Arbitration Clause in Shareholders Agreement India – What You Need to Know
When forming a company, it is important to have a shareholders agreement in place. This agreement outlines the rights and responsibilities of the shareholders, and provides guidance for how the company will be managed. One important provision that should be included in the shareholders agreement is an arbitration clause.
An arbitration clause is a provision in the shareholders agreement that states that any disputes between the shareholders will be resolved through arbitration instead of litigation. Arbitration is a form of alternative dispute resolution that involves a neutral third party, called an arbitrator, who listens to both sides and makes a decision that both parties have agreed to abide by.
Why is an arbitration clause important?
There are several reasons why an arbitration clause is important in a shareholders agreement. First, it can help to avoid costly and time-consuming litigation. By agreeing to arbitration, the parties can resolve their disputes more quickly and efficiently, without the need for a lengthy trial.
Second, arbitration is generally considered to be a more private and confidential process than litigation. This can be important for companies that want to keep their disputes out of the public eye.
Finally, arbitration can be a more effective way to resolve disputes between shareholders. The arbitrator can make a decision that both parties have agreed to abide by, which can help to prevent further disputes down the road.
What should be included in an arbitration clause?
When drafting an arbitration clause for a shareholders agreement, there are several important provisions that should be included. These include:
1. The scope of the arbitration: The clause should specify which disputes will be subject to arbitration. This may include disputes over the interpretation or enforcement of the shareholders agreement, as well as disputes related to the management or operation of the company.
2. The selection of the arbitrator: The clause should specify how the arbitrator will be selected. This may involve selecting a specific arbitrator or using a particular arbitration service.
3. The location of the arbitration: The clause should specify where the arbitration will take place. This may be important if the parties are located in different countries.
4. The language of the arbitration: The clause should specify the language that will be used during the arbitration proceedings.
5. The rules of the arbitration: The clause should specify which rules will govern the arbitration proceedings. This may include the rules of a particular arbitration service or the rules of a specific country or jurisdiction.
Conclusion:
In conclusion, an arbitration clause is an important provision that should be included in a shareholders agreement. By agreeing to arbitration, the parties can avoid costly and time-consuming litigation, resolve their disputes more quickly and efficiently, and prevent further disputes down the road. When drafting an arbitration clause, it is important to include specific provisions that address the scope of the arbitration, the selection of the arbitrator, the location of the arbitration, the language of the arbitration, and the rules of the arbitration.