This article has been written by Ms. Stuti Shukla, a 3^rd year BBA LLB Student from Babu Banarasi das University, School of Legal Studies.

As stated by, The Arbitration and Conciliation Act, 1996, Section 7(1) Arbitration Agreement is consensus between the engaging alliances to resort to arbitration proceedings in matter of all or some certain controversies, which may emerge in term of business and transactions. Arbitration points in the primary agreement, in lieu of a separate agreement also serves the grounds, though a different Arbitration Agreement is in any case a wise alternative for being circumstantial and exhaustive.

In other words, The Arbitration Agreement is a legitimate irrevocable contract in between two parties as a substitute practice to settle the disputation between them. Civil debate unless explicitly forbidden under the pertinent laws between the parties can be settled through arbitration.

CONTENTS OF AN ARBITRATION AGREEMENT

• Details of the contracting parties: Legal name, the address of the working or registered address.
• Details of the nature of the connection between parties.
• The nature of disputes can be referred to the Arbitration Tribunal, the detailed subject matter.
• The procedure of referring disputes: Period of notice before Invocation of Arbitration
• The principal seat of arbitration, (the city)
• The governing law for the arbitration
• Number of Arbitrators, their qualifications, the process of their appointments & their powers
• Whether modification of the agreement is allowed, if yes, the procedure to be followed must be mentioned.
• A statement that the Arbitration Agreement serves as a Bar to Suit the disputes. This implies that the disputes mentioned shall be taken to the Arbitral Tribunal only and not to the courts.
• May even mention, whether the cost is to be borne by one party or by both. Commonly, the cost of Arbitration is split between the parties and may be claimed as a part of the award.
• A statement that the Arbitration Agreement shall stay in effect, in respect to the subject matter of the primary agreement, even after the primary agreement ends or stands terminated.
• Place and date of execution of the agreement
• The name, designation, and signature of the authorized representatives.

ADVANTAGES OF ARBITRATION AGREEMENT

• Less time consuming: in comparison to litigation, the arbitration procedure is less time-consuming.
• Cost-effective: by resolving the issue through arbitration, the huge litigation cost can be mitigated.
• Less formal: the arbitration procedures are more flexible than litigation. Thus, the proceedings can be conducted in accordance with the nature of the Dispute.
• Privacy: the proceedings of the arbitration will not be on public record. It is the duty of arbitrators and all other parties involved to keep the proceedings and documents confidential. The proceedings or outcome of the Arbitration shall not be published unless both the Parties give their consent.
• Custom rules: parties to the arbitrator can set their own rules and code of conduct.
• Expertise: Availability of subject experts to resolve complex disputes.

This arbitration agreement can be used for any type of entity including a company, LLP, Partnership, NGO, etc. for resolving issues/disputes not excluded under the applicable law. Some matters cannot be resolved through arbitration including the following:

• Matrimonial disputes (e.g., separation, divorce, child custody)
• Criminal offences (e.g., theft, assault, murder)
• Guardianship matters (e.g., parent’s right over the child, parent’s duty towards the child)
• Insolvency petitions (e.g., winding up the company due to non-payment of the debt)
• Testamentary suits (e.g., disputes relating to wills)
• Trust disputes (e.g., disputes over trust deed)
• Labour and industrial disputes (e.g., termination of employment, non-payment of salary)
• Intra-company disputes (e.g., disputes between the owners, disputes between the management and employees)
• Tenancy and eviction matters are controlled under respective rent control acts (e.g., eviction of the tenant under Delhi Rent Control Act 1958)

HOW TO USE THE ARBITRATION AGREEMENT

The agreement consists of the following major areas:

• The details of the existing agreement or business transaction to which this Arbitration Agreement is applicable.
• The details and summary of the existing dispute between the Parties if any.
• The details of arbitrators have already been appointed to resolve an existing dispute between the Parties.
• Procedures to be followed in case of arbitration.
• Applicable laws and rules to arbitration.
• Arbitrator details including the number of arbitrators, minimum qualification, experience, etc.
• The seat of arbitration.
• Language of arbitration.
• Communication details
• Confidentiality of the Agreement and arbitration.

The Arbitration Agreement should be printed on non-judicial stamp paper and then both the Parties will need to sign the document and keep a copy for their records.

This Agreement can also be Notarized by a public notary for more authenticity and recording of the date and time of the execution of the Agreement.

BASIC CLAUSES IN THE ARBITRATION AGREEMENT

• Conciliation Process: Conciliation process in an agreement can become the fodder for dispute. The law requires that such conciliatory process, when provided for, be followed not only in spirit, but to its exacting letter. Disputes can arise over minor issues, such as, notice was not delivered to the specified address or that the conciliation was not undertaken for the specified number of days or that incorrect persons were involved in the reconciliation process and the list can go on.
• Number of Arbitrators: Considerable thought must be given to the number of arbitrators constituting the arbitral tribunal. As a rule of thumb, it is advisable to opt for a sole arbitrator as opposed to a panel of arbitrators, particularly in low value contracts. Arbitral fees can be prohibitive. Coordinating mutually convenient dates and time of three/five arbitrators can itself become challenging. Unless there is a thought through compelling strategy behind opting for a panel of arbitrators, a sole arbitrator should be the norm. It is advisable to review the fee schedules provided in the Arbitration & Conciliation Act, 1996 (Fourth Schedule) and the fees schedules in case of institutional arbitrations and make a comparative fee analysis, prior to drafting the clause.
• Institutional Arbitration: A typical arbitration clause would typically state that an arbitrator would be jointly appointed by the parties. But when parties are in dispute, the chances of mutually agreeing on an arbitrator are miniscule. In such an event, parties have no option but to approach the court for the appointment of an arbitrator under section.11 of the Arbitration & Conciliation Act, 1996. It is therefore advisable to leave the appointment to a neutral and reputable arbitration institution. There are also other advantages of opting for institutional arbitration including use of their pre-established rules of procedure. One can also look to the institution for their sample clauses to draw up the arbitration clause, if the parties have decided on the institution. 
• Fast Track Procedure: Under Section 29B of the Arbitration & Conciliation Act, 1996, it is possible for parties to provide for a fast-track procedure in writing ‘at any stage’. In low value contracts it is advisable to opt for Section 29B procedure at the stage of drafting the arbitration clause. The fast-track procedure inter-alia envisages a decision on ‘the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing’ and requires that an award be made within six months from the date on which the arbitral tribunal enters reference. In this procedure the parties and the arbitrator are free to agree on a fee.

CONCLUSION

When the dispute resolution mechanism can have such far-reaching effects, it shall be dealt with meticulous attention to detail. The interpretations by the various High Courts and the Hon’ble Supreme Court highlight the need to carefully draft the arbitration clauses in the agreement. Treating it like just another boilerplate clause may as well be like playing with fire.  

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