Introduction

Arbitration is one of the mode of resolving the dispute between the parties without having recourse to the traditional courts, avoiding complicated processes and for saving the time to resolve the disputes. Arbitration is one of the different forms of ‘Alternate Dispute Resolution’. In arbitration, parties agree to appoint one or more, third person who is neutral to the transactions between the parties and whose decesions are legally binding on the parties to the Dispute.

The importance of ‘The Arbitration Agreement’ is that, it forms a foundation (root) of arbitration. According to the section 7 of The Arbitration & Conciliation Act, 1996, it means that, it’s an agreement to submit the all or certain disputes to arbitration. ‘The Arbitration Agreement’ can be in two basic forms like (i) ‘Arbitration Clause’ while entering into a contract clause to be inserted and (ii) in the form of a ‘separate agreement’. This note we will discuss on ‘The Arbitration Agreement’ and ’The Arbitration Clause’.

Arbitration Agreement & Arbitration Clause Meaning (section 7)

All kinds of commercial contracts, may be arbitrable provided there is an agreement in this regard between the parties. Where there is an arbitration agreement as per the provisions section 7 of ‘The Arbitration & Conciliation Act, 1996’, the conflicting parties can be referred for arbitration.

Arbitration Agreement

Section 7(1) states that, “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.

Sub section 2 of section 7 states that, ‘An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.’

Section 7(3) makes it compulsory that, an arbitration agreement shall be in writing.

Section 7(4) states that, An arbitration agreement is in writing if it is contained in— (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 defence in which the existence of the agreement is alleged by one party and not denied by the other.

So from above provisions, we can say that, to come within the scope of the Arbitration Act, there are three essentials i.e,

a) ‘The Arbitration Agreement’ must be in writing;

b) There must be definite parties;

c) Parties must have intention to settle their disputes by way of arbitration.

Oral Agreement of arbitration : It is very essential requirement that an arbitration agreement must be in writing. Neither ‘The Arbitration Act, 1940’ nor ‘The Arbitration and Conciliation Act, 1996’ recognises oral agreement. The Apex Court in M. Dayanand Reddy v. A.P. Industrial Infrastucture Corporation Ltd & others, observed that, The Arbitration Act,1940 recognises only written arbitration agreement and the terms of the agreement must bereduced into writing.

In Rukmanibai Gupta v. Collector, the Supreme Court laid down that, an arbitration clause is not required to be stated in any particular form.

Disputes which can be referred to arbitration are (a) present or future which are, (b) in respect of a defined legal relationship, whether contractual or not. If the agreement relates to a present dispute it will generally amount to a reference, but if it it has been entered into merely to provide for any future dispute, it is an arbitration clause. Secondly the dispute must be a legal nature. Matters of moral or spiritual relations are not fit subjects for arbitration.

Arbitration Clause

An arbitration clause in a contract is a provision which states about, how disputes between the parties to a contract will be resolved by arbitration rather than to go for traditional court litigation.

An arbitration clause, is a clause in a contract that specifies situations in which the parties to the contract, can refer disputes for arbitration. By signing a contract with an arbitration clause, all signing parties agree in advance to resolve the conflicts specified in the clause through arbitration.

Section 7(5) states about whether the arbitration clause is a part of contract. Section 7(5) states that, The 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 make that arbitration clause part of the contract.

An arbitration clause has to be read as a whole for its proper interpretation.

In GAIL v. Keti Construction (I) Ltd, it was held that, The terms of the arbitration agreement should br construed in a broad common sense manner.

In National Agricultural Coop Marketing Federation India Ltd v. Gains Trading Ltd., states that, ordinary and natural rule of interpretation should be applied for the interpretation of arbitration clause except in cases where it may lead to absurdity. Nothing in the arbitration clause should be considered as meaningless when it is in harmony  with the other ingrediants of the clause and expresses specific intention of parties.

In Eastern Coalfields Ltd. v. Sanjay Transport Agency it was held that, principles of interpretation of statutes regarding section, heading or marginal note (internal aids) can be applied for construction of an arbitration clause in a contract. Not only the text in clause but caption of the arbitration clause can also be taken into consideration to interpret it.

The Supreme Court in N. Radhakrishnan v. Maestro Engineers, overruling the High Court decision, held that the meaning of ‘difference of opinion’ can lead to a dispute. Based on the facts of the case, it is very difficult say that, difference of opinion and dispute were two different things.

Even where the agreement ceases to exist, the arbitration clause in the agreement remains in force. Any dispute relating to agreement has to be resolved in accordance with requirements of the arbitration clause. The arbitration clauses provided for time-bound discharge of obligation. The specific time elapsed. The Court said that even in such a case the arbitration clause would survive and the dispute would be resolved under it. (N. Srinivasa v. Kuttukaran Machine Tools Ltd.)

In Everest Holding Ltd. v. Shyam Kumar Shrivastava, a joint venture agreement was terminated by one of them, his argument that disputes could not be referred to arbitration as the agreement was no longer in existence was held invalid. The arbitration clause remained alive. The dispute had to be adjudicated accordingly.