Arbitration Agreement

In plain language. An arbitration agreement is the promise, made in advance, that if a dispute arises you will take it to a private arbitrator rather than to court.

The legal meaning. Section 7 of the Arbitration and Conciliation Act, 1996 requires an arbitration agreement to be in writing. It may appear as a clause within the main contract or as a separate agreement, and it is satisfied by a signed document, an exchange of communications recording the agreement, or an exchange of pleadings in which one party alleges an agreement and the other does not deny it. An oral agreement to arbitrate is not enforceable.

A practical example. A supply contract contains a clause stating that any dispute arising out of or in connection with the contract will be resolved by arbitration seated in Mumbai under the MCIA Rules, before a sole arbitrator, in English. That clause is the arbitration agreement. If the buyer later sues in court instead, the supplier can apply under Section 8 to have the court refer the parties to arbitration.

Why it matters. Without an arbitration agreement, you cannot compel the other side to arbitrate — you can only propose it and hope they consent. This is why the clause drafted at contract stage, long before any dispute, determines what options you actually have later. The guide to drafting an arbitration clause covers the elements a workable clause must specify.