Arbitration and Conciliation Act, Key Changes Introduced by 2015 Amendment to Arbitration Law

Amendments to Arbitration and Conciliation Act


Amendment to Section 36(3): Additional grounds for an unconditional stay on enforcement

Section 36 falls under Part I of the Act and deals with the enforcement of domestic arbitral awards. Part I of the Act applies where the place of arbitration is in India (Section 2(2) of the Act). If the seat of arbitration is outside India, Section 36 of the Act would not be relevant – the enforcement of that award would be subject to conditions set out in Section 48 in Part II of the Act. No amendments have been made to Section 48 of the Act. 

The Substantive Aspect

The 2020 Amendment adds a new Proviso to Section 36(3) of the Act. It reads as follows:

Provided further that where the Court is satisfy that a prima facie case is make out,-

(a) that the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induce or effect by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.

For a court to make an order under Section 36(3) (or the new Proviso) of the Act, there must be an application under Section 36(2) of the Act. That application is further dependent on the pendency of an application challenging the award under Section 34 of the Act. Section 34 does not contain any express provision for setting aside an award or refusing its enforcement if “the arbitration agreement or contract which is the basis of the award” was induced or effected by fraud or corruption.

Section 34(2)(b)

As per Section 34(2)(b)(ii) of the Act, the only ground (in cases involving allegations of fraud or corruption) to refuse enforcement is where “the making of the award” was induce or affect by fraud or corruption. Therefore, one might argue that if a ground is not available for setting aside an award, how can it be available to an applicant seeking a stay of its enforcement. 

Whether an arbitration agreement or a contract is affect by fraud or corruption is a matter of fact and ought to have been debated by the parties during the arbitration proceedings. In most cases, it would have been inquire in detail by the tribunal. To second-guess the tribunal’s reasoning and reappreciate the evidence would be contrary to the Proviso to Section 34(2A) of the Act, which states that “an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.” 

Section 34(2)(a)

Section 34(2)(a)(ii) provides for setting aside an award where “the arbitration agreement is not valid under the law to which the parties have subjected it” and therefore, an arbitration agreement induced by fraud or corruption will be void under Indian law. Given that Section 34(2A) prevents the court from setting aside an award in an international commercial arbitration even when the award is vitiate by patent illegality on the face of it,

staying the enforcement of the same award for an illegality based on fraud or corruption would give rise to absurdity.

Identifying such illegality may not be a straightforward exercise. While corruption in the “making of an award” may be identified by evaluating the tribunal’s conduct and is more a matter of procedure, corruption in procuring the underlying contract is a matter of merits and would, thus, require more than just prima facie evaluation of evidence. 

The mandate to unconditionally stay the enforcement in cases of corruption seems to lack logic or reasoning,

especially when, in other situations, the court can exercise its discretion to put any applicant to such terms,

as it deems fit, before granting any stay order.

The Procedural Aspect

The Explanation to the new Proviso to Section 36(3) of the Act makes it abundantly clear that the said Proviso shall have retrospective effect and shall be deemed to have been inserted with effect from 23 October 2015

(i.e., the date on which the 2015 Amendment came into force).

The 2020 Amendment further states that the new Proviso would apply to all court proceedings, irrespective of whether the court or underlying arbitral proceedings commenced before or after 23 October 2015. The 2020 Amendment, therefore,

settles the debate from a procedural aspect by formally acknowledging the maintainability of an application for stay of enforcement on the grounds mentioned in the newly added Proviso to Section 36(3) of the Act,

irrespective of when that application was file.

Amendment to Section 43J of the Act

The 2020 Amendment removes the Eighth Schedule altogether from the Act and replaces it with “the regulations.” It means that the accreditation of arbitrators will now be govern by the criteria lay down in these “regulations.” However, what these “regulations” might be, who would make them, by when they would be released,

are some of the questions that have been left unanswer.[1

The removal of schedule 8 would set a broad criterion for qualification of arbitrators. Therefore, the embargo on the foreign lawyers/engineers/chartered accountants, etc. will not apply while making appointment of arbitrators in

Indian seated arbitrations.[2]

Arbitration and Conciliation Act (Amendment) Bill, 2021 has recently been introduced in Lok Sabha in pursuance of the 2020 ordinance.[3]


Reference

[1]SubhikshVasudev et al., The 2020 Conciliation Act Amendment to the Indian Arbitration Act: Learning from the Past Lessons? Kluwer Arbitration Blog (2020), http://arbitrationblog.kluwerarbitration.com/2020/12/10/the-2020-amendment-to-the-indian-arbitration-act-learning-from-the-past-lessons/ (last visited Feb 11, 2021).

[2] Guest & Guest, Arbitration And Conciliation Act(Amendment) Ordinance, 2020: Will It Do More Harm Than Good?IndiaCorpLaw (2020), https://indiacorplaw.in/2020/12/arbitration-and-conciliation-amendment-ordinance-2020-will-it-do-more-harm-than-good.html (last visited Feb 11, 2021).

[3] Bill to amend arbitration and conciliation act law introduced in Lok Sabha, mint (2021),

https://www.livemint.com/news/india/bill-to-amend-arbitration-law-introduced-in-lok-sabha-11612446114076.html (last visited Feb 11, 2021).


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