Compliance
A missing or poorly drafted arbitration clause can force a small business into costly court battles, so following the writing rules saves time, legal fees and the risk of unenforceable arbitration.
Check your DPDP readiness — free More on the blogThe first task is for the senior management or the legal/compliance officer to decide whether any future dispute with a supplier, client or partner will be resolved by arbitration. This decision should be recorded in the project brief or contract template and approved by the managing director. It creates a clear internal mandate that the next steps will be documented rather than left to informal conversation.
The next step is to decide whether the arbitration clause will sit inside the main contract or be a separate stand‑alone agreement. The choice influences who drafts the document – typically the in‑house counsel or a retained lawyer – and which department signs it. A separate agreement may be preferable when multiple contracts will refer to the same arbitration clause.
The draft must avoid a mere venue reference. Instead of writing "Arbitration to be held in Mumbai", the clause should say "The parties agree to submit disputes to arbitration under the Arbitration and Conciliation Act, 1996, with the seat in Mumbai". This satisfies the requirement that the agreement actually commits the parties to arbitrate.
Once the clause is finalised, the parties must produce a written record. This can be a signed contract, an exchange of letters, or an email thread where one party proposes arbitration and the other replies without denying it. Electronic communications are acceptable, provided they can be printed or retrieved later as evidence.
If the main contract refers to an external arbitration clause, the reference must be explicit enough to bring that clause into the contract. For example, "The arbitration clause set out in Schedule A attached hereto forms part of this agreement". The schedule must be attached and signed, otherwise the reference will be ineffective and the parties may fall back to court.
Section 7 does not demand signatures, but having them removes doubt. The authorised signatory of each party should sign the contract or the separate arbitration agreement. If the agreement is created by email, each party should reply with a clear "We agree" statement, which creates a permanent electronic record.
The compliance officer should file the original signed document, the electronic email chain, and any referenced schedules in a central contract repository. Index the file by contract number and date, and note the arbitration clause location for quick retrieval if a dispute arises.
If a dispute later reaches the courts, the party seeking arbitration must produce the written agreement. This may be the signed contract, the email exchange, or the pleadings where one side alleged the arbitration clause and the other did not contest it. Having the document readily available prevents delays and extra legal costs.
Every year the legal team should audit existing contracts to confirm that each arbitration clause meets the writing requirement. Any clause that only names a city or fails to state an agreement to arbitrate should be amended and re‑executed, avoiding future unenforceability.
Yes. If one party proposes arbitration in an email and the other replies without denying the proposal, the exchange creates a written record under Section 7 and can be used as evidence of a valid arbitration agreement.
A signature is not mandatory, but having both parties sign removes doubt and makes enforcement easier. An unsigned document is still valid if it meets the other writing criteria, such as a clear email exchange.
Mentioning a city alone does not create an arbitration agreement. The clause must expressly state that the parties agree to submit disputes to arbitration; otherwise the provision is ineffective and disputes will be heard in court.
The main contract must contain a clear reference that makes the external clause part of the agreement, for example, "The arbitration clause in Schedule A attached hereto forms part of this contract". The referenced document must be attached and signed.
Published 5 October 2026. Founder & CEO at VidhiSar. I have watched four companies pay for the same mistake, and it was never the mistake anyone expected. VidhiSar is software, not a law firm: every answer names the section it relies on so you can check it, and anything turning on your specific facts is worth putting to a professional. More about who builds this
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