ARBITRATION AGREEMENT

 

Arbitration means, a process of dispute resolution in which a neutral third party (arbitrator) renders a decision after a hearing, at which both parties have an opportunity to be heard[1]. Statutory definition[2] of Arbitration reads as, “Arbitration means any arbitration whether or not administered by permanent arbitral institution”. Arbitration mechanism provides for an alternate dispute resolution to settle a dispute among contesting parties other than traditional dispute resolution mechanism i.e. Civil Court of Law or Courts of Ordinary Original Civil Jurisdiction.

To invoke the mechanism of Arbitration for settlement of Dispute, an Arbitration Agreement between the disputants is sine qua non, with certain exceptions[3].  It must always be kept in mind that an Arbitration Agreement should always be in writing[4]. An arbitration agreement shall also include the details about the number of arbitrators who shall decide the dispute and the manner in which the Arbitrator/s shall be appointed. It must also be borne in mind and must be included in the agreement the venue at which the Arbitration shall be conducted or what is called in legal parlance as Seat of Arbitration. The arbitration agreement must also include the Language of the proceedings of the Arbitration and the division of Cost of the Arbitration proceedings. Most importantly, if possible, rules as to conduct of Arbitration proceedings must also be inculcated in the Agreement.

Arbitration agreement between the disputed parties helps the party/person in grievance to initiate dispute resolution mechanism without knocking the doors of the civil Courts. The important advantages of settling the dispute through arbitration are, 

(a) Expeditious settlement of dispute with effective Judgment in form of an Award,

(b) The dispute among the disputant’s remains confidential,

(c) The parties at dispute have a right to appoint Arbitrator of their own choice,

(d) The arbitration process and proceedings are less expensive as compared to their counterpart,

(e) Less technicalities while conducting arbitration,

(f) Less Formal as compared to Courts,

(g) Curbs vexatious practices of either party during the Arbitration proceedings,

(h) No Appeal against Arbitral Award[5].

It could be seen that, the mechanism of Arbitration are mainly utilized by those entities whose nature of dispute are complex and amount involved is in millions. But it should be remembered that the legislators have framed the Law of Arbitration i.e. THE ARBITRATION AND CONCILIATION ACT, 1996 and previously The Arbitration Act, 1940[6] with a sole aim that the mechanism of Arbitration should be utilized by all those irrespective of amount involved and the complexity of dispute. To some extent, there is lack of knowledge among the stake holders in Tier II and Tier III cities, as to process of Arbitration and its reliability for settlement of dispute and the process of enforcement of the Award passed by an Arbitrator. The stake holders in Tier II and Tier III cities has to explore, adapt and accept the process of Arbitration for settling their dispute so as to build confidence among themselves that a dispute can be settled effectively and expeditiously without knocking the doors of Conventional Courts.  

The stakeholders are always in a quandary as to the cost of an Arbitration agreement and the means to procure know how as to invocation of Arbitration mechanism which in itself hampers their business in a long run. The Indian Judiciary is under a tremendous pressure redressing and enforcing Criminal, Personal and social legislation which are mainly non – arbitral and that opens up the way or an option to settle a Commercial Dispute only by way of Arbitration. Arbitration opens up the avenues for the stakeholders to take risks, have faith in their counterparts and conduct business without any fear as to undergoing fatigue and cumbersome process of conventional Courts if any dispute between them arises in the future. Even Arbitration mechanism takes off a heavy load from the Conventional Courts and the Courts have to deal only with the task as to, inter alia, Enforceability of Award, provisional interim measures, etc.

As it is clear that, without Arbitration Agreement there cannot be invocation of Arbitration mechanism but it has an exception, as to Statutory Arbitration[7]. In case of Statutory Arbitration it applies only to such arbitration which is the direct result of a Statute without reference to the consent, intention or any written Agreement between the parties. To name a few, statutes like The Micro Small Medium Enterprises Development Act, 2006, The Multi-State Cooperative Societies Act, 2002, The Cantonments Act, 1924, The Electricity Act, 2003, etc. state for dispute settlement through Arbitration even if there is no Arbitration Agreement per-se between the disputants. Is such cases the Arbitration commences as per these statues and such arbitration is called as Statutory Arbitration.  

In a nutshell, Arbitration agreement is essential to commence Arbitration in case of a dispute between the parties. The Arbitration agreement must also be properly Stamped (Stamp Duty) as per the State Stamp Law or else it cannot be utilized unless deficient or proper Stamp Duty is paid and it shall attract penalty as per Law. 

– Adv. Nikkhil C. Warange – Lesec Advisors LLP, Advocates & IP Attorneys

 

References:

[1] Black’s Law Dictionary 6th Edition

[2] Sec. 2(1)(a) of THE ARBITRATION AND CONCILIATION ACT, 1996

[3] Statutory Arbitrations.

[4] Sec. 7(3) of THE ARBITRATION AND CONCILIATION ACT, 1996.

[5] Except as per Sec. 34 of THE ARBITRATION AND CONCILIATION ACT, 1996.

[6] Repealed

[7] Sec. 2(4) of THE ARBITRATION AND CONCILIATION ACT, 1996.

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