Arbitration Agreement under Indian Law: Everything You Need to Know

In recent years, arbitration has emerged as a popular mechanism to resolve disputes without resorting to litigation in courts. With the growth of international trade and commerce, the use of arbitration has become even more important. In India, the Arbitration and Conciliation Act, 1996 provides for a comprehensive code for arbitration. This article focuses on arbitration agreements under Indian law.

What is an Arbitration Agreement?

An arbitration agreement is a contractual agreement between two or more parties to resolve disputes arising out of their commercial relationship through arbitration. The agreement can be in the form of a separate agreement or a clause in a contract. An arbitration agreement must be in writing, either as a separate agreement or as part of the contract.

Enforcement of Arbitration Agreements under Indian Law

Section 7 of the Arbitration and Conciliation Act, 1996 provides that an arbitration agreement must be in writing, either as a separate agreement or as part of the contract, and must be signed by the parties. The Indian courts have interpreted the term “in writing” to include electronic communication, such as emails.

Once an arbitration agreement is in place, any disputes arising out of the contract must be referred to arbitration, unless the agreement is null and void, inoperative, or incapable of being performed.

The Indian courts have adopted a pro-arbitration stance and have consistently upheld the validity of arbitration agreements. However, the courts have also clarified that arbitration agreements must be entered into freely and voluntarily and must not be unconscionable or contrary to public policy.

Challenges to Arbitration Agreements

Under Indian law, a party can challenge the validity of an arbitration agreement on various grounds. A party may challenge the arbitration agreement if it was signed under coercion, duress, fraud or mistake of fact. A party may also challenge the arbitration agreement if it is incapable of being performed or if it is contrary to public policy.

The courts have adopted a careful approach while considering challenges to arbitration agreements, and have often referred parties to arbitration while considering the validity of the agreement.

Conclusion

Arbitration agreements have become an essential tool for resolving commercial disputes in India. The pro-arbitration stance of the Indian courts has encouraged parties to include arbitration clauses in their contracts. However, it is essential to ensure that the arbitration agreement is in writing, signed by the parties, and entered into freely and voluntarily. Parties should also ensure that the arbitration agreement is enforceable and capable of being performed.