Arbitration Agreement.docx

PROJECT REPORT

 ON

ARBITRATION ARBITRATION AGREEMENT

Submitted Submitt ed ToToMr. Prabhjot Singh Cheema

Submitted BIti Jhanji !th Seme"ter Se#tion B Ro$$ No. %&'()

AC*NO+,EGEMENT I Iti Jhanji /ou$d $i0e to than0 m de1artment 2ni3er"it In"titute o4  ,ega$ Studie" Panjab 2ni3er"it Chandigarh and m ire#tor Pro4. Sangita Bha$$a 4or gi3ing me an o11ortunit to 1re1are a 1roje#t re1ort on the to1i# ARBITRATION AGREEMENT under the ab$e guidan#e o4 Mr. Prabhjot Singh Cheema. I a$"o e5tend m heart4e$t gratitude to/ard" the $ibrar "ta44 o4 the de1artment and m 1arent" and 4riend" 4or rendering their heart4e$t "u11ort.

INE6 7 8 9 % ! &

Arbitration Agreement Connotation o4 the term :orm o4 an Arbitration Agreement +hat #on"titute" an Arbitration Agreement Ora$ Arbitration Agreement not re#ogni"ed An Arbitration Agreement i" not ne#e""ari$ to be "igned b both the

1artie" ; Arbitrab$e i"1ute" < +hether Mutua$it i" re=uired Agreement

Arbitration Agreement >Se#tion ;?

to #on"titute a 3a$id Arbitra$

1. In this Part, “arbitration agreement” means 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. 2. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. . An arbitration agreement shall be in writing. !. An arbitration agreement is in writing if it is contained in " #a$ A document signed by the parties% #b$ An e&change of letter, tele&, telegrams or other means of telecommunication which provide a record of the agreement% or #c$ An e&change of statements of claim and defence in which the e&istence of  the agreement is alleged by one party and not denied by the other. '. (he reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to ma)e that arbitration clause part of the contract. *ection + defines an arbitration agreement. It refers to the disputes which have a reason or which may arise between the parties in respect of a certain legal relationship, whether contractual or not. A relationship which though legal may not necessarily be a contractual as in case of professionals li)e a doctor and a  patient or a lawyer and his client, etc. particularly with reference to the liability arising out of their negligence in their professional conduct. (he word partyfor the purpose of Part 1 of the Act connotes party to the agreement- has distinguished from party to the suit. oth, the claimant who has brought the legal action and the respondent, who applies for reference of the dispute to arbitration, must be parties to the arbitration agreement. A dispute in the conte&t of Arbitration Act means a dispute arising out of  assertion of claim by one party and its repudiation by the other party. In other  words, a dispute implies some )ind of disagreement between parties concerning some legal claim or liability 1. It may be distinguished from the term difference-

1 Salecha Cables vs. H.P.S.E. Board, (1995) 1 Arb. LR 422 (m).

which means having different opinion as to the e&act meaning of a particular  term in the contract. (he difference or dispute must relate to some civil claim. (he e&istence of a dispute or a difference in an essential prere/uisite for  arbitration. 0here the dispute has been finally settled the parties cannot refute the settlement and invo)e the arbitration clause for reference to arbitration 2. (he section further states that an arbitration agreement is an agreement which  provides that in case of dispute, it is to be submitted to “arbitration”, the nature of such agreement would be voluntary, however it does not matter whether such dispute is a present or future dispute, *ection +#1$ of the Act, recognises both types of disputes. *ection +#1$ provides classification by means of agreement between the parties that all or certain disputes are to be submitted to arbitration and also an agreement in respect of e&isting dispute and future dispute. owever it is e&pected that arbitration agreement is to be made in specific clauses, but no  particular form of arbitration agreement is prescribed under the Act. In  Rukmanibai vs. Collector, Jabalpur 3, the *upreme ourt said that what is re/uired to be ascertained is whether the parties have agreed that if disputes arise between them in respect of the sub3ect4matter of the agreement such dispute shall be referred to arbitration, and then such agreement would spell out an arbitration agreement. (hat means what is re/uired under *ection +#2$ to #'$ is the terms of an arbitration agreement which must be very clear and specific, maybe, in form of clauses and e&pression used in an arbitration agreement such as “arbitrator”, “arbitration” and “arbitral tribunal” should be defined. (he clauses contained in an arbitration agreement are not li)e the clauses of a contract because the clauses of an arbitration agreement are enforceable under  this Act. *ection +#$ ma)es necessary that an arbitration agreement must be in writing so, it does not recognise oral or verbal agreement. *ection 2#a$ of the Arbitration Act, 15!6 also provided similar condition in respect of an arbitration agreement.

2 !a"ha#$ S"eels vs. Assoc$a"e Co#s"r%c"$o#, (1995) & S%. SCC &24. &A'R 191 SC 49, 41.

*ection +#!$ affirms essential condition that an arbitration agreement must be writing signed by parties and it recognises the modern mode of communication such as tele&, telegrams, letters and also a communication by means of tele4 communication which forms a record of the arbitration agreement. *ection +#!$ #c$ deals with an arbitration agreement contained in an e&change of statements in respect of claim and defence in which the e&istence of the agreement is alleged by one party and not denied by the other party. Although, *ection +#!$, clause #b$ and clause #c$ e&plains that it is not necessary that an arbitration agreement in all cases should be signed by the parties !. *ection +#'$ e&plains that in a contract agreement if the reference is made as to arbitration clause- it will amount to an “arbitration agreement”. (hus, an “arbitration clause” can be a part of a contract provided it is in writing. 7ow, it is clear that this sub4section recognises the practice prevailing in such documents of contract containing an arbitration clause. i.

Term @agreement-Connotation o4 

(he term “agreement” has been defined by the ontract Act as every promise and every set of promises forming the consideration for each other is an agreement-. (he consideration for an arbitration agreement is willingness of  either side to abide by the decision #award$ of the arbitrator. An arbitration agreement is reciprocal promise proceeding from either side. (he test to determine whether a particular clause amounts to a valid submission is whether   both parties are bound by the clause and not whether a right has been e&pressly given to both the parties to initiate arbitral proceedings '. (hus it can be said that an agreement8arbitration agreement is an instrument containing reciprocal  promises between the parties with the ob3ect that in case of any dispute arising out of a contract the same would be liable to be submitted for arbitration.

4 Ba#ars$ *as vs. Ca#e Commr. A'R 19+& SC 141. 5 ar$"$me '"ral$a#a S"eamsh$ Co. vs. B%r-or ramro/e 0osh$, A'R 1929 Bom. 15

ii.

:orm o4 an arbitration agreement

*ection +#2$ of the Act provides that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (hus, if there is an arbitration agreement either as an arbitration clause in the agreement of a contract itself or there is a separate agreement for   purpose of arbitration, it ma)es no distinction in the eyes of law because it satisfies the re/uirement of *ection +#2$ of the Act. It appears from above  provision that *ection +#2$ deals with e&ternal aspects of an arbitration agreement, whereas a contract is generally used for incorporating an arbitration clause for future disputes, a separate agreement can contain an arbitration clause  both for e&isting and future disputes. (hus, an arbitration clause is not re/uired to be endorsed in any particular form, what is re/uired to be ascertained is whether the parties have agreed that if disputes arise between them in respect of  the sub3ect matter of the agreement such disputes shall be referred to arbitration, than such an agreement would spell out an arbitration agreement 9. iii.

+hat #on"titute" an @arbitration agreement

In Jagdish Chander vs. Ramesh Chander 7  , the Ape& ourt had occasion to lay down the principle as to what constitutes an arbitration agreement, which are the following:4 >a? Intention o4 1artie"4 (he 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 indicating an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for ad3udication and a willingness to be bound by the decision of such tribunal on such disputes, it is an arbitration agreement. 0hile there is a specific form of an arbitration agreement, the words used should disclose a determination and an obligation to go to arbitration and not merely contemplate the possibility of going to arbitration. 0here 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.

+R%ma#$ba$ vs. Collec"or, 0abal%r, A'R 191 SC 49.  (2) 5 SCC 19.

>b? C$au"e re$ating to "ett$ement o4 di"1ute"4 ;ven if the words “arbitration” and “Arbitral (ribunal” #or arbitrator$ are not used with reference to the process of settlement or with reference to private tribunal which has to ad3udicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or  elements of an arbitration agreements. (hey are:4

1. (he agreement should be in writing% 2. (he parties should have agreed to refer any disputes #present or future$  between them to the decision of a private tribunal% . (he private tribunal should be empowered to ad3udicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case  before it% and !. (he parties should have agreed that the decision of the private tribunal in respect of disputes will be binding on them. >#? S1e#i4i# and dire#t intent to "ett$ement o4 di"1ute b arbitration 4 0here the clause provides that in that event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. 0here there is specific and direct e&pression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to ma)e it an arbitration agreement. ut where the clause relating to the settlement of disputes, contains words which specifically e&clude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. d? Mere u"e o4 /ord @arbitration not "u44i#ient-ut mere use of the word “arbitration” or “arbitrator” in a clause will not ma)e it an arbitration agreement, if it re/uires or contemplates a further fresh consent of the parties for reference to arbitration.