Unconditional Stay Of Enforcement Of Arbitration Award If Court Finds Fraud & Corruption In Making Of Award Or In Arbitration Agreement ; Centre Promulgates Ordinance

The President of India has promulgated Arbitration and Conciliation (Amendment) Ordinance, 2020, with an objective to ensure that all the stakeholder parties get 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 Ordinance adds a proviso to Section 36 of the Arbitration and Conciliation Act. It states that where the Court is satisfied that a prima facie case is made out, that the arbitration agreement or contract which is the basis of the award; or 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

The Ordinance also clarifies 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. 

It also substitutes Section 43J. The new provision reads as follows: The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations. The Ordinance also omits eighth schedule to the Act (Qualifications and Experience of Arbitrator).

 Section 36 of the Act was amended in 2015 to read as follows

36. (1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. (2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose. (3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing.

Interpreting this amended provision, the Supreme Court in Kochi Cricket Pvt Ltd case, had held that the 2015 amendment to Section 36 will apply only to:(a) arbitral proceedings commenced on or after October 23, 2015 (date of commencement of the Amendment Act); and (b) arbitration-related court proceedings filed on or after October 23, 2015, even where the arbitral proceedings had been commenced before the amendments came into force.

The Supreme Court had, in Hindustan Construction Company Ltd v Union of India , struck down Section 87 of the Act (inserted by 2019 amendment to give retrospective application to automatic stay provision) observing that the 'retrospective resurrection of an automatic-stay not only turns the clock backwards contrary to the object of the Arbitration Act, 1996 and the 2015 Amendment Act, but also results in payments already made under the amended Section 36 to award-holders in a situation of no-stay or conditional-stay now being reversed'. The Court had also held the provision to be "manifestly arbitrary" and violative of Article 14 of the Constitution of India.

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