Meaning, Objects, and Essentials of Arbitration

Agreement
Anushka Saxena
5–6 minutes

We all know that plenty of cases are pending in a court, and the judges are overburdened. Hence, we require
a way to solve some of the matters through alternative means. This will reduce the burden of the court and
ensure a speedy trial. There are four methods of alternative dispute resolution (ADR)-

1. Negotiation.
2. Conciliation.
3. Mediation.
4. Arbitration.

In this law note, let us understand what arbitration is and under what circumstances a party can go for
arbitration.

 Meaning of Arbitration
 Need for Arbitration
 Object of Arbitration
 Arbitration Agreement
 Essentials of Arbitration Agreement
 Matters Which May Be Referred to Arbitration
 Matters Which Cannot be Referred to as Arbitration
 Arbitral Tribunal
 MMTC Ltd. vs Sterlite Industries (India) Ltd.

Meaning of Arbitration
Arbitration means the settlement of a dispute by a third party’s judgment called arbitrator without recourse
to the court of law. The conflicts which can be settled without going to a court come under the ambit of
arbitration. Arbitration is governed under the Arbitration and Conciliation Act, 1996, and it extends to the
whole of India.

Need for Arbitration

Indian courts are overburdened with the multiplicity of cases of various grounds amongst various parties,
and they can’t bear the whole burden. Thus, there is an urgent need to shift gradually to some other mode of
dispute resolution. The purpose of the Arbitration Act is to provide speedy redressal to dispute by private
arbitration.

Must Read: Arbitration Council of India – Composition, Functions, and More

Object of Arbitration
The object of arbitration is to settle the disputes in-

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  Expeditious.
 Convenient,
 Inexpensive, and
 Private manner.

All this is to ensure the case does not become the subject of future litigation between the parties.

Arbitration Agreement
Arbitration agreement is an agreement signed by the parties that, if in case any future dispute arises, then the
disputed matter will go before the arbitration.

Essentials of Arbitration Agreement

The essentials of the Arbitration Agreement are listed below:-

1. Form of arbitration.

An arbitration agreement can be either in the form of an arbitration clause in a contract itself, or a separate
agreement can be made for it.

2. Arbitration agreement must be in writing.

The arbitration agreement must be in writing. An agreement is considered to be in writing, if:

 Both parties have signed the document.

 Letters, telexes, telegrams, and other forms of communication are used to agree.
 If there is an exchange of defendants and claimants statements.

3. Valid contract.

The agreement must fulfil all the essentials of a valid contract as provided under section 10 of the Indian
Contract Act, 1872. The parties must be major, of sound mind, not disqualified by law, with free consent,
and for lawful object and consideration.

4. Separate agreement.

The arbitration agreement must be in the form of a separate agreement or clause in the contract.

5. Intention.

There must be an intention of the parties to refer a dispute to arbitration.

6. Dispute.

It must refer to a dispute, present or future, between the parties to the arbitration.

Elements of Contract
The two elements of a valid contract are agreement and enforceability. Let us learn about both.

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1. Agreement

It is defined under section 2(e) of the Indian Contract Act, 1872, which says, “Every promise and every set
of promises, forming the consideration for each other, is an agreement.” A proposal or offer, when
accepted, becomes a promise. There must be at least two parties to form an agreement.

Offer + Acceptance = Agreement

Illustration: A gave a proposal to B to buy his property for Rs. 10 lakh. B accepts the offer. This now
becomes an agreement.

2. Enforceable by Law

If an agreement creates any legal obligation on the parties, then the agreement is said to be enforceable by
law. Moral, social and religious obligations do not form agreements because they do not create any legal
duties.

Illustration: A sell his bike to B for Rs. 70,000, but then B denied to make the payment. A can sue B in the
court of law for breach of contract.

Illustration: Rajat calls Aman to his house and promises to take him to a movie in the nearby cinema hall.
Aman went to Rajat’s house, but Rajat could not go to a movie due to some urgent work. Here, Aman
cannot sue Rajat even if he has suffered any damages as Rajat was under social obligation and neither Rajat
nor Aman had any intention to create a legal relationship.

Essentials of a Valid Contract

Section 10 of the Indian Contract Act mentions that all agreements are contracts if they are made by:-

 Free consent of parties,

 Parties competent to contract,
 For a lawful consideration and with a lawful object, and
 Not expressly declared void.

Expanding the above points, we can say that the essential elements or necessary conditions of an
agreement to become a valid contract are as follows:-

1. More than one party.

2. Agreement.
3. Intention to create legal relationship.
4. Lawful consideration.
5. Capacity of parties to contract.
6. Free consent.
7. Lawful object.
8. Certainty of meaning.
9. Agreements not expressly declared void.

Let us learn about all these 9 essential elements of a valid contract in detail.

1. More than one party.

To create a valid contract, there must be two parties, and both the parties must be major, of sound mind, and
not disqualified by law. A single person cannot constitute a contract.

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2. Agreement.

Agreement is necessary to constitute a contract. Offer and acceptance together make a contract.
Any agreement made by two parties will be legally enforced unless it is declared void by law.

3. Intention to create a legal relationship.

A contract must be made with the intention to create a legal relationship. It means that if one of the parties
fails to perform his promise, then that person will be answerable under the law.

Case Law: Balfour vs Balfour

Mr and Mrs Balfour lived in Ceylon, but during holidays they went to England. Mrs Balfour had developed
rheumatic arthritis, and doctors recommended her to remain in England because the environment in Ceylon
is unsuitable for her health. Therefore, while leaving, Mr Balfour promised her wife to pay $30 per month
till she comes back to Ceylon. After some time, Mr Balfour denied paying the money, and Mrs Balfour filed
a suit against him for breach of contract. The court held that Mrs Balfour was not entitled to any money as
there was no intention to create a legal relationship between the parties, and hence there was no contract.

4. Lawful consideration.

Consideration means a reasonably equivalent or corresponding benefit passed on by the promisor to the
promisee. It is something that has value in the eyes of the law.

Consideration must be lawful, i.e., it must not be forbidden by law, or not be fraudulent or must not involve
or imply injury to the person or property of another. Moreover, it must not be immoral or opposed to public
policy.

Illustration: A promises to obtain employment for B in a government organisation, for which B promises to
pay Rs. 100000 to A. Here consideration is unlawful as it amounts to a bribe which is forbidden by law.

5. Capacity of parties to contract.

Section 11 of the Indian Contract Act states that a minor, lunatic, idiot and a drunken person cannot enter
into a valid contract.

6. Free consent.

According to section 14 of the Indian Contract Act, consent is said to be free when it is not caused by:-

A. Coercion (Section 15) – When a person commits or threatens another person to commit an act that is
forbidden by law. The agreements made under coercion are voidable, which can be declared void by an
option of any of the parties to the contract.

B. Undue Influence (Section 16) – When a contract is made because of the dominant position of one party
and due to this dominant position, the other person cannot deny that contract.

C. Fraud (Section 17) – According to Section 17 of the Indian Contract Act, when a party contracts with the
other party with the intention to deceive, it amounts to fraud by misleading the facts.

D. Misrepresentation (Section 18) – It is called misrepresentation when a contract is made by false

representation of facts or when a party misleads the other by showing false things and making them look
genuine

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E. Mistake (Section 20 to 22)

(i) Mistake of fact by both the parties (Section 20) – An agreement will be considered void if both the parties
to an agreement are under a mistake of fact.

(ii) Mistake of fact by one party (Section 22) – An agreement will not be considered void if there will be a
mistake of fact by only one party.

(iii) Mistake of law (Section 21) – Mistake of law will not be considered avoidable if a mistake is caused
against any law force in India. But a mistake as to a law not in force in India will have the same effect as a
mistake of fact.

Related Law Note: What Is Free Consent in Contract

7. Lawful object.

Section 23 of the Indian Contract Act states that the object of contract will not be lawful if it is:-

 Illegal.
 Defeats the provisions of law.
 Fraudulent.
 Immoral or opposed to public policy.
 Causes harm to a person or property.

Illustration: A hires a house from B to use it as a gambling place. Gambling being an illegal act, the contract
of hiring is void.

8. Certainty of meaning.

Section 29 of the Indian Contract Act states that the terms of a contract must be clear and shall not be
uncertain, vague, or indefinite.

9. Agreements not expressly declared void.

The agreements which are not enforceable by the court of law will be declared void. They include:-

 Agreement with unlawful consideration and object.

 Agreement having no consideration.
 Agreement in restraint of trade, marriage, legal proceedings.
 Agreement without certain meaning.
 Wagering agreements.

Matters Which May Be Referred to Arbitration

 Calculating damages in the event of a breach of contract.
 Question of validity of a marriage.
 Maintenance payable to the wife.
 Time barred claims.
 Matters of commercial nature.

Matters Which Cannot be Referred to as Arbitration

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  Matrimonial matters such as divorce or restitution of conjugal rights.
 Industrial disputes.
 Insolvent matters.
 Rent disputes.
 Criminal matters.
 Matters relating to guardianship of minors.
 Winding-up petition.

Arbitral Tribunal
According to section 2(1)(d) of the Arbitration and Conciliation Act, 1996, an arbitral tribunal means a sole
arbitrator or a panel of arbitrators. There should be an odd number of arbitrators present in the tribunal so
that they can reach a fair decision.

MMTC Ltd. vs Sterlite Industries (India) Ltd.

Section 10 of the Act provides that the parties can freely determine the number of arbitrators, but such
arbitrators shall be odd in number. This is an important element for the working of the arbitration agreement
to ensure that there would be no chances of a tie in the decision making. But still, if there are even number
of arbitrators, the arbitration agreement cannot be termed invalid.

Administrative Tribunals - Jurisdiction,

Dis/Advantages, and Case Laws
Amit Kumar Das
5–6 minutes

What is an Administrative Tribunal

With respect to administrative law, tribunals are referred to those bodies which have quasi-judicial power
(not similar to court procedures). They are not like the sub-ordinate courts or superior courts. Quasi-judicial
authorities are established under an act of Parliament or of the state legislature to discharge adjudicatory
functions.

Our courts are overcrowded with numerous cases. Therefore, for speedy and effective justice, part of the
judicial power is delegated to the tribunals.

Notes:

 The first tribunal which existed before independence is the Income Tax Appellate Tribunal.
 High Courts have jurisdiction over administrative tribunals under Article 226, and it may exclude the
jurisdiction of all courts even under Article 226/227 but except Special Leave Petition under Article
136.
 The Finance Act, 2017 merged eight tribunals w.r.t the similarity in its functions.

Now let us learn more about administrative tribunals in easy-to-understand words.

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  What is an Administrative Tribunal
 Indian Precedent
 Areas where tribunals have no jurisdiction
 Case Laws related to Administrative Tribunals
 Advantages of Administrative Tribunals
 Disadvantages of Administrative Tribunals
 Bottle-necks faced by Administrative Tribunals

Indian Precedent
Our Constitution did not have the provisions for administrative tribunals. The Swaran Singh Committee had
referred to the creation of administrative tribunals, which resulted in the 42nd amendment of the
Constitution of India, which inserted Article 323A (tribunals for administrative cases. example, public
service matters) and Article 323B (tribunals for other matters. example, tax, foreign matters, food-stuff, rent
etc.) into Part XIV-A with the primary objective being efficacious remedy and speedy justice in certain
cases.

After the amendment of the Constitution, the Parliament had passed the Administrative Tribunals Act, 1985,
which empowered the government to create central administrative tribunals and state administrative
tribunals.

Note: Recently, the President of India officially promulgated an ordinance, named as Tribunals Reforms
(Rationalisation and Conditions of Service 2021) on 4th April 2021 which took away the appealing power of
the certain authorities and conferred the same to High Courts which are briefed below. The names of the Act
are:

1. Cinematograph Act
2. Copyright Act, 1957
3. Customs Act, 1962
4. Patents Act, 1970
5. Airports Authority of India Act, 1994
6. Trade Marks Act, 1999
7. Geographical Indication of goods Act, 1999
8. Protection of Plant Varieties and Farmers Rights Act, 2001
9. Control of National Highways Act, 2002
10. Finance Act, 2017

Areas where tribunals have no jurisdiction

These are the areas where administrative tribunals have no jurisdiction:

1. Members of Union’s Armed Forces.

2. Staff & Members of Judiciary.
3. Members of Secretarial Staff of State and Central Legislature.

Case Laws related to Administrative Tribunals

Sampath Kumar vs Union of India: Powers of the tribunal are similar to that of a High Court.

Union of India vs Deep Chand Pandey: In the presence of an administrative tribunal, High Court does not
have the power to deal with cases.

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Chandra Kumar vs Union of India: The judicial review power of the tribunals, which was taken away,
was nullified.

Note: Only two writs, namely certiorari and prohibition, are available against the order of the administrative
tribunal.

Advantages of Administrative Tribunals

The four main advantages of administrative tribunals are:

1. Flexible (Adaptable to different situations).

2. Efficacy and Speedy Justice.
3. Cheaper and Simplified Procedures.
4. Relief for courts.

Disadvantages of Administrative Tribunals

The four main disadvantages of administrative tribunals are:

1. Separate procedures are followed, which deviates from the rule of law.
2. Even though tribunals have the similar power of courts, they don’t enjoy the same amount of
independence.
3. No statutory procedures are available as followed by subordinate and higher courts.
4. The staff of administrative tribunals are experts in specific fields, but due to a lack of judicial
knowledge, quicker procedures are being followed to deal with cases.

Bottle-necks faced by Administrative Tribunals

1. Insufficient infrastructure.
2. They are dependent on the executive for funds.
3. Insufficient staff.

Conclusion: The executive should take steps to uplift the tribunals for proper functioning and reduce the
burden on the judiciary. Time has demanded that tribunals must get reformed for their efficient functioning.