Signing a Contract With an Arbitration Clause? Read These Five Things First

On 23 October 2015, an amendment to the Arbitration and Conciliation Act, 1996 took effect and changed how long a commercial dispute in India could drag on. For the first time, arbitrators had a statutory deadline to deliver their award. For businesses that had watched disputes run for years, it mattered a great deal.

Most people still skim past the arbitration clause when they sign a contract. It reads like boilerplate, so it gets copied from an old template and nobody looks at it again until something goes wrong. Is that a sensible way to treat the one clause that decides how you will fight if the deal falls apart?

Here is a look at what deserves a second read.

1. Make Sure It Really Is an Arbitration Agreement

Section 7 of the Act says an arbitration agreement must be in writing. An exchange of letters or electronic communications that records the agreement can also count. The trouble usually comes from loose wording. A clause that says disputes "may" be referred to arbitration, or one that keeps the courts open as a parallel route, invites an argument about whether the parties ever agreed to arbitrate at all. And that argument can eat up months before anyone looks at the actual dispute.

2. Name the Seat, Not Just the Venue

The seat decides which courts supervise the arbitration and whose procedural law applies. The venue is simply where the hearings take place. Contracts that use the two words loosely end up in court. Spell out the seat in clear terms and you remove one of the most common early fights.

3. Decide How Many Arbitrators You Want

The Act lets the parties choose, with one condition. Under Section 10, the number cannot be even. If the clause is silent, the tribunal will have a sole arbitrator. A sole arbitrator is usually cheaper. A panel of three suits a high-value contract, though fees grow with every person you add.

4. Know the Timeline You Are Agreeing To

After the 2019 amendment, pleadings in a domestic arbitration are meant to close within six months of the arbitrator receiving notice of appointment. The award is then due within twelve months of the pleadings closing, and the parties can extend that by six months if both agree. Any further extension needs the court. These limits work differently for international commercial arbitration. In Tata Sons v. Siva Industries and Holdings, decided in 2023, the Supreme Court held that the twelve-month period is only directory in those cases and not binding.

5. Think About How the Hearings Will Actually Run

Plenty of commercial disputes never need everyone in the same room. Document exchange, written submissions and video hearings can carry most of the load, and parties based in different cities save real time on travel and scheduling. Section 19 of the Act lets the parties agree on the procedure the tribunal will follow, so there is room to plan for this at the drafting stage. If your counterparties are spread across states, it is worth reading up on how online arbitration services in India work and deciding whether your clause should allow a virtual process from the start. Then write that choice into the clause plainly.

What Happens After the Award?

An award is not always the last word. Section 34 allows a party to challenge it in court on limited grounds, and that challenge has to be filed within three months of receiving the award, with a further thirty days at the court’s discretion. Once that window closes, or a challenge fails, Section 36 lets the award be enforced in the same way as a decree of a court. So a good clause cannot promise a quick win. What it can do is strip out the procedural fights that tend to swallow the first year.

Arbitration is also not the right fit for every contract. A small dispute can cost more to arbitrate than it is worth, and some kinds of disputes cannot be sent to arbitration at all. Truth be told, the best clause is the one written with the most likely dispute in mind, not the one that happened to be in last year’s template.

Next time a contract lands on your desk, give the last few pages the same attention you give the payment schedule. It is a lot cheaper to fix a clause before signing than to argue about it in front of a tribunal.

About The Author

Aditya Aryan is a lawyer and mediator. He is currently building marketing at Sama, India’s leading online dispute resolution institution.