Arbitration and Conciliation (Amendment) Act 2021: Legislative Commentary

On November 4, 2020, the Government had promulgated the Arbitration and Conciliation (Amendment) Ordinance. Earlier this year in March it repealed the ordinance and replaced the same with Arbitration Conciliation Act’21. It is discerned in the ‘Statement of Objects and Reasons’ of the Amendment that these changes are made to eradicate corruption. Rajrishi Ramaswamy decodes the 2021 amendment and compares their need in light of the Arbitration Act and previous amendments.

Arbitration Conciliation Amendment 2021
Arbitration and Conciliation (Amendment) Act, 2021: Legislative Commentary

By Rajrishi Ramaswamy, a first-year law student from Symbiosis Law School, Hyderabad.

Introduction

Governance of arbitration procedures in India was initiated with the passage of the Arbitration Act, 1889. The Arbitration Act 1940 consolidated various laws that dealt with procedural aspects of different kinds of Alternate Dispute Resolution methods.

Arbitration (Protocol and Convention) Act, 1937[1] was part of the consolidation. Thereinafter, significant amendments were made to the principal Act in 1996, 2015 and 2019,[2] which were in line with the developments in international arbitration law.

On March 13, 2021, Parliament passed the Arbitration and Conciliation (Amendment) Act, 2021 (hereinafter the Amendment Act), to amend specific provisions of the principal Act,  Arbitration and Conciliation Act 1996.

The commentary will analyse the amendments made to the principal Act. The piece will also consider various stakeholders’ opinions, as well as, the observations made by multiple Indian Courts on the relevant provisions of the Act before their amendment.

Arbitration and Conciliation (Amendment) Act: Simplifying Amendments

The Amendment Act makes three amendments to the principal Act.

Though seemingly inadequate, it is pertinent to note that these amendments have been introduced as a measure against the increasing corrupt practices in securing arbitral awards. The statements of objects and reasons enlisted in the Amendment Bill introduced in the Lok Sabha reflect the same.[3]

Firstly, Section 2 of the Amendment Act introduces an amendment to Section 36 of the principal Act. Section 36 of the Principal Act deals with the execution of arbitral awards.

An arbitral award is defined under Section 2(c) of the principal Act to include an interim award.[4] Sub-section 3 of Section 36 grants power to the Courts to stay the execution of an arbitral award and provide in writing the reasons for the same. The proviso to this sub-section describes the procedure to be undertaken by the Court in cases where an arbitral award has been given in payment of money.

The Amendment Act adds a clause to this proviso, whereby the Court can also stay the arbitral award from being executed when there is prima facie evidence that the award itself, or the contract on which such award is based, was affected by fraud or corruption. The Court can unconditionally stay the award until it’s challenged under Section 34 of the Act. The Amendment Act states that this provision will come into effect retrospectively from October 23, 2015.

Through an explanation clause, it further clarifies that this amendment applies to all court cases related to arbitration proceedings, irrespective of whether or not these cases commenced before the passage of the 2015 Amendment Act.

The second amendment made by the Amendment Act through Section 3 is to Section 43J of the principal Act, through which the unamended provision is substituted by a provision that reads:

“The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”[5]

Section 43J was added to the principal Act by way of the 2019 Amendment Act.[6] The unamended Section provided that the qualifications of the arbitrators would be as per those specified in Schedule Eight of the Act.

The final amendment deleted Schedule Eight of the principal Act. The ‘Statement of Objects and Reasons’ of the Amendment Act state that this deletion had to be made to facilitate eminent arbitrators to participate in Indian arbitration proceedings, thereby ensuring that India is promoted as a ‘hub of international commercial arbitration’.[7]

Impact of the Arbitration and Conciliation (Amendment) Act on the Principal Act

Though the reasons for the amendments are clarified in the ‘Statement of Objects and Reasons’ of the Amendment Act, comparing the amendments with the provisions of the principal Act will help in understanding their effectiveness.

Early Detection of Fraud

The amendment to Section 36 is perhaps the most significant amendment brought in by the Amendment Act.

The provisions of the principal Act that dealt with fraud in the arbitral awards were ambiguous. They depended upon judicial intervention and time extensions under the Limitations Act[8] to gain meaning. One such provision is Section 17 of the Limitations Act, which states that the limitation period is postponed in cases where fraud on the part of a party has been discovered.

Another relevant provision is Section 34(3) of the principal Act. It provides a time limit of three months to make an application for setting aside the arbitral award. It further grants discretion to the Court to extend this limit by thirty days when it deems fit, ‘but not thereafter’.

The phrase ‘but not thereafter’ was contemplated by the Supreme Court in P. Radha Bai and Ors. v. P. Ashok Kumar and Anr.[9] The Court held that Section 17 of the Limitations Act would not apply to the time limit under Section 34(3) of the principal Act due to the phrase in question. By enabling Courts to stay enforcement of the arbitral awards in select cases unconditionally, the Amendment Act relives people affected due to fraudulent elements in arbitral awards.

Examples such as the Venture Global Engineering[10] case stand testament to the complications that can arise from the late discovery of fraud in arbitral awards.

In this case, fraud committed by the respondents, Tech Mahindra/Satyam Computers, was discovered three years later. As a result of which a previous arbitral award had to be revisited and accordingly set aside. The amendment to the proviso of Section 36(3) essentially helps parties in side-stepping the extra proceedings which have to be undergone to review and set aside an arbitral award.

Widening the Scope of Arbitrator Qualifications

The second and third amendments, viz. the substitution of Section 43J of the principal Act and deletion of the Eighth Schedule, are interlinked, affecting the Eighth Schedule of the principal Act.

The Eighth Schedule of the principal Act enlisted the qualifications for an arbitrator. These qualifications were mainly centred around the experience of an arbitrator as an advocate or chartered accountant or cost accountant, or company secretary.

Other such qualifications include: officer of Indian Legal Service; has been an officer with a law degree for more than ten years, among other requirements.

To be qualified under the Act, the Schedule also enlisted eight general norms to which an arbitrator was expected to adhere to.

Earlier, they were disqualified under the Act if they didn’t meet one of the criteria enlisted in the Schedule. By removing the Schedule, the Amendment Act has extended the scope of qualification to individuals with expertise or substantial experience in a specific field.

Furthermore, the amendment to Section 43J states that the qualifications of arbitrators will be based on the ‘regulations’, which, as defined under Section 2(1)(j), include regulations made by the Arbitration Council of India.[11] Granting this power to the Council instead of enlisting qualifications for arbitrators also widens the scope of appointing arbitrators who are experts across various fields and not just legal practice, chartered accountancy, etc.

On a global scale, the qualifications for arbitrators differ from one country to another. However, there are a few general principles that must be followed.

The United Nations Commission on International Trade Law’s (hereinafter UNCITRAL) 1985 Model Law on Arbitration, whilst describing the role of various involved stakeholders in arbitration proceedings, states that the qualifications of arbitrators in some cases have to be based on the person’s nationality.[12]

By amending Section 43J, the Amendment Act also provides the Commission with the freedom to consider foreign arbitrators’ appointment, backed by the UNCITRAL Model Law provisions.

Conclusion

Much like all other legislations, the Amendment Act is not without its faults. One of which is that the amendment to Section 36 adds weight to the already overburdened Indian Courts to rightly adjudge whether or not an arbitral award prima facie consists of elements of fraud.

Deleting the Eighth Schedule of the principal Act widened the scope for the appointment of foreign arbitrators and arbitrators across various fields. But it may also lead to appointing incompetent arbitrators. And the same is unfavourable for the parties, Council and Indian Courts, as they will have to verify the arbitrator’s competency again. In which case, great caution must be exercised by the Council and the parties when appointing arbitrators under the amended Act.

Despite these shortcomings, the truth is that proper execution of the amended provisions will help reduce cases in which parties to arbitration proceedings may be negatively affected by fraud in the arbitral awards. As for the second part of the Amendment Act, whether or not the Council’s regulations will help appoint ideal arbitrators, only time can tell.

 

Endnotes

[1] Sumit Kumar, Historical Growth of Arbitration in India, 11(1) Int’l. j. IT & Knowledge Management 124 (2017).

[2] Vibhor Gupta, India: Arbitration: A Perspective, Mondaq.com (May 18, 2020) https://www.mondaq.com/india/arbitration-dispute-resolution/935374/arbitration-a-perspective.

[3] Arbitration and Conciliation (Amendment) Bill, Statements of Objects and Reasons (Mar. 4, 2021).

[4] Arbitration and Conciliation Act, § 2(c) (1996).

[5] Arbitration and Conciliation (Amendment) Act, § 3 (2021).

[6] Arbitration and Conciliation (Amendment) Act, § 10 (2019).

[7] Arbitration and Conciliation (Amendment) Bill, Statements of Objects and Reasons (Mar. 4, 2021).

[8] Indian Limitations Act (1963).

[9] 13 SCC 45 (2019).

[10] 15 SCC 656 (2018).

[11] Arbitration and Conciliation Act, § 2(1)(j) (2019).

[12] UNITRAL Model on International Commercial Arbitration, art. 12 (1985).

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