Arbitration clause
Arbitration and Conciliation Act, 1996: sections 7, 8, 9, 11, 16, 34 and 36, with section 25 of the Specific Relief Act, 1963
In one minute
An arbitration clause is a promise in a contract to send disputes to a private tribunal and not to the courts. The tribunal gives an award that is final and binding, subject to a narrow challenge. Most large construction, supply and infrastructure contracts have such a clause.
The law is in the Arbitration and Conciliation Act, 1996. The Specific Relief Act, 1963 fits in because it deals with injunctions and specific performance, and section 25 mentions awards. In exams, you must know section 7, the court's duty to refer under section 8, and the limited challenge under section 34.
Exam focus
- Frequency: No data
- Usually asked as: No data
Legal provision
- Section 7: an arbitration agreement is an agreement to submit to arbitration all or certain disputes which have arisen or may arise in respect of a defined legal relationship, contractual or not. It may be a clause in a contract or a separate agreement. It must be in writing.
- Section 5: in matters governed by Part I, no judicial authority shall intervene except where the Act provides.
- Section 8: a judicial authority hearing an action on a matter covered by an arbitration agreement shall refer the parties to arbitration. A party must apply not later than his first statement on the substance of the dispute. The authority need not refer if it finds that prima facie no valid arbitration agreement exists.
- Section 9: a party may apply to a court for interim measures before, during or after the arbitration, but before the award is enforced.
- Section 11: appointment of arbitrators. Section 11(6A) confines the court to the examination of the existence of an arbitration agreement.
- Section 16: the tribunal may rule on its own jurisdiction. The arbitration clause is treated as an agreement independent of the other terms of the contract.
- Section 34: an award may be set aside only on limited grounds. Section 36: a final award is enforced as a decree.
- Section 25, Specific Relief Act: Chapter II applies to awards to which the Arbitration and Conciliation Act, 1996 does not apply.
Meaning and definition
An arbitration agreement is the agreement under section 7. When it sits inside the main contract it is called an arbitration clause. The parties agree that an arbitrator or tribunal will decide, and that the arbitral award will bind them.
The flowchart follows a dispute from the clause to the award.
- 1. Is there a written arbitration agreement for the dispute?No: the dispute goes to the ordinary courts (section 7).
- 2. If one party sues in court, does the other apply before his first statement on the substance of the dispute?No: he may lose the right to have the matter referred (section 8).
- 3. Does the court find that prima facie no valid arbitration agreement exists?Yes: the court does not refer the parties and the suit goes on.
- 4. The parties are referred. An arbitrator is appointed, by agreement or by the court under section 11.After appointment, the court's role is over. The tribunal decides its own jurisdiction (section 16).
- 5. The tribunal makes an award. It may be challenged only within three months, on the limited grounds in section 34.If no challenge succeeds or none is made, the award is final (section 35).
- 6. The award is enforced as a decree (section 36).An application to set aside does not by itself stay the award. Stay needs a separate order.
Detailed explanation
1. A valid arbitration clause
Section 7 asks for four things: an agreement, a reference of present or future disputes, a defined legal relationship, and writing. Writing can be a signed document, an exchange of letters or electronic communications, or an exchange of claim and defence in which one party alleges the agreement and the other does not deny it (section 7(4)). A contract can also bring in a clause by referring to another document, if the contract is in writing and the reference makes the clause part of the contract (section 7(5)).
Example. A metro authority in Hyderabad signs an EPC contract with a civil contractor. Clause 40 says all disputes shall be referred to arbitration by three arbitrators. That is a valid arbitration clause.
2. Why the clause survives the contract
Under section 16(1), the clause is treated as an agreement independent of the other terms. If the tribunal finds the main contract null and void, the clause is not automatically invalid. This allows the tribunal to decide even a dispute about whether the contract is valid.
3. Section 8: the court must refer
If a party sues in court despite the clause, the other party may apply under section 8. The application must come no later than the first statement on the substance of the dispute, and must have the original agreement or a certified copy. The court shall then refer the parties unless it finds that prima facie no valid arbitration agreement exists. Arbitration may start or continue even while the application is pending (section 8(3)).
In Vidya Drolia v. Durga Trading Corporation (2021), the Supreme Court said the court at this stage should look at the agreement only prima facie and refer unless it is clearly non-existent or invalid, or the dispute is manifestly non-arbitrable. In In re Interplay between Arbitration Agreements and the Indian Stamp Act (2023), a seven-judge Bench held that a defect in stamping does not make the agreement void. Courts under sections 8 and 11 examine only the existence of the agreement. The tribunal decides the stamping issue under section 16.
4. Section 11: appointment
The parties may agree on a procedure. If it fails, a party may apply to the Supreme Court or the High Court, or a person or institution designated by it. The court confines itself to the existence of an arbitration agreement (section 11(6A)). Once it appoints the arbitrator and disposes of the case, it has no power left to give further directions. The Supreme Court held this in Kamal Gupta v. L.R. Builders (2025).
5. Who may take part: non-signatories
In Kamal Gupta v. L.R. Builders (2025), a Delhi High Court judge appointed a sole arbitrator in a family dispute and later let non-signatory companies and a person who had not signed the family settlement be present in the arbitration. The Supreme Court set the order aside and imposed costs of Rs 3,00,000. It held that a non-signatory has no right to remain present, because the award does not bind it and its presence would breach confidentiality under section 42A. A non-signatory's remedy, if any, lies under section 36 when the award is enforced against it.
6. Interim relief: sections 9 and 17
A party may ask a court for interim measures, such as an injunction or a receiver (section 9). Once the tribunal is constituted, the court will not entertain such an application unless the remedy under section 17 is not efficacious (section 9(3)). If the court passes an order before the arbitration starts, the arbitration must begin within 90 days (section 9(2)). The bars in sections 20A and 41(ha) of the Specific Relief Act guide courts in infrastructure disputes. In Roadway Solutions v. NHAI (2023), the Delhi High Court refused a section 9 petition to stop a highway contract's termination.
7. The award and its challenge: section 34
An award may be set aside only on the grounds in section 34: incapacity, an invalid agreement, no proper notice, matters beyond the submission, a wrongly constituted tribunal, a non-arbitrable subject matter, or conflict with the public policy of India. The public policy ground is now limited to fraud or corruption, contravention of the fundamental policy of Indian law, or conflict with basic notions of morality or justice. For a domestic award, an award may also be set aside for patent illegality appearing on its face, but not for mere error of law or re-appreciation of evidence (section 34(2A)). The application must be made within three months, with 30 days more for sufficient cause.
The older case of ONGC v. Saw Pipes (2003) had set aside an award that ignored a liquidated damages clause, as patently illegal. Since the 2015 Amendment, the Supreme Court has held, in Ssangyong Engineering and Construction v. NHAI (2019), that the wide public policy test of Saw Pipes was removed. Courts now apply section 34(2A) narrowly. A tribunal's reading of the contract is for the tribunal unless no fair-minded person could take it.
8. Enforcement and appeal
After the time to challenge ends, the award is enforced under the Code of Civil Procedure as a decree (section 36). Filing a section 34 application does not by itself stop enforcement. A stay needs a separate order, which the court may grant on conditions. An appeal lies from the orders listed in section 37. In Gayatri Balasamy v. ISG Novasoft Technologies (2025), a five-judge Bench held by majority that courts have a limited power to modify awards under sections 34 and 37.
9. Section 25 of the Specific Relief Act
Section 25 extends the Chapter on specific performance to awards to which the Arbitration and Conciliation Act, 1996 does not apply, and to directions in a will to execute a settlement. It does not apply to ordinary awards under the 1996 Act, which have their own enforcement in section 36.
From clause to award at a glance
| Stage | Section | Key point |
|---|---|---|
| Agreement | 7 | Written; clause or separate agreement; present or future disputes |
| Reference by court | 8 | Apply before the first statement on substance; refer unless prima facie no valid agreement |
| Interim measures | 9, 17 | Court before the tribunal is formed; the tribunal afterwards |
| Appointment | 11 | Court confines itself to existence of the agreement |
| Jurisdiction | 16 | The tribunal rules on its own jurisdiction; the clause is separable |
| Challenge | 34 | Three months; limited grounds; patent illegality for domestic awards |
| Enforcement | 36 | As a decree; stay only by separate order |
Don't confuse: arbitration clause and jurisdiction clause
Students often treat any dispute clause as an arbitration clause. A clause that picks a court is not one.
| Point | Arbitration clause | Jurisdiction clause |
|---|---|---|
| Who decides | A private tribunal | A court named in the contract |
| Result | An award that is final and binding | A decree with the usual appeals |
| Law | Arbitration and Conciliation Act, 1996 | Code of Civil Procedure |
Inside the concept (arbitration). A contract says any dispute will be decided by a sole arbitrator in Vijayawada. If a party sues in court, the other can apply under section 8.
Just outside it (jurisdiction clause). A contract says only "the courts at Vijayawada shall have jurisdiction". It chooses a court and does not create arbitration.
Common mistakes
- Saying that an oral arbitration clause is valid. Section 7 requires writing.
- Applying under section 8 after filing the first statement on the substance of the dispute.
- Thinking that a court deciding section 11 can decide the merits. It confines itself to the existence of the agreement.
- Applying the wide Saw Pipes test to a post-2015 award without noting section 34(2A) and Ssangyong.
- Thinking that section 25 of the Specific Relief Act applies to ordinary awards under the 1996 Act.
Apply it
Problem
A highway contract between a state road authority and a contractor in Anantapur has an arbitration clause. When a payment dispute arises, the contractor sues in the civil court for the money and an injunction to stop the authority from taking over the work. The authority files its written statement denying the claim, and only later applies under section 8. What is the position?
Issue. Can the authority still have the matter referred to arbitration, and can the court grant the injunction?
Rule. An application under section 8 must be made no later than the date of submitting the first statement on the substance of the dispute. No injunction can be granted that would delay a Schedule infrastructure project (sections 20A and 41(ha) of the Specific Relief Act).
Application. A written statement denying the claim is a first statement on the substance. The authority applied after it, so it is late. The injunction would delay a highway, which is in the Transport category.
Conclusion. The authority has probably lost the right to insist on arbitration. The court cannot grant the injunction in any event.
Leading case laws
- Kamal Gupta v. L.R. Builders Pvt. Ltd. (2025)
Facts. After a sole arbitrator was appointed under section 11(6) in a family settlement dispute, non-signatories obtained a later court order letting them be present in the arbitration. 2025 INSC 975.
Principle. The Supreme Court set the order aside with costs of Rs 3,00,000. A non-signatory has no right to be present. After appointing the arbitrator, the court is functus officio.
Why it matters. It shows the limits of court intervention and the confidentiality rule in section 42A.
- Food Corporation of India v. Indian Council of Arbitration (2003)
Facts. Storage-cum-milling contracts between FCI and millers had a standard arbitration clause under the rules of the Indian Council of Arbitration. The Council refused to proceed unless both sides agreed again in writing. AIR 2003 SC 3011.
Principle. Whether the clause was valid or conflicted with the rules is for the arbitral tribunal under section 16. The Council had to nominate the arbitrator within sixty days.
Why it matters. It supports the tribunal's power to rule on its own jurisdiction.
- Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003)
Facts. ONGC deducted liquidated damages from a pipe supplier's bills for late supply. The tribunal ordered a refund. (2003) 5 SCC 705.
Principle. The Supreme Court held that a patently illegal award conflicts with public policy and set it aside. Later changes to section 34 and Ssangyong (2019) narrowed this ground.
Why it matters. It is the older, wide test. Compare it with section 34(2A).
- Ssangyong Engineering and Construction Co. Ltd. v. NHAI (2019)
Facts. A contractor and the National Highways Authority of India disputed a highway contract. The Supreme Court considered an award in the light of the 2015 amendment. (2019) 15 SCC 131.
Principle. After the 2015 Amendment, the expanded public policy test of Saw Pipes no longer applies. Patent illegality is limited, and a tribunal's construction of the contract is final unless no fair-minded person could adopt it.
Why it matters. It states the present law of challenge for domestic awards.
How to write this answer in the exam
5-mark answer
- Define an arbitration clause and cite section 7: written, present or future disputes, defined legal relationship.
- State section 8: the court must refer unless prima facie no valid agreement exists.
- State section 16: the tribunal rules on its own jurisdiction; the clause is separable.
- Mention section 34 challenge in one line.
10-mark answer
- Meaning and why parties choose arbitration.
- Section 7 and the flowchart.
- Section 8 and Vidya Drolia; section 11 and Kamal Gupta.
- Interim measures (sections 9, 17) and the infrastructure bar.
- Challenge (section 34, 34(2A), Saw Pipes, Ssangyong) and enforcement (section 36).
- Section 25 of the Specific Relief Act in one line.
Key points to remember
- Section 7: a written agreement to arbitrate; it may be a clause in a contract.
- Section 8: the court must refer the parties if a party applies before his first statement on substance.
- Section 16: the tribunal decides its own jurisdiction; the clause is independent of the contract.
- Section 34: three months; limited grounds; patent illegality only on the face of a domestic award.
- Section 25, Specific Relief Act: only for awards outside the 1996 Act.
Quick self-test
1. Must an arbitration agreement be in writing?
Yes. Section 7(3) of the Arbitration and Conciliation Act, 1996 says so.
2. By when must a party apply under section 8?
Not later than the date of submitting his first statement on the substance of the dispute.
3. How long does a party have to apply under section 34?
Three months from receipt of the award, with a further 30 days if sufficient cause is shown.