Arbitration is defined as an “agreement by the parties to refer to arbitration all or some disputes which

have arisen or will arise on a future date between them with reference to a defined legal relationship,
whether contractual or not. A doctor’s relationship with his patient or a lawyer’s with his client is both
examples of fiduciary relationships that are of a legal nature but might not necessarily be that of a
contractual nature.

An Arbitration agreement is formed when any two parties entering into a contract and a dispute arises
between them with regard to the contract agreement has to be solved, without going to the Courts and
with the assistance of an Arbitrator who would act like a judge. The agreement ordinarily should
mention who should select the arbitrator, regarding the kind of dispute the Arbitrator should give
decisions on, the place of arbitration, and other aspects of the procedure.

The parties are also mandated to sign an Arbitration Agreement the decision of which is always binding
on the parties. In the event that one is a party to any contract and if the individual seeks to resolve any
disputes with the help of an Arbitrator, without going to court, then one should make this agreement.

Arbitration agreements are like contingent contracts, which basically means that these agreements
come into being or become enforceable on the basis of a dispute happening between the parties. It is
also only enforceable in the event that there arises a dispute between the parties.

The presence of a dispute is an essential condition for arbitration. When parties have effectively settled
the dispute, they cannot refute the settlement and invoke an arbitration clause.

Essentials of an Arbitration Agreement:

Written Agreement

An arbitration agreement must be in writing. An arbitration agreement is considered to be in writing, if it

1. Signed by the parties and is in the nature of a document;

3. An exchange of statements of claim and defence in which the existence of the agreement is alleged by
one party and not defined by another.

Intention

Intention of the parties is of extreme importance and forms the crux of the agreement. There is no
prescribed manner of making an arbitration agreement and it has been stated nowhere that term like
arbitration, arbitrator are essential prerequisites in an arbitration agreement. The Supreme Court has
recently clarified its stance on in this subject, the intention of the parties to refer their dispute to
arbitration should be clearly discernible from the arbitration agreement.[iii]

Signature

The signature of the parties is essential to constitute an arbitration agreement. It can be in the form of a
signed document by both the parties and comprises all the terms or it may also be a signed document by
one party, which contains the terms and an acceptance signed by the other party. It will be sufficient if
one party puts her signature in the written submission and the other party accepts that.

The Hon’ble Supreme Court in a judgment in a landmark case held that the following attributes must be
present in an arbitration agreement:[iv]

a.“The arbitration agreement must contemplate that the decision of the tribunal will be binding on the
parties to the agreement.

b. That the jurisdiction of the tribunal to decide the rights of the parties must derive from their consent,
or from an order of the Court or from a statute, the terms of which make it clear that the process is to
be arbitration.

c. The agreement must contemplate that substantive rights of the parties will be determined by the
arbitration tribunal.
d. That the tribunal will determine the rights of the parties in an impartial and judicial manner with the
tribunal being fair and equal to both sides.

e. The agreement of the parties to refer their disputes to the decision of the tribunal must be intended
to be enforceable in law.

f. 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.”

Common Elements included in the Arbitration agreement:

Seat of Arbitration

This clause states what will be the seat or place of arbitration. The seat of arbitration is important
especially in international commercial arbitrations since it determines the procedural laws that govern
the arbitration procedure. It need not be the same as the place of hearings. Seat of arbitration is
considered to be places where arbitrations are take place even if the location of the hearings differs. The
Place where the hearings take place don’t affect the chosen seat of arbitration.

Procedure for Appointing Arbitrators

The procedure for the same has been provided in the Act.[v] It provides that a person irrespective of her
nationality may be appointed as an arbitrator, unless otherwise agreed by the parties. The parties can
themselves agree on a procedure for appointing the arbitrator(s). In the event that they fail to reach an
agreement, for example, in an arbitration that has 3 arbitrators, each party will appoint one arbitrator,
and the other two arbitrators, who shall be the presiding arbitrator, will appoint the third arbitrator. The
parties themselves, or the designated authority or the arbitral institutions can make the appointment of
arbitrators. In disputes involves international commercial transactions, it is key that the arbitrator to be
appointed shall not be of the same nationality as the parties to the dispute. This is done to protect
impartiality and retain the neutrality of the arbitrator.

Language of Arbitration
It is important to decide what is the language of arbitration in the agreement itself. Especially, in a
country like India, where Hindi and English aren’t the only two languages spoken, it can get extremely
difficult to decide and settle the disputes. Picking the language of arbitration is additionally very cost
effective, because it would save you from paying exorbitant fees to the translators.

Number and Qualifications of Arbitrators

The Arbitration and Conciliation Act of 1996[vi] allows parties to determine the number of arbitrators,
provided that the number is an odd number. In the event that they are unable to determine the number
of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.

Type of Arbitration

Parties have a choice between Institutional or Ad hoc arbitrations. If the parties choose institutional
arbitration, then they have essentially agreed to be bound by the rules of the arbitration institutions. All
such institutions have their own set of rules for arbitration and these rules would be applicable to
arbitral proceedings conducted by them. On the other hand, in case of Ad-hoc arbitrations, arbitrations
are both agreed to and arranged by the parties themselves. No help whatsoever is sought from the
arbitral institutions in Ad-hoc arbitrations.

Governing Law

This is the law that will decide the primary points of contention between the parties to a dispute. It is
alsocalled the substantive law. It is essential that the parties mention the law they want to be governed
by, failing which this might be a huge cause of concern for future disputes.

Name and Address of the Arbitration Institution

If the parties to the dispute wish to refer their disputes to an arbitration center, then it is essential that
they should mention the name and address of the arbitration facility in clear and unambiguous words.
Such mistakes can make the arbitration clause void.