Essential Ingredients of an Arbitration Agreement

Last Updated at: Oct 07, 2020
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Indu Malhotra, the Supreme Court Judge, said in February 2020 that there should be separate arbitration acts for domestic and foreign awards. She said this at the 12th Annual International Arbitration Conclave organized by the Nani Palkhiwala Arbitration Centre (NPAC).

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An Arbitration Agreement is an agreement between the parties to submit all or certain disputes which have arisen or which may arise between them, to arbitration, in respect of a defined legal relationship, whether contractual or not. The following factors are essential to such an agreement:

An arbitration agreement, including an arbitration clause in an agreement, is a contract. It must be legally valid under the Indian Contract Act, 1872. A contract, to be legally valid under said act, must have the following:

a. Parties must be legally competent to enter into contract.
b. Consent of parties must not be influenced by fraud.
c. The object of the contract must be lawful.
d. The contract must be capable of being carried into effect. Therefore, it should not be uncertain.

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Writing & Intent:
An arbitration agreement is only valid if it is in writing. Both parties should be completely intent on referring the matter to arbitration.

The arbitration agreement can be in respect of present or future dispute. Such dispute must arise out of the defined legal relationship. A dispute not arising from the legal relationship is beyond the scope of arbitration. The legal relationship can be contractual or non-contractual, arising out of a breach of statutory obligation.