Any agreement must be based on the arbitration clause. In essence, it is a provision of the contract that subjects the arbitration on which the disagreement has arisen. Additionally, the arbitration request was made pursuant to the agreement from which the dispute has already arisen.

According to Section 7 of the Arbitration and Conciliation Act of 1996, an arbitration agreement is when two parties agree to submit all or a portion of future disputes between them involving a specific legal relationship, whether or not they are contractual in nature, to arbitration. Examples of relationships that are legal but not necessarily contractual include a doctor’s relationship with a patient or a lawyer’s relationship with a client..

Any two parties who sign into a contract must agree to arbitrate any disputes that may arise between them over the terms of the agreement, without resorting to the courts, and with the assistance of an arbitrator. The agreement should specify who will choose the arbitrator, what type of dispute will be decided by the arbitrator, where the arbitration will take place, etc.

The Arbitration Agreement must be signed by all parties, and the ruling is legally binding. You should establish this agreement if you are a party to any contract and you want to settle any disagreements with an Arbitrator instead of going to court.

An arbitration agreement functions similarly to a contingent contract in that its existence or enforcement is dependent on the occurrence of a disagreement between the parties. It is only enforceable if a dispute between the parties occurs.

Enforcement of Arbitration Agreement under Arbitration and Conciliation Act, 1996

There are two types of enforcement the first is the right to waive the power to solve the dispute or adjudicate with regard to the courts and secondly to provide jurisdiction to the arbitrators that is in the hands of the private hands.

The Enforcement of the agreement can be done under the UNCITRAL Model Law and the New York Conventions

The model law defines the Arbitration Agreement as follows:

“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”

With regard to the New York Convention the definition states that

““Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”

If the Applicable law is is based on the modern law then the parties will continue to the arbitration clause as the agreement. in other case the applicable law will require assent from both the parties.

Essentials of Arbitration Agreement

The existence of a dispute is an essential condition for arbitration. Where parties have effectively settled their disputes, they cannot refute the settlement and invoke an arbitration clause.

• Written Agreement

An arbitration agreement must be in writing. As per Section 7 (4) of the Act, arbitration agreement is considered to be in writing, if it is contained in:

1. A document signed by the parties;
2. An exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
3. An exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not defined by another.

• Intention

The goals of the parties are quite important. There is no set framework for an arbitration agreement, and it is not stated anywhere that terms like “arbitration” and “arbitrator” are necessary prerequisites. According to the leading case law on the subject, it must be clear from the arbitration agreement whether the parties intended to have their issue arbitrated.

• Signature

The parties must agree to arbitrate disputes in writing. The agreement may be expressed in a written document that is signed by both parties and sets forth all of its provisions, or it may be expressed in a document that is signed by just one party but includes both the terms and the other party’s signature on an acceptance. It will be sufficient if one party signs the written proposal and the other party accepts it..

Attributes of an Arbitration Agreement

The Hon’ble Supreme Court in a judgment in a landmark case held that the following attributes must be present in an arbitration agreement:

1. The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement.
2. That the jurisdiction of the tribunal to decide the rights of the parties must derive from their consent, or from an order of the Court or from a statute, the terms of which make it clear that the process is to be arbitration.
3. The agreement must contemplate that substantive rights of the parties will be determined by the arbitration tribunal.
4. That the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal being fair and equal to both sides.
5. The agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law.
6. The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

Points To Remember While Drafting Arbitration Agreement

1. Seat of Arbitration – This provision designates the location of the arbitration. The procedural rules that control the arbitration process are determined by the arbitration’s seat. It does not have to be the same as the hearing location. Even though the location of the proceedings is different from the seat of arbitration, the latter is nevertheless taken into consideration. The location of the proceedings has no bearing whatsoever on the venue for the arbitration.
2. Procedure for Appointing Arbitrators – The appointment of arbitrators is covered under Section 11 of the Arbitration and Conciliation Act. Unless the parties specifically agree otherwise, it states that any individual of any nationality may be selected as an arbitrator. The process for choosing the arbitrator(s) is up to the parties to decide. In a three-arbitrator arbitration, if the parties are unable to come to an agreement, one arbitrator will be chosen by each party, who will then choose a third arbitrator to serve as the presiding arbitrator. The parties themselves, the appointed authority, or the arbitral institutions may all appoint the parties. The arbitrator chosen cannot be of the same country as the parties involved in the dispute where it involves an international commercial transaction.
3. Language of Arbitration – It’s crucial to include language referring to arbitration in the actual contract. It would become exceedingly challenging to decide and settle the issues, particularly in a country like ours where Hindi and English aren’t the only two languages spoken. Choosing the language of arbitration will also save you a ton of money because you won’t have to pay outrageous translation costs.
4. Number and Qualifications of Arbitrators – Parties may choose the number of arbitrators under Section 10 of the Arbitration and Conciliation Act of 1996, provided that the number is odd. If the number of arbitrators is not determined, there will only be one arbitrator on the arbitral panel..
5. Type of Arbitration –Institutional and ad hoc arbitration are the two options available to parties. If the parties elect the former, the parties shall adhere by the rules of the arbitral institutions. For any arbitrations they conduct, each organizations’ individual sets of arbitration rules would be applicable. Unlike Ad-hoc arbitrations, where the parties decide to hold the arbitration themselves and agree to it. The arbitral institutions are not consulted in ad hoc arbitrations.
6. Governing Law – This is the law that governs the main point of contention between the parties to a dispute. It is even known as the substantive law. The parties should mention the law they want to be governed by, failing which may give way to disputes in the future.
7. Name and Address of the Arbitration Institution – If the parties to the dispute 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.

Termination of Arbitration Agreement under Law

Both parties must agree to end the arbitration agreement for it to be effective. One of the parties’ deaths could be another factor. Another typical explanation is that legal action has been taken against him due to the parties being insolvent or filing for bankruptcy. When it comes to arbitrators, many laws and jurisdictions do not suspend the arbitration process when an arbitrator passes away; nonetheless, in some jurisdictions, the death affects the proceedings.

Severability of the Arbitration Agreement

It was determined that a clause in a contract that is an accessory to the arbitration contract and forms a part of the agreement was so read. Therefore, it was determined that the arbitration agreement would continue to be invalid if the contract remained unenforceable. In its place, the idea of severability emerged, leading to the current status of the arbitration agreement as an independent, standalone document. The arbitration provision is not automatically rendered invalid by the contract’s unenforceable. These guidelines are specifically included in the Model Law..