Arbitration is a settlement of dispute by the decision of one or more persons called arbitrators. It is an arrangement for investigation and settlement of a dispute between opposing parties by one or more unofficial persons chosen by the parties. In arbitration some dispute is referred by the parties for settlement to a tribunal of their own choosing. The dispute is not submitted for decision to the ordinary courts but to a domestic tribunal. It is thus a method of settling the disputes in a quasi-judicial manner. The essence of arbitration is that the arbitrator decides the case and his award is in the nature of a judgment. Arbitration is speedy and inexpensive method of setting the disputes between the parties.
Arbitration is a striking feature of ordinary Indian life and it prevails in all ranks of life to a much greater extent than is the case of England. To refer matter to a panch is one of the natural ways of deciding many disputes in India.
An arbitration agreement means a written agreement to submit present or future differences to arbitration whether an arbitrator is named therein or not [Section 2 (a)]. An agreement between the parties to refer the matters to a person and abide by his decision amounts to an arbitration agreement. An arbitration agreement is the starting point in the law of arbitration. The machinery of domestic tribunal is set in in motion the moment the arbitration agreement is entered into.
The essentials of an arbitration agreement are:
(1) There must be an agreement: i.e. the parties must be adding idem.
(2) The agreement must be in writing : and
(3) The agreement must be to refer either a present or future dispute to arbitration.
It is not necessary that the arbitrator is named in the arbitration agreement. But if the arbitration agreement does not contain the above three ingredients, it is invalid and unenforceable.
An arbitration agreement stands on the same footing as any other agreement. Every person capable of entering into a contract may be a party to an arbitration agreement. He who cannot contract, cannot make a reference to arbitration. An agreement to submit a dispute to arbitration is based on the consent of the parties. It is binding upon the parties unless it is tainted with fraud, undue influence etc. in which case it can be avoided like any other agreement. The terms of the arbitration agreement must be definite and certain. If the terms are vague it is bad for indefiniteness.
It is essential for an arbitration agreement that there must be a written agreement to submit differences to arbitration. Written agreement means in which the terms on both sides are reduced into writing. An oral agreement to submit differences to arbitration is invalid and unenforceable. No particular form or formal document is necessary. It is sufficient if there is an agreement and the same is in writing.
It is not necessary that such written agreement should be signed by the parties. It has been held by the supreme Court of India that an arbitration agreement in writing need not be signed by the parties and it is enough if the terms are reduced to writing and the agreement is established. All that is necessary is that the parties should accept the terms of an agreement reduced in writing. The acceptance may be in writing, or by conduct or by oral agreement.
The existence of difference or dispute is an essential condition for the arbitrator’s jurisdiction. If there is no dispute, there can be no right to demand arbitration. The dispute may be a present or a future one. In case of an agreement to refer future disputes to arbitration, the jurisdiction of the arbitrator does not arise until a dispute has arisen. A dispute means an assertion of a right by one party and repudiation thereof by another. A point as to which there is no dispute cannot be referred to arbitration.