Where a contract contains an arbitration clause, the first step is not a court case but a written notice invoking arbitration. Under Section 21 of the Arbitration and Conciliation Act 1996, arbitration commences on the date the respondent receives a request that the dispute be referred to arbitration. That notice fixes the date, identifies the dispute, and starts the clock for everything that follows, including limitation.
This page covers what an enforceable clause needs, how the notice is drafted, how the arbitrator is appointed, and when arbitration is not worth the money.
When this matters
Arbitration applies where the parties agreed in writing to refer their disputes to an arbitral tribunal rather than to a court. That agreement may be a clause inside a contract or a separate arbitration agreement. It binds the parties by consent, and a court before which a suit is filed in a matter covered by the clause will generally refer the parties to arbitration on the application of one of them at the appropriate stage. Knowing whether your contract contains a valid clause decides whether you file a suit or send a notice.
The ingredients of an enforceable arbitration clause
- Written agreement. Section 7 of the Act requires the arbitration agreement to be in writing. It may be in a document signed by the parties, in an exchange of letters, telex, telegrams or other means of communication, or in an exchange of statements of claim and defence in which the existence of the agreement is alleged by one and not denied by the other.
- A clear intention to arbitrate. The clause must show that the parties intended disputes to be resolved by arbitration, not by litigation. A clause that only names a forum or a conciliation step is not the same thing.
- Defined scope. The clause must cover the disputes that have arisen, whether all disputes under the contract or a defined class.
- Parties bound. The parties to the arbitration must be the parties bound by the clause, or those who claim through them.
A clause that leaves the appointment to one party alone, or to a nominee of one party, has repeatedly been struck down by Indian courts as undermining impartiality. A clause drafted today should provide for a neutral appointment mechanism, or a fallback to the High Court, so that the process does not collapse at the appointment stage.
Drafting and serving the pre-arbitration notice
The notice should read as a formal invocation of the clause, not merely as a demand letter. It should:
- Identify the contract by date and parties, and quote the arbitration clause.
- Set out the disputes and the amounts claimed, with a short factual background.
- State that the disputes are hereby referred to arbitration under the clause and under the Act.
- Propose the arbitrator or the method of appointment, and give the respondent a reasonable window to agree.
- State that failing agreement, the claimant will apply to the High Court for appointment.
Send it by registered post, speed post and, where the contract permits, email, and preserve the receipts. The date of receipt fixes the commencement under Section 21 and is often the date from which the tribunal's jurisdiction is tested. See the arbitration services page for how the notice and the request are paired in practice.
Appointment of the arbitrator
If the clause sets out a method, the parties follow it. Where the parties cannot agree on an appointment, the claimant applies to the High Court under Section 11 of the Act. The Court will appoint an arbitrator where a party has failed to act as required by the agreement or where the parties have failed to agree on the appointment. Section 11(5) removes an earlier split of opinion: a mere agreement to agree on a named person is not binding, and the High Court can appoint. The application is supported by the arbitration agreement and the notice showing that the applicant tried to secure an agreed appointment first.
Interim relief and the award
Before or during the arbitration, a party may apply to the court under Section 9 for interim measures such as securing the amount in dispute, appointing a receiver, or restraining the other side from dealing with assets. Once the tribunal is constituted, the tribunal itself may grant interim measures under Section 17. The tribunal then hears the matter and passes an award. The award is enforced under Section 36 in the same manner as a decree of a court, and a challenge lies under Section 34 within three months of receipt, extendable by up to 30 days on sufficient cause. An unenforced award recovers nothing.
When arbitration is not worth it
Arbitration is quick and private only when both sides can pay and the respondent has assets. Against a defendant with no assets, the award is worth no more than a decree, and the effort of a tribunal is wasted. In that situation a firm notice plus a small cause recovery action, or a recovery suit, may be the cheaper route. The cost of the tribunal's fees and the advocate's charges should be weighed against what the respondent can actually pay, before the notice goes out.
Common questions
Is a notice compulsory before arbitration?
The Act does not always make a separate notice compulsory if the agreement provides otherwise, but a request under Section 21 is required to commence the arbitration. A well-drafted invocation notice both commences it and gives the respondent a chance to settle, which is why it is standard practice.
Can I go straight to court and ignore the clause?
No. If the matter is covered by a valid clause and the other side applies, the court will refer the parties to arbitration and will not decide the merits. Filing a suit in such a matter invites a waste of court fee and time.
Who pays the arbitrator?
The parties share the tribunal's fee as directed, and the tribunal's costs are dealt with in the award, which may order the losing side to pay. The details of fee scales vary with the tribunal and the seat, so they should be settled before the appointment.
How long does the award take?
The Act requires the tribunal to endeavour to conclude within twelve months from the date it enters upon the reference, extendable by consent or by the court. In practice, timelines depend on pleadings, evidence and interim applications, so a civil-litigation format and tight document presentation help. A first review is free through the contact page.
FileX Advocates & Legal Consultants, 14 Hare Street, Kolkata, drafts and files these matters before the Calcutta High Court, the City Civil and Sessions courts, the magistrates, and the tribunal forums. Call +91 7439811422 or WhatsApp us for a free first consultation.