Commercial habits often clash with statutory mandates. In family partitions and partnership disputes, parties frequently prefer appointing one trusted nominee each, resulting in a tribunal of two. This binary structure directly violates Section 10 of the Arbitration and Conciliation Act, 1996, which requires an odd number of arbitrators to prevent deadlocks.
While the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia ruled that such agreements remain valid if parties do not object, relying on a two-person panel creates significant procedural risks. Legacy drafts referencing the repealed 1940 Act or the concept of an “Umpire” further jeopardize enforceability. This analysis examines the structural flaws in traditional “Deed of Reference” formats, outlines the mandatory “Presiding Arbitrator” mechanism, and provides a forensic comparison between obsolete 1940-style clauses and the 2025 drafting standards required for a binding award.
The Two-Arbitrator Dilemma: Drafting an Enforceable Agreement of Reference
Commercial habits die hard. Despite Section 10 of the Arbitration and Conciliation Act, 1996 explicitly prohibiting an even number of arbitrators, agreements referring disputes to “two arbitrators” persist—especially in family partitions involving siblings. The logic is human: “I pick my person, you pick yours.”
However, this binary structure invites deadlock. If the two arbitrators disagree, the entire process collapses. The Supreme Court in Narayan Prasad Lohia v Nikunj Kumar Lohia clarified that such agreements are not void if parties waive objections, but they remain structurally flawed. Drafting a robust “Deed of Reference” requires precise mechanisms to cure this defect before it begins.
Visualizing the Structural Risk
Probability of a conclusive award based on tribunal composition.
Forensic Analysis: The “1940 Act” Template
We dissected the text of the typical “Agreement of Reference” (based on your uploaded document). It contains several clauses that are either redundant or dangerous under the current 1996 regime. Below is a clause-by-clause modernization guide.
Structural Evolution: 1940 vs 1996
| Feature | Act of 1940 (Legacy) | Act of 1996 (Current) |
|---|---|---|
| Role of Third Person | Umpire: Reserve player. Only enters if arbitrators disagree. | Presiding Arbitrator: Active captain. Sits with the tribunal from day one. |
| Decision Power | Umpire decides the whole case alone after deadlock. | Majority decision of all three members (Section 29). |
| Validity of “Two” | Statutorily recognized standard. | Prohibited by Section 10, but saved by Waiver (Section 4). |
Clause Drafting Tool
Choose a strategy to generate the appropriate clause.
The Fiscal Trap: Stamp Duty
Following the Seven-Judge Bench judgment in In Re: Interplay Between Arbitration Agreements… (2023), an unstamped arbitration agreement is inadmissible in evidence. It cannot be acted upon until the duty and penalty are paid. The “Deed of Reference” is an independent contract chargeable to duty.
Stamp Duty Estimator (Approx.)
*Estimates are for general agreements not involving transfer of immovable property title. If the reference itself partitions land, it attracts conveyance duty.
Case Law Matrix
Narayan Prasad Lohia v. Nikunj Kumar Lohia
Held that Section 10 (odd number) is derogable. Parties can waive objection to a two-arbitrator panel.
2017 SCDuro Felguera v. Gangavaram Port
Clarified that courts will only look at the existence of the agreement in Section 11 petitions.
2023 SC (7 Judge)N.N. Global Mercantile v. Indo Unique
Unstamped agreements are not void, but are curable defects. Adjudication pauses until stamping.
The “Safety First” Checklist
Before finalizing a Deed of Reference for two arbitrators, ensure these safeguards are present to prevent the agreement from becoming a “paper tiger.”
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✓Presiding Arbitrator Mechanism Does the clause explicitly mandate the appointment of a 3rd arbitrator before proceedings start?
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✓Seat vs. Venue Clarity Does the agreement distinguish between the legal Seat (Jurisdiction) and physical Venue? Avoid confusion like “Jurisdiction at Mumbai, Venue at Delhi.”
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✓Vacancy Protocol What happens if one of the specific named arbitrators dies or recuses? Include a mechanism for replacement (Section 15).
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✓Fees Schedule Refer to the Fourth Schedule of the Act or fix a lumpsum to avoid disputes over “per hearing” costs later.
Updated Deed Template (2025)
AGREEMENT OF REFERENCE TO ARBITRATION
THIS AGREEMENT is made at [City] on this [Date] day of [Month], 2025.
BETWEEN
Mr. A, aged [Age], residing at [Address] (hereinafter called "Party of the First Part");
AND
Mrs. B, aged [Age], residing at [Address] (hereinafter called "Party of the Second Part").
(The parties are hereinafter collectively referred to as "the Parties" and individually as "Party").
WHEREAS:
1. The Parties are full brother and sister.
2. The father of the Parties, late Mr. [Name], died intestate on [Date], leaving behind movable properties (bank accounts, investments, ornaments) and immovable property situated at [Address].
3. Disputes have arisen between the Parties regarding their respective shares and the partition of the said estate.
4. The Parties have agreed to refer these disputes to the arbitration of two arbitrators: Mr. X (appointed by Mr. A) and Mr. Y (appointed by Mrs. B).
NOW IT IS AGREED AS FOLLOWS:
1. REFERENCE TO ARBITRATION
The Parties hereby refer all disputes regarding the estate of late Mr. [Name], including the partition thereof, to the arbitration of Mr. X and Mr. Y ("the Arbitrators").
2. APPOINTMENT OF PRESIDING ARBITRATOR
In strict compliance with Section 11 of the Arbitration and Conciliation Act, 1996, the two named Arbitrators shall, before entering upon the reference, appoint a third arbitrator who shall act as the Presiding Arbitrator. The three arbitrators shall constitute the Arbitral Tribunal.
3. PROCEDURE
The Tribunal shall have the power to:
(a) Direct the parties to file respective claims and documents within a reasonable time.
(b) Proceed summarily if agreed, or conduct hearings personally or through Advocates.
(c) Appoint experts or valuers for the purpose of partitioning the immovable property.
4. SEAT AND VENUE
(a) The "Seat" of arbitration shall be [City, State], and courts at [City] shall have exclusive jurisdiction.
(b) The "Venue" for hearings may be decided by the Tribunal for convenience.
5. AWARD
The Tribunal shall endeavor to make their Award within 12 months from the date the Tribunal enters upon the reference (as per Section 29A). The decision of the majority of the Tribunal shall be final and binding.
6. FEES
The fees of the arbitrators shall be governed by the Fourth Schedule of the Arbitration and Conciliation Act, 1996 [OR] shall be fixed at Rs. [Amount] per session.
IN WITNESS WHEREOF the parties have signed this Agreement.
SIGNED by Mr. A: _______________
In the presence of: _______________
SIGNED by Mrs. B: _______________
In the presence of: _______________
