Arbitration Clause Mistakes That Can Cost You Big – And How To Fix Them Fast

Introduction: One Bad Clause Can Blow Up Your Entire Arbitration

You’d think including an arbitration clause in your contract would simplify things, right? After all, arbitration is meant to be quicker, more private, and less expensive than dragging a dispute through the courts.

But here’s the twist — an arbitration clause that’s unclear, contradictory, or just poorly written can have the opposite effect. It can trigger confusion, delay the process, increase legal costs, or worse, make the entire clause unenforceable. That’s when things spiral and you’re stuck in court despite having planned for arbitration.

Let’s break down the 10 biggest arbitration clause mistakes that people commonly make — and more importantly, how you can fix each one with solid, enforceable language.

Mistake 1: Not Specifying the Seat and Venue of Arbitration

Why It Matters

People often confuse the seat and venue of arbitration — but in legal terms, they are not the same. The seatdetermines which court has supervisory powers and which country’s arbitration law applies. The venue is where the hearings physically take place. You must define both clearly to avoid jurisdictional confusion.

Common Mistake

“Arbitration may be held in Delhi or Mumbai.”

This clause creates chaos. Which city governs the arbitration? Which court handles challenges? No one knows.

How to Fix It

“The seat and venue of arbitration shall be New Delhi, India.”

This clears up any ambiguity. New Delhi’s laws apply, and hearings happen there. Done and dusted.

Mistake 2: Using Wishy-Washy Language Like ‘May’ or ‘Subject to Agreement’

Why It Matters

Your arbitration clause must be mandatory, not optional. Words like “may” or “subject to mutual consent” give an easy excuse to avoid arbitration and go straight to court. If it’s not binding, it’s not enforceable — period.

Common Mistake

“The parties may mutually agree to refer disputes to arbitration.”

This means arbitration is optional. Not enforceable in most courts.

How to Fix It

“All disputes arising out of or in connection with this agreement shall be referred to arbitration.”

That’s firm, binding language. Courts will uphold it. Arbitration becomes the default path to resolve disputes.

Mistake 3: Conflicting Jurisdiction and Arbitration Provisions

Why It Matters

Including a line like “courts in Delhi shall have exclusive jurisdiction” in an arbitration agreement without context undermines arbitration entirely. It’s contradictory — are you going to court or arbitration?

Common Mistake

“All disputes shall be settled by arbitration. The courts of Delhi shall have exclusive jurisdiction.”

This contradicts itself. Courts might interpret this to mean litigation is preferred.

How to Fix It

“Subject to arbitration, the courts at Delhi shall have exclusive jurisdiction only for interim measures and enforcement under the Arbitration and Conciliation Act, 1996.”

Now it’s clear — arbitration first, court only for specific legal support.

Mistake 4: Not Naming a Clear Appointing Authority

Why It Matters

Who picks the arbitrator? If you don’t make that clear — or if you name someone who might be unavailable (like a retired director) — your arbitration might never begin. Delays, deadlocks, and frustration will follow.

Common Mistake

“The arbitrator shall be appointed by the Managing Director of XYZ Ltd.”

What if the MD is no longer there? Or refuses to act? You’re stuck.

How to Fix It

“If the parties fail to appoint a sole arbitrator within 30 days, the arbitrator shall be appointed in accordance with the rules of the Delhi International Arbitration Centre (DIAC).”

Now you have a fallback mechanism. If the parties can’t agree, the institution steps in.

Mistake 5: Ignoring Protections Under the MSMED Act, 2006

Why It Matters

If one party is a registered Micro or Small Enterprise (MSE), the MSMED Act requires that disputes go to the Facilitation Council before arbitration. Ignoring this law makes your private arbitration clause unenforceable.

Common Mistake

“All disputes to be referred to private arbitration only.”

If the MSMED Act applies, this clause is worthless.

How to Fix It

“This arbitration clause shall not override the statutory remedies under the MSMED Act, 2006. Disputes within the scope of the Act shall be referred to the MSE Facilitation Council.”

This shows you know the law and comply with it. That’s what courts want to see.

Mistake 6: Mixing Up Ad Hoc and Institutional Arbitration

Why It Matters

There are two kinds of arbitration:

• Ad hoc arbitration — governed solely by the Arbitration Act. No institution involved.
• Institutional arbitration — follows rules of an arbitration body like ICC, DIAC, SIAC.

Combining both is like saying, “I’ll drive and take a taxi at the same time.” It just doesn’t work.

Common Mistake

“Disputes shall be resolved under the Arbitration Act in accordance with the ICC Rules.”

This mixes two incompatible systems. The result? Confusion and delay.

How to Fix It

For Institutional Arbitration:

“Disputes shall be resolved by arbitration administered by the Delhi International Arbitration Centre (DIAC) in accordance with its rules.”

For Ad Hoc Arbitration:

“Disputes shall be resolved by a sole arbitrator appointed in accordance with the Arbitration and Conciliation Act, 1996.”

Pick one path — and stick to it.

Mistake 7: Not Mentioning the Number of Arbitrators or Language of Arbitration

Why It Matters

Imagine agreeing to arbitrate and then fighting over whether one or three arbitrators are needed. Or arguing about whether proceedings happen in English or Hindi. These are real roadblocks that delay your resolution.

Common Mistake

“Disputes shall be resolved by arbitration.”

That’s too vague.

How to Fix It

“The arbitration shall be conducted by a sole arbitrator, and the language of the arbitration shall be English.”

This removes two potential points of conflict right at the start.

Mistake 8: Forgetting to Include a Survival Clause

Why It Matters

What if the contract ends or gets terminated? Does the arbitration clause survive? If you don’t say it does, some parties might argue that arbitration no longer applies.

Common Mistake

No clause at all.

How to Fix It

“This arbitration clause shall survive the termination, rescission, or expiry of this Agreement.”

One line — that’s all it takes to keep your clause enforceable post-termination.

Mistake 9: Trying to Arbitrate Disputes That Aren’t Arbitrable

Why It Matters

You can’t arbitrate criminal cases, family disputes, insolvency, or trust matters under Indian law. Including them in your arbitration clause could invalidate the whole agreement.

Common Mistake

“All disputes, including criminal and statutory matters, shall be arbitrated.”

This will get tossed out by the court.

How to Fix It

“Only disputes that are capable of resolution by arbitration under Indian law shall be referred to arbitration.”

Simple. Respect the law and protect your contract.

Mistake 10: Not Allowing for Interim or Emergency Relief

Why It Matters

Sometimes, you need a court’s help to stop harm before arbitration finishes. That’s where Section 9 and Section 17 of the Arbitration Act come in. If your clause is silent, your options might be limited.

Common Mistake

“All disputes shall be settled by arbitration.”

Too generic. Doesn’t empower either the tribunal or courts for urgent action.

How to Fix It

“The arbitral tribunal shall have the power to grant interim relief under Section 17. Parties may also approach competent courts under Section 9 for interim relief before or during arbitration.”

Now you’ve covered all bases.

The Ultimate Arbitration Clause (Model Format)

“All disputes arising out of or in connection with this Agreement shall be finally resolved by arbitration in accordance with the Arbitration and Conciliation Act, 1996, as amended from time to time. The arbitration shall be conducted by a sole arbitrator mutually appointed by the Parties. In the event the Parties fail to appoint the arbitrator within 30 days, the arbitrator shall be appointed in accordance with the rules of the Delhi International Arbitration Centre (DIAC). The seat and venue of arbitration shall be New Delhi, India. The language of arbitration shall be English. The arbitral tribunal shall have the power to grant interim relief. Parties may also approach courts under Section 9 of the Act. This clause shall survive the termination, rescission, or expiry of this Agreement. Disputes not arbitrable under Indian law are excluded. This clause shall not override statutory remedies under the MSMED Act, 2006. Subject to the above, the courts at New Delhi shall have exclusive jurisdiction for interim relief and enforcement.”

Don’t Let One Clause Cost You Lakhs

Your arbitration clause is not just a formality. It’s the blueprint for how you’ll resolve serious disputes if things go south. A poorly drafted clause can delay justice, increase costs, or land you in court instead of arbitration.

The good news? Each of these common mistakes has a clear, easy fix. Take the time to get it right — and you’ll save yourself time, money, and a lot of legal headaches.