In short. An arbitration clause in an Indian contract works if it answers a few questions in plain, binding words. Which disputes go to arbitration? Where's the seat? Will an institution run it? How many arbitrators, and who picks them, without either side holding the pen alone? Which language, and which law? Get those right and, when a dispute comes, you'll have a tribunal without first fighting it out in court. Before you sign, spend ten minutes checking the clause against the sample wording below. Fix the gaps now. The other side is far easier to deal with before the deal is signed.
Is this your situation?
- The supply agreement is due for signing on Monday, and someone has finally asked what the dispute clause actually says.
- The buyer sent its standard form as a locked PDF. There's an arbitration clause on page 14 and you can't tell whether it helps you or them.
- Your company's template clause was lifted from an old contract years ago. Nobody has looked at it since.
- You're negotiating with a foreign company, or with a government department, and they want their wording, not yours.
- You'd like disputes to go to DIAC but aren't sure how to say that in the contract.
- Last time, a badly written clause meant months of court hearings before the arbitration even started.
What's the right way to draft an arbitration clause?
Think of the clause as a list of answers. One day there'll be a dispute, and it will ask questions. Which disputes are covered? Where is the seat? Who runs the arbitration? How many arbitrators, and who appoints them if you and the other side can't agree? What language? Which law governs the contract, and which governs the arbitration agreement itself? Answer every one of them inside the clause. If the answers are in mandatory words and don't clash with each other or with the rest of the contract, the clause usually works without a court ever getting involved.
Most broken clauses we see go wrong in one of three places. They're optional, not binding. Or the seat is unclear. Or one party gets to choose the arbitrator. Indian courts have dealt with each of these many times over, and every time the parties end up in court before the arbitration can begin. Read our note on the mistakes people make in arbitration clauses alongside this one. This note is about getting the clause right in the first place.
Shorter usually works better. Five or six sentences that answer the core questions cleanly will serve you far better than two pages trying to predict every possible problem, because long clauses tend to contradict themselves somewhere. Leave procedural detail to the institution's rules or the tribunal's first procedural order. It doesn't belong in the contract.
Which sections of the Arbitration Act shape the clause?
Section 7, Arbitration and Conciliation Act, 1996
The arbitration agreement has to be in writing. It can sit as a clause inside the contract or as a separate agreement, and it can come out of an exchange of letters or emails. If your contract refers to another document that has an arbitration clause, and the reference is meant to bring that clause in, it becomes part of your contract (Section 7(5)).
Section 10
You can pick the number of arbitrators. Just not an even number. Say nothing and you get a sole arbitrator.
Sections 11 and 12(5)
You can agree how arbitrators will be appointed, and if that procedure breaks down, the court steps in. Under Section 12(5) and the Seventh Schedule, people closely connected to a party can't act, whatever the contract says, unless both sides waive it in writing after the dispute has arisen.
Section 20
You're free to agree on the place of arbitration. Courts treat that place, meaning the juridical seat, as fixing which court supervises the arbitration. Meetings and hearings can still happen somewhere else.
Section 28
If the arbitration is seated in India and isn't an international commercial arbitration, the tribunal applies Indian substantive law. You can choose a foreign governing law only in an international commercial arbitration.
Sections 29A and 29B
Section 29A fixes the time limit for the award. Under Section 29B, the parties can agree in writing to a fast-track procedure decided on documents. The award is then due within six months.
Section 42A
Arbitral proceedings are confidential. The exception is the award, where disclosure is needed to implement and enforce it. If you want tighter confidentiality terms, you can add them.
Does this contract need an arbitration clause at all?
Ask that before anyone starts drafting. Arbitration suits high-value contracts, technical ones, confidential ones and deals that cross borders. It's a poorer fit for small routine supplies. There, the arbitrator's fees can eat a big share of whatever you recover, and a summary suit in a commercial court is often faster. Our guide on choosing between arbitration and a court case for a business dispute walks through it.
If you're a registered micro or small enterprise selling goods or services, your statutory right to approach the MSME Facilitation Council under Section 18 of the MSMED Act, 2006 overrides a private arbitration clause. The Supreme Court said so in Gujarat State Civil Supplies v. Mahakali Foods (2022). No clause can take that away. You still want a decent clause, though, for disputes the MSMED Act doesn't reach. Our note on contract clauses that keep MSMEs out of payment disputes looks at it from the supplier's side.
If you decide arbitration isn't for you, put in a clear exclusive jurisdiction clause naming the courts of your own city instead. That works as long as part of the cause of action can arise there. Our sister site explains the contract clauses that decide which court hears a dispute and how they operate.
Drafting the clause, one decision at a time
Take these in order. Each one depends on the decisions before it.
Say which disputes are covered
Go wide: any dispute, controversy or claim arising out of or relating to this agreement, including its formation, validity, interpretation, performance, breach or termination. Carve out only what you really want decided somewhere else. And name it exactly.
Write shall, not may
The words should be shall be referred to and finally resolved by arbitration. Don't write may be referred, and don't make arbitration depend on some further agreement later. In Jagdish Chander v. Ramesh Chander (2007), the Supreme Court held that a clause saying disputes may be referred to arbitration isn't, on its own, a binding arbitration agreement.
Name the seat
Use the word seat. For example: the seat of arbitration shall be New Delhi. Then look at the contract's court jurisdiction clause. It should name the courts of that same city.
Pick an institution or go ad hoc
Either name an institution and its rules, or set out a complete ad hoc mechanism with a neutral fallback for appointment. If you name an institution, make sure one exists under exactly that name. People get this wrong more often than you'd think.
Decide how many arbitrators and how they're appointed
One or three. Whatever the method, neither side should control it. Appointment by agreement, then by the institution or the court, works fine. So does each party appointing one, with those two choosing the presiding arbitrator.
Language, and where hearings can happen
Name the language. It's usually English. If you want the option of hearings in another place or by video, say so in a separate sentence from the seat.
Write down the governing law
State the law that governs the contract and, ideally, the law that governs the arbitration agreement itself. Between two Indian parties seated in India, Section 28 means Indian law applies anyway.
Add extras only if you need them
You might want a pre-arbitration negotiation period with a fixed time limit. Or fast-track procedure under Section 29B for smaller claims, emergency arbitrator provisions through an institution's rules, qualifications for arbitrators, a confidentiality term. Don't add them out of habit.
When Advocate B.K. Singh reviews a draft, he reads the arbitration clause last, after everything else in the contract. Then he reads it again, this time as the other side's lawyer hunting for a reason to delay. That second read is where the clash with the jurisdiction clause, the notices clause or the definitions usually turns up.
How wide should the disputes wording be?
Indian courts generally give wide phrases a wide reading. Arising out of, in connection with, relating to: these usually cover contract claims, claims about termination and, most of the time, related claims about the same transaction. Narrow wording is a different story. Write disputes regarding the interpretation of this agreement and you've invited the argument that a payment or damages claim falls outside it. Unless there's a real reason to narrow the clause, use the wide form.
Carve-outs cause the most grief. In works contracts they're often called excepted matters. If you want certain decisions to be final and kept out of arbitration (the engineer's certification of quality, say), spell that out, and spell out what happens when a party disagrees. A vague carve-out creates exactly the jurisdiction fight it was supposed to prevent.
Then there are related contracts. Suppose you sign a supply agreement, a separate service agreement and a guarantee on the same day. Either all of them carry identical arbitration clauses, with the same seat and institution, or the main agreement says its clause governs the lot. Mismatched clauses mean parallel proceedings. It's a mess.
Seat or venue: why the seat counts for more
The seat decides which court supervises the arbitration. That's the court that hears a Section 34 challenge to the award, and usually the one that hears Section 9 and Section 11 applications too. In BGS SGS Soma JV v. NHPC (2019), the Supreme Court held that where a clause names a place as the venue of arbitration proceedings and nothing points the other way, that place is ordinarily the seat. It rescues careless clauses. Don't count on it. If you mean seat, write seat.
Venue is only where the hearings physically take place. Keeping the seat in New Delhi and holding some hearings in Gurugram or Noida, or on video, is perfectly sensible. The clause can simply say the tribunal may hold hearings anywhere it thinks fit without changing the seat.
The worst version we come across names one city as the seat and gives another city's courts exclusive jurisdiction. Courts have tried to reconcile the two, usually in favour of the seat. But you lose time arguing it. Our note on the seat of arbitration and how it decides the court goes through the case law.
Appointing the arbitrator so the clause holds up
Neither side should control the choice. After TRF (2017) and Perkins Eastman (2019), a clause that lets one party's managing director or an officer appoint a sole arbitrator can't be validly worked. Then the Constitution Bench, in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (2024), went further. Making the other side pick its nominee from a panel one party has curated also breaks equal treatment, for appointments made after 8 November 2024. Our note on why one-sided arbitrator appointments are invalid covers these rulings.
Almost every contract can use one of three methods. First, a sole arbitrator appointed by agreement within 30 days of a request, and failing that, by a named institution. Second, three arbitrators: each side appoints one within 30 days, those two choose the presiding arbitrator within 30 days, and if they don't, the institution or the court does it. Third, the institution appoints directly under its rules. Naming an institution as the fallback appointing authority saves you a Section 11 petition when the other side drags its feet.
You can ask for particular qualifications. A chartered accountant for an accounts dispute, for instance, or an engineer for a construction contract. Just don't make them so narrow that hardly anyone qualifies. Ask for a retired High Court judge with twenty years in shipbuilding disputes and the clause may be impossible to perform.
What does a sample arbitration clause for India look like?
India doesn't have one official model arbitration clause that every contract must use. Institutions publish recommended clauses for arbitrations under their rules. The Delhi International Arbitration Centre, the Mumbai Centre for International Arbitration, the India International Arbitration Centre and others each have their own. If you pick one, take its current recommended wording from its website and add whatever it leaves open. The samples below are our own wording for common situations, for illustration only. Adapt them to your contract and get them checked. They're no substitute for advice on your facts.
Sample 1, a domestic institutional clause: Any dispute, controversy or claim arising out of or relating to this Agreement, including its existence, validity, interpretation, performance, breach or termination, shall be referred to and finally resolved by arbitration administered by the Delhi International Arbitration Centre in accordance with its rules for the time being in force. The tribunal shall consist of a sole arbitrator appointed in accordance with those rules. The seat of arbitration shall be New Delhi. The language of the arbitration shall be English. This Agreement and this clause shall be governed by the laws of India, and, subject to this clause, the courts at New Delhi shall have exclusive jurisdiction.
Sample 2, an ad hoc clause with a neutral fallback: Any dispute arising out of or relating to this Agreement shall be referred to arbitration by a sole arbitrator appointed by mutual agreement of the Parties within thirty days of a written request by either Party. Failing such agreement, the arbitrator shall be appointed in accordance with Section 11 of the Arbitration and Conciliation Act, 1996. The seat of arbitration shall be New Delhi, the language English, and the arbitration shall be conducted under that Act.
Sample 3, a three-member tribunal for a bigger contract: The tribunal shall consist of three arbitrators. Each Party shall appoint one arbitrator within thirty days of receipt of the notice of arbitration, and the two arbitrators so appointed shall appoint the presiding arbitrator within thirty days of the later appointment. Any appointment not made within these periods shall be made by the [named institution] on the request of either Party. Pair this with the scope, seat, language and law sentences from Sample 1.
If you're going to DIAC, our sister site has a fuller guide on writing a DIAC arbitration clause. Still weighing an institution against an ad hoc process? See ad hoc or institutional arbitration, and our note on the arbitration centres people use in India.
Should talks or mediation come first?
A tiered clause (some call it an escalation clause) makes the parties negotiate, or mediate, before arbitration starts. Where the relationship matters, it can save real money, because senior people can often settle what junior staff can't. Left open-ended, it becomes a way to stall.
If you use one, put a clock on it. For example: the parties shall attempt to resolve the dispute through negotiation between their senior executives for thirty days from a written notice of dispute, after which either party may commence arbitration. Add, in clear words, that nothing in the tiered process stops a party from seeking urgent interim relief from a court under Section 9, or from the tribunal. Indian courts haven't agreed on whether pre-arbitration steps are mandatory or directory. It often turns on the wording. It also turns on whether insisting on them would be futile, so tight drafting cuts down the argument.
You can also write in mediation under the Mediation Act, 2023. Parts of that Act have been notified in stages. Check the current position before your clause leans on any particular provision, and name the mediation provider if you want a specific one.
How your clause choices change time and cost
| Part of the clause | What you choose | What it does to time and cost |
|---|---|---|
| Appointment | By agreement, then by the institution | No Section 11 petition, and those can take several months |
| Appointment | By agreement only, no fallback | If the other side stalls, you'll need a Section 11 petition and pay its court fee |
| Number of arbitrators | Sole arbitrator | Lower fees, easier to fix dates. Right for most domestic contracts |
| Number of arbitrators | Three arbitrators | Higher fees, harder to schedule. Often worth it for large or technical disputes |
| Administration | Institutional | An administrative fee on top of arbitrator fees, per the institution's schedule. Less chance of a procedural deadlock |
| Administration | Ad hoc | No administrative fee. Fees often follow the Fourth Schedule model or are agreed. More room to fight over procedure |
| Procedure | Fast track under Section 29B | Award within 6 months, on documents. Good for smaller claims that rest on paper |
| Tiered process | A fixed 30 days of negotiation | Short delay, a chance of early settlement. Open-ended steps lead to disputes |
| Seat | Your own city | Less travel and lower court costs at the later Section 9, 11 and 34 stages |
What changes when the other party is foreign?
Once a foreign party is involved, it's an international commercial arbitration under Section 2(1)(f), and your options widen. You can choose a foreign governing law and a foreign seat such as Singapore or London, or keep the seat in India. With a seat outside India, Part I of the Act mostly doesn't apply. But the proviso to Section 2(2), added in 2015, still lets Indian courts grant interim measures under Section 9 and certain other provisions unless the parties agree otherwise. That's handy when the Indian party's assets are here.
Two Indian parties can choose a foreign seat as well. The Supreme Court allowed it in PASL Wind Solutions v. GE Power Conversion India (2021), and the award is then enforced in India as a foreign award under Part II. Before going that way, set the cost of foreign counsel, travel and institutional fees against whatever you gain. For most domestic contracts, frankly, it isn't worth it.
For a cross-border contract, the clause should deal with the governing law of the contract, the law of the arbitration agreement, the seat, the institution and its rules, the number of arbitrators and the language. And say plainly whether Section 9 relief from Indian courts stays available.
Group companies, lenders and shareholders: what's different?
If several group companies will perform or benefit from the contract, get each of them to sign. Or have them sign a short accession letter accepting the arbitration clause. In Cox and Kings v. SAP India (2023), the Supreme Court confirmed that non-signatories can sometimes be bound under the group of companies doctrine. That depends on facts, though, and the other side will contest them. A signature ends the argument before it starts. Our note on when a non-signatory is bound by an arbitration clause goes deeper.
In loan and guarantee papers, put the borrower, the guarantors and any security providers under one clause, with one seat and one institution. Don't let the lender appoint the arbitrator. You'll end up with awards that can be set aside. An institutional clause is safer, or an online dispute resolution provider with an independent appointment process.
Shareholder and joint venture agreements are a good fit for arbitration on contractual claims, like breach of a transfer restriction or a valuation dispute. What a clause can't do is remove statutory remedies, such as an oppression and mismanagement petition before the NCLT under Sections 241 and 242 of the Companies Act, 2013. Draft with that limit in mind. A clause that pretends to cover everything helps nobody.
Government departments and PSUs often still use old standard clauses with a unilateral appointment mechanism. Propose an amendment before you sign. If they won't budge, the mechanism is unlikely to be enforced against you anyway, and when a dispute comes, the court can appoint an independent arbitrator.
What to keep out of the clause
- Optional words. May, can, or if both parties agree all make arbitration optional. Write shall.
- A power for one side to appoint. An interested party can't validly use it, and whatever award follows is exposed.
- A pre-deposit condition. The Supreme Court in ICOMM Tele v. Punjab State Water Supply and Sewerage Board (2019) struck down, as arbitrary, a clause making a party deposit 10 percent of its claim before arbitration.
- A shorter time limit for claims. Under Section 28 of the Indian Contract Act, 1872, a clause that cuts down the time a party has to enforce its rights is void, apart from the narrow exceptions the section allows.
- Two seats, or two institutions. Arbitration at DIAC or in Mumbai, at the claimant's option, is asking for parallel proceedings. Choose one.
- An even number of arbitrators. Section 10 won't allow it. It's one or three.
- Foreign law in a purely Indian deal. Where both parties are Indian and the seat is in India, Section 28 of the Arbitration Act requires Indian substantive law.
Check these before you sign
- It says shall, not may, and covers disputes arising out of or relating to the agreement
- The seat is named, with the actual word seat, and the court jurisdiction clause names the same city
- If there's an institution, its exact name is used and its rules are mentioned
- There's one arbitrator or three, never two
- Appointment has a neutral fallback, and neither side controls it
- Language and governing law are both written in
- Any negotiation or mediation step has a fixed time limit and still lets you get urgent interim relief
- Everyone who needs to be bound has signed or acceded, group companies and guarantors included
- Other contracts in the same deal have matching clauses, or point back to one governing clause
- The agreement is properly stamped under the state stamp law that applies
An invented example: a Manesar parts maker and the buyer's standard form
This one's made up, to show how it plays out. A Manesar auto parts maker is offered a three-year supply agreement by a vehicle maker headquartered in Chennai. The buyer's standard form says disputes shall be referred to a sole arbitrator appointed by the buyer's Director (Purchase), with arbitration at Chennai. It also says the courts at Chennai and Gurugram shall have jurisdiction.
The manufacturer's lawyers spot three problems. First, the appointment power is one-sided and can't be validly used. Second, the clause names Chennai as the place of arbitration but hands jurisdiction to courts in two cities, which invites a fight about the seat. Third, there's no fallback if the parties can't agree on an arbitrator. The manufacturer is also a registered small enterprise. It notes for itself that the MSME Council route stays open for delayed payments, whatever the clause says.
They settle on a revised clause. An Indian institution with offices in both cities administers the arbitration. A sole arbitrator is appointed under its rules. The seat is New Delhi, a neutral midpoint the buyer accepts. Hearings can happen by video or at any convenient place, the language is English, and the courts at New Delhi have exclusive jurisdiction over matters relating to the arbitration. They also add a 30-day negotiation step between senior executives, with an express right to seek interim relief at any time.
None of this costs the manufacturer anything at the negotiation stage. The buyer wants the contract signed. Ask for the same changes after a dispute has started, and you'd probably need a court petition to get them.
Do stamp duty or the way you sign affect the clause?
In In re Interplay between Arbitration Agreements under the Arbitration Act and the Stamp Act (2023), the Constitution Bench held that an unstamped or under-stamped agreement isn't void. It's inadmissible in evidence until the deficiency is cured, and the stamp question is for the arbitrator, not the referral court. So a missing stamp doesn't kill the clause any more. It can still cost you the shortfall in duty plus a penalty. Stamp the agreement properly under the state stamp law that applies.
E-signatures and acceptance by email are generally fine for an arbitration agreement. Section 7 accepts an exchange of letters, telex, telegrams or other means of telecommunication, including communication through electronic means, that gives a record of the agreement. Keep the signed copy or the email chain somewhere safe. In disputes that reach Advocate B.K. Singh, the first practical question is often which version of the contract was actually signed. The clause in the final PDF isn't always the one both sides remember negotiating.
Can a bad clause in an existing contract be fixed?
Yes, if both sides agree. The cleanest fix is an addendum, signed by all parties, replacing the dispute resolution clause. It's easiest to get when there's some goodwill around, at a renewal or a price revision. Once a dispute has started, the parties can still sign a submission agreement setting out the seat, institution, tribunal and procedure for that dispute. That overrides the defective clause.
If the other side won't agree, the faulty clause usually still binds both of you to arbitrate, and the court fills the gaps, for instance by appointing an arbitrator under Section 11. It costs time and money. It rarely destroys the right to arbitrate. If you're stuck with a clause where the seat is in doubt, or you need speed, look at our note on fast track arbitration under Section 29B. That can be agreed even after the dispute arises.
What to do this week
Pull out your three or four most valuable contracts and your standard purchase or sales terms. Run each arbitration clause against the checklist above: mandatory words, a named seat, a neutral appointment method with a fallback, the language, the governing law. Flag any contract with a one-sided appointment power, or two jurisdiction provisions that don't match, for amendment at the next renewal. For new contracts, adapt one of the samples. Then use it the same way across all your templates.
Want your drafts or existing clauses looked at, or a clause written for a particular deal? Our arbitration practice can help. Send your papers to Advocate B.K. Singh's team through the contact page.
Frequently asked questions
Is there an official model arbitration clause in India?
No. The law doesn't prescribe one. Arbitration institutions publish recommended clauses for use with their rules, and you can adapt those. Just keep the seat, the appointment method, the language and the governing law clear.
What's the difference between the seat and the venue of arbitration?
The seat decides which court supervises the arbitration and hears challenges to the award. The venue is just where hearings happen. The tribunal can usually hold hearings in different places without the seat changing.
Can we say the arbitrator has to be a retired judge?
Yes, you can set qualifications. Keep them realistic, so suitable people are actually available, and pair them with a neutral appointment method.
Should a small business go for a sole arbitrator or three?
A sole arbitrator, for most domestic contracts. It's cheaper and faster. Three make sense in large or technical disputes, where the extra cost is justified.
Can an arbitration clause be added after the contract is signed?
Yes. Both sides can sign an addendum or, once a dispute arises, a separate arbitration agreement. Section 7 accepts any written agreement, an exchange of emails included.
Is an arbitration clause valid if the contract isn't stamped?
Yes. After In re Interplay (2023), an unstamped agreement isn't void. It's inadmissible until the stamp duty and penalty are paid. Stamp it properly and you avoid that cost.
Can we exclude the right to challenge the award?
No. A contract can't take away the Section 34 right to apply to set aside an award. The grounds, though, are limited by the Act.
Does an arbitration clause stop me going to the MSME Council?
Not if you're a registered micro or small supplier with a delayed payment claim. In Mahakali Foods (2022), the Supreme Court held that the Section 18 MSMED Act route overrides a private arbitration clause.
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M. More than twenty years in practice before the Supreme Court, the Delhi High Court, district and commercial courts in Delhi NCR, and tribunals.
This guide explains the law in general terms and is not legal advice. For advice on your own papers, contact the team.