A Journey to Arbitration and Conciliation (Amendment) Ordinance, 2020: A Critical Analysis[1]

Introduction

President of India, Shri Ram Nath Kovind promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020 on 04th November, 2020 (Amendment Ordinance, 2020) thereby amending the Arbitration and Conciliation Act, 1996 (Arbitration Act) third time.

The Government of India by introducing the Amendment Ordinance, 2020, has brought in new changes to the provisions of existing Arbitration Law interalia relating to enforcement of domestic arbitral awards and qualification, accreditations and experience of arbitrators.

Background

The Arbitration Act was introduced to make the Indian arbitration law in consonance with the UNCITRAL Model Law on International Commercial Arbitration, 1985 (“Model Law”). With the passage of time, Indians have extended their arms globally to the industry and Commerce sector and have started various commercial ventures in different jurisdictions, making India an attraction for entrepreneurs from all over the world resulting into the significant increase in the commercial transactions and documentations involving laws applicable in India and other jurisdictions. This in-turn has also given birth to the disputes involving Indian and foreign parties. Resolution of such disputes through arbitration is a well accepted, appreciated and recognised practice. Thus, the new Arbitration Act which is compatible with the International arbitration laws and practices was the need of the time.

To achieve the goal set by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”), UNCITRAL introduced the Model Law and expected its signatories to follow principally the same in their countries as well and as such in India, the Arbitration Act was presented in place of the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and Foreign Awards (Recognition and Enforcement) Act, 1961, to make the then existing arbitration laws in line with the international practice.

However, the Arbitration Act was found lacking in achieving the goals set by the legislature, as the arbitration instead of becoming an alternative for litigation, became more time and money consuming process, thereby frustrating the entire object of its introduction and hence it was amended by Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act, 2015”),  bringing in it significant changes  including insertion of new Section 11A,  Section 29A and 29B, Section 31A, Fourth, Fifth, Sixth and Seventh Schedules, substitution of new section for Section 36 and amendment of various sections to carve out the torment of uncontrolled long proceedings before the Tribunals.

Section 29A introduced in the Amendment Act, 2015 to control the timelines for the arbitration proceedings was not appreciated by the international community in view of the time consumed in deciding sizeable claims involving voluminous pleadings and documents, especially in international commercial arbitrations. There has also been a demand from the industry and other sectors to systematize the arbitral proceedings by promoting institutional arbitration, to develop an arbitral institution which should have presence all over the country with same set of rules and regulations and also to ensure that professionals and experts from various sectors, and educationists get proper opportunity to grow as arbitrators. Amendments made by Amendment Act, 2015 could also not achieve the craved objectives of the Arbitration law and as such once again a need was felt to make amendments in the Arbitration Act.

Thus, Arbitration and Conciliation (Amendment), 2019 (“Amendment Act, 2019”) was introduced making further amendments in various provisions, with special emphasis to Sections 11, 29A, 34 and 37 and inserting new provisions like Section 42A, 42B, Section 87. A new Part IA was inducted for creation of ‘Arbitration Council of India’ and ‘Eighth Schedule’ for laying down qualifications, experience and norms for accreditation of arbitrators. Purpose for the same was writ large. The legislature wanted to move forward and make efforts for arbitration to become more popular, friendly to public at large and an effective alternative to litigation. The Amendment also carved out an opening for various professionals and experts like advocates, chartered accountants, cost accountants, company secretaries, etc. in arbitration by formulating educational and experiential parameter for them to become an arbitrator.

To attain the objective set forth in Part IA and to make arbitration more institution affable, the legislature also introduced the New Delhi International Arbitration Centre Act, 2019 to inspire confidence and credibility in Indian arbitration system among the litigants of domestic and international community.

Unfortunately, prior to the implementation of a major portion of amendments made vide Amendment Act 2019, the Amendment Ordinance 2020, was introduced.  It has brought the changes in Section 36 and Section 43J besides omitting the Eighth Schedule.

A Glimpse of Amendments made by Amendment Ordinance, 2020

Amendment to Section 36

Section 36 of the Arbitration Act talks about enforcement of domestic arbitral awards. It creates a legal fiction that an arbitral award is a decree of Court of law. With this amendment, second proviso to sub-section (3) has been added to Section 36 which reads as follows:

Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that 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.

Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015”

Insertion of this sub-section empowers the Courts to put a stay on enforcement of arbitral awards unconditionally till the application for setting aside the arbitral award made under Section 34 of the Arbitration Act is not disposed off, provided the applicant is able to show that prima facie the arbitration agreement or contract which is the basis of the award or the making of the award is influenced by fraud or corruption.

The legislature has made this provision applicable with retrospective effect. It would  be applicable on  all court cases arising out of or in relation to the arbitral proceedings irrespective of the fact whether the arbitral or court proceedings started prior to or after the Amendment Act, 2015.

The provision relating to stay on enforcement of the arbitral awards on certain conditions were incorporated firstly by Amendment Act, 2015. Before that, there was an automatic stay on enforcement of an arbitral award on filing of application to set the arbitral award aside under section 34 of the Arbitration Act. The Amendment Act, 2015 mandated to file a separate application for stay on enforcement of award and such stay is granted by the Courts only when the applicant fulfils the parameters of amended Section 36. The net result of it is that if stay on enforcement is not granted and the application under Section 34 is pending, the award is enforceable. This provision still exists, although, now in cases where prima facie case of fraud and corruption is made out in making of arbitration agreement or contract which is the basis of the award or in making of the award, the Courts will have to grant stay over the enforcement of such award unconditionally till the application to set aside such an award is disposed of. The parties victim of fraud or corruption were earlier at a disadvantageous position on getting the award enforced during pendency of Section 34 application, now would get a sigh of relief with this amendment.

However, due to the new added proviso to section 36 of the Arbitration Act, a few issues may crept up for determination by the Court while enforcing an arbitral award.

Should the Court entertain objection that the arbitration agreement was induced or affected by fraud or corruption at the time of enforcement of the award when the party raising such objection never raised the same before the tribunal?

Should the Court entertain the additional documents beyond the record of the arbitral tribunal to adjudge the allegations of fraud or corruption during arbitral award enforcement proceedings in view of the fact that unlike section 34(2)(a), section 36 does not require parties to confine themselves only to the record of the arbitral tribunal?

Should the Court set aside the award under section 34(2)(b)(ii) being in conflict with the public policy of India without going into its merits, if the Court prima facie finds in the arbitral award enforcement proceedings that the arbitration agreement or award was induced or affected by fraud or corruption?

All such issues would be adjudicated and determined as and when the same will be raised before the Courts.

Amendment to Section 43J and omission of Eighth Schedule

Section 43J of the Arbitration Act was introduced by Amendment Act, 2019 which reads as follows:

“The qualifications, experience and norms for accreditation of arbitrators shall be such as specified in the Eighth Schedule:

Provided that the Central Government may, after consultation with the Council, by notification in the Official Gazette, amend the Eighth Schedule and thereupon, the Eighth Schedule shall be deemed to have been amended accordingly.”

The Amendment Ordinance, 2020 changed the section and now it states:

“43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”

The Amendment Ordinance, 2020 also omitted Eighth Schedule of the Act which was introduced vide Amendment Act, 2019. Earlier this schedule provided the criteria in terms of qualifications and experience of a person for appointment as an arbitrator but now it will be specified by the regulations. Powers to make regulations are vested with Arbitration Council of India and under Section 43L, the Council may in consultation with the Central Government, make regulations, consistent with the provisions of the Arbitration Act.

This amendment has brought the issue of arbitrator’s qualifications and experience at a stage where it was prior to the law made by the Amendment Act, 2019. As enumerated in Section 43L of the Amendment Act, 2019, the Regulations may be framed by the Arbitration Council of India only. Since Arbitration Council of India has not been constituted till now, no regulation has been made for appointment of an arbitrator.  Thus till the time there are no Regulations in place, there will remain a void about this important aspect in the Arbitration law.

Eighth Schedule introduced by Amendment Act, 2019 had given a ray of hope to the professionals working in different domains like Advocates, Chartered Accountants, Company Secretaries, Cost Accountants, etc. to have a chance of becoming an arbitrator. This became a reason for celebration for such professionals and for their institutions as well. Their institutions even had started courses on Alternative Dispute Resolution to make these professionals capable to accept the challenge, if they were appointed as arbitrators.   This move was also appreciated and welcomed by the domestic/ international arbitral fraternity considering that it might have brought a phenomenal change in Indian arbitration where prominently arbitrators are appointed from retired judges leaving virtually no scope for other professionals to develop as arbitrators.  However, it appears that their joy was short lived and the reason for bringing out this amendment remains unanswered.  There is a general guesstimate in the legal fraternity that the Eighth Schedule was acting as a barrier in the way of appointment of foreign nationals as arbitrators and as such met this untimely fate. If it is the reason, it could be achieved by a minor amendment in the Schedule instead of omitting it. The omission of Eighth Schedule in entirety is highly disappointing for all professionals and experts who were fit to be appointed as an arbitrator as per the parameters set therein.

Undoubtedly, the move to make the arbitration friendly atmosphere amongst the litigants and the professionals has got a set back by omission of the Eighth Schedule.

Conclusion

The Amendment Ordinance, 2020 has a dual effect as it gives relief to the parties who become prey of fraud or corruption in execution of the arbitration agreement or contract which is the basis of the award or in making of the award provided they are able to show prima facie to that effect. By virtue of the present amendments, such aggrieved parties are entitled to stay of the award unconditionally pending disposal of their application under Section 34 of the Arbitration Act in all court cases arising out or in relation to the arbitral proceedings irrespective of the fact whether arbitral or court proceedings were commenced prior or after the commencement of the Amendment Act 2015.

However, on the other hand, it takes away joy and pleasure of the professionals and experts who were qualified for appointment as an arbitrator as per the parameters given in the Eighth Schedule and as such is disappointing for them. It brings us to a situation of ambivalence where the parties are unaware about the regulations in relation to qualification of arbitrators. It is hoped by legal community that the clouds of uncertainty would be eradicated by the legislature shortly.

Authors: [1] Mr. Ashok Kumar Singh, Senior Advocate (Supreme Court of India); Ms. Saloni Singh, Advocate and Ms. Aparna Tripathi, Advocate.

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Qualification: LL.B / Advocate
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Location: New Delhi, IN
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One Comment

  1. Anjali Tripathi says:

    The matter in the article has been explained in substantial detail. The research invested is also worth noting. Exceptional work!

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