This is a co-authored article by Mr. Naman Sharma and Ms. Kareena Bakhtyarpuri, Fourth-year students of B.A. L.L.B (Hons.) at Institute of Law, Nirma University. This article gives an insight into the Arbitration and Conciliation (Amendment) Bill, 2021.
Arbitration and Conciliation (Amendment) Bill, 2021
Earlier this week, the Parliament has approved the Arbitration and Conciliation (Amendment) Bill, 2021 after getting approved by Rajya Sabha. The Arbitration and Conciliation (Amendment) Bill, 2021 has been passed by the Lok Sabha in the month of February 2021. The bill which has been turned into an Act[1] has already been in force through an ordinance passed by the President on November 04, 2020. It seeks to introduce some of the major developments for fulfilling the aim of legislators to make India a modern hub of domestic and international arbitration.
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By bringing some major amendments to the Act, the Act has become a topic of debate and discourse amongst the legal fraternity some of whom have gladly welcomed the amendment, while many minds are yet skeptical about the same. The Act was largely opposed; however, Parliament has passed the bill amidst all the protests. To make a long story short, the Amendment brings two major changes to the Act, one that seeks to omit Schedule VIII from the Arbitration and Conciliation Act, 1996 & provide regulations for the appointment of arbitrators, and the other which adds a proviso to Section 36(3)[2] of the Act. Moreover, the Act also aims at permitting greater flexibility to the Arbitration Council of India in order to promote institutional arbitration.
The Arbitration and Conciliation Act, 1996 was amended in 2019. Inter alia, the 2019 Amendment introduced the Schedule VIII of the Act. This schedule clearly mentions the eligibility of an individual for being appointed as an arbitrator. The schedule distinctly barred the appointment of any foreign lawyer as an arbitrator in India thereby restricting the possibility of Indian Seated International Arbitrations. This proved to be a stumbling block in making India a hub for arbitration, which is the aim of the present government.
Hence, the Schedule is sought to be omitted through the Amendment of 2021. Further, there is an addition of proviso to Section 36(3), wherein the Act mandates that the arbitration proceedings shall automatically stay if the arbitral award is challenged under Section 34, and a prima facie case of either the award or the arbitration agreement itself is induced or effected through fraud. Hence, this has mandated the Court upon staying such award from enforcement, which was earlier discretionary upon the Court.
This leads us to the necessity of a detailed contemplation and analysis of both, the amendments to the Act and its effect on the current arbitration regime in the Country.
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Omission of Schedule VIII
Schedule VIII of the Arbitration and Conciliation Act, 1996 lays down the necessary qualifications to be complied with for the appointment of a person as an arbitrator. The Schedule provides that a person must be an advocate with 10 years of experience at the bar, a Company Secretary, a Chartered Accountant, a Cost Accountant among other qualifications, one of which is necessary for appointment as an arbitrator. The check over the same has been entrusted with the Arbitration Council of India per Section 43D (2)(c) of the Act.[3] It thus creates a restriction on the parties to choose such a person as their arbitrator who fulfills these conditions and therefore limits the scope of party autonomy in the arbitral proceedings.
It is evident to note that the qualifications that were provided under the schedule reflect upon the tacit necessity of the person being an Indian citizen to be an arbitrator and hence it eliminates the possibility of foreign experts being appointed as arbitrators in India. This also tarnishes the global approach which the country should have taken by allowing the parties to choose the foreign arbitrators for domestic arbitrations. The problem also arises pertaining to creating India as a hub for commercial arbitration, as these vague provisions with limited scope certainly restrict parties from opting for Indian seated arbitration. These aspects when considered in their entirety show that the Schedule led to moving away from the aim of creating India as a hub for international arbitrations.
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Moreover, analysis of the various instruments like the International Bar Association guidelines, 2014[4] and various other rules which govern international arbitrations, show that these instruments also provide disqualifications which are of a specific nature. However, the amendment of 2019 utterly failed to recognize the same,[5] and only provided with qualifications of such arbitrators to be appointed in India. Hence, it is in light of these drawbacks which arose due to Schedule VIII of the Act, omitting the same becomes an important step taken through the 2021 Amendment to the Act.
The Amendment of 2021, by omitting the Schedule focuses on the larger objective to make the country a hub for international commercial arbitration as it eases the unnecessary restrictions brought in through Schedule VIII of the Act. This also clears the fog which persisted upon Section 11(9),[6] which allows for the appointment of a person with different nationality, due to the insertion of Schedule VIII to the Act. The Schedule was in direct conflict with the provision which has been rectified by omitting it through the present amendment. Hence, as far as an omission of the schedule is concerned the same can be considered as a very necessary and plausible step taken by the legislature to ensure compliance with the aims and objectives of the Act and synchronize the Indian arbitration with the global norms.
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Amendment to Section 36
The amendment has been welcomed and appreciated with respect to the omission of Schedule VIII of the Act, however, it is being criticized for amending Section 36 that provides automatic stay on arbitral awards. Until recently, the arbitration award could be enforced even if it was challenged in the appellate court under Section 36 of the Act however, it was discretionary upon the Court to grant a stay on the award in circumstances where it deemed fit. The amendment aims to address the corrupt practice in securing arbitral awards, to ensure that all the stakeholders get adequate opportunity to get an unconditional stay on enforcement of awards when the underlying agreement is induced by fraud or corruption.
The amendment has added a proviso to Section 36, to be applied retrospectively from October 2015. If the Court is satisfied that a prima facie case is made our or the contract is affected by fraud or corruption, it will unconditionally stay the award until the challenge made against the award is disposed of. One of the major criticisms of this amendment is that it will lead to increase litigation as the losing party may take undue advantage of this provision and challenge the award by alleging fraud/ corruption.
Consequentially, the courts will have to adjudicate upon the challenge, which ultimately leads to adding more burden on them and thus defeating the prime objective of the Act itself. Further, the parties have to cool their heels to get the award enforced. Moreover, this will undeniably have an adverse impact on the enforcement of contracts due to prolonged litigation and handicap the ease of doing business in the country. Additionally, the Act does not define what constitutes ‘fraud’ or ‘corruption’ thereby leaving room for ambiguity. However, the Law Minister has clarified that the automatic stay may not be unlimited and it will operate till disposal of an application challenging the award under Section 34[7] of the Act.
Conclusively, the move is being perceived as an interesting one, however, posing amendments to the act so frequently raises questions on the legislative wisdom. In addition to this, India hitherto lags behind in enforcing the international agreements and the proposed amendments are likely to further hamper the goals of the Make in India Campaign and impact India’s position when it comes to Ease of Doing Business. It now is pertinent to observe as to what objectives shall be fulfilled by the latest amendment and on how many pedestals will it pass in developing the current arbitration regime.
References:
[1] Arbitration and Conciliation (Amendment) Bill, 16 of 2021, (2020).
[2] Arbitration and Conciliation Act, 26 of 1996, (1996), §36(3).
[3] Arbitration and Conciliation Act, 26 of 1996, (1996), §43D(2)(c).
[4] https://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx#collapseOne, (accessed on 01.03.2021).
[5]Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd, (2017) 4 SCC 665.
[6] Arbitration and Conciliation Act, 26 of 1996, (1996), § 11(9).
[7] Arbitration and Conciliation Act, 26 of 1996, (1996), § 34.