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“The quality of our lives depends not on whether or not we have conflicts, but on how we respond to them,” said Thomas Crum. Dispute resolution is the primary goal of any legal system and is an indispensable part of a peaceful society. In India, the process of Justice Delivery is a long, painstaking, and time-consuming process as the Indian Judiciary is over-stressed with a large number of impending cases. As per the National Judicial Data Grid data, as on 25 June 2020, 32955339 cases are pending across the country.  In such a scenario, it becomes a necessity to have an efficient alternative dispute resolution system. Arbitration is an effective forum for the resolution of disputes. Enclosing an arbitration clause in a contract saves time and money and helps in preserving relationships as it helps in peaceful and cooperative disposal of issues.

Arbitration is the most formal alternative to litigation where parties select neutral arbitrators to resolve their issues. Arbitrators may hear disputes as a sole arbitrator or on a panel of three arbitrators, known as an arbitral tribunal.[1] The arbitral tribunal can be made up of legal and/or industry experts of the parties' choosing, using procedures that they can influence. Arbitration is a private and, to a greater or lesser degree, confidential process and can provide for the quick, practical, and economical settlement of commercial disputes. Arbitration in India is governed by the Arbitration and Conciliation Act, 1996.[2] This Act is based on the 1985 UNCTRIL Model Law on International Commercial Arbitration and UNCTRIL Conciliation Rules 1980 which was amended in 2015 to improve its applicability in the purview of the changing social environment.


Section 7(1) of the Arbitration and Conciliation Act defines an Arbitration Agreement as, “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or the form of a separate agreement.”[3]  Including an Arbitration Clause in a contract simplifies the dispute solution procedure. While drafting an Arbitration Clause it has to be ensured that the following purposes are fully incorporated within it i.e., a meaningful and enforceable outcome of the process; minimize the interference of the Judiciary; grant the arbitrator the required power to resolve the dispute; to adopt a procedure of fair and efficient proceeding. 



The first and foremost error while drafting an Arbitration cla

use is the ambiguity that revolves around the parties. An arbitration clause is considered to be ambiguous when the parties do not express clearly that in case of conflict the method to use to settle the disagreements will be arbitration.[4]  An Arbitration Clause can also have ambiguity related to its intent or scope which can delay the resolution process and hinder the enforcement of the award. Hence, never use too wide terms while drafting an arbitration clause.


Vague statements and conditions which do not convey its intent should be avoided while drafting an Arbitration Clause. Lack of defined conditions can delay the proceedings or send the matter to the court to determine the enforceability of the clause. 


Do not cut and paste clauses blindly without checking for errors and consistency. Always try to draft an Arbitration Clause rather than borrowing it verbatim from precedent Arbitration clauses. Sometimes attorneys blindly insert clauses without checking if the contract has any other dispute resolution clauses. For instance, if a contract has both a court jurisdiction clause and an arbitration clause, there will be uncertainty whether a dispute should proceed to litigation or arbitration. 


The exclusion of any essential or necessary elements from an arbitration clause tends to disrupt the process. This is also known as the sin of omission according to Townsend. For instance:

“All disputes arising out of the present contract shall be settled by way of arbitration.”

Though in a wide sense this clause is valid, it does not have any essential element like the type of forum; a number of arbitrators; law to be applied or the jurisdiction which makes it difficult to apply in practice.  In K. K. Modi vs K. N. Modi[5], the Supreme Court gave the attributes or essential elements that must be present for an agreement to be considered as an arbitration clause.


An Arbitration clause should not have conditions contradictory to each other. There should not be a “battle of the forms” in an Arbitration Clause. It should not be drafted with inconsistent governing laws. This is the law governing the subject of the dispute, sometimes termed the substantive law or the law of the main contract.[6]  Some clauses have contradictory conditions related to their place of Arbitration and the Arbitration law to be applied. Such clauses create confusion and seemingly unsolvable problems.


Never draft an Arbitration Clause with tight time limits. This is also one of the seven deadly sins mentioned by John M. Townsend – the sin of unrealistic expectation. According to Townsend, short time limits tend to cripple the arbitration process and the parties will eventually have to resort to litigation.


It is advisable that Arbitration Clauses should not be drafted in such a way that it favours only one party or gives one party an edge over the other. Though to a large extent Indian Law favours mutuality in Arbitration Clauses, the status of asymmetric clauses is still unclear.  The Delhi High Court, in Union of India v. Bharat Engineering Corporation[7] held that asymmetric arbitration clause is not valid whereas Calcutta High Court in New India Assurance Co Ltd v Central Bank of India & Ors[8] upheld the validation of an asymmetric arbitration clause.


Do not interchange the usage of the terms ‘may’, ‘shall’ and ‘can’. The nuances of language play an important part in an arbitration clause[9]. Usage of such words negligently can conceal the real intent of the parties to the agreement.  The Honourable Supreme Court in Jagdish Chander v. Ramesh Chander and Ors[10] laid down the guidelines to a valid arbitration agreement in which it is mentioned that “Mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they shall consider settlement by arbitration" in a clause relating to the settlement of disputes, indicate that the clause is not intended to be an arbitration agreement.[11]


Do not draft an Arbitration Clause without giving due importance to the underlying circumstances of the parties while drafting the contract. According to Townsend, this is known as ‘the sin about inattention.’ It is considered that the key to drafting a good clause is to pay sufficient attention to the underlying transactions so that the arbitration clause can be tailored to the contracting party’s special requirements and anticipated difficulties.


Drafting of an effective arbitration clause is of utmost importance as the arbitration process depends on it. As drafters are the ones who are blamed when a problem arises during an arbitration process, it is crucial to understand the art of drafting an Arbitration Clause. Knowing how not to do a problem shows us paths on how to solve the problem. Therefore, analyzing the common errors while drafting will give the drafters an overview on how to draft.








[1] Drafting an arbitration clause, PINSENT MASONS(Oct. 12, 2020, 9:12 AM) https://www.pinsentmasons.com/out-law/guides/drafting-an-arbitration-clause

[2] Siddharth Jain, Effects of the Amendment of the Arbitration & Conciliation Act, 1996, THE CBCL BLOG, (Oct. 12, 2020, 10:00 AM)  https://cbcl.nliu.ac.in/arbitration-law/effects-of-the-amendment-of-the-arbitration-conciliation-act-1996/

[3] THE ARBITRATION AND CONCILIATION ACT, 1996, No. 26, Acts of Parliament, 1996 (India). 

[4] Luis Alfonso Gómez Domínguez, Causes and Consequences of Faulty Arbitration Clauses, SCIELO ( Oct 13, 2020, 10: 12 AM)  http://www.scielo.org.co/scielo.php?script=sci_arttext&pid=S0124-05792007000200005

[5] K. K. Modi vs K. N. Modi, 1988 AIR SC 1297(India)

[6] Ashraf El Motei, Midnight Arbitration Clause v. 8:00 a.m. Clause, ABL LEGAL SOLUTIONS ( Oct 13, 2020, 02. 00PM) https://www.ablglobal.net/articles/home/show/813/Midnight-Arbitration-Clause-v-800-am-Clause

[7] Union of India v. Bharat Engineering Corporation ILR 1977 Delhi 57(India)

[8] New India Assurance Co Ltd v Central Bank of India & Ors AIR 1985 Cal 76(India)

[9] Vijay Pal Dalmia, "May", "Can" & 'Shall Have The Right' In Arbitration Clause – The Legal Position Under The Arbitration Law Of India, MONDAQ, (Oct. 13, 2020, 02:30 PM)  https://www.mondaq.com/india/arbitration-dispute-resolution/340402/may-can-39shall-have-the-right39-in-arbitration-clause-the-legal-position-under-the-arbitration-law-of-india

[10]Jagdish Chander v. Ramesh Chander and Ors (2007) 5 SCC 719(India)

[11] Narges M. Kakalia, Mandatory vs. Permissive Arbitration Clauses: A Survey of the Laws of Other Common Law Countries, LEXOLOGY, (Oct. 13, 2020, 02: 40 PM) https://www.lexology.com/library/detail.aspx?g=0201c142-5b14-44c8-bce801a21bf88fdc#:~:text=For%20example%2C%20use%20of%20words,in%20a%20clause%20relating%20to