What is Arbitration Agreement

What is meant by Arbitration Agreement?

Arbitration Agreement is any ordinary Business Contract which has a clause in which you agree to settle and resolve your disputes out of court, through arbitration.

Arbitration agreements are common in consumer contracts and employment contracts, but they can be proposed additions to any contract negotiation in which one or both parties would like to head off the possibility of a future Court suit.

As compared to a adversarial Court suit, Arbitration is relatively considered to be inexpensive, quick and confidential. 

Section 7 of The Arbitration and Conciliation Act, 1996 provides definition of Arbitration Agreement.

Section 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.

Advantages of Arbitration Agreement

• Usually cheaper than litigation.
• Help resolve disputes peaceably rather than escalate angst and hostility.
• Quick and result oriented.
• Its procedure is flexible.
• Confidentiality is maintained at all stages.
• Availablity of Domain Experts

Essentials of Arbitration Agreement

Basic essentials of any Arbitration Agreement include-

1. Use all terms wisely and precisely as they are important and are going to be interpreted by the arbitral tribunal.
2. Some best drafted arbitration clauses are those which are simple, precise and unambiguous.
3. Agreement shall be clear about the scope and ambit of application of the arbitration clause ie the specific issues and disputes that are sought to be covered by the clause. 
4. Agreement shall allow the parties are free to agree on the number of Arbitrators that will sit on an arbitral tribunal.
5. Agreement shall be clear about the specific applicable Substantive Law and Procedural Law.
6. Agreement shall be clear about the Seat and Venue of Arbitration hearings Include the specific desired language of arbitration in their arbitration clause.
7. Agreement shall propose Institutional Arbitration for a timebound disposal of dispute through not-for-profit Institutions like The IDRC.