"Written" Agreement Requirement under Indian Arbitration and Conciliation Act

Though an oral agreement is valid under under Indian Contract Act, 1872, Section 7(3) of the Arbitration and conciliation Act, 1996 (“Act”) makes it mandatory for the parties to execute the arbitration agreement in writing. Section 7(4) of the Act stipulates the conditions which are to be fulfilled before an agreement can be considered as written:

Section 7(4): An arbitration agreement is in writing if it is contained in-

a)      a document signed by the parties;

b)      an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

c)      an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other

Clause (a)

As long as there is an existence of a signed document, not much difficulty arises. If there is a document, and has been signed by the parties; there is no need to go further. In the case of Ghanshyam Sharma v. South City Projects, Calcutta High Court held that “if there is an arbitration agreement contained in a document signed by the parties, the requirement of Section 7(4) is complete and one need not progress to clauses (b) and (c) thereof”. Hence, as far as Section 7(4)(a) is concerned, it is more a matter of evidence than interpretation, i.e., if there is an existence of a signed arbitration agreement, the same merely has to be produced before the judicial authority.

As far as the term “document” is concerned, the definition of the same has not been provided in the Act. However, General Clauses Act, 1897 provides that

“document shall include any matter written, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means which is intended to be used, or which may be used, for the purpose or recording that matter.”

Though it is an established principle that a special act overrides a general act, reference to General Clauses Act may be made (“with precaution”) since Arbitration and Conciliation Act does not provide for the definition of “document”. However, the same would have to be done with precaution.

Clause (b)

With technology becoming more advanced, usage of new modes of communication for business transactions is predictable. Section 7(4)(b) of the Act provides that an arbitration agreement is in writing if it is contained in “exchange” of letters, telex, telex and other means of communication provided that they provide a “record” of the “agreement”.

In Great Offshore Limited v. Iranian Offshore Engineering, (2008) 14 SCC 240, while considering the validity of a document received by “fax machine,” court was of the opinion that

“Section 7(4)(b) states that an agreement is in writing if it is contained in “an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement”. This section covers agreements that are sent via facsimile (fax) as they are “other means of telecommunication”. “Fax” is defined as “a machine that scans documents electronically and transmits a photographic image of the contents to a receiving machine by telephone line” or “a document received by such a machine. This definition clearly provides that a fax falls under “other means of telecommunication”. Thus, faxed agreements are acceptable under Section 7 of the Act.”

Hence, any means of communication which can provide a record of the agreement would be good enough to come under the ambit of this clause. Also, the term “other means of communication” makes it possible for a new technology (“presently, which is not in existence”) to be included under this clause in future.

As far as the term “record” is concerned, Calcutta High Court, in P.T. Tirtamas Comexindo vs Delta International Limited held that term “record” means the record of bilateral consent of the parties. If there is a unilateral consent, the requirements of Section 7(4)(b) cannot said to have been fulfilled. Indeed, without presence of consent, it would not be proper to hold an arbitration agreement valid.

Clause (c)

Last, but not the least, is clause (c) which provides that an arbitration agreement is in writing if it is contained in “an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other” [See: DDA v Jain Rolling Mills (Delhi High Court)]. The language of this clause is not difficult to interpret. However, there is one point which ought to be remembered. Statement of claim and defence is not restricted to the submission in an arbitration proceeding, but to any suit. In S.N. Prasad v. Monnet Finance Ltd. and Ors., Supreme Court held that.

“the words, 'statements of claim and defence' occurring in Section 7(4)(c) of the Act, are not restricted to the statement of claim and defence filed before the arbitrator. If there is an assertion of existence of an arbitration agreement in any suit, petition or application filed before any court, and if there is no denial thereof in the defence/counter/written statement thereto filed by the other party to such suit, petition or application, then it can be said that there is an "exchange of statements of claim and defence" for the purposes of Section 7(4)(c) of the Act”

The points discussed in this post are only a few general points which one can consider while interpreting “written” agreement requirement.