By S&S Co. Advocates & Solicitors · Published 30 September 2026 · Informational content, not legal advice: see our disclaimer
Why Parties Draft Escalation Clauses
Commercial and infrastructure contracts increasingly include a multi-tier dispute resolution clause: an obligation to attempt direct negotiation between senior representatives, then mediation or conciliation, and only then arbitration if the earlier tiers fail to resolve the dispute. The idea is to filter out disputes capable of a quick commercial resolution before the parties commit to the cost and formality of arbitration. Whether that structure is actually enforceable, though, depends heavily on how it is worded.
Directory Versus Mandatory Language
Indian courts and tribunals generally treat a pre-arbitration step as directory, rather than a hard precondition to arbitration, unless the clause's language is unambiguous and genuinely mandatory. A clause stating the parties "may" attempt negotiation or mediation before arbitrating is unlikely to be read as barring a party that proceeds straight to arbitration. By contrast, a clause stating the parties "shall" first negotiate for a defined period, and only then may invoke arbitration, is far more likely to be treated as a condition precedent, meaning a notice invoking arbitration issued before that period runs its course risks being challenged as premature.
How Section 12A of the Commercial Courts Act Fits In
Separately from any contractual escalation clause, Section 12A of the Commercial Courts Act, 2015 mandates pre-institution mediation for commercial suits that do not seek urgent interim relief, before a plaint can even be filed in court. This statutory requirement operates independently of a contract's own multi-tier clause: a party suing in court on a commercial dispute must comply with Section 12A regardless of what the contract says about escalation, while a party instead proceeding to arbitration under the contract's arbitration clause must separately satisfy whatever contractual pre-arbitration steps that clause imposes. The two obligations should not be conflated, since completing one does not automatically satisfy the other.
The Risk of Skipping a Tier
A party that invokes arbitration without having gone through a genuinely mandatory earlier tier takes on real risk: the opposing side can argue the reference to arbitration is premature, and a tribunal or court may decline to proceed until the skipped step has actually been attempted. This risk is heightened where the clause specifies a concrete mechanism, such as a named negotiation committee or a defined number of days for mediation, since that level of detail is itself evidence the parties intended the step to be a genuine precondition rather than aspirational language.
Practical Drafting Lessons
A multi-tier clause works best when each tier has a clear trigger (such as a written notice of dispute), a defined and reasonably short timeline for that tier to run its course, and an explicit statement of what happens once that timeline expires without resolution, typically, an automatic right to proceed to the next tier regardless of whether the earlier tier was actually completed to either party's satisfaction. Clauses that leave the duration or completion of an earlier tier open-ended invite a reluctant party to stall indefinitely, which defeats the purpose of a structured escalation process.
Frequently Asked Questions
If a contract says parties 'shall' negotiate before arbitrating, can one side skip straight to arbitration?
Not safely. Mandatory language such as 'shall' makes the earlier tier a condition precedent in many courts' and tribunals' eyes, and a tribunal may find a notice invoking arbitration premature if that step was skipped.
Does Section 12A of the Commercial Courts Act replace a contractual pre-arbitration mediation clause?
No. Section 12A's pre-institution mediation applies to commercial suits filed in court and operates independently of any contractual escalation clause governing arbitration; a contract can require both, and a party should comply with each separately.
What happens if a party invokes arbitration without completing a mandatory negotiation tier?
A tribunal or court may treat the arbitration notice as premature and decline to proceed until the skipped tier is completed, though outcomes vary with how strictly the specific clause is worded and whether genuine attempts at the earlier tier were already made.
How should a multi-tier clause be drafted to avoid this risk?
Define each tier's trigger event, a hard timeline for it to run its course, and an explicit statement of what happens if it is not completed within that time, so neither party can indefinitely stall the move to arbitration by refusing to engage.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- The Commercial Courts Act, 2015, Section 12A (Pre-institution mediation and settlement).
- The Arbitration and Conciliation Act, 1996, as applicable to the interpretation and enforcement of contractual arbitration clauses, including multi-tier dispute resolution provisions.