Parliament Passes Arbitration & Conciliation (Amendment) Bill, 2021 For Automatic Stay On Awards Induced By Fraud/ Corruption

The Bill was passed by the Lok Sabha on February 12, 2201. It will replace an Ordinance promulgated on 4th November, 2020.

It seeks to amend the Arbitration and Conciliation Act, 1996 so as to (i) enable automatic stay on awards in certain cases and (ii) specify by regulations the qualifications, experience and norms for accreditation of arbitrators.

As per the statement of objects annexed to the Bill:

"In order to address the issue of corrupt practices in securing contracts or arbitral awards, a need was felt 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 is induced by fraud or corruption.

Also to promote India as a hub of international commercial arbitration by attracting eminent arbitrators to the country, it was also felt necessary to omit the Eighth Schedule of the Act. In the light of above circumstances, it has become necessary further to amend the Arbitration and Conciliation Act, 1996."

Salient Features

Automatic stay on awards

In the present regime, a party may file an application before the Court under Section 34 of the 1996 Act for setting aside of an arbitral award. However, after the 2015 amendment to (Section 36 of) the Act, an automatic stay would not be granted on operation of the award by mere filing an application for setting it aside.

The Bill clarifies that a stay on the arbitral award may be granted by the Court, even during the pendency of the setting aside application, if it is prima facie satisfied that the relevant arbitration agreement or contract/ making of the award was induced by fraud or corruption. This shall be deemed effective from October 23, 2015.

Qualifications of Arbitrators

Schedule VIII to the principal Act specifies certain qualifications, experience, and accreditation norms for arbitrators. These requirements include that an arbitrator must be: (i) an advocate under the Advocates Act, 1961 with 10 years of experience, or (ii) an officer of the Indian Legal Service, among others.

The Bill seeks to omit Schedule VIII and states that qualifications, experience and norms for accreditation of arbitrators shall be specified by Regulations.

Parliamentary Debate

The discussion was interrupted by constant protest and sloganeering by the Opposition demanding immediate discussion of Farm Laws and rising fuel prices.

BJD MP Amar Patnaik supported the Bill. He also raised a technical query with respect to the Amendment. He highlighted that on one hand, the proviso to Section 34(2A) provides that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence. However, he asked that how is it possible to establish a prima facie case that the award was induced by fraud, without re-appreciation of evidence, given that any issue of fraud is a mixed fact of law and fact, and cannot be decided summarily merely on the basis of evidence recorded in the initial arbitral award.

YSRCP MP Ayodhya Ram Reddy, while supporting the Bill, remarked that it will be interesting to see how the Courts interpret the burden of proving a prima facie case of fraud or corruption. He added that the provisions of the Bill will also be tested where parties use it stall the operation of the award by filing Section 36 applications and waste precious time of the Court. He suggested that the Courts will have to be cautious in formulating a test for granting an unconditional stay on the award.

TDP MP Kanakamedala Ravindra Kumar supported the Bill. He however expressed apprehensions that speedy disposal, which is the artifact of the Arbitration Act, may be saddled by the provision of unconditional stay. He said that Section 36(3) of the Arbitration Act is sufficient to grant stay on operation of Award and there is no need to make any further provisions.

Kumar added that retrospective application of Amendment Act (from 2015) with respect to automatic stay may open floodgates of litigation and affect the ease of doing business.

Responding to the debate, the Law Minister Ravi Shankar Prasad informed the House that the proposed amendment to Section 36 of the Act, despite use of words Fraud/ corruption in Section 34, was necessary as the latter does not provide for an "automatic stay" of the award. He stated that this is in furtherance of Section 34 which states that an award which is in conflict with public policy may be set aside.

With respect to omission of Schedule VIII of the Act, the Minister said that there will be greater flexibility in the Arbitration Council of India and it will help in promoting institutional arbitration by inviting arbitrators from abroad, thus furthering the goal of making India a hub of international commercial arbitration.

During discussion on the Bill in Lok Sabha, many members had appreciated the Government for proposing to omit the 8^th Schedule as it will attract eminent international arbitrators.

However, there was widespread opposition with respect to proposed amendment to Section 36 for the following reasons:

• Amendment defeats the very objective of alternate dispute mechanism by drawing parties to Courts and making them prone to prolonged litigation.
• Bill does not define Fraud/ Corruption.
• Amendment will affect enforcement of contracts and ultimately affect ease of doing business in India.

Also Read: The Story Of Arbitral Meddling: Analyzing The Arbitration And Conciliation Act (Amendment) Ordinance 2020

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