Essential Elements of a Valid Arbitration Contract: Crucial Principles and Potential Pitfalls
================================================================================
In a recent article, Dhaval Vussonji & Associates, a leading law firm, provide insight into the viewpoint on arbitration and arbitration agreements. The authors, Sonam Mhatre and Shruti Kulkarni, offer valuable guidance on the essential elements of a valid arbitration agreement in India.
The article begins by emphasising the importance of a clear and unambiguous intention to arbitrate. Parties must demonstrate an unequivocal commitment to resolving disputes through arbitration, rather than litigation. This intention should not be left open to interpretation, as it can weaken the validity of the arbitration agreement.
The article further highlights that the agreement must impose a mandatory obligation on the parties to arbitrate, not leave it dependent on future negotiations or consents. An arbitration agreement cannot defer the decision to arbitrate to a later time or to further agreement.
The authors also stress the need for a reference to a neutral and impartial tribunal. The agreement should specify that disputes will be resolved by an independent arbitrator or arbitral tribunal, ensuring neutrality.
The scope of disputes covered must be clearly defined, leaving no ambiguity about the types or nature of disputes it covers. Under Section 7 of the Arbitration and Conciliation Act, 1996, the arbitration agreement must be in writing, which can include an arbitration clause in a contract or a separate arbitration agreement.
The use of obligatory terms such as "shall," "must," or "will" is essential to avoid vagueness and ensure enforceability. Phrases suggesting optional or future consent (e.g., "may," "can," "might") weaken the validity of the arbitration agreement.
Best practices include specifying procedural elements such as the seat of arbitration, the rules governing the arbitration process, and the method for appointing arbitrators to avoid ambiguity and ensure smoother enforcement.
The validity of an arbitration agreement is subject to formal validity checks by courts, primarily its existence and writing requirement under Section 7. Substantive issues related to the validity or scope are generally for the arbitral tribunal to decide, according to the doctrine of competence-competence established by the Supreme Court.
The article also covers other crucial aspects, such as the necessity for arbitrators to be free from conflict of interest and the need for a valid Arbitration Agreement to specify that the Arbitral Award is final and binding on the parties.
The presence of an arbitration clause in commercial contracts in India has noticeably developed over time. The Arbitration and Conciliation Act, 1996 provides the statutory framework for arbitration in India.
The objective of conciliation clauses is to promote amicable settlement, and non-compliance cannot prevent reference to arbitration.
The authors conclude by stating that the Supreme Court of India's rulings, such as KK Modi v. K.N. Modi, Jagdish Chander v. Ramesh Chander, and Duro Felguera v. Gangavaram Port Ltd., form the statutory and judicial framework under the Arbitration and Conciliation Act, 1996. The Court’s intention is to support the binding effect of arbitration agreements by ensuring clarity, mandatory commitment, and minimal court interference, fostering timely and effective dispute resolution.
For those interested in publishing Deals, Columns, or Press Releases on Bar & Bench, forms are available on the website. The opinions expressed in the article are those of the authors and do not necessarily reflect the views of Bar & Bench.
Read also:
- Intensified farm machinery emissions posing challenges to China's net-zero targets
- Nuclear plant revitalized: Artificial intelligence-led demand breathes life into the Great Lakes nuclear facility
- International finance institutions, EBRD, EIB, and SEB, offer €84.8 million in loans for solar energy projects within Latvia.
- Yearly financial loss due to natural disasters in Pakistan amounts to roughly 2% of the country's GDP, as per the United Nations.
