Arbitration Agreement under Arbitration and Conciliation Act
Arbitration Agreement under the Arbitration and Conciliation Act, 1996
1. Definition and Nature of Arbitration Agreement
An Arbitration Agreement is a contractual agreement between parties to submit present or future disputes arising out of a contract or transaction to arbitration instead of going to court.
It is the foundation of arbitration proceedings and the basis for the arbitral tribunal’s jurisdiction.
2. Statutory Definition
Section 7(1) of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement as:
“An arbitration agreement is 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.”
It includes:
An arbitration clause in a contract (a clause agreeing to arbitration),
A separate arbitration agreement executed independently.
3. Types of Arbitration Agreements
3.1 Arbitration Clause
Part of a larger contract where parties agree that disputes will be resolved through arbitration.
Example: A clause in a sales contract stating “all disputes shall be referred to arbitration.”
3.2 Separate Arbitration Agreement
A standalone agreement executed separately that parties enter into after or independent of the main contract.
Example: A memorandum signed by parties agreeing to arbitrate disputes arising from previous dealings.
4. Key Features of Arbitration Agreement
Mutual consent: Both parties must agree to arbitrate.
Defined scope: The agreement must specify disputes subject to arbitration.
Legal relationship: Applies to disputes relating to a legal relationship (contractual or non-contractual).
Present or future disputes: Can cover disputes that have already arisen or may arise later.
Written form: Under Section 7(2), the arbitration agreement must be in writing.
5. Writing Requirement (Section 7(2))
The Act requires the arbitration agreement to be in writing. It includes:
An arbitration clause in a contract signed by the parties.
A separate document signed by the parties.
An exchange of letters, telex, telegrams, or other means of communication which provide a record of the agreement.
6. Scope of Arbitration Agreement
Parties can agree to arbitrate all disputes or only specific disputes.
The agreement can specify the procedure, venue, language, and rules of arbitration.
The tribunal’s jurisdiction depends on the arbitration agreement.
7. Effect of Arbitration Agreement
Excludes jurisdiction of courts in respect of disputes covered by the agreement (Section 8).
Courts must refer parties to arbitration if there is a valid arbitration agreement and one party applies for reference.
The arbitration agreement empowers the tribunal to decide the disputes.
8. Separability Doctrine
Arbitration agreements are separable from the main contract.
Even if the main contract is alleged to be void or invalid, the arbitration agreement can survive and be enforced independently.
9. Important Case Laws
a) Bharat Aluminum Co. v. Kaiser Aluminum Technical Services Inc. (BALCO) (2012) 9 SCC 552
Supreme Court reaffirmed the separability of the arbitration agreement.
Held that the validity of arbitration agreement is to be determined separately from the main contract.
Clarified that courts must refer to arbitration if a valid arbitration agreement exists, regardless of disputes about the main contract’s validity.
b) Fazlur Rahman v. Darbar Sahab (AIR 1951 SC 32)
Early case where the court held that an arbitration agreement must be clear and unequivocal to be enforceable.
c) Ravindra P. Gandhi v. Pravin R. Gandhi AIR 1997 SC 3828
Emphasized the enforceability of arbitration clauses and refusal of courts to interfere with arbitration proceedings unless exceptional circumstances exist.
d) Swiss Timing Ltd. v. Organising Committee, Commonwealth Games (2014) 1 SCC 333
Court held that an arbitration agreement, even if executed electronically or by exchange of emails, is valid provided it evidences consent.
10. Challenges to Arbitration Agreement
Parties may challenge the existence or validity of arbitration agreement on grounds like:
Fraud, coercion, or undue influence,
Lack of written form,
Agreement is void or illegal,
Disputes outside scope of arbitration agreement.
Such challenges are usually decided by the arbitral tribunal first, unless the challenge relates to the existence of the arbitration agreement itself, which courts can decide under Section 8 and Section 16.
11. Conclusion
The arbitration agreement is a crucial and indispensable element of arbitration. It reflects parties’ consent to resolve disputes through arbitration instead of courts. The Arbitration and Conciliation Act, 1996 recognizes the arbitration agreement as binding and mandates courts to refer disputes to arbitration when a valid arbitration agreement exists.
The doctrine of separability ensures arbitration agreements survive even if the underlying contract is disputed. Courts uphold party autonomy in arbitration agreements but also protect parties from unconscionable or invalid agreements.
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