Report No. 76
2.11. Whether fresh consent required.-
There is yet another question relating to section 2(a). The definition of "arbitration agreement" in this clause may be said to comprise two branches:
(i) an agreement to submit present differences to arbitration, and
(ii) an agreement to submit future differences to arbitration.
Thus, it covers both (i) an actual submission of a particular dispute which has already arisen to the authority of a particular arbitrator, and (ii) a arbitration clause by which the parties agree that if disputes of the specified nature arise, those disputes shall be referred to arbitration. In both the cases, the arbitration is consensual, being based on an agreement between the parties. Nevertheless, some controversy has arisen on the question whether it is enough that there should be an arbitration clause to refer future differences to arbitration, or whether, after the differences have arisen, there must again be consent to the actual reference-described in the definition by the word "submit"-in the absence of which consent the arbitration would not be legally valid.
The fundamental question to be considered is this. Where, after the arbitration agreement as defined in section 2(a) has been entered into, a dispute arises between the parties, is it necessary to obtain the consent of parties again to the reference to arbitration, or is it legally permissible to rely only on the arbitration agreement? Where the arbitration agreement combines an agreement for resort to arbitration with a reference of the dispute to arbitration by that very agreement, no particular difficulty arises.
But where there is merely an agreement that the disputes arising between the parties shall be decided by arbitration-what may be called a "bare arbitration agreement"-is it necessary that when a dispute actually arises, the consent of the various parties to the reference should be again obtained? There exists a conflict of judicial opinion on the subject. In Thawardas Pherumal's case,1 it was observed by the Supreme Court as follows:-
"A reference requires the assent of 'both' sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under sub-section (4).
"In the absence of either agreement by 'both' sides about the terms of reference or an order of the court under section 20(4) compelling a reference, arbitrator is not vested with the necessary exclusive jurisdiction".
Controversy has arisen because High Courts have differed as to the precise effect of these observations.
1. Thazvardas Pherumal v. Union of India, AIR 1955 SC 468 (474, 475): (1255) 2 SCR 48 (58).