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Forms of Arbitration Agreement

Forms of Arbitration Agreement
Forms of Arbitration Agreement


Forms of Arbitration Agreements

Neither the 1996 Arbitration Act nor the corresponding legal precedents dictate a specific format for a valid agreement. The Act acknowledges three distinct arrangements in which a valid arbitration agreement can be structured:

1. Arbitration clause within a contract - Section 7(2):

2. Separate arbitration agreement - Section 7(2); and

3. Arbitration agreement by incorporation - Section 7(5).

However, before delving into these forms, it's crucial to bear in mind that regardless of the form the arbitration agreement assumes, it must adhere to the requirements of Indian law to be deemed valid. 

Otherwise, any invalid arbitration agreement leading to an award could render the latter susceptible to challenge during the enforcement stage, pursuant to Article V(1)(a) of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

The 'validity' of an arbitration agreement is ascertained in accordance with the stipulations outlined in Sections 7(3)-7(4) of the 1996 Arbitration Act. Furthermore, the requirements regarding arbitrability and the capacity of contracting parties are elucidated later in this chapter.


Arbitration Clause in a Contract: Section 7(2)

A provision within a contract qualifies as an 'arbitration agreement' solely when there is a clearly articulated intent, either expressly or implicitly, to submit any dispute to arbitration.

As elucidated previously, it is incumbent upon the court to discern the parties' intention to engage in an arbitration agreement from the language of the contract itself.

Separate Arbitration Agreement: Section 7(2)

The 1996 Arbitration Act permits the recording of an arbitration agreement in a distinct document. Similar to arbitration clauses embedded within contracts, a separate arbitration agreement must also explicitly or implicitly articulate the parties' intent to resolve their disputes through arbitration.

Arbitration Agreement by Incorporation: Section 7(5)

The 1996 Arbitration Act stipulates that if a written contract references a document containing an arbitration clause, such reference constitutes a valid incorporation of the arbitration clause. The determination of whether an arbitration clause from another document is integrated into the contract hinges on contractual interpretation.

The Supreme Court, in M.R. Engineers, outlined the essence and parameters of Section 7(5) as follows:

(i) An arbitration clause from another document is considered incorporated into a contract by reference if certain conditions are met:

(a) the contract explicitly references the document containing the arbitration clause; 

(b) this reference unequivocally indicates an intention to include the arbitration clause in the contract; and 

(c) the arbitration clause must be suitable for application to disputes arising under the contract and must not conflict with any contract terms.

(ii) A general reference to another contract within a contract does not automatically incorporate the arbitration clause from the referenced document into the contract between the parties. Specific reference to the arbitration clause is required for its incorporation.

(iii) If parties agree to execute a contract based on the terms of another contract, such reference solely incorporates provisions related to execution. The arbitration agreement from the other contract is not automatically included, aligning with the principle of separability.

(iv) Contracts stipulating that standard terms and conditions of an independent trade or professional institution apply will incorporate those terms, including any arbitration provisions, by reference. Often, the contract may indicate the parties' familiarity with or understanding of these terms.

(v) Contracts specifying that one party's conditions of contract become part of the agreement (e.g., Government General Conditions of Contract) will apply the arbitration clause contained within those general conditions to the contract between the parties.


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