Arbitration clause: meaning and what to include
An arbitration clause is a contract term sending disputes to arbitration instead of courts, under the Arbitration and Conciliation Act, 1996.
Short answer
An arbitration clause is a term in a contract under which the parties agree to resolve disputes through arbitration, a private process decided by arbitrators, instead of going to court. In India it is governed by the Arbitration and Conciliation Act, 1996. A valid written arbitration agreement generally requires courts to refer the dispute to arbitration if a party asks.
- Law
- Arbitration and Conciliation Act, 1996
- Form
- Written agreement (section 7)
- Time limit for award
- 12 months from completion of pleadings (section 29A), extendable by 6 months
- Challenge
- Within 3 months of the award (section 34)
What a good clause includes
A poorly drafted clause can lead to years of preliminary litigation over where, how and by whom the dispute is heard, so the key terms should be spelled out clearly. A typical clause covers the following.
- Seat of arbitration, which decides which courts supervise it
- Number of arbitrators and how they are appointed
- Institutional rules, such as an Indian arbitration centre, or ad hoc arbitration
- Language of proceedings
- Governing law of the contract and the arbitration agreement
- Scope: all disputes arising out of or in connection with the contract
How arbitration works in India
Under section 29A, an award in domestic arbitration should be made within 12 months of completion of pleadings, extendable by six months by consent, and further only by the court. An award can be challenged only on limited grounds under section 34, within three months of receiving it, and is enforced like a court decree. The Supreme Court has held that one party alone cannot appoint a sole arbitrator, so clauses giving one side that power are risky. Some disputes, such as criminal matters and certain insolvency and family matters, cannot be arbitrated.
Why it matters for startups
Arbitration offers confidentiality, choice of expert arbitrators and usually faster outcomes than courts, which suits commercial contracts, shareholders' agreements and vendor agreements. For small-value disputes, the cost of arbitration may outweigh the benefit, so consider mediation first or a fast-track procedure. Make sure the contract is properly stamped as well.
Related services
Sources
- India Code: official repository of central Acts
- Department of Legal Affairs, Ministry of Law and Justice
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is an arbitration clause binding in India?
Yes. A valid written arbitration agreement is binding, and courts must refer parties to arbitration on a timely application.
What is the difference between seat and venue?
The seat decides the law and courts that supervise the arbitration. The venue is just where hearings are held.
Can an arbitration award be appealed?
Not on merits. It can be set aside only on limited grounds under section 34, within three months.