Arbitration agreement under Arbitration and Conciliation Act 1996

The Arbitration Agreement under the Arbitration and Conciliation Act, 1996, is governed by Section 7 of the Act. Below is a detailed explanation:

Definition (Section 7(1)):

An arbitration agreement is a written agreement between two or more parties to submit disputes, whether already existing or that may arise in the future, to arbitration instead of litigation in a court of law.

Key Features:

1. Written Form (Section 7(3)):
   The arbitration agreement must be in writing. It can be:
   • A clause in a contract.
   • A separate agreement.
2. Modes of Agreement (Section 7(4)):
   The arbitration agreement is considered to be in writing if:
   • It is contained in a document signed by the parties.
   • It is formed through the exchange of letters, emails, or other means of communication that provide a record of the agreement.
   • It is referred to in a contract where the arbitration clause is incorporated by reference.
3. Future or Existing Disputes:
   An arbitration agreement can relate to disputes that have already arisen or disputes that may arise in the future.
4. Autonomy:
   The parties have the freedom to decide the procedure, rules, number of arbitrators, and the governing law.

Validity Requirements:

To be enforceable, an arbitration agreement must meet the following criteria:

• Consensus: Both parties must voluntarily agree to arbitrate.
• Capacity: Parties must have the legal capacity to enter into the agreement.
• Legal Object: The agreement must not be for an unlawful purpose.
• Clarity: The terms should clearly indicate the intent to arbitrate disputes.

Case Law Illustrations:

1. K.K. Modi v. K.N. Modi (1998):
   The Supreme Court held that an arbitration agreement must reflect a clear intention of the parties to settle disputes through arbitration.
2. Jagdish Chander v. Ramesh Chander (2007):
   The Court ruled that vague agreements without a mandatory arbitration clause are not valid arbitration agreements.
3. M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009):
   An arbitration clause in one document can be incorporated into another by reference.

Benefits of Arbitration Agreement:

1. Efficient Resolution: Saves time and cost compared to litigation.
2. Flexibility: Parties can customize the procedure.
3. Confidentiality: Arbitration proceedings are private.
4. Enforceability: Arbitral awards are enforceable under the Act and international conventions like the New York Convention.