This Article is written by Faria Abdulla of 2nd Year of LLB Hons., an Intern under Legal Vidhiya
ABSTRACT
The Business World is constantly evolving, along with the positive impact it also has negative impact on the businessmen and their professional lives. Currently, with the new opportunities there also have been more frauds and disputes among the partners. Arbitration agreement is a new way of solving these disputes and providing the remedies for the fraudulent activities.
Arbitration agreement has flourished the mechanism for the resolution of disputes or quarrels or conflicts. It is actively used as a mode for solving conflicts among parties due to its underlying principles of autonomy and confidentiality. Under an arbitration agreement, dispute resolution began when the parties to the agreement, enters into such agreement, rather than at the time of occurrence of dispute.
Presently, Businesses are looking for a quick and less procedural form for resolution of disputes/conflicts, And arbitration provides for the exclusive methods to settle future conflicts.
Keywords:- Arbitration agreement, autonomy, confidentiality, dispute resolution, arbitral, institution, Conciliation, Contractual, Clause, Court Proceedings, Judgement,
INTRODUCTION
In this article we’ll learn about the Validity, essential conditions of the arbitration agreement, the legal capacity of persons entering into an Arbitration agreement and drafting of the arbitration agreement.
Starting with the meaning of Arbitration agreement, an arbitration agreement refer to the “Arbitration is a process of effectively and efficiently solving of disputes. It provides easy resolution of the conflicts and prevents time-consuming court proceedings and lengthy documentation for those who are willing to get timely solutions of their conflicts and disputes. Arbitration has proved to be very effective method for dispute-solving.”
MEANING OF ARBITRATION AGREEMENT
The Arbitration and Conciliation Act, 1996 contains the provisions that governs the Arbitration agreement among the parties.
Sec-2(1)(a) of The Arbitration and Conciliation Act, 1996 defines the term ‘Arbitration’ as “arbitration” means any arbitration whether or not administered by permanent arbitral Institution;
Sec-7(1) of The Arbitration and Conciliation Act,1996 defines the term ‘Arbitration Agreement’ as following:- “arbitration agreement” means an agreement by the Parties to submit to arbitration all or certain disputes which have arisen or which may arise between them In respect of a defined legal relationship, whether contractual or not.
Sec-7(2) of The Arbitration and Conciliation Act,1996 states:- An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of A separate agreement.
In general, it is designed as an agreement to submit present and future disputes for arbitration i.e.. for solving the conflicts.
Basically, an arbitration takes place like any other court proceedings, a party against whom the conflict has arisen approaches the court and file a suit against the other party. Both the parties have their lawyers, the case is heard by the bench and judgement is granted. Arbitration has deep roots, and has
always been the part of society, conflicts were always there and hence the methods for solving them.
Validity:- An Arbitration Agreement, in order to be held valid needs to fulfill certain essential conditions. The presence of these essential conditions is important for the enforcement of these Arbitration agreements.
These essential conditions to render an arbitration agreement as valid are several:-
- Legal Capacity of parties to enter into a contract according to law they are subject to.
- An agreement must be in writing or it must be expressed in written form.
- The agreement must deal with any existing or future disputes between the parties entering into a contract.
- There must be an intention of the parties to solve the disputes.
LEGAL CAPACITY OF PERSON TO ENTER INTO ARBITRATION AGREEMENT
The arbitration agreement in terms of capacity of persons to contract is not different from any other contract. If a person is not competent to do so, the agreement will be held void.
Like any other normal contract, Arbitration agreement can also be entered only by the person who are competent to contract in the first place. The competency of parties is essential to enforce an agreement as valid, if the parties to contract are not competent then the agreement is declared to be void by the law.
According to the law, parties competent to contract can enter into Arbitration agreement, they include:-
- A major (which is defined under Sec-3 of Indian Majority Act, 1875)i
- A person with a sound mind (defined in Sec-12 of Indian Contract Act, 1872)ii
- Anyone who is expressly declared to be void by the law.
Both the parties to the contract must give their written consent to enter into a contract, it is basically done by signing the arbitration agreement (it must be done by free will, without any undue influence)
FORMAL ESSENTIALS OF ARBITRATION AGREEMENT
- The existence of disputes is an essential element for enforcement of Arbitration agreement. Provided, that the parties are not in a position to solve the dispute among themselves,(by themselves). However, in such case they must approach the court for the enforcement of such agreement to resolve the conflict.
- Another essential is that the Arbitration agreement must be in written. It is defined in Sec-7(3) of The Arbitration and Conciliation Act,1996iii. The agreement will only be considered as a written agreement if following conditions mentioned in Sec-7(4)iv are fulfilled:-
- The agreement must be duly signed by both the parties to the contract. And any of the party can approach the court to enforce it’s rights and to resolve an issue. If the agreement isn’t signed it will not be considered as valid.
- Any form of communication that provides for the existence of such agreement or exchange. It can be telex, telegrams or letters etc….
- There must be exchange of statements wherein both the parties must agree to the existence of such agreement between them regarding arbitration.
- Third essential element is the ‘intention of the parties’. The intention plays a very critical role in formation of arbitration agreement. Even though, it is nowhere mentioned in said agreement but both the parties must have the intention that they agree with the terms and conditions of the arbitration agreement.
- Next essential is regarding the ‘signature of both the parties’. It means that the agreement must be in the form of document duly signed by both the parties or it can be in the form of document signed by one party containing the acceptance of the other party to the contract. In another words, both the parties must show their acceptance to such contracts.
In simple words, under an Arbitration agreement two parties enter into a contract and agree among themselves that any kind of conflict or disputes arising between them, will be settled without the involvement of courts and a third party (who is known as agreement) will judge their disputes and his decision will be final and binding upon both the parties.
LEGAL DRAFTING OF AN ARBITRATION AGREEMENT
It was held by the supreme court, in cases Jagdish Chander V. Ramesh Chander and orsv (2007) and K.K. Modi V. K.N. Modi and othersvi (1998) issued a list of principles regarding the question that ‘What constitutes a Valid Arbitration Agreement?’ This list included:- 1. The agreement of Arbitration must be in writing.
- The parties must agree on the same thing in the same sense. Like both mist agree to refer their disputes (present or future) to a private tribunal.
- The private tribunal (known as arbitrator) must have the right and powers to adjudicate on the matters of disputes arising out of the contract as well as his decision must be binding on both the parties.
- Both the parties must have an intention to refer to their disputes to the arbitral tribunal.
- The words shall contemplate an obligation and determination on the part of the parties to invoke arbitration and not merely a possibility. For example, use of the words such as “parties can if they so desire, refer their dispute to arbitration” or “ in the event of any dispute, the parties may also agree to refer the same to arbitration” shall not be construed as submission to arbitration.
- It must be duly signed by both the parties or one of the party along with the consent of the other party as well.
- Arbitrational Clause must contain all the above mentioned essentials, not missing even a single one of them, for enforcing it’s validity. Even if the arbitrational clause doesn’t have terms such as ‘arbitral tribunal’ or ‘the arbitrator’ etc… the arbitration agreement will be held valid if the basic attributes of the arbitration agreement are present therein.
SIGNIFICANCE OF ARBITRATION AGREEMENT
- Arbitration agreement provides for the lesser time-consuming process and significantly different approach for the solving of disputes & disagreements among the parties’ to the contract.
- It is cost-efficient mode of solving the disputes, and the court proceedings are not very lengthy.
- It protects confidentiality of the parties. The disputes and the details regarding these disputes are not disclosed & discussed out of the walls of the court room. It protects the privacy of the parties to the contract.
- Arbitration makes it less hostile for both the parties, to solve a conflict. Under Arbitration agreement, both the parties must treat each other with mutual respect, so as to avoid extra hostility over the single issue. In simple words, Arbitration agreement makes it easier to solve a single issue rather than dealing with the same issue over a number of times.
CONCLUSION
Therefore, from the above article, we can state that an arbitration agreement is not only beneficial to the parties whilst saving the resources, but also in means of the time and efforts put in by each of the parties. Despite a few people stating that it is not a complete procedural aspect of dealing with the cases, one state that it does help both the parties who have faced the dispute. However, most importantly, it is important that there are certain things that have to be kept in one’s mind before actually drafting or while drafting a contract for the arbitration agreement. In practice though, almost all arbitration agreements are concluded with arbitration clauses.
Reference
- https://indiankanoon.org/doc/1913246/ Case law Jagdish Chander V. Ramesh Chander
- https://indiankanoon.org/doc/1777887/ Case law K.K. Modi V. K.N. Modi
2#:~:text=India%20Code%3A%20Section%20Details
&text=A%20person%20is%20said%20to,its%20effect %20upon%20his%20interests. Section 12 of Indian Contract Act, 1872 defines the persons with the sound mind (who are competent to contract)
i Sec-3. Age of majority of persons domiciled in India. —
- Every person domiciled in India shall Attain the age of majority on his completing the age of eighteen years and not before.
- In computing the age of any person, the day on which he was born is to be included as a whole Day and he shall be deemed to have attained majority at the beginning of the eighteenth anniversary of That day.
ii https://www.indiacode.nic.in/show–data?actid=AC_CEN_3_20_00035_187209_1523268996428§ionId=38615§ionno=12&orderno=12#:~:text =India%20Code%3A%20Section%20Details&text=A%20person%20is%20said%20to,its%20effect%20upon%20his%2
iii An arbitration agreement shall be in writing.
iv An arbitration agreement is in writing if it is contained in—
(a) A document signed by the parties;
- An exchange of letters, telex, telegrams or other means of telecommunication 1[including Communication through electronic means] which provide a record of the agreement; or
- an exchange of statements of claim and defense in which the existence of the agreement is Alleged by one party and not denied by the other.
v CASE NO.: Appeal (civil) 4467 of 2002
vi C.A. No. 614 Of 1998 (Arising out of S.L.P. (C) No. 18711 of 1997 https://indiankanoon.org/doc/1777887/
