Alternative Dispute Resolution

Module II
ARBITRATION AGREEMENT
Semester VI, Section C
Class Summary
Mr. S.K.Sinha.
Faculty of Law, HNLU


Arbitration Agreement
According to Section 2(1) (b) of the Arbitration and Conciliation Act, 1996, an
arbitration agreement means an agreement referred to in Section 7 of the Act.
According to Section 7(1) (Chapter-II) of the Arbitration and Conciliation Act,
1996, an 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.
Further, according to Section 7(2) of the Act, an arbitration agreement may be in the
form of an arbitration clause in a contract or in the form of a separate agreement.
Under Section 7(3) of the Act, the agreement shall be in writing.
Under Section 7(4) the term writing is explained. Accordingly, 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
which provide a record of the agreement; or
(c) An exchange of statements of claim and defence un which the existence of the
agreement is alleged by one party and not denied by the other.

Under Section 7(5) of the Act, 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.



Essentials - Rule of severability - Who
can enter into Arbitration Agreement
An arbitration agreement must be in writing in whatever form it may be. This
definition under Section 7 of the Act resembles the definition stated in the New
York and Geneva Conventions.
The Supreme Court of Indian, in K.K. Modi vs. K.M. Modi,
1998,vol.3,SCC,Page 573, laid down the essential ingredients of arbitration
agreement as follows:
1. The agreement must comply with the requirements as stated under section 7 of
the Arbitration and Conciliation Act, 1996.
2. The agreement must also be legally valid in accordance with the following
provisions of the Indian Contract Act, 1872:-
(a) Competency of the parties u/s 11 and 12;
(b) Mutual consent of the parties u/s 13 to 22
(c) As to lawfulness of subjects u/s 23 to 27 and 30;
(d) Certainty of agreement u/s 29;

Contd.
Thus, unless the parties are competent to deal with the subjects as required
under the Indian Contract Act, 1872, they cannot enter into a valid arbitration
agreement. The provisions u/s 7(1) however empowers the competent parties to
submit the disputed which may arise in future to arbitration. But the subject
matter must be connected to defined legal relationship which is created out of a
legally binding contract. Thus, the following persons cannot enter into an
agreement:-
(a) Minors: - Basically, a person who has not attained the age of majority cannot
enter into arbitration agreement. However, on behalf of a minor and for the
minors benefit or protection an agreement may be entered into by the minors
lawful guardian or his next friend under Order 32 of Code of Civil Procedure,
1908 with the leave of the Court. A natural guardian of a minor also has power
to do so. Under these two circumstances, the arbitral award is binding on the
minor.
(b) Person of Unsound Mind: - The provisions of Order 32 of Code of Civil
Procedure, 1908 apply here also.



Contd.
(c) Insolvent: - An insolvent cannot enter into an agreement as the Insolvency Court
is alone competent to deal with the insolvents estate and contracts. Thus an
insolvent is disqualified to enter into any contract by the Law of Insolvency. So,
any person disqualified by any Statute cannot enter into a contract and also
arbitration agreement. Likewise, a contract with an alien enemy is void under the
Law of Contract.
(d) Agents: - Agents can enter into any arbitration agreement depending upon the
authority delegated to them by the principal as per the provisions of the Indian
Contract Act, 1872. The authority can be implied or express.
(e) Trustees: - Under section 43 of the Indian Trusts Act, 1882, the Trustees can
refer a dispute connected to the Trust to arbitration provided that a contrary
intension is not expressed in the Instrument of Trust. The trustees are bound by
the terms and contents of the Trust Deed.
(f) Artificial Persons: - Juridical persons like companies, societies can enter into
arbitration agreements subject to the contents of the Memorandum of
Association, Articles of Association and the bye-laws if any.




Contd.
(g) Firms: - The position of the partners is same as of the trustees. The
partners are bound by the arbitration clause in the partnership deed. Same is
the case in commercial contracts of the firm.
(h) Government Contracts: - All Government Contracts must be signed in
behalf of the President of India or Governor of the State concerned as the
case may be as provided under Article 299 of the Constitution of India. Any
violation of this provision automatically invalidates the contract.
As per Section 7 of the Arbitration and Conciliation Act, 1996, the
arbitration agreement is a contingent contract. The arbitration agreement
can be entered into any stage like:
(a) At the time of entering onto the contract in anticipation of a dispute; or
(b) When the dispute actually arises; or
(c) When the dispute is taken to a Court of Law.



Contd.
The Supreme Court in P. Anand Gajapathi vs. P.V.G. Raju, SC 2000 vol. 2,
Arbitration Law Reporter, page 204 held that even at appellate stage, the
parties can prefer to settle the dispute by arbitration.
Under Section 7, a reference has been made to defined legal relationship,
whether contractual or not. Under a contract the legal relationship of parties is
defined. As for instance, a party is identified as vendor/vendee etc. in a Sale
Deed. The legal relationship is derived from the contract of sale. However, there
is another reference of defined legal relationship which is non contractual. Here
there is a defined legal relationship but it does not arise out of any contract. It is
twofold. Commercial and non commercial. Thus, the non contractual defined
legal relationship can be classified as non contractual commercial disputes and
non contractual non commercial disputes. Issues like infringement of
intellectual property rights are non contractual commercial disputes as no
formal contract can be entered into on such issues but any infringement of the
intellectual property rights triggers penal action and also compensatable and the
issues are connected to trade, commerce and industry. The non contractual
commercial issues generally arise out of breach of a statutory obligation. Non
contractual non commercial disputes do not relate to trade, commerce or
industry. Issues like family partition etc., come under this category.


Thank you for your time
soumyakanti.lws@gmail.com
www.hnlu.ac.in