This article on ‘Arbitration Agreement: Section 7 of the Arbitration and Conciliation Act‘ was written by Arpita Tiwari, an intern at Legal Upanishad.
Nowadays disputes are very common in the business world. Both the parties to the disputes have to bear the losses during the continuation of the disputes and if the case is lengthy then the individuals need to travel on a daily basis to the court which becomes very hectic. The answer to this problem is ADR i.e; Alternate Dispute Resolution which made it easier and more straightforward to settle disagreements between parties. Section 89 of the CPC provides for the parties to resolve their disputes by the way of ADR.
It is a developing area of law because it offers appropriate alternatives at a lower cost and in less time. There are various methods mentioned under ADR to resolve disputes and one of them is the Arbitration method which is a key to ADR.
Arbitration is a process where two parties resolve their disputes without approaching the court. Section 2(1)(a) of the Arbitration and Conciliation Act, 1996 refers to arbitration that is not managed by any arbitral organisation, i.e., all types of arbitration have been legally recognised in India by bringing them under the purview of the Arbitration and Conciliation Act, 1996. It includes a simple trial and a simple procedure for presenting evidence without conducting any investigation.
Arbitration does not include public involvement as it is a dispute arising between the two parties. In arbitration, both parties have to appoint one arbitrator and the two appointed arbitrator has to appoint the third arbitrator who is the presiding arbitrator. The presiding officer is the one who in the end provides the judgement which is binding on both parties. The presiding officer announces the arbitral award which has the same legal force and effect as a judicial order or judgement.
This article analyses the arbitration agreement mentioned under Section 7 of the Arbitration and Conciliation Act, 1996. The author will discuss the definition of an arbitration agreement, the obligations that it imposes on the parties, and the procedure that the parties must follow when entering into an arbitration agreement. Furthermore, the author will discuss the agreement’s objective, as well as its benefits and drawbacks. In addition, the author will explain the Supreme Court’s fundamentals for the arbitration agreement.
SECTION 7 OF THE ARBITRATION AND CONCILIATION ACT, 1996
An arbitration agreement is defined under Section 7 of the Act which says:
It is an agreement where parties can raise their matter which should be judged by the arbitral tribunal. The parties to the agreement arbitrate all or specific issues that have occurred or may develop between them about a specific legal relationship irrespective of whether they are contractual in nature or not. The arbitration agreement is considered or established when there is an arbitration clause in a contract or if there is any kind of separate agreement. It is necessary that the agreement must be in written and signed by both parties.
If any person has made any contract related to anything and if in future any kind of dispute arises from that particular contract and the parties don’t want to involve in any court proceedings then in that case he or she may solve their case by Arbitration method by making this agreement under Section 7 of the Act.
An arbitration Agreement is similar to a contingent contract which means its existence or enforcement is dependent on the occurrence of a disagreement between the parties. It is only actionable when there is a dispute between the parties.
BASIC REQUIREMENTS FOR THE ARBITRATION AGREEMENT
As per Section 7(4) of the Act, a written agreement is a document comprised of:
- A contract that is signed by both parties
- A written document of the contract is exchanged by the use of letters, telex, telegrams, or another form of communication; or
- There is a change in the statements of claim and defence where one party alleges that the agreement has existed and the other party is denying the same.
There are no such criteria for an arbitration agreement which has been stipulated and the word arbitration has not been mentioned anywhere only the need for an arbitrator is the crucial requirement for the arbitration agreement. It is very important that if the parties wanted to resolve their disputes through arbitration then it should be enforceable only through the arbitration agreement.
The agreement has to be signed by the parties and the agreement made would constitute a signed paper where both the parties have agreed with the conditions mentioned under it or it might also take the form of a written agreement that is signed by both parties and includes both the conditions and an acceptance. If one of the parties to the contract has made the sign in the agreement and the other party has accepted it, then it will be sufficient in order for it to be considered valid.
AIM OF THE ARBITRATION AGREEMENTS
The goal of arbitration is to quickly resolve any dispute that has arisen between the parties, which should be considered preferable to litigation. The issues that arise are not discussed deeply or less officially in arbitration, but in court, all issues are followed by some procedures that are discussed thoroughly and in an official manner.
BENEFITS OF THE ARBITRATION AGREEMENT
The arbitration agreement has a number of benefits that the parties can use by incorporating an arbitration clause in their contract.
The benefits include:-
- Prevents conflict in civil court
- Second advantage: less costly than civil litigation
- Resolutions typically occur more quickly
- Unlike lawsuits, processes are more adaptable.
- The hearings are confidential.
- Providing evidence in an arbitration dispute is irrelevant
- The parties may choose an arbitrator jointly.
By this, we can say that the arbitration agreements are helpful to solve the matter with a low minimum price or make dispute procedures much more pliable.
DRAWBACK OF THE ARBITRATION AGREEMENT
There are certain drawbacks to this arbitration agreement and they are:-
- There are few legal remedies available.
- There isn’t always fair competition
- There is doubt about the objectivity
- The procedure is not constantly obvious
- Arbitration expenses are increasing
- Choices may be based on conjecture
- Fewer chances to challenge the judgment
FUNDAMENTALS OF THE AGREEMENT GIVEN BY THE SUPREME COURT
Supreme Court of India has established the legality and the essence of the arbitration agreement in the case of K.K Modi v. K.N Modi and also through another case that is Jagdish Chander v. Ramesh Chander.
There is some essence made by the Supreme Court and they are:-
- The agreement should be in writing
- There should be proper consent from both parties to resolve disputes in a private tribunal according to the agreement.
- The private Tribunal has the authority to judge the matter without making any partiality and by adhering to the principles of natural justice.
- The parties to the disputes acknowledge that the tribunal’s decision is binding on them.
- Without any hesitation, the parties can mention the dispute in the private tribunal.
- There should be free consent from both sides, and it should follow the maxim ‘Consensus ad idem’
- The arbitration clause must issue the responsibility of the parties which is mandatory for them to perform.
- The elements of distinction, severability, independence, or any other basics of the agreement are not excluded by the articles of the contract.
It is undeniable that India has made significant progress in recognising, developing, and implementing other alternative dispute resolution (ADR) techniques. Arbitration is one such method, for which we have a separate Act, the Arbitration and Conciliation Act, 1996, under which the parties must make an arbitration agreement in order to enter into the contract and through which the parties can raise their issues in the future if any disputes arise between the parties. The agreement has certain benefits which the author has discussed but there are some drawbacks also with the agreement still it is preferable for the individuals to solve their matter.
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