The Arbitration and Conciliation (Amendment) Act, 2021

On March 10, 2021, the Arbitration and Conciliation (Amendment) Act, 2021 (“Amendment Act“) gained Parliamentary assent and is deemed to have come into force on November 04, 2020, thereby replacing the Arbitration and Conciliation (Amendment) Ordinance, 2020 promulgated by the President of India on November 04, 2020, which we wrote on here. As elucidated upon in the statement of objects and reasons, the Amendment Act has sought to address the issue of corrupt practices in securing contracts or arbitral awards.

The Arbitration and Conciliation Act, 1996 (“Act“), by way of an explanation to Section 34(2)(b)(ii), provides that an award may be set aside if the Court is to find that the making of an arbitral award has been induced or affected by fraud or corruption i.e. is in conflict with the public policy of India. Prior to the enactment of the Amendment Act, the Act stipulated that the parties to the arbitration could approach the Court to file an application challenging such award on the grounds set forth in Section 34, which include, inter alia, proof of invalidity of the arbitration agreement by the applicant party, finding of the Court that the subject matter of dispute is not capable of settlement by arbitration, etc. Importantly however, Section 36(2) clarified that an application filed therein would not automatically render the award unenforceable, and the Court had the power to grant stay of the operation of the impugned award, subject to such conditions as it may deem fit¹.

The Amendment Act, in its turn, has departed from the earlier position and effected a material change in the manner that applications filed under Section 34, alleging fraud, are dealt with. It has inserted a proviso to Section 36(3), deemed effective from October 23, 2015, the same date as the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment“), to ensure that in instances where the Court is prima facie satisfied that a case is made out that either (i) the arbitration agreement or contract which is the basis of the award; or (ii) the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge to the award under Section 34. There is a concern that the proviso may be misused by certain parties to delay the enforcement of an arbitral award to their advantage.

The Court further stated that the amendment to Section 36(3), as contained hereinabove, will have retrospective effect and apply to all cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings began prior to or after the commencement of the 2015 Amendment.

Furthermore, the Amendment Act has substituted Section 43J of the Act, which was introduced by way of an amendment to the Act in 2019 (“2019 Amendment“). Under the 2019 Amendment, the newly inserted Section 43J stated that the qualifications, experience and norms for accreditation of arbitrators will be as specified in the Eighth Schedule of the 2019 Amendment. The Eighth Schedule prescribed an exhaustive list of qualifications, which an arbitrator would need to possess, which included, inter alia, an advocate, a chartered accountant/cost accountant, company secretary, officer within engineering degree, person with educational qualification at degree level with 10 (ten) years of experience in scientific or technical streams, etc. Oher than setting forth the professional qualifications of an arbitrator, the Eighth Schedule also provided for general norms that would be applicable to an arbitrator for accreditation, such as:

(i)      an arbitrator shall be a person of general reputation of fairness, integrity, and capable of applying objectivity in arriving at settlement of disputes;

(ii)     an arbitrator must be impartial and neutral and avoid entering into any financial business or other relationship that is likely to affect impartiality or might reasonably create an appearance of partiality or bias amongst the parties;

(iii)    an arbitrator should avoid any potential conflict; and

(iv)  the arbitrator should be capable of suggesting, recommending or writing a reasoned and enforceable arbitral award in any dispute which comes before him for adjudication².

As may be evident, the Eight Schedule was extensive in its stipulation of standards for arbitrators. The 2019 Amendment was however critiqued precisely due to the introduction of such norms as they were deemed to be quite restrictive and contrary to the nature of arbitration itself, which has always been intrinsically associated with party autonomy. In addition, it was noted that the 2019 Amendment left no room for foreign qualified professionals to be appointed in India-seated arbitrations, which would heavily compromise the freedom of parties to opt for arbitrator(s) of their choice.

In view of the same, the Amendment Act has done away with the Eighth Schedule and replaced the erstwhile Section 43J with the following language: “The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations“³. It is apparent that the Amendment Act has sought to rectify the over-prescription of the 2019 Amendment, as in its memorandum regarding such delegated legislation, it recognises that the matters in which the regulations may be made are matter of procedure and administrative details and it is not practical to provide for them in the Amendment Act itself.

¹ Section 36(3), Arbitration and Conciliation Act, 1996.

² The Eighth Schedule, Arbitration and Conciliation (Amendment) Act, 2019.

³ Section 3, the Arbitration and Conciliation (Amendment) Act, 2021.