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Differentiating Jurisprudence on Pre – Condition To invoke Arbitration

By - King Stubb & Kasiva on December 9, 2023

Arbitration is one of the most common forms of Alternate Dispute Resolution Measures used in the present day to solve disputes outside of the premises of the courtroom. Arbitration offers multiple methods for parties to amicably settle their conflicts without following the strict procedural norms set by the statutes and avoiding multiple costs payable to lawyers, court along with the time wasted in multiple hearings. Arbitration has therefore resulted in significantly reducing the time taken for dispute resolution and assisting the parties in amicably solving their problems.

An Arbitration Agreement is one of the key agreements in any commercial or contractual obligation between two parties whereby both resolve to refer themselves to arbitration by the virtue of a binding legal obligation created via contract/agreement of arbitration. In India, it has been commonly observed that parties have incorporated certain pre-conditions in their agreement in order to invoke their arbitration clause to refrain any party from raising any frivolous claims or other clauses in the dispute resolution process.

In numerous judgments of the Hon’ble Supreme Court of India, the courts have taken diverse views of the pre-conditions of arbitration agreement and have held diverse views. The courts have also differentiated between the instances of jurisdiction and that of admissibility and adjudicated the same keeping in mind the validity of agreement and claims. For instance, in the matter of S.K Jain V. State of Haryana; the Hon’ble Supreme Court of India held that the language which has been used in the arbitration clause mandatorily required adherence to numerous pre-conditions to invoke the arbitration agreement.

However, once the matter reached the Arbitral Tribunal, it was held that since the essentials of the agreement were not completely met, the arbitration could not be successfully invoked.

In the matter of United India Insurance Co. Ltd. V. Hyundai Engineering And Constructions Co. Ltd., the Supreme Court of India noted in its observations that wherein the amount of vehicle’s policy claim had to be admitted under the agreement as a pre-condition to bring forth a claim of arbitration, it was essential and mandatory to satisfy the same before commencing of the arbitration proceedings since the amount in pecuniary terms can only be made the subject matter of the dispute. Therefore, the Hon’ble Court came to the conclusion that the arbitration agreement would come to life only if the liability with respect to the car policy is admitted by the party making default as a pre-condition of the agreement.

Therefore, while looking into the pre-conditions of an agreement of arbitration or arbitration clauses, it is not essential that pre-conditions should be mandatorily satisfied but it is essential that such pre-conditions which form the base and essence of the agreement/clause and without which the agreement cannot be commenced should mandatorily be satisfied. However, any ancillary/dilatory nature of pre-conditions which have been enacted merely to delay the arbitration clause or derail the objectives of arbitration proceedings have time and again been held invalid.

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