The judiciary in the recent time is observing a thorough transformation
because of diversified civil matters coming up. Be it the establishment of
specific tribunals and quasi-judicial bodies such as National Company Law
Tribunal or development of different other dispute resolution mechanism such
as arbitration. One thing that remain constant for such judicial and
quasi-judicial bodies while dealing with civil matters is interpretation of
agreements along with interpreting statues.
Much have been written and umpteen rules and doctrines thereof have been
evolved on the topic concerning interpretation of statutes. However, the law
till date still remains silent and unsettled on the question regarding the
interpretation of the agreements between the private parties which needs
Statutes versus Agreement
Whenever the issue concerning the jurisprudence of interpretation arises, be
it of agreements or statues, courts fall back to certain basic rules such as
determination and enforcement of the party’s intent or legislature’s
intention. But unlike the statutory interpretation where the judiciary has
set forth means like Golden rule, Mischief rule and Literal rule of
interpretation to derive at the intention of the legislature, no such means
or rules have been laid down in cases of interpretation of agreements which
creates a vacuum in the law.
It must be noted that the agreements are no different from Statutes in the
sense that similar to the statutes, agreements are also drafted by a human
being who are committed to make mistakes which may lead to drafting
errors. Apart from this the draftsmen can never be fully capable to
forecast every future situations which may lead to certain ambiguity and
vagueness in the agreement requiring adequate interpretation. Moreover,
just like the statutes, agreements are also affected by the dynamic facet of
the language. Meaning thereby the change in the language leads certain void
in the agreement. Therefore, it becomes important to ponder upon the rules
of interpretation of agreements.
The Bombay High Court in Mumbai Metropolitan Region Development Authority v.
Unity Infraproject Ltd., tried to analyzed such interpretation from the
perspective of four principles which it laid down as following (i) Giving
effect to the intention of the parties as found in the words they use; (ii)
Repugnancy of an exclusion clause; (iii) The Contra Proferentem Rule; and
(iv) Standard form and exclusion clauses.
Contra Proferentem Rule
Out of the four principles mentioned above, it is the rule of contra
proferentem which concerns us the most as it remains highly unsettled as
different courts have laid down different opinions on the extend and
applicability of this rule.
Contra proferentem rule states that in situations whenever ambiguity arises
in any provisions of the agreement, it has to be construed more forcibly
against the party putting forth the document, and in favour of the other
party. Article 4.6 of the UNIDROIT enshrines this as “if contract terms
supplied by one party are unclear, an interpretation against that party is
This approach to interpreting an agreement is answer to the question that
while enforcing the intention of the parties, which party’s intention should
be given preference to. As observed by the hon’ble Supreme Court in
Bank of India and Ors. v. K. Mohandas and Ors
., in India, this
principle have been exhaustively applied in the insurance cases in favour of
the insured since the agreement is wholly drafted by the insurance company
giving no opportunity to the other party to negotiate. Fundamental
position is that, it is the banks who are responsible for formulation of the
terms in the contractual scheme therefore they should bear the risk of lack
of clarity, if any and interpretation against that party should be
Differences in Approach on Commercial Contract Cases
The dispute arises on the question of application of the doctrine of contra
proferentem in the commercial contracts where even if one party drafts the
contract, other party has the liberty to negotiate the terms of the
contract. This liberty is not merely a right of the other contracting party
but it also becomes their duty failing to which court cannot grant any
relief since the person sleeping over their rights cannot later claim
damages. Therefore, Principle of contra proferentem seems applicable only
where the aggrieved person did not have bargaining power and/or legal
assistance while entering into such agreement. It is therefore courts in
India have unequivocally held that the contra proferentem doctrine must not
be applied in the field of commercial contracts.
However, in KSL & Industries Ltd. v. National Textiles Corporation Ltd
where the petitioner was awarded the contract to form a joint venture for
reviving several textile mills through invitation of bids. Later the
ambiguity arose on interpretation of certain clauses of the agreement and
the court inter alia observed that interpretation would preferably be made
against the respondent, as the contract was drafted by the respondent in the
standard form and the doctrine of contra proferentem would be applicable.
Also, in National Highways Authority of India v. HCC Ltd
invited bids for construction of road for which respondent was successfully
awarded the contract. However, there was delay in the completion of the
awarded work. NHAI raised challenge in relation to recovery of uncovered
compensation for the delay on the ground of applicability of Clause 70 of
the contract agreement. The court observed here that ambiguity exists in
clause 70.2 and the doctrine of the contra proferentem is applicable against
These two cases are the fine example of how the court did not hesitate in
applying this rule in the commercial contracts which forms precedence and
let other cases of similar nature a pathway to escape their duty and
liability. This gives rise to the grey area field of interpretation of
contracts with respect to contra proferentem rule.
No doubt that it has always been the case that the court must construe a
written agreement in the light of the surrounding circumstances in which it
has been undertaken by the parties. This is the basic principle that
allows the court to apply the rule of contra proferentem. But in commercial
contracts such cannot be the case since it is the duty as well as
responsibility of both the parties to execute the contract with open eyes.
Thus, application of contra proferentem in such cases cannot be justified on
that ground that one party had no choice than to sign the agreement and
allowing them beneficial or advantageous position.
It is the most fundamental principle of interpretation is that any rules of
construction must be applied consistently and uniformly. Therefore the
court must settle the differences in opinion on the scope and extent of
application of the contra proferentem rule of interpretation.
- Networktwo Comm. v. Spring Valley Marketing, 372 F.3d 842.
- Kirkbi v. Ritvik Holdings,  3 SCR 302.
- CCH v. Law Society of Upper Canada,  1 S.C.R. 339.
- 2008 (5) BomCR 196.
- Ghaziabad Development Authority v. Union of India, AIR 2000 SC 2003
- Halsbury's Law of England (4th Ed.), at P. 567.
- (2009) 5 SCC 313.
- LIC of India v. Insure Policy Plus Services Pvt. Ltd. and Ors., AIR
2016 SC 182.
- Gujarat Urja Vikas Nigam Limited and Ors. v. Tata Motors Limited,
(2013) SCC 818 ¶29.
- Bank of India v. K. Mohan Das, (2009) 5 SCC 313.
- 2012 (3) ArbLR 470 (Delhi).
- 211 (2014) DLT 656.
- Reliance Industries Limited v. Reliance Natural Resources Limited,
(2010) 7 SCC 1.