SC: “ARBITRATION” OR ” ARBITRATOR IN A CLAUSE DOES NOT MAKE IT AN ARBITRATION AGREEMENT

The Supreme Court said an arbitration agreement should include an obligation and responsibility to arbitrate. The bench of Justices DY Chandrachud and AS Bopanna noted that just using the word “arbitration” or “arbitrator” in a clause does not make it an arbitration agreement if it requires or contemplates a new consent of the parties for arbitration.

The High Court of Orissa appointed a sole arbitrator on the Contractor’s request under Section 11(6) of Arbitration and Conciliation Act, 1996. It is argued before the Supreme Court that clause 15 of the Contract Agreement did not establish an arbitration agreement, hence Section 11(6) invocation was not valid. In the current case, the substantive component of Clause 15 makes it clear that the parties have not agreed to arbitrate on existing or future difficulties.

The bench used Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719 to answer this question. While there is no prescribed framework for an arbitration agreement, the provisions should reflect a determination and obligation to choose for arbitration. Where there is just a possibility of parties consenting to arbitration in the future, there is no enforceable arbitration agreement.  When the part on dispute settlement excludes or detracts from arbitration agreement elements, it is not an arbitration agreement. For example, if an agreement requires or authorises an authority to determine a claim or dispute without a hearing, or if the authority must act in the interests of only one of the parties, or if the authority’s judgement is not final and binding, or if either party is not satisfied, the agreement is void.

Inclusion of the phrase “arbitration” or “arbitrator” in a provision does not constitute it an arbitration agreement if it needs or contemplates further approval from the parties. Such provisions represent an intention or hope to resolve disputes through arbitration, or a preliminary agreement to explore arbitration as a dispute resolution process. Such clauses require parties to obtain an arbitration agreement if a dispute arises. Any arrangement or term in an agreement that needs or envisions further acquiescence or consensus before arbitration is not an arbitration agreement, but rather an agreement to engage in arbitration in the future.

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