Arbitration And Conciliation (Amendment) Bill, 2021: Analysis

Abstract: This particular article deals with evolution of Arbitration law in India. The mode of research is doctrinal in nature. It critically analyses the Arbitration And Conciliation (Amendment) Act, 2021 in comparison to previous amendments of the said act and its effect on the legal framework of arbitral law in course of making India a hub for International Commercial Arbitration.

The Arbitration and Conciliation Act, 1996 contains law relating to arbitration in India and it came into force on 25th January,1996. It also talks briefly about Conciliation. The act is based on UN Model law, so as to make our country’s law parallel to that adopted by the United Nations Commission on International Trade Law (UNCITRAL).

Now, before going into the discussion of how and why the government passed the Arbitration and Conciliation (Amendment) Bill, 2021, we should go a little bit into the History of How Arbitration law evolved in the Country.

Evolution Of Arbitral law in India

India has always had a long term goal to make the country a hub for International Commercial Arbitration. Thus, due to the same reason it has tried to adapt its law concerning arbitration in sync with the changing needs of the time. To traces the evolution of arbitral laws we need to specifically trace its origin from the Arbitration Act, 1940 to the recent Arbitration and Conciliation (Amendment) Act, 2021 in an briorderly manner:

  1. Arbitration Act, 1940

Before coming up of Arbitration Act, 1940 the British government had enacted the act of 1899 and with the provision of Civil code Procedure, 1908. Later, the act of 1899 was repealed and replaced with the act of 1940. The act majorly dealt with the domestic arbitral issues and was seen unfit for the dealing with foreign arbitral awards. The act was criticised on many occasions by the Indian Courts. 

The act of 1940 proved to be a failure and was later repealed due to not serving satisfactory result in giving arbitral award due to judicial intervention and also, it did not deal with enforcement of foreign arbitral awards and was in conflict with Foreign Awards (Recognition and Enforcement) Act, 1961 which was enacted for the enforcement of awards under the Geneva Convention, 1927 and New York Conventions to which India was a signatory. It was later replaced with the Arbitration and Conciliation Act, 1996, as it failed to change with the needs of time and was regarded as out-dated and inefficient in comparison to the arbitration mechanism of developed nations.

  • Arbitration And Conciliation Act, 1996

The act of 1996 came up in the wake of New Economic Policy of 1991 when the country adopted the  LPG (Liberalisation, Privatization and Globalization) policy. The country took steps to attract foreign investment and to make a mark in the international front. India wanted to become an international hub for International Commercial Arbitration and compete with Singapore and London. The act was based on UNCITRAL modal law. Its motive was to prevent delays in arbitral proceeding and build up confidence and faith for foreign investors.

However, a  controversy arose over the working of the act as many saw the judicial intervention by Indian courts specifically over  foreign seated arbitration as backward and hampering to main goal of the act of doing fast and speedy justice and build up the confidence of the public in arbitral proceedings. The classic example of interventionist behaviour by the judicial authorities in our country can be seen in the case of Bhatia International vs Bulk Trading S. A. & Anr[1],  a  three-judge  bench of the Apex Court held that “Part I applies to international commercial arbitration outside  India  as  well,  unless  the  applicability  of  the  same  is  excluded,  expressly  or  impliedly, by the parties”. This judgement was followed in several other judicial pronouncements. However, this issue was settled in the case of Bharat Aluminium and Co. v. Kaiser Aluminium and Co[2], also known as BALCO cases, here the five- judge bench over-ruled the judgement passed in Bhatia case, and held that the Part I of the act is only applicable to international commercial Arbitration which are held within the territorial limits of the country. The effect of the judgement was that no application for interim relief could be filed under section 9 of the act. However, there were other problems with the act as well such as high cost, no time limit for resolving the matter and so on. Hence, certain amendments were needed to be made in act.

  • Arbitration And Conciliation (amendment) Act, 2015

The amendment Act of 2015 tried to deal with all the problems that were there in he original act of 1996. It came into force on 23rd October 2015. The following amendments were as follows :

  • First amendment was regarding the definition of the term and expression “court”, here it distinguished it in terms of domestic arbitration and international arbitration. Hence, in terms of international commercial arbitration the “court” is defined only to mean ‘High Courts’ of competent jurisdiction.
  • A proviso was added to Section 2(2), which provided that subject to an agreement to the contrary, the provisions of Sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of Section 37 shall also apply to international commercial arbitrations.
  • An amendment to Section 9 was made to state that once the arbitral tribunal is established, the Court shall not entertain any application unless under certain circumstances, thus, cut back on the intervention made by the Courts.
  • Section 17 was  amended giving the arbitral tribunal all powers of the Court under Section 9.
  • The time period with which an arbitral award is to be made  for making an arbitral after the arbitral tribunal was constituted  was fixed for 12 months and this was inserted in the Act of 1996 under Section 29A (2015 amendment).
  • Section 34  of the Act of 1996 was also amended and the scope of interference by Courts was reduced. The amendment clarified that the additional ground of “patently illegality” to challenge an award can only be taken for domestic arbitrations and not international arbitrations.
  • The act also amended section 36, it did away with granting an automatic stay to an award by filing a simple application for setting aside an arbitral award under section 34 in front of the court.

Even though the amendment was a positive step towards making arbitration cost-effective and a speedy remedy available to the public. But a key issue emerged regarding the application of Section 36(2) as to whether it will be applied to the pending arbitral proceedings prior to 23rd October 2015 ? The answer to this was given by the Supreme Court in the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd.[3](herein referred to as BCCI V. Kochi Cricket Pvt, Ltd.), the court held that no automatic stay would be available on proceedings commenced even before the amendment act of 2015. It also upheld the provisions of section 26 of the act which provided for it’s prospective application. Also, the supreme court held that section 87 is contrary to the objectives of the amendment act of 2015.

In Hindustan Construction Company Limited v. Union of India[4],  the Hon’ble Supreme Court struck down the insertion of Section 87 to Arbitration and Conciliation (Amendment) Act, 2019 as manifestly arbitrary and against the ethos of the objective that was sought to be achieved by the principle act.

  • Arbitration And Conciliation (Amendment) Act, 2019

Even though the amendment act of 2015 dealt with a lot of issues pertaining to arbitration and in our country, there were still certain issues that were left out by the previous amendment. The 2019 amendment act is a step taken in furtherance to create an arbitration friendly environment. Here is a brief description of  some major amendments that took place:

  •  A significant amendment made under this act was that it clearly explained that only after the parties agreed the amendments made by the act if 2015 will apply to the  arbitration proceedings and related court proceedings which commenced before the cut of date of 23rd October,2015, under Section 87 of amendment act of 2019. It also nullified the effect of the decision made by Supreme Court in the case  of BCCI V. Kochi Cricket Pvt, Ltd., in which The Court in this case held, “ the amended Section 36 of the Act (execution) to be a merely procedural provision and thus applicable retrospectively to Section 34 petitions (challenge to domestic awards) pending as on October 23, 2015. The judgment led to a plethora of execution petitions being filed in the pending Section 34 petitions and concomitant Applications by the Section 34 Petitioners seeking stay on the operation of the impugned Arbitral Award.” After the amendment of 2019, a large number of pending procedure were held to be non-maintainable, except for those which had been already disposed off. Here the effect of unamended Act of 1996 which granted automatic stay of award if a petition was filed under section 36 was maintained. This move of the government for is appreciated as it would cut down on the delay of dispensing with the decision over execution proceedings and automatic stay application. But comes with a drawback as it will or might lead to delay in court proceedings under section 34.
  • Under the amendment act of 2019, there was insertion of section 43E to 43M and ordered for the establishment of ACI as a body corporate. The ACI should carry out the following functions :
  • To frame policies to great arbitral institution and accredit arbitrators Facebook qualification and laid down in the eighth schedule of 2019 act.
  • For the maintenance of uniform professional standard in all matters that relate to ADR mechanism, it’s needs to evolve guidelines.
  • To hold training and workshops in areas of arbitration.
  • Maintaining an electronic depository for all arbitral awards.
  • To promote and encourage ADR.

ACI shall be constituted with a chairperson and other members that will include eminent admissions and so on including government nominees. Chairperson Shell be a person who has been a judge of Supreme Court or chief Justice or judge of any High Court or any eminent person. There are various other provisions that have been added with regards to declaring Proceedings invalid or additional functions decided by the central government.

  • The  act of 2019  inserted section 42A which states that everyone that is involved in an arbitration process- the arbitrators, arbitral institution and parties have to maintain confidentiality of the preceding expect when disclosure of arbitral award is necessary for the implementation and enforcement of the award.

Maintaining the confidentiality of an arbitral agreement is a great step in building confidence of the parties or in general of the public fit in arbitral proceedings but we should keep in that many times parties tend to file pleadings made in arbitration to file anti-arbitration suits. Thus, now the courts have to deal and address the issues pertaining to the usage of arbitral documents and pleadings in courts.

  • Insertion of section 29A orders that in “an award shall be passed within of 12 months of the arbitral tribunal entering upon the reference and that the parties may, by consent, extend the time for making an award by another six months”. I
  • ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2021

The Arbitration and Conciliation (amendment) Act, 2021was passed in Lok Sabha on

12th February 2021. The bill was introduced by India’s current law minister Ravi Shankar Prashad. This Amendment Bill was earlier passed by the President of India in form of Arbitration and Conciliation (Amendment) Ordinance, 2020, promulgated on 4th November, 2020. The act majorly dealt with section 36 of Arbitration and Conciliation Act, 1996. The main objective of this amendment act was to :

  • Enable automatic stay of arbitral awards in certain cases.
  • Specify by regulations the qualifications, experience and norms for accreditation of arbitrators.

 The following are some significant changes brought in by the amendment act of 2021 :

  • UNCONDITIONAL STAY : Earlier before the amendment act of 2021, an arbitral award were enforceable even if an appeal was filed against it in the court under Section 36 of the law. But under Section 36 (3) the court could grant a stay on the award on conditions as it deemed fit.

 Now, if the  application made under section 36 for setting aside the arbitral award, a proviso has been added which states that “if the court is satisfied that a primer facie case is made out –

(a) he arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.”

Hence, the stake holding parties to an arbitral agreement now can seek unconditional stay of the award if the arbitration agreement or the award is induced by fraud or corruption.

  • Retrospective effect : Under the Amendment act, 2021 section 36 (3) will have retrospective effect irrespective of the fact whether the arbitral or court proceeding started before or after commencement of 2015.
  • SECTION 43J SUBSTITUTED FOR NEW SECTION  AND OMMISSION OF 8TH SCHEDULE : Section 43J has been substituted with a new section earlier after 2019 amendment act the section 43J gave the “norms for accreditation of arbitrators” which was specified in the eighth schedule. But after amendment act of 2021 states that  “43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.” and omitted Eighth Schedule completely.

 EFFECTS OF AMENDMENT ACT,2021

From the above discussion it is quite evident that in bid to make to India an arbitration friendly nation and attract foreign investors to make India hub for International commercial arbitration gas from time to time tried bringing in changes via amendment in furtherance of their goal . The recent Arbitration and Conciliation (amendment) Act,2021 was introduced by the government to ‘answer the concerns raised by the stakeholders regarding 2019 amendment act’. The amendment act, 2021 tried to answer and fill up gaps that were left by the previous amendment. But still the act was lacking in some aspects Such as (i) it failed to consider suggestions made by International Bar Association(IBA), (ii) regarding the qualification of arbitrators under the Eighth Schedule excluded foreign legal professional not being eligible to become arbitrators, (iii) International commercial has been excluded from the timeline proviso of completion of arbitration within 12 months’ time period from the date of completion of pleading.

Thus, Amendment act of 2021 was introduced. This act has tried clearing the position of certain aspects of 2019 act which were detrimental to the country’s position in relation to International commercial arbitration. It came clear about various important aspects of the Arbitration and Conciliation Act, 1996, be it provision regarding section 36(6) along with Section 34 for setting aside arbitral award and automatic stay of award or provision regarding inclusion of foreign legal professional becoming arbitrators and omission of the Eight schedule, making it clear that matters in which regulation might be required can be made via the help of procedural and administrative law and should not necessarily be provided in the act itself.  All the step taken are  welcome in taking India in right direction regarding evolving their arbitral laws of the country but if we look into the amendment of Section 36(3) which “provided 2 grounds for granting  automatic stay of award, a) when the party prima facie proves that the arbitration agreement or contract, which is the basis of the award, is induced by fraud or corruption; b) or the making of the award itself was induced by fraud or corruption”. Here the problem that arises are as following :

  • If the arbitral tribunal ends up rejecting the objections of the losing party that the award made by the arbitral tribunal is based on fraud or corruption  then there would be no instance of a prima facie case in favour of the party raising such an objection.
  • It would be easy for the losing party to allege corruption and fraud to obtain stay of the award which is detrimental to the winning party. Thus, the latter will have to wait till the final disposal of court proceeding.
  • The retrospective effect from the amendment act may open a floodgate of litigations burdening and prolonging the granting of award which diminishes the main propose of arbitration agreement.
  •  It’s practically impossible to prove prima facie case of fraud and corruption and to prove the same as the party raising the objection will have to produce additional documents along with the documents that were earlier produced before the arbitral tribunal which in itself is quite difficult.

Hence, even though there the Amendment And Conciliation (Amendment) Act,2021 has solved quite a few problems that were existing in the previous amendment act and the substitution and removal of section 43J and the Eighth schedule are seen as pro-arbitration steps. Yet, under certain circumstances under section 36, it has opened door for many ambiguities which the courts and arbitral tribunal will have to deal with in future.

REFERENCES

A.   The Arbitration And Conciliation Amendment Act, 2019 – A New Dawn Or Sinking Into A Morass?

https://www.mondaq.com/india/arbitration-dispute-resolution/880568/the-arbitration-and-conciliation-amendment-act-2019-a-new-dawn-or-sinking-into-a-morass

  •  The Arbitration And Conciliation (Amendment) Act, 2021

https://www.mondaq.com/india/arbitration-dispute-resolution/1048504/the-arbitration-and-conciliation-amendment-act-2021

  • The 2019 amendment to the Indian Arbitration Act: A classic case of one step forward two steps backward?

http://arbitrationblog.kluwerarbitration.com/2019/08/25/the-2019-amendment-to-the-indian-arbitration-act-a-classic-case-of-one-step-forward-two-steps-backward/?doing_wp_cron=1590394024.8721890449523925781250


[1] (2002) 4 SCC 105 : AIR 2002 SC 1432

[2] Civil Appeal No. 7019 of 2005 (Supreme Court of India), decided on 06.09.2012, (2012) 9 SCC 552

[3] (2018) 6 SCC 287

[4] WP (Civil) No. 1074 of 2019

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