Changes to Arbitration law may open a can of worms

The Arbitration & Conciliation (Amendment) Bill, 2021
The Arbitration & Conciliation (Amendment) Bill, 2021 does not define the terms ‘fraud’ and ‘corruption’, allowing losing parties to obtain an automatic stay on enforcement of an arbitral award.

By Navnit Kumar

India has had an arbitration-friendly environment since the ancient times. In fact, in ancient and medieval India, people had the tendency to refer their disputes to a third party for an amicable settlement. Then the codified laws came into existence. British India enacted its first Arbitration Act in the year 1899 and later the Arbitration Act, 1940 came into existence. The Act had various shortcomings such as it allowed courts to interfere at each and every stage of the proceedings, thereby frustrating the entire purpose of the Act.

India needed a very robust and strong arbitration scheme to catch up with the changing world order. Therefore, the Arbitration & Conciliation Act was enacted in the year 1996 and was based on UNCITRAL Model Law on Internal Commercial Arbitration, 1985 and UNCITRAL Conciliation Rules, 1980. The Act sought to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards as well as to define the law relating to conciliation and for matters connected therewith or incidental thereto.

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Arbitration law: Major changes made in 2015

With the advent of the Act in the year 1996, it was thought that India will move towards a very speedy and effective alternate dispute resolution mechanism. However, experience shows that arbitration proceedings started taking years, jeopardizing the very objective of the said Act. This prompted Indian Parliament to enact the Amendment Act in 2015, bringing in sweeping changes.

The 2015 Act was introduced to make arbitration process litigant-friendly, cost effective and to ensure fast disposal. The Act was amended again in 2019 to address the practical difficulties that arose in the implementation of the amendments.

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Arbitration & Conciliation (Amendment) Bill

The Arbitration & Conciliation (Amendment) Bill, 2021 was introduced in the Lok Sabha on February 4, 2021 and was passed on February 12, 2021 by a voice vote. It is pertinent to mention here that the Amendment Bill was already in force by way of an Ordinance promulgated on November 4, 2020. The two major amendments proposed by the Arbitration & Conciliation (Amendment) Bill, 2021 are as follows: –

  • It enables automatic stay on awards in certain cases; and
  • Specifies by regulations the qualifications, experience, and norms for accreditation of arbitrators.

The Amendment Bill provided that where the Court is prima facie satisfied that an arbitration agreement or contract that forms the basis of an award or the award itself was induced by fraud or corruption; it will stay the award unconditionally pending disposal of the challenge under section 34 to the award. Further, it has also added a proviso to Section 36 of the Act stating that the 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.

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Further, the Amendment Bill also did away with the 8th Schedule of the Act that contained the necessary qualifications and accreditation of arbitrators. There are certain grey areas in the Amendment Bill as well.

  • The Act per se does not define the terms “fraud” and “corruption”. Therefore, it will be difficult to ascertain what tantamount to fraud or corruption in a particular case.
  • Losing parties may allege fraud or corruption to obtain an automatic stay on enforcement of an arbitral award. This will lead to the parties to wait for the enforcement of the award till the final disposal of the matter by Court, which can take years. This will defeat the very purpose of a speedy and efficacious alternate dispute resolution mechanism and will result into prolonged litigations.
  • The retrospective application of the Amendment Act is likely to open a pandora’s box and may lead to multiple litigations.
  • It may adversely affect the business-friendly image of the country.

Frequent amendments to laws will raise questions about the seriousness of the law-making process in a country. This will also set back the government’s efforts to make India a major hub for international and domestic arbitration. It will be interesting to see how the arbitration scheme of our country unfolds in the near future.

(Navnit Kumar is a Partner with Corporate Law Group and heads its litigation practice. Views are personal)

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