Arbitration and Conciliation (Amendment) Ordinance, 2020: Widening the Purview of the Act

The Arbitration and Conciliation (Amendment) Ordinance was promulgated on 4th November 2020 by the President of India to ensure that all the stakeholders get an unconditional stay on the enforcement of arbitral awards where the Court finds out that the underlying agreement or the making of the award is induced by fraud or corruption and thus, through this amendment the parties to the proceedings, who challenged the award can now be saved from the conditions that the Court may impose in the normal circumstances for the stay of award. Further, the Ordinance omits the Eighth Schedule relating to the qualification and experience of the Arbitrator, which had impliedly excluded the foreign nationals from acting as arbitrators in an Indian seated Arbitration and substitutes the Schedule with Section 43J of the Act so as to state that the accreditation for arbitrations shall now be done as per the qualifications, experience and the norms specified by the regulations.

Key Changes under the Ordinance, 2020:

  • Enforcement of the Arbitral Award

Before the 2015 Amendment,  the Arbitration and Conciliation Act, 1996 provided for a party to apply to set aside the arbitral award before a Court under Section 34, thereby resulting in an automatic stay on the arbitral award. The unenforceability of the arbitral award had caused prolonged pendency in deciding petitions, thus rescinding the intrinsic characteristic of arbitration proceedings, i.e., speedy trial and minimal Court involvements.

To cure the defect of the automatic stay, the enforceability of arbitral award under Section 36 was substituted by the Amendment Act, 2015, to provide for a separate application seeking a stay on the arbitral award; if the limitation period for making such an application (Section 36) has expired or the petition (Section 34) has been dismissed, then such an arbitral award shall be enforceable as a decree under the Civil Procedure Code, 1908. Section 36 further provides that the Amendment Act, 2015 shall be applicable on all the arbitral proceedings that commenced on or after the cut-off date of October 23, 2015 (being the date of inception of the Amendment Act, 2015).

The Supreme Court in the case of BCCI vs. Kochi Cricket Pvt. Ltd. (2016), held that although the 2015 Amendment is applicable prospectively, i.e., available only to all the Court and arbitration proceedings initiated after 23 October 2015, the substituted provision of Section 36 would apply retrospectively, i.e., to the court proceedings that have been going on even before 23rd October 2015.

The Parliament by inserting Section 87 to the Arbitration Act by the 2019 Amendment clarified that the 2015 amendments would only apply to the arbitral proceedings that commenced on or after the Cut-off Date and also to all such court proceedings that have emanated from such arbitral proceedings. The 2019 Amendment further goes on to omit or delete Section 26 of the 2015 Amendment, thereby nullifying the SC’s decision in BCCI v. Kochi Cricket and restoring its prevalent position before the 2015 Amendment i.e. providing for an automatic stay on arbitral awards where a petition is filed under Section 36 before the Cut-off Date for challenging the arbitral award. 

The insertion of Section 87 and deletion of Section 26 of the 2015 Amendment was struck down by the SC in Hindustan Construction Company Limited & Another v. Union of India & Another and the Court brought back into operation its previous decision in BCCI vs. Kochi Cricket Pvt. Ltd.

The Ordinance 2020 provides for an additional proviso which has been inserted after the proviso of Section 36(3) to the Arbitration Act, 1996. The newly added proviso provides that:

  1. An unconditional stay must be granted by the court where it is satisfied that the prima facie case of fraud or corruption has been made out.
  2. An unconditional stay must also be granted where the arbitration agreement or the award is challenged as well as proved to be induced by fraud or corruption.

Further, the Ordinance confirms ubiquitous applicability of the proviso to all the arbitration cases, irrespective of whether the arbitration or court proceedings commenced before the enactment of Arbitration and Conciliation (Amendment) Act, 2015 or initiated after its commencement, as the proviso has been inserted with a retrospective effect. 

Although the proviso would be quite helpful where the illegality of cases induced by fraud or corruption can be prima facie proved to the Court whereas it would also be tested when the parties by filing an application under Section 36 try to impede the enforceability of the arbitration award, thus causing delayed court proceedings.

The Ordinance fails to provide a check and balance system thereby encouraging unscrupulous litigants to repeatedly raise the plea of fraud or corruption with the motive of escaping their liability or obligation.

  • Amendment to Section 43J

The Arbitration and Conciliation (Amendment) Act, 2019 inserted Part 1A to the Act which provides for the constitution of an Arbitral Council of India and lays down its powers & functions in matters relating to arbitration. Section 43J of the Act stipulated the minimum qualifications and eligibility requirements for the arbitrators as specified in the Eighth Schedule.

The Ordinance 2020 has substituted a new section for the existing Section 43J of the principal Act of 1996 and provides that the qualifications, experience, and norms for accreditation of the arbitrators shall be such as may be specified by the regulations, but the ordinance remains silent on the term “regulation” and it has been left to interpretation. 

  • Omission of Eighth Schedule

Schedule Eight was inserted by the 2019 Amendment to the Act wherein it provided clarity for the standardized qualification and experience requirements for the appointment of an arbitrator in accordance with Section 43J. The Schedule VIII by stipulating the qualifications for the arbitrators which was applicable on all the India seated arbitrations thus barred various categories of persons from sitting as arbitrators in India including qualified foreign legal professionals, experts of different domains, i.e., finance expert, technical expert, etc. The Ordinance 2020 while amending the Section 43J itself, omits the Schedule and has thereby made way for different persons to act as arbitrators in arbitrations seated in India.

The Ordinance will although be quite helpful in cases where the allegations of fraud or corruption have been prima facie proved in the court, it would certainly pose a threat to the smooth functioning of enforcement of the arbitral award as the amendment is left onto the option of the non-enforcing party which seeks an unconditional stay and would thereby, may result in huge prejudice by overuse of the proviso. In this regard, the Courts need to be cautious and should thereby formulate a proper test for granting unconditional stay on the operation of arbitral award. 

This amendment doesn’t seem to be a sound arbitration policy as it has created new hurdles concerning its enforcement and it goes against the sanctity or position of the arbitration proceedings which provides for a faster mode of the dispute resolution system. The omission of the Eighth Schedule is a welcoming and positive step as earlier under the Eighth Schedule, even if a person were a deserving candidate to be accredited as an Arbitrator, they were restricted from being appointed as per the regressive policies present under the Schedule; therefore, doing away with it paves way for great opportunities ahead. 

By Rayman Kaur, Research Associate, Law, LQF