MOD-V- ARBITRATION AND CONCILIATION ACT

In Guru Nanak Foundation v Rattan Singh, the apex court through Justice D.A. Desai stated
– “Interminable, time-consuming, complex and expensive Court procedures impelled jurists to
search for an alternative Forum, less formal, more effective and speedy for resolution of
disputes, avoiding procedural claptrap and this led them to Arbitration Act, 1940. However,
the way in which the proceedings under the Act are conducted and without exception challenged
in Courts has made Lawyers laugh and legal philosophers weep.”

• Hence, the Arbitration and Conciliation Act, 1996 was enacted, based on the UNCITRAL
Model Law on International Commercial Arbitration, 1985.

• The Arbitration and Conciliation Act, 1996 consolidated and amended the existing
Arbitration Act, 1940, Arbitration (Protocol & Convention) Act, 1937 and the Foreign
Awards Act, 1961.

• Part 1 of the Act deals with domestic arbitration and enforcement of the domestic award.

• Part 2 deals with the enforcement of foreign awards arising from the Geneva Convention
and the New York Convention.

• The lack of institutional arbitration culture was felt strongly as most of the arbitrations
were ad hoc.

• A High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in

India was constituted on 13th January 2017 and headed by Justice B.N. Srikrishna.

• In line with the committee’s recommendations, the Arbitration and Conciliation

(Amendment) Act, 2019 was passed.

• The highlight of the amendment was the introduction of the Arbitration Council of
India (ACI) to promote arbitration and grade arbitration institutions.

Arbitrability of the Dispute

• In Uttam Singh Duggal & Co. v. Union of India, the contractor was required to pay
compensation for the loss caused by delayed performance, in accordance with the
provisions of the contract.

• The contractor filed a suit challenging the validity of the levy,

• the court refused the stay and held that the matter was not arbitrable.

• In Booz Allen and Hamilton v. SBI Finance (Booz Allen), the Supreme Court stated
that every civil or commercial dispute (contractual or non-contractual) which can be
decided by a court, is in principle capable of being adjudicated and resolved by
 arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or
by necessary implication.

• However, the court also recognised that certain disputes shall be excluded from being
adjudicated in private fora and be reserved for their respective fora.

• The court went on to list out such matters as those which are –

• disputes relating to rights and liabilities which give rise to or arise out of criminal
offences; 

• matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights,

child custody; 

• guardianship matters; 

• insolvency and winding-up matters;

• testamentary matters (grant of probate, letters of administration and succession

certificate); 

• eviction or tenancy matters governed by special statutes where the tenant enjoys
statutory protection against eviction and only the specified courts are conferred
jurisdiction to grant eviction or decide the disputes.

• The Booz Allen case also provided a test for deciding the arbitrability of disputes.

• The court stated “the scope of arbitrable disputes must be limited to those concerning
‘rights in personam’ or personal rights enforceable against certain individuals.

• ‘Rights in rem’ exercisable against the world at large were excluded from the scope of
arbitrable disputes.”

• Parties may Limit the scope of arbitration agreement

• In case the arbitration agreement enumerates and limits the kinds of disputes arising out
of the agreement, even if a dispute is capable of being decided by arbitration and is
falling within the scope of the arbitration agreement, it will not be `arbitrable’ if it is
not enumerated in the joint list of disputes referred to arbitration.

• Although the tribunal is capable of deciding the arbitrability of issues, it is limited by the
arbitration agreement.

• The arbitral tribunal, therefore, cannot venture outside the scope of the arbitration
agreement.
 • In the 1940 Act, the Arbitration Agreement was defined under Section 2(a) as-

• “A written agreement to submit present or future differences to arbitration, whether an

arbitrator is named therein or not.”

• It was a vague definition

• It was redefined in the 1996 Act in Section 7.

“7. Arbitration agreement. —

• (1) In this Part, “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.

• (2) An arbitration agreement may be in the form of an arbitration clause in a contract or

in the form of a separate agreement.

• (3) An arbitration agreement shall be in writing.

• (4) 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 in which the existence of the
agreement is alleged by one party and not denied by the other.

• (5) 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.”

• An arbitration agreement once made, cannot be deterred when a dispute arises.

• In Ravi Prakash Goel v. Chandra Prakash Goel, the Supreme Court held that “where
there is an arbitration agreement present and applicable, the parties cannot take recourse
to the civil court without first undergoing arbitration.

• It is mandatory for the courts under Section 8 of the 1997 Act, to refer the parties to
arbitration when there is an applicable arbitration agreement.”

• Section 7 grants liberty to the parties to form an arbitration agreement in multiple ways
as:

• A standalone separate Arbitration Agreement

 • An Arbitration Clause

• Incorporation by reference

• As per Section 7(5), any reference to a document containing an arbitration clause shall
also be construed as an arbitration agreement provided that the referred contract is in
writing and the reference is made with the intention to make that arbitration clause
the part of the contract.

• In M/s Elite Engineering and Construction (HYD.) Private Ltd. v. M/s Techtrans
Construction India Private Ltd., the Supreme Court held that a general reference to the
incorporation of a separate arbitration clause will not be tenable in law. The reference
shall be clear and must indicate the intention of the parties to incorporate.

• By communication

• According to Section 7(b) of the 1996 Act, an arbitration agreement can also be inferred
from the exchange of letters, telex, telegrams, or other means of telecommunication,
which provide a record of the agreement between the parties.

• Thus, an agreement can be construed from the correspondence of the parties where
there is a clear and unequivocal intention to refer the disputes to arbitration.

• In Galaxy Infra and Engineering Pvt. Ltd v. Pravin Electricals Pvt. Ltd 

• the Delhi High Court held that the draft agreement exchanged by email between the
parties can be construed as a valid arbitration agreement.

• In Pravinchandra Murarji Savla v. Meghji Murji Shah, it was held that it is the
substance of the agreement and not the form which is of importance.

• In S.N. Prasad v. Monnet Finance Ltd., by referring to Section 7(c) of the 1996 Act the
court held that where a statement of claims or allegations is made and is met with ‘non-
denial’ by the other party, the presence of an arbitration agreement can be construed.

• Thus, the 1996 Act has left the field open with a plethora of ways to form an arbitration
agreement;

Ingredients of Arbitration Agreement

• In the cases Jagdish Chander v. Ramesh Chander and 

• K. K. Modi v. K. N. Modi 

• the court tackled the question of what constitutes a valid arbitration agreement.
The Hon’ble Court enumerated the essentials of an arbitration agreement as:

• 1. The arbitration agreement must be in writing.

• 2. The parties shall agree to refer any dispute (present or future) arising out of a
contract to a private tribunal.

• 3. 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.

• 4. The parties must agree to be bound by the decision of the arbitral tribunal.

• 5. The intention of the parties to refer the dispute to a private tribunal must be
unequivocally reflected. 

• 6. There must be ‘consensus ad idem’ between the parties i.e. they should agree to the
same thing in the same sense.

• 7. The words shall contemplate an obligation and determination on the part of the
parties to invoke arbitration and not merely a possibility.

• For example, use of the words such as “parties can if they so desire, refer their dispute to
arbitration” or

• “ in the event of any dispute, the parties may also agree to refer the same to arbitration”
shall not be construed as submission to arbitration.

• 8. The agreement clauses shall not in any way specifically exclude any of the
aforementioned essentials.

• For example, a clause permitting the tribunal to decide a claim without hearing the other
side.

• An arbitration agreement not mentioning the words “arbitration”, “arbitration tribunal”

and/or “the arbitrator” may still be considered a valid arbitration agreement if the basic
attributes of a valid arbitration agreement (as aforementioned) are present therein.

Whether an arbitration agreement needs to be signed

• In Svapn Const. v. IDPL Employees Co-op. Group Housing Society Ltd., it was held that
the agreement need not be signed by the parties if it is established by another written
contemporaneous document, which is binding between the parties.

• In 2018, the Supreme Court held in M/s Caravel Shipping Services Pvt Ltd v M/s Premier
Sea Food Exim Pvt Ltd held that an unsigned arbitration agreement is valid as the only
 prerequisite for a valid arbitration agreement under the 1996 Act is that it must be in
writing. 

Whether Vague arbitration agreement valid?

• In Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. M/S Jade Elevator
Components, the Supreme Court while dealing with a vague arbitration clause,
scrutinized the clause examining the intention of the parties instead of doing away with
the agreement itself.

Therefore vague and unclear arbitration agreements can hold validity as long as the
intention to refer the parties to arbitration is clear. and upheld the validity of the
arbitration agreement.

• Recently, courts have ensured that poorly drafted (or even ‘pathological’) arbitration
clauses will be given effect to in the best possible way and parties will be referred to
arbitration.

• In Pricol Ltd v Johnson Controls Enterprises Ltd & Ors (2015) 4 SCC 177, the
Supreme Court referred parties to arbitration even though the clause provided for
reference to arbitration under the arbitration rules of the Singapore Chamber of
Commerce (a non-existent institution).

The court construed it to mean a reference to the Singapore International Arbitration

Centre (SIAC).

 In Shri Vimal Kishor & Ors v Mr Jayesh Dinesh Shah & Ors, decided on 17 August
2016, the Supreme Court held that cases arising out of a trust deed cannot be the subject
matter of arbitration.

 In Booz Allen and Hamilton Inc v SBI Home Finance Ltd & Ors (AIR 2011 SC
2507), the Supreme Court ruled that a suit for enforcement of a mortgage by sale of
the mortgaged asset was non-arbitrable, as it involved a right in rem.

 The Bombay High Court in Eros International Media Ltd v Telemax Links India
Pvt Ltd (decided on 12 April 2016), held that copyright disputes are arbitrable.

 In N Radhakrishnan v Maestro Engineers and Ors (2010) 1 SCC 72, the Supreme
Court held that when the seat of arbitration is in India, issues involving criminality,
serious fraud and financial malpractices can only be resolved by a court.

 In World Sport Group (Mauritius) Ltd v MSM Satellite (Singapore) Pte Ltd (AIR
2014 SC 968), the Supreme Court held that:
 In the case of such arbitrations covered by the New York Convention, the Court can
decline to make a reference of a dispute covered by the arbitration agreement only if
it comes to the conclusion that the arbitration agreement is null and void,
inoperative or incapable of being performed, and not on the ground that allegations
of fraud or misrepresentation have to be inquired into while deciding the disputes
between the parties.

• A Ayyasamy v A Paramasivam (2016) 10 SCC 386, the SC held that even domestic
disputes involving allegations of fraud arising out of contracts bearing an arbitration
clause shall be referred to arbitration.

• The Supreme Court in Avitel Post Studioz Ltd v HSBC PI Holdings dated 19 August
2020 (arising out of Civil Appeal No. 5145 of 2016) set out the tests to determine 'serious
allegations of fraud' that cannot be arbitrated.

• Adopting the reasoning enumerated in the Swiss Timing decision, the Court held that the
earlier decisions ought to have considered a combined interpretation of sections 5, 8 and
16 of the Arbitration Act that sets out an approach whereby, ‘when a judicial authority is
shown an arbitration clause in an agreement, it is mandatory for the authority to refer
parties to arbitration bearing in mind the fact that the arbitration clause is an agreement
independent of the other terms of the contract and that, therefore, a decision by the
arbitral tribunal that the contract is null and void does not entail ipso jure the invalidity of
the arbitration clause’.

• So far the tests to make such determination, the Court placed reliance on
the Ayyasamy decision which stipulated the following two tests:

 ‘does allegation permeate the entire contract and above all, the agreement of arbitration,
rendering it void’; or

 ‘whether the allegations of fraud touch upon the internal affairs of the parties inter se
having no implication in the public domain’.

• The Supreme Court held that in view of the above decisions, ‘serious allegations of
fraud’ would arise only if either of the two tests above are satisfied, and not
otherwise.

• Circumstances in which an arbitration agreement no longer enforceable?

• if the party to the arbitration was under some incapacity;

• the arbitration agreement is not valid under the law to which the parties have subjected it
or, failing any indication thereon, under the law for the time being in force;
• the subject matter of the dispute is not capable of settlement by arbitration under the law
for the time being in force;

• if the agreement is void or otherwise not valid on account of incapacity or

disqualification of one of the parties to the contract; or

• in a contract wherein one of the contracting parties is an insolvent and a dispute arises,
the arbitration agreement cannot be enforced unless the receiver seeks permission from
the judicial authority for an order directing that the matter in question shall be submitted
to arbitration.

• Doctrine of separability

• The doctrine of separability of arbitration agreements from main agreements finds

expression in the Arbitration Act under section 16(1)(b).

• It states that a decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause.

• The Supreme Court, in National Agricultural Co-op Marketing Federation India Ltd v
Gains Trading Ltd (2007) 5 SCC 692, held:

• An arbitration clause is a collateral term in the contract which relates to resolution of

disputes and not performance. Even if performance of the contract comes to an end on
account of repudiation, frustration or breach of contract, the arbitration agreement would
survive for the purpose of resolution of disputes arising under or in connection with the
contract.

•  The Supreme Court in Jagdish Chander v. Ramesh Chander and Others, (2007) 5 SCC
719. has laid down the following principles for constituting a valid arbitration agreement
under the Act:

a. Intention of the parties to enter into an arbitration agreement must be gathered from the
terms of the agreement.

• While there is no specific form for an arbitration agreement to exist, the words should
disclose a determination and an obligation to go for arbitration and not merely
contemplate the possibility of going for arbitration.

• b. The words "arbitration" or "arbitral tribunal (or arbitrator)" are not a requirement if it
has attributes or elements of an arbitration agreement.

• c. When there is a specific and direct expression of intent to have the disputes settled by
arbitration, it is not necessary to set out the attributes of an arbitration agreement.
• d. A clause will not be considered as an arbitration agreement, if it contemplates a fresh
or further consent of the parties to refer the disputes to arbitration.

• Nimet Resources Inc. v. Essar Steels Ltd., (2000) 7 SCC 497.

• The Court observed that if a contract containing an arbitration clause, without signatures
of either party is referred to in communications between the parties, that would imply that
the arbitration agreement is a part of the contract.

•  Unissi (India) Private Limited v. Post Graduate Institute of Medical Education and
Research, (2009) 1 SCC 107.

• In this case, the tender offer of one party, which contained an arbitration clause, was
accepted by the other party.

• However, only one party had signed the Agreement and the other party had failed to do
so.

• The Supreme Court, relying on the judgement in Nimet Resources, held that an
arbitration agreement did exist in the particular case.

• The Court was of the opinion that the offer and acceptance of the tender through various
communications, was sufficient to hold that an arbitration agreement existed between the
parties despite both parties having not signed the agreement.

• The term "statements of claim and defence", do not necessarily mean that such
statements need to be made before an arbitrator or arbitral tribunal.

• The Supreme Court in S.N. Prasad, Hitek Industries (Bihar) Limited v. Monnet
Finance Ltd. & Ors., (2011) 1 SCC 320. has interpreted the term as provided in Section
7(4)(c) of the Act,

• to mean that such a statement can be by way of a representation by any party in any
application, petition or suit.

• Whether an arbitration agreement needs to be stamped

• Arbitration Agreement is chargeable under Section 5 of the Indian Stamp Act, 1899.

• With respect to the 1940 Act, the Calcutta High Court held in Bengal Hire Purchase
Corpn v. Harendra Singh that an unstamped arbitration agreement cannot be given
effect unless the full stamp duty is duly paid.

• The courts would first impound the unstamped agreement and send it to the relevant
authorities for the payment of stamp duty and penalty (if any).
 • Only after ensuring that the lacuna is cured, the arbitration agreement can be executed.

• The Supreme Court held the same position with respect to the 1996 Act in Garware
Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd. 

Section 8: Power to refer parties to arbitration where there is an arbitration agreement.—

• 8. Power to refer parties to arbitration where there is an arbitration agreement.—

• (1) A judicial authority before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party so applies not later than when
submitting his first statement on the substance of the dispute, refer the parties to
arbitration.

• (2) The application referred to in sub-section (1) shall not be entertained unless it is

accompanied by the original arbitration agreement or a duly certified copy thereof.

• (3) Notwithstanding that an application has been made under sub-section (1) and that the
issue is pending before the judicial authority, an arbitration may be commenced or
continued and an arbitral award made.

• Section "8. Power to refer parties to arbitration where there is an arbitration agreement-
[2015 amendment]

• (1) A judicial authority, before which an action is brought in a matter which is the
subject of an arbitration agreement shall,

• if a party to the arbitration agreement or any person claiming through or under him,

• so applies not later than the date of submitting his first statement on the substance of the
dispute, then,

• notwithstanding any judgment, decree or order of the Supreme Court or any Court,

• refer the parties to arbitration unless it finds that prima facie no valid arbitration
agreement exists.

• (2) The application referred to in sub-section (1) shall not be entertained unless

• it is accompanied by the original arbitration agreement or a duly certified copy thereof:

• Provided that where the original arbitration agreement or a certified copy thereof is not
available with the party applying for reference to arbitration under sub-section (1), and

• the said agreement or certified copy is retained by the other party to that agreement,
then,
 • the party so applying shall file such application along with a copy of the arbitration
agreement and

• a petition praying the Court to call upon the other party to produce the original
arbitration agreement or its duly certified copy before that Court.

• (3) Notwithstanding that an application has been made under sub-section (1) and

• that the issue is pending before the judicial authority,

• an arbitration may be commenced or continued and an arbitral award made."

• The only exception is where the court finds prima facie that there is no valid arbitration
agreement.

Effect of 2015 Amendment to Section 8

• The 2015 Amendment therefore made it mandatory for the judicial authorities to refer the
parties to a dispute to arbitration unless the court is satisfied that the arbitration
agreement between the parties is invalid.

• The 2015 Amendment increases the scope of Arbitration by providing that the parties can
be referred to arbitration notwithstanding any order or decree of the Supreme Court of
India or any other court when the court is of the view that there is valid arbitration
agreement between the parties.

• The section 8 of the Arbitration Act now is in a form of a command that once the
conditions that are mentioned in section 8 are fulfilled it is mandatory for the courts to
refer the partier to arbitration.

• In P. Anand Gajapathi Raju v. P.V.G. Raju AIR 2000 SC 1886 Hon’ble Supreme Court
held that the following conditions are to be satisfied in an application under Section 8 of
the Arbitration and Conciliation Act, 1996;

• (1) There is an Arbitration agreement.

• (2) A party to the agreement brings an action in the court against the other party.

• (3) Subject-matter of the action is same as the subject-matter of the Arbitration

Agreement.

• (4) The other party moves the court for referring the parties to arbitration before it
submits his first statement on the substance of the dispute.

• The Hon’ble Supreme Court in this case also observed that

• Agreement is not required to be already in existence before the action is brought in court.
The phrase “which is subject of an Arbitration Agreement” in Section 8 also connotes an
Arbitration Agreement being brought into existence while the action is still pending.

• In order to afford the plaintiff a complete opportunity of being heard on an application

under Section 8 of the Arbitration Act, it would have to be held that the party which seeks
to refer the dispute to the Arbitrator has to make a written application for that purpose, so
that the plaintiff who has instituted the suit knows exactly the grounds on which the
reference is sought.

• Thus, the provisions of Section 8(2) indicate that the application that is contemplated
by Section 8 (1) is a written application.

• the view taken by the Supreme Court consistently is, that it is duty of that court to refer
parties to arbitration.

• Court has to take a prima facie view whether arbitration agreement exists or not,

• court also has to see whether all the parties to arbitration agreement are parties to the suit
and vice- versa.

• Also, entire cause of action of the suit should be covered by the arbitration agreement.

• Zenith Drugs & Allied Agencies Pvt. Ltd. v. Nicholas Piramal India Ltd., 2019 SCC
Online SC 946 Supreme Court has held that the parties can be referred to arbitration in an
application filed under Section 8 of the Arbitration Act only if the subject matter of the
action before the judicial authority relates to dispute which is the subject matter of
the arbitration agreement.

• The conditions prescribed in Section 8 have to be satisfied for referring the parties to
arbitration.

• Such an application can be made only if the subject matter of the suit is also the same as
the subject matter of arbitration.

• Only those disputes which are specifically agreed to be resolved through arbitration can
be the subject matter of the arbitration and upon satisfaction of the same, the Court can
refer the parties to arbitration.

• Supreme Court held that in view of a party challenging the compromise decree alleging
that it has been obtained by inducement and fraud, parties cannot be referred to
arbitration.

• The merits of such a plea could be decided only by the Civil Court upon consideration of
the evidence adduced by the parties.
• S.N. Palanitkar v. State of Bihar AIR 2001 SC 2960, SC held that

• “…merely because there is an arbitration clause in a commercial agreement, that cannot

prevent criminal prosecution against the accused if an act constituting a criminal offence
is made out even prima facie…”

• Supreme Court in the case of H. Srinivasa Pai & Anr v. H.V. Pai (D) Thr LRs. & Ors
(2010) 12 SCC 521 held that

• it does not matter whether the dispute is a civil suit or a commercial suit, only existence
of Arbitration Agreement matters in deciding an application under Section 8 of the Act.

• Supreme Court in India Household & Healthcare Ltd. v. L.G. Household & Healthcare
Ltd. (2007) 5 SCC 510 held that,

• if the existence of arbitration clause is admitted, then the court ought to refer the dispute
to arbitration. The validity of the Arbitration Clause or agreement will be presumed in
such case.

• In the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC
531 it was observed that,

• “in a matter which is the subject-matter of an arbitration agreement court is required to

refer the parties to arbitration. Therefore, the suit should be in respect of ‘a matter’ which
the parties have agreed to refer and which comes within the ambit of arbitration
agreement.”

• In the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 53
it was held that

• where the cause or dispute is inarbitrable, the court where a suit is pending, will refuse to
refer the parties to arbitration under Section 8.

• In N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72 wherein the Apex Court

held that

• in disputes, where serious allegations against the opposite party are alleged for having
committed malpractices in the account books, finances and the case relates to allegation
of fraud, serious malpractices,

• such a situation can only be settled in court through furtherance of detail evidence
adduced by either parties and

• such a case cannot be referred for arbitration, as arbitrator cannot properly go into the
matter.
 • Delhi District Court in the case of Subodh Kumar Singh v. SWO India Ltd. (2019)
observed that,

• the Superior Courts in catena of cases have laid down the scope of judicial intervention,
in cases where there is an arbitration clause with clear and unambiguous message that in
such an event judicial intervention would be very limited and minimal.

• It is not out of place to mention that the Act provides for provisions to challenge the
award, such as Section 34 and 48 of the Act,

• however, the Act does not provide the disputes which are non-arbitrable.

• The courts have held that certain kinds of disputes may not be capable of adjudication
through the means of arbitration.

• The courts have also held that certain disputes such as criminal offences of public nature,
disputes arising out of illegal agreements and disputes relating to status such as divorce
cannot be referred to arbitration.

• The following category of disputes are treated as non-arbitrable:

• i. patent, trademarks and copyright;

• ii. anti-trust/competition laws;

• iii. insolvency/winding up;

• iv. bribery/corruption;

• v. fraud;

• vi. criminal matters.

Arbitration agreements

The formation of an arbitration agreement takes place when two parties, enter into a contract and
in which, the contract states that any dispute arising between the parties have to be solved
without going to the courts with the assistance of a person, who would be a neutral person, a
third party, appointed by both of the parties, known as the Arbitrator, who would act as a judge.
The arbitrator so appointed should have been previously mentioned in the contract that they
made. They should also state who should select the arbitrator, regarding the kind of dispute the
arbitrator should give decisions on, the place where the arbitration would take place.
Furthermore, they should also state the other kinds of procedures mentioned or that has to be
required during an arbitration agreement. 

The parties are generally required to sign an Arbitration Agreement. The decision taken by the
arbitrator regarding any issue, is binding on both the parties, as stated by the agreement. In any
event, where one party decides that an agreement must be made prior to entering the contract, it
can be stated that the agreement was made to deviate from the hassles of the court. These
agreements are like contingent contracts, which means that these agreements shall only come
into force or become enforceable if any dispute happens, and on the basis of the same dispute
between two parties mentioned in the contract. It also takes place or is enforceable in the light of
any dispute that arises between the parties to the contract. 

Essentials of an Arbitration Agreement

 There must be a dispute that should take place, only then the agreement will be valid.
The presence of a dispute amongst the parties is an essential condition for the contract
to take place. When the parties have already settled the dispute, in no case, they can
invoke the arbitration clause to refute the settlement. 

 Another essential is the written agreement. An agreement related to the arbitration

must always be in writing. An arbitration agreement will be considered as a written
agreement when:

1. It has been signed by both parties and it is in the form of a document. 

2. It can be the exchange of the telex, the letters, the telegrams, or any other means of
communication which provides the record of the exchange and the agreement for
arbitration.

3. There must be an exchange of statements between the parties that gives the statement
of claim and defence in which the existence of the agreement of the arbitration is
agreed by one of the parties and which is not defined by the other party. 
  The third essential intention. The intention of the parties while forming the contract is
of utmost importance and it forms the basis of the agreement. There have been no
prerequisite citations of terms such as an “arbitrator” or “arbitration” to be made in the
agreement. Therefore, it is necessary to note that the intention of both parties plays a
very important role in such an agreement. However, one must keep in mind that even
if the words have not been mentioned, the intention must show that both the parties
have agreed to come to the terms with the Arbitration Agreement. 

 The fourth essential element is the signature of the parties. The signature of the parties
is an essential element to constitute an arbitration agreement. The signature can be in
the form of a document signed by both the parties to the contract which comprises all
the terms and conditions, or it can also be in the form of a document which is signed
by only one party to the contract which contains the terms and acceptance by the other
party to the contract. It will be sufficient if one party puts up a signature in the
agreement and the other party accepts that. 
In the landmark case of K.K. Modi v. K.N. Modi and Ors. (1998) 3 SCC 573, it was held by the
Hon’ble Supreme Court that the following attributes must be present in an arbitration agreement:

1. The agreement must state that the decision of the tribunal will be binding upon by
both the parties.

2. That the jurisdiction of the tribunal on the rights of the parties should be decided by
both the parties consensually or from an order obtained by the Court which states that
the proceeding shall be made through arbitration. 

3. The tribunal has the right to determine the rights of the parties by being fair and just.

4. The agreement that the parties will refer to the tribunal must be enforceable by law.

5. The agreement must state that any decision made by the tribunal on the dispute must
be formulated prior to the time when the reference is made. 

Points To Remember While Drafting Arbitration Agreement:

The following are some of the common elements included in an arbitration agreement, which is
generally not considered as an essential element, but shall be included if the parties want it to be
mentioned in the contract. 

1. Seat of Arbitration- the seat here means the place. Therefore, this clause states that
there will be a place of arbitration in the case of the dispute. This provision is an
important one, especially in the case of an international commercial arbitration, as this
seat helps in determining the procedural laws that govern the procedure of the
arbitration. However, the seat of the arbitration does not have to be the same place as
the hearing of the proceedings. It is the place where the arbitration takes place, even
though it differs from the place of the hearings.

2. Procedure for appointing the Arbitrators- the procedure is the same as mentioned
in the Arbitration Act. It states that any person, irrespective of the nationality, may be
appointed as an arbitrator, unless the parties agree to something otherwise. The parties
can themselves agree for the appointment of an arbitrator. 

3. Language- The language plays an important role while making an agreement. It is

necessary that the language which has been chosen in the contract doesn’t have to be
the one that is not understood by both parties. There must not be any sort of
communication gap and that the agreement made by the parties are of such a manner
that each and every clause mentioned in the contract is actually understood by both
the parties signing the contract. Picking the language which can be understood by both
parties is important because then it would save both the parties, the cost of a
translator. 

4. Number and Qualifications of Arbitrators- The Act allows the parties to determine
the number of the arbitrators, with the only condition that the number shall not be an
even number, but an odd number of arbitrators, so that the decision can be made even
if there is a disagreement amongst the arbitrators. 

5. Type of Arbitration- The parties have the choice to choose between the institutional
and the ad hoc (which means it is created for that specific purpose) kind of
 arbitration. Institutional means that agreeing to be bound by the rules of the arbitration
institutions ad hoc means that the parties themselves agree to arrange an arbitrator. 

6. Governing Law- It is important to mention the substantive law that they want to be
governed by as failing to mention this substantive law might be a huge issue in the
future disputes arising between the parties, if any. 

Important provisions in the arbitration agreement

There are a few important provisions under an arbitration agreement, and these are mentioned
below:

1. Written Agreement- As stated as an essential condition, there must be a written

agreement. Section 7(4) of the Act, states that every agreement made must be in the
form of a written document or even in the form of any kind of communication
whether or not those communications take place through telegrams, telex or even
other telecommunication devices provided that there must be a record of the
communication. 

2. Appointment of the Arbitrators- Section 11 states that the arbitrator can be appointed

at the liberty of the parties to the contract. In case, where the parties fail to decide the
appointment of the arbitrator, the Chief Justice of the High Court, in case of the
domestic arbitration and the Chief Justice of the Supreme Court, in case of
International Commercial Arbitration is approached. 

3. Interim Relief- Section 9 and Section 17 of the Act provide for the Interim relief
orders with respect to the arbitration. The relief petition is maintainable under section
9 if there is prima facie evidence that there is an agreement for the arbitration
proceeding. The parties, if they want, can move to the Court before the arbitration
proceeding actually starts or even after making the arbitral award but before its
enforcement as per section 36 of the Act. Section 17 states that, at the parties’ request,
the tribunal may order the party to take interim measures, the way it deems fit and
necessary in respect to the subject matter of the dispute. 
 4. Finality of an Award by Arbitration- Section 34 states that the award given by the
arbitrator is final and is binding upon the parties who have signed the contract. Once
the decree is granted by the court, it shall be enforceable with respect to section 34 of
the Act. 

5. Appeal- Section 37 states that if the parties are not satisfied with the decision of the
arbitrators, an appeal lies against the order granting or refusing to grant any measure
under section 9 and also against refusing to set aside or setting aside an award. An
appeal can also lie against the order of the tribunal accepting the plea referred to
in section 16 or granting or refusing to grant an interim measure under section 17.
However, there is no provision for an appeal against the appointment of an arbitrator
as given under section 11. 
         

Significance

The growth of arbitration signifies that there is a fundamental change that is present in our way
of legislating. Another significance is in deciding the matters in a significantly lesser amount of
time and the different or the separate clauses mentioned in the commercial contract. These are
paving the way for the most effective and the most suitable remedy without having to go through
the recourse of the courtrooms. Arbitration is generally the most efficient form of remedy for
settlement of disputes amongst the parties, which actually does not require any long procedures
of the Court for the decisions to be made. It is cost-efficient, it is time-saving, it also permits one
to choose their own arbitrators. Through this, the decisions are given swiftly, and according to
the nature of the case, they are also, most of the time satisfactory. The severability, separability,
and the autonomy principle of the Arbitral agreement prevent the validity of one agreement from
being overlapped by the other. Nonetheless, the two agreements may co-exist. Having such a
principle does not negate the value of the other principles mentioned in the contract, but mostly
adds on to those principles. Thus it plays an important role when the contractual clauses arise
when dealing with the disputes.