ABSTRACT

Arbitration has risen by leaps and bounds in recent years. It has thrived as a stand-alone conflict settlement process due to the fundamental principles of party autonomy and secrecy. The arbitration agreement establishes a binding procedure that must be followed by both the parties and the arbitral tribunal in making decisions. Arbitration’s basic principles, such as party autonomy and secrecy, have made it an appealing alternative of conflict settlement among the parties; nonetheless, the formalities needed in arbitration might make it appear a little intimidating. Section 7 of the 1996 act stipulates the meaning of an arbitration agreement and what constitutes a valid arbitration agreement. A valid arbitration agreement is sine qua non to initiate arbitral proceedings .The term arbitration agreement signifies an arrangement by parties to put forward  to arbitration , all or certain disputes which have emerged between them in regard relationship whether contractual or not. Therefore an arbitration agreement is the genesis based on which parties consent to settle their disputes through arbitration.

INTRODUCTION

Arbitration is one of the popular mechanisms of Alternative Dispute Resolution.Arbitration is defined by The Black’s Law Dictionary as “the submission for resolution of disputed issue to private unofficial individuals appointed in the way authorized by law or agreement. Unlike the court proceedings arbitration takes place in private and is much informal by its nature.It is a flexible and effective method of resolving disputes in which parties submit their problems to an unbiased third party, known as an arbitrator, whose decision is binding on the parties.

The Indian Arbitration Act, 1899, established the formalized practice of arbitration in India in the nineteenth century. Nonetheless, due to a lack of rigorous procedural mechanisms, the law relating to arbitration in India is contained in 1996 was enacted and extended to the whole country of India Act which is based on UNCITRAL Model adopted in 1985.

According to the 1996 statute, it is any arbitration, whether or not supervised by a permanent arbitral institution.[1] It is a process that ensures speedy justice and does not pose a lengthy procedure seeking justice from one court to another .Now days in most of the contract we often find an arbitration clause under dispute resolution mechanism  this certainly implies an agreement between the parties to settle the disputes arising out of that contract among through the process of  arbitration i.e. such an agreement entails both present and future disputes arising out of a contractual obligations  however in case of  absence of an arbitration clause the disputes cannot be referred to arbitration. A written arbitration agreement determines the resolution of all or certain disputes between two parties in respect of their contractual or legal relationship. According to Section 7 of the 1996 Act, such agreements are written agreements between two parties. Arbitrators who are willing or mandated to act as arbitrators assist with resolving all or certain disputes that have arisen or may arise between them.The Supreme Court ruled that the Arbitration condition shaping portion of an agreement would be viewed as an independent understanding independent of the agreement in Enercon (India) Ltd v Enercon Gmbh and Anr[2]It is essential to distinguish between the assertion condition/understanding and the hidden agreement so that the gatherings’ goal of resolving issues through arbitration does not disappear immediately and inexplicably when they are challenged to lawfulness, legitimacy, conclusion, or violation of the fundamental agreement.

The legitimacy of an arbitration agreement is evaluated by the facts and circumstances, including the parties’ intention when entering into an agreement, as well as the communication made between them. The agreement does not have to be in any specific form, and the presence or absence of the terms ‘arbitration’ or ‘arbitrator’ is pointless[3] as what is of utmost significance is the intention of parties to resolve their disputes through arbitration stating explicitly in an arbitration agreement or clause.

WAYS FOR PARTIES TO ENTER INTO ARBITRATION AGREEMENTS   

The need that an arbitration agreement has to in a written format is a key condition under Section 7 of the 1997 Act. Moreover, Section 7 allows the parties to enter an arbitration agreement in a variety of methods, as listed below:

• An Arbitration Clause

 The 1996 Act recognizes the doctrine of separability of the arbitration agreement which provides that arbitration agreement is an independent agreement and can be separated from underlying agreement in which it is contained. As a result arbitration agreement would survive the termination or invalidity of the main contract. Thus an arbitration clause in a contract entitles the parties to resolve their disputes through an arbitration process. Under such a contract Arbitration clauses is seen as arbitration agreements.

• Incorporation by reference section

7(5) of the act[4] provides for incorporation by references it states where a clause refer to any contract between the parties and is writing ,it constitutes an arbitration agreement. A simple mention of a separate individual document containing within itself an arbitration clause or agreement is not adequate at the point  when the mentioned document isn’t another agreement yet a standard type of terms and conditions distributed by a trade association  or regulatory institution[5].If the parties enter into an agreement with an arbitration clause to adjudicate their disputes after the enactment of the 1996 Act, but the agreement refers to the Indian Arbitration Act, 1940, as the governing law to be applied on the arbitration proceedings, the incorrect reference does not render the arbitration agreement invalid was ruled in the case of Purushottam S/O TulsiramBadwaik vs Anil &Ors[6].

• Modes of communication

Arbitration proceedings generally demand the delivery of written communication in accordance with the subject matter as per the UNCITRAL Model Law Article 3 it provides the following

• How should such a communication be delivered
• How and When to ascertain whether written communication has been received.

The section 3of the Arbitration and Conciliation Act, is based on the modes of communication provided in the UNCITRAL Arbitration Rules for instance the article 2(1) of theUNCITRAL Arbitration Rules provides 3 mechanism of delivering written communication

• Delivery to the receiver personally
• Delivery to the receiver’s place of business residence or email address
• If the delivery of the communication cannot be done following the first two mechanism then the sender after a reasonable enquiry can make an attempt to deliver by sending  it to the addressee’s  last know place of business or mailing address or by any other means providing a record of an attempt

Section 3 (1) of the Arbitration and Conciliation Act lay emphasis on sending a notice by registered letter or any other means to the last know last know place of business or mailing address which provides an attempt to deliver it which is sufficient to draw a presumption of service. In fact the sub section holds that it is deemed service.

COMMUNICATION WHEN CONSIDERED TO BE DELIVERED

Section 3 of 1996 act is procedural in nature its object is to bring to the notice of the other party the intention to act upon the arbitration agreement.In the 1996 Act also provides the parties to infer an arbitration agreement by exchanging letters, telexes, telegrams, or other contact that makes a record of their agreement.Apart from this in the case of Amrik Singh vs.MagmaFincrop Ltd[7] the Calcutta high court held under section 3(1)(a) the written communication being delivered to the addressee personally does not mandate the arbitration to personally drop the arbitration award to the party.

Widening the scope of an arbitration agreement, an agreement can be derived from the parties’ correspondence if there is a clear and unambiguous intention to subject conflicts to arbitration. This has been laid down by The Delhi High Court has that the in the case ofGalaxy Infra and Engineering Pvt. Ltd v. Pravin Electricals Pvt. Ltd[8]where in a draft agreement shared by email between the parties might be considered as a legitimate arbitration agreement.Though the burden of proof is on the serving party to rectify that the addressee has received the communication or not. Moreover whatever form of arbitration agreement it may be the substance of the agreement is more important than the form as ruled in the case ofPravinchandraMurarji Savla v. MeghjiMurji Shah [9]the court accentuatedthat Taking into account Section 7(c) of the 1996 Act and S.N. Prasad v. Monnet Finance Ltd[10]., the presence of an arbitration agreement can be presumed when a statement of claims or accusations is made and is greeted with ‘non-denial’ by the opposing party.

Even though the 1996 Act left the field open with a myriad of options to construct an arbitration agreement, it is usually suggested as normal practise to include an arbitration clause in the contract itself.

UNILATERAL ARBITRATION AGREEMENTS

Unilateral Arbitration Agreements provide single party to a dispute the authority to choose the conflict resolution method, whether arbitration or litigation. Such agreements or provisions provide just one side the freedom to select, placing the other party at a disadvantage. The legitimacy of such clauses is subject to the court’s discretion; they can sustain such clauses or interfere on public policy grounds.In the case ofPittalis v. Sherefettin[11],’ the legitimacy of a unilateral arbitration provision was affirmed in the United Kingdom, and the fact that one party to the dispute had the right to send the matter to a separate adjudicator was deemed irrelevant. There was no lack of mutuality because both sides agreed on the same thing. In the United States, an agreement allowing one party to commence arbitration proceedings is considered a legitimate agreement.

MULTI-TIER ARBITRATION AGREEMENT

Multi-tier clauses are those that provide the settlement of disputes in two or more levels, with arbitration serving as the final stage. Negotiation, mediation, and/or conciliation are examples of phases. The purpose of multi-tier provisions is to provide the parties an opportunity to settle their issue peacefully before resorting to arbitration as last option. Such agreements must be drafted carefully to ensure compliance. They are known as procedural prerequisites. Several institutes across the world have model med-arb provisions that are frequently used by parties who want to look into the possibility of peacefully settling disputes, either before or during the arbitral procedures.  In the case of M.K. Shah Engineers v. State of M.P.[12]was the Supreme Court’s first decision dealing with the legality of procedural requirements. The Court was asked if an award might be contested if such conditions were not satisfied. The Supreme Court deemed such criteria to be important, which could not be waived and must have been met. A party cannot skip or proceed straight to the final form of dispute resolution without first exhausting the other processes specified in the agreement.

PREREQUISITES OF DRAFTING AN EFFECTIVE ARBITRATION AGREEMENT

There are certain requirements must be satisfied in order for an arbitration agreement to be legitimate and enforceable. Below mentioned are some basic essentials enumerated by the United Nations Conference Trade and Development, Dispute resolution in 2005

• Must be result of meeting of minds
• Establish  state referral arbitration
• Shall be codified ie it must be in written format
• Made by parties with the legal standing to subject to arbitration
• Conform to a defined legal relationship
• Be on an arbitrable subject.

In the case ofK.K Modi v K.N Modi[13] and  Jagdish Chander vs. Ramesh Chander[14]explored the characteristics required for considering an agreement.It was ruled that the following characteristics must be present:

• the arbitration agreement must foresee that the tribunal’s ruling will be binding on the parties to the agreement.
• The tribunal’s jurisdiction to resolve the parties’ rights must be derived from their consent, an order of the Court, or a legislation, the conditions of which explicitly states that the procedure is to be an arbitration.
• The agreement must provide that the agreed-upon tribunal shall decide the parties’ substantive rights.
• The parties’ agreement to submit their disputes to the tribunal’s ruling must be meant to be legally binding.
• The tribunal will adjudicate the parties’ rights in an unbiased and judicial way, being impartial and fair to both sides.
• The agreement must provide that the tribunal will rule on a dispute that has already been constituted at the time the reference is made to the tribunal.

Other important considerations include whether the agreement contemplates that the tribunal will receive evidence from both sides and allow the parties to present their issues and hear their arguments; whether the agreement’s statement is in line with the belief that the process was meant to be an arbitration; and if the agreement needs the tribunal to resolve the dispute in accordance with the law.

SIGNATURE OF PARTIES

An arbitration agreement can be established by any document signed by the parties, or by an exchange of letters, telexes, telegrams, or other means of communication that give proof of the agreement to that effect. In the case of M/s Caravel Shipping Services Pvt Ltd v M/s Premier Sea Food Exim Pvt Ltd[15]the court laid stressed on fact that an unsigned arbitration agreement is valid as the only prerequisite for a valid arbitration agreement under the 1996 Act is that it must be in writing. The arbitration agreement can be deduced from numerous documents such as e-mails, letters, telexes, telegrams, and other forms of communication. Other written or contemporaneous documents binding the parties can be used to establish it.  Even an invoice outlining an arbitration agreement between the parties that is signed by only one party is deemed a valid arbitration agreement.

SEAT & VENUE

The ideas of ‘seat’ and ‘venue ‘of the arbitration are crucial since they not only govern where the arbitration will take place, but also the supervisory jurisdiction of the courts and the lex arbitri. If the arbitration provision specifies the place of arbitration, the law of that location will govern the arbitral proceedings.

 The procedural legislation that regulates the arbitral procedures is determined by the arbitration’s seat. For example, if the arbitration is held in Delhi, the procedures will be conducted in line with the 1996 Act, unless the parties agree otherwise.

In simple words, the venue of an arbitration is the physical location where the arbitral procedures will take place. It is mainly chosen based on convenience, or what is convenient for both parties, witnesses, and so on. As previously noted, the seat of arbitration frequently decides the legislation governing the arbitration agreement. Nonetheless, in agreements where the seat is not specified, the venue may be one of the deciding criteria in determining a suitable court for the arbitral proceedings.

STAMP DUTY ON ARBITRATION AGREEMENT

It is taxable under section 5 of the Indian stamp Act of 1899 to place an arbitration agreement on record. As a result Bengal Hire Purchase Corpn v. Harendra Singh, the Calcutta High Court declared that an unstamped arbitration agreement cannot be given effect until the full stamp duty is paid.

In ReligareFinvest Ltd. v. Asian Satellite Broadcast[16],the High Court of Delhi concluded that insufficient stamp duty is a jurisdictional issue under Section 16 of the Act, and so the tribunal must consider it as a preliminary matter before determining on the substantive claims under the agreement.

In the absence of judicial intervention, the arbitrator would get the appropriate stamp duty by impounding the document. When a Section 11 application is filed to a court for the appointment of an arbitrator and it is brought to the court’s knowledge that the stamp duty has not been paid or has been paid insufficiently, the court will seize the document and have it correctly stamped. If a Section 8 application is filed, the court will submit the parties to arbitration. Yet, the parties would have to obtain the substantive contract properly stamped before any issues resulting from it could be decided. If a Section 9 application requests temporary relief, the court will first grant the relief if a case can be made out for it, then seize the document and instruct the parties to pay the required stamp duty. Initially, the courts would seize and forward the unstamped agreement to the appropriate authorities to collect stamp duty and penalties (if any). The arbitration agreement can only be finalized when the gap has been filled. In Garware Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd.[17], the Supreme Court took the same stance on the 1996 Act.

CONCLUSION

It is imperative to handle a dispute resolution system meticulously since it has such broad implications. Numerous High Courts and the Supreme Court have underscored the importance of drafting the arbitration clause in the contract correctly.

Improperly drafted arbitration agreements may be invalid, and if the parties proceed with the arbitration, the award may be declared unenforceable.   As a result, an arbitration agreement should be carefully designed, include all relevant information, and be as definite as possible. The eight Basic Drafting Guidelines outlined in the IBA Guidelines for International Arbitration Clauses may also be resorted to while creating an Arbitration agreement.

[1] Section 2 (1) (a) of the Arbitration &Conciliation Act,No 26  of 1996.

[2] Enercon (India) Ltd v. Enercon Gmbh and Anr(Civil Appeals 2086 & 2087 of 2014; judgment dated February 14, 2014).

[3] Visa International Ltd. v. Continental Resources (USA) ltd.2009 2SCC 55.

[4] Section 7(5) of Arbitration &Conciliation Act,No 26  of 1996.

[5] M.R Engineers& Contractor(P) Ltd. v. SomDatt Builders Ltd.(2009)7SCC696.

[6]Purushottam S/O TulsiramBadwaik v. Anil &Ors(2018)8SCC 95.

[7] Amrik Singh v. Magma Fincrop Ltd (2011).

[8]Galaxy Infra & Engineering Pvt. v.Pravin Electricals Pvt. Ltd 2021 SCC OnLine SC 190.

[9]PravinchandraMurarji Savla v. MeghjiMurji Shah (1998) 1 GLR 778

[10]  S.N. Prasad v. Monnet Finance Ltd.,(2011) 1 SCC 320

[11]Pittalis v. Sherefettin (1986)1QB868.

[12]M.K. Shah Engineers v. State of M.P(1999)2 SCC594.

[13] K.K Modi v. K.N Modi(1998) 3 SSC573 .

[14]Jagdish Chander v. Ramesh Chander(2007)5 SCC719.

[15] M/s Caravel Shipping Services Pvt Ltd v M/s Premier Sea Food Exim Pvt Ltd(2019) 11SCC 461(India).

[16]ReligareFinvest Ltd. v. Asian Satellite Broadcast 2022 SCC OnLineDel 221.

[17] Garware Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd(2019)9SCC209.