Arbitration Agreement under Arbitration and Conciliation Act | Law Optional Notes for UPSC PDF Download

Definition of Arbitration Agreement

• The concept of an Arbitration Agreement serves as the foundation of any contractual arrangement. Essentially, it represents a provision within a contract that dictates the resolution of disputes through arbitration when they arise. It signifies the agreement by which parties involved in a dispute commit to resolving their differences through arbitration.

Enforcement of Arbitration Agreement under Arbitration and Conciliation Act, 1996

• Enforcement Types:
  • First type involves waiving the power to adjudicate in courts.
  • Second type grants jurisdiction to private arbitrators.
• Legal Frameworks:
  • Enforcement under UNCITRAL Model Law and New York Conventions.
• Arbitration Agreement Defined:
  • Defined under the Model Law as an agreement to arbitrate disputes within a legal relationship.
  • According to the New York Convention, parties agree to arbitrate differences concerning a legal relationship.
• Applicable Law:
  • Modern law basis allows parties to proceed with the arbitration clause as the agreement.
  • Other cases may require assent from both parties as per applicable law.

Applicability of Law

• The choice of law made by the parties plays a crucial role in governing the arbitration agreement. Parties can select a specific law to govern their arbitration.
• The applicable contract law also influences the arbitration agreement. The law governing the contract will extend to the arbitration agreement as well.
• Procedural law steps in when there is no agreement on the governing law. In such cases, the procedural law of arbitration takes precedence.
• The law of the arbitration's location holds significance. It can be designated as the governing law for the arbitration process.

According to the principles of the New York Convention, the validity of an arbitration agreement is primarily determined by the law chosen by the involved parties. If no specific choice is made, the law of the arbitration's location will apply. This approach is well-established for enforcing awards and can also be applied when addressing the recognition of the arbitration agreement in court.

Key Elements of an Arbitration Agreement under the Arbitration and Conciliation Act

• Arising from Mutual Consent:
  • One crucial aspect of an arbitration agreement is that it must stem from the mutual agreement of all involved parties.
  • Example: Two business partners deciding to resolve any future disputes through arbitration rather than litigation.
• Legal Capacity Requirement:
  • All parties entering into the arbitration agreement must possess the legal capacity to do so.
  • Example: A minor not having the legal capacity to enter into such a binding agreement.
• Written Form:
  • It is essential that the arbitration agreement is documented in writing to ensure clarity and enforceability.
  • Example: A signed contract outlining the terms and conditions of arbitration between two companies.
• Based on a Defined Legal Relationship:
  • The agreement should arise from a clearly defined legal relationship between the parties involved.
  • Example: An arbitration agreement between an employer and an employee regarding disputes related to their employment contract.
• Arbitrability of Subject Matter:
  • The subject matter of the dispute must be capable of settlement through arbitration.
  • Example: Disputes related to intellectual property rights being resolved through arbitration.

Termination of Arbitration Agreement under Arbitration and Conciliation Act

• Termination of the arbitration agreement occurs through mutual consent of both parties.
• Another cause for termination can be the death of one of the parties involved.
• Parties entering insolvency or bankruptcy proceedings can also lead to the termination of the agreement.
• In certain jurisdictions, the death of an arbitrator does not halt the arbitration process; a replacement is typically provided. However, in some regions, the death of an arbitrator can impact the proceedings.

Understanding Severability of the Arbitration Agreement under the Arbitration and Conciliation Act

• Previous Interpretation: Initially, it was believed that the arbitration agreement was merely an accessory to the main contract. As a result, if the main contract was deemed invalid, the arbitration agreement would also be considered void.
• Introduction of Severability Doctrine: However, the concept of severability emerged to address this issue. This doctrine establishes that the arbitration agreement is independent and distinct from the main contract. Therefore, the nullity of the contract does not automatically render the arbitration agreement void.
• Autonomy of Arbitration Agreement: Under this principle, even if the main contract is found to be invalid, the arbitration agreement remains enforceable, ensuring that parties can still resolve their disputes through arbitration.
• Incorporation in Model Law: The principles of severability are explicitly included in the Model Law, emphasizing the autonomy and separateness of the arbitration agreement from the underlying contract.

Judicial Intervention in Arbitration

• According to Section 5 of the Arbitration and Conciliation Act, judicial intervention is restricted in matters falling under this Act unless explicitly provided for.
• The Act mandates minimal interference by judicial authorities in arbitration proceedings.
• Recent legal cases, such as Ssangyong Engineering & Construction v. National Highways Authority of India, emphasize that courts should not replace arbitrators' decisions with their own.
• In the case of McDermott International Inc. v. Burn Standards Co. Ltd., the court highlighted that the Arbitration and Conciliation Act, 1996, assigns a supervisory role to courts, primarily to ensure fairness during the review of arbitral awards (judicial review under Section 34 of the Act).

Conclusion

The pivotal component in arbitration is the Arbitration Agreement, as it establishes the authority and jurisdiction of the arbitration process. The agreement delineates the rules governing the arbitration, and the specific rule to be followed can be determined by the parties involved. The doctrines of severability and competence-competence are adhered to in both the model law and the New York Convention.