INTERPRETING THE ARBITRATION CLAUSE

It is a settled proposition of law that the existence of a valid arbitration agreement under section 7 of the Arbitration act 1996 is sine-qua-non for a court to exercise its powers to appoint an arbitrator/arbitral tribunal under section 11 of the act. Section 2 (1)(b) of the Act,  defines  “arbitration agreement” to mean an agreement referred to in section 7, which inter­alia lays down characteristics of an Arbitration Agreement

1. WHETHER ARBITRATION AGREEMENT IS REQUIRED FOR ARB.?

Section 7 of the act does not mandate any particular form for the arbitration clause. This proportion was settled in the case of RUKMANIBAI GUPTA V. COLLECTOR JABALPUR & ORS. It was held that arbitration agreement is not required to be in any particular form. However, it is more important to ascertain, whether the parties have agreed that if any such disputes arise between them in respect of the subject matter of a contract such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement.

Further in the case of Karnataka  Power   Transmission  Corporation  Ltd. and Anr. v. Deepak Cables (India) Ltd., it was held that in case of exclusion of attributes of an arbitration agreement from a dispute resolution clause, it would not amount to a valid arbitration agreement.

• WHAT CONSTITUTES AN ARBITRATION AGREEMENT?

Among the attributes which must be present for an agreement to be considered as an arbitration agreement are:

• The   arbitration   agreement   must contemplate  that the decision of the tribunal will be binding on the parties to the agreement,
• That the jurisdiction of the tribunal to decide the rights of parties must derive either from the consent of the parties or from an order of the court or from a statute, the terms of which make it clear that the process is to be an arbitration,
• The   agreement   must  contemplate  that substantive rights of parties will be determined by the agreed tribunal,
• That the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,
• That  the  agreement  of  the  parties  to  refer their   disputes   to   the   decision   of   the   tribunal must be intended to be enforceable in law and lastly,
• The agreement must  contemplate  that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

• ESSENTIAL FEATURES OF AN ARBITRATION AGREEMENT:

Bihar State Mineral Development Corporation & Anr. V. Encon Builders (I) (P) Ltd. further condensed the essential features of an arbitration agreement into four elements:

• There must be a present or a future difference in connection with some contemplated affair.
• There   must   be   the   intention   of   the   parties   to settle such difference by a private tribunal.
• The parties must agree in writing to be bound by the decision of such tribunal.
• The parties must be ad idem.”

• DUTY OF COURT WHILE INTERPRETING ARBITRATION CLAUSE?

The courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting   or   construing   an   arbitration   agreement   or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the court to make the same workable within the permissible limits   of   the   law,   without   stretching   it   beyond   the boundaries of recognition.

• CONCLUSION:

A common-sense approach has to be adopted to give effect to the intention of the parties to arbitrate. In such a case, the court ought to adopt  the attitude  of  a reasonable business  person, having business common sense as well as being equipped with the knowledge that may be peculiar to the business venture. The arbitration clause cannot be construed with a purely   legalistic   mindset,   as   if   one   is   construing   a provision in a statute.