Arbitration Agreement
Introduction
Arbitration agreements serve as the foundation for resolving disputes through arbitration. By mutually
agreeing to submit their disputes to arbitration, parties opt for a private and streamlined process that avoids
the complexities of traditional litigation. At the core of this process lies the arbitration agreement, a
contractual foundation that enables parties to voluntarily submit their disputes to arbitration. Understanding
the essentials of such agreements and the rule of severability is crucial for individuals and businesses
navigating the realm of alternative dispute resolution.
Arbitration unquestionably provides benefits, but some types of conflicts may not be amenable to
arbitration. However, there are numerous circumstances where choosing arbitration as the alternative dispute
resolution method in a specific agreement does not consider whether possible issues can be arbitrated. Legal
obstacles brought on by these contradictory inclusions lengthen the dispute resolution process and raise the
expense. Before deciding the method of dispute resolution to use, the contractual parties must carefully
analyze the nature of the agreement, any potential conflicts that may result from it, and their intentions.
Definition of Arbitration Agreement
According to Section 7 of The Arbitration and Conciliation Act, 1996, an “arbitration agreement” is defined
as a commitment by the parties to subject to arbitration any or all disputes that have occurred or may arise
between them about a specified legal relationship, regardless of whether they are expressly stated in a
contract or not. An arbitration agreement is also known as a submission agreement. An arbitration
agreement is a legal contract entered into by two or more parties that stipulates any disputes or
disagreements arising between them will be resolved through arbitration rather than litigation in court. It is a
mutual agreement between the parties that their disagreements will be brought before an arbitrator or arbitral
tribunal, which will render a binding judgment based on the facts and arguments offered by both sides.
An arbitration agreement typically outlines the terms and conditions under which the parties agree to submit
their disputes to arbitration. It may include details such as the scope of the disputes covered, the rules and
procedures to be followed during arbitration, the selection process for appointing the arbitrator(s), the venue
or location for conducting the arbitration, and any other relevant provisions agreed upon by the parties.
Essentials of an Arbitration Agreement
An arbitration agreement serves as the foundation for initiating and conducting arbitration proceedings. To
ensure the effectiveness and enforceability of an arbitration agreement, several essential elements should be
considered:
1. Voluntary Agreement
For an arbitration agreement to be valid, it must be a product of the parties’ free will and voluntary consent.
Coercion, fraud, or undue influence should not taint the agreement, ensuring that parties willingly choose
arbitration as their preferred method of dispute resolution.
2. Mutual Consent
Mutual consent forms the core of an arbitration agreement. All parties involved must provide their consent
to resolve disputes through arbitration. There must be a clear indication of mutual acceptance and intention
to engage in arbitration. Without the explicit consent of all parties, an arbitration agreement cannot be
enforced.
3. Inclusion of Applicable Rules and Procedures
The agreement should specify the rules and procedures that will govern the arbitration process. This may
include referencing established sets of rules provided by recognized arbitration institutions or bodies. The
language and provisions of the agreement should reflect this intention, leaving no ambiguity regarding the
chosen method of resolution.
4. Legal Capacity
All parties entering into an arbitration agreement must possess the legal capacity to do so. Minors,
individuals lacking mental capacity, or parties acting under duress may not be able to enter into a valid
arbitration agreement.
5. Form and Writing
While the form and writing requirements for arbitration agreements vary across jurisdictions, it is generally
recommended to have the agreement in writing. A written arbitration agreement provides clarity and
evidence of the parties intention to arbitrate. It helps avoid misunderstandings and disputes regarding the
terms of the agreement.
6. Enforceability of Arbitration Agreements
The enforceability of arbitration agreements is governed by national laws and international conventions.
These legal frameworks may vary across jurisdictions, and it is crucial to understand the specific laws
applicable to the agreement.
In India, the law governing arbitration agreements is primarily based on the Arbitration and Conciliation
Act, of 1996 (the “Act”). The Act provides a comprehensive legal framework for the conduct and
enforcement of arbitration in India. The Act provides for the autonomy of the parties in determining the
procedure for conducting the arbitration, subject to certain mandatory requirements. The parties are free to
agree on the number of arbitrators, the appointment procedure, the place of arbitration, and the language to
be used in the proceedings. The Act also establishes the role of the courts in the arbitration process. The
courts have the power to intervene in various aspects of arbitration, such as the appointment of arbitrators,
granting interim measures, setting aside arbitral awards, and enforcing awards.
Rule of Severability
The “autonomy of the arbitration clause” is another name for the “doctrine of severability”. The rule of
severability is a fundamental principle in arbitration law that ensures the autonomy and enforceability of
arbitration agreements. Also known as the doctrine of separability, it allows the arbitration clause within a
contract to be treated as a separate and independent agreement from the rest of the contract. In other words,
if a contract contains an arbitration clause, the arbitration agreement is treated as a distinct and separable
part of the contract.
Section 16(1) of the Arbitration and Conciliation Act, 1996 defines the concept of ‘severability’ and states,
any arbitration provision included in a larger contract must be viewed as a separate agreement from the other
provisions, and if the arbitral tribunal rules that the entire agreement is void, the arbitration provision will
not automatically become ineffective as a result.
The severability principle ensures that challenges to the validity of the underlying contract do not
automatically render the arbitration agreement invalid. Arbitrators have the authority to determine the
validity and enforceability of the arbitration agreement independently, regardless of any disputes related to
the main contract.
Supreme Court in the case of “National Agricultural Coop. Mktg. Federation India Ltd. Vs. Gains
Trading Ltd” have correctly documented this principle and stated that “an arbitration clause is a collateral
clause in the contract, which relates to resolving disputes, and not with the specific performance of the
contract. Even if the performance of the contract comes to an end on account of termination, frustration or
breach of contract or by any other means, the arbitration agreement would survive the termination for the
purpose of resolution of disputes arising under or in connection with the mother contract.”
Section 34 of the Act very well incorporates the application of ‘Doctrine of Severability' under proviso to
Section 34(2) (a)(iv) of the Act. The said proviso prescribes the power of the court to set aside only those
portions of the arbitral award which were not submitted to arbitration, provided it is possible to separate
such portion from the remaining arbitral award. Therefore, if such a separation is not possible, the entire
arbitral award could be set aside by the court.
The Bombay High Court in the case of “RS Jiwani Vs. Ircon International Ltd” passed a judgment and
held that an arbitral award is severable and if a part of it is illegal and incapable of being enforced the other
of the award which is valid can still be enforced.
