The Arbitration and Conciliation Act, 1996 (the act) contains the provisions and laws related to domestic and international Arbitration and procedures for conciliation. On November 4, 2020, the Arbitration and Conciliation Amendment (Ordinance) 2020 was promulgated by the President of India.

The Ordinance includes clauses that give Indian courts the authority to grant an indefinite stay on the execution of a tainted award. The Ordinance also repeals provisions that required arbitrators to meet certain requirements and be accredited, effectively barring foreign nationals from serving as arbitrators in Indian-seated arbitrations.

The key features of the ordinance-
  • It has amended section 36 of the act and inserted another proviso to the section 36 subsection (3) that a court must give an unconditional stay where a prima facie case of fraud or corruption has been made out either in the making of Award or the agreement or contract that forms the basis of an arbitral award. This section is given the retrospective effect through the explanation made in the ordinance. The Ordinance specifies that a stay on the arbitral award can be provided (even during the pendency of the setting aside application) if the court is satisfied that: 
    • (i) the relevant arbitration agreement or contract, or 
    • (ii) the making of the award, was induced or affected by fraud or corruption.
  • Prior to 2015, a party contesting an arbitral award under section 34 of the Arbitration Act was allowed to an automatic stay of enforcement of the challenged award. This prompted a barrage of legal challenges aimed at delaying the implementation of arbitral awards. In 2015, Section 36 of the Arbitration Act was amended to allow for a conditional stay of arbitral awards by the judge, ensuring that an arbitral award was enforceable after a court appeal. The amendment gave courts the power to halt the enforcement of an arbitral award until such conditions were met. To discourage parties from filing frivolous challenges to arbitral awards, courts order a challenging party to deposit an amount pending the outcome of the challenge proceedings.
  • This amendment only applies to challenges to Indian-seated awards; it does not extend to international arbitral awards, which are regulated by a different section of the Arbitration Act. According to section 48 of the Arbitration Act, Indian courts have the authority to deny the implementation of an international arbitral award if they find that the award was caused or influenced by fraud.
  • The ordinance omitted the Eighth Schedule and substituted section 43-J of the Act with “Qualifications, experience, and norms for accreditation of arbitrators shall be such as may be specified by the regulations."
    • The Arbitration and Conciliation (Amendment) Act, 2019 (Amendment Act 2019) mandated the establishment of an independent body, the Arbitration Council of India (ACI), to recognize professional institutions that accredit arbitrators (section 43-J). The eighth schedule has become a source of controversy because it seems to infringe on party supremacy by limiting the parties' right to select their arbitrators. The eighth schedule has also been chastised for limiting the right of Indian-seated arbitrations to appoint international arbitrators. The eighth schedule, despite being included in the Amendment Act 2019, did not take effect.
  • The Arbitration and Conciliation (Amendment) Act, 2021 received Parliamentary approval on March 10, 2021, and is deemed to have entered into force on November 4, 2020, replacing the President of India's Arbitration and Conciliation (Amendment) Ordinance, 2020.
Thus, the amendment to section 36 of the Ordinance reaffirms the reasons for setting aside an award under section 34 of the Arbitration Act, as well as providing grounds for parties to request an unconditional stay on the award's compliance. Since section 36 was used to postpone the execution and implementation of arbitral awards prior to the reform in 2015, this clause may be abused. The removal of the eighth schedule, on the other hand, is a welcome step by the government. Although the Ordinance amends the Arbitration Act to specify that arbitrator qualifications may be determined by legislation, no such regulations have yet been published.

About the Author: This Law Notes is prepared by Mr. Avinash Singh, law student at Delhi Metropolitan Education, Noida and is an intern at MyLawman. He can be reached at singhk.avinash4@gmail.com.

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