To draft an arbitration clause, you write a short, clear term in your contract that says any dispute will be resolved by arbitration, and then you fix four things: the seat (the legal place of arbitration), the number of arbitrators, the rules or institution that will run the process, and the language. Under Section 7 of the Arbitration and Conciliation Act, 1996, the agreement must be in writing and must show a clear intention that disputes go to arbitration rather than to court. Get those elements right and the clause is enforceable; leave them vague and you invite a fight before the real dispute even begins.
This guide explains, in plain English, exactly how to draft an arbitration clause that works under Indian law — what the statute requires, the difference between seat and venue, how to choose the number of arbitrators, and when an institutional clause beats an ad-hoc one. It is general legal information for businesses and contract drafters, not advice on your specific agreement.
What the law requires: Section 7 essentials
The starting point for how to draft an arbitration clause is Section 7 of the Arbitration and Conciliation Act, 1996. It defines an “arbitration agreement” and sets the conditions for validity. You can read the bare Act on the Government of India statute portal at India Code. The core requirements are:
- Writing. The agreement must be in writing. It can be a clause inside a contract or a separate agreement. Section 7 treats it as “in writing” if it is in a signed document, in an exchange of letters or electronic communication that records the agreement, or in an exchange of pleadings where one party alleges it and the other does not deny.
- Intention to arbitrate. The wording must show the parties agreed to submit disputes to arbitration. Words like “may” instead of “shall,” or a clause that merely says parties will “try to arbitrate,” create ambiguity that courts have repeatedly had to untangle.
- Defined scope. It should cover disputes “in respect of a defined legal relationship, whether contractual or not.”
A clause that satisfies these three points is the legal minimum. Everything else in this guide is about making the clause operational so the arbitration actually runs smoothly.
Note on changing law: the Arbitration and Conciliation Act, 1996 has been amended several times (notably 2015, 2019 and 2021), and further reform was under discussion as of 2024–25. This is separate from the broader criminal-law renumbering where the CrPC was replaced by the BNSS and the IPC by the BNS in 2023–24 — those do not govern arbitration, but if your contract or notice cross-refers to any criminal provision, check both the old and new section numbers and verify the current text before relying on it.
A clean baseline arbitration clause
Here is a simple, neutral structure many Indian commercial contracts use as a starting point. Treat it as an illustration, not a template to copy blindly:
“Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the [chosen rules]. The seat of arbitration shall be [city, India]. The number of arbitrators shall be [one / three]. The language of the arbitration shall be English. This clause is governed by the Arbitration and Conciliation Act, 1996.”
Each bracketed choice is a decision with consequences. The sections below explain how to make them.
Seat vs venue: the most common drafting mistake
Confusing seat vs venue is the single most litigated drafting error in Indian arbitration. They are not the same thing:
- The seat is the legal home of the arbitration. It decides which country’s (or, within India, which court’s) law governs the arbitration procedure and which courts have supervisory jurisdiction — for example, to appoint an arbitrator, grant interim relief, or hear a challenge to the award.
- The venue is merely the physical location where hearings happen for convenience. Hearings can be held anywhere — even online — without changing the seat.
Indian courts have spent years resolving disputes where a clause named a “venue” but no “seat,” forcing judges to infer which court had control. The practical fix is simple: name the seat expressly, use the word “seat,” and only then mention a venue if you need a particular hearing location.
| Feature | Seat | Venue |
|---|---|---|
| What it fixes | Legal/procedural law and supervisory court | Physical place of hearings |
| Effect on jurisdiction | Determines which courts supervise the arbitration | None — purely logistical |
| Can it change mid-process? | No, unless parties agree to change the seat | Yes, hearings can move freely |
| Drafting word to use | “The seat of arbitration shall be Bengaluru.” | “Hearings may be held at [place] or virtually.” |
| If left silent | Courts must infer it — a frequent source of litigation | Tribunal decides; low risk |
Drafting tip: pick a seat with reliable, arbitration-friendly courts and state it in plain words. Do not leave the tribunal or a future judge to guess.
Number of arbitrators: one or three?
The number of arbitrators affects cost, speed and the robustness of the award. Section 10 of the Act says the parties are free to decide the number, but it must not be an even number. If the agreement is silent, the Act provides for a sole arbitrator.
| Factor | Sole arbitrator (1) | Three-member tribunal (3) |
|---|---|---|
| Cost | Lower (one set of fees) | Higher (three sets of fees) |
| Speed | Generally faster to schedule | Slower — three diaries to align |
| Suitability | Smaller-value or simpler disputes | High-value, complex or cross-border disputes |
| Party confidence | Single decision-maker | Each side nominates one; balance and broader scrutiny |
| Risk | One person’s view is final | Built-in deliberation among three |
A practical approach: for routine commercial contracts, a sole arbitrator keeps things proportionate. For high-stakes agreements (large infrastructure, joint ventures, shareholder deals), parties often prefer three arbitrators so each side nominates one and the two nominees (or the institution) choose the presiding arbitrator. Whatever you choose, write the number into the clause — and remember the even-number bar.
Institutional vs ad-hoc arbitration
The word institutional in an arbitration clause means the arbitration is administered by a recognised arbitral institution under its published rules, rather than being run informally by the parties and the tribunal alone (“ad-hoc”).
- Institutional arbitration plugs in a ready-made rulebook, a fee schedule, a roster of arbitrators, and an administrative body to handle appointments, deadlines and logistics. Examples include established Indian and international institutions. The trade-off is administrative fees, but you gain structure and fewer procedural disputes.
- Ad-hoc arbitration leaves the parties and tribunal to design the procedure themselves, falling back on the Act where the contract is silent. It can be cheaper and more flexible but tends to break down when parties stop cooperating — for instance, on appointing an arbitrator, where you may have to go to court.
| Question | Institutional | Ad-hoc |
|---|---|---|
| Who administers it | A named institution under its rules | The parties and tribunal themselves |
| Procedure | Pre-set, published rules | Designed case by case |
| Appointment if a party stalls | Institution appoints | Often a court application |
| Cost profile | Administrative fee + arbitrator fees | Potentially lower, but less predictable |
| Best for | Parties wanting certainty and structure | Experienced parties wanting flexibility |
If you choose institutional arbitration, name the institution and adopt its rules in the clause, and check that institution’s current model clause so your wording matches what their rules expect.
A short drafting checklist
When you sit down to write the clause, confirm each item:
- Writing + intention — the clause is in writing and uses “shall,” not “may” (s.7).
- Scope — it covers all disputes “arising out of or in connection with” the contract.
- Seat — named expressly, using the word “seat.”
- Venue — only if you need a specific hearing location; keep it separate from the seat.
- Number of arbitrators — stated, and an odd number (s.10).
- Rules / institution — ad-hoc or a named institution with its rules adopted.
- Language — stated (commonly English).
- Governing law — both the law of the contract and, ideally, a reference to the 1996 Act for the arbitration.
- Severability — a note that the arbitration clause survives even if the main contract is challenged (the doctrine of separability).
Where this fits
This guide is part of our arbitration and ADR resources. For the firm’s overview of dispute-resolution work, see our practice page on alternate dispute resolution. Before the tribunal is even constituted, urgent protection is often needed — see our note on Section 9 interim relief. Once an award is made, the next questions are usually a challenge under Section 34 or, for awards made abroad, enforcement of a foreign arbitral award.
Frequently Asked Questions
Is an arbitration clause inside a contract enough, or do I need a separate agreement?
A clause inside the contract is enough, provided it meets the Section 7 requirements — in writing and showing a clear intention to arbitrate. A separate arbitration agreement is also valid. Both are common.
What happens if the clause does not mention the seat?
If the seat is not stated, courts may have to infer it from the wording and conduct, which often leads to satellite litigation about which court has supervisory power. Naming the seat expressly avoids this.
Can I name an even number of arbitrators?
Section 10 of the Act bars an even number. If you want a panel, choose three (or another odd number). If the clause is silent, the Act defaults to a sole arbitrator.
Is institutional arbitration always better than ad-hoc?
No. Institutional arbitration adds structure and reduces procedural fights but charges administrative fees. Ad-hoc can be cheaper and flexible but is vulnerable to delay if a party refuses to cooperate. The right choice depends on the value and complexity of likely disputes.
Does the arbitration clause survive if the main contract is void or terminated?
Generally yes. Under the doctrine of separability, the arbitration agreement is treated as independent of the underlying contract, so a challenge to the contract does not automatically destroy the clause.
What law governs an arbitration seated in India?
For an India-seated arbitration, the Arbitration and Conciliation Act, 1996 governs the procedure, and Indian courts at the seat exercise supervisory jurisdiction. The substantive law of the contract may be stated separately.
Should the clause specify a language?
Yes, if there is any chance the parties or documents are in different languages. Stating “English” (or another language) avoids a preliminary dispute and keeps the proceedings predictable.
This article is for general informational purposes only and does not constitute legal advice. Laws change and every situation is different; please consult a qualified advocate about your specific matter.
