What are the Essential Ingredients of an Arbitration Agreement?

 

INTRODUCTION

 

In the recent case of Babanrao Rajaram Pund v. Samarth Builders & Developers and Another, 2022 SCC OnLine SC 1165, the Hon’ble Supreme Court discussed the essential ingredients of an Arbitration Agreement.

 

Before adverting any further, let us understand the meaning of Arbitration Agreement. According to Section 7 of the Arbitration and Conciliation Act, 1996, “”arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen, or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

 

IMPORTANT CASE-LAWS

 

In the present case, the Supreme Court cited earlier case-laws that discussed the meaning and the ingredients of an Arbitration Agreement. The relevant ones are as follows: -

 

a. Rukmanibai Gupta v. Collector, Jabalpur (1980) 4 SCC 556 – It was held that “Arbitration Agreement is not required to be in any particular form and what is required to be ascertained is whether the parties have agreed that if disputes arise between them” in relation to the contract, then such dispute is to be referred to Arbitration or not.

 

b. K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 – It was held that: -

 

i. Any Arbitration Agreement must contemplate that the decision of the arbitral tribunal will be binding on the parties and will determine the substantive rights of the parties.

ii. Such determination of rights must be done in an impartial and judicial manner.

iii. The jurisdiction of the arbitral tribunal must derive either from the consent of the parties or through the order of the court.

iv. The Arbitration Agreement must be capable of being enforced.

 

c. Bihar State Mineral Development Corporation Ltd. And Another v. Encon Builders, (1998) 3 SCC 573 – This case laid down the four essential elements of an Arbitration Agreement as follows: -

 

“(1) There must be a present or a future difference in connection with some contemplated affair.

(2) There must be the intention of the parties to settle such difference by a private tribunal.

(3) The parties must agree in writing to be bound by the decision of such tribunal.

(4) The parties must be ad idem.”

 

d. Enercon (India) Ltd. v. Enercon Gmbh, (2014) 5 SCC 1 – It was held that “the courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration agreement or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition…. The arbitration clause cannot be construed with a purely legalistic mindset, as if one is construing a provision in a statute…..”

 

HELD BY THE COURT

 

After discussing the above-stated case-laws, the Supreme Court held that once the parties enter into a Contract after knowing the full impact of the Arbitration Agreement, they cannot be permitted later on to deviate therefrom. While concluding, the Court stated that “it is thus imperative upon the courts to give greater emphasis to the substance of the clause, predicated upon the evident intent and objectives of the parties to choose a specific form of dispute resolution to manage conflicts between them. The intention of the parties that flows from the substance of the Agreement to resolve their dispute by arbitration are to be given due weightage.”

 

ENDING REMARKS

 

Though I concur with the reasoning of the Supreme Court, yet it is also seen that it is the parties themselves who, at times, wish to wriggle out of the Arbitration Clause, for various reasons. Even though the Courts try to enforce the Arbitration Agreements but constant delays in adjudication and increasing costs of arbitration are some of the factors that make the arbitral process self-defeating sometimes. The need of the hour in India is to have institutional arbitrations and without the same, it is unlikely that the law of arbitration would have any real impact as was envisioned by our lawmakers.