SYMBIOSIS INTERNATIONAL DEEMED UNIVERSITY
A Critical Analysis on the Enforceability of Arbitration
Agreements in India
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Submitted by
Rajamrit Das
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Division – ‘D’
PRN – 21010324099
Class of BBA LLB
INDEX
ABSTRACT............................................................................................................................................ 3
INTRODUCTION .................................................................................................................................. 4
RESEARCH METHODOLOGY........................................................................................................ 4
1. ARBITRATION AGREEMENT .................................................................................................... 6
1.1. TYPES OF ARBITRATION AGREEMENT ......................................................................... 6
1.1.1. A SELF-CONTAINED ARBITRATION AGREEMENT ............................................. 6
1.1.2. EXISTENCE OF AN ARBITRAL CLAUSE................................................................. 6
1.1.3. INCORPORATING ARBITRATION AGREEMENT CLAUSE BY REFENCE ......... 6
2. CREATING A VIABLE ARBITRATION AGREEMENT ....................................................... 8
ENFORCIBILITY OF ARBITRATION AGREEMENT IN INDIA ................................................... 10
Enforceability of Arbitration Agreements. ....................................................................................... 10
When does an arbitration agreement cease to be enforceable? ..................................................... 10
Separability ................................................................................................................................... 11
Outsiders - limited by assertion understanding ............................................................................. 11
PARTICIPATION OF THE THRID PARTY .............................................................................. 13
ACCUMULATION OF COMPANIES ........................................................................................ 13
MULTIPLE ARBITRATION AGREEMENT ............................................................................. 14
SUGESTION AND CONCLUSION .................................................................................................... 15
ABSTRACT
Contracts are a persistent part of day-to-day life. The exchange of the most petite goods or the
apprehension to do or abstain from doing something is also considered a contract. The
agreement is essential for a valid contract, but sometimes there can be despair between the
parties, and they need to find a grey area apart from the court. It is when the Arbitration
agreement comes into play. It settles the matter outside the court and simultaneously helps the
parties in the contract to find a middle ground with most of their terms and conditions.
The foundation and underlying cause of establishing Arbitration in the domestic and
international circuits stemmed from the establishment of a void in the standard and general
operation of the structured existence, which resulted in a slow investigation and cost
expenditure for the state and parties to the discourse. Arbitration undoubtedly shows a vital
representation in distinguishing many types of organizations and business relationships
between entities. This leads to the insertion of contractual arbitral provisions to address
disputes that arise from such arrangements. Its goal is, in some way, to keep litigants from
going to court. Instead, plaintiffs should be dedicated entirely to referring their conflicts to an
immense arbitrator whose role is to fix their de facto or possible dispute and enforce the
arbitrator's decision.
In this paper, the researcher will frame the basic knowledge of arbitration agreements, their
nature, the power of arbitration agreements, and their enforceability in India.
Keywords: Arbitration Agreements, Alternate Dispute Resolution, Arbitration, and
Conciliation.
INTRODUCTION
¶Agreements is an essential part for a valid contract. But sometimes when both are parties have
difference of opinion or are not able to find the middle ground, then the agreement is said to be
arbitrary.
¶However, Arbitration agreement are different from Arbitrary agreement. The arbitral
agreement establishes a irrevocable procedure that helps the arbitral tribunal to make decision
on the discretion of both the parties agreement. Arbitration’s underlaid principles, such as legal
capacity and Secrecy, have made it an appealing option of resolving disputes among the agrived
parties; furthermore, the technical details induced in arbitral proceedings can make it appear a
little intimidating. The arbitration process begins whenever the parties come agrees to
arbitration agreement, regardless of the nature of the dispair. The arbitration agreement
mandates, guides, and maintains the arbitral proceedings during a dispute. In other utterances,
the law is made and guided by the facts, not other way around.
¶In the current paper the researcher primarily focuses on the enforceability of Arbitration
agreements in India while explaining the whole concept of Arbitration Agreement which
includes The History of Arbitration, Nature of Arbitration Agreement, The different types of
Arbitration Agreement, Power of Arbitration Agreement.
¶The history of arbitration in India has been carried through ages, however there are still major
loop holes in the process of Arbitration and Conciliation. The recent dispute between Amazon
and Reliance in regard to the future retailing have drawn people’s attention on the poor
management of the other legal ways outside the court i.e., Arbitration. Arbitration Agreements
in itself plays a crucial role to settle matters outside the court.
¶ The researcher in this paper will be discussing the current scenario of Arbitration agreements,
the dispute between different entities, the flaws in the current system of Arbitration agreements
in India and its proper implementation. Furthermore, the researcher will be focussing of some
suggestion and end the paper with a conclusion.
RESEARCH METHODOLOGY
The current study is mostly based on doctrinal research principles. The concept of referring to
and studying existing facts, like laws and statistics, is associated with doctrinal research. The
researchers argue that the current study is heavily reliant on existing rules and how they interact
with one another as laws and statistics and iss associated with doctrinal research. The
researchers argue that the current study is heavily reliant on existing rules and how they interact
with one another. It is best to do doctrinal study and evaluate numerous relevant laws in force
to conduct successful research on such a topic.
The researcher also believes that research technique should not be limited to analytical and
prescriptive tools, but should include secondary and tertiary empirical material that aids in a
more critical study of the research issue. As a consequence, the researcher believes that the
tools used in this study are appropriate for the issue at hand.
1. ARBITRATION AGREEMENT
The reason for an arbitration procedure is an arbitration agreement. An “Arbitration
agreement”1 not only shapes an arbitral panel but it is the only resort through which the
aggrieved parties can submit their views to the tribunal for resolution. As a result, it is critical
to comprehend the arbitration agreement's legal status under the Act.
When a disagreement emerges, an arbitration agreement cannot be broken. In the case of “Ravi
Prakash Goel v. Chandra Prakash Goel”2, It was decided that if an arbitral agreement is in
place and applicable, the parties cannot go to civilian lawsuit first without undergoing through
arbitration. Section 8 of the 1997 Amendment mandates that courts send arbitration
proceedings if an adequate arbitration agreement exists.
1.1. TYPES OF ARBITRATION AGREEMENT
Under Section 7 of the 1997 Act it is held that an arbitration agreement must be written.
Furthermore, Section 7 allows the parties to draught an arbitration agreement in a variety of
methods, as listed below:
1.1.1. A SELF-CONTAINED ARBITRATION AGREEMENT
In addition to the operating agreement between the parties, a supplementary arbitration
agreement can indeed be drafted.
1.1.2. EXISTENCE OF AN ARBITRAL CLAUSE
An arbitral clause can be written in the section of the agreement dealing with the parties'
obligations and options in the event of a legal disagreement emerging from the contract.
Arbitration provisions are sometimes referred to as arbitration agreements.
1.1.3. INCORPORATING ARBITRATION AGREEMENT CLAUSE BY REFENCE
A separate contract's arbitration clause can be integrated into a contract being formed. Section
7(5) states that any referral to a file outlining an arbitration provision must be considered as
1
2
Ravi Prakash Goel v. Chandra Prakash Goel, (2008) 13 SCC 667
arbitration agreement if the linked agreement is there in written or make refering to the intent
of making arbitration agreement clause a part of the contract.
The Supreme Court in "M/s Elite Engineering and Construction (HYD.) Private Ltd. v.
M/s Techtrans Construction India Private Ltd"3, determined that a broad referral to the
insertion of an independent arbitration clause is not legal. The references must be unambiguous
and express the parties' intent to incorporate.
According to Section 7(b) under the 1996 Act, an arbitration clause can also be derived from
the exchange of letters, telex, conversations, or other kinds of telecommunication that provide
a documentation of the parties' agreement. In summary, an agreement can be established from
the parties' communications whether there's a clear and unambiguous intention to refer disputes
to arbitration.
The Delhi in the recent case of Galaxy Infra and Engineering Pvt.Ltd Vs. Pravin electricals
Pvt. Ltd4, draught that exchanging of draft agreements between parties via E-mail shall be
considered as an Arbitration Agreement.
In the judgement of Pravinchandra Murarji Savla v. Meghji Murji Shah5, it was helf that
the substance of the agreement hold more importance than it’s form.
Furthermore, according to Section 7(c) of the 1996 Act in S.N. Prasad v. Monnet Finance
Ltd6 it was observed that the exsistance of an arbitration agreement can be inferred when a
statement of claims or accusations is made and is greeted with 'non-denial' by the opposing
party.
Despite the fact that the 1996 Act opened a path for a variety of ways to construct an arbitration
clause, it is always suggested as standard practise to include an arbitral clause in the contract
itself.
3
M/S. ELITE ENGINEERING AND CONSTRUCTION (HYD.) PRIVATE LIMITED REP. BY ITS MANAGING
DIRECTOR V. M/S. TECHTRANS CONSTRUCTION INDIA PRIVATE LIMITED REP. BY ITS MANAGING
DIRECTOR - LNIND 2018 SC 129 (2018) 2 WBLR (SC) 716126 (2018) CLT 1122018 (2) ALT 1022018 (2)
ArbLR 100 (SC)2018 (2) CHN (SC) 1012018 (2) RCR (Civil) 3122018 (3) SCALE 3522018 (4) MPLJ 1522018
(4) SCC 2812018 (5) MhLJ 5942018 SCC OnLine SC 1562018-3-LW 565[2018] 143 CLA 171 (SC)LNIND
2018 SC 129
4
GALAXY INFRA AND ENGINEERING PVT . LTD VERSUS PRAVIN ELECTRICALS PVT . LTD LNIND 2020
DEL 1259
5
Pravinchandra Murarji Savla v. Meghji Murji Shah 1998 (2) RAJ 273 : 1998 Supp Arb LR 314 (Guj).
6
(2011) 1 SCC 320 [LNIND 2010 SC 1026]
2. CREATING A VIABLE ARBITRATION AGREEMENT
The Supreme Court specifically addressed the subject of what makes a legitimate arbitration
agreement in Jagdish Chander v. Ramesh Chander and K. K. Modi v. K. N. Modi. The Supreme
Court established a set of standards that should be included in an arbitral proceedings. The
following are the principles:
I. The Agreement must be in written form.
II. The parties must agree to refer to a private tribunal incase of any dispute arising out
of a contract.
III. The private tribunals should be authorized to judge on disputes in an unbiased way,
allowing the parties ample opportunities to plead before the court.
IV. The decision of the Tribunal should be binding upon the parties.
V. The parties' intention to bring the issue to a judicial tribunal must be clearly
expressed.
VI. ‘Consensus ad idem’ must be there between the parties to agreement.
VII. The wording must imply a duty and desire on the discretion of the parties to seek
arbitration, not just a possibility.
VIII. The agreement provisions must not expressly prohibit any of aforementioned
variables.
Even though it may be invariably preferable to draught clearly and unambiguously clauses,
an arbitration clause does not include the words "arbitration", "arbitration tribunal", or "the
arbitrator" might be considered a legitimate arbitral proceedings accord if indeed the
general attributes of a legitimate arbitration clause (as outlined previous section) are
present.
It should be apprehended that the above list is not exhaustive. Consider some extra tools to
help the parties resolve issues that may occur throughout the arbitral procedure when
drafting successful arbitration agreements.
Under Section 7(b) of the Act, the Sc has accepted the argument that dialogue between the
litigants can be used to infer permission to enter into an arbitration agreement. 10 An
exchange of written letters between the party to depend on an agreement including an
arbitral provision might imply such permission.
Furthermore, it is critical for the courts to interpret such correspondence in order to
determine whether the parties consented ad idem to the conditions of the contract. A mere
mention to an agreements without a consistent record of approval toward the covered
agreements would not establish a foundation for implicit consent to the agreement's
arbitration clause.
Over the time in different judgement of different courts it has been established that a parties
consent to arbitration can be derived from the exchange of statement and defences. Only a
'exchange,' however, can reveal the parties' desire to engage into an arbitral proceedings.
Failure to respond to a counterclaim does not constitute an interchange of a counterclaim
and defence. Thus, if, in response to the statement of complaint, all claims, objections, and
so on are answered except for the subject of the arbitration agreement, such an agreement
can be inferred.
ENFORCIBILITY OF ARBITRATION AGREEMENT IN INDIA
The enforceability of the Arbitration Agreement in India is still at a pre-incubation stage. There
have been conflicts between two entities, and the need for an Arbitration Agreement has been
increased more. In present India, the Mediation and Arbitration and Conciliation center is
functioning poorly. In India, thirty-five arbitral institutions have to take up more than twenty
lakh pending cases per year, including the old issues, which result in a drawback mechanism
concerning the functioning of the arbitral tribunals.
The arbitration as a whole in India comes under the jurisdiction of “The Arbitration and
Conciliation Act of 1996” The arbitration experience in India is subject to deep perusal over
the periods, leaving the parties and litigants wondering whether to induce an arbitration clause
or not. Taking the criticisms of the law commission of India w.r.t to the earlier Arbitration
regime into consideration, it can be found that there was the need for many different
amendments to the Arbitration Act, which further came into effect after the 2015 Amendment
act to Arbitration and Conciliation Act.
Enforceability of Arbitration Agreements.
When does an arbitration agreement cease to be enforceable?
Under the below listed provisions an Arbitration Agreement ceases to be not enforceable:
• if one of the parties to the tribunal was incapacitated;
• the arbitration clause is not legitimate under the legislation to which the participants have
submitted it or, in the absence of any indication to the contrary, under the law now in force;
• the place of arbitration is not amenable to resolution by arbitration under current law;
• if such agreement is unlawful or otherwise unenforceable due to the incompetence or
disbarment from one of the contract's parties; or
• If one party to the contract to the contract becomes bankruptcy and a dispute develops, the
arbitration clause can indeed be implemented unless the receiver requests authorization from
the court authorities for a response to changes that the issue be brought to arbitration.
In recent times, authorities have ensured that badly worded (or even "pathological") arbitration
agreements are given full force and that parties are directed to arbitration. The Supreme Court
referred parties to arbitration in Pricol Ltd v Johnson Controls Enterprises Ltd & Ors7,
despite the fact that the clause provided for arbitral proceedings under the arbitration act of the
Singapore Chamber of Commerce (a non-existent institution), by interpreting it to imply a
reference to the Singapore International Arbitration Centre.
Separability
Why are there no provisions for separating arbitration clauses from the primary
contract?
Deciphering this arrangement and applying the regulation, the Supreme Court, in National
Agricultural Co-operation Marketing Federation India Ltd v Gains Trading Ltd8 (2007)
5 SCC 692, held:
A mediation provision is a guarantee term in the agreement which connects with goal of
questions and not execution. Regardless of whether implementation of the deal concludes
because of renouncement, disappointment or break of contract, the discretion arrangement
would make do with the end goal of goal of debates emerging under or regarding the
agreement.
In N Global Mercantile Pvt Ltd v Indo Unique Flame Ltd 9and Others, the Supreme Court
replied negatively, choosing if a mediation understanding becomes non-existent in regulation,
invalid, or unenforceable if the hidden agreement was not stepped according to the significant
Stamp Act. Whether a non-stepped record delivers a discretion condition in that ineffectual has
been alluded to an established seat of five appointed authorities to be legitimately settled.
Outsiders - limited by assertion understanding
In which cases can a discretion be understanding limit outsiders or non-signatories?
7
Pricol Ltd v Johnson Controls Enterprises Ltd & Ors (2015) 4 SCC 177
8
9
The Arbitration Act doesn't accommodate outsiders or non-signatories to be limited by a
discretion understanding. An intervention in understanding the remaining parts is legitimate
regardless of whether the fundamental agreement has been relegated to an outsider.
Section 37 of the Indian Contract Act 1872 gives that an individual's lawful beneficiaries might
play out an agreement on their demise except if an opposite goal is evident from the agreement.
A similar guideline would apply to mediation arrangements. On account of bankruptcy, as
expressed over, the recipient might take on the confirmation to be enforceable by or against
them.
The 2015 Amendment Act hosts permitted third get-togethers to expose themselves to an
assertion arrangement (homegrown discretions situated in India) by correcting segment 8 to
empower gatherings, or those guaranteed through or under such party, to apply the court to
allude the question to mediation. This revised phrasing is indistinguishable from the language
in segment 45 (global business mediation), which permits a party or any individual
guaranteeing through or under them to apply to the court to allude a question to discretion.
Non-signatories to a discretion understanding have likewise alluded to mediation under a
segment 45 application in Chloro Controls (I) P Ltd v Severn Trent Water Purification Inc
and Ors10, wherein the Supreme Court saw that any individual guaranteeing through or under
involved with the intervention arrangement could likewise start mediation.
The 2015 Amendment Act currently allows such references following the language in area 45
and the choice of the Supreme Court in Chloro Controls. As of late, in its intention in
11
Mahanagar Telephone Nigam Ltd v Canara Bank and Ors AIR 2019 SC 4449, the
Supreme Court conjured the gathering of organizations regulation in permitting the impleading
of non-signatories.
On account of Rickitt Benckiser (India) Private Limited v Reynders Label Printing India
Private Limited and Another12, the Supreme Court chose a segment 11 application for the
arrangement of mediators examined the non-restricting nature of a discretion settlement on
non-signatory. The Court outstandingly held that the goal of a non-signatory to agree to the
agreement was fundamental, and the obligation to prove any claims laid on the party stating
10
Chloro Controls (I) P Ltd v Severn Trent Water Purification Inc and Ors (2013) 1 SCC 641
11
AIR 2019 SC 4449
12
AIR (2019) 7 SCC 62
the non-signatory was limited by the understanding. Since this weight was not released for this
situation, the Court said that the non-signatory couldn't be exposed to the proposed discretion
procedures.
PARTICIPATION OF THE THRID PARTY
Whether domestic arbitration law has proper rule with regard to third part?
Acc to the Arbitration act, no third party can take part in arbitral proceeding. The Supreme
Court in Sukanya Holdings held that the parties who have not signed the agreement cannot be
a part of the court proceedings.
Furthermore, the Supreme Court noted in the case of Indowind Energy Limited v Wescare
(India) Ltd & Anr13 (2010) 5 SCC 306, that a company cannot be part of proceedings solely
on the basis of it’s conduct if it has not signed the arbitration agreement.
In Charan Properties Limited v Kasturi and Sons Limited and Ors 14, the Supreme Court
examined the conditions when an outsider non-signatory can be limited by a discretion
understanding regarding the gathering of organizations teaching. The Court noticed that the
presence of a legally binding purpose to tie a party should be given impact.
ACCUMULATION OF COMPANIES
Do courts and arbitral councils in your locale stretch out a mediation consent to the non-
signatory parent or auxiliary organizations of a signatory organization, given that the
non-signatory was in some way or another engaged with end, execution, or end of the
agreement in question, under the 'gathering of organizations' teaching?
The gathering of organizations precept used to broaden the extent of a court's purview to
organizations that are not signatory to the proper understanding but are essential for the
corporate gathering that the signatory organization is a piece of, was as of not long ago not
perceived in India.
In any case, in Chloro Controls, the Supreme Court held that where there are numerous
exchanges between parties, including a few composite arrangements that might have a joint
13
Indowind Energy Limited v Wescare (India) Ltd & Anr (2010) 5 SCC 306
14
Charan Properties Limited v Kasturi and Sons Limited and Ors (2018) 16 SCC 413
bearing on a question, the courts will have the ability to guide even a non-signatory to be joined
as involved with the mediation.
This would be pertinent in remarkable cases, contingent upon the shared trait of the topic and
whether the different arrangements framed a composite exchange, where the presentation of
the central performance wouldn't be imaginable without the execution of additional
agreements. As of late, the Supreme Court has summoned this teaching in its choice in
Mahanagar Telephone Nigam by permitting non-signatory gatherings to be impleaded in a
discretion.
The Supreme Court in Charan Properties Limited v Kasturi and Sons Limited and Ors
15
(2018) 16 SCC 413, the Supreme Court examined the conditions when a mediation
understanding could tie a non-signatory. Concerning the gathering of organizations' precepts,
the Court held that the relationship of the non-signatory with the signatory, the shared
characteristic of the topic of the agreement or the exchange, and the composite idea of such
agreement or exchange are critical pointers to deciding the issue of restricting a non-signatory
to the discretion.
MULTIPLE ARBITRATION AGREEMENT
Requierments For Validity of Multiple Arbitration Agreements
The Arbitration Act specifies no specific necessities for a legitimate multiparty intervention
understanding. The circumstances in area 7 of the Arbitration Act for single discretion
arrangements apply to multiparty assertion arrangements.
The Supreme Court in Olympus Superstructures v Meena Vijay Khetan16 , Found that in
situations where the fundamental arrangement exists among numerous gatherings, debates
emerge under different sub-arrangements to which all conferences are not signatories. If a
debate emerges concerning covering issues, gatherings might be alluded to as a solitary
mediation depending upon a broadly drafted statement in the fundamental understanding.
15
Charan Properties Limited v Kasturi and Sons Limited and Ors (2018) 16 SCC 413
16
Olympus Superstructures v Meena Vijay Khetan (1999) 5 SCC 651
SUGESTION AND CONCLUSION
The current research portrayed the loop holes in the current scenario of enforcibility of
Arbitration agreements in India and suggest proper tribunals under learned judges of the
district courts for the better implementation and smooth funcutioning.
