Arbitration And Conciliation (Amendment) Bill, 2021: An Overview

KEY TAKEAWAYS

  • Arbitration and Conciliation (Amendment) Bill was presented in the Lok Sabha on 4th February 2021.
  • The Bill seeks to do away with Arbitration and Conciliation Ordinance, 2020.
  • Key amendments were made in Section 34, Section 43J, and omission of the 8th Schedule of the Act
  • The Bill claims that all stakeholders get an opportunity to seek unconditional stay on enforcement of arbitral awards where the agreement or contract is "induced by fraud or corruption"

INTRODUCTION OF THE BILL IN LOK SABHA

Amidst the mayhem in Lok Sabha on account of the Farm Bills, the Law Minister Ravi Shankar Prasad on behalf of the Union Government introduced the Arbitration and Conciliation (Amendment) Bill 2021 in the Lok Sabha on 4th February 2021. The vision of the Government is to empower judicial courts to grant unconditional stays on the enforcement of arbitration awards tainted by fraud or corruption through the new bill. “The bill seeks to check fly-by-night operators who take advantage of the law to get favourable award by fraud”, stated the Law Minister. The Bill intends to replace an ordinance issued on November 4, 2020

ALTERNATE DISPUTE RESOLUTION LEGISLATIONS IN INDIA: A SYNOPSIS

Prior to the implementation of the Arbitration and Conciliation Act, 1996, Section 89 of the Civil Procedure Code and The Legal Services Authority Act, 1987 governed Alternate Dispute Resolution (hereinafter referred to as ADR) in India.  Section 89 of the Civil Procedure Code 1908 provides an opportunity to the people to opt for modes of out-of-court settlement in the form of: Arbitration, Conciliation, Mediation or Lok Adalat.

ADR is also in coherence with fundamental rights enshrined under Articles 14 and 21. Article 14 of the Constitution guarantees Right to Equality which means equality before the law and equal protection of law and in the course of its interpretation, it is submitted that all citizens have an equal right to seek legal remedies. Furthermore, by the wider interpretation of article 21 (which warrants for right to life and personal liberty, it is additionally submitted that speedy justice is a fundamental right guaranteed under article 21 of the Indian Constitution (as upheld in Hussainara Khatoon vs Home secretary, State of Bihar).

Eventually, The Arbitration and Concilliation Act, 1996 was passed. This Act established provisions for International Commercial arbitration, domestic arbitration, institutional arbitration and also for enforcement of foreign Arbitral awards. It is based on the UN model law so as to equate with the law adopted by the United Nations Commission on International Trade Law (UNCITRAL).

However, the Act was amended multiple times until an Ordinance was issued by President Ram Nath Kovind on 4th November 2020.  The Ordinance amended Sections 36 (enforcement) and 43-J (norms for accreditation) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). A provision inserted by the Ordinance provides that the court, if satisfied that a prima facie case has been made out, shall stay the award unconditionally pending disposal of the challenge under Section 34 (Application for setting aside arbitral award) of the Arbitration Act. The Ordinance also omitted the Eighth Schedule of the Arbitration Act, which deals with qualifications and experience of arbitrators. This provision had faced criticism from some quarters that the conditions prescribed in the law came in way of India getting the benefit of having foreign arbitrators.

SALIENT FEATURES OF THE NEW BILL

  1. The Arbitration and Conciliation (Amendment) Bill 2021 inter alia intends to repeal the 8th Schedule of the Act which contained the necessary qualifications for accreditation of arbitrators.
  2. The qualifications for accreditation of arbitrators are proposed to be prescribed by regulations to be framed by an Arbitration Council to be set up. The provision will come into effect retrospectively from October 23, 2015 as per the Bill proposed to be moved in the House.
  3. Hitherto, an arbitration award was enforceable even if an appeal was filed against it in the court under Section 36 of the law. However, the courts could grant a stay on the award on conditions as it deemed fit. As per the proposed amendment, if the award is being given on the basis of an agreement based on fraud or corruption, then the court will not impose a condition to stay the award and grant an unconditional stay during the pendency of the appeal if it has been challenged under Section 34 of the arbitration law.
  4. The bill, according to the statement of objects and reasons, therefore provides for "unconditional stay of enforcement of arbitral awards, where the underlying arbitration agreement, contracts or arbitral award is induced by fraud or corruption".
  5. Additionally, the Statement of Objects and Reasons also states that the Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Act), inter alia, to make arbitration process user friendly, cost effective and ensure speedy disposal and neutrality of arbitrators. 

CRITICISM

The Bill has certain loopholes and has been criticized in the Lok Sabha by the opposition members including Biju Janata Dal MP Bhartruhari Mahtab. It has been observed that the Bill has certain ambiguities, such as Section 34 does not contain any express provision for setting aside an arbitral award, or refusing its enforcement. The lack of availability for grounds of enforcement in case the arbitration agreement or contract which is the basis of the award was induced or affected by fraud or corruption will be a predicament for the applicant seeking such enforcement. It was also observed that Section 34 and Section 36 are not in consonance with one another, and that the languages of that Sections 36 is in conflict with that of Section 34.

Additionally, the mandate to unconditionally stay the enforcement in cases of corruption lacks logic or reasoning; when the court can exercise its discretion in this regard before granting any stay order. This reverses the effect of the 2015 Amendment which had done away with the automatic stay of enforcement/arbitral award upon being challenged under Section 34 of the Act. Moreover, the Government has given no reason for this major step backwards.

CONCLUSION

The Amendment Bill, 2021 may have a dual effect as it gives relief to the parties who become prey of fraud or corruption in execution of the arbitration agreement or contract which is the basis of the award or in making of the award provided they are able to show prima facie to that effect. Although the government today introduced a bill in Lok Sabha to amend the arbitration law to ensure that all stakeholders get an opportunity to seek an unconditional stay on enforcement of arbitral awards where the agreement or contract is 'induced by fraud or corruption', the Bill is facing its challenges and receiving heavy criticisms. Furthermore, it takes away contentment of the professionals and experts who were qualified for appointment as an arbitrator as per the parameters given in the Eighth Schedule and as such is disappointing for them. Whether the Bill is a boon or a bane to the ADR systems in India, only time will tell.

 

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