3 Strategic Mistakes in India

Whenever I interview a legal candidate, I ask one simple question:

“When would you advise a client not to include an arbitration clause?”

Most struggle. They have been trained to treat arbitration as the gold standard of commercial dispute resolution – faster, cleaner, more sophisticated than courts. But in the Indian market, blindly copy-pasting an arbitration clause can be a self-inflicted wound.

Arbitration is a premium product. You pay for the judge. You pay for the room. You even pay for the coffee.

So if there’s a free, high-pressure government hammer already available, why would you pay for the privilege of litigating?

Here are 3 (three) situations where arbitration is often the wrong choice.

Arbitration is a private, paid mechanism. If the government provides a statutory tribunal or specialised fast-track forum, arbitration often becomes more expensive, slower, or even legally irrelevant.

Under the Micro, Small and Medium Enterprises Development Act, 2006, disputes can be taken to the Micro and Small Enterprises Facilitation Council (MSEFC) through the MSME Samadhaan Portal.

And here’s the strategic twist:

If a buyer wants to challenge an MSME award, they must deposit 75% of the award amount in court first, as per the Section 19 of the MSME Act. That single rule changes negotiation dynamics overnight.

I once saw a mid-sized supplier trapped in a two-year arbitration against a massive conglomerate. The contract had a standard Singapore International Arbitration Centre-style clause.

The conglomerate lost the arbitration but simply appealed the award in the High Court and stretched the fight for another 3 (three) years without paying a rupee.

Had the supplier invoked the MSME mechanism instead, the buyer would have had to deposit 75% upfront just to challenge the award.

And MSME isn’t the only statutory pressure tool available.

Other powerful alternatives include:

• Insolvency and Bankruptcy Code proceedings before the National Company Law Tribunal (NCLT) — If the goal is to recover a debt above ₹1 crore, the threat of insolvency often forces settlement faster than arbitration.

• SEBI SCORES Platform — Highly effective for disputes involving listed companies or intermediaries.

• RBI Integrated Ombudsman Scheme — For banking and digital payment disputes.

• Centralised Public Grievance Redress and Monitoring System (CPGRAMS) — Often the first step in disputes involving government service delivery.

When these forums exist, arbitration becomes redundant—or strategically inferior.

Indian law recognises that some disputes affect public rights (“rights in rem”), not just private contracts.

These are non-arbitrable, meaning arbitration clauses may be ineffective.

• Criminal & Fraud Allegations – Serious allegations involving fraud, criminal breach of trust, or public wrongdoing must go through the criminal justice system. Arbitration cannot replace the courts here.

In the case of Emaar MGF Land Ltd v. Aftab Singh, the Hon’ble Supreme Court of India held that consumer remedies remain available despite arbitration clauses.

I recently reviewed a vendor contract for a growing startup. The deal sizes were around INR 2–3 Lakhs each. The previous lawyer (likely using a template for a multi-billion dollar MNC) had inserted a “Three-Arbitrator Panel” clause.

• The Claim: INR 3,00,000/- (Unpaid invoice).

• The Reality: Between the Arbitrators’ fees (per sitting), booking a conference room in a South Delhi or Bangalore luxury hotel, and stenography charges, the startup would hit INR 4,00,000/- in expenses before the final arguments were even heard.

By blindly following “standard” advice, the startup had made their own contracts unenforceable. No sane founder will spend INR 4 Lakhs to recover INR 3 Lakhs.

For small-ticket Indian business, stay away from private arbitration. Use Commercial Courts or Online Dispute Resolution (ODR). Or better yet, leverage Summary Suits (Order 37). You want a system where the government pays for the judge’s electricity, not you.

I’m not anti-arbitration. I’m pro-strategy. I use it when:

1. It’s Confidential: If a public court filing about a failed M&A will tank our stock price, we go private.

2. It’s Technical: If the judge needs to understand “Sub-micron Lithography” to decide the case, I’ll hire an expert arbitrator.

3. It’s International: I’d rather trust a neutral seat like Singapore (SIAC) than navigate a local court in a country where I don’t know the language or the landscape.

Stop treating the dispute resolution clause as boilerplate.

It’s your exit strategy.

The next time someone hands you a contract draft, ask a simple question:

“If they stop paying tomorrow, does this clause help me get my money faster… or does it just give us a very expensive place to argue?”