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Detailed Note on Arbitration Agreement
Introduction
An arbitration agreement is an essential part of modern
commercial transactions and serves as the cornerstone for resolving
disputes outside the courtroom. It represents a mutual understanding
between parties to resolve conflicts through arbitration rather than
litigation. Arbitration agreements are recognized globally for their
ability to ensure quicker dispute resolution, reduce court backlog, and
offer confidentiality. In India, the framework for arbitration is primarily
governed by the Arbitration and Conciliation Act, 1996, which aligns
with international standards such as the UNCITRAL Model Law. This
note explores various aspects of an arbitration agreement in detail,
including its definition, types, essentials, and legal nuances under
Indian law.
1. Definition of Arbitration Agreement

An arbitration agreement is a formal arrangement where two or
more parties agree to submit any current or future disputes to
arbitration, with the arbitrator’s decision being final and binding.
Section 7 of the Arbitration and Conciliation Act, 1996 defines an
arbitration agreement and outlines the requirement for it to be in
writing.
Two-fold Results of an Arbitration Agreement

- Negative Enforcement: By signing an arbitration agreement, parties
agree not to initiate any court proceedings regarding the matters
covered by the agreement. This prevents one party from resorting to
litigation and obliges both parties to resolve disputes exclusively
through arbitration.
- Positive Enforcement: The agreement positively enforces the
obligation to submit to arbitration. In case of a dispute, the arbitration
process is invoked, and an arbitral tribunal is established to resolve the
matter.
This two-fold result effectively excludes court jurisdiction (except in

cases of intervention for specific purposes) and empowers the arbitral
tribunal to resolve disputes between the parties.
2. Types of Arbitration Agreement

Arbitration agreements generally take two forms:
- Arbitration Clause in a Contract: This is a pre-dispute agreement

included in commercial contracts. It specifies that disputes arising from
the contract will be settled through arbitration.
- Submission Agreement: This is an agreement made after a dispute
has already arisen, where both parties consent to submit the dispute to
arbitration.
Both these types of arbitration agreements are legally recognized in

India, as long as they meet the conditions laid out under Section 7 of
the Arbitration and Conciliation Act, 1996.
3. Essentials of a Valid Arbitration Agreement

To be valid and enforceable under Indian law, an arbitration agreement
must meet certain essential criteria:
Consent
The arbitration agreement must be based on the free consent of all
parties. If there is any duress, fraud, or misrepresentation involved in
obtaining consent, the agreement could be rendered invalid. Consent
ensures that both parties willingly submit to arbitration, acknowledging
its binding nature.
Mandatory Requirements
Section 7 of the Act requires the agreement to be in writing, and the
arbitration clause should be clearly articulated, leaving no ambiguity
regarding the parties’ intention to arbitrate. The agreement should
specify the disputes that are arbitrable and should not be vague or
unclear.
Intention to Arbitrate: The agreement must clearly express the intention
of the parties to resolve disputes via arbitration. Ambiguity regarding
this intention can make the agreement unenforceable.
Written Form: According to Section 7(3) of the Arbitration Act, an
arbitration agreement must be in writing. Oral agreements are not valid
unless they are accompanied by written documentation such as emails
or letters.
Defined Disputes: The agreement must specify the types of disputes
that will be subject to arbitration. While this can cover a broad range of
issues, some matters, such as criminal disputes, are non-arbitrable.
Binding Nature: The arbitration agreement must be legally binding on
both parties. They should voluntarily agree to submit to arbitration and
abide by the arbitrator’s decision.
Legal Relationship
An arbitration agreement can only exist where there is a legal
relationship between the parties, usually arising from a contract. This
relationship could be contractual or otherwise but must be recognized
under law.
Capacity of Parties
The parties to the arbitration agreement must have the legal capacity to
enter into a contract. This includes being of legal age, sound mind, and
not disqualified by any law. In cases where one party lacks capacity,
the arbitration agreement may be considered void.
Arbitrable Subject Matter

Not all disputes can be resolved through arbitration. Only those
disputes that are arbitrable can form the subject matter of an arbitration
agreement. Issues like criminal offenses, insolvency, or family disputes
are generally not arbitrable in India. Commercial and civil disputes,
however, are usually considered arbitrable.
4. Forms of an Arbitration Agreement

Section 7(4) of the Arbitration and Conciliation Act provides for
different ways an arbitration agreement can be documented:
- Written Clause in a Contract: The most common form where an

arbitration clause is inserted into a commercial contract.
- Exchange of Letters or Emails: If the parties exchange written
communication, such as letters, faxes, or emails, agreeing to arbitrate
disputes, that correspondence can form the arbitration agreement.
- Exchange of Documents: Commercial documents like purchase
orders or invoices that refer to arbitration can constitute an arbitration
agreement if the parties agree to it in writing.
- Reference to a Document Containing an Arbitration Clause: If a
contract refers to another document that contains an arbitration clause,
and the parties have acknowledged it, that too can be a valid arbitration
agreement.
5. Arbitrability of Disputes
The arbitrability of a dispute refers to whether a particular dispute can
be settled through arbitration. Indian law and courts have laid down
specific principles regarding arbitrability:
- Commercial and Civil Disputes: Generally, these disputes are

arbitrable as long as they do not involve statutory provisions requiring
court intervention.
- Non-Arbitrable Matters: Disputes such as criminal matters, family
disputes (like divorce and custody), and insolvency issues are
considered non-arbitrable. This has been reinforced by Indian courts,
including the Supreme Court in cases like Booz Allen and Hamilton
Inc. v. SBI Home Finance Ltd.
6. Separability Doctrine
The separability doctrine is a key concept in arbitration law. It means
that the arbitration clause in a contract is considered independent of the
main contract. Even if the main contract is declared void or voidable,
the arbitration agreement survives, allowing the dispute to be resolved
through arbitration.
Indian courts have upheld the separability doctrine, ensuring that

arbitration agreements remain enforceable even when the main
contract’s validity is challenged.
7. Competence-Competence Principle
The competence-competence principle allows the arbitral tribunal to
decide on its own jurisdiction, including issues regarding the validity
of the arbitration agreement. Under Section 16 of the Arbitration Act,
the arbitral tribunal has the power to rule on objections related to its
jurisdiction, reducing the need for court intervention at this stage.
8. Enforcement of Arbitration Agreement

If one party to an arbitration agreement refuses to submit to
arbitration, the other party can approach the court under Section 8 of
the Arbitration and Conciliation Act. The court is required to refer the
matter to arbitration if a valid arbitration agreement exists, as long as
the subject matter is arbitrable.
Courts in India tend to favor arbitration and avoid unnecessary

interference, enforcing arbitration agreements to uphold the parties'
choice of dispute resolution mechanism.
9. Role of Courts in Arbitration Agreements

Although arbitration aims to limit court intervention, courts in India
still play a pivotal role in the following circumstances:
- Interim Measures: Courts may grant interim measures under Section

9 to preserve the subject matter of the dispute until the arbitration
proceedings are complete.
- Appointment of Arbitrators: When parties fail to agree on the
appointment of an arbitrator, courts can step in and appoint arbitrators
under Section 11.
- Jurisdiction Challenges: Parties can challenge the arbitrator’s
jurisdiction under Section 16, and courts can make rulings on such
challenges.
10. Enforceability of Foreign Arbitration Agreements
Foreign arbitration agreements are recognized under Part II of the
Arbitration and Conciliation Act, and awards rendered in foreign
arbitrations can be enforced in India under international conventions
like the New York Convention and the Geneva Convention.
Indian courts have upheld the enforcement of foreign arbitration

awards unless they violate Indian public policy or are in conflict with
the laws of the country.
11. Public Policy and Arbitration Agreements

Public policy plays an essential role in arbitration enforcement. If an
arbitration agreement or award is found to contravene public policy,
courts may set it aside. In Renusagar Power Co. v. General Electric Co.,
the Indian Supreme Court defined public policy narrowly, restricting it
to fundamental legal principles like justice and morality.
12. Amendments in the Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act has undergone amendments to
improve its effectiveness. The 2015, 2019, and 2021 amendments
aimed to streamline arbitration proceedings, introduce timelines for the
resolution of disputes, and enhance institutional arbitration in India.
13. Drafting of Arbitration Agreements

Proper drafting is crucial to ensure that arbitration agreements are
enforceable. Essential elements include:
- Clear and Unambiguous Language: The intention to arbitrate must
be clearly stated.
- Seat of Arbitration: The agreement should specify the seat of
arbitration, which affects the procedural law governing the arbitration.
- Number of Arbitrators: The agreement should specify whether there
will be a sole arbitrator or a tribunal.
- Institutional or Ad-Hoc Arbitration: The choice between
institutional and ad-hoc arbitration must be clear.
- Language and Governing Law: The arbitration agreement should
specify the language of proceedings and the governing law.
14. Conclusion
The arbitration agreement is a vital tool in commercial law,
facilitating quicker and more efficient dispute resolution. By agreeing
to arbitration, parties commit to resolving their disputes outside the
court system, under a neutral arbitrator's authority. Understanding the
legal intricacies of drafting, enforcing, and challenging arbitration
agreements is essential for law students and practitioners alike,
especially in a jurisdiction like India that supports arbitration as a
preferred method of dispute resolution.

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Detailed Note on Arbitration Agreement

1. Definition of Arbitration Agreement

Two-fold Results of an Arbitration Agreement

This two-fold result effectively excludes court jurisdiction (except in

2. Types of Arbitration Agreement

- Arbitration Clause in a Contract: This is a pre-dispute agreement

Both these types of arbitration agreements are legally recognized in

3. Essentials of a Valid Arbitration Agreement

Arbitrable Subject Matter

4. Forms of an Arbitration Agreement

- Written Clause in a Contract: The most common form where an

- Commercial and Civil Disputes: Generally, these disputes are

Indian courts have upheld the separability doctrine, ensuring that

8. Enforcement of Arbitration Agreement

Courts in India tend to favor arbitration and avoid unnecessary

9. Role of Courts in Arbitration Agreements

- Interim Measures: Courts may grant interim measures under Section

Indian courts have upheld the enforcement of foreign arbitration

11. Public Policy and Arbitration Agreements

12. Amendments in the Arbitration and Conciliation Act, 1996

13. Drafting of Arbitration Agreements

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