On 4 November 2020, the Indian Ministry of Law and Justice passed an ordinance to amend the Arbitration and Conciliation Act, 1996 (the Act). This article considers the key changes arising out of those amendments.
The Act introduces two key changes (the Amendments):
- It grants Indian courts the power under section 36 to grant an unconditional stay on enforcement (until a challenge to the award under section 34 is disposed of) of an arbitral award passed in Indian-seated arbitration proceedings, provided that the court is satisfied that there is a prima facie case that the arbitration agreement, the contract on which the award is based, or the arbitral award itself, was induced or effected by fraud or corruption; and
- It omits the detailed criteria for accreditation of arbitrators introduced by the 2019 amendments to the Act contained in the Eight Schedule.
Power to stay enforcement for fraud or corruption
Under the pre-existing statutory framework, an Indian court has the power under section 36 of the Act to stay the enforcement of a commercial arbitral award “subject to such conditions as it may deem fit…have[ing] due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908.” This has generally been interpreted as a wide power available to the courts to consider a range of circumstances and factors in an application for a stay on enforcement. It covers the circumstances specified by the 2020 amendments. A party may also challenge an award on the basis of fraud or corruption under the “public policy” grounds section 34 of the Act (Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996). Consequently, the need for the new amendment to section 36 is not immediately clear.
There are concerns however, that the amendment is likely to allow further delay of enforcement of arbitral awards in India. At the outset of an Indian-seated arbitration, respondents may seek to plead that the underlying contract was induced by fraud and/or corruption, in order to provide future grounds for a stay on the enforcement of an unfavourable award. The amendment has also been made with retrospective effective, and shall be “deemed to have been inserted with effect from 23 October 2015”. It is therefore likely that the Indian courts will see a flood of new applications seeking to stay enforcement proceedings involving arbitral awards passed after that date which are currently under challenge on the grounds set out in section 34 of the Act.
In any event, it remains uncertain how the Indian courts will take a “prima facie” view in relation to the involvement of fraud or corruption in the contract, arbitration agreement or arbitral award, at the enforcement stage. If this issue has not been previously raised between the parties, it may be difficult for courts to form a preliminary view without asking parties to produce detailed evidence in support of their positions.
Deletion of the Eight Schedule to the Act
Previous amendments to the Act in 2019 introduced the Eight Schedule. The Eight Schedule, however, was not “notified” by the Government of India and consequently did not come into effect. The Eight Schedule set out certain eligibility requirements for the accreditation of an individual as an arbitrator in Indian-seated arbitrations. It faced criticism that in doing so, it restricted party-autonomy and curtailed parties’ ability to choose their own arbitrators. In particular, the requirements in the Eight Schedule effectively barred the appointment of a foreign lawyer as an arbitrator, thereby dissuading some commercial parties from choosing India as a seat of arbitration.
The 2020 amendments to the Act delete the Eight Schedule. Section 43J of the Act now states that “The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations [prepared by the Arbitration Council of India].”. This too is a welcome development.
The Amendments are the latest in a series of changes to the Act since 2015. These amendments have been received with mixed reviews. While the deletion of the restrictive requirements in the Eight Schedule is a welcome step, the amendments to section 36 may act to further delay the enforcement of awards in Indian-seated arbitrations.
With thanks to Aman Tandon, trainee, for his contribution to this article.
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