Model Answer
0 min readIntroduction
Arbitration, a widely accepted alternative dispute resolution mechanism, offers a private and efficient means of resolving conflicts outside traditional court proceedings. The foundation of arbitration lies in a mutual agreement between parties to submit their disputes to a neutral third party – the arbitrator. This agreement can manifest in various forms, and it’s a common misconception that it *must* be a clause embedded within the main contract. In fact, an ‘Arbitration Agreement’ with respect to existing disputes can, and often does, exist independently of the original contract, offering flexibility in dispute resolution. The Arbitration and Conciliation Act, 1996 governs these agreements in India.
Understanding Arbitration Agreement and Arbitration Clause
An Arbitration Clause is a provision *within* a larger contract that stipulates that any disputes arising from that contract will be resolved through arbitration. It’s a pre-emptive measure, agreed upon before any disagreement occurs. Conversely, an Arbitration Agreement is a standalone contract, or a part of a separate exchange of correspondence, specifically created to submit an *existing* dispute to arbitration. This agreement doesn’t necessarily need to be part of the original contract that gave rise to the dispute.
Formation of Arbitration Agreements – Beyond the Clause
The Arbitration and Conciliation Act, 1996, emphasizes the requirement of an agreement in writing. However, the definition of ‘writing’ is broad. Section 2(a) defines ‘writing’ as including any number of characters, symbols or other marks, or any other form of recording information. This means the agreement doesn’t have to be a formal, signed document. It can be evidenced by:
- Exchange of Letters or Emails: A series of communications demonstrating a clear intention to arbitrate can constitute an agreement.
- Fax Messages or Telegrams: These are also considered forms of written communication.
- Referral to Arbitration: A party’s unequivocal act of referring a dispute to arbitration, and the other party’s acceptance of that referral, can create an agreement.
Legal Validity of Agreements for Existing Disputes
The validity of an arbitration agreement for existing disputes was a subject of debate before amendments to the Act. Initially, there were concerns about whether an agreement could be formed *after* a dispute arose. However, the 2015 amendment clarified this position. The Act now explicitly allows for arbitration even if the arbitration agreement is concluded after the dispute has arisen. This is particularly useful in situations where parties initially attempt negotiation or litigation but later decide to pursue arbitration.
Case Law Support
The Supreme Court in Garware Data Systems Ltd. v. M/s. HTC Global Services Ltd. (2017) affirmed that an arbitration agreement can be entered into even after the cause of action arises. The court emphasized the importance of the parties’ intention to arbitrate. Similarly, in Chakravarthi Ramanujan v. Seyed Abbas Ali (2018), the court held that a subsequent agreement to arbitrate is valid, even if the original contract didn’t contain an arbitration clause.
Distinction with Examples
| Arbitration Clause | Arbitration Agreement (for existing dispute) |
|---|---|
| Part of the original contract (e.g., a clause in a construction contract stating all disputes will be arbitrated). | A separate agreement signed *after* a dispute arises from a previous contract (e.g., parties sign an agreement to arbitrate a payment dispute after initial negotiations fail). |
| Pre-emptive; agreed upon before any dispute. | Reactive; created in response to an existing disagreement. |
| Typically more concise and standardized. | Can be more detailed, addressing the specifics of the existing dispute. |
Conclusion
In conclusion, while an arbitration clause is a common and convenient method for agreeing to arbitration, it is not the sole pathway. The Arbitration and Conciliation Act, 1996, allows for the creation of independent arbitration agreements, even for existing disputes, provided there is a clear expression of intent in writing. This flexibility enhances the practicality and accessibility of arbitration as a dispute resolution mechanism, fostering commercial efficiency and reducing the burden on the judicial system. The evolving jurisprudence, as evidenced by recent Supreme Court rulings, reinforces the validity and enforceability of such agreements.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.