Multi-Tier Arbitration Clauses: Directory Or Mandatory?

After the recent amendments in the Arbitration and Conciliation Act, 1996, inter alia, regarding fixation of time period within which a dispute must be adjudicated upon, more and more parties are flocking towards arbitration. Arbitration Clauses form part of almost all commercial contractual transactions. Often, these clauses provide for a pre-arbitration step called the process of amicable resolution to trigger the arbitration which are known as Multi-tier dispute resolution clauses.

Multi-tier dispute resolution clauses are also known as escalation clauses or filter clauses. They provide a forum for alternative resolution of disputes at each stage which otherwise finally escalates to arbitration. The inclusion of such clauses in commercial transactions is premised on the necessity to look for amicable modes of dispute resolution. These clauses generally contain pre-conditions of mediation and/or conciliation and/or negotiation before referring the disputes to