Arbitration Clause in Agreement

Arbitration is now seen as the most prominent dispute resolution mechanism through The Arbitration & Conciliation Act, 1996. Parties have realized that such a mechanism is more cost-effective. The parties, however, must have a consensus on different aspects of the arbitration clause to effectively resolve disputes when they arise.

Tue Apr 12 2022 | Business Law | Comments (0)

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Dispute settlement is a primary feature of any legal system. One of the major requisites of a peaceful society or group is that the resolution of troubled  cases by processes which are non-violent and amicable in character and thus, arbitration is one such mechanism  to resolve disputes. Arbitration is the most comprehensive and cooperative way for resolving disputes arising from  domestic and international commercial relationships, whereby the parties mutually agree  to reconcile  their disputes by entering into an agreement.

The parties have an option to incorporate a  separate agreement or  a clause within the contract defined as the ‘Arbitrration Clause’, which binds a party to a type of resolution outside the court. Generally, the contract between the parties contains the Arbitration clause by which the parties are obliged to resolve the matter only through Arbitration. If the provision of Arbitration is not mentioned in the contract, then parties have recourse to settle their dispute in an amicable manner.

SEPARABILITY, SEVERABILITY OR AUTONOMY OF THE ARBITRATION CLAUSE

Even though the Arbitration clause is an  indispensable part of the particular contract,  the three main clauses of Separability, Severabilityor Autonomy of the arbitration clause are distinctive and independent to  the underlying contract.

The arbitration agreement is a distinctive agreement, which provides the basis for arbitration as defined under the principle of separability . It is defined as an agreement to submit present or future disputes between the parties  and an  appoint an appointment of  a particular arbitrator to resolve their disputes arising out of a particular business relationship. Having such a principle does not negate the validity of the other contractual obligations and the agreement. With incorporation of the separate arbitration agreement, the solution achieved is binding on  the immediate parties to the dispute and the essence lies in providing a  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 on  the arbitration agreement.

WHY ARBITRATION IS PREFERRED OVER LITIGATION

Arbitration is generally the most effective and efficient remedy for settling  disputes among the parties and  is usually not a lengthy process, involving lower costs when compared to a normal and traditional judicial proceeding. 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 the 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  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. An arbitral award under this section may be set aside if it the arbitrator was prejudicial or the award is against 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 matters in a very short span of time and the separate clauses within the commercial contract are paving the way for  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 mentioned in the arbitration clauses.

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