Arbitration is a type of alternative dispute resolution (ADR) mechanism that has become increasingly popular in recent years. An arbitrator is an independent third party whose verdict is binding to the parties in the dispute.
The Arbitration and Conciliation Act, 1996 is the law that governs the arbitration in India. The act aims for the regulation of domestic and international arbitration and conciliation, the enforcement of foreign arbitral awards along with ensuring fair, effective and just proceedings. The parties that intend to resolve their disputes in relation to a particular matter enter into an arbitration agreement to define the terms of such arbitration. The Arbitration Agreement can be said to be a reflection of autonomy and flexibility provided under the Arbitration as a method of dispute resolution. An arbitration agreement can be an independent agreement or form the part of any other agreement governing the relationship between the parties.
The essentials of such Arbitration Agreements are as follows;
- Existence of an arbitrable dispute
Only when there has been a dispute, can the arbitration agreement be considered valid. They cannot invoke the arbitration clause and oppose the settlement if they have resolved their dispute and reached an agreement.
- Arbitration agreement shall be in writing
Sec 7 (3) of the Arbitration & Conciliation Act, 1996 provides that an arbitration agreement shall be in writing. Further Sec 7(4) recognizes varied forms in which arbitration agreement may exist. The written agreement could be contained in a;
(a) “a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or
(c) 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.”
- Composition of Arbitral tribunal
The parties’ intention with respect to the composition of the arbitral tribunal shall be precisely defined. The number of arbitrators and the procedure for appointment shall be clearly agreed. Section 10 of the Act,1996 states that the number of arbitrators shall not be even. According to Section 11 of the said act the parties can appoint a person of any nationality as arbitrator. .
- Language of Arbitration
It is vital to specify the language of arbitration in the agreement itself. In the absence of any provision a dispute may arise related to this clause.
- Governing Law
The parties to agreement should expressly mention the law according to which the arbitration proceedings between them shall be governed.
- Seat of Arbitration
The Parties are required to mutually decide the seat of arbitration which shall be a part of arbitration agreement.
- Intent to submit the dispute to arbitration
An arbitral award is the decision of the arbitrator in relation to the dispute. It is important to mention the award passed by the arbitrator would be final and binding on the parties to the agreement.
The Arbitration Agreement in substance implies the acceptance of arbitration as a mode of dispute resolution, therefore the acceptance of the parties shall be clear. Such acceptance may be in the form of a signature of both the parties or it can take the form of a document signed by only one party to the contract that contains the terms and acceptance by the other party. Moreover, it will also be enough if one side signs the agreement and the other acknowledges it.
In India, arbitration has been emerging as a preferred mode of dispute resolution due to its varied advantages; greater flexibility and freedom of choosing the forum all the while saving time, cost and resources. With the advent of technology, there has also been a rise in e-arbitration where parties separated geographically can resolve their conflicts over video conferencing effectively. The parties while going for arbitration as mode of dispute resolution shall be cautious to provide for all the essentials of an arbitration agreement.