Termination of the Arbitration Agreement
Termination of the Arbitration Agreement
An arbitration agreement governs the resolution of disputes between parties through arbitration. However, under certain circumstances, the arbitration agreement may be terminated, which means that the parties no longer have an obligation to arbitrate their disputes. Termination of the arbitration agreement effectively ends the arbitration process between the parties.
1. When Does an Arbitration Agreement Terminate?
The arbitration agreement terminates when the parties cease to be bound by it, which can happen:
By mutual consent
By operation of law
Upon completion or termination of the substantive contract
When the disputes are resolved or withdrawn
Upon setting aside or refusal to enforce the arbitral award
When the arbitration tribunal ceases to function
2. Modes and Grounds of Termination
A. Termination by Mutual Consent
The parties can agree to terminate the arbitration agreement.
For example, if parties settle their dispute or agree to resolve disputes by other means (e.g., mediation or litigation), the arbitration agreement may be terminated.
B. Termination by Performance or Expiry of the Underlying Contract
If the arbitration agreement is part of a contract, the agreement may terminate when:
The contract is fully performed or expires.
The contract is terminated by law or agreement.
Without an underlying contract or legal relationship, arbitration agreement may lose its purpose.
C. Termination Upon Final Award
The arbitration agreement terminates after the final award is made, unless the award provides otherwise.
Once the tribunal gives the final award, the arbitration is complete, and the agreement’s purpose is fulfilled.
D. Termination by Waiver or Abandonment
If parties participate in court proceedings or act in a manner inconsistent with arbitration, they may be deemed to have waived the arbitration agreement.
Abandonment or failure to initiate arbitration proceedings for a long time may amount to termination.
E. Termination Due to Illegality or Invalidity
If the arbitration agreement is declared void, illegal, or unenforceable by a competent court, it terminates.
For example, if it violates public policy or lacks essential elements (e.g., consent).
F. Termination by Setting Aside the Award
If a court sets aside the arbitral award, parties may not be bound by arbitration for the same dispute again unless they initiate a fresh arbitration.
However, the arbitration agreement itself may still survive unless explicitly terminated.
3. Legal Position under Arbitration and Conciliation Act, 1996
The Act does not explicitly deal with “termination” of arbitration agreement as a separate concept.
However, it implies termination in certain sections:
Section 31: Finality of arbitral award implies conclusion of arbitration.
Section 16(1)(b): Tribunal decides on its jurisdiction including existence and validity of arbitration agreement.
Courts interpret termination of arbitration agreement based on parties' conduct, context, and relevant contract law.
4. Relevant Case Laws
Case | Principle |
---|---|
Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014) | Arbitration agreement terminates upon issuance of final award unless otherwise agreed. |
Union of India v. G. Ganayutham (1997) | Waiver of arbitration right can be implied from conduct, amounting to termination. |
SBP & Co. v. Patel Engineering Ltd. (2005) | Court emphasized the importance of upholding arbitration agreement unless clear waiver or termination. |
McDermott International Inc. v. Burn Standard Co. Ltd. (2006) | Arbitration agreement may be terminated if parties choose alternative dispute resolution or court litigation. |
5. Summary Table
Mode of Termination | Explanation |
---|---|
Mutual Consent | Parties agree to end arbitration agreement. |
Performance/Expiry of Contract | Agreement ends with termination or expiry of underlying contract. |
Final Award | Arbitration ends on issuance of final award. |
Waiver or Abandonment | Parties' conduct shows abandonment of arbitration. |
Illegality/Invalidity | Court declares arbitration agreement void or unenforceable. |
Setting Aside Award | Award set aside may end arbitration on that dispute. |
6. Conclusion
The termination of an arbitration agreement generally occurs when the parties have either completed their arbitration obligations, mutually agreed to end arbitration, or abandoned the arbitration process.
Courts look at parties’ intention, conduct, and the status of the underlying contract.
Understanding termination is important because it affects whether parties can still seek arbitration or must resort to courts or other dispute resolution forums.
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