Your Business Contract has an Arbitration Clause? How to start an Arbitration and resolve the dispute?

Introduction

Have you entered into a business contract containing an arbitration clause and now face a dispute? Issues such as non-payment, breach of contract, defective goods, delays, termination, or damages may be resolved through arbitration. However, an arbitration clause does not automatically commence proceedings. The dispute must be identified, the clause invoked, and the prescribed appointment procedure followed under applicable law.

What is an Arbitration Clause?

The arbitration clause is the contractual provision through which the parties agree that the specified disputes arising out of or relating to their contract will be resolved through the arbitration. A typical clause may provide that: “Any dispute arising out of or relating to this agreement shall be referred to arbitration.” The clause may also specify:

• Number of arbitrators

• Method of appointment

• Seat or place of arbitration

• Venue of hearings

• Language of arbitration

• Applicable law

• Institutional or ad hoc arbitration

• Procedure for resolving disputes

The exact wording of the arbitration clause is extremely important because the procedure for commencing arbitration may depend upon the contractual terms.

Legal Framework Governing Arbitration in India

The principal legislation is the Arbitration and Conciliation Act of 1996. Important provisions include:

The Act provides for the statutory framework covering commencement, conduct as well as the conclusion of arbitration proceedings.

When can you start Arbitration?

You can generally initiate arbitration when:

1. There is a valid arbitration agreement between the parties;

2. A dispute has arisen which falls within the scope of that agreement; and

3. The contractual and statutory requirements for invoking arbitration have been satisfied.

The dispute should actually fall within the scope of the arbitration clause. As an illustration, where a supply agreement states that issues related to payment and execution will be/are sent or referred to arbitration, then an issue regarding unpaid bills may generally be included in that clause. Nevertheless, it is dependent on the wording in the agreement and the nature of the issue.

Who can initiate Arbitration?

The party claiming that the other party has breached contract can initiate the process. For example:

Supplier → Buyer If at all the buyer fails to pay contractual price, then the supplier may invoke the arbitration clause.

Contractor → Employer If contractual amounts remain unpaid, the contractor may invoke arbitration if the agreement provides for it.

Employer → Contractor If the contractor allegedly fails to perform contractual obligations, the employer may also invoke arbitration where the dispute falls within the arbitration agreement.

Therefore, arbitration is not limited to claims for recovery of money. It may cover a wider range of the contractual disputes.

How to Invoke an Arbitration Clause?

A critical component of the arbitration process is submitting an arbitration request in accordance with the provisions of the arbitration agreement. The Arbitration and Conciliation Act, specifically Section 21, prescribes the start of arbitration in respect of a dispute by sending a request to the other party. It is, however, also important to ascertain whether the arbitration provisions in the agreement have been adhered to. The notice should generally identify:

• The contract

• The arbitration clause

• Nature of the dispute

• Material facts

• Breach committed by the other party

• Amount claimed, where applicable

• Relief sought

• Proposal regarding appointment of arbitrator

• Applicable contractual procedure

• Time within which the other party should respond

The notice should be properly served and proof of service should be preserved.

How to start Arbitration in India? Step-by-Step Legal Process

Step 1 – Examine the Contract First, carefully examine the agreement. Identify:

• Arbitration clause

• Governing law

• Seat of arbitration

• Appointment procedure

• Number of arbitrators

• Notice requirements

• Jurisdiction clause

• Dispute-resolution mechanism

Do not rely merely on the existence of the words “arbitration clause.” The entire dispute-resolution provision should be examined.

Step 2 – Identify the Dispute Prepare the clear statement of the dispute. For example: The respondent has failed to pay ₹50 lakh under invoices raised pursuant to the agreement dated 10 January 2026. The claim should be supported by documents such as:

• Agreement

• Purchase orders

• Invoices

• Delivery documents

• Emails

• Correspondence

• Payment records

• Notices

• Accounts statements

Step 3 – Send Arbitration Notice The claimant should invoke an arbitration clause by issuing the formal notice. The notice should clearly state that the dispute is being referred to the arbitration in accordance with agreement. It is advisable to preserve:

• Copy of notice

• Postal receipt

• Courier record

• Email delivery record

• Acknowledgment

• Other proof of service

Step 4 – Appointment of Arbitrator The arbitrator must be appointed according to the agreement and applicable law. The contract may provide for:

• Sole arbitrator

• Three-member tribunal

• Appointment by mutual consent

• Appointment through an institution

• Appointment through a specified mechanism

If the agreed appointment procedure fails, a party may approach the competent court under Section 11 for appointment of the arbitrator, subject to the statutory requirements.

The Supreme Court has dealt extensively with the appointment of arbitrators under Section 11. For example, in Perkins Eastman Architects DPC v. HSCC (India) Ltd., the Supreme Court considered the validity of an appointment mechanism where one party had control over the appointment of the sole arbitrator.

Appointment of Arbitrator

The arbitrator should be independent and impartial. The Arbitration and Conciliation Act contains provisions concerning disclosure, independence and impartiality of arbitrators.

As a result, parties must thoroughly examine if the arbitrator they plan to appoint has any relationship or situation that could create serious concerns about his/her independence or neutrality.

The Supreme Court has also stressed the significance of having an unbiased arbitration process in relation to the mechanisms that have been used by the parties for appointing the arbitrator.

Role of the Arbitral Tribunal

Once constituted, the arbitral tribunal determines the dispute in accordance with the applicable law and the agreed procedure, subject to the Arbitration Act. The tribunal may deal with:

• Jurisdiction

• Claims

• Counterclaims

• Evidence

• Documents

• Witnesses

• Expert evidence

• Interim applications

• Oral arguments

• Final submissions

The tribunal is not merely negotiating between the parties. It performs a judicial adjudicatory function within the statutory arbitration framework.

Interim Relief During Arbitration

Sometimes immediate protection is necessary. For example:

• A party may attempt to dispose of disputed property.

• Security may be required.

• Assets may need protection.

• Evidence may require preservation.

• A party may require temporary protection before the tribunal is constituted.

In appropriate circumstances, a party may approach the court under Section 9 for interim measures. After constitution of the tribunal, interim relief may also be sought from the arbitral tribunal under Section 17, subject to the statutory framework.

Conduct of Arbitration Proceedings

Once the tribunal is constituted, the claimant generally submits its Statement of Claim. The respondent may submit its:

• Statement of Defence

• Counterclaim

• Supporting documents

• Preliminary objections

The claimant may file a reply where appropriate. The tribunal may then determine:

1. Issues requiring adjudication

2. Documents to be produced

3. Witnesses to be examined

4. Evidence required

5. Hearing schedule

6. Written submissions

7. Final arguments

Arbitration is intended to provide an efficient dispute-resolution mechanism, although the actual duration depends upon the complexity of the dispute, procedural issues, evidence and conduct of the parties.

Arbitral Award

After considering pleadings and evidence, the arbitral tribunal passes the  arbitral award. The award may deal with:

• Principal amount

• Interest

• Damages

• Costs

• Counterclaims

• Other contractual reliefs

The award should comply with the requirements of the Arbitration and Conciliation Act. A properly reasoned award can determine the parties' rights and liabilities concerning the dispute referred to arbitration.

Enforcement of Arbitral Award

Obtaining an award is not necessarily the end of the process. If the unsuccessful party does not comply with the award, then the enforcement proceedings may become necessary. Section 36 of Arbitration and Conciliation Act governs the enforcement of arbitral awards. Therefore, a party seeking monetary recovery should consider not only:

“Can I obtain an award?” but also: “Can the award be effectively enforced?”
Asset information and appropriate enforcement strategy can therefore become important in commercial disputes.

Can you challenge an Arbitral Award?

A party dissatisfied with an award may have a statutory remedy under Section 34. Yet, Section 34 is not designed as an ordinary appeal against general issues of facts and law. The grounds for setting aside an award are contained in the Arbitration and Conciliation Act.

Thus, one party must not think that simply disagreeing with the arbitrator's ruling leads to the court declaring the award null and void.

Limitation in Arbitration

Limitation is the important issue in arbitration. The party should not delay in initiating the proceedings merely because the contract contains the arbitration clause.
The applicable limitation period depends upon the nature of claim and governing law. A delay in asserting contractual claims can create serious legal complications.

Therefore: Identify the cause of action → Calculate limitation → Invoke arbitration promptly. The limitation issue should be examined separately for each claim.

Common Problems and Legal Solutions

The correct remedy depends on the contractual terms and facts of the particular case.

Important Legal Principles from Courts 

Arbitration Agreement Must Be Examined Carefully The existence and scope of the arbitration agreement are fundamental to the arbitration process. Section 7 of the Arbitration and Conciliation Act deals with arbitration agreements.
Appointment Mechanism Must Comply With Law The Supreme Court's decision in Perkins Eastman Architects DPC v. HSCC (India) Ltd. is important in understanding issues concerning unilateral control over appointment of a sole arbitrator. 
Tribunal Has Power to Consider Its Own Jurisdiction Section 16 incorporates the principle that the arbitral tribunal may rule on its own jurisdiction, including objections concerning the existence or validity of the arbitration agreement.
Arbitration and Court Proceedings Are Connected but Distinct Courts have statutory roles at different stages, including appointment, interim protection and limited review of awards.

What Legal Remedies are available through Arbitration?

Before Constitution of Tribunal

• Arbitration notice

• Negotiation

• Mediation

• Section 9 interim relief

• Section 11 application, where applicable

During Arbitration

• Statement of claim

• Counterclaim

• Interim relief under Section 17

• Evidence

• Examination of witnesses

Final arguments

• After Award

• Compliance with award

• Enforcement

• Section 34 challenge, where legally maintainable

• Statutory appeal where applicable

Common Mistakes to Avoid

1. Ignoring the Arbitration Clause Do not immediately file a civil suit without first examining whether the dispute is covered by an arbitration agreement. 

2. Sending an Incomplete Arbitration Notice The notice should clearly identify the contract, dispute and relief claimed.

3. Ignoring the Appointment Procedure The contractual mechanism for appointing the arbitrator should be carefully followed.

4. Delaying the Claim Limitation should be examined at the earliest stage.

5. Poor Documentation Contracts, invoices, correspondence, payment records and other documents can be crucial evidence.

6. Treating Arbitration as Informal Negotiation Arbitration is a formal adjudicatory process. Claims and evidence should therefore be prepared carefully.

7. Ignoring Enforcement Obtaining an award and actually recovering the awarded amount are separate practical stages.

Expert Guidance (Practical Insight)

The most important step in an arbitration dispute is often taken before the arbitration actually begins.
A strong arbitration case generally requires documentary evidence establishing the contractual relationship, the breach, the loss or amount claimed and the relief sought.

Particular attention should be given to the wording of the arbitration clause. A clause providing for a sole arbitrator, a three-member tribunal, institutional arbitration or a specific appointment mechanism may require different procedural steps.

Where the other party refuses to cooperate in the constitution of the tribunal, the statutory mechanism for appointment should be considered rather than allowing the dispute to remain unresolved.

Need help with your Arbitration Case?

If at all your business contract contains the arbitration clause and a dispute has arisen, then the first step is to carefully examine the contract and identify the correct procedure for invoking the arbitration. The proper arbitration strategy can help in:

• Identifying the correct legal remedy

• Drafting an effective arbitration notice

• Calculating and presenting the claim

• Appointing an appropriate arbitrator

• Seeking interim protection where necessary

• Preparing pleadings and evidence

• Responding to counterclaims

• Obtaining and enforcing the arbitral award

The Arbitration and Conciliation Act of 1996 provides for the principal statutory framework for the arbitration in India, including the commencement of proceedings, appointment of the arbitrators, conduct of the proceedings, awards and enforcement.