Arbitration is a form of alternative dispute resolution mechanism, which allows the parties in dispute to refer their present or future disputes to a neutral third party, who is known as the arbitrator, instead of running from pillar to post seeking justice. Arbitration is governed by the arbitration and conciliation act of 1996. The decision of the third party is binding on the parties to disputes.
It saves the parties from undergoing the hassle of waiting for years together for their cases to be heard and finalised in courts. Arbitration is a quasi-judicial process, and the disputes between the parties are not referred to as normal courts but domestic tribunals. It also has the advantages of being cost-effective and reasonable, unlike traditional court procedures.
Section 7 of the arbitration and conciliation act of 1996 defines arbitration agreement as an agreement by the parties to refer to arbitration all or some disputes which have arisen or will arise on a future date between them concerning a defined legal relationship, whether contractual or not.
An arbitration agreement is made by any two parties entering into a contract by which any disputes arising between them with regards to the contract agreement is to be resolved, without going to the courts and with the help of an arbitrator. The agreement should mention who should select the arbitrator; regarding what kind of disputes the arbitrator should give the decision, the place of arbitration, etc.
The parties need to sign the arbitration agreement, and the decision shall be binding on the parties. If you are a party to any contract and if you wish to resolve any disputes with the help of arbitrator, without going to court, then you should make this agreement.
An arbitration agreement is like a contingent contract, meaning thereby that these agreements come into being or become enforceable contingent to the happening of a dispute between the parties. It is only enforceable in case there arises a dispute between the parties.
ESSENTIALS OF ARBITRATION AGREEMENT:
The arbitration agreement must be in writing. It may be in the form of an arbitration clause in a contract or a separate agreement. There is no particular form for an arbitration agreement, and the courts will look at the wording to determine whether the parties intended to enter into an arbitration agreement. The agreement need not use the words ‘arbitrator’ or ‘arbitral tribunal’ to be considered a valid arbitration agreement.
ESSENTIALS WHILE DRAFTING ARBITRATION AGREEMENT:
- The seat of the arbitrator: This clause specifies the seat or place of arbitration. The seat of arbitration determines the procedural laws that govern the arbitration procedure. It need not be the same as the place of hearings. The seat of the arbitrator is considered to be a place where arbitrations are held even if the place of hearing differs. Place of hearings don’t by any means affect the chosen seat of the arbitrator.
- Procedure for appointing arbitrators: Section 11 of the arbitration and conciliation act talks about the appointment of arbitrators. It provides that a person of any nationality may be appointed as an arbitrator unless otherwise agreed by the parties. The parties are free to agree on a procedure for appointing the arbitrator(s). suppose the parties fail to reach an agreement, in arbitration with three arbitrators. In that case, each party shall appoint one arbitrator, and the two arbitrators shall after that appoint a third arbitrator, who shall be the presiding arbitrator. The appointment of parties maybe by the parties themselves, or by the designated authority or by the arbitral institution. In the place where the dispute involves an international commercial transaction, then the arbitrator to be appointed shall not be of the same nationality as the parties to the disputes.
- Language of arbitration: It is important to mention the language of arbitration in the agreement itself. Especially in a country like ours, where Hindi and English aren’t the only two languages spoken, it would get very difficult to decide and settle the disputes. Choosing the language of arbitration is also very close effective because it would save you from paying exorbitant fees to the translators.
- Number and qualifications of arbitrators: According to section 10 of the arbitration and conciliation act of 1996, parties can be determining the numbers of arbitrators, provided that a number is an odd number. Failing to determine the numbers of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.
- Type of arbitration: Parties can be choosing between institutional or AD HOC arbitrations. If the parties chose the former, then they have to be bound by the rules of the arbitration institutions. All these institutions have their own set of arbitration rules, and these rules would apply to arbitral proceedings conducted by them. Whereas, in the case of Ad-hoc arbitrations, arbitrations are both agreed to and arranged by the parties themselves. No help is sought from the arbitral institutional in Ad- hoc arbitrations.
- Governing law: this is the law governs the main point of contention between the parties to disputes. It is even known as substantive law. The parties should mention the law they want to be governed by, failing, which may give way to disputes in the future.
Name and address of the arbitration institution: if the parties to the disputes are referring their disputes to an arbitration centre, then it is pertinent that they mention the name and address of the arbitration facility in clear and unambiguous words. Such inadvertent mistakes can lead to the nullification of the arbitration clause.