As businesses expand and undertake more transactions with clients, it is increasingly important to have a contract that defines the legal relationship between parties involved. In India, an arbitration clause is often included in agreements as a way to avoid lengthy and costly court proceedings.
What is an Arbitration Clause?
An arbitration clause is a section in a contract/agreement that outlines how disputes between the parties should be settled. It specifies that any disagreement between the parties will be resolved by an impartial third party known as an arbitrator who will make a final decision that both parties will abide by. The arbitration process is conducted outside of the traditional court system and can help save both time and money compared to a court proceeding.
Why include an Arbitration Clause in India?
In India, the legal system can be slow and cumbersome. It can take years for a case to be resolved in court, and the legal fees can be astronomical. An arbitration clause in an agreement between two parties can save both time and money by providing a quick and efficient way to resolve disputes.
Additionally, an arbitration clause in India can help ensure that disputes are resolved fairly. Arbitrators are chosen jointly by both parties and are typically experts in their field. This means that they can make informed and unbiased decisions based on the specific circumstances of the dispute.
How to Draft an Effective Arbitration Clause in India?
While including an arbitration clause in an agreement can provide many benefits, it is essential to draft an effective clause that will hold up in court. Here are some key points to consider:
1. Clearly define the arbitration process — The arbitration clause should clearly outline the arbitration process, including the number of arbitrators, how those arbitrators will be selected, the location of the arbitration, and any other relevant details.
2. Specify the governing law — The arbitration clause should specify the governing law, including the laws of the state where the arbitration is taking place. This helps ensure that the arbitration award will be recognized and enforced by the court.
3. Include confidentiality provisions — The arbitration clause should specify that the arbitration proceedings, documents, and records will be kept confidential.
4. Define the scope of the arbitration — The arbitration clause should specify the scope of the arbitration, including the types of disputes that can be referred to arbitration.
5. Provide for the award and fees — An effective arbitration clause should specify the award and fees to be awarded to the prevailing party.
Including an arbitration clause in an agreement in India is a smart move for businesses looking to avoid lengthy and costly court proceedings. By drafting an effective arbitration clause, businesses can ensure that any disputes are resolved fairly and efficiently, saving time and money in the long run.