1.
ARBITRATION AGREEMENT
Introduction
An arbitration agreement is the foundation of arbitration proceedings. Arbitration is a
consensual dispute resolution mechanism, and without an arbitration agreement, arbitral
proceedings cannot commence. It embodies the principle of party autonomy, which is the
cornerstone of modern arbitration law.
The concept of arbitration agreement is governed by Section 7 of the Arbitration and
Conciliation Act, 1996.
Meaning and Definition
Section 7 defines an arbitration agreement as an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or may arise between them in respect of a
defined legal relationship, whether contractual or not.
Thus, an arbitration agreement may cover:
• Existing disputes
• Future disputes
• Contractual or non-contractual disputes
Essential Elements of Arbitration Agreement
For an arbitration agreement to be valid, the following elements must be satisfied:
1. Agreement Between Parties
There must be a valid consensus between the parties. The agreement must satisfy the essentials
of a valid contract under the Indian Contract Act, 1872.
2. In Writing
Section 7(3) mandates that the arbitration agreement must be in writing.
It may be:
• A clause in a contract
• A separate agreement
• Exchange of letters, emails, telegrams
• Statements of claim and defence
3. Intention to Arbitrate
The parties must show a clear intention to refer disputes to arbitration. Mere reference to
settlement by a third party is not sufficient.
In K.K. Modi v. K.N. Modi, the Supreme Court held that the agreement must show an intention
that the decision of the tribunal shall be binding.
4. Defined Legal Relationship
The dispute must arise out of a defined legal relationship, contractual or otherwise.
Legal Effect of Arbitration Agreement
Section 8 – Mandatory Reference
If a suit is filed despite an arbitration agreement, the judicial authority must refer the parties to
arbitration.
Section 11 – Appointment of Arbitrator
Provides machinery for appointment of arbitrator in case of failure of agreed procedure.
Section 16 – Kompetenz-Kompetenz
The arbitral tribunal has power to decide its own jurisdiction, including validity of arbitration
agreement.
Importance of Seat of Arbitration
In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO), the Supreme
Court held that the seat of arbitration determines the supervisory jurisdiction of courts.
Thus, specifying seat in arbitration agreement is crucial.
Conclusion
An arbitration agreement is the backbone of arbitration. It ensures party autonomy,
confidentiality, speedy dispute resolution and minimal judicial interference. Without a valid
arbitration agreement, arbitration proceedings are void.
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2. ARBITRAL AWARD
Introduction
An arbitral award is the final decision of the arbitral tribunal resolving the dispute between
parties. It has binding force and is enforceable like a decree of a civil court.
It is governed by Sections 31 to 36 of the Arbitration and Conciliation Act, 1996.
Meaning
An arbitral award is the adjudication by the arbitral tribunal determining rights and liabilities
of parties in a dispute referred to arbitration.
Form and Content (Section 31)
An arbitral award must:
1. Be in writing.
2. Be signed by the arbitrators.
3. State reasons for the decision (unless waived).
4. Mention the date and place of arbitration.
5. Decide on costs.
Failure to comply may render the award vulnerable under Section 34.
Types of Arbitral Awards
1. Final Award – Decides all issues.
2. Interim Award – Decides certain issues during proceedings.
3. Consent Award – Based on settlement.
4. Additional Award – For omitted claims.
Enforcement (Section 36)
After expiry of limitation for filing application under Section 34, the award becomes
enforceable as a decree of court.
Grounds for Setting Aside (Section 34)
The court may set aside an award if:
• Party was under incapacity.
• Arbitration agreement invalid.
• No proper notice given.
• Award beyond scope of arbitration.
• Violation of natural justice.
• Award against public policy of India.
• Patent illegality (for domestic awards).
In ONGC v. Saw Pipes Ltd., the Supreme Court expanded public policy to include patent
illegality.
In Renusagar Power Co. Ltd. v. General Electric Co., public policy for foreign awards was
narrowly interpreted.
Conclusion
The arbitral award brings finality to arbitration proceedings. Though courts can review it,
judicial interference is minimal to maintain arbitration’s efficiency.
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3. ARBITRAL TRIBUNAL & APPOINTMENT OF ARBITRATOR
Introduction
The arbitral tribunal is the adjudicatory body appointed to resolve disputes through arbitration.
Its constitution ensures neutrality, independence, and fairness.
Composition (Section 10)
Parties are free to determine number of arbitrators. However:
• Number must not be even.
• Default is sole arbitrator.
Appointment Procedure (Section 11)
Parties may agree on procedure.
If parties fail:
• In case of sole arbitrator – mutual agreement required.
• In three-member tribunal – each party appoints one; two appoint presiding
arbitrator.
• Failure → Supreme Court/High Court appoints arbitrator.
After 2015 amendment, court examines only existence of arbitration agreement.
In Duro Felguera S.A. v. Gangavaram Port Ltd., the Supreme Court clarified limited scope of
court at Section 11 stage.
Disclosure and Neutrality (Section 12)
Arbitrator must disclose:
• Any relationship with parties.
• Any financial or professional interest.
In Perkins Eastman Architects DPC v. HSCC (India) Ltd., the Court held that a party interested
in outcome cannot unilaterally appoint an arbitrator.
Powers of Tribunal
• Section 16 – Decide jurisdiction.
• Section 17 – Grant interim measures.
• Section 19 – Not bound by CPC or Evidence Act.
• Section 18 – Equal treatment of parties.
Conclusion
The arbitral tribunal ensures adjudication in a neutral and efficient manner. Appointment must
ensure independence and impartiality.
4. GROUNDS TO CHALLENGE APPOINTED ARBITRATOR
Introduction
Independence and impartiality are fundamental to arbitration. The Act provides safeguards
under Sections 12, 13 and 14.
Grounds for Challenge (Section 12)
An arbitrator may be challenged if:
1. Circumstances create justifiable doubts about independence.
2. Does not possess agreed qualifications.
3. Falls within Seventh Schedule (automatic disqualification).
4. Bias or conflict of interest.
Fifth and Seventh Schedule
• Fifth Schedule – Situations giving rise to doubts.
• Seventh Schedule – Absolute ineligibility.
In TRF Ltd. v. Energo Engineering Projects Ltd., Supreme Court held that an ineligible
arbitrator cannot nominate another arbitrator.
In HRD Corporation v. GAIL (India) Ltd., the Court explained scope of Fifth & Seventh
Schedules.
Procedure (Section 13)
• Challenge within 15 days.
• Tribunal decides challenge.
• If rejected → Award can be challenged under Section 34.
Conclusion
The Act ensures neutrality through statutory safeguards. Impartiality of arbitrator is essential
for validity and enforceability of award.