Article on Recent Amendment in Arbitration and Conciliation Act, 1996

By Atishay Tripathi, 

Sem 6, BBA-LLB (H)

Amity Law School, Amity University Jharkhand

The President of India has proclaimed Arbitration and Conciliation (Amendment) Ordinance, 2020 (Ordinance) to further amend the Arbitration and Conciliation Act, 1996 (Act). The ordinance ensures that each one the stakeholders get a chance to hunt unconditional stay of enforcement of arbitral awards where the underlying arbitration agreement or making of arbitral award is induced by fraud or corruption.

By the Arbitration and Conciliation (Amendment) Ordinance, 2020 (Ordinance), issued on 4 November 2020, the govt has, inter alia, amended Section 36 of the Act to supply for an unconditional stay of an arbitral award if the Court is satisfied that a clear case is formed out that the arbitration agreement or the making of the award was induced or effected by fraud or corruption, pending disposal of the challenge under Section 34 to the arbitral award. The Ordinance has also omitted the Eighth Schedule (which associated with qualifications and knowledge of arbitrators) from the Act. The Ordinance has inherited force with immediate effect.

The changes made are:

First, for a court to form 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 hooked in to the pendency of an application challenging the award under Section 34 of the Act.

Secondly, whether an arbitration agreement or a contract is suffering from fraud or corruption may be a matter of fact and need to are debated by the parties during the arbitration proceedings. In most cases, it might be inquired intimately 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 put aside merely on the bottom of an erroneous application of the law or by reappreciation of evidence.”

Thirdly, a possible counter-argument could also be that Section 34(2)(a)(ii) provides for setting aside a gift where “the arbitration agreement isn't valid under the law to which the parties have subjected it” and thus, an arbitration agreement induced by fraud or corruption are going to be void under Indian law

Lastly, 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 place any applicant to such terms, because it deems fit, before granting any stay order.

The Ordinance will prove quite helpful in cases where inherent illegality by fraud or corruption has been 'prima-facie' shown in court. However, it'll be interesting to ascertain how courts interpret the burden of proving a 'prima-facie' case of fraud or corruption.

The Ordinance also will be tested in instances where parties use it to stall the operation of a gift by filing a neighbourhood 36 application and waste precious court time. Courts will need to take care in formulating a test for granting an unconditional stay the operation of the award.

Conclusion:

What is evident is that the intent of the Indian government in streamlining its arbitration regime through a flurry of amendments within the previous couple of years, particularly after a stalemate of 19 years since the Act was enacted in 1996. On a positive note, it confirms that the concerns of the international arbitration community are reaching the ears of Indian policy-makers, who aren't only taking them under consideration but are keeping an open-minded approach in rectifying past errors when needed. Until subsequent amendment, we will keep our fingers crossed.