Arbitration Clauses in Cross-Border Supply Agreements: Drafting for Certainty in International Commercial Transactions
Introduction : A common occurrence for businesses engaged in trade internationally is to have supply contracts with manufacturers, distributors and purchasers from other countries. This can provide businesses with numerous opportunities to grow, however problems will often occur such as late delivery, poor quality items, non-payment, failure to comply with contractual obligations and cancellation of contracts. This can become complicated when both parties are subject to different legal systems. International commercial arbitration allows businesses to settle any disputes outside of using the courts of either party. When using arbitration the parties can choose a neutral location, what procedures will be followed and the language to be used. The New York Convention, 1958 provides a significant framework for enforcement and recognition of foreign awards.
However, there may be difficulties in enforcing an arbitration agreement. Ambiguities in an arbitration clause may lead to disputes about the place of arbitration, governing law, appointments of arbitrators and interim relief. This can add to the costs incurred during litigation. Careful attention must therefore be given when drafting arbitration clauses under cross border supply agreements. The parties must clearly set out where the arbitration will take place, what law will govern the arbitration, the language of the arbitration and whether interim relief will be available. This blog provides an overview of the Indian legal framework, key cases and practical considerations to reduce uncertainty in international supply agreements.
Legal Provisions
1. Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 is the primary law governing arbitration in India. Section 2(1) (f) defines international commercial arbitration. It includes any arbitration wherein the legal relationship is of a commercial nature and the parties are nationals of different countries. Any arbitration agreement must be in writing (Section - 7). The arbitration agreement can be part of the main commercial agreement or a separate agreement.
Section - 9 provides interim relief from the court whilst Section - 17 provides for interim relief from the arbitral tribunal. Section - 20 provides for agreement between the parties as to where the arbitration will take place. Section - 22 provides for agreement between the parties as to what language the arbitration should be conducted in. Section - 28 looks at the rules that apply to the substantive issues. These are important points to consider when including an arbitration clause.
2. New York Convention, 1958
One of the most important international agreements concerning commercial arbitration is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention). This requires contracting states to recognise written arbitration agreements and provides a mechanism for enforcing foreign arbitral awards, whilst providing specific exceptions to such enforcement.
This Convention is especially relevant when dealing with supply agreements across borders. If the winning party wishes to enforce their award, they will often have to do so in a different jurisdiction to that where the arbitration took place. Businesses should therefore look at whether the asset holding countries are part of the Convention and if the award can be enforced in accordance with the relevant national law.
3. UNCITRAL Model Law on International Commercial Arbitration
The UNCITRAL Model Law on International Commercial Arbitration, 1985, as amended in 2006, provides an internationally recognised framework for arbitration legislation. It deals with the composition of arbitral tribunals, jurisdiction, procedural fairness, interim measures and recognition of arbitration agreements.
Articles - 17 to 17J deal with interim measures and their recognition and enforcement, while Article - 20 addresses the place of arbitration and Article - 22 concerns the language of proceedings. The Model Law assists countries in developing consistent arbitration legislation and provides useful guidance when drafting international arbitration clauses.
4. Institutional Arbitration Rules
Businesses may choose institutional arbitration or ad hoc arbitration depending on the nature and requirements of their transaction. Institutional arbitration is administered by an established arbitral institution under its procedural rules.
The International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC) and London Court of International Arbitration (LCIA) are commonly used institutions in international commercial disputes. Their rules provide procedures for appointing arbitrators, conducting proceedings and dealing with certain urgent applications.
For example, the SIAC Rules, 7th Edition, 2025, provide an emergency arbitrator procedure through which a party may seek urgent interim or conservatory relief before the constitution of the full arbitral tribunal.
Legal Analysis
1. Choosing the Seat of Arbitration
The seat of arbitration is one of the most important elements of an international arbitration clause. It refers to the legal home of the arbitration and determines the national arbitration law applicable to the proceedings, commonly known as the lex arbitri. It also identifies the courts that exercise supervisory jurisdiction over the arbitration.
The seat must be distinguished from the venue of arbitration. The seat determines the legal framework, whereas the venue generally refers to the physical location where hearings are conducted. For example, parties may choose Singapore as the seat of arbitration while conducting hearings in Bengaluru or through virtual proceedings. The hearing location does not automatically change the juridical seat.
Businesses should avoid vague expressions such as arbitration being conducted at a mutually convenient place. Instead, the clause should expressly identify the city and country selected as the seat. Factors such as neutrality, arbitration legislation, judicial support and enforcement considerations should be taken into account.
2. Determining the Governing Law
One key consideration to include in any commercial agreement is what law will apply. If you are entering into a cross border supply agreement, there could be a buyer and supplier in different countries and goods being produced and supplied in another country. If the governing law is not clear there could be issues surrounding what obligations exist under the contract, how payment should be made, what warranties have been provided, what liabilities exist and how the contract can be terminated.
It is important to note the difference between the following:
Governing law - This determines the rights and obligations of the parties within the agreement.
Arbitration agreement governing law - This determines what constitutes a valid arbitration agreement, how it will be interpreted and what scope it has.
Procedural law - This will generally be determined by the law of the seat.
For example, if you have an Indian supplier and a German purchaser and they agree that the governing law of the supply agreement will be Indian law but have agreed that Singapore will be the arbitration seat then you should also explicitly consider what law will apply to the arbitration agreement. This will help to avoid any uncertainty.
To ensure that the law applying to the arbitration agreement is different to that of the main contract it is useful to have a specific clause about what law will apply to the arbitration agreement. The clause should be clearly worded to reflect the intention of the parties.
3. Selecting the Language of Arbitration
Language is an often ignored consideration when entering into an international supply agreement however can be a key factor in increasing costs and reducing efficiency of the arbitration process.
In many international commercial contracts the purchase orders, invoices, technical specifications, inspection reports and communications will be in different languages. If the arbitration clause does not specify what language the arbitration will be conducted in then there can be issues with the language of the written submissions, documentary evidence, arbitration hearings and translations.
The parties should clearly state the language of the arbitration process. English is often used in international commercial contracts due to its popularity in international trade. However, the language should be determined based on the commercial requirements of the parties.
The clause should also state if documents need to be translated from the other language and who will pay for the translation costs. This is important if technical evidence or manufacturing documents are involved in the dispute.
Under article - 22 of the UNCITRAL Model Law the parties may agree on what language(s) the arbitration will be conducted in. Section - 22 of the Indian Arbitration and Conciliation Act, 1996 addresses the language of the arbitration process.
4. Interim Relief and Emergency Arbitration
Interim relief is often required under international supply agreements. For instance, where there is an attempt by the supplier to dispose of the goods in dispute, an attempt by the purchaser to remove assets to prevent payment, or urgent examination and preservation of defective goods.
Under Indian law, Section 9 of the Arbitration and Conciliation Act, 1996 provides that the court can grant interim relief. This can include preservation of goods, freezing of the disputed sum, examination of property, interim injunctions and receivership. Section 17 provides that the arbitral tribunal can also grant interim relief in proceedings covered by the relevant provisions of Part I.
It is important to note that if the parties agree to appoint the arbitration to a foreign seat, it is possible that section 9 will still apply to an international commercial arbitration seated outside India (provided that all the statutory requirements are met including the award being enforceable and recognised under Part II and any agreement to the contrary). As a result, businesses cannot assume that all the provisions regarding an arbitration seated in India will apply to a foreign seated arbitration.
Some institutional rules will also provide for emergency arbitration. For example, under the SIAC Rules 2025, a party may request that an emergency arbitrator be appointed so that it can obtain urgent interim/conservatory relief whilst the full tribunal is not yet appointed. However, the availability and enforceability of such relief will depend on the applicable law.
The arbitration clause should provide that the parties have the right to request interim relief from appropriate courts and (if available) emergency arbitration. This should not be seen as renouncing the arbitration agreement.
5. Selecting an Appropriate Arbitration Institution
The choice of institutional or ad-hoc should be based on commercial considerations.
Institutional arbitration will provide administrative support, clear appointment processes and rules. Well known institutions like ICC and SIAC will provide a clear framework to resolve international commercial disputes.
Ad-hoc arbitration will provide flexibility but will require the parties to clearly set out their appointment processes and rules to prevent disputes.
Where the supply agreement contains high value, multiple deliveries or complex technical requirements institutional arbitration may provide a clearer dispute resolution process. The parties should clearly state the institution they wish to use along with the rules that will apply.
6. Case Law and Interpretation
The Supreme Court discussed the concept of lex loci arbitration in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc. It was recognised that the location of the arbitration is an important feature for the determination of supervisory jurisdiction, and that the law of the location of the arbitration was an important factor.
Enercon (India) Ltd v Enercon GmbH was heard by the Supreme Court who looked at the interpretation of an arbitration clause in international commercial circumstances. A pragmatic approach was taken to interpreting the clause to consider the intentions of the parties.
Mankastu Impex Pvt Ltd v Airvisual Ltd discusses the difference between the law governing the contract and the location of the arbitration. The Court stressed the importance of establishing what the intentions of the parties were by examining.
In the case of PASL Wind Solutions Pvt Ltd v GE Power Conversion India Pvt Ltd, the Supreme Court has acknowledged that Indian parties are free to choose a foreign seat of arbitration.
This decision also clarified the consequences of choosing a foreign seat and clarified the statutory framework relating to foreign awards.
This shows that having a well drafted arbitration clause will be key to ensuring that the court has jurisdiction and the correct law applies. This will give clarity on the rights of the parties involved. Businesses should ensure that their arbitration clauses are well drafted to reflect the overall commercial agreement.
Practical Implications
Businesses entering into cross-border supply agreements should involve their legal and commercial teams while drafting the dispute resolution provisions. The arbitration clause should be considered at the negotiation stage rather than added as a standard provision without examining the nature of the transaction.
Arbitration Clause Drafting Checklist
Dispute Resolution: What issues will be covered in arbitration? For example, payment, deliveries, faulty goods, breach and termination.
Seat of Arbitration: Clearly identify the jurisdiction.
Seat of Arbitration: The difference between seat and venue needs to be clearly identified.
Governing Law of Supply Agreement: Identify which law covers the main agreement.
Governing Law of Arbitration Agreement: Identify which law applies to the arbitration agreement.
Language of Arbitration: Identify the language of arbitration. Translation requirements.
Arbitral Institution and Rules: It is preferable to use an arbitral institution. Identify which institution and what rules will apply.
Number of Arbitrators: How many arbitrators will there be and how will they be appointed?
Interim Relief and Emergency Arbitration
Confidentiality Issues: Who pays and what costs are involved?
Enforceability of Awards: Are awards enforceable in the countries where the parties have assets?
Ensure the arbitration clause fits in with the rest of the contract.
Sample Arbitration Clause
The following is an example of a typical choice of arbitration clause: All disputes, controversies or differences arising from, relating to or in connection with this Agreement (including its formation, validity, interpretation, performance, breach and termination), shall be finally settled under the SIAC Rules in force at the date on which arbitration proceedings are commenced by arbitration administered by the Singapore International Arbitration Centre (SIAC).
Arbitration shall take place in Singapore. The arbitration shall be conducted by a sole arbitrator. The language of the arbitration shall be English. The Agreement shall be governed by and interpreted in accordance with Indian law. This arbitration clause shall be governed by the laws of Singapore. Interim or precautionary measures may be applied for by either party before the arbitral tribunal or emergency arbitrator or any competent court. Application for interim protection does not constitute a waiver of the parties’ agreement to resolve the issues by arbitration. The arbitral award shall be final and binding subject to the applicable law.
Conclusion
Arbitration clauses are an integral part of any international supply agreement and can provide a set structure for the resolution of disputes. However, it must be ensured that the rights and obligations are properly defined. International arbitration is governed by the Arbitration and Conciliation Act, 1996, New York Convention and UNCITRAL Model Law. The importance of defining the seat, governing law and jurisdiction of the courts are emphasised in various court decisions such as BALCO, Enercon, Mankastu Impex and PASL Wind Solutions.
Arbitration clauses should not be treated as a standard part of a contract and businesses should think extremely carefully about what they wish the arbitration to be held in, the governing law, language, institutional rules and interim relief. If properly drafted an arbitration clause can ensure less uncertainty, prevent procedural issues and protect business interests. Ultimately an effective arbitration clause will allow a business to have a clear, predictable and enforceable dispute resolution process to aid international business relations.
Author: Mohith Nandi in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney
Endnotes
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted 10 June 1958, entered into force 7 June 1959) arts II, III and V. UNCITRAL, New York Convention.
Arbitration and Conciliation Act 1996, ss 2(1)(f) and 7. India Code, Arbitration and Conciliation Act 1996.
Arbitration and Conciliation Act 1996, ss 9, 17, 20, 22 and 28. India Code, Arbitration and Conciliation Act 1996.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, arts II and III. UNCITRAL, Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
UNCITRAL Model Law on International Commercial Arbitration 1985 (as amended in 2006), arts 17–17J, 20 and 22. UNCITRAL, Model Law on International Commercial Arbitration.
International Chamber of Commerce, 2021 Arbitration Rules and institutional arbitration materials; Singapore International Arbitration Centre, SIAC Arbitration Rules; London Court of International Arbitration, LCIA Arbitration Rules 2020.
Singapore International Arbitration Centre, SIAC Rules (7th edn, 1 January 2025), r 12 and sch 1. SIAC Rules 2025 – Official Publication Information.
UNCITRAL Model Law on International Commercial Arbitration 1985 (as amended in 2006), art 22; Arbitration and Conciliation Act 1996, s 22. UNCITRAL Model Law; India Code, Arbitration and Conciliation Act 1996.
Arbitration and Conciliation Act 1996, ss 9 and 17. India Code, Arbitration and Conciliation Act 1996.
Arbitration and Conciliation Act 1996, s 2(2), proviso; Mankastu Impex Pvt Ltd v Airvisual Ltd (2020) 5 SCC 399, paras 19–22 and 26. India Code, Arbitration and Conciliation Act 1996; Mankastu Impex Pvt Ltd v Airvisual Ltd – Full Judgment.
Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552, paras 72–74, 99–100 and 198. BALCO – Supreme Court Judgment.
Enercon (India) Ltd v Enercon GmbH (2014) 5 SCC 1, paras 123–125. Enercon – Supreme Court Judgment.
Mankastu Impex Pvt Ltd v Airvisual Ltd (2020) 5 SCC 399, paras 19–22 and 26. Mankastu Impex – Supreme Court Judgment.
PASL Wind Solutions Pvt Ltd v GE Power Conversion India Pvt Ltd (2021) 7 SCC 1, paras 57–58 and 72. PASL Wind Solutions – Official Supreme Court Judgment.
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