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Validity Of Party Autonomy In Invalid Arbitration Agreement

Party Autonomy is an essential aspect of arbitration agreements. The arbitration agreement is generally formed to reflect the autonomy of the parties.

However, the validity of arbitration agreements has been a matter of controversy in Indian Jurisprudence. This article discusses the validity of party autonomy in invalid arbitration agreements in light of Vidya Drolia's case holdings. The Arbitration and Conciliation Act 1996 acknowledge the theory of manifest intention, meaning that the parties to the arbitration must have plain intention to conform to the terms of arbitration agreement.

It is not limited by the condition that a formal arbitration agreement should be formulated between the parties, but can also be deduced by the conduct of parties, surrounding circumstances and clear object to set forth the arbitral proceedings. The will of the parties to take up a matter in arbitration is a subjective act and is personal to the parties.

Principle Of Party Autonomy

Party autonomy is the principle that states the parties are given liberty to choose any of the terms stated in the arbitration agreement in order to settle their disputes notwithstanding the general procedures. It is thus regarded as the "brooding and guiding spirit" of arbitration.

Article 19 of the UNCITRAL Model Law incorporates the fundamental of 'party autonomy' by setting forth that parties can supervise the conduct of arbitral proceedings. Furthermore, the 1996 Act provides that parties are free to authorize any person or an institution, to determine the issue between the parties along with the liberty to choose the regulations.

Parties are free to mutually agree on the method of dispute resolution. Though at first instance, the Tribunal can decide on the objections of non-arbitrability and cogency of the arbitration agreement. But any party aggrieved by such award award has a chance to approach judicial forums of their choice. Parties are also given freedom to determine on the procedural as well as substantive law. The Apex Court, in various cases has guided that the 1996 act anticipates party autonomy.

Polarity With Regard To "Existence And Effectiveness" Of The Arbitration Agreement

Effectiveness and existence are two distinct analogies to evaluate the enforceability of an arbitration agreement. The Jurisdiction of arbitration is limited by the essential of a rational arbitration agreement to be in force. On the subject of legal philosophy and constructionism, the existence and effectiveness of an arbitration agreement are not interchangeable per se. Existence of an arbitration agreement refers to the fulfilment of the statutory requirements.

A sensible and just elucidation requires apprehension of the factors, surroundings, and material legal provisions necessary for an enforceable arbitration agreement. Thus, validity and legality are the prime factors for enforcement of such agreement.

Extent of Section 11 of the 1996 act has endured noteworthy changes since past few years through legislative amendments and judicial decisions. In Vidya Drolia, the Supreme Court endeavoured to rule on the authority of the court to interfere at the juncture of the application under section 11.

Section 11(6-A) was inserted by 2018 amendment in order to limit the scope of a court's interference, by which the courts were allowed to merely examine the existence of an arbitration agreement. It was later omitted by the 2019 amendment and courts were again conferred with wide powers.

The phrase "the existence of an arbitration agreement" under Section 11 should include the ingredient of the validity of an arbitration agreement, and under Section 11(6-A), it should be legally enforceable and not merely included in the contract.

Sections 8 and 11 of the 1996 Act are interrelated and lay down similar standards, therefore, the ruling of an effective arbitration agreement in sec. 8 can be read together with the ruling of its existence in sec. 11. Law Commission on its 246'th report has proposed certain amendments under the above-mentioned provisions.

Judicial intervention of courts is limited to the circumstances where the existence of an efficient arbitration agreement is under question. If it is of the prima facie opinion that an efficient agreement exists, then the dispute should be referred to the arbitration.

However, if it thinks that such an agreement does not exist, then that conclusion would be final and not prima facie. Thus, the scope of judicial inquiry while determining applications under Sections 8 and 11 is interchangeable reciprocal in nature.

The existence and effectiveness of an arbitration agreement are coiled around each other, and such an agreement is invalid if it is found illegal or does not satisfy the mandatory legal requirements.

Severability Doctrine In Arbitration Agreements

Severability doctrine in arbitration is of key significance, ensuring that an arbitration agreement is independent of the underlying contract. It treats an arbitration agreement as a separate agreement which will not be void merely because of the reason that some other terms of the same contract are found to be invalid.

Thus, an arbitration agreement is severable from the rest of the contract. Unless the arbitration clause is itself challenged, the issue of the validity of that contract in the first instance should be considered by the arbitrator. The intention of the parties, being of prima facie importance should not be ignored when the legality of the underlying contract is challenged. Section 16 gives the arbitration clause, a life of its own and accepts that the main contract and the arbitration agreement are independent of each other.

Furthermore, the decision in the Garware Wall Ropes Ltd. case confirms the severability principle of an arbitration agreement and states that the court proceedings should be stated in favour of arbitration. An arbitrator must decide on the efficacy of the contract altogether, while the courts must decide the validity specific to the arbitration clause.

Vidya Drolia's judgment lays down the extent of the severability doctrine and principle of competence-competence in light of section 16, which gives the arbitration clause a life of its own. 'Principle of competence-competence' have both merits and demerits of its own. With regard to positive implications, the Arbitral Tribunal is qualified and authorized by law to rule on its own jurisdiction to decide on the competency issues. On the other hand, in case of negative implications, the law would have command.

The Arbitral Tribunals are private forums where the parties voluntarily resolve and adjudicate their disputes in place of courts. Jurisprudence in India is evolving towards strengthening the institutional efficacy of arbitration by minimizing the intervention of courts.

The suit should be in lieu of the "matter" to which the parties have mutually agreed to refer, i.e., which comes under the ambit of the arbitration agreement. Similarly, the parties to the suit should be bound by the arbitration agreement, as there is no provision in the Arbitration Act to compel third persons who have not exercised the option to give up the right to have access to courts and be bound by the arbitration clause. This would violate party autonomy and the consensual nature of the arbitration.

Arbitration is a voluntary assumption of the duty acting as a means of resolving disputes through a private forum. The animus of the parties and their commercial understanding are expressed in terms of the agreement. Even if the arbitration agreement is found to be erroneous or fictitious, the evident common intention of parties to submit proceedings to arbitration will relegate, as party autonomy is the backbone of arbitration."

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