In the globalised business world, cross-border transactions are the norm. With them, dispute resolution becomes critical — and international commercial arbitration has emerged as the preferred method for resolving such disputes. At the heart of every arbitration lies a binding arbitration agreement, which plays a foundational role in determining the jurisdiction, scope, and validity of the arbitral process.
This blog explores the essentials of arbitration agreements in international commercial arbitration, their enforceability under Indian law and international conventions, and best drafting practices.
What is an Arbitration Agreement?
An arbitration agreement is a contract between parties to resolve their disputes through arbitration, rather than litigation. Under Section 7 of the Indian Arbitration and Conciliation Act, 1996, an arbitration agreement must:
• Be in writing;
• Clearly express the intent to arbitrate;
• Cover disputes that have arisen or may arise in future.
In the international context, the agreement also determines seat of arbitration, governing law, and procedural rules, all of which have critical implications on enforceability and fairness.
International Commercial Arbitration – Meaning
International Commercial Arbitration typically involves:
• At least one party residing or incorporated outside India; or
• A foreign element in the contract or transaction (e.g., place of performance, subject matter, or payment).
As per Section 2(f) of the Indian Arbitration Act, such matters fall under Part II, which aligns with the New York Convention (1958) and UNCITRAL Model Law.
Key Components of a Robust Arbitration Agreement
To avoid ambiguity and ensure enforceability, an effective international arbitration agreement should include:
1. Clear Intent to Arbitrate
– Use unambiguous terms like “any disputes arising out of or relating to this contract shall be settled by arbitration.”
2. Scope of Arbitration
– Specify whether it includes tort claims, statutory claims, pre-contractual issues, etc.
3. Seat of Arbitration
– Determines the curial law and court of supervisory jurisdiction (e.g., Singapore, London, Paris, Mumbai).
4. Governing Law of Contract
– Choose the substantive law that governs the contract itself (e.g., Indian law, English law).
5. Number and Appointment of Arbitrators
– Commonly one or three arbitrators, and method of their selection.
6. Arbitral Institution or Rules
– ICC, SIAC, LCIA, HKIAC, UNCITRAL, etc.
7. Language of Arbitration
– Especially important when parties come from different linguistic backgrounds.
Enforceability under Indian Law
India is a signatory to both the New York Convention and Geneva Convention, and courts generally uphold international arbitration agreements unless they are:
• Vague or lacking mutual consent,
• Against public policy,
• Signed under fraud, coercion, or misrepresentation.
In BALCO v. Kaiser Aluminium (2012), the Supreme Court clarified that Indian courts will not interfere in foreign-seated arbitrations except under limited circumstances (like enforcing foreign awards under Part II).
Judicial Approach in India
Indian courts have consistently upheld the principle of party autonomy and minimal judicial intervention in international arbitration matters. Some landmark cases include:
• Shin-Etsu Chemicals v. Aksh Optifibre Ltd. (2005) – Limited role of courts at the pre-arbitral stage.
• Cruz City v. Unitech Ltd. (2017) – Public policy is a narrow exception to enforcement.
• PASL Wind Solutions v. GE Power (2021) – Parties can choose a foreign seat even if both are Indian entities.
Best Practices for Drafting Arbitration Clauses in Cross-Border Deals
1. Avoid vague terms like “may be referred to arbitration” – it should say “shall be referred.”
2. Use model clauses provided by arbitral institutions (e.g., SIAC Model Clause).
3. Ensure compatibility between governing law and seat.
4. Clearly mention institutional rules – helps avoid procedural disputes.
5. Consider interim measures – allow emergency arbitrators or recourse to courts.
Sample Arbitration Clause (SIAC Style)
“Any dispute, controversy or claim arising out of or relating to this contract, including the breach, termination or invalidity thereof, shall be referred to and finally resolved by arbitration administered by the Singapore International Arbitration Centre (SIAC) in accordance with the SIAC Arbitration Rules for the time being in force. The seat of arbitration shall be Singapore. The language of arbitration shall be English.”
Conclusion
A well-drafted arbitration agreement is not just a procedural formality — it’s the gateway to efficient, enforceable, and internationally respected dispute resolution. With the increasing globalization of commerce, legal advisors and businesses must pay meticulous attention to cross-border arbitration clauses to avoid costly pitfalls.
At Narendra Madhu Associates, we assist clients in drafting, reviewing, and enforcing arbitration agreements for international transactions, ensuring compliance with global standards and Indian legal frameworks.
