Introduction -

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.

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.And integral to any Arbitration is,an Arbitration Agreement.

An Arbitration Agreement defines the conditions under which an

Arbitration between the two parties must take place. It can be

incorporated into the contractual agreement between the parties, or it

may be a standalone agreement in itself. Arbitration is a voluntary

process of outside court settlement of Disputes that sway it is a prime

most condition for the commencement of Arbitration proceeding.

In the words of Halsbury-” It is an agreement made by to or more

parties between whom some differences have arisen or may therefore

arise whereby they appoint another person to adjudicate upon some

dispute and agree to be bound by his decision.”

The characteristics of arbitration is that it is a private tribunal chosen by

the parties.The person who is appointed to settle the differences and the
dispute is called the ‘arbitrator’, the proceedings before him is known as
‘arbitration’ and his decision is known as ‘award’.

Definition u/s 2 (1) (b) and its explanations “Arbitration agreement”

means an agreement referred to in sections 7;Means, Arbitration

agreement , means the agreement according to the terms and conditions

given u/s 7 .

Our own Arbitration and Reconciliation Act, 1996 as amended by

Arbitration and Reconciliation Act, 2016, has enshrined in its
Section 7, the Arbitration Agreement. According to the Act –

“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[including communication through electronic means]

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.”
Kinds: There are two types of arbitration Separate Arbitration

Agreement and Clause Agreement (Arbitration Clause). They are as

follows -

Clause agreement -An arbitration clause is a preemptive agreement

made before any dispute arises. It is typically included in contracts,

ensuring that any future disputes between the parties will be resolved

through arbitration rather than litigation. This clause is binding and often

found in commercial contracts, employment agreements, or other types

of contractual relationships.

Purpose: To mandate arbitration as the method for dispute resolution

before a conflict occurs.

Characteristics:

● Established within a broader contract.

● Applies to potential disputes.

● Offers certainty and predictability in dispute resolution.

● Often includes details like the arbitration forum, the number of

arbitrators, and rules governing the arbitration process.

Example: A company’s employment contract may state that any

employment-related disputes will be settled through arbitration, ensuring

that neither party can opt for litigation without violating the agreement.

2. Submission Agreement-A submission agreement is made after a

dispute has already arisen, and the parties agree to resolve the specific

conflict through arbitration. This agreement is more situational and

reflects the mutual desire of both parties to avoid court proceedings in

favor of arbitration for a particular issue.

Purpose: To submit an existing dispute to arbitration.

Characteristics:

● Created after a conflict arises.

● Deals with a specific, identified dispute.

● Can be more tailored, as the terms are negotiated with a full

understanding of the nature of the dispute.

● May cover details like the arbitration process, governing law,

location, or specific arbitrators.

Example: Two business partners disagree over profit distribution and,

instead of going to court, sign a submission agreement to resolve the

matter via arbitration.

Key Differences:-

Timing: Clause agreements are made before any conflict arises, while

submission agreements occur after a dispute has materialized.

Scope: Clause agreements are generally broader, covering potential

future disputes, whereas submission agreements are tailored to a

specific existing issue.

Both clause agreements and submission agreements are valuable in

arbitration, promoting efficiency, confidentiality, and flexibility in resolving

disputes outside traditional courtrooms.

Essentials of arbitration agreement:-The essentials of arbitration

agreement are as follows -

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.

Case laws-

In the case of Rukmanibai Gupta v. Collector, Jabalpur ¹(1980) 4 SCC

556(AIR 1981 SC 479) (MANU / SC / 0002 / 1980) the Supreme Court

held that as per the arbitration agreement the dispute will refer to the

arbitration and the decision of the arbitrator would be final and binding.

M/s Centrotrade Minerals and Meal Inc. v. Hindustan Copper Ltd ²

AIR 2007 SC 185 .It was held in this case that, “Intentions to choose the

arbitration proceeding must be clear with the terms and conditions of the

agreement, means it may be explicit or implicit”

S.N Prasad v. Monnet Finance Ltd.³ 2010 ( II) JT 479-It was held that ,

“there must be a communication and exchange of copies of the

agreement to the parties so that they cannot deny from such

agreement”.
Conclusion :Arbitration agreements, whether established through a

clause agreement or a submission agreement, are essential tools in

alternative dispute resolution. They offer parties a private, efficient, and

often cost-effective means to resolve conflicts without resorting to

litigation. By specifying the terms and procedures for arbitration, these

agreements provide clarity and predictability, helping to maintain

business relationships and reduce the uncertainty associated with court

proceedings. Ultimately, arbitration agreements empower parties to

control the dispute resolution process, offering flexibility in addressing

conflicts in a way that best suits their needs.

1.(1980) 4 SCC 556(AIR 1981 SC 479) (MANU / SC / 0002 / 1980)

2. AIR 2007 SC 185

3.2010 ( II) JT 479

REFERENCE
● https://blog.ipleaders.in by Ria Verma
● https://www.legalserviceindia.com