Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

RESEARCH PROJECT ON

Arbitration Agreement, Difference between Arbitration and Mediation

For

COURSE ON ‘’Law of Alternative Dispute Resolution”

Submitted by

Anamika yadav

B.ComLL.B/15-16/26

Academic Session: 2019-20

Under the Guidance of

Mr. Shail Shakya

Asst. Prof. in Law & Faculty for Law of Alternative Dispute Resolution
Faculty of Law
Dr. Shakuntala Misra National Rehabilitation University

1|Page
 ACKNOWLEDGEMENT

I would like to express my /special thanks of gratitude to my teacher Mr. Shail Shakya
who gave me the golden opportunity to do this wonderful project on the topic,
Arbitration Agreement, Difference between Arbitration and Mediation which also
helped me in doing a lot of research and I came to know about so many new things I am
really thankful to him.

Secondly, I would also like to thank my parents and friends who helped me a lot in
finalizing this project within the limited time period.

Anamika Yadav

VIIIth sem.

2|Page
 Table of Contents

1. Acknowledgement
2. Introduction
3. Arbitration Agreement
4. What is Arbitration Agreement As per Act
5. Essentials of an Arbitration Agreement
6. Appointment of Arbitrators
7. Who can enter into Arbitration agreement
8. Points to remember while drafting Agreement
9. Termination of Arbitration agreement
10. Mediation
11. What is Mediation
12. Why do we need Mediation
13. Comparison
14. Case study
15. Conclusion

3|Page
 INTRODUCTION OF ARBITRATION

Arbitration is a method of settlement of disputes as an alternative to the normal judicial method.

It is one of the methods of alternative dispute resolution (ADR). Of all the forms of ADR like
conciliation, mediation, negotiations, etc. arbitration has become the dominant form of ADR. It
is more firmly established in its utility. Alternative Dispute Resolution was conceived of as a
dispute resolution mechanism outside the court of law established by the Sovereign or the State.
ADR can be defined as a collective description of process or mechanisms that parties can use to
resolve disputes rather than bringing a claim through the formal court structure. ADR is a part of
civil justice system with the United Kingdom. It is a key aspect of the civil justice system and
has grown over the past forty years.

The law relating to arbitration is contained in the Arbitration and Conciliation Act, 1996. It came
into force on the 25th of January, 1996. It provides for domestic arbitration, international
commercial arbitration and also enforcement of foreign arbitral awards. It also contains the new
feature on conciliation. Like arbitration, conciliation is also getting increasing worldwide
recognition as an instrument for settlement of disputes. However, with the passage of time, the
phrases “Arbitration and ADR” came in vogue, which implied that arbitration was distinct from
other ADR forms1.

ARBITRATION AGREEMENT

Arbitration agreement is a written agreement between the parties to a contract or otherwise,

committing themselves to resolve all the issues arising out of a contract or otherwise through
arbitration. It can be either a separate agreement between parties to a contract (or any legal
relationship) or a clause in the contract itself by which both the parties agree to resolve the
disputes arising out of the contract or otherwise by way of an Arbitration only. Arbitration
agreement between the parties takes away the right of the parties to approach the Court to
resolve their disputes. The parties in case of disputes between them, with regard to the issues
covered by the arbitration agreement, have to necessarily choose arbitration only. If any one of
the party approaches directly a Court of law seeking remedy in a matter, where there is an
arbitration clause between them, the other party can approach the court, file an application
seeking the court to refer the matter to arbitration since there is an arbitration clause in the
contract. The Court will be left with only an option to refer the matter to arbitration2.

1
https://www.academia.edu/
2
http://www.lawsenate.com

4|Page
Section 7 of the Arbitration and Conciliation Act, 1996 defines arbitration agreement as 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.

WHAT IS ARBITRATION AGREEMENT AS PER THE ARBITRATION

AND CONCILIATION ACT, 1996 ?

According to Section 7of Arbitration Conciliation Act, 1996 the features of Arbitration
Agreement are:-
1) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
2) An arbitration agreement shall be in writing.
3) 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 defense in which the existence of the agreement
is alleged by one party and not denied by the other.
4) 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

VALID ESSENTIAL OF AN ARBITRATION AGREEMENT

(a) The agreement should be in writing.

(b) The parties should have agreed to refer any disputes (present or future) between them to the
decision of a private tribunal.

(c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial
manner, giving due opportunity to the parties to put forth their case before it.

5|Page
(d) The parties should have agreed that the decision of the Private Tribunal in respect of the
disputes will be binding on them3.

1. Written Agreement: An arbitration agreement must be in writing1. It need not be in any

particular form. It may be a single document containing all the terms or can comprise of
two documents. However, an oral agreement of arbitration is not legally recognized in
India.

2. Capacity of the Parties: An arbitration agreement must be in compliance with all the
requirements of a valid contract. It will be binding on the parties unless it is influenced by
fraud, coercion or undue influence. The parties must have requisite capacity for entering
into the contract. Lack of such capacity invalidates the contract.

3. Intention: Another very important element is the intention of the parties to refer disputes
already arisen or likely to arise in respect of a contract. A binding contract require
consensus ad idem. It generally includes appointment of arbitrators, seat and the venue of
the arbitration proceedings, choice of language and other procedures for proceedings and
pleadings. If the intention of the parties is clearly discernible from the terms of the
agreement, the presence or absence of the words ‘arbitration’, ‘arbitrator’, or ‘arbitral
tribunal’ does not matter.

4. Independent Clause: An arbitration clause in a contract is treated as an independent

contract and even if main contract is itself illegal and void, it does not make the
arbitration clause invalid. The contract survives for determining and measuring the claims
arising out of breach and the arbitration clause survives for the mode of their
settlement. This provision was incorporated with a view to give power to the arbitral,
tribunal not only to rule on its own jurisdiction but also to decide objection with respect
to the existence or validity of the arbitration agreement4.

APPOINTMENT OF ARBITRATORS-

The Arbitration and Conciliation (Amendment) Act, 2015 grants the liberty to the
parties to appoint an arbitrator mutually.
The Act provides that the parties are free to determine the number of arbitrators,
provided that such number shall not be an even number. However, if the parties fail to
do so, the arbitral tribunal shall consist of a sole arbitrator.1

3
http://www.lawweb.in
4
http://lex-warrier.in

6|Page
The procedure in relation to appointment of arbitrator(s) is provided under Section 11
of the Act. A person of any nationality may be an arbitrator, unless otherwise agreed by
the parties. The aforesaid section also deals with the contingency wherein the parties
fail to appoint an arbitrator mutually. In such a situation, the appointment shall be
made, upon request of a party, by the Supreme Court or any person or institution
designated by such Court, in the case of an International Commercial arbitration or by
High Court or any person or institution designated by such Court, in case of a domestic
arbitration.
Before the appointment of arbitrator is made, the concerned Court or the person or
institution designated by such Court is required to seek a disclosure in writing from the
prospective arbitrator in terms of Section 12(1) of the Act and also give due regard to
any qualifications required for the arbitrator by the agreement of the parties and the
contents of the disclosure and other considerations as are likely to secure the
appointment of an independent and impartial arbitrator.
It may be noted that under Section 12(1) of the Act, an obligation has been cast upon the
prospective arbitrator to make an express disclosure on (a) circumstances which are
likely to give rise to justifiable doubts regarding his independence or impartiality; or (b)
grounds which may affect his ability to complete the arbitration within 12 (twelve)
months.
The purpose of this provision is to secure the appointment of an unbiased and impartial
arbitrator.
Fifth Schedule to the Act (Annexure-A) contains a list of grounds giving rise to
justifiable doubts as to the independence or impartiality of an arbitrator. The Seventh
Schedule (Annexure-B) lays the grounds which make a person ineligible to be
appointed as an arbitrator.
The Act provides that in an International Commercial Arbitration, an arbitrator of a
nationality other than the nationalities of the parties may be appointed where the
parties belong to different nationalities.
Expeditious disposal of application for appointment of an arbitrator(s) is emphasized
by the Act and an endeavour shall be made to dispose of the matter within a period of
sixty days from the date of service of notice on the opposite party.

WHO CAN ENTER INTO ARBITRATION AGREEMENT

Every person who is competent to contract can enter into arbitration agreement. In case of
partnership a partner can enter into on behalf of partnership into arbitration agreement. The
directors or other officers of the company may enter into an arbitration agreement.

7|Page
A Karta of Hindu joint family can make a valid reference to the arbitration and where he acts
Bona fide the award binds other members.

A) Minor and lunatics -

Contract by minors and lunatics are void and therefore by themselves they cannot enter into valid
agreement of arbitration. However they can enter into arbitration agreement with their natural or
legal guardian's

B) Agent -
Agent recognized agent of a party can enter into an arbitration agreement on behalf of his
principal.

C) Manager of Hindu joint family-

A manager of Hindu joint family can refer the final dispute to arbitration5.

POINTS TO REMEMBER WHILE DRAFTING ARBITRATION

AGREEMENT

1. Seat of Arbitration – This clause specifies the seat or place of arbitration. The seat of
arbitration determines the procedural laws that govern the arbitration procedure. It need
not be the same as the place of hearings. Seat of arbitration is considered to be a place
where arbitrations are held even if the place of hearings differ. Place of hearings don’t by
any means affect the chosen seat of arbitration.
2. Procedure for Appointing Arbitrators – Section 11 of the Arbitration and Conciliation
Act talks about the appointment of arbitrators. It provides that a person of any nationality
may be appointed as an arbitrator, unless otherwise agreed by the parties. The parties are
free to agree on a procedure for appointing the arbitrator(s). If the parties fail to reach an
agreement, in an arbitration with 3 arbitrators, each party shall appoint one arbitrator, and
the two arbitrators shall thereafter appoint a third arbitrator, who shall be the presiding
arbitrator. The appointment of parties may be by the parties themselves, or by the
designated authority or by the arbitral institutions. In places where the dispute involves
international commercial transaction, then the arbitrator to be appointed shall not be of
the same nationality as the parties to the dispute.
3. Language of Arbitration – It is important to mention the language of arbitration in the
agreement itself. Especially, in a country like ours, where Hindi and English aren’t the
only two languages spoken, it would get very difficult to decide and settle the disputes.

5
http://www.srdlawnotes.com

8|Page
 Choosing the language of arbitration is also very cost effective, because it would save
you from paying exorbitant fees to the translators.
4. Number and Qualifications of Arbitrators – According to Section 10 of the Arbitration
and Conciliation Act of 1996, parties can determine the number of arbitrators, provided
that the number is an odd number. Failing to determine the no. of arbitrators, the arbitral
tribunal shall consist of a sole arbitrator.
5. Type of Arbitration – Parties can choose between Institutional or Ad hoc arbitrations. If
the parties choose the former, then they have to be bound by the rules of the arbitration
institutions. All these institutions have their own set of rules for arbitration and these
rules would be applicable to arbitral proceedings conducted by them. Whereas, in case of
Ad-hoc arbitrations, arbitrations are both agreed to and arranged by the parties
themselves. No help is sought from the arbitral institutions in Ad-hoc arbitrations.
6. Governing Law – This is the law that governs the main point of contention between the
parties to a dispute. It is even known as the substantive law. The parties should mention
the law they want to be governed by, failing which may give way to disputes in the
future.
7. Name and Address of the Arbitration Institution – If the parties to the dispute are
referring their disputes to arbitration Centre, and then it is pertinent that they mention the
name and address of the arbitration facility in clear and unambiguous words. Such
inadvertent mistakes can lead to the nullification of the arbitration clause.

TERMINATION OF ARBITRATION AGREEMANT

Termination of arbitration agreement by mutual consent other grounds for termination of the
arbitration agreement:

1. Although the death of one of the parties is not generally considered a ground for termination
of the agreement, it is expressly provided for under some laws.

2. The death of the arbitrators is not normally a ground for terminating the arbitration agreement,
either. Some laws set forth otherwise when the parties regard the intervention of a specific
arbitrator as a condition for the arbitration.

MEDITATION
The concept of mediation is ancient and deep rooted in our country. In olden days, disputes used
to be resolved in a Panchayat at the community level. Panches used to be called Panch
Parmeshwar . Now we have grown into a country of 125 crore people. With liberalization,

9|Page
globalization and tremendous economic growth there is an explosion of litigation in our country.
Though our judicial system is one of the best in the world and is highly respected, but there is
still a lot of criticism on account of long delays in the resolution of disputes in the courts of law.
A point has now been reached when even an honest litigant is wary of approaching the court for
a decision of his dispute. Hence, we have turned to alternative forms of dispute resolution.

We tried the system of Lok Adalats and gave statutory recognition to it through the Legal
Services Authority Act, 1987. But, it is only a miniscule amount of litigation that has gone to the
Lok Adalats, and even those cases are mainly compensation cases, house tax matters or small
recovery disputes of big companies where only arithmetic calculations are to be made and there
is hardly any dispute about the question of liability. The Arbitration & Conciliation Act, 1996
replaced the Arbitration Act, 1940 but even that has been unable to contain litigation. This is
because disputes can go to arbitration only if there is an arbitration agreement between the
parties; and experience has shown that in a very large percentage of cases, the aggrieved party
files objections to the award, and that sometimes takes several years for disposal.

WHAT IS MEDIATION?

Mediation is a negotiation process in which a neutral third party assists the disputing parties in
resolving their disputes. A Mediator uses special negotiation and communication techniques to
help the parties to come to a settlement. The parties can appoint a Mediator with their mutual
consent or the Court, in a pending litigation, can appoint a Mediator. Mediation always leaves
the decision making power with the parties. The Mediator does not decide what is fair or right,
does not apportion blame, nor renders any opinion on the merits or chances of success if the case
is litigated. Rather the Mediator acts as a catalyst to bring the two disputing parties together by
defining issues and limiting obstacles to communication and settlement6.

WHY DO WE NEED MEDIATION?

We need mediation because it is a good method of resolving certain kinds of disputes especially
those involving relationships. Relationships can be personal, business, contractual or social.
These disputes are not easily resolved with the litigation process.

6
lawfaculty.du.ac.in

10 | P a g e
COMPARISION BETWEEN ARBITRATION AND MEDIATION

ARBITRATION MEDIATION

Adjudication Expedited negotiation

Arbitrators control the outcome. Parties control the outcome.

Arbitrator is given power to decide. Mediator has no power to decide.

Final and binding decision. Settlement only with party approval.

Arbitrator listens to facts and evidence Mediator helps the parties define and
and renders an award. understand the issues and each side's interests.
Process is formal. Attorneys control Process is informal.
party participation. Parties are active participants7.

There might be a single arbitrator or a Generally involves a single mediator8

panel of arbitrators
whereas in mediation the parties decide for
Arbitration involves a decision by a themselves.
neutral third party
In arbitration the focus is on the In mediation the focus is on the parties.
arbitrator whom the parties try to
persuade.
Arbitrators are generally exempt from whereas mediators can be held liable in
civil liability for failure to perform their negligence for their conduct.
duties with care or skill

7
https://www.finra.org
8
https://lawshelf.com

11 | P a g e
CASES:-

In Bihar State Mineral Development Corporation v. Encon Builders (I) (P) Ltd9,
following essential elements of an arbitration agreement are observed by the apex court of India

 There must be a present or a future difference in connection with some contemplated

affair.

 There must be the intention of the parties to settle such difference by a private tribunal.

 The parties must agree in writing to be bound by the decision of such tribunal.

 The parties must be ad idem.

In K.K. Modi v. K.N. Modi10,Supreme Court held the following attributes must be present in an
arbitration agreement:

 The arbitration agreement must contemplate that the decision of the tribunal will be
binding on the parties to the agreement.

 That the jurisdiction of the tribunal to decide the rights of the parties must derive either,
form the consent of the parties or from an order of the court or from a statute.

 The agreement must contemplate that substantive rights of the parties will be determined
by the arbitration tribunal.

 That the tribunal will determine the rights of the parties in an impartial and judicial
manner with the tribunal owing an equal obligation of fairness towards both sides.

 That the agreement must contemplate that the tribunal will make a decision upon a
dispute which is already formulated at the time where a reference is made to the tribunal.

9
[2003] 7 SCC 418
10
AIR, 1998 SC 129

12 | P a g e
CONCLUSION
It is said that when two great powers disagree about anything it doesn’t matter what they must
find a way to settle it somehow by arbitration or by negotiation, not by war or threat of war. All
the wars follies very expensive and very mischievous ones. In my opinion there never was a
good war or a bad peace when will mankind be convinced and agree to settle their difficulties by
arbitration. The foundation of arbitration is the arbitration agreement between the parties to
submit to arbitration all are certain disputes which have arisen or which may arise between them.
Thus, the provision of arbitration can be made at the time of entering the contract itself, so that if
any dispute arises in future, the dispute can be referred to arbitrator as per the agreement. It is
also possible to refer a dispute to arbitration after the dispute has arisen. Arbitration agreement
may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
The agreement must be in writing and must be signed by both parties. The arbitration agreement
can be by exchange of letters, document, telex, telegram etc.

13 | P a g e
BIBLIOGRAPHY

Primary
Act:-

Arbitration and Conciliation Act 1996

Case:-

Bihar State Mineral Development Corporation v. Encon Builders (I) (P) Ltd [2003] 7 SCC 418

K.K. Modi v. K.N. Modi AIR, 1998 SC 129

Secondary
 https://www.academia.edu
 http://www.lawsenate.com
 http://lex-warrier.in
 http://www.lawweb.in
 https://indiankanoon.org
 http://www.srdlawnotes.com
 https://legaldesk.com

14 | P a g e
15 | P a g e