Mar, 05 2024

Section 2(1)(b) of The Arbitration And Conciliation Act, 1996 indicates, an arbitration agreement is defined as referred to in Section 7. An arbitration agreement can be comprehensive so as to include all disputes and the parties are entitled to fix boundaries and include only specific disputes and the parties are entitled to fix boundaries and include only specific disputes for reference to arbitration.[1] Arbitration agreement as defined under Section 7, is an agreement between the parties to submit the disputes to arbitration.

 

Essential Requirements:

The Supreme Court in KK Modi v. KN Modi laid down the following four-fold test to determine if a given arbitral clause satisfies the essential elements of an arbitration agreement:

‘i) There must be a present or a future difference in connection with some contemplated affair;

(i) There must be the intention of the parties to settle such difference by a private tribunal;

(ii) The parties must agree in writing to be bound by the decision of such tribunal; and

(iv) The parties must be ad idem'

 

The mandate under the Act of 1996 requires the Arbitration Agreement to be in writing[2] however, the signature or seal[3] of the parties is not necessary. Only when the agreement specifically requires it to be signed by the parties as an acknowledgement of the terms and conditions, the signature of the parties must be deemed necessary. An arbitration clause in a surety bond was held to be valid, even if it was signed only by one of the parties.

In respect of commercial contracts, there are a variety of documents that are exchanged between the parties for acknowledging the transaction. Some of such documents include purchase orders, invoices, tender documents, work orders, bills, receipts, dispatch orders, etc. It has become a common practice to include dispute resolution and jurisdiction clauses in those documents, without carrying the signatures of the parties, in order to ensure smooth resolution of disputes, which may at times be deemed to be unilaterally imposed. The validity of those clauses depends on the circumstances of the cases, where the intention of the parties is gathered to determine the consensus. Disputes cannot be submitted to arbitration based on the clauses that are present in the tender document when the main agreement or purchase order is yet to be issued in accordance with the tender document.[4]

Hon’ble Supreme Court in Jagdish Chander v. Ramesh Chander and Ors[5] ruled on the specifications of an arbitration clause.

i)  ‘An arbitration agreement should necessarily mention that any dispute arising out of such agreement shall be referred to arbitration. If any other word in the place of "shall", like "may" or "might" is employed, then such agreement shall not qualify as an arbitration agreement.

ii) Mere use of the word "arbitration" or "arbitrator" in a clause shall not make the clause an arbitration clause. For a clause to be deemed an arbitration clause, it must explicitly express the intention of the parties to refer disputes arising out of the agreement to arbitration. For example, if the clause is along the lines of "the parties may agree to refer any dispute to arbitration", then such clause is not an arbitration clause since it does not mandate the reference of any dispute to arbitration. Rather, such a clause merely provides that the parties have the agency to refer matters to arbitration if they think it fit.’

 

Citations:

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[1] Delhi State Industrial & Infrastructure Development Corpn. Ltd. v. HR  Builders, (2022) 4 HCC (Del) 123

[2] M.M. Aqua Technolofies Limited v. Wig Brothers Builders and Engineers Ltd, (2001) 3 Raj 531

[3] Great Offshore Ltd v Iranian Offshore, (2008) 14 SCC 240

[4] Emcure Pharmaceuticals Ltd. v. Odisha State Medical Corpn., 2022 SCC Online Ori 1368

[5] 2015 (2) Raj 258 (Del)