Who Can Enter Into Arbitration Agreement? | Law Optional Notes for UPSC PDF Download

Introduction

• An arbitration agreement is a unique arrangement where parties agree to resolve disputes outside of court through an arbitrator or a panel of arbitrators.
• Similar to forming contracts, specific criteria must be met for the arbitration agreement to be valid and enforceable.

Meaning of an Arbitration Agreement

• According to Section 7 of the Arbitration Act, an arbitration agreement is defined and formed.
• This agreement can be a distinct document or a section within a contract.
• An arbitration agreement is considered "written" if documented in signed papers or written communications such as emails, faxes, or letters.
• Written records serve as evidence of the agreement's existence, especially when one party disputes its presence.
• Section 7 clarifies that an agreement need not always be formally written and signed; it can also be inferred from the parties' informal actions like sharing messages via email, fax, etc.

Examples:

• Imagine two companies, A and B, agree to resolve any future disputes through arbitration instead of going to court. They outline this agreement in an email exchange where both parties express their consent. This email exchange constitutes a valid arbitration agreement under Section 7.

Explanation and Elaboration:

• When parties decide to engage in arbitration, they are opting for a private method of dispute resolution that offers confidentiality and flexibility.
• Section 7 of the Arbitration Act plays a crucial role in defining the parameters of what constitutes an arbitration agreement.
• It's important to note that even informal written communications can constitute an arbitration agreement as long as they reflect the parties' intention to resolve disputes through arbitration.
• By recognizing various forms of documentation, including emails and letters, the law ensures that parties have flexibility in how they formalize their agreement.

Eligibility for Entering an Arbitration Agreement

• For an arbitration agreement to be valid, the individuals involved must possess the legal capacity to enter into contracts.
• Similar to regular contracts, specific criteria determine who can participate in an arbitration agreement.
• Individuals who fall under the following categories can make an arbitration agreement:
  • Adults (defined in Section 3 of the Indian Majority Act, 1875)
  • Individuals who are mentally sound (as outlined in Section 12 of the Indian Contract Act, 1872)
  • Any person not disqualified by law
• Both parties entering into the contract must provide their written consent, typically by signing the arbitration agreement voluntarily and without undue influence.

Understanding Competency to Contract

Individuals Eligible to Enter into Contracts:

• Those of Majority Age: Section 11 of the Indian Contract Act specifies that individuals who are 18 years or older possess the legal capacity to enter into contracts.
• Mentally Sound Individuals: As outlined in Section 12, mentally competent individuals have the ability to engage in contractual agreements. If an individual lacks mental capacity at the time of contract formation, they are unable to enter into a contract.
• Individuals Not Legally Prohibited: According to Section 11, individuals not expressly prohibited by law are capable of entering into contracts.

Conclusion

Individuals eligible to enter into an arbitration agreement are those of legal age, possessing sound mental capacity, and not disqualified by law. All involved parties must voluntarily provide consent through their signatures, establishing a fair and legally valid alternative to resolving disputes outside of the court system.