Arbitration Agreement

The parties to a contract may either enter into a separate arbitration agreement or may agree upon an arbitration clause in the main contract/agreement itself. Generally, the latter course is adopted by most of the parties.

Arbitration clause in an agreement between the parties is the starting point for arbitration. "Arbitration agreement" has been defined in section 7 of the Act of 1996 as "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." An arbitration agreement may be contained in the document evidencing the legal relationship or in the form of a separate agreement. The agreement to submit a matter to the decision of a person will amount to an arbitration agreement when the parties so submitting intend, that a third person should decide it after hearing them and considering the evidence led by them. No particular form is necessary for an agreement to constitute an arbitration agreement. It is sufficient that the terms are reduced to writing. Such an agreement need not be a formal document. However, it is necessary to establish that the parties had an intention to resort to arbitration for settlement of their disputes. Every arbitration agreement must be liberally constructed so as to give effect to the intention of the parties. The arbitration agreement is the fountain head af the jurisdiction of the arbitrator. The wider the ambit of the arbitration clause, the broader will be the scope of the arbitrator's jurisdiction. The Supreme Court has held in Renu Sagar Co. v. General Electric Company, AIR 1985 SC 156, that "whether a given dispute comes within the scope or purview of the arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ."

Where an arbitration clause uses the words "any dispute as to the validity or construction or execution of the present agreement shall be decided by arbitration" it has been held by courts that the ambit of the arbitration clause was wide enough to include the question of limitation. The word "execution" in the arbitration clause means, in the context, the entire range of performance and enforcement of the agreement. An arbitration agreement will be binding not on the parties to the agreement, but also on those claiming under them and on the lawfull assignes of the parties.