Arbitration clause — MCQs

All questions with answers and explanations

Read the full set here, or use the practice card above to test yourself one question at a time.

1. Under Section 7 of the Arbitration and Conciliation Act, 1996, an arbitration agreement must be:

   • Oral only
   • In writing (correct answer)
   • Registered with the Registrar of Companies
   • Notarised abroad

   Explanation. Section 7 requires an arbitration agreement to be in writing, either as a separate document or a clause within the main contract.

2. Under Section 8, if a valid arbitration agreement exists and a party applies in time, a court:

   • May decide the case itself if it wishes
   • Shall refer the parties to arbitration (correct answer)
   • Must dismiss the suit permanently
   • Must transfer the case to the Supreme Court

   Explanation. On a timely application under Section 8, the court shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

3. Section 25 of the Specific Relief Act extends Chapter II's enforcement machinery to:

   • All arbitral awards under the 1996 Act
   • Awards to which the Arbitration and Conciliation Act, 1996 does NOT apply (correct answer)
   • Only Supreme Court judgments
   • Only foreign arbitral awards

   Explanation. Section 25 extends Chapter II's machinery only to the narrower category of awards outside the 1996 Act's scope — not ordinary arbitral awards, which use the 1996 Act's own Section 36.

4. In ONGC v. Saw Pipes Ltd., the Supreme Court added which ground for setting aside an award under Section 34?

   • Lack of a written agreement
   • Patent illegality (correct answer)
   • Absence of a seal
   • Foreign nationality of a party

   Explanation. The Court added "patent illegality" as a further ground for setting aside an award as being against public policy. The note adds that Ssangyong (2019) later held the wide Saw Pipes test removed after the 2015 Amendment.

5. In ONGC v. Saw Pipes, the tribunal's award was found patently illegal because it:

   • Was written in the wrong language
   • Ignored the contract's own agreed liquidated-damages clause and demanded proof of actual loss (correct answer)
   • Was issued after the limitation period
   • Was signed by only one arbitrator

   Explanation. The tribunal disregarded the contract's validly agreed liquidated-damages clause, requiring separate proof of actual loss.

6. In Kamal Gupta v. L.R. Builders Pvt. Ltd. (2025), the Supreme Court held that a non-signatory to the arbitration agreement:

   • Can freely attend and participate in arbitral proceedings
   • Cannot be permitted to remain present in or participate in arbitral proceedings (correct answer)
   • Automatically becomes a party to the arbitration
   • Must be appointed as the arbitrator

   Explanation. The Court held a non-signatory cannot be allowed to remain present in or participate in arbitral proceedings, as it would violate the Act's confidentiality mandate.

7. According to Kamal Gupta v. L.R. Builders, once an arbitrator is appointed under Section 11(6), the referring court:

   • Gains wider powers over the arbitration
   • Becomes functus officio and cannot issue further ancillary directions (correct answer)
   • Must appoint a second arbitrator
   • Can cancel the arbitration at will

   Explanation. The Court held the referring court becomes functus officio once an arbitrator is appointed under Section 11(6).

8. Why do infrastructure contracts typically pair an arbitration clause with Section 20A's injunction bar?

   • To make disputes impossible to resolve
   • So the project is not frozen by an injunction while the money claims are decided by arbitration (correct answer)
   • To avoid paying any compensation ever
   • Because it is a mandatory statutory requirement for all contracts

   Explanation. The note says the bar stops the project from being frozen while damages and arbitration claims are decided.