SIGNIFICANCE OF AN ARBITRATION CLAUSE IN AN AGREEMENT

INTRODUCTION

Dispute settlement is a primary feature of any legal system and one of the major requisites of a peaceful society or group is that the resolution of trouble cases by processes which are non-violent in character and arbitration is one such key to resolve disputes. Arbitration is the most comprehensive and cooperative way for resolving disputes arising from the domestic and international commercial relationships whereby the parties mutually agrees to reconcile the dispute by entering into an agreement.The parties have an option to incorporate the separate agreement or as a clause within the contract defined as “Arbitration Clause” which binds a party to a type of resolution outside the court. Most contract arbitration takes place since the parties included an arbitration clause obliged them to arbitrate any disputes "arising under or related to" the contract. If a provision like this isn't included in the contract, the parties can still arbitrate if they both agree to it.

SEPARABILITY, SEVERABILITY OR AUTONOMY OF THE ARBITRATION CLAUSE

Even though the Arbitration clause is the indispensable part of the particular contract but the three main clauses “Separability”, “Severability” or “Autonomy” of the arbitration clause are distinctive and independent clause of the underlying contract.The arbitration agreement is accepted as a distinct agreement, separate from the underlying agreement – a concept defined as the separability principle. This principle prevents the validity of one agreement from being affected by the other one; it effectively establishes the full autonomy of an arbitration agreement and the integrity of the arbitral process. Nonetheless, the two may be assessed together. However, it is important to consider, because of the separability of the arbitration agreement, whether the choice of law stipulated by the parties in the main contract is applicable to the arbitration agreement. Thus, dispute resolution and choice of law clauses should be drafted with the utmost caution and care.

The arbitration agreement is a distinctive agreement which provides the basis for arbitration as defined under the principle of seperability. It is defined as an agreement to submit present or future disputes between the parties to a dispute to appoint a particular arbitrator to resolve their disputes arising out of a particular business relationship. Having such principle, it does not negate the validity of the other contractual obligations and the agreement. With incorporation of the separate arbitration agreement, the solution achieved is acceptable to the immediate parties to the dispute and the essence lies in providing the fair remedy to the parties. The main focus is given to the choice of law as determined by the parties to the contract which is binding for the arbitration agreement with utmost care and caution.

WHY ARBITRATION IS PREFERRED OVER LITIGATION

Arbitration is generally the most effective and efficient remedy for settling the disputes among the parties and which does not require any lengthy procedure to follow and takes very less time to resolve the matter at an affordable cost in comparison with the other judicial processes. According to the nature of the case, the parties have an option to choose their own arbitrator depending upon the abilities to decide the case as per their expertise.

SALIENT FEATURES

  • Appointment of Arbitrators (Section 11): - The Act provides that parties are given liberty to choose their own arbitrator. Even though if the parties fail to decide the appointment of an arbitrator then in that case the Chief Justice of the High Court for domestic arbitration and the Chief Justice of the Supreme Court of India for International Commercial Arbitration are approached for the same.
  • Interim Relief (Section 9) & (Section 17):- The act provides for making of orders for interim relief in respect to the arbitration.  The petition for relief is maintainable under section 9 if there is a prima facie finding that an arbitration agreement exists and a dispute must have arisen which is referred for the Arbitration. The parties can move to the Court before the commencement of the arbitral proceedings or after making the arbitral award but before it is enforced as per section 36 of the Act. With respect to the Section 17 of the Act, at the request of the party, the Arbitral tribunal may order the other party to take interim measures as it may deem necessary in respect to the subject matter of the dispute.
  • Finality of an arbitral award (Section 34):- An arbitral award is regarded as the final and binding order applicable upon the parties and once the decree is granted by the Court, it shall be enforceable as per section 34 of the Act. With respect to the setting aside of an arbitral award given under section 34 if the arbitrator was prejudiced or such awards is in contradict with the public policy.
  • Appeal (Section 37):- Generally, the decisions of the Arbitration matters are considered as final and it is very difficult to get a court to review or vacate them. As per section 37, an appeal lies under section 37(1) against an order of the court granting or refusing to grant any measure under section 9 and also against setting aside or refusing to set aside an award. An appeal shall also lie to a court under section 37(2) against an order of the arbitral tribunal accepting the plea referred to in section 16 (2) or (3) or granting or refusing to grant an interim measure under section 17. There is no provision for appeal against orders under section 11 appointing or refusing to appoint an arbitrator.

CONCLUSION

The growth of arbitration signifies the fundamental change in our way of legislating and deciding the matters in a very short span of time and the separate clauses within the commercial contract are paving the way for the most suitable and effective remedy without any recourse to the court. However, there are certain things which have to be kept in the mind while drafting the contract for resolving the dispute through Arbitration with respect to the consent of the parties. In practice, almost all arbitration agreements are concluded in the form of arbitration clauses.

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