Arbitration has gained significant traction worldwide as a viable alternative to traditional court litigation for dispute resolution in a myriad of contexts, ranging from commercial to employment agreements. This growth has been fueled by the proliferation of national legal frameworks that facilitate and enforce arbitration proceedings and their outcomes. In India, this framework is embodied in the Arbitration and Conciliation Act, 1996. Section 7 of this Act, which delineates the requirements and implications of an arbitration agreement, forms the core of this law – and it is this critical piece of legislation that we shall explore in this article.
What is an Arbitration Agreement?
An arbitration agreement is a written agreement by the parties to submit all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, to arbitration. Section 7 stipulates that it should be in writing, either as part of a contract or as a separate agreement.
Defining Arbitration Agreement: Section 7 of The Arbitration and Conciliation Act
Section 7 broadens the scope of what can be considered “in writing”. It includes documents signed by both parties, exchanges of letters, telex, telegrams or other electronic communication means providing a record of agreement; or an exchange of statements of claim and defense where the existence of agreement is alleged by one party and not denied by the other.
Section 7 also covers arbitration clauses embedded within larger agreements- provided they fulfil the requirements laid out above. An interesting twist to this provision was explored in the case Shyam Sunder Agarwal v. P. Narotham Rao (2018) where it was asserted that an arbitration clause contained in an agreement, which was unstamped, could not be read as a separate agreement under Section 7.
Importance of the Arbitration Agreement
The arbitration agreement is crucial not just in the commencement of arbitration proceedings, but also in establishing the jurisdiction of the arbitral tribunal, the scope of the arbitral proceedings, and the enforceability of the arbitral award.
In addition, an arbitration agreement symbolizes a mutual intent to resolve disputes outside of court, which can itself reduce potential friction between parties. This was strongly propounded in the case of M/s Zaffiro Investment and Dr Pradeep Shankar (2010) where the court emphasized and respected the parties’ agreement to arbitrate disputes.
The interpretation and understanding of Section 7 have evolved through several court judgments that have set important precedents.
In the case of Khardah Company Ltd. v. Raymon & Co. (India) Private Ltd. (1962), it was held that an arbitration agreement had to be enforced even if it was a part of an invalid contract. This principle upheld again in Reva Electric Car Co. Pvt. Ltd. v. Green Mobil (2012).
In another noteworthy judgment, SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd. (2011), the Supreme Court ruled that an arbitration clause could not exist independently when the contract itself was non-stamped and unenforceable under the Indian Stamp Act.
Section 7 of The Arbitration and Conciliation Act showcases the flexibility, practicality, and adaptability of arbitration as a tool for dispute resolution. It evidences a clear intent to facilitate a system where parties are free to choose their dispute resolution methodology, without experiencing unnecessary hurdles or bureaucratic red tape. Understanding these intricate provisions, as we do at SimranLaw, can provide clients with clearer guidance on how to tailor their arbitration agreements for maximum efficacy while minimizing potential legal obstacles down the line.
This deep-dive into Section 7 underscores the critical need for not just legal expertise, but also nuanced understanding and interpretation of the law, drawn from years of practical experience – a service that we, at SimranLaw, strive to deliver consistently to our clients.