (“BCI”) conduct. If the BCI fails to take any appropriate measures or delays in deciding professional misconduct, the Supreme Court can exercise its suo motu powers under Article 142 of the Constitution of India. The Supreme Court rightly emphasised the detailed due procedure established under Section 35 of the Advocates Act, 1961 (“Advocates Act”) for determining professional misconduct. Especially, the phrase “Where on receipt of a complaint or otherwise……” in Section 35 leads to a reasonable inference that the BCI possesses suo motu powers. Hence, this article proposes that the Courts must recommend or issue directives to the BCI for taking action against intentionally ambiguous drafting, instead of using suo motu powers. Subsequently, the BCI must conduct an exhaustive enquiry as per Section 35 of the Advocates Act. If the situation warrants, the BCI must use its suo motu powers and not the Supreme Court.
Besides issues with suo motu powers, this piece raises questions about the regulatory effectiveness in accommodating the Supreme Court’s proposal. Two interrelated concepts invite consideration: a) who is an advocate; b) what is professional misconduct.
Who is an Advocate?
Section 2(1)(a) of the Advocates Act defines an ‘advocate’ as any person on ‘any roll under the provisions of the act’. On a combined reading of Sections 29 and 33 of the Advocates Act, only advocates are entitled to practice law. However, as per Rule 49 of the Bar Council of India Rules (“BCI Rules”), a person ceases to be an advocate if he engages in a full-time employment role. While interpreting ‘full-time employment’, the Supreme Court in Deepak Agarwal v. Keshav Kaushik specified that regardless of ‘full-time employment’, if the person acts and/or pleads before the courts, they continue to be an advocate. Hence, the status of a person as an ‘advocate’ is premised on the nature of service rendered.
The current framework is centred towards advocates appearing before courts, as at the time of the Advocates Act’s enactment, transactional work assumed limited significance. But now, with the economic development and burgeoning commercial activity, transactional work, involving non-litigious work like contract drafting and deal negotiations, has gained significance. Despite this shift, there has not been a corresponding modification in the overarching framework. The traditional definitions prohibit acknowledgement of transaction lawyers by the Advocates Act and the BCI Rules. As a result, transactional lawyers, like in-house counsels and law firm lawyers, risk being excluded from the overarching framework.
What is Professional Misconduct?
Universally, several mechanisms obligate lawyers to act in the best interests of their clients. International guidelines, such as the International Code of Ethics of the International Bar Association (“IBA”), require lawyers to extend “candid opinions” and render assistance with diligence and care. India, too, has placed several checks on the conduct of advocates. Part VI, Chapter II, Section II of the BCI Rules prescribe a host of duties towards clients. Additionally, the Advocates Act and the BCI Rules fix liability on advocates for professional misconduct. As noted above, the BCI Rules on Professional Conduct, in conjunction with Section 35, provide a detailed course of action for professional misconduct against advocates.
Importantly, these professional standards stem from the inherent nature of an advocate’s role, i.e. advocacy before courts. These standards are unsuitable for transaction lawyers. Unlike advocacy, transactional work does not involve an impartial arbiter overseeing the process. If a defect concerning a contract (or an arbitration clause) arises, it is only remedied once it reaches the courts. Primarily, the current standards govern conduct only once the matter reaches the litigation stage. On the contrary, ethical obligations specific to transaction lawyers must be tailored such that the uncertainties concerning future litigations are reduced.
Even if we go with the Supreme Court’s assertion in Ex. Capt. Harish Uppal v. Union of India, that the ethics of the legal profession apply to lawyers practising outside court; no rules or standards specific to transaction lawyers have been formulated, nor any relevant enforcement powers against transaction lawyers exist. As an example, the Respondent in Lawyers Collective v. Bar Council of India highlighted the gap in BCI Rules to regulate a debarred advocate from pursuing non-litigious matters, and the court subsequently affirmed it. In the absence of dedicated professional standards and regulations concerning transaction lawyers, flaws in drafting will be difficult to regulate.
In addition to this regulatory gap, the BCI has not formally laid down a set of elements constituting professional misconduct. Section V-A of Chapter II in Part VI is the only chapter which expressly lays down certain acts, like criticising decisions of Bar Councils, as professional misconduct. The current standards for professional misconduct are interspersed over court decisions and are difficult to follow. Even the Supreme Court had urged the Law Commission of India to identify the relevant factors associated with the regulation of legal professionals. Similarly, the Tamil Nadu Bar Council has also previously raised concerns about the lack of codification of “professional misconduct” since obscurity in interpretation led to unfair removals. For transaction lawyers, a lack of prepared standards and precedents exposes them to frivolous complaints and instability in deal-making processes.
Besides these two issues, the nature of personal liability ascribed, whether civil or criminal, must be clarified if reliance on the Advocates Act alone proves insufficient. In the absence of such clarity, drafters risk exposure to both civil and criminal proceedings. Moreover, without any formal guidelines, assessing an advocate’s intent to “deliberately mislead and misguide” may result in subjective and inconsistent interpretations. A case in point can be ‘iffy clauses’, where ambiguously drafted clauses are devised in good faith. Illustratively, a transaction lawyer may draft a borderline unenforceable arbitration clause and put the client in a precarious position due to the potential invalidity of the clause. In such a case, drafters can be incorrectly held responsible for intentional misconduct without proper standards. Hence, deliberation on “intent” is necessary to prevent indiscriminate prosecution.
Comparative Framework: Adopting Apposite Standards
The United States of America:
The functioning of lawyers in the USA is regulated by the Model Rules on Professional Conduct (“Model Rules”). Although not binding unless adopted by states, it provides viable standards for self-assessment and professionalism. Unlike India, its preamble highlights various roles a lawyer undertakes in distinct situations, including those of a negotiator and a transaction lawyer. The Model Rules stipulate necessary elements of professional misconduct and professional standards. However, they do not contain provisions addressing the ethical obligations of transaction lawyers. As Eli Wald puts it in the context of Model Rules, “[W]hile reform efforts have often been couched in terms of broadening the reach and application of the Rules, many continue to understand the Rules as applying inherently to litigators. As a result, the Rules often leave non-litigators without guidance and their clients without necessary protections.”
But since the Model Rules have recognised transaction lawyers, it permits expansion of the scope of existing rules on misconduct or professional standards to cover transaction lawyers. For example, Gregory Duhl suggests, in cases of “conscious ambiguity”, where the lawyer knowingly uses conflicting phraseology in the agreement, liability can be fixed on drafters for dishonest practices under Rule 8.4.c of the Model Rules.
Moreover, the American jurisprudence reflects a slight leaning towards regulating transaction lawyers, particularly through ABA Formal Ethics Opinions. Though non-binding, they help in shaping the discourse surrounding professional standards and ethical obligations. One opinion which attracts contextual prominence is Formal Opinion 335 of 1974 (“Formal Opinion 335”).1 It is the sole attempt to lay down guidelines specifically for transaction lawyers in order to facilitate reasonable, competent drafting of securities opinions. It highlights: “[w]hile the responsibility of the lawyer is to his client, he must not be oblivious of the extent to which others may be affected if he is derelict in fulfilling’ his responsibility of competent drafting”. In the absence of dedicated provisions, it is a pivotal normative development in underscoring the professional responsibility of transaction lawyers during drafting.
The United Kingdom:
The regulatory framework in the UK is compartmentalised based on the nature of the service rendered. Barristers, persons appearing before the courts, and solicitors, persons who handle day-to-day legal work, including drafting agreements, wills, and contracts, are regulated by separate and distinct bodies. Precisely, the Bar Standards Board governs the conduct of Barristers and the Solicitors Regulation Authority (“SRA”) administers the conduct of solicitors. This distinction enables the regulation of each role of a lawyer and facilitates respective bodies to formulate exclusive standards of professional conduct. The SRA has designed separate codes of conduct for solicitors and Law Firms. Both the Codes lay down several requirements, ranging from competence to maintaining trust and acting fairly. This structure ensures clarity and operational efficiency. Like the ABA, the SRA has also institutionalised periodic release of guidance on topical matters (recent guidance on in-house counsel) to shape the discourse. Although no formal guidance exists for the proper drafting of arbitration agreements, the SRA has addressed issues related to non-disclosure agreements between employers and their staff and the drafting of wills.
The USA and the UK frameworks are structured to adapt to emerging issues and changes in circumstances. Ethical obligations and professional standards concerning transactional lawyers can be easily accommodated. India can emulate the foundational elements of these frameworks. Purposeful adaptation would help in retaining the characteristics of the Indian framework and supplementing it with fundamental ideas to support a transaction-lawyer specific regime. At first, the BCI can emulate the UK’s role-based regulation using Section 49(c) of the Advocates Act, without upending the current structure. Moreover, once a separate regulatory framework is established, following the USA and the UK, the BCI can issue non-binding interpretive guidelines outlining evolving ethical considerations. The BCI has done so previously when it recommended payment of a minimum amount to junior advocates. This article proposes the following approach to align India’s regulatory framework with such jurisdictions.
Proposed Framework
As seen in foreign jurisdictions, recognition of transaction lawyers is imperative. The BCI must reconsider the omission of transaction lawyers from its remit. Reconsideration will widen the BCI’s scope to regulate transactional work and ease the formulation of tailored standards. The Advocates (Amendment) Bill, 2025 (“Amendment Bill”), despite its withdrawal, offers valuable insights to fill regulatory lacunae. It extended the Act’s coverage to law firms and in-house counsel under the definition of ‘legal practitioners.’
Once recognised, the BCI must formulate separate rules as done for foreign law firms. These rules must define professional standards and list elements of professional misconduct, demonstrating the idiosyncrasies of transaction lawyers. This article proposes some of the fundamental standards which a transaction lawyer must abide by. The primary responsibility of a transaction lawyer must be to minimise ex-post litigation costs. In the context of arbitration clauses, the clauses must be configured with an intent to avoid future litigation. Even though it will increase front-end costs (or transaction costs in executing a deal), it will be consequential in reducing litigation costs. Since it is improbable to remove either of the costs, a reduction in litigation costs would better align with the Supreme Court’s proposal.
Further, the rules must prescribe that the transaction lawyer must be competent to handle negotiations. International practices, for instance, Rule 1.1 of the Model Rules and Rule 3 of the SRA Code of Conduct for Solicitors also require lawyers and solicitors to be competent. Notably, Comment 2 on Rule 1.01 of the Texas Disciplinary Rules of Professional Conduct goes a little further by briefly identifying separate competency requirements for transaction lawyers. Hence, the competency duty must mandate: “legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.” Concerning arbitration, transaction lawyers must be aware of different types of defective clauses before customising a dispute resolution clause. Resultantly, this would obligate lawyers to conduct reasonable due diligence and avoid last-minute negotiations. Lastly, as suggested by Gregory Duhl, transaction lawyers must adhere to standards for prompt communication in cases of conscious ambiguity. It would compel transaction lawyers to convey such ambiguity to the client and arrive at a consensus to cure the ambiguity through future agreements.
Besides professional standards, the rules must prescribe a set of elements constituting professional misconduct. A reference can be made to the Chartered Accountancy Act of 1949 (“the CA Act”). Precisely, Section 22 of the CA Act defines ‘professional conduct’ and lists circumstances amounting to misconduct in the Schedules of the CA Act. Prescribing such circumstances would facilitate certainty in determining accountability and securing party interests against ambiguous drafting.
As highlighted above, the Supreme Court’s proposal can potentially restrict drafting practices and put drafters at risk of arbitrary disciplinary proceedings. To mitigate this, the threshold of liability must be high, and the elements of intent must be disaggregated for clarity and fairness. This article proposes to reproduce Professor Murray L. Schwartz’s model liability clause for non-advocates (transaction lawyers):2
“(A) When acting in a professional capacity other than that of advocate, a lawyer shall not render assistance to a client when the lawyer knows or it is obvious that such assistance is intended or will be used-
(1) to facilitate the client in entering into an agreement with another person if the other person is unaware:
(a) of facts known to the lawyer such that, under the law, the agreement would be unenforceable or could be avoided by the other person, or
(b) that the agreement is unenforceable or could be avoided under the policy of the law governing such agreements”
This model clause raises the threshold for proving liability and conforms to the ‘competence’ requirement as suggested above. Given the Indian framework’s silence on the issue of liability for intentionally incorrect drafting, this framework can provide an elementary blueprint for initiating regulatory reforms.
Conclusion
Clarity in arbitration clauses is essential because parties choose arbitration to save time and avoid the costs of protracted litigation. But these benefits are lost when ambiguities in drafting lead to years of disputes over the clause itself. The Supreme Court rightly identified this problem and, by focusing on the role of drafters, called for steadier groundwork and stable arbitration clauses. While the intention is sound, the Court is not the appropriate authority to enforce such standards. That responsibility lies with the BCI, which already has established procedures under the Advocates Act to deal with professional misconduct.
Without clear rules, holding drafters personally liable risks creating more problems than it solves: overly cautious drafting, reduced flexibility in complex transactions, and exposing lawyers to unfair disciplinary action. As we have seen, India’s current framework was built around litigating lawyers, leaving transactional lawyers largely unregulated. Drawing on the UK’s role-based approach and the USA’s broader ethical standards, India needs targeted reforms to bring transactional lawyers within the regulatory fold. But for these reforms to actually work, they must be developed in consultation with law firms and in-house counsel. Since these stakeholders are central to the transactional practice, their involvement is necessary to mitigate prospective impracticality or resistance towards regulations.
*Shubhankar Sharan is a B.A., LL.B.(Hons.) student at the Gujarat National Law University
** Arima Kaushal is a B.A., LL.B.(Hons.) student at the West Bengal National University of Juridical Sciences