Construction Law International - June 2021 - Country Updates: India

Gagan Anand and Shivani AnandFriday 25 June 2021

India’s parliament introduces Bill to alter Arbitration Law: attempt to put an end to fraudulent practices

Gagan Anand

Legacy Law Offices, India

Shivani Anand

Legacy Law Offices, India

India’s laws relating to arbitration are largely based on the English Common Law. The Indian arbitration regime is governed and regulated by the Arbitration and Conciliation Act 1996 (the ‘Principal Act’), which derives its basis from the 1985 United Nations Commission on International Trade Law (UNCITRAL) Model on International Commercial Arbitration and the UNCITRAL Arbitration Rules of 1976. The Principal Act was passed to consolidate the laws relating to domestic arbitration, international and commercial arbitration, enforcement of foreign arbitral awards, and the law relating to conciliation.

Since its inception, the Principal Act has been through significant changes under the Arbitration and Conciliation (Amendment) Act, 2015 (the ‘2015 Act’) to make the arbitration process user-friendly, cost-effective and to ensure speedy disposal of disputes and neutrality of arbitrators. Subsequently, to address the practical difficulties arising in implementing the amendments carried out through the 2015 Act, and to promote institutional arbitration in the country, the Principal Act was again amended by the Arbitration and Conciliation (Amendment) Act, 2019 (the ‘2019 Act’).

This brings us to the Arbitration and Conciliation (Amendment) Act, 2021 (the ‘New Bill’), which was introduced in the Indian parliament and recently passed by the Lok Sabha (lower house). It seeks to address corrupt practices in securing contracts or arbitral awards. A need was felt to ensure all stakeholders have an equal opportunity to obtain an unconditional stay on arbitral awards where the agreement or the contract is ‘induced by fraud or corruption’. The New Bill also seeks to attract eminent arbitrators to the country and omits Schedule 8, concerning the requisite qualifications for arbitrators, which was introduced in the 2019 Act. An ordinance to this effect was promulgated by the President on 4 November 2020 under Article 123(1) of the Constitution of India as the parliament was not in session and immediate steps had to be taken.

The changes suggested by the New Bill

The changes suggested by the New Bill are summarised below.

More power to all stakeholders

The New Bill seeks to amend Section 36 of the Principal Act that envisaged that an arbitral award was enforceable even if an appeal was filed against it in court under Section 34 of the Principal Act. The Court could stay the order only if the conditions are deemed fit by the court. The New Bill adds an extra clause to the section, giving courts the power to grant an unconditional stay on the award pending disposal by a challenge under section 34 if the court is satisfied that a prima facie case is made out that: (1) the arbitration agreement or contract which is the basis of the award; or (2) the making of the award was induced by corruption or fraud. This may 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 2015 Act.

Norms for accreditation changes

One of the significant changes introduced in the 2019 Act was the specification of the qualifications an arbitrator is required to hold. However, this restricted many good arbitrators from being a part of India’s arbitration regime. The earlier section 43J of the Principal Act provided that the qualifications, experience, and norms for accreditation of arbitrators shall be in accordance with Schedule 8 which contained an extensive list of eligibilities. The New Bill introduces a new section 43J which reads ‘The qualifications, experience, and norms for accreditation of arbitrators shall be such as may be specified by the regulations.’ The Arbitration Council of India may by regulations specify the qualifications, experience, and norms required to be fulfilled by the arbitrator. The matters in respect of which the regulations may be made are matters of procedure and administration and it would be unwise to provide for them in the New Bill itself. The delegation of the legislative can help open avenues for competent arbitrators.

Omission of Schedule 8

As the new Section 43J lays down a different set of rules for qualifications, experience and norms of the arbitrators, the existence of Schedule 8 is redundant and is proposed to be omitted from the Principal Act.

Critical analysis of the New Bill: An Indian perspective

The New Bill seeks to replace the aforementioned Ordinance and bring about changes that can curb corruption and keep a check on fly-by-night operators who take advantage of the law to obtain favourable awards by catering to fraudulent means. However, it is appropriate to look closely at these new provisions and analyse how they shall effect arbitration in India. By introducing an unconditional stay on enforcement of arbitral awards, all stakeholders are brought to parity and are given an equal opportunity. The relaxation of the qualifications of an arbitrator will encourage more international participation and give India’s arbitrations global exposure.

If these provisions do see the light of the day, a serious impact on the country’s dispute mechanism arena is foreseeable. India is notorious for its lack of agility as it pertains to enforcement of international contracts and agreements. The New Bill may prove to be detrimental: as the stakeholders are given the power to make an unconditional stay, there is scope for misusing the power and prolonging the arbitration without any reasonable concern. Having said that, the object behind the new provisions looks promising and there is no doubt that it will help curb internal corruption and fraud while delivering justice. It can be said that the legislation in this regard is looking to adopt a liberal approach on the subject, although such provisions are long overdue and need to be implemented for the arbitration regime in India to see a better tomorrow.