What should a good arbitration clause in a commercial contract contain?

Question

I am negotiating a commercial contract and want to include an arbitration clause that will actually work smoothly if a dispute arises later. I would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, Arbitration and Conciliation Act 1996, Section 7 is the starting point for this corporate law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

Section 7 requires an arbitration agreement to be in writing, either as a clause in the contract or as a separate agreement, clearly recording the parties' intention to refer disputes to arbitration.

The clause should specify the seat of arbitration, since Section 20 makes the seat the anchor for determining which courts have supervisory jurisdiction over the arbitration, distinct from the venue where hearings are merely held.

It should also fix the number of arbitrators, the appointing procedure, the governing law of the contract, the language of proceedings, and whether institutional rules or ad hoc procedure under the Act will apply.

A poorly drafted clause referring to a non-existent or defunct institution, or leaving the seat ambiguous, invites satellite litigation over the validity and scope of the arbitration agreement itself before the real dispute can even be heard.

The clause should also state whether interim measures under Section 9 can be sought from courts and confirm the finality and enforceability intended once the arbitral tribunal renders its award under Section 2(1)(e).

Practical steps: 1) State the seat, number of arbitrators and appointment mechanism explicitly in the clause; 2) Name a real, currently functioning arbitral institution if opting for institutional arbitration; 3) Specify the governing law of the contract separately from the law governing the arbitration agreement; 4) Have the clause reviewed by an arbitration lawyer before finalising the contract.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — remedies under Arbitration and Conciliation Act 1996, Section 7 carry limitation periods, and unexplained delay weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.