Author’s Note:
It is a very common practice to refer Parties to Agreement for Arbitration. Such clauses are often titled as “Dispute Resolution” or “Arbitration”.
Arbitration is a classic Alternate Dispute Resolution (ADR) system that has been successfully implemented globally across various jurisdictions. It is a popular choice of resolving disputes in cross border ventures as well.

This can be witnessed in most Browse-wrap and Clickwrap Agreements as well. Browse-wrap & Click-wrap agreements are usually titled as “Terms of Use” or “Terms and Conditions”, and can be found at the footer of a websites.

Why is this done? Why do companies and their lawyers punch in such clauses to refer Parties to Arbitration instead of litigating before Civil Courts?

Think of it as a peaceful way to solve problems using special rules. Today, we’ll explore how simple agreements can lead to fair solutions when things get tough.

Imagine arbitration as a calm method to fix arguments without going to court. Instead of drama, it’s about finding solutions quietly and fairly. We’ll learn about the important parts called clauses and agreements, which ensure everything runs smoothly.

Arbitration clauses are like the coloring lines that tell us how to solve problems. They act as maps guiding us through tough situations, ensuring everyone knows what to expect.

Now, imagine arbitration agreements as promises between parties to solve issues nicely. These promises are like handshakes saying, “Let’s work together to fix things.” They help us trust that problems will be sorted out without any big fights, potentially leaving more room for business.

Arbitration And Conciliation Act, 1996

Arbitration is like a special way to solve a problem when parties can’t agree. Instead of going to court, they agree to let one or more fair judges, called Arbitrators, make a final decision. Their decision is legally referred to as an “Award”.

Remember, Arbitrators are formally referred to as the “Tribunal”.

It’s like having a private courtroom exclusive for them. By choosing arbitration, parties hope to choose a calm and private way to solve their problem, without all the drama of going to court.

Indian Contract Act, 1872 Acknowledges Arbitration Clauses as Legal

A simple reading of the Exception to Section 28 reveals that Arbitration clauses are absolutely legal, valid and enforceable:

“Exception 1 to Section 28 : Agreements in restraint of legal proceeding void.
— Saving of contract to refer to arbitration dispute that may arise.—This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Therefore, it is clear that – Parties can definitely refer to Arbitration and have such clauses in their agreements legally.

Arbitration And Conciliation Act Binds Parties To Arbitration If Agreed Prior In Writing

A simple interpretation of the Sec 7 of the Arbitration and Conciliation Act reveals that parties who have agreed to refer to arbitration in case of disputes, then they are bind by such agreement as per law.

Section 7(1) of the Act provides that an arbitration agreement means 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.

Section 7(2) lays down that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
Interestingly, an amendment in 2015 vide Act No. 3 of 2016 – acknowledged the validity of Arbitration Agreement executed via electronic communications.

Group Of Companies Doctrine – Can There Be An Arbitration Without Agreement Being Signed?

On 6 December 2023, the Supreme Court of India in the matter of Cox & Kings v. SAP India Private Limited, clarified the ‘Group of Companies’ doctrine in the Indian context and affirmed that a non-signatory company within a group of companies can be bound by an arbitration agreement if certain conditions are satisfied.

Section 45 of the Arbitration Act provides that

“…a judicial authority… shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration…”

Section 7 (definition of “Arbitration Agreement”) of the Arbitration and Conciliation Act mandates an arbitration agreement to be in writing, but, surprisingly, there is no compulsory requirement that it should be signed by the parties.

As per the Arbitration and Conciliation Act, the arbitration agreement could be evidenced in an exchange of electronic communications or telegrams.

Consequently, even a non-signatory can be made a party to an arbitration agreement if they have consented to it.

The court emphasized that this was not a case of extending an arbitration agreement to third parties but rather of identifying the genuine parties to the dispute.

Conclusion

Arbitration is a peaceful way to solve problems without going to court. It’s like agreeing to talk things out calmly instead of fighting in a courtroom. When parties understand arbitration rules and agreements, they can handle disagreements smoothly.

Imagine arbitration clauses as instructions on how to deal with issues, like staying within the lines while coloring. Similarly, arbitration agreements are like promises to work together nicely, just like shaking hands to agree on solutions. An arbitrator, who is like a fair judge, is appointed mutually by both parties or by a neutrally by a court of law.

In India, arbitration clauses are legal and enforceable under the Indian Contract Act and the Arbitration and Conciliation Act, 1996 both.