The Arbitration and Conciliation (Amendment) Act, 2021, was passed into law on 11th March 2021 which follows the Arbitration and Conciliation (Amendment) Ordinance, 2020 promulgated by the President of India in November 2020.
This recent Amendment Act is an addition to the pro-arbitration outlook. This is the third amendment to the Act of 1996 in the past six years and shows the legislative intent to reform the Arbitration Act of 1996, making India an arbitration-friendly regime. The Amendment Act has sought to address the issue of corrupt practices in securing contracts or arbitral awards.
Present Amendments
The amendment has two primary changes in Act.
1.The first is to enable automatic stay on awards in certain cases where the court has prima facie evidence that the contract on which award is based was affected by ‘fraud’ and ‘corruption’.
The first Amendment is done in Section 36 of the Arbitration and Conciliation Act, 1996. A Proviso has been added to Section 36(3) of the Arbitration and Conciliation Act, 1996.
“Provided further that where the Court is satisfied that a prima facie case is made out that,—
(a) the arbitration agreement or contract which is the basis of the award; or
(b) the making of the award,
was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”
The Arbitration and Conciliation Act, 1996, before the amendment stated that, by way of an explanation to Section 34(2)(b (ii), provides that an award may be set aside if the Court is to find that the making of an arbitral award has been induced or affected by fraud or corruption i.e. is in conflict with the public policy of India.
The Act stipulated that the parties to the arbitration could approach the Court to file an application challenging such award on the grounds set forth in Section 34, which included proof of the invalidity of the arbitration agreement by the applicant party, finding of the Court that the subject matter of dispute is not capable of settlement by arbitration, etc. Importantly however, Section 36(2) clarified that an application filed therein would not automatically render the award unenforceable, and the Court had the power to grant stay of the operation of the impugned award, subject to such conditions as it may deem fit.
Now, this Amendment Act has changed this stance and has brought about a material change in the manner that applications are filed under Section 34, alleging fraud, are dealt with. The Proviso added in Section 36(3) states that if the Court is prima facie satisfied if either the arbitration agreement or contract which is the basis of the award; or the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge to the award under Section 34.
Also is has been deemed effective from October 23, 2015, the same date as the commencement of the Arbitration and Conciliation (Amendment) Act, 2015. This will have retrospective effect and apply to all cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings began prior to or after the commencement of the 2015 Amendment.
In cases where an application under Section 36(2) of the Act is pending adjudication before a court, the applicants will now have to make renewed applications based on the grounds listed in the new amendment. This is likely to involve delays and increased costs unless the courts can suo motu take notice of this new amendment and dispose of it with the filing of new submissions. There is also a concern that the proviso may be misused by certain parties to delay the enforcement of an arbitral award to their advantage.
2. The second change is the Eighth Schedule’s omission from the principal Act, which specifies the regulations, qualifications, experience, and norms for accreditation of arbitrators.
The Second Amendment has been done to Section 43J which was added by the 2019 Amendment, it stated qualifications, eligibility and norms for accreditation of arbitrators.
There has been a substitution in this section. It has been changed to –
“43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”
3. The Third Amendment that has been done to the Eighth Schedule of the Act, which provided an exhaustive list of qualifications that an arbitrator needed to possess. The Eighth Schedule has been omitted.
The Second and Third amendments which are done to Section 43J and the Eighth Schedule respectively are interlinked to one another.
The schedule also had a minimum requirement of persons with an educational qualification at degree level with ten years of experience in scientific or technical streams. Other than the professional qualifications, the Eighth Schedule also provided general norms that would apply to an arbitrator for accreditation like fairness, integrity, being impartial and neutral and so on.
These qualifications and the general norms were very broad. This section, among other things, limited the ability of qualified foreign lawyers from acting as arbitrators in India.
The 2021 Amendment act effectively means that parties are free to appoint arbitrators regardless of their qualifications. This amendment will attract eminent international arbitrators to the country and further the goal of making India a hub of international arbitration.
The amendment to Section 43J states that qualifications of arbitrators will be based on the “regulations”, which as defined under Section 2(1)(j) to include regulations made by the Arbitration Council of India. By amending Section 43J, the Amendment Act also provides the Commission, freedom to take into consideration the appointment of foreign arbitrators, backed by the UNCITRAL Model Law provisions.
