A business contract does not become invalid merely because it has no dispute-resolution clause. If a dispute later arises, the parties may have no pre-agreed route for deciding where, how and before whom the dispute should be resolved.

In India, that can mean a civil or commercial court must determine the dispute under the ordinary jurisdictional rules, unless a special statute provides another remedy. And if the contract contains a badly drafted “arbitration” clause, the parties may first have to litigate over whether they ever validly agreed to arbitrate.

Does a Contract Need a Dispute-Resolution Clause to Be Legally Valid?

No. A dispute-resolution clause is generally not an essential condition for the validity of an ordinary commercial contract.

Section 10 of the Indian Contract Act, 1872 broadly provides that agreements become contracts when they satisfy requirements such as free consent, competency of parties, lawful consideration and lawful object and are not otherwise declared void. The absence of an arbitration or dispute-resolution clause does not, by itself, invalidate the underlying agreement.

The official Indian Contract Act can be accessed through India Code. Indian Contract Act, 1872 — India Code

The problem is therefore usually not whether the contract exists. The problem is what happens when the commercial relationship breaks down.

Advocate’s practical experience

In practice, a dispute-resolution clause may not seem important when the parties are signing a contract and everything is going smoothly. It becomes important when something goes wrong. If the contract does not clearly say how and where a dispute should be resolved, the parties may end up spending time and money arguing about the process before they even get to the actual dispute.

For this reason, it is better to decide the dispute-resolution mechanism while drafting the contract itself. The clause should clearly set out what the parties should do if the commercial relationship breaks down.

What Happens If There Is No Arbitration Clause?

If there is no valid arbitration agreement, one party ordinarily cannot force the other into private arbitration simply because arbitration would now be more convenient.

Section 7 of the Arbitration and Conciliation Act, 1996 requires an arbitration agreement to be in writing and to reflect an agreement to submit specified disputes to arbitration.

The official legislation is available here: Arbitration and Conciliation Act, 1996 — India Code

If no such agreement exists, the dispute may have to proceed before the competent civil or commercial court, or before a statutory forum where a special law applies.

The parties can still agree to arbitration after the contract has been signed or even after a dispute has arisen. Section 7 permits an arbitration agreement to exist separately from the principal contract. But both sides must actually agree to it in a legally recognised written form.

If one party wants arbitration and the other refuses, the absence of a pre-existing valid arbitration agreement can become decisive.

What If the Contract Mentions Arbitration but the Clause Is Badly Drafted?

Merely using the word “arbitration” is not always enough.

This issue became especially important in the Supreme Court’s decision in Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd., 2026 INSC 384, decided on 17 April 2026.

The contract stated that disputes “can be settled by arbitration.” The Supreme Court held that this wording indicated a possibility of arbitration rather than a present binding obligation to arbitrate. Further agreement between the parties would therefore have been required.

The judgment is particularly relevant to businesses using clauses such as:

“Parties can refer the dispute to arbitration.”

“Disputes may be referred to arbitration if mutually agreed.”

“Parties shall consider arbitration.”

Such language can create a serious problem if it merely leaves arbitration for future agreement instead of creating a binding commitment now.

The Supreme Court has long emphasised this principle. In Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, the Court explained that where arbitration depends upon the parties agreeing again after the dispute arises, the clause may not amount to a binding arbitration agreement. The 2026 Nagreeka judgment reaffirmed that approach.

In practice, an arbitration clause should not leave the parties with another negotiation to do after a dispute has already arisen. By that stage, the relationship may already be strained, and agreeing on arbitration may become difficult.

The clause should therefore clearly state that disputes shall be referred to and finally resolved by arbitration if arbitration is the chosen mechanism. It should also address the basic procedural points, such as the seat of arbitration, number of arbitrators, appointment mechanism and applicable rules, so that there is less scope for disagreement later.

Where Can a Business File the Case If the Contract Says Nothing About Jurisdiction?

If the contract contains no effective forum-selection clause, jurisdiction is determined by the applicable law rather than by commercial convenience.

For many ordinary civil disputes, Section 20 of the Code of Civil Procedure, 1908 is relevant. Broadly, proceedings may be maintainable where the defendant resides or carries on business, or where the cause of action wholly or partly arose, subject to the nature of the proceeding and other applicable jurisdictional rules.

This can create uncertainty where, for example, the supplier operates from Delhi, the purchaser is based in Mumbai, the goods were manufactured in Haryana and delivery took place in Bengaluru.

A properly drafted jurisdiction or arbitration clause can reduce that uncertainty. It cannot, however, simply give jurisdiction to a court that would otherwise have no legal jurisdiction over the dispute.

What If the Dispute Qualifies as a Commercial Dispute?

Many business-to-business contractual disputes involving the supply of goods, services, partnership arrangements, commercial documents and similar transactions fall within the Commercial Courts Act, 2015, provided the statutory requirements are satisfied.

The Act currently defines “Specified Value” with a statutory floor of ₹3 lakh, subject to any higher value validly notified.

Another important point is Section 12A. Where a commercial suit does not contemplate urgent interim relief, the plaintiff must ordinarily exhaust pre-institution mediation before instituting the suit.

In Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd., decided on 17 August 2022, the Supreme Court held that Section 12A is mandatory.

Official text: Commercial Courts Act, 2015 — India Code

So the absence of a contractual mediation clause does not necessarily mean mediation can always be skipped.

Does Every Defective Arbitration Clause Become Invalid?

No. This distinction is important.

A clause does not necessarily fail simply because it does not specify every procedural detail. If there is a clear and binding agreement to arbitrate, the Arbitration and Conciliation Act can supply mechanisms for matters such as appointment of arbitrators and determination of the place of arbitration in appropriate circumstances.

The more serious defect is a clause that fails to demonstrate a clear agreement to submit disputes to arbitration at all.

Businesses should therefore distinguish between an incomplete arbitration procedure and the absence of a valid arbitration agreement.

What Should a Proper Business Dispute-Resolution Clause Cover?

A commercially sensible clause should ordinarily be reviewed for:

• a clear statement whether unresolved disputes shall be referred to arbitration or courts;
• the scope of disputes covered;
• any negotiation or mediation stage and a definite time limit for it;
• the seat and, where appropriate, venue of arbitration;
• the number and method of appointment of arbitrators;
• the applicable arbitration rules or institutional mechanism, if any;
• governing law;
• court jurisdiction for matters requiring judicial intervention; and
• whether statutory remedies, including applicable MSME remedies, require separate treatment.

The clause should be drafted for the actual transaction rather than copied blindly from another contract.

For a broader agreement-review checklist, see 10 Contract Clauses Every MSME Should Review Before Supplying Goods. Read the contract clause checklist

The best dispute-resolution clause is not necessarily the longest one. It is the one that leaves as little room as possible for the parties to argue about the process when a dispute arises.

Before finalising the clause, we recommend checking whether the proposed mechanism actually works for the transaction. For example, arbitration may be suitable for a high-value commercial agreement, while a simpler court-jurisdiction clause may be sufficient for a straightforward transaction. If negotiation or mediation is included as a first step, the clause should also make clear how long that process can continue before either party can move to the next stage.

The important point is to decide the process at the time of contracting, rather than leaving important questions to be settled after the dispute has already arisen.

What About MSME Suppliers?

This is an important exception to the idea that the contract alone decides the dispute forum.

For qualifying Micro and Small Enterprise disputes falling within the MSMED Act, 2006, Section 18 creates a statutory dispute-resolution mechanism through the Micro and Small Enterprises Facilitation Council.

The Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., (2023) 6 SCC 401 held that the relevant Chapter V provisions of the MSMED Act can override an independent contractual arbitration arrangement for qualifying disputes. The Court has subsequently reiterated that principle.

Therefore, before assuming that “there is no arbitration clause, so we must file a civil suit,” a business should check whether a special statutory remedy applies.

For more on interstate MSME claims, see Can an MSME File a Claim Against a Buyer Located in Another State? Read the interstate MSME claim guide

For recovery strategy more generally, see What’s the Fastest Legal Way to Recover Unpaid Dues From a Buyer Without Going to Court? Read the unpaid-dues recovery guide

Can the Parties Fix the Problem After Signing the Contract?

Yes, in many situations.

If both businesses are still cooperating, they can execute an addendum containing a properly drafted dispute-resolution provision. They may also enter into a separate written arbitration agreement.

Even after a dispute starts, the parties can agree to mediation, arbitration or another lawful settlement process.

What one party generally cannot do is retrospectively impose arbitration on the other when no binding arbitration agreement existed in the first place.

Frequently Asked Questions

Is a contract invalid if it has no arbitration clause?

No. The absence of an arbitration clause does not ordinarily invalidate an otherwise valid contract.

Can I force the other business into arbitration if our contract has no arbitration clause?

Normally no, unless another binding arbitration agreement or applicable statutory mechanism exists.

Is writing “disputes can be settled by arbitration” enough?

Not necessarily. In Nagreeka Indcon v. Cargocare Logistics, 2026 INSC 384, the Supreme Court held that this particular wording did not create a binding obligation to arbitrate.

Can businesses add an arbitration clause after signing?

Yes. They may execute an addendum or separate written arbitration agreement if both sides consent.

Does an arbitration clause need to specify every procedural detail?

No. Missing procedural details do not automatically destroy an otherwise valid arbitration agreement. The key requirement is a clear binding agreement to arbitrate.

What happens when there is no jurisdiction clause?

The competent forum is determined under applicable jurisdictional law, including rules relating to the defendant, cause of action, pecuniary jurisdiction and any special statute governing the dispute.

Can an MSME still approach the MSEFC if its contract has no arbitration clause?

A qualifying Micro or Small Enterprise may have statutory rights under Section 18 of the MSMED Act where the statutory conditions are satisfied. The availability of that remedy must be assessed separately from an ordinary contractual arbitration clause.

The Practical Takeaway

A missing dispute-resolution clause rarely destroys the contract itself. What it can destroy is certainty.

Businesses may end up arguing about jurisdiction before they even reach the real dispute. A poorly drafted arbitration clause can be even more problematic because time and money may first be spent determining whether arbitration was validly agreed at all.

The safest approach is to review dispute-resolution provisions before signing, particularly where the contract involves high-value supplies, parties in different States, long payment cycles or significant continuing obligations.

If the agreement has already been signed, review the clause before invoking arbitration, sending a jurisdiction-specific legal notice or commencing proceedings. Choosing the wrong forum can add an avoidable preliminary dispute to an already difficult commercial problem.