President Ram Nath Kovind on November 4 promulgated an ordinance amending the Arbitration and Conciliation Act, 1996, making changes in Article 43J (as inserted by Amendment Act 2019) and omitting the related 8th Schedule, thus, abating the stringent qualification criteria and general norms applicable to the arbitrator. The ordinance also inserts a new proviso, which will come into effect retrospectively from October 23, 2015 in Section 36 of the principal act, empowering the courts to put an unconditional stay as long as the appeal to set aside the arbitral award is pending, if such award is being given on the basis of a fraudulent agreement or corruption.
ARBITRATION AND CONCILIATION ACT, 1996
The Arbitration and Reconciliation Act, 1996 was enacted in India in view of the United Nations Commission on International Trade Law (UNCITRAL) adopting the Conciliation Rules, 1980 and also in view that it adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985. Brought in as a development to the alternative dispute mechanism in the country, the act regulates domestic arbitration in India. It revolves around the concept of resolving disputes outside courts, laying down procedures for the arbitral tribunals to use methods such as arbitration and conciliation for settlement of disputes. The act was first amended by Amendment Ordinance, 2015, granting a change in the methods of granting interim measures in an arbitration proceeding and making the arbitration proceedings time-bound, followed by the Amendment Act, 2019 and now the present ordinance.
ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2019
The Arbitration and Conciliation Amendment Ordinance 2020 ("2020 amendment ordinance") explicitly mentions that it has been enacted in order to address the concerns raised by stakeholders after the enactment of the Arbitration and Conciliation (Amendment) Act, 2019 ("2019 amendment"). This clear relation of it with the preceding amendment might raise questions in minds of the readers and thus, makes it a sine-qua-non to first briefly analyze relevant provisions of the 2019 amendment before moving on with the present one.
The key highlight of the 2019 amendment was the insertion of Part IA for establishment of Arbitration Council of India for the purpose of framing policies governing the grading of arbitral institutions, making recommendations to the Central Government on various measures to be adopted to make provision for easy resolution of commercial disputes, promoting institutional arbitration by strengthening arbitral institutions, and holding training, workshops and courses in the area of arbitration in collaboration of law firms, law universities and arbitral institutes, among others. Another key amendment was addition of 8th Schedule, prescribing categories and qualifications for becoming an arbitrator.
The 2019 amendment inserted section 43J which provided for norms for accreditation of arbitrators. Prior to this, there were no such norms and any person, mutually agreed upon by the parties to dispute, could become an arbitrator. However, after coming into force of this, only such a person could become an arbitrator, who fell within the ambit of any one or more categories prescribed in the freshly laid 8th Schedule, like being and Advocate having practiced for 10 or more years, or a Chartered Accountant having practiced for 10 or more years, or likewise. The Schedule also laid certain general norms (though vague) to be applicable to the arbitrator, such as being a person of general reputation of fairness, integrity and capable to apply objectivity in arriving at settlement of disputes, not being involved in any legal proceeding and avoiding any potential conflict connected with any dispute to be arbitrated by him, among others.
AMENDMENT ORDINANCE 2020
As has been mentioned in the Ordinance, it is primarily being enacted with two purposes: one, to address the concerns raised by stakeholders after the enactment of the 2019 amendment, and two, to ensure that all the stakeholder parties get an opportunity to seek unconditional stay of enforcement of arbitral awards where the underlying arbitration agreement or contract or making of the arbitral award are induced by fraud or corruption. To deal with the former, text in Section 43J has been substituted while omitting the 8th Schedule in entirety.
Though the provision under Section 43J were added to improve the quality of arbitration in the country, it drew criticisms from several experts on account of being unnecessarily stringent and taking away the freedom from the parties to choose their arbitrator. For instance, a person desirous of being an arbitrator, who is also mutually agreed upon by the parties due to his relationships with them and understanding of their facts and circumstances accompanied by decent knowledge of the relevant field of law, would unjustly get barred from being so if he does not fulfill the unreasonable criteria under the 8th Schedule. A person who could otherwise be an excellent arbitrator would be barred for being little short of having the practice experience of 10 years!
Another major criticism it drew was barring foreign nationals from being an arbitrators in India. Prior to coming into force of the 2019 amendment, Section 11 expressly allowed a person of any nationality to become an arbitrator, unless otherwise agreed by the parties. However now, Schedule 8 allowed only such persons who were in professions within meaning of Indian acts (example, Advocate as under Advocates Act, Chartered Accountant as under Chartered Accountants Act, and so on).
Therefore, with view to counter this, the 2020 amendment ordinance substituted the text in Section 43J while omitting the 8th Schedule. As after the amendment, Section 43J now reads: "The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations."
AMENDMENT OF SECTION 36
For addressing the latter purpose, a fresh proviso has been inserted in Section 36. Prior to the enactment of the 2020 amendment ordinance, the arbitral awards remained enforceable even if the unsatisfied party filed a suit under section 34 to set it aside, and the Court could grant a stay on it only "on conditions as it deemed fit." The aggrieved party had to bear the damages during the pendency of the suit. However now, the Courts can grant an unconditional stay as long as the appeal is pending, if the award is being given on the basis of a fraudulent agreement or corruption.
The amendment has also added a proviso, giving the changes made in Section 36 a retrospective effect from October 23, 2015, which will benefit all the parties irrespective of whether their arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.
The proviso reads:
"Provided further that where the Court is satisfied that a prima facie case is made out,-—(a) that the arbitration agreement or contract which is the basis of the award; or(b) the making of the award,was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award."
Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015."
The Government is recognizing the growing burden on courts due to the overwhelming plethora of cases and realizing the importance of alternate dispute resolution forums. As of 2019, the Supreme Court alone has over 59 thousand cases pending, while the number of cases pending at district courts stand at a whopping 3.14 crores. With the population growing at an ever-expanding rate and new cases coming at a pace only little short to the speed of light reaching earth, it is the need of the hour to constantly update these resolution forums as per the changing needs of the time. It is a welcome move that the government is cautiously studying these changing needs and making consistent efforts to improve the quality of arbitration and conciliation in the country.