Who Can Enter Into Arbitration Agreement?
Who Can Enter Into an Arbitration Agreement?
1. Definition of Arbitration Agreement
An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes that have arisen or may arise between them, instead of going to court.
2. Who Can Enter Into Arbitration Agreement?
A. Competent Parties
Section 7 of the Indian Contract Act, 1872 states that every person is competent to contract who is of the age of majority, of sound mind, and not disqualified by law.
Hence, only competent persons or entities can enter into an arbitration agreement.
This means:
Individuals who are adults and mentally competent can enter into arbitration agreements.
Companies and corporations (legal entities) can enter into arbitration agreements through their authorized representatives.
Partnerships and other bodies can also enter into arbitration agreements.
B. Parties with Authority
The persons entering the arbitration agreement must have the authority to bind the parties.
For companies, this means a person authorized by the board or under a power of attorney.
C. Contractual Parties
The arbitration agreement can only be entered into by parties who have a legal relationship with each other (such as a contract).
It cannot be entered into by third parties who have no interest or no legal relationship with the contract or dispute.
D. Restrictions
Minors and persons of unsound mind: Generally, minors cannot enter into valid contracts, so an arbitration agreement signed by a minor is void.
Government or statutory entities: Sometimes special laws require permission for government departments or public authorities to enter arbitration agreements.
Contractual limitations: Sometimes contracts specify who can enter into arbitration agreements.
3. Types of Arbitration Agreements
Clause in a contract: A clause in a commercial contract that any disputes will be resolved by arbitration.
Separate agreement: Parties may also enter into a separate agreement to arbitrate.
4. Case Law
a) Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532
The Supreme Court held that an arbitration agreement must be clear and unambiguous, and parties entering into it must have the authority to do so.
b) National Thermal Power Corporation v. Singer Company, AIR 1992 SC 998
The Court held that only parties to the contract or their authorized representatives can enter into arbitration agreements.
c) Union of India v. Master Construction Co., AIR 1999 SC 2409
The Supreme Court observed that Government or public entities entering into arbitration agreements must act within the scope of their authority.
Summary
| Who Can Enter Arbitration Agreement? | Explanation |
|---|---|
| Competent individuals | Adults of sound mind, legally competent |
| Legal entities (companies, partnerships) | Through authorized representatives |
| Parties with legal relationship or contractual relation | Only contracting parties or their representatives |
| Persons with authority | Must have authority to bind the parties |
| Minors and unsound persons | Generally cannot enter valid arbitration agreements |
| Government entities | Must act within legal authority or with required approvals |
Conclusion
Only competent persons or entities who have the authority and legal relationship can validly enter into an arbitration agreement. This ensures that arbitration remains a consensual and enforceable method of dispute resolution.
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