Section – 7 

Arbitration Agreement 

Under Section 7 of the Arbitration and Conciliation Act, 1996, an “arbitration agreement” is a promise between parties to resolve disputes related to a specific legal relationship through arbitration. This applies whether the contract mentions the disputes or not. People also call this type of agreement a submission agreement.

An arbitration agreement is a legal contract made by two or more parties. It specifies that the parties will resolve any disagreements or conflicts through arbitration rather than going to court. This is an agreement where all parties decide to present their disagreements to an arbitrator or an arbitration panel. These arbiters will make a final and binding decision based on the facts and arguments from both sides. 

The model law defines the Arbitration Agreement as follows: 

“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” 

With regard to the New York Convention the definition states that 

“Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractua1 or not, concerning a subject matter capable of settlement by arbitration” .

Landmark Judgment

According to Vidya Drolia And Others (S) v. Durga Trading Corporation (S). 2020 INSC 697 Arbitration agreement gives contractual authority to the arbitral tribunal to adjudicate the disputes and bind the parties. The expression ‘arbitration agreement’ has been defined in clause (d) of sub-section (2) to mean an agreement as described in Section 7 of the Arbitration Act. 

Section 7 is explained in detail in this case. Sub-section (1) states that an arbitration agreement must relate to disputes from a defined legal relationship, whether contractual or not. The term “legal relationship,” though undefined in the Act, refers to one imposing obligations and conferring rights, either contractual or non-contractual. Non-contractual disputes require a separate arbitration or submission agreement tailored to the specific cause, such as tort, restitution, or breach of duty.

Sub-section (2) states that an arbitration clause can either stand alone or be part of an underlying or related contract. According to Sub-section (3) requires an arbitration agreement to be documented or in written form. Building on this, sub-section (4) clarifies that an “arbitration agreement in writing” includes agreements formed through letters, telegrams, emails, or other written records. It also includes situations where one party asserts the agreement’s existence in statements of claim and defense, and the other party does not deny it.

Sub-section (5) states that a written contract referencing a document with an arbitration clause is valid if the reference explicitly includes the clause.

In the other landmark case of K.K. Modi v. K.N. Modi and Ors. (1998) 3 SCC 573, the Hon’ble Supreme Court identified several essential attributes of a valid arbitration agreement, including: 

1. The arbitration agreement should specify that the tribunal’s decision will be final and binding on the parties involved. 
2. The tribunal’s authority to decide parties’ rights must come from mutual consent, a court order, or a statute defining arbitration. 
3. The agreement should indicate that the tribunal will resolve the substantive rights and obligations of the parties. 
4. The tribunal must act impartially and follow a judicial process, with an equal duty to ensure fairness to both parties. 
5. The parties must intend the agreement to submit disputes to the tribunal to have legal enforceability.
6. The agreement must state that the tribunal will resolve a clearly identified dispute at the time of referral to arbitration.

Section 7 of the Arbitration and Conciliation Act, 1996, establishes a clear framework for enforceable arbitration agreements. It requires agreements to be in writing and capable of addressing disputes from defined legal relationships, whether contractual or not. These provisions promote fairness, impartiality, and legal certainty, making arbitration a reliable and efficient alternative to court-based dispute resolution. Consequently, Section 7 is instrumental in establishing arbitration as a preferred method for resolving disputes.

 

Disclaimer: This blog is for informational purposes only and does not constitute any legal advice. Readers should seek expert legal counsel before taking any action based on the content.