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Challenges based on Non-Binding Arbitration Agreements

In India, the courts are adopting the pro-arbitration approach and therefore the valid arbitration agreements are enforceable. The principle of non-intervention by the court can also be derived by simply taking a glance at the statement of objectives of the Arbitration and Conciliation Act, 1996.[1] The act provides for the non-intervention of the court in matters regarding arbitration however if the court finds out that there is no valid arbitration agreement or a dispute is non-arbitrable in nature then in such a case it would be prima facie held that no valid arbitration agreement exists between the parties. However, the question arises whether an arbitration agreement that lacks the prerequisites of a contract or some of the elements of general practice are missing for an instance the stamp duty or any other matter for that purpose.

As per English law, it is explicitly mentioned under the statute that, a non-binding arbitration agreement is unenforceable.[2] The Indian laws have emphasized the fact that the arbitration agreement must be in written form and the oral form of  arbitration agreement is not valid unlike in the case of normal contracts under the Indian Contract wherein the promises made verbally can be enforceable and amounts to a valid contract. Moreover, there is no such general practice with respect to arbitration unlike provided in the Indian Contract Act,[3]wherein sometimes gestures or an act or omission can also amount to agreement or disagreement to enter into a contract. Hence, it can be understood that all the prerequisites of the contract act are not applicable to form an enforceable arbitration clause. Moreover, as per Article II of the New York Convention[4], the arbitration agreements must be in written form and it would be valid if it was signed by both the parties. The said article clearly states that it is not necessary that the arbitration clause should be in the form of a contract but a separate arbitration clause can be made at any time during the course of the proceedings of the trades or relationship of business or any other matter. Moreover, it has been stated in the abovementioned text that the arbitration proceeding is valid if the text is shared via fax or telegrams. Hence this does bring the issue that whether the arbitration in the form of the digital format is valid or not.

As per the provisions of the Information and Technology, Act[5]the digital signature holds the same legal value as that of the original signature. Moreover, there is a distinction between electronic and digital signature where an electronic signature requires basic identities for instance signature on the photograph was in the digital signature has one or two fold encryption.  Either or both forms of signatures are valid and have the same value as that of a physical signature which depends upon case to case basis. Moreover, the digital form of arbitration is in vogue specifically for B2B (Business to Business) transactions. Moreover in India under section 65B of the Indian Evidence Act, 1872[6]any document which can be shown as evidence under the Evidence Act (which generally covers most of the parts of evidence) or any kind of electronic records whether they are computer-generated etc are admissible in the court of law. However, the practice was not much widespread in India but in Re Shakti Bhog Food Limited vs. Kola Shipping Company[7]it was held that the arbitration agreement entered into the parties via e-mail is valid and is enforceable in nature. Moreover, as the world has moved over to the digital platform during the Co-Vid 19 crisis, more relaxations are to be expected with respect to such forms of agreements pertaining to arbitration as even the court proceedings began to be conducted via online means which pre-pandemic era was not expected until upcoming 5 to 10 years.

Lastly, the question is regarding the validity of the arbitration agreement with respect to faulty stamps or compliances are valid or not. In the case of SMS Tea Estates v/s Chandamari Tea Co.pvt Ltd[8]it was held that an arbitration clause contained in an unstamped contract is not valid and unenforceable until and unless the insufficiency is removed. The stance with respect to English and Indian law was similar until the said precedent was overruled in the case of M/s N.N. Global Mercantile Pvt. Ltd. Vs. M/s Indo Unique Frame Ltd. & Ors[9]and it was held that the arbitration agreement upon an unstamped or upon a deficiently stamped instrument is valid and enforceable as it is an independent contract. 


[1] Arbitration and Conciliation Act 1996, Act no.23 (India)

[2]Arbitration Act 1996, UK Public General Acts C.23 (United Kingdom)

[3] Ibid

[4] https://www.newyorkconvention.org/

[5] Information and Technology Act, (2000) Act no.21 (India)

[6] Indian Evidence Act, (1872) Act no. 44 & 45 (India)

[7] Shakti Bhog Food Limited vs. Kola Shipping Company, (2007)

[8] SMS Tea Estates v/s Chandamari Tea Co.pvt Ltd, (2011) 14 SCC 66

[9] M/s N.N. Global Mercantile Pvt. Ltd. Vs. M/s Indo Unique Frame Ltd. & Ors, Civil Appeal No.3802

This article is authored by Mohammed Hammad Hussain & Tiwari Sarvesh, Students at Institute of Law, Nirma University

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The views and opinions expressed in this article are those of the author and do not reflect the views or opinions of Legally Flawless or its members.

Keywords: Arbitration| Agreements |Enforceability| IC Act | IT Act

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