On 4 November 2020, the President of India promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020 (Ordinance), which amends sections 36 (Enforcement) and 43-J (Norms for accreditation) of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The Ordinance also omits the eighth schedule of the Arbitration Act, which deals with qualifications and experience of arbitrators.
The Ordinance introduces provisions that empower Indian courts to grant an unconditional stay on the enforcement of an award tainted by fraud. The Ordinance also removes provisions that prescribed qualifications and accreditation of arbitrators, which had effectively excluded foreign nationals from acting as arbitrators in Indian seated arbitrations. The qualifications are now to be specified by regulations which are yet to be notified.
Unconditional stay of enforcement of arbitral award if the court finds fraud or corruption
Prior to 2015, a party challenging an arbitral award under section 34 of the Arbitration Act could benefit from an automatic stay against enforcement of the award under challenge. This resulted in an onslaught of challenges to stall the enforcement of arbitral awards. Taking note of the prevalence of such challenges, Section 36 of the Arbitration Act was amended in 2015 to provide for a conditional stay of arbitral awards by the court to ensure that an arbitral award was enforceable despite an appeal filed against it in the court. The amendment empowered courts to stay the operation of the arbitral award, subject to conditions deemed fit. Further, to deter parties from filing unwarranted challenges to arbitral awards, the courts could direct a challenging party to deposit a sum pending the determination of the challenge proceedings.
The Ordinance now amends section 36 of the Arbitration Act and provides parties with 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. The proviso inserted by the Ordinance stipulates 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.
Notably, the amendment is deemed to be effective from 23 October 2013. Since the proviso has retrospective application, an explanation has been inserted to clarify that the 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.
This amendment addresses challenges to Indian seated awards, and it does not apply to the enforcement of foreign arbitral awards, which is governed by a separate part of the Arbitration Act. Indian courts have the jurisdiction to refuse enforcement of a foreign arbitral award where it finds that the award was induced or affected by fraud as per section 48 of the Arbitration Act.
Accreditation of arbitrators
On 9 August 2019, the Arbitration and Conciliation (Amendment) Act, 2019 (Amendment Act 2019) stipulated the creation of an independent body, the Arbitration Council of India (ACI), which will be responsible for recognizing professional institutions which accredit arbitrators (section 43-J). Section 43-J is covered under Part I-A of the Arbitration Act and has still not entered into force. The eighth schedule of the Amendment Act 2019 contained general norms for the accreditation of arbitrators, some of which include:
- The arbitrator must be impartial and neutral.
- The arbitrator shall be conversant with the Constitution of India, principles of natural justice, equity, common and customary laws, making and enforcing arbitral awards, domestic and international legal system on arbitration and international best practices.
- The arbitrator should be capable of suggesting, recommending or writing a reasoned and enforceable arbitral award in any dispute which comes before him for adjudication.
The eighth schedule has been a bone of contention since it seemingly violates party autonomy by restricting the ability of the parties to choose their arbitrators. The eighth schedule has also been criticised for restricting the ability to nominate foreign arbitrators in Indian-seated arbitrations. Notably, the eighth schedule did not enter into force albeit being prescribed in the Amendment Act 2019.
The Ordinance now omits the controversial eighth schedule and substitutes section 43-J of the Arbitration Act with:
qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.
The Ordinance in its amendment to section 36 reiterates the grounds stipulated for setting aside of an award under section 34 of the Arbitration Act and also provides grounds for parties to seek an unconditional stay on the enforcement of the award. This provision may be subject to abuse considering section 36, prior to the amendment in 2015, was used to delay the operation and enforcement of arbitral awards.
On the other hand, the deletion of the eight schedule is a welcome move by the Government. While the Ordinance amends the Arbitration Act to state that the qualifications of arbitrators will be prescribed by regulations, such regulations have not yet been notified.
The authors are monitoring these reforms as they progress and will report on any significant developments.
DISCLAIMER: DLA Piper is not licensed to advise on Indian law. The above publication has been prepared for the purposes of sharing information and should not be treated as legal advice.