INDEX

TITLE PAGE NO
INTRODUCTION 4

5
DEFINITION AND MEANING OF ARBITRAL AGREEMENT
ESSENTIAL ELEMENTS OF ARBITRAL AGREEMENT 6
POWER OF COURT TO REFER PARTIES TO ARBITRAL
7
TRIBUNAL
ESSENTIAL ELEMENTS OF SECTION 8 8

CONCLUSION 9
BIBLIOGRAPHY
10

1
INTRODUCTION
The formation of an arbitration agreement takes place when two parties, enter into a contract and
in which, the contract states that any dispute arising between the parties have to be solved
without going to the courts with the assistance of a person, who would be a neutral person, a
third party, appointed by both of the parties, known as the Arbitrator, who would act as a judge.
The arbitrator so appointed should have been previously mentioned in the contract that they
made. They should also state who should select the arbitrator, regarding the kind of dispute the
arbitrator should give decisions on, the place where the arbitration would take place.
Furthermore, they should also state the other kinds of procedures mentioned or that has to be
required during an arbitration agreement.

The parties are generally required to sign an Arbitration Agreement. The decision taken by the
arbitrator regarding any issue, is binding on both the parties, as stated by the agreement. In any
event, where one party decides that an agreement must be made prior to entering the contract, it
can be stated that the agreement was made to deviate from the hassles of the court. These
agreements are like contingent contracts, which means that these agreements shall only come
into force or become enforceable if any dispute happens, and on the basis of the same dispute
between two parties mentioned in the contract. It also takes place or is enforceable in the light of
any dispute that arises between the parties to the contract.

The Arbitration and Conciliation Act, 1996 (the 1996 Act) strives to provide an alternative to the
court as a method of dispute resolution while giving parties autonomy in the method of resolving
their disputes. While party autonomy has been ensured to the parties, for instance, in choosing
the place of arbitration, procedure to be followed by the Arbitral Tribunal in conducting its
proceedings ,language, amongst others, Section 7 of the 1996 Act lays down simpler
characteristics in defining “arbitration agreement”. The same provision crystallises various ways
in which an arbitration agreement can come into existence and the courts have grappled, albeit
sometimes inconsistently, with various scenarios which form the subject-matter of the present
assignment.

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DEFINITION AND MEANING OF ARBITRATION AGREEMENT

What is meant by the term 'arbitration agreement'?

Section 7(1) of the Act provides that an 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.

Section 7(2) lays down that an arbitration agreement may be in the form of an arbitration clause
in a contract or in the form of a separate agreement.

An arbitration agreement must be in writing. 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 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.

Section 7(5) provides that 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.

An arbitration agreement stands on the same footing as any other agreement. It is binding upon
the parties unless it is influenced by fraud or coercion or undue influence, etc. An essential
requirement of an arbitration agreement under section 7 is that the agreement must be in writing.
An oral arbitration agreement is not recognised as arbitration agreement under this section. The
implied requirement of sub-section (1) of section 7 is the competency of parties to enter into
contract. Lack of such capacity invalidates the contract. Section 34(2)(i) makes an arbitral award
liable to be set aside if a party was under some incapacity at the time of entering into the
arbitration agreement.

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Whether there is any prescribed form for an arbitration agreement?

There is no specific form in which an arbitration agreement is required to be drawn. The

arbitration agreement may be a single document containing all the terms signed by both the
parties or it can comprise of two documents one containing all the terms signed by one party and
the other a plain acceptance by the other party of the first document or it can be an unsigned
document containing the terms of which both parties agree either orally or by a separate
acceptance. Arbitration agreement may be express or can be spelt out by implication or it may be
referential incorporation [Atlas Export Industries v. Kotak and Co., AIR 1999 SC 3286].

Essential Elements of an Arbitration Agreement

What are the essential elements of an arbitration agreement?

The Supreme Court in Bihar State Mineral Development Corporation v. Encon Builder Pvt. Ltd.,
2003 (3) Arb LR 133 (137) (SC), held the following as the four essential elements of an
arbitration agreement:-

(i) There must be a present or future difference in connection with some contemplated affair.

(ii) The parties must have the intention to settle such difference by a private tribunal.

(iii) The parties must agree in writing to be bound by the decision of such tribunal.

(iv) The parties must be ad idem.

In K.K. Modi v. K.N. Modi, AIR 1998 SC 1297, the Supreme Court held that the following
attributes must be present in an arbitration agreement-

(i) The arbitration agreement must contemplate that the decision of the tribunal will be binding
on the parties to the agreement.

(ii) That the jurisdiction of the tribunal to decide the rights of parties must derive either from the
consent of the parties or from an order of the court or from a statute, the terms of which make it
clear that the process is to be an arbitration.

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(iii) The agreement must contemplate that substantive rights of the parties will be determined by
the arbitral tribunal.

(iv) That the tribunal will determine the rights of the parties in an impartial and judicial manner
with the tribunal owing an equal obligation of fairness towards both sides.

(v) That the agreement of the parties to refer their disputes to the decision to the tribunal must be
intended to be enforceable in law; and

(vi) The agreement must contemplate that the tribunal will make a decision upon a dispute which
is already formulated at the time where a reference is made to the tribunal.

Section 8 - Power of court to refer the parties to arbitration:

Section 8 of the Arbitration and Conciliation Act, 1996deals with the power of the judicial
authority to refer the parties to arbitration. The crux of the provision is that if there is an
arbitration agreement between the parties and a dispute arises between the parties which is a
subject matter of arbitration, then the judicial authority before whom either of the parties has
brought the case is obligated under Section 8 of the Arbitration and Conciliation Act, 1996 to
direct the parties to resolve their dispute through arbitration. To amplify the scope of arbitration,
the 2015 Amendment to Section 8of the said Act mandates the judicial authority to refer the
parties to arbitration irrespective of any decree/court order/judgment. This section is based
on Section 34 of the erstwhile Arbitration Act,of 1940.

It provides that the party to arbitration merely needs to insinuate the judicial authority about the
arbitration clause before the filing of the first statement. Thereafter, the judicial authority has to
compulsorily refer the parties to the arbitration. For invoking the arbitration clause, Section
8 provides a time limit and within that limit, the parties need to intimate the judicial authority
about the arbitration clause, the said limitation is described in the provision as “not later than the
date of submitting his first statement on the substance of the dispute.”

In the case of RashtriyaIspat Nigam Ltd vs. Verma Transport Company (AIR 2006 SC
2800) (( 2006 )

The Hon’ble Supreme Court of India held that deduced that the ‘First statement’ with respect to
section 8 should be different from the expression ‘written statement’. Further, the court goes on

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to say that it is the duty of the judicial authority to find whether the party has waived its right to
invoke arbitration by filing the first statement.

Essential ingredients of section 8

The following are the essential ingredients of it-

1. There should be a valid arbitration agreement between the parties.

2. Action should be brought before the judicial authority and that action should be a subject
matter of the arbitration.
3. Either of the parties or any person related to the dispute should invoke the arbitration
clause or agreement before the date of submitting their first statement on the substance of
the dispute before the judicial authority.
4. The application of the party to refer the case to arbitration should be filed with the
original arbitration agreement or its duly certified copy.

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Conclusion
Therefore, from the above article, we can state that an arbitration agreement is not only
beneficial to the parties whilst saving the resources, but also in means of the time and efforts put
in by each of the parties. Despite a few people stating that it is not a complete procedural aspect
of dealing with the cases, one state that it does help both the parties who have faced the dispute.
However, most importantly, it is important that there are certain things that have to be kept in
one’s mind before actually drafting or while drafting a contract for the arbitration agreement. In
practice though, almost all arbitration agreements are concluded with arbitration clauses.

The growth of arbitration signifies that there is a fundamental change that is present in our way
of legislating. Another significance is in deciding the matters in a significantly lesser amount of
time and the different or the separate clauses mentioned in the commercial contract. These are
paving the way for the most effective and the most suitable remedy without having to go through
the recourse of the courtrooms. Arbitration is generally the most efficient form of remedy for
settlement of disputes amongst the parties, which actually does not require any long procedures
of the Court for the decisions to be made. It is cost-efficient, it is time-saving, it also permits one
to choose their own arbitrators. Through this, the decisions are given swiftly, and according to
the nature of the case, they are also, most of the time satisfactory. The severability, separability,
and the autonomy principle of the Arbitral agreement prevent the validity of one agreement from
being overlapped by the other. Nonetheless, the two agreements may co-exist. Having such a
principle does not negate the value of the other principles mentioned in the contract, but mostly
adds on to those principles. Thus it plays an important role when the contractual clauses arise
when dealing with the disputes.

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BIBLIOGRAPHY

1) – BOOKS:
 The Arbitration And Conciliation Act,1996
 Johari, Commentary on Arbitration and Conciliation Act.
Universal, Delhi

2) – WEB LINKS :

 https://blog.ipleaders.in/significance-of-the-arbitration-
agreement/
 https://www.lexology.com/library/detail.
 http://student.manupatra.com/Academic/Abk/Arbitration-and-
ADR/CHAPTER-2.htm