Governance of arbitration procedures in India was, for the first time, regulated with the passage of the Arbitration Act, 1889. The Arbitration Act 1940 consolidated several laws dealing with procedural aspects of different Alternate Dispute Resolution methods.
Arbitration (Protocol and Convention) Act, 1937 was also a part of this consolidation. Since then, significant amendments were introduced to the principal Act in 1996, 2015 and 2019, which were in accordance with the developments in international arbitration law.
The Parliament of India passed the Arbitration and Conciliation (Amendment) Act, 2021 on March 13, 2021 to amend specific provisions of the principal Act i.e. Arbitration and Conciliation Act 1996.
This article analyzes the amendments made to the principal Act. It also considers various stakeholders’ opinions and the observations made by various Indian Courts on the relevant provisions of the Act before their amendment.
ARBITRATION AND CONCILIATION (AMENDMENT) ACT: SIMPLIFYING AMENDMENTS
Though they seem inadequate, yet it is important to note that these amendments are made as a measure to control the increasing corrupt practices in achieving arbitral awards. The Amendment Act introduced three amendments to the principal Act.
I. Section 2 of the Amendment Act made an amendment to Section 36 of the principal Act. Section 36 of the Principal Act is related to the execution of arbitral awards.
Section 2(c) of the principal Act defines an arbitral award to include an interim award. Section 36(3) authorizes the Courts to stay the execution of an arbitral award and give in writing the reasons for the same. The proviso to this sub-section provides the procedure to be followed by the Court in cases where an arbitral award has been granted in payment of money.
The Amendment Act introduces a clause to this proviso, whereby the Court is authorized stay the arbitral award from being executed when there is prima facie evidence proving that the award itself, or the contract on which such award is based, was influenced by fraud or corruption. The Amendment Act says that this provision will be enforced retrospectively from October 23, 2015.
II. The second amendment made by the Amendment Act, 2021 through Section 3 is in Section 43J of the principal Act, through which the previous provision is substituted by a provision that states:
“The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”
Section 43J was included to the principal Act by way of the 2019 Amendment Act. The previous provision stated that the qualifications of the arbitrators would be as per those specified in Schedule VIII of the Act.
III. The final amendment discarded Schedule VIII of the principal Act. The ‘Statement of Objects and Reasons’ of the Amendment Act provides that this deletion was made to facilitate eminent arbitrators to participate in Indian arbitration proceedings and ensuring that India is promoted as a ‘hub of international commercial arbitration’.
IMPACT OF AMENDMENT ACT ON THE PRINCIPAL ACT
Though the reasons for the amendments are laid down in the ‘Statement of Objects and Reasons’ of the Amendment Act, yet comparing the amendments with the provisions of the principal Act will help in better understanding.
· Early Detection of Fraud
The amendment to Section 36 is one of the most significant amendments introduced by the Amendment Act.
The provisions of the principal Act dealing with fraud in the arbitral awards were quite ambiguous. They were dependent on judicial intervention and time extensions under the Indian Limitations Act, 1963 to gain meaning. One such relevant provision is Section 17 of the Limitations Act, which provides that the limitation period is postponed in cases of fraud on the part of a party, has been discovered.
Another such provision is Section 34(3) of the principal Act. It lays down a time limit of three months making an application for setting aside the arbitral award. It also grants discretion to the Court to extend this limit by thirty days if it deems fit, ‘but not thereafter’.
· Widening the Scope of Arbitrator Qualifications
The amendments of substitution of Section 43J of the principal Act and deletion of Schedule VIII are interlinked.
The Eighth Schedule of the principal Act laid down the qualifications for an arbitrator. These qualifications mainly focused on the experience of an arbitrator as an advocate, chartered accountant or cost accountant, or company secretary. Other qualifications included that the person has been an officer of Indian Legal Service; an officer with a law degree for more than ten years, among other requirements.
Earlier, with the Principal Act, persons who didn’t meet one of the criteria enlisted in the Schedule, were disqualified under the Act. By removing the Schedule, the Amendment Act has widened the scope of qualification to persons with expertise or substantial experience in a specific field.
Furthermore, the amendment in Section 43J provides that the qualifications of arbitrators will be based on the ‘regulations’, which, defined under Section 2(1)(j), include regulations made by the Arbitration Council of India. Authorizing the Council instead of enlisting qualifications for arbitrators also extends the scope of appointing arbitrators who are experts across various fields and not just legal practice, chartered accountancy, etc.
Just like all other legislations, the Amendment Act is not without fault. One of the defects in the Act is that the amendment to Section 36 adds more burden to the already overburdened Indian Courts to rightly adjudge if an arbitral award prima facie include any elements of fraud.
Discarding the Schedule VIII of the principal Act extended the scope for the appointment of foreign arbitrators and also arbitrators from various fields. But it may also result into appointment of incompetent arbitrators. This would be unfavorable for the parties, Council and Indian Courts, because they will have to verify the arbitrator’s competency again.
In spite of all these shortcomings, the bright side is that proper execution of the Amendment Act will help reduce cases in which parties to arbitration proceedings may be negatively affected by fraud in the arbitral awards. Talking about the second part of the Amendment Act, whether the Council’s regulations will help in appointment of ideal arbitrators or not, can be told with passage of time only.