India: Arbitration Amendment Act, 2021: A Right Step Towards Pro-Arbitration Jurisprudence In India?

The Government of India has undertaken many measures to ensure improved ranking in the 'Ease of Doing Business Index'. Due to such efforts, India now stands at 63rd position in World Bank's Report on Doing Business 2020¹ from a previous standing at 130th position. Enforceability of contracts along with the streamlined dispute resolution mechanism is a significant determining factor for ease of doing business in a country and to make it an attractive destination for investments as well. Realizing the importance of the aforesaid, multiple changes have been introduced in India's arbitration regime in last decade.

As a result, increasing number of judicial decisions and legislative measures have been trying to exude the pro-arbitration approach of the Government of India. With a view to make India a hub for international commercial arbitration, the Central Government notified the Arbitration and Conciliation (Amendment) Act, 2021 ("Amendment Act").²

Automatic stay on awards

The first prominent change brought about by the Amendment Act is regarding operation of an automatic stay on an arbitral award, in case a challenge is brought against the award before the Courts under Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). Under the 1996 Arbitration regime, an automatic stay on an arbitral award was granted the moment an application for setting aside an arbitral award was made before a court. However, with the 2015 amendment to the Arbitration Act, it was clarified that the arbitral award would not be automatically stayed merely because an application is made to a court to set aside the arbitral award.

The Amendment Act stands in between the two diametrically opposite stands taken by the two regimes. Thus, under the 2021 amendment regime, an automatic stay on an arbitral award shall operate provided the Court is satisfied that either the concerned arbitration agreement, or the arbitral award in itself is induced or effected by fraud or corruption.³ However, the stay is subject to a prima facie satisfaction of the Court and would continue to operate till the challenge is finally disposed off by the Courts.

The biggest criticism against the provision on automatic stay is that of misuse of the said provision as a delay tactic, by making false allegations of corruption, fraud, etc.⁴ This was believed to push India backwards in the journey towards a pro-arbitration regime as the Amendment Act makes it easier for a losing party to attempt an automatic stay on the enforcement of an award. What is also pertinent to note is that the Amendment Act nowhere defines what amounts to 'fraud' or 'corruption' for the purpose of Section 36(3). This implies that the jurisprudence of automatic stay will go through a lot of judicial tests and analysis before it finally settles.

Secondly, with the Amendment Act, it is now clear that such an automatic stay on grounds of fraud or corruption will be applicable to awards rendered after October 23, 2015, or challenges to arbitral awards brought by assailants after the said cutoff date. It is pertinent to note here that the transition from the arbitration regime of 1996 to the 2015 regime was not smooth either. The question regarding whether or not the amendment needs to be applied retrospectively to challenges raised before October 23, 2015, was put to rest and clarified by the Supreme Court only in 2019.⁵ The Amendment Act has evaded this issue by specifying that the amendment be applied retrospectively. However, it is feared that with the amendment being applied retrospectively, i.e., with effect from October 23, 2015, it may open floodgates of litigation.

A cumulative assessment of both the points mentioned above indicate that Indian Courts will now be burdened with newer set of cases to determine the question of automatic stay on awards. This clearly goes against the principle of minimal judicial interference, which is a bedrock principle of arbitration.

Qualification, experience, and norms for Arbitrator Accreditation

Under the original Arbitration Act, there was no dictum about who can be appointed as an arbitrator in India. This resulted in increasing 'judicialization' of arbitration, wherein not just Indian Courts but also parties to an ad hoc arbitration appointed retired judges as arbitrators, over other professionals, who might otherwise be competent as arbitrators.⁶ This was usually done with an objective to enhance credibility and have a greater chance to withstand judicial scrutiny.

To dissuade this practice, by means of amendment to the Arbitration Act in 2019, the eighth schedule was introduced to the Act, corresponding to Section 43J which contained a comprehensive list of qualifications an individual needs to possess to be appointed as an arbitrator. But the eighth schedule was believed to have severely restricted the potential for appointment of foreign lawyers as arbitrators in India. However, with the Amendment Act, the eighth schedule of the Arbitration Act has been deleted. This has been done with an objective of attracting arbitrators of international repute and thereby helping India emerge as a hub of international commercial arbitration.⁷

While this move of the legislature has been hailed by many as it removes the restriction on parties to appoint an arbitrator with qualifications under the said Schedule, it remains to be seen if the removal of restriction leads to appointment of foreign lawyers or take India back to the track of judicialization.

Concluding remarks

Though it is currently difficult to fit India into one of the binaries, i.e., pro-arbitration jurisdiction or anti-arbitration / non-arbitration friendly jurisdiction, it can be said with conviction that amendments of this nature will surely help India grow into a pro-arbitration jurisdiction, provided the provisions on automatic stay are used sparingly.

Footnotes

1. World Bank Group, Doing Business 2020 (October 24, 2019) (https://www.doingbusiness.org/en/reports/global-reports/doing-business-2020)

2. Statement of Objects and Reasons, Arbitration and Conciliation (Amendment) Act, 2021.

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

4. Subhiksh Vasudev, The 2020 Amendment to the Indian Arbitration Act: Learning from the Past Lessons?, Kluwer Arbitration Blog (http://arbitrationblog.kluwerarbitration.com/2020/12/10/the-2020-amendment-to-the-indian-arbitration-act-learning-from-the-past-lessons/)

5. Hindustan Construction Company Limited & anr. v. Union of India 2019 SCC Online SC 1520; Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Etc

6. Badrinath Srinivasan, 'Appointment of Arbitrators by the Designate under the Arbitration and Conciliation Act: A Critique' (May 2014) 49(18) Economic and Political Weekly 59, 62.

7. Statement of Objects and Reasons, Arbitration and Conciliation (Amendment) Act, 2021.

Originally published 2 August, 2021

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