ARBITRATION AGREEMENT

ABSTRACT

An arbitration agreement is a binding contract in which parties agree to resolve disputes through arbitration rather than through litigation in courts. Arbitration is an alternative dispute resolution (ADR) method where a neutral third-party arbitrator hears both sides of the dispute and makes a decision that is typically final and enforceable by law.

The arbitration agreement can be a standalone contract or a clause within a broader contract, and it usually specifies the rules and procedures to be followed during the arbitration process. These rules may include how the arbitrator will be selected, the location of the arbitration, the language to be used, and whether the arbitration will be conducted under institutional rules ( American Arbitration Association) or ad hoc.

The primary advantages of arbitration include confidentiality, speed, cost-efficiency, and the expertise of arbitrators in specific fields. Arbitration agreements must meet certain legal standards to be enforceable, such as being in writing and clearly indicating the parties’ intent to arbitrate. They may also specify the rules governing the arbitration process, the location, and the choice of arbitrators. While arbitration offers numerous benefits, it also has limitations, including limited grounds for appeal and potential concerns about fairness or bias. The enforceability of arbitration agreements is upheld by various legal frameworks globally, including the New York Convention and national arbitration laws. Understanding the intricacies of arbitration agreements is crucial for parties seeking efficient and binding resolution of disputes while maintaining control over the process and outcome.

INTRODUCTION

The Arbitration and Conciliation Act, 1996, governs domestic arbitration,  transnational  marketable arbitration, and enforcement of foreign arbitral awards in India. It takes into account the UNCITRAL Model Law on International Commercial Arbitration  espoused by the UN in 1985 and the UNCITRAL pacific Rules( 1980). An arbitration agreement is an agreement between parties to submit  controversies related to a legal relationship, whether contractual or not. However, the court has the power to  relate the parties to arbitration, If a  disagreement arises. Parties can also seek  critical and interim measures of protection. The number of  judges isn’t an even number, and the adjudicator may be of any  nation. The arbitrational  bench can pass interim measures of protection or order a party to  give applicable security. Parties are treated with  equivalency and given full  occasion to present their case. The place of arbitration is determined by the arbitrational  bench, and proceedings can be conducted in any language as determined by the parties.

MEANING

“Arbitration agreement” is defined as an agreement by the parties to subject to arbitration all or some disputes that have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not, according to section (7) of the Arbitration and Conciliation Act, 1996.

WHO CAN ENTER INTO ARBITRATION AGREEMENT

Every person who’s competent to contract can enter into arbitration agreement. In case of   cooperation a  mate can enter into on behalf of  cooperation into arbitration agreement.  The directors or other officers of the company may enter into an arbitration agreement.  A Karta of Hindu  common family can make a valid reference to the arbitration and where he acts  Bonafide the award binds other members.

1. A) Minor and Lunatics- contract by minors and lunatics are void and  thus by themselves they can not enter into  valid agreement of arbitration.  still they can enter into arbitration agreement with their  natural or legal guardian’s
2. B) Agent- Agent recognised agent of a party can enter into an arbitration agreement on behalf of his    
3. C) Director of Hindu common family- A  Director of Hindu  common family can  relate the final  disagreement to arbitration.

CASE LAWS

• [1]Sadashiv Ramchandra Datarv. Trimbak Keshar AIR 1920 Bom 32.

  In this case Bombay high Court held that if a minor isn’t  duly represented and his  guardians fails in this duty to  cover his interest, the award is nor binding on minor. 

• [2]Sunderlal HaveliwalaVs. Bhagwati Devi AIR 1967 All 400

In this case of  disagreement among the  mates inter se, if the deed of  cooperation  provides for similar  controversies being appertained to arbitration, a  mate shall be entitled to make  reference to arbitration.

ESSENTIAL CONDITIONS FOR A LEGAL AGREEMENT

A legitimate agreement must meet the following fundamental conditions:

 The parties ought to be able to legally Capacity to contract is defined in Section 11 of the Indian Contract Act of 1872. The parties need to have reached a majority as well. The Indian Majority Act of 1875 established the age of majority at eighteen. Parties must also be able to enter into agreements legally. Ultimately, the legal capacity of the parties to enter into a contract determines the legitimacy of the arbitration agreement. An individual must be of sound mind in order to enter into an agreement.[6] agreement between the parties The arbitration agreement’s parties must voluntarily consent.[7] Thus, genuine consent would not exist if one party pressured the other. Consequently, the arbitration agreement will.

ESSENTIAL ELEMENT  OF A ARBITRATION AGREEMENT

[3]WRITTEN:-According to sec 7(A) written agreement is required for arbitration. A written arbitration agreement is one that is deemed to be in place if it is:

1. In the form of a document and bearing the signatures of the parties;
2. It can also take the form of a letter exchange, telegram, telex, or other correspondence; the important thing is that it must include a record of the agreement; or
3. A statement-of-claim and defence exchange in which one party asserts the agreement’s existence without providing definitions for the other. Objective The parties’ intentions are crucial and constitute the main component of the contract. There’s no set process for creating an arbitration agreement, and it’s been said.

2.INTENTION:- The parties’ intentions are the most important factor. There is no template for an arbitration agreement, and it is not stated anywhere that certain terms, such “arbitration” and “arbitrator,” are necessary before entering into an arbitration agreement. Leading case law on the matter states that the arbitration agreement should make it obvious that the parties intend for their dispute to be submitted to arbitration.

SIGNATURE:- Signing an arbitration agreement is required from both parties. The agreement may be in the form of a signed paper with all the terms by both parties, or it may only be a signed document with the terms and the other party’s acceptance signed. If one side signs the written submission and the other signs it as acceptable, it is sufficient.

DRAFTING AN EFFECTIVE ARBITRATION AGREEMENT

The question of what makes an arbitration agreement enforceable was taken up by the Supreme Court in the instances of [4]Jagdish Chander v. Ramesh Chander and [5]K. K. Modi v. K. N. Modi. The Hon’ble Court created a set of guidelines that ought to be included in an arbitration agreement. The following are the standards:

1.It must be a formal arbitration agreement.

2.As decided by the parties, any disagreement pertaining to a contract, whether present or prospective, must be brought before a private tribunal.

 3.The power to arbitrate the conflicts impartially and provide the parties a chance to submit their case should be granted to the private tribunal.

4.The assemblies should agree to be constrained by the arbitral council’s ruling.

5.The parties must expressly declare their intention to submit the disagreement to a private tribunal.

6.”Consensus ad idem” states that there must be mutual agreement between the parties regarding the same matter.

7.The word “shall” suggests that the parties plan to utilize arbitration—that is, that using arbitration is required of them, not just a possibility. When expressions such as “parties”can, if they so choose, send their disagreement to arbitration” or “the parties may also agree to refer the same to arbitration” are used, for example, they are not understood to mean that the parties are submitting to arbitration.

8.The agreement’s terms shall not expressly exclude any of the aforementioned requirements. A provision that permits the tribunal to rule on a dispute without consulting the other party, for example An intervention agreement without the terms” discretion,”” agreement council,” or indeed” the  middleman” can still be  supposed valid if all of the necessary  rudiments of a substantial agreement are included, which is always preferable indeed though it’s important to write clear and  unequivocal statements.   Please take note that the list  over isn’t all- inclusive. To  produce successful arbitration agreements, the parties may  profit from  fresh procedures that help them overcome obstacles that may arise throughout the arbitration process.

[6]9.Overall number of  judges :- The arbitration  bench’s makeup must be decided. sometimes, a contract’s subject matter could be so complex and nuanced that it would call for the knowledge of several  judges. In certain situations, it’s also possible for both parties to wish to use their right to choose a nominated  arbitrator.   A party may designate as  numerous  judges as they wished under the 1940 Act. dissensions among the  judges caused the award in bars with indeed- numbered  judges to be rendered much more  sluggishly than necessary. Accordingly, a  important-  demanded  revision was introduced by Section 10 of the 1996 Act, which permitted the parties to designate an odd number of  judges in lieu of a strict number.   Because the  expenditure burden increases with the appointment of  numerous  judges 

10.Procedure for appointment:-The appointing procedure Section 11 of the 1996 Act gives the parties the authority to  produce and decide upon an appointment process  singly. In the event that the parties can not agree on a  system, the court will appoint the adjudicator in a single adjudicator arbitration; in a three- adjudicator arbitration, each party must designate one adjudicator, and the two nominated  judges will  also  elect a presiding adjudicator.    In India, it has been customary to grant one side the unilateral authority to  elect the lone adjudicator ever since the 1940 Act. But ever since the Law Commission of India’s 246th Report and the preceding  variations in 2015 and 2019, an  adding  number of cases have  surfaced in which the unilateral appointment was capsized by the courts to maintain the party autonomy conception. In Perkins Eastman Engineers DPC & Anrv. HSCC( India) Ltd, the Supreme Court eventually determined that the lone adjudicator’s unilateral appointment would no longer be enforceable, putting an end to the case. Accordingly, it’s imperative to avoid assigning appointment rights to a single party while drafting the arbitration clause.

11.The proceedings’ language :- Due to varying language proficiency, it’s common for the parties domestic or foreign  to  witness communication problems during the  disagreement resolution procedure. In these circumstances, the cost of the  restatement could rise, further  disturbing the parties. therefore, it’s always a good idea to decide on the arbitration’s language in advance.

12.Ad hoc or institutional arbitration

The parties to an arbitration agreement must decide between institutional or ad hoc arbitration. The procedure and modalities agreed upon by the parties are followed in ad hoc arbitration procedures. A specialized organization is chosen to oversee the proceedings and select the arbitrator in institutional arbitration. Among the Indian arbitration centres are the Mumbai Centre for International Arbitration (MCIA), Nani Palkhivala International Arbitration Centre, and Delhi International Arbitration Centre (DIAC). Ad hoc systems provide more autonomy and are less costly. On the other hand, the institutional arbitration system offers a well-established, polished procedure, administrative support, and qualified arbitrators who are embanelled.

Compared to institutional arbitration, ad hoc arbitration is more common in India.The government has made an effort to encourage arbitral institutions to become reasonably priced hubs for both local and international arbitration by enacting the Arbitration and Conciliation Amendment Act, 2019.

13.Seat and Venue

The terms “seat” and “venue,” which were used interchangeably prior to the ruling in[7] Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (Balco), are not defined under the 1996 Act. In the Balco case, the Supreme Court ruled that the arbitration’s “seat” determines the arbitration’s center of gravity and establishes both the court’s and the location of the cause of action’s jurisdiction. Therefore, in the event that the arbitration is held in London, Part 1 of the 1996 Act will not apply, and the arbitration will be governed by the London courts.

The Arbitration and Conciliation Amendment Act, 2015 introduced a caveat under Section 2, weakening the Balco ruling. A clause was introduced stating that unless approved by the In contrast, even in cases where the arbitration takes place outside of India, Sections 9, 27, and 37(1)(a) and 37(3) will still apply to international commercial arbitrations.

The meaning of the phrases “venue” and “place” in an arbitration began to become unclear following the Balco ruling. In the ruling in UOI v. Hardy Exploration and Production (India) Inc., the Honorable Supreme Court made a distinction between “venue” and “seat,” ruling that the former simply refers to the location of the arbitration proceedings. Therefore, Part 1 of the 1996 Act would apply to arbitrations having a foreign venue but an Indian seat. Then, in the matter of [8]BGS-SGS SOMA-JV vs. NHPC Ltd., the Hon’ble Supreme Court’s three-judge bench, while In a domestic arbitration case, it was decided that the venue would be interpreted as the arbitration’s seat in cases when an arbitration agreement specifies a location but says nothing about the tribunal’s seat or its rules. Consequently, the venue will have exclusive jurisdiction over the arbitration in the event that there is no seat or governing legislation.It is clear from the Supreme Court’s several rulings that it has taken differing stances on the subject of seat and venue that the dispute centers on the arbitration’s curial law. The legislation controlling the arbitration process and the parties’ rights is known as curial law. As a result, the arbitration’s location becomes considerably more important and needs to should be mentioned in the arbitration clause. Remember that the arbitration itself will be regulated by the laws of the designated seat, and that the courts in that seat will have exclusive jurisdiction over any problems arising out of the arbitration.

14.Arbitration agreements being stamped

Affixing the agreed-upon amount of the stamp price to an agreement is known as “stamping.” A valid contract must meet certain standards in order to be regarded valid, as stated in Section 2(h) of the Indian Contract Act. One of these requirements is that the agreements must be sufficiently stamped.

The Hon’ble Supreme Court decided in its recent opinion In Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1989 that there is a difference between a document’s enforceability and admissibility. An appropriately stamped arbitration agreement, for example, is enforceable against the parties to the agreement even if it might not be admissible as evidence. Furthermore, it has laid the fact that, in the pre-arbitration relief stage, judges are not obligated to consider the issue of whether stamping the agreement is adequate stamped.

15.Arbitration laws and regulations
Any arbitration agreement must specify the applicable laws and regulations that will control the arbitration process, as well as the appropriate behavior expected of the parties and the process the arbitrator will use to decide disputes.
The parties to an arbitration process are also free to choose their own arbitration procedure; they are not constrained by the requirements of the nation’s substantive and procedural laws.

CASE LAWS

1.[9]Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd. (2019):

 The Supreme Court held that an unstamped arbitration agreement cannot be acted upon unless the stamp duty is paid. The decision stressed the importance of proper stamping for the enforceability of the arbitration agreement.

[10]2.M/s Duro Felguera, S.A. v. M/s Gangavaram Port Limited (2017)

 The Supreme Court highlighted the importance of the “group of companies” doctrine, allowing non-signatories to be bound by arbitration agreements under certain conditions. It emphasized clear drafting to reflect the parties’ intent to arbitrate.

[11]3. Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2019)

The Supreme Court ruled that a party involved in the dispute should not have the sole power to appoint an arbitrator, as it could lead to bias. The case underscored the need for impartial appointment procedures in arbitration agreements.

[12]4. TRF Ltd. v. Energo Engineering Projects Ltd. (2017)

The Supreme Court held that if a person is ineligible to be appointed as an arbitrator, they also cannot have the authority to appoint someone as an arbitrator. This case emphasized the importance of drafting arbitration agreements to prevent conflicts of interest.

[13]5. Balasore Alloys Limited v. Medima LLC (2020)

 The Supreme Court stressed the importance of specificity in arbitration agreements. It ruled that for an agreement to be enforceable, it must clearly specify the seat of arbitration, which determines the jurisdiction and applicable procedural laws.

CONCLUSION

An arbitration agreement is essential to the arbitration process in a given case, since its absence could result in the arbitration claim being rejected and court procedures starting. In order to finalize a legally binding arbitration agreement, parties that plan to use arbitration must make sure that all applicable statutes and other prerequisites are met.
In addition, the parties should make sure that they want to settle disagreements by an alternative dispute resolution process, such as arbitration, if they plan to include an arbitration clause in another agreement or document. Furthermore, in order to preserve the sanctity of arbitration agreements, any action or provision that would not be permitted by statute should not be included.

References:

[1] Sadashiv Ramchandra Datarv. Trimbak Keshar AIR 1920 Bom 32LR266.Indian Kanoon.Retrieved from https://indiankanoon.org/doc/442708/

[2] Sunderlal HaveliwalaVs. Bhagwati Devi AIR 1967 All 400.Indian Kanoon.Retrieved from https://indiankanoon.org/doc/1317460/

[3] Arbitration agreement. Legal Desk. https://legaldesk.com/documents/arbitration-agreement.

[4] Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719 . Casemine. https://www.casemine.com/judgement/in/5609ae5fe4b0149711413a12

[5] K.K Modi v. K.N Modi & orts on 4 Feb,1998.Indian Kanoon. https://indiankanoon.org/doc/1777887/

[6] Arbitration Agreement.ipleader. https://blog.ipleaders.in/arbitration-agreement-primer-checklist/

[7] Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, Inc., (2012) 9 SCC 552.Indian Kanoon. https://indiankanoon.org/doc/173015163/

[8] BGS SGS SOMA JV v. NHPC Ltd., (2020) 4 SCC 23. Indian Kanoon. https://indiankanoon.org/doc/143184125/

[9]Garware Wall Ropes Ltd.v.Coastal Marine Constructions & Engineering Ltd(2019)9 SCC 209.Indian Kanoon. https://indiankanoon.org/doc/26596259/

[10] M/s Duro Felguera, S.A. v. M/s Gangavaram Port Limited (2017).Indian Kanoon. https://indiankanoon.org/doc/74810620/

[11] Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2019).Indian Kanoon.https://indiankanoon.org/doc/155925871/

[12] TRF Ltd. v. Energo Engineering Projects Ltd. (2017).Indian Kanoon. https://indiankanoon.org/doc/192167806/

[13] Balasore Alloys Limited v. Medima LLC (2020).Indian Kanoon.