Sudharsan Suresh, Founding Partner – Dispute Resolution, Trust Law Advocates & Solicitors
Arbitration clauses are usually settled late in a negotiation, often by copying the clause from the last deal. When a dispute arises years later, the parties discover what the clause actually says – and, too often, that it says less than they assumed.
The Supreme Court’s decisions in 2026 show how expensive that discovery can be. In two rulings this year, the Court has turned the outcome of a dispute on the precise words the parties used: whether a city was named as the seat or only as the venue, and whether the parties agreed that disputes shall or only can go to arbitration. In both cases, the Court gave effect to exactly what the parties had agreed, and no more.
This article looks at what those decisions decided, how they fit with the Court’s wider approach to arbitration this year, and what every clause should now contain.
Seat versus venue: J&K Economic Reconstruction Agency v. Rash Builders
The dispute arose out of four road projects in Jammu and Kashmir. During the arbitration, the tribunal recorded, with the consent of both sides, that Srinagar would be the seat and New Delhi the venue. Hearings took place in New Delhi, and the award was delivered there and described New Delhi as the place of arbitration.
When the employer challenged the award before the High Court of Jammu & Kashmir and Ladakh under the Jammu and Kashmir Arbitration and Conciliation Act, 1997, the High Court returned the petition, holding that because the proceedings had been conducted and the award rendered in New Delhi, only the New Delhi courts had jurisdiction.
The Supreme Court reversed that view in J&K Economic Reconstruction Agency v. Rash Builders India Pvt. Ltd. (2026 INSC 368). Building on BALCO, Enercon, Indus Mobile and BGS SGS SOMA, it restated the principles:
- The seat is the legal home of the arbitration. It fixes the curial law and the court that supervises the arbitration, including any challenge to the award.
- Designating a seat operates like an exclusive jurisdiction clause in favour of the courts of that place.
- The venue is only a place chosen for convenience – for hearings, meetings or evidence – and confers no jurisdiction.
- Where hearings are held, or where the award is signed or delivered, does not change the seat. The seat can be changed only by an express agreement of the parties, and a passing reference in the award is not such an agreement.
The Srinagar courts alone therefore had jurisdiction, and the challenge was restored before the High Court.
The practical lesson is that the seat is a jurisdictional choice and should be made deliberately. It is especially important in infrastructure and construction contracts, where the project is in one State and the hearings are often held in another city for convenience.
Option or obligation: Nagreeka Indcon and the word “can”
The second case concerned an exporter of aluminium foil containers that engaged a logistics company to ship goods to the United States. On one shipment, the logistics company released the goods to the buyer without payment or the required documents. The exporter sought arbitration under the shipping document, which provided that disputes “can be settled by arbitration”. The logistics company refused, saying the clause made arbitration optional.
In Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. (2026 INSC 384), decided on 17 April 2026, the Supreme Court agreed with the logistics company.
Section 7 of the Arbitration and Conciliation Act, 1996 requires an agreement to submit disputes to arbitration. Following K.K. Modi v. K.N. Modi and Jagdish Chander v. Ramesh Chander, the Court held that a clause stating that disputes can be referred to arbitration records only a possibility. It leaves arbitration as one available route, which needs a fresh agreement once the dispute arises. Since the logistics company declined to agree, there was no arbitration agreement to enforce.
The exporter relied on Enercon, where the Court had upheld an imperfect clause. The Court distinguished it: in Enercon, both parties had clearly chosen arbitration and the defect lay in the appointment mechanism; here the question was whether there was a binding choice at all. The Court also did not accept the argument, drawn from the Delhi High Court’s decision in Panasonic India v. Shah Aircon, that “can” should be read as mandatory.
The drafting lesson is direct. A clause meant to bind must say that disputes shall be referred to and finally resolved by arbitration. Softer words may read well in a negotiation, but they leave a party exposed to litigation if the other side refuses to arbitrate.
The wider pattern in 2026
These two decisions sit within a consistent approach. The Court has been firm about the limits of court intervention once a valid arbitration is under way, and equally firm that it will not create an arbitration the parties did not clearly agree to.
In Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust (2026 INSC 34), the Court set aside a Division Bench judgment under Section 37 that had interfered with an award, and restored the award on the claim in question. It reiterated that courts hearing challenges under Sections 34 and 37 may not reassess the merits or substitute their own reading of the contract for the tribunal’s. In Bhagheeratha Engineering Ltd. v. State of Kerala (2026 INSC 4), it held that the purpose of Section 21 is only to mark the commencement of arbitral proceedings.
The legislative picture has not moved at the same pace. The draft Arbitration and Conciliation (Amendment) Bill, released for consultation in October 2024 with proposals on institutional arbitration, timelines, emergency arbitrators and an appellate arbitral tribunal, had not been introduced in Parliament as of mid-2026. In July 2026, the Chief Justice of India noted publicly that the Arbitration Council of India, provided for by the 2019 amendments, has still not been constituted.
For parties, this means the clause itself has to do the work. With the statute unchanged, the courts are reading clauses closely and applying them as written.
A drafting checklist
Every arbitration clause in a contract governed by Indian law should now be checked against the following:
- Mandatory language. Use “shall be referred to and finally resolved by arbitration”. Avoid “can”, “may”, “may if they so desire”, and any wording that requires the parties to agree again once a dispute arises.
- Seat. Name the seat expressly, using the word “seat”. Choose it for its courts, not for convenience of travel.
- Venue. If hearings may be held elsewhere, say that the venue is chosen for convenience only and does not change the seat.
- Changing the seat. State that the seat may be changed only by a written agreement signed by both parties, so that procedural orders or recitals in the award cannot be argued to have moved it.
- Exclusive jurisdiction. Align any exclusive jurisdiction clause elsewhere in the contract with the seat, so the two do not point to different courts.
- Institution or ad hoc. If an institution is chosen, name it and its rules correctly. If the arbitration is ad hoc, set out the number of arbitrators and an appointment procedure that does not give one party a unilateral right to appoint.
- Scope. Cover disputes “arising out of or in connection with” the contract, including its existence, validity and termination.
- Pre-arbitration steps. If negotiation or mediation must come first, give it a fixed period, after which either party may commence arbitration by notice under Section 21.
- Related contracts. In multi-contract transactions, use consistent clauses across all documents, so that a dispute is not split between forums.
When did you last review your standard clause? The 2026 decisions make clear that the Supreme Court will hold parties to the words they chose. A short review of existing templates now is far cheaper than a jurisdictional fight later.
This article is for general information only and does not constitute legal advice. Readers should seek specific advice on their own facts.