Author- K R Subramanian | CORD Arbitrator
Non-Banking Financial Companies (NBFCs) handle a vast volume of small to mid-value transactions, ranging from consumer loans like Personal or Gold Loans or Credit Cards to SME financing and Asset Financing like Car/ Commercial Vehicles, Construction Equipment Loans etc. Inevitably, disputes arise—often over repayment schedules, service quality, or contractual obligations. Traditional litigation, however, is ill-suited for these matters. With over 5 crore cases pending across Indian courts, routing such disputes into the judicial system only adds to the backlog and delays resolution for years.
When drafting dispute resolution clauses for such matters, several considerations come to the fore. Cost efficiency is paramount, since the expense of litigation can easily exceed the claim itself. Speed is equally critical, as NBFCs depend on quick resolution to maintain liquidity and customer trust. A few missteps can result in Asset -Liability mismatch, a loan being an asset and a Fixed Deposit or Bank borrowing being a Liability for them. With RBI and its conservative policies steering the financial landscape, India has had a fairly stable financial sector which has contributed actively to the economy. However, accessibility must also be ensured, given that borrowers are often individuals or small businesses who need simple, digital, and language-inclusive processes. Finally, enforceability is non-negotiable: outcomes—whether arbitral awards or mediated settlements—must be binding and recognized under Indian law.
Online Dispute Resolution (ODR) has emerged as the most practical solution to these challenges, particularly after Perkins judgement by the SC. Having practically handled litigation as well as ADR for my previous employer Bank, I can confidently say ODR is the go-to solution for this sector. By leveraging technology to deliver negotiation, mediation, and arbitration online, ODR offers scalability, allowing thousands of disputes to be processed simultaneously without burdening courts. If done while ensuring due process and integrity, it will enhance neutrality by enabling parties to participate from their own environments, reduces intimidation, and ensures transparency through automated case tracking and digital records. Another major plus is that online meetings via Zoom or Google Meet ensure that neither party needs to spend money on travel to attend Arbitration or Mediation hearings which can be a hard on the small loan borrower. Importantly, ODR aligns with India’s regulatory landscape, particularly the Digital Personal Data Protection Act, 2025, and the Reserve Bank of India’s emphasis on consumer protection.
Best practices in this space include drafting clauses that mandate ODR for disputes below a defined threshold, such as ₹25 lakh, and structuring them as tiered mechanisms that begin with negotiation, move to mediation, and culminate in arbitration if necessary. Clauses should provide clear timelines for resolution, typically within 60 days, and ensure platform neutrality and data security to build trust. Increasingly, lending companies are turning to frameworks like CORD’s multi-ODR clause, which allows parties to select from multiple ODR providers. This approach de-risks arbitration by avoiding dependence on a single platform and offers flexibility in managing diverse disputes.
Conclusion
For NBFCs, embedding Online Dispute Resolution into dispute resolution clauses is not merely a matter of convenience but a structural necessity. The Indian judiciary is already overburdened, and channeling the sheer volume of small and mid-value disputes into courts would only deepen pendency and erode trust in the system. ODR, by contrast, offers speed, affordability, and accessibility while aligning with regulatory priorities such as consumer protection and data security. By adopting tiered ODR mechanisms and embracing multi-provider frameworks like CORD’s, lending companies can de-risk arbitration, ensure neutrality, and scale resolution processes without compromising fairness. In doing so, NBFCs not only safeguard their financial stability but also contribute to systemic reform—helping shift India’s dispute resolution culture from delay and backlog to efficiency and trust.
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Author- Inbavijayan Veeraraghavan| CORD Arbitrator
NBFC sector continues to be choked with significant challenges in the resolution of small to mid- value disputes, specifically concerning the setting aside/annulment or non-enforcement of arbitral awards on the ground of unilateral appointment of arbitrators. This issue persists across jurisdictions in India, emerging from the restrictive interpretation stances adopted post the unilateral appointment measure taken up in the Perkins Judgement. This jurisdictional difficulty lies due to the extended application of the ratio decidendi of Perkins beyond its intended scope, in relation to the subject matter of arbitral appointments and award enforcement.
A critical deficiency observed in the parties’ conduct within this Sector lies in the drafting of defective arbitration clauses, often containing suggestive terminology leading to unilateral interpretation. The persistence of unilateralism in arbitration is predominantly evident in appointment of the arbitral tribunal, which continues to generate legal jurisdictional challenges. This issue is more visibly present in disputes arising under standard-form loan agreements employed by NBFCs. Many of these agreements, along with their arbitration clauses, are outdated—causing confusion and weakening arbitration.
The principle of party consent in the constitution of the arbitral tribunal remains central to mitigating challenges to the validity and enforceability of arbitral awards on the ground of unilateral appointment. To safeguard against annulment or non-enforcement, arbitration clauses must be drafted to expressly incorporate bilateral participation in the appointment process. A recommended formulation would be: “either lender or borrower shall approach an arbitral institution to seek appointment of the arbitral tribunal”. Such language ensures that the authority to initiate the appointment mechanism is not vested unilaterally, but rather channeled through a structured framework. This drafting technique reduces interpretative ambiguity and fortifies the doctrinal legitimacy of arbitral awards against challenges on unilateralism.
Note - Arbitral tribunal as defined in Section 2(1)(d) of the Arbitration and Conciliation Act, 1996.
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Author- Anirudh Gunturu | CORD Arbitrator
Having spent years reviewing agreements across diverse sectors, I've learned that dispute resolution clauses are often the forgotten stepchild of contract drafting. Yet, they become critically important the moment a borrower defaults or a claim arises. In the NBFC sector, where margins are tighter and relationships more fluid than traditional banking, getting this right matters enormously.
The Problem: The Small to Mid-Value Conundrum
Small to mid-value disputes—typically between ₹5 lakhs and ₹5 crores—create a genuine conundrum. Full arbitration feels like bringing a sledgehammer to crack a nut. You'll spend ₹2-3 lakhs just on arbitrator fees, administration costs, and legal representation. For a ₹50-lakh dispute, that expenditure consumes 5–6 percent of the claim value before substantive arguments have even begun. Yet, these claims are still material to the business and cannot be ignored.
What Actually Works: Graduated Resolution
Graduated dispute resolution has proven most effective in my experience.
1. Mandatory Negotiation: Start with a mandatory negotiation clause requiring senior representatives from both parties to meet within 15 days of a claim. This simple step resolves roughly 30–40 percent of disputes before they become formal matters, as the parties often realize the real issues differ from the initial claim.
2. Expedited Conciliation/Arbitration: If negotiation fails, move directly to conciliation or expedited arbitration before a single, specialised arbitrator with NBFC sector expertise. The informality and speed drastically reduce everyone's stress and costs. Only escalate to the costly three-arbitrator route if the claim exceeds a pre-determined, higher threshold, such as ₹2 crores.
Where Implementation Gets Messy: Clarity and Jurisdiction
The biggest challenge I've encountered is drafting flexibility without creating enforcement ambiguity.
• Strategic Exclusion for Regulatory Matters: NBFCs operate in a regulatory minefield. A dispute might hinge on whether a rate charged violated RBI guidelines. While the dispute may technically be arbitrable, having an arbitrator effectively rule on a point of public policy or statutory compliance creates a risk of challenging the final award. To mitigate this, clearly exclude regulatory compliance disputes from arbitration. Let courts handle those sensitive questions of public law interpretation. Keep arbitration strictly for disputes regarding contract interpretation, quantum, and liability.
• Strategic Venue Selection: Venue selection matters more than most realize. Don't bury your borrowers in Mumbai if they're based in Hyderabad. That said, neutrality demands the venue isn't your own backyard either. Cities like Bangalore or Hyderabad generally work well, offering established arbitration infrastructure without giving either party a hometown advantage.
The Real Takeaway
Effective dispute resolution isn't about simply winning disputes. It's about containing costs when they arise and preserving the relationship where possible. The NBFC lenders I have worked with in the past who invested time early in carefully drafting a well-considered resolution clause have seldom found reason to regret that decision. Those who cut corners typically do.