Arbitration agreements have become increasingly prevalent in various business transactions and contractual relationships. These agreements provide an alternative dispute resolution mechanism, offering parties a private and efficient means of resolving conflicts outside traditional court settings. This brief article explores the key elements and benefits of arbitration agreements.
The purpose of an arbitration procedure is to enforce an arbitration agreement. Parties may only submit their disputes for arbitration to be decided by the arbitral tribunal by means of an arbitration agreement. An arbitration agreement creates the arbitral tribunal and gives it structure. Thus, it is essential to comprehend the arbitration agreement’s legal status under the statute.
An arbitration agreement is created when two parties sign a contract and stipulate in writing that any disagreements that may arise between them regarding the terms of that contract will have to be settled out of court with the help of an impartial third party: the arbitrator, a third party chosen by both parties who will serve as a judge and whose ruling will be binding on the parties.
Drafting an Effective Arbitration Agreement
The Supreme Court directly addressed the subject of what makes an arbitration agreement enforceable in the cases of Jagdish Chander v. Ramesh Chander and K. K. Modi v. K. N. Modi. A list of guidelines for what should be included in an arbitration agreement was developed by the Honourable Court. These are the guiding concepts.
- A written arbitration agreement is required.
- The parties agree to submit any disagreement (past or future) resulting from a contract to a private arbiter.
- The private tribunal ought to have the authority to decide the cases impartially, providing the parties with a fair chance to present their cases.
- The arbitral tribunal’s ruling must be accepted by both parties as binding.
- It must be clearly reflected that the parties intend to refer the dispute to a private tribunal.
- The parties need to reach a “consensus ad idem,” or agreement on the same thing in the same sense.
- None of the aforementioned requirements may be expressly excluded by the agreement clauses. For instance, a provision allows the tribunal to rule on a claim without considering the opposing viewpoint.
Even though it is always best to draught clear and unambiguous clauses, an arbitration agreement that does not include the terms “arbitration,” “arbitration tribunal,” and/or “the arbitrator” may still be deemed valid as long as it contains the previously mentioned essential components of a valid arbitration agreement.
Please take note that the list above is not all-inclusive. In order to create arbitration agreements that work, the parties should think about adding some extra mechanisms to help them deal with any issues that might come up during the arbitration process. These mechanisms include the following:
Number of arbitrators: It is important to decide how the arbitrator tribunal will be put together. Sometimes a contract’s subject matter is so complex and nuanced that it calls for the knowledge of several arbitrators. Additionally, in certain situations, it may be desirable for both parties to use their right to designate a nominee arbitrator.
Procedure of appointment: Section 11 of the 1996 Act gives the parties the authority to independently develop and decide on an appointment process. In the event that the parties are unable to reach a consensus regarding a protocol, the court will select the arbitrator in a case involving a single arbitrator, and in a case involving three arbitrators, each party will select one arbitrator, with the two appointed arbitrators then selecting a presiding arbitrator.
Language of Proceeding: Due to varying language proficiency, it is common for the parties—domestic or foreign—to experience communication problems during the dispute resolution procedure. In these circumstances, the cost of the translation could skyrocket, further upsetting the parties. Thus, it is always a good idea to decide on the arbitration’s language in advance.
The necessity of signing an arbitration agreement
It was decided in Svapn Const. v. IDPL Employees Co-op. Group Housing Society Ltd. that if the agreement is established by another written document, the parties do not need to sign it.
a contemporaneous document that binds the parties together. Nonetheless, the Supreme Court ruled in M/s Caravel Shipping Services Pvt Ltd v. M/s Premier Sea Food Exim Pvt Ltd in 2018 that an unsigned arbitration agreement is legitimate because the 1996 Act only requires that an arbitration agreement be in writing.
Whether an arbitration award must be stamped
According to Section 5 of the Indian Stamp Act of 1899, arbitration agreements are subject to charges. In Bengal Hire Purchase Corpn v. Harendra Singh, the Calcutta High Court ruled that an arbitration agreement that is not stamped can’t take effect until the entire stamp duty has been paid, in accordance with the 1940 Act. The unstamped agreement would first be seized by the courts and forwarded to the appropriate authorities for the payment of any applicable stamp duty and penalties. The arbitration agreement cannot be carried out until the flaw has been fixed. In the 1996 Act case of Garware Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd., the Supreme Court took a similar stance.
Arbitration agreements provide parties with a flexible and efficient alternative to traditional litigation. By incorporating these agreements into contracts, businesses, and individuals can streamline dispute resolution processes and benefit from the many advantages offered by arbitration. Understanding the key components of arbitration agreements is crucial for parties seeking to embrace this alternative dispute resolution method.
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Written By: Avichal Singhal Adv.