7 Arbitration Clause Drafting Mistakes That Indian Lawyers Still Make in 2026
· 6 min read · Practice Guide
From pathological clauses to seat-venue confusion, these common drafting errors cost clients lakhs in procedural battles before the merits are even heard.
Every experienced arbitration practitioner has a story about a case that spent two years fighting about the arbitration clause before anyone considered the merits of the dispute. These procedural battles are expensive, time-consuming, and almost always avoidable. They arise from drafting errors that are embarrassingly common, even in contracts prepared by reputable firms.
After reviewing hundreds of commercial contracts and the disputes they generated, here are seven arbitration clause drafting mistakes that Indian lawyers continue to make - and how to avoid each one.
Mistake 1: The Pathological Clause
"Any dispute arising out of this agreement shall be resolved by arbitration in accordance with the rules of the High Court of Mumbai."
This is a pathological clause - one that contains an internal contradiction or impossibility that makes it unworkable. The High Court does not administer arbitrations or have "rules" for conducting them. The clause does not specify whether it intends ad hoc arbitration (with the High Court appointing the arbitrator under Section 11) or institutional arbitration (under which institution?).
The Supreme Court has repeatedly held that arbitration clauses should be interpreted to give effect to the parties' intent to arbitrate, and pathological clauses are not necessarily void. But enforcing them requires a Section 11 application, judicial interpretation of what the parties likely intended, and months of delay before the arbitration even commences.
The fix is simple: specify the arbitral institution (if institutional) or state clearly that the arbitration shall be ad hoc under Part I of the Arbitration and Conciliation Act, 1996. Specify the applicable rules. Leave no room for argument about the mechanism.
Mistake 2: Seat vs. Venue Confusion
"The arbitration shall be held at Mumbai."
Does "held at" mean the seat of arbitration (which determines the supervisory court and the applicable curial law) or merely the venue (the physical location of hearings, which has no legal significance)?
After the Supreme Court's decision in BALCO (2012) and subsequent seat jurisprudence, this distinction is critical. The seat determines which court has jurisdiction to entertain a Section 34 challenge. Getting this wrong can mean challenging an award in the wrong court - a jurisdictional error that is discovered only after the limitation period for the correct court has expired.
The fix: use the word "seat" explicitly. "The seat of arbitration shall be Mumbai." If hearings may occur elsewhere for convenience, add: "Hearings may be conducted at any location convenient to the parties without altering the seat." This is unambiguous and eliminates an entire category of procedural dispute.
Mistake 3: No Number of Arbitrators
"The dispute shall be referred to arbitration."
How many arbitrators? One or three? If three, who appoints whom? If the parties cannot agree on the presiding arbitrator, who breaks the deadlock?
The Arbitration Act defaults to a sole arbitrator for domestic arbitrations (Section 10), but this default is often not what the parties would have chosen had they considered the question. For high-value disputes, a three-member tribunal is typically preferable. For low-value matters, a sole arbitrator is more cost-effective.
The fix: state the number explicitly and specify the appointment mechanism. "The dispute shall be resolved by a sole arbitrator appointed by mutual agreement. If the parties fail to agree within 30 days of the notice of arbitration, the arbitrator shall be appointed by [named institution / the High Court under Section 11]."
Mistake 4: Narrow Scope Language
"Any dispute arising out of this agreement shall be referred to arbitration."
"Arising out of" is narrower than "relating to" or "in connection with." A claim that the contract was fraudulently induced, or that one party is liable in tort for events connected to the contractual relationship, may not "arise out of" the agreement in a technical sense. This gives an obstructive party a basis to argue that certain claims fall outside the arbitration clause and must be litigated in court.
The fix: use the widest reasonable language. "Any dispute, difference, or question arising out of, relating to, or in connection with this agreement, including questions regarding its existence, validity, or termination, shall be referred to arbitration." This captures pre-contractual disputes, validity challenges, and connected tort claims.
Mistake 5: Mandatory Pre-Arbitration Steps Without Time Limits
"The parties shall first attempt to resolve the dispute through negotiation and mediation before referring it to arbitration."
Multi-tier dispute resolution clauses (negotiation, then mediation, then arbitration) are common and legitimate. The problem arises when they do not specify time limits for each tier. Without a defined period, a party that wants to delay can engage in endless "negotiation" without ever progressing to arbitration, while the claimant's commercial position deteriorates.
The fix: specify time limits for each tier. "The parties shall attempt to resolve the dispute through negotiation for a period not exceeding 30 days from written notice. If unresolved, the parties shall attempt mediation under the Mediation Act, 2023 for a period not exceeding 45 days. If the dispute remains unresolved after the expiry of the mediation period, either party may refer it to arbitration."
Mistake 6: No Governing Law for the Arbitration Agreement
"This agreement shall be governed by the laws of India."
This governs the substantive contract. But what law governs the arbitration agreement itself? In most domestic Indian arbitrations, this distinction does not matter - Indian law governs both. But in international commercial arbitrations with an Indian seat, or in contracts between Indian and foreign parties, the governing law of the arbitration agreement (which determines its validity and scope) can differ from both the governing law of the contract and the curial law of the seat.
The fix: in any cross-border contract, specify separately: (a) the governing law of the substantive agreement, (b) the governing law of the arbitration agreement, and (c) the seat of arbitration (which determines the curial law). "This agreement is governed by Indian law. The arbitration agreement is governed by Indian law. The seat of arbitration is Mumbai, India."
Mistake 7: No Emergency Arbitrator or Interim Relief Provision
"All disputes shall be resolved by arbitration."
But what happens when a party needs urgent interim relief before the tribunal is constituted? Under the 2015 amendments to the Arbitration Act, Indian courts can grant interim measures under Section 9 even when an arbitration agreement exists. However, if the parties have chosen institutional arbitration under rules that provide for an emergency arbitrator, they should be aware that approaching a court for Section 9 relief after the tribunal is constituted (or an emergency arbitrator is available) is restricted under Section 9(3).
The fix: address interim relief explicitly. "Either party may apply to a court of competent jurisdiction for urgent interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, before or after the constitution of the tribunal, without prejudice to the tribunal's power to grant interim measures under Section 17." If using institutional rules with an emergency arbitrator provision, state whether court relief is also permitted pre-constitution.
The Common Thread
All seven mistakes share a common cause: drafting the arbitration clause as an afterthought, often at 2 AM the night before signing, using language copied from a precedent without considering whether it fits the specific transaction.
The arbitration clause is arguably the most important clause in a commercial contract. It determines how disputes will be resolved, where, by whom, and under what rules. It deserves the same careful attention as the limitation of liability clause or the indemnity provision. Thirty minutes of careful drafting can save months of procedural litigation.
For transactional lawyers, a practical suggestion: maintain a clause library with pre-vetted arbitration clauses for different scenarios (domestic, international, high-value, low-value, multi-party, construction, joint venture). Review and update it annually against the latest case law. Never copy a clause from a precedent without confirming it fits the current transaction.