At the outset, by including an arbitration clause in a contract, the parties choose to settle their disputes –in the event any arise– out of court. Accordingly, those disputes will be submitted to the arbitrator(s).
So, the question arises, that how the parties would refer the dispute to an arbitrator, is the law implied law that whenever a dispute arises out of the commercial agreement, the same shall be referred to the arbitrator or else the parties to an agreement required to mention the manner of resolution of disputes expressly.
Thus, the definition of arbitration agreement under different statutes shall be referred first:
Arbitration and Conciliation Act, 1996– “arbitration agreement” means an agreement referred to in section 7”
It is imperative to state here that, under section 7 apart from mentioning the intention of the parties to refer the future dispute to the arbitral tribunal, the section further prescribed other conditions to be complied with, to construe as valid arbitration agreement/clause.
UNCITRAL Model Law- “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”
New York Convention– “Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractua1 or not, concerning a subject matter capable of settlement by arbitration”
This generic concept comprises two basic types:
a) A clause in a contract, by which the parties to a contract undertake to submit to arbitration the disputes that may arise in relation to that contract (arbitration clause); or
b) An agreement by which the parties to a dispute that has already arisen submit the dispute to arbitration (submission agreement).
As indicated above, the arbitration agreement/clause, refers the future dispute, i.e., the dispute not existing at the time when parties enter into such agreement or clause.
Furthermore, the arbitration agreements are to be interpreted in the light of the intention of the parties The reliance on intention was further explained in Great Offshore Limited v Iranian Offshore Engineering & Construction Company (2008) 14 SCC 240.
Therefore, the existence of the clause in the agreement indicated their intention to arbitrate and issues like stamping, seals etc were basically ‗red tapism‘and the same should not hinder parties from attaining cheap and efficient resolution to their dispute.
Arbitration and Conciliation (Amendment) Act, 2015
The unamended section gave limited power to the arbitrator to interpret the agreement and s/he were bound to give the decision in accordance with the terms of the contract and trade usages of the parties. The amended section on the other hand allows the arbitrator to rather take into account the two, increasing the scope of interpretation, further augmenting the powers of the arbitration tribunal.
Enforcement
Once the parties penned down their intention of referring any future dispute to the arbitral tribunal, they are committed to submit certain matters to the arbitrators’ decision rather than have them resolved by law courts
What does this mean?
a) Waive their right to have those matters resolved by a court.
b) Grant jurisdictional powers to private individuals (the arbitrators).
What constitutes an enforceable arbitration agreement?
In the matter of Hon’ble Supreme Court in the matter of Mahanadi Coalfields Ltd. vs IVRCL AMR Joint Venture CA 4914 of 2022 | 25 July 2022, settled that:
Arbitration and Conciliation Act, 1996; Section 7 – Principles governing what constitutes an arbitration agreement – Arbitration agreement should disclose a determination and obligation on behalf of parties to refer disputes to arbitration – mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration.
In conclusion, as also referred by the Hon’ble Supreme Court in the matter of Jagdish Chander v. Ramesh Chander 3 (2007) 5 SCC 719
The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and a willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.
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