Validity of the Arbitration Agreement

Validity of the arbitration agreement and split hybrid and consequences

A discussion of the validity of the arbitration agreement and split hybrid and consequences / a forthcoming issue of the agreements. Prior to 2008, in case the borrower fails on loan payments, banks, and financial institutions, after stating the account as being non-performing assets (NPA), has rights under the Securitization and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002 (SARFAESI Act) to take over the assets of the borrower.

Banks and financial institutions (subject to registration under the Act SARFAESI)

In addition, banks and financial institutions (subject to registration under the Act SARFAESI) can apply for the Debt Recovery Tribunal for a recovery certificate. This procedure naturally took significant time. After the sub-prime crisis, however, the rapid recovery of the debt is a major concern of banks and financial institutions around the world.

Option for banks and financial institutions to pursue arbitration

For this purpose, they put a split or a hybrid of the arbitration agreement in their facility agreement. This provides an additional option for banks and financial institutions to pursue arbitration. The author, by means of this article, an attempt to discuss the validity of the arbitration agreement and discord hybrid and consequences / a forthcoming issue of the agreement, assuming they are valid and enforceable. "Split" or "hybrid" arbitration agreement allows one or both parties the right to choose the kind of litigation (by way of a civil action) or arbitration after a dispute arises.

The real reason behind this kind of arbitration agreement is to enable the flexibility, privacy, neutrality, adjudication speed, confidentiality and quality may be better than the ratings, according to some experts.

Split arbitration agreement consists of two types: "the only option" where one party has the right to the election, and "options together," in which both parties have the right to an election.

For a better understanding, the split is typical or the arbitration agreement is a hybrid set forth below, with a portion of the brackets relating to the part of each choice a deal split arbitration: "The Lender (One Party) may, at its option, elect to resolve the dispute each of the may arise out of or in connection with this Agreement shall be referred to binding arbitration in accordance with the arbitration and Conciliation Act, 1996.

The arbitration will be held in XYZ and arbitration will be conducted in English. The Parties to this Agreement agree that a single arbitrator's decision is final and binding.

The parties agree that the costs of the proceedings shall be borne by the parties in accordance with the direction of the arbitrator.

Action under the Act Securitization or Recovery Debts due to Banks and Institutions Financial Code

The Lenders (one party) may, in addition, bring an action under the Act Securitization or Recovery Debts due to Banks and Institutions Financial Code ( "DRT Act"), or special law or other civil remedies, which may be available to it. "because the Indian courts specifically decided on the matter, the arbitration agreement on is susceptible to two views, which are discussed below: it can be said that the arbitration agreement is a hybrid or this split clauses pathological as, at the time of the signing of the arbitration agreement, it gives the option to one party or the only one, "policy", triggering the arbitration agreement or pursue litigation.

Thus, because of the words used in the arbitration agreement is "The Lender (of either party) may", it does not reflect the absolute intention of the parties adjudicate disputes by way of arbitration, and particularly at the time of the signing of the arbitration agreement. Thus, the principle of good faith interpretation could be applied, that is the intention of the parties at the time of signing the agreement, to state that the absolute intention of the parties was not solely arbitration.

Reliance on effects that can be placed on the Supreme Court's interpretation of the arbitration agreement where the word "may" is used in the arbitration agreement was interpreted to mean that the agreement was not enforced because it requires a subsequent agreement in the future. It might be worth mentioning that this interpretation of the Supreme Court is not related to the arbitration agreements. That hybrid or split apart, it can be said that in addition to lacking basic materials mutuality, because the arbitration agreement is uncertain, because it causes confusion expectations by providing an option to the parties either litigation or pursues arbitration, the arbitration agreement can not be enforced.

As a consequence of the foregoing, it is open to argue that in case of doubt, the principle applies and cons proferentem arbitration agreement can not be given or made enforceable.This mean also the position taken by a court in France, which has not enforced the arbitration agreement. In view of the legal position, the parties and can be lowered to the adjudication of the dispute by a civil court alone.

The principle of interpretation in good faith states that the intent of the parties at the time of execution of the agreement is supposed to look. This test is whether the parties desired that their disputes, if at all, it should be dealt with by a court of arbitration or civil court.

Applying the principles, it can be said that the borrower, in the case of an arbitration agreement only hybrid option, basically agreed to reference the dispute to arbitration, and therefore, the lender exercised its option under the arbitration agreement, the parties should have been relegated to arbitration. It can thus be said that the implementation of this option is only an administrative action and not affect the validity of the arbitration agreement itself.

It can be said that the use of the words "should" be referred to arbitration is also significant, as it indicates that the intention of the parties was to arbitration. Thus, it can be said that if the only intention of the visible, there is absolutely no ambiguity that the parties to adjudicate their disputes through arbitration.

Clear intentions of the parties must assume primacy.As as far as the issue of confusion between litigation and / or arbitration is concerned, it can be said that after the lender (in the case of a single hybrid selection of the arbitration agreement) or the parties (in the case of hybrid mutual selection of the arbitration agreement) execute adjudication of disputes through arbitration option, there will be no confusion whatsoever.

There is another way to look at it. According to the principles of effective interpretation, in which the clause can be interpreted in two different ways, the interpretation of a clause that would allow effective should be adopted in preference to that which prevents the clause from being effective.

Various courts have taken this to be "universally recognized rules of interpretation". It could therefore be said that the assumption always is in favor of the validity of the arbitration agreement and the choice of the parties rather than against it. [See ICC Award No. 1434 (1975), ICC Award No. 3380 (1980), Italian company v. Companies Syria (1981) 108 JDI 927]. If this principle is followed, assuming there is no doubt whatsoever, arbitration is the only one, of course, being followed.

It also be said that Singapore and the UK have decided this issue and strengthen the validity of the arbitration agreement hybrid and consequently upheld the interpretation. Either bring to the surface some problems. Some problems upcoming primary is:

(a) Where the lender does not exercise its option to intervene immediately and borrowers approach civil courts (in the case of FI are not registered) or the debt recovery tribunal (registered bank or financial institution), if the application under Section 8 of Arbitration and Conciliation Act 1996 can be submitted by lenders to exercise further rights to referral to arbitration?

(B) whether subsequent exercise the right to intervene by the lender allowed under the law?

(C) Where the borrower has approached the civil court/debt recovery tribunal, whether it be incumbent on the civil courts/debt court recovery for must refer the parties to the arbitration and direct the borrower to submit an application under Section 17 of the Arbitration and Conciliation act to help the interim?

(D) Where the rights have been executed by the borrower before a civil court/court debt recovery ahead of time, it is open to the civil court/debt recovery tribunal to not enforce the arbitration agreement, assuming it is valid in the first instance?

(E) What can be said that by bringing a suit before a civil court trial/recovery of debts, before the lender enforce the arbitration agreement, the borrower has recognized rights and can not be referred to arbitration?

This problem is still unsolved time by the courts. However, if that be the case, the borrower, in the arbitration agreement only hybrid option, can essentially never used drugs, and lenders will always be in a position to defeat any drug that the borrower may have if so desires. While can be said that given the current exposure of banks (see the scenario at hand), the rights of the debtor is required to bound away, one should not forget that the legislative intent is not to restrict the rights of the borrower, but to allow a fair and reasonable by a court adjudication respectively. Hope you learned about Validity of the arbitration agreement and split hybrid and consequences: Find the Best Arbitration Lawyers in Chennai Tamil nadu India