Arbitration Clause in an Agreement: What to Include (with a Simple Sample)

ByBase Legal

The problem

Your contract says disputes will go to arbitration. When a dispute arises, the clause turns out to be unclear. Months are lost arguing about where and how the arbitration should happen.

Example: A Bengaluru software company’s contract said “disputes shall be settled by arbitration in India”. It did not say which city, how many arbitrators or who appoints them.

What the law says

Under Section 7 of the Arbitration and Conciliation Act, 1996, an arbitration agreement must be in writing. It can be a clause in the main contract. If the parties cannot agree on an arbitrator, either can apply to the court under Section 11.

The “seat” decides which courts supervise the arbitration. In 2024, a Constitution Bench of the Supreme Court, in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), held that a clause letting only one party choose the sole arbitrator is not valid.

What a good clause includes

  1. Scope. All disputes “arising out of or in connection with” the contract.
  2. Seat. A named city, for example Bengaluru.
  3. Number of arbitrators. One for smaller disputes, three for larger ones.
  4. Fair appointment. Joint choice, or each side choosing one with the two choosing the third, or an institution.
  5. Rules. Ad hoc under the Act, or an institution’s rules.
  6. Language and governing law. Especially in cross-border contracts.

A simple sample clause

“Any dispute arising out of or in connection with this Agreement shall be referred to arbitration by a sole arbitrator appointed jointly by the parties, failing which under Section 11 of the Arbitration and Conciliation Act, 1996. The seat of arbitration shall be Bengaluru. The language shall be English. This Agreement is governed by the laws of India.”

Adapt this to your contract. Larger or cross-border contracts usually need a more detailed clause.

Mistakes to avoid

  • Naming a “venue” but no “seat”.
  • Letting only one party appoint the arbitrator.
  • Clauses that say both “courts of X” and “arbitration” without making clear which applies.

Contact

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This article is for general information only. It is not legal advice. Please speak to an advocate about your own case.