ARBITRATION AGREEMENTS UNDER THE ARBITRATION AND CONCILIATION ACT, 1996

INTRODUCTION

An arbitration agreement, as defined under the Arbitration and Conciliation Act, 1996, refers to an agreement between parties to resolve all or specific disputes that have arisen or may arise between them in relation to a defined relationship, whether contractual or not. This agreement may be in the form of an arbitration clause within a contract or a separate agreement and must be in writing.

The agreement is considered in writing if it is documented in a signed physical document by the parties or through an exchange of letters, telex, telegrams, or other means of telecommunication that provide a record of the agreement, including communication through electronic means. Additionally, it can be established through an exchange of statements of claim and defense in which one party alleges the existence of an agreement, and the other party does not deny it.

The essential element of an arbitration agreement is the written consent of the parties to submit their disputes to arbitration. This written consent signifies that the parties have considered the application of arbitration under the Arbitration and Conciliation law and recognize the binding nature of any awards rendered in the arbitration process.

Similar to any other agreement, an arbitration agreement is legally binding upon the parties, unless it is tainted by fraud, undue influence, or other such factors, which would allow it to be avoided like any regular contract.

Fundamentally, arbitration relies on the mutual voluntary agreement of the parties to submit their disputes to selected individuals, known as arbitrators. The arbitrators' determinations are accepted as substitutes for judgments issued by a court. The primary objective of arbitration is to achieve a final resolution of differences between parties in a more cost-effective, expedited, and less formal manner compared to traditional court proceedings.

PRE-REQUISITES OF ARBITRATION

Every arbitration process must meet the following three pre-requisites:

(i) Existence of a dispute between parties that requires resolution.

(ii) The submission of the dispute to a third-party arbitrator mutually agreed upon by the parties.

(iii) The arbitrator's decision, based on their own judgment and the facts and circumstances of the dispute, which is binding on both parties.

SUBMISSION OF DISPUTE TO ARBITRATION

A submission refers to an agreement between two contracting parties to entrust a third mutually-agreed party with the authority to resolve their dispute. For the arbitration process to proceed smoothly, the arbitrator must accept the role of an arbitrator to formalize their appointment.

AIM OF ARBITRATION

Arbitration is designed to provide a swift and economical settlement of disputes between contracting parties. As part of the primary agreement, the parties agree to refer any dispute or difference arising from the terms and conditions of the agreement to a third-party arbitrator. The arbitrator's judgment is binding on both parties, ensuring a conclusive resolution.

METHODS OF ARBITRATION

To initiate arbitration, the parties in dispute will enter into an agreement to refer the matter to arbitration and define the terms of reference, outlining the specific issues the arbitrator must decide. Unlike traditional courts, an arbitrator is not bound by strict rules of evidence, but they do follow the general practices of presenting and conducting a case in a court of law. Most of the evidence presented is in written form, and the parties may be required to be present during cross-examination if necessary.

The arbitral tribunal is free to determine its own procedural rules during the arbitration proceedings, as long as they are fair and reasonable. The tribunal may choose to ask the parties to present evidence through affidavits, and if so, cross-examination of the witnesses whose affidavits have been filed should be allowed to ensure fairness and justice.

REQUISITES OF AN AWARD

The general requirements of a valid award are as follows:

(a) The award must be consistent with the submission made by the parties.

(b) The award must be certain and clear, leaving no ambiguity in its terms.

(c) The award should be fair to all parties involved, providing a just resolution to the dispute.

Overall, arbitration offers a flexible and efficient alternative to traditional litigation, allowing parties to resolve their disputes in a more amicable and less time-consuming manner. It is important for parties to carefully draft their arbitration agreements, ensure written consent, and adhere to the principles of fairness and impartiality during the arbitration process to achieve a satisfactory resolution for all parties involved.

SPECIMEN OF ARBITRATION AGREEMENT TO REFER THE DISPUTE TO TWO ARBITRATORS

This Agreement is made and entered into on this [day] of [month] and [year] between Mr. [Name of Party 1] and Mr. [Name of Party 2], hereinafter referred to collectively as "the Parties," witnesseth as follows:

1. Background:

   WHEREAS, differences and disputes have arisen between the Parties regarding the matter of [briefly describe the subject matter of the dispute], and the Parties have been unable to mutually settle the matter.

2. Reference to Arbitration:

   NOW, THEREFORE, the Parties agree to refer the matter to arbitration in order to obtain a final resolution.

3. Appointment of Arbitrators:

   The Parties hereby nominate Mr. [Name of Arbitrator 1] as the arbitrator selected by one party, and Mr. [Name of Arbitrator 2] as the arbitrator selected by the other party.

4. Arbitration Proceedings:

   - The two appointed arbitrators shall jointly conduct the arbitration proceedings.

   - The award rendered by the arbitrators shall be final and binding on both Parties.

5. Umpire in Case of Differences:

   - If any differences arise between the appointed arbitrators on the questions referred to them, the said arbitrators shall select an umpire.

   - The award rendered by the umpire shall be final and binding on both Parties.

6. Timeframe for Award:

   - The arbitrators shall endeavor to deliver their award within a reasonable time.

   - The Parties may consult with the arbitrators to extend the timeframe, if necessary.

7. Application of Arbitration and Conciliation Act, 1996:

   - The provisions of the Arbitration and Conciliation Act, 1996, shall apply to this reference to arbitration, to the extent they are applicable and not inconsistent or repugnant to the purposes of this agreement.

8. Cooperation and Participation:

   - Both Parties agree to cooperate fully and expeditiously with the appointed arbitrators, providing necessary evidence and support during the arbitration proceedings.

   - It is expressly agreed that if either Party fails to cooperate or is absent from the arbitration, the arbitrators may proceed with the reference ex-parte.

9. Irrevocability of Agreement:

   - The Parties agree that this reference to arbitration shall not be revoked by the death of either party or any other cause.

10. Incapacity of Arbitrators:

    - In the event that either of the appointed arbitrators becomes incapacitated due to death, sickness, or other disability, the Parties retain the right to nominate suitable substitutes without the need for a new agreement.

11. Binding Effect of Award:

    - The Parties acknowledge that any award rendered by the arbitrators, whether jointly or by the umpire, shall be binding on both Parties, their heirs, executors, and legal representatives.

IN WITNESS WHEREOF, the Parties have affixed their signatures to this Agreement on the [day] of [month and year] at [place].

 

Signature: ___________________________                                                                    Signature: ___________________________

Mr. [Name of Party 1]                                                                                                           Mr. [Name of Party 2]

 

SPECIMEN OF ARBITRATION AGREEMENT TO REFER THE DISPUTE TO A COMMON ARBITRATOR

This Agreement is made at [place] on this [day] day of [month], between:

Party of the First Part:

Name: Mr. X

Residing at: [address]

Hereinafter referred to as "Party of the First Part"

Party of the Second Part:

Name: Mr. Y

Residing at: [address]

Hereinafter referred to as "Party of the Second Part"

WHEREAS, by an Agreement (Building contract) dated [date], entered into between the parties hereto, the Party of the First Part entrusted the work of constructing a building on his plot of land situated at [location] to the Party of the Second Part on the terms and conditions mentioned therein.

AND WHEREAS, the Party of the Second Part has commenced the construction of the building according to the plans sanctioned by the [Municipal Corporation] and has completed the construction up to the 1st floor level.

AND WHEREAS, the Party of the First Part has made certain payments to the Party of the Second Part on account, but the Party of the Second Part is pressing for more payments which, according to the Party of the First Part, he is not bound to pay, and therefore, the work has come to a standstill.

AND WHEREAS, disputes have arisen between the parties hereto regarding the interpretation of certain provisions of the said agreement and also regarding the quality of construction and delay in the work.

AND WHEREAS, the said agreement provides that in the event of any dispute or difference arising between the parties, the same shall be referred to arbitration of a common arbitrator if agreed upon or otherwise to two Arbitrators, and the arbitration shall be governed by the provisions of the Arbitration & Conciliation Act, 1996.

AND WHEREAS, the parties have agreed to refer all the disputes regarding the said contract to Mr. [Name of Arbitrator], an Architect, as a common Arbitrator, and have proposed to enter into this Agreement for the reference of the disputes to the sole arbitration of the said Mr. [Name of Arbitrator].

NOW IT IS AGREED BETWEEN THE PARTIES HERETO AS FOLLOWS:

1. Reference to Arbitration:

   The following points of dispute arising out of the said agreement dated [date] are hereby referred to the sole arbitration of Mr. [Name of Arbitrator] for his decision and award:

   (a) Whether the Party of the Second Part has carried out the work according to the sanctioned plans and specifications.

   (b) Whether the Party of the Second Part has delayed the construction.

   (c) Whether the Party of the Second Part is overpaid for the work done up to now.

   (d) Whether the Party of the First Part is bound to make any further payment over and above the payments made up to now for the work actually done.

   (e) All other claims of one party against the other party arising out of the said contract up to now.

2. Arbitration Procedure:

   - The said Arbitrator shall allow the parties to file their respective claims and contentions and to file documents relied upon by them within such reasonable time as the Arbitrator may direct.

   - The said Arbitrator shall give hearings to the parties either personally or through their respective Advocates, but the Arbitrator will not be bound to take any oral evidence, including cross-examination of any party or person.

3. Timeframe for Award:

   The said Arbitrator shall make his Award within a period of four months from the date of service of a copy of this agreement on him by any of the parties hereto, provided that the Arbitrator will have the power to extend the said period from time to time with the consent of both parties.

4. Interim Award:

   The Arbitrator will not make any interim award.

5. Binding Effect of Award:

   The award given by the Arbitrator will be binding on the parties hereto.

6. Costs of Arbitration:

   The Arbitrator will have full power to award or not to award payment of such costs of and incidental to this arbitration by one party to the other as he may think fit.

7. Applicable Law:

   The Arbitration shall be governed by the provisions of the Arbitration & Conciliation Act, 1996.

IN WITNESS WHEREOF, the parties herein have set their hands on the day and year hereinabove mentioned.

 

....................................................                                                                                            ....................................................

Signed by Mr. X [Party of the First Part]                                                                                Signed by Mr. Y [Party of the Second Part]

in the presence of:                                                                                                                   in the presence of:

 

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, RBI etc.

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