Arbitration Act:- A Brief Overview

arbitration act

Introduction

Arbitration is one of the Alternate Dispute Resolution mechanisms. Arbitration is a process by which parties in conflict, resolve their disputes without going to the Court, by referring their dispute to a mutually agreed adjudicating authority. Arbitration has become the preferred choice of settling disputes between parties (esp. commercial disputes) in view of the procedural flexibility it offers. Parties are allowed to select the arbitrator, decide upon the place of arbitration, procedure to be followed and the time period within which the arbitration has to be completed. This procedure is in stark contrast to the traditional dispute resolution through courts. The Arbitration and Conciliation Act 1996 states that it is an act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral award and as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

What are the essentials of a valid Arbitration Agreement?

The following have been summarized by the Supreme Court as the essential ingredients of a valid arbitration agreement:

  1. Intention of the parties to submit to arbitration for any existing or future dispute;
  2. Parties agree to be bound by the decision of the Arbitrator/Tribunal;
  3. Parties are ad idem

Can Court refer parties to Arbitration in the absence of an arbitration agreement?

Even when there is no valid arbitration agreement and parties have taken recourse to a Court to settle their disputes, parties can still seek reference of arbitration by submitting a joint memo or a joint affidavit. However, the request to refer the dispute to arbitration must be made in writing (under Section 89 CPC). Upon the reference being granted by the Court, the dispute would no longer be governed by the Court and at a later stage, proceedings cannot revert to the Courts as well.

Whether oral agreement to arbitrate disputes is valid?

In the absence of a valid agreement or joint memo by the parties seeking reference to arbitration, a dispute cannot be referred to arbitration, on the oral request of a counsel made in Court. As the precondition to invoke arbitration, i.e. Arbitration Agreement itself was absent, the reference to arbitration was held to be bad in law and thus set aside by the Supreme Court.

Whether unregistered and/or non-stamped arbitration agreements are valid in law?

As such, an arbitration agreement is not required to be registered. However, if an Arbitration agreement/clause is contained in a document which is compulsorily required to be registered under the Registration Act, but has not been registered, then also the effect of arbitration agreement/clause is not affected. The reason being, arbitration clause is a separable clause and hence the non-registration of the main document will not affect the validity of the arbitration agreement or the initiation of arbitration proceedings. However, the admissibility of such document as evidence is a separate issue.

Whereas, if the arbitration agreement is contained in a document (not registered and non-stamped), then the arbitration agreement/clause cannot be taken into consideration, as nonstamped documents are inadmissible in evidence and cannot be acted upon. Arbitration agreements contained in an nonstamped document are considered to be null and void. However, when the deficit stamp duty is paid, the document can be received in evidence and the arbitration agreement can be given effect to.

[Note – latest development is that Bombay High Court in one of its recent Order has referred the question of law pertaining to whether interim reliefs can be granted to parties when the arbitration agreement is insufficiently stamped to a larger bench, as there are conflicting views of the High Court, despite the above Supreme Court Judgment.]

What disputes cannot be arbitrated?

Before entering into any arbitration agreement, it is necessary to understand that not all disputes are arbitrable. Even though there is no specific provision of law in the Act to delineate disputes of arbitrable subject matter, the Supreme Court has in its wisdom carved out categories of disputes which are not arbitrable and for which no person could enter into any agreement.

The categories are:-

  1. Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
  2. Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; guardianship matters;
  3. Insolvency and winding up matters;
  4. Testamentary matters (grant of probate, letters of administration and succession certificate);
  5. Eviction or tenancy matters governed by special statutes; and
  6. Cases arising out of Trust Deed and the Trust Act.

These are a few illustrative categories delineated by the Supreme Court and there may additions to it in the future.

Conclusion- India has in place a modern, an efficient Arbitration Act. There have been some decisions which are not in tune with the letter or spirit of the Act. Hopefully, these would be addressed by the judiciary in the near future and continuing popularity of arbitrations would be served by a truly efficient ADR mechanism.

The article is authored by Advocate Nikhil Sharma.