The 2020 amendment and its impacts on the arbitration regime By : Simran Patawari

The 2020 amendment and its impacts on the arbitration regime

Authored By : Simran Patawari

College: United World School Of Law,

 Karnavati University

Profession: Law Student

Introduction

The Arbitration and Conciliation Act[1] was enacted to align Indian arbitration law with the UNCITRAL Model Law on International Commercial Arbitration, which was published in 1985. It is pertinent to note that this law is compatible with the international law governing commercial arbitration and therefore it resulted in a massive increase in international commercial transaction and documentation.

In order to render its legal system more conducive to international arbitration, India has made frequent revision to its main law. The Arbitration and Conciliation Act, 1996 (the "Act"), has been amended many times in the last five years. This act was first amended in 2015 to make it more economic and expeditious to achieve the goals of the New York convention.[2] Later it was amended in 2019 followed by the most recent amendment ordinance 2020 in order to address the grievances raised by the stakeholders regarding the 2019 amendment.

The key features of the 2020 amendment are as follows:

• Instant stay on arbitral awards - as opposed to the amendment in 2015, the present change allows the court to grant an immediate stay on the arbitral award when either of the parties files an application for setting aside the award. The said award can be stayed if the court is satisfied that it was affected by fraud or coercion.

• Omitting 8th schedule - the 8th schedule stated the qualifications, and norms for accreditation of the arbitrators. The present amendment has repealed the 8th schedule and the qualifications and norms are to be provided by separate regulation.

 In the light of the changes mentioned above, this paper aims to put forward the concerns raised by the 2019 amendment that called for the present amendment and briefly analyse the changes brought by the 2020 amendment.

Concerns with the 2019 amendment

The Arbitration and Conciliation Amendment Act of 2019 was passed by both the Lok Sabha and the Rajya Sabha on August 1, 2019. (19th July 2019). thereafter, on August 9th, 2019, it got the President's assent. The 2019 Amendment Act encapsulates the various recommendations made by the High Level (Committee) chaired by Justice B N Srikrishna, Retired Judge, Supreme Court of India, which submitted its report on July 30, 2017. The Central Government established the Committee to address certain issues/challenges relating to the Arbitration and Conciliation (Amendment) Act (“2015 Amendment Act”) and to promote institutional arbitration over ad hoc arbitration, which prevailed in the country.

The act aimed to make arbitration an amenable and easy process. It aimed to simplify the process in order to make India an arbitration connoisseur. However, it posed several challenges and opposed various international laws governing arbitration thereby attracting criticism from around the world. The issues with the 2019 amendment are discussed below:

1. First, it formed the "Arbitration Council of India" by amending Part 1A[3] of the Act, which consists of Supreme Court or High Court judges, an arbitration practitioner, an academician, and a representative of a recognised body of commerce. In addition, two government secretaries have been inserted into the council. The Council's function is to encourage, support, and recognise competent arbitral organisations, as well as to review their performance and arbitrator training. The formation of a Council is completely unnecessary, given the private existence of the arbitration. In several instances, the Indian government is also a party to the arbitration. An arbitration under a 'government run' Council, in which one of the parties is the government, is a direct case of conflict of interest and goes against the principle of natural justice.[4]

1. Second, it is pertinent to note that the eighth schedule[5] of the act establishes multiple requirements of certification and qualification for arbitrators.. It provides qualifications like Advocate under the Advocate Act, Chartered Accountant etc this disallows any foreign profession arbitrator to arbitrate in India thereby defying the objective of making India the centre for arbitration. [6]
2. Third, if the parties cannot agree on an arbitrator in an International Commercial Arbitration, Indian courts can be asked to name one under Section 11[7] of the Act. The nationality of the court-appointed arbitrator cannot be the same as any of the parties, according to clause 9[8] of the said section.  How will the court select an arbitrator who is not Indian if the panel of arbitrators is made up entirely of ‘Indian' arbitrators and an Indian party files a Section 11 petition with the court?[9]

1. Fourth, too many discourses developed on the retrospective applicability of the act. In the case of BCCI vs Kochi Cricket Private Limited[10], the Supreme Court clarified that the amendment act would apply to all arbitrations and arbitration-related court proceedings that started after the amendment's effective date of October 23, 2015. With the addition of section 87[11], which is set to take effect on October 23, 2015, the changes to the 2015 act [12]will no longer apply to court proceedings resulting from arbitration proceedings that started before the amendment act took effect, regardless of when the court proceedings started.[13] Thereby nullifying the decision in the BCCI case[14] and unsettling the law.  What remains to be seen is how the courts will view the interplay between Section 36 and Section 87 in light of the automatic stay provision's retrospective application.

The 2019 amendment aimed to take a step towards addressing the international criticism however it raised more grievances and attracted more criticism instead. In order to address these, the legislature came up with the 2020 amendment shortly after the implementation of the 2019 amendment. The next section of the paper aims to analyze the 2020 amendment and critically examine the changes brought by it.

Analysis of the 2020 amendment

This is the most recent amendment by India in order to develop arbitration friendly regime. This amendment is two folded, it unfolds as follows:

Firstly it attempts to allow an automatic stay on arbitral awards if the court had primae facie evidence that the award was affected by corruption or fraud. And secondly, it attempted to broaden the field by allowing international arbitrators to be a part of it by omitting the 8th schedule that provided various qualifications and accreditations for arbitrators that was found to be limited to Indian arbitrators.  This section attempts to analyse the impact of these changes.

The first change brought by the new amendment was insertion of the third proviso to section 36. This proviso aims at automatically staying an arbitral award when an application is made by either parties and the court is satisfied that it is induced by corruption or fraud.

The section 36(3) reads as follows:

“ Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that the 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.”[15]

The concerns with the said insertion are enumerated below:

1. Conflict when read with section 34 - Firstly, it is pertinent to note that section 34[16] of the act states that an award can be set aside only when ‘ the making of the award’ is affected by corruption or fraud. Therefore, section 36(3) raises questions on how can stay be enforced based on a ground that does not affect setting aside an award. Secondly, section 34(2A)[17] states that no award shall be set aside due to inaccurate application of law or reappreciation of evidence. The stay on order under section 36(3) on account of fraud or corruption would be contrary to the said provision because it would have been discussed in detail by the tribunal and this would be considered as appreciating the evidence.

1. Burden on the courts -  This amendment will significantly increase the burden on the courts. This Argument is two folded. Firstly, the parties would have an opportunity to file a suit on a fresh cause of action, due to the retrospective effect of the amendment. This would give them a second shot at the lost cause by providing a legal ground for a pre-existing suit. Secondly, the applications pending under section 36(2) would have to file a fresh application based on the new grounds provided by the amended proviso leading to delays and increased cost of litigation. 
2. Defeats the purpose of ADR - This can defeat the intent of an alternative dispute resolution system by attracting parties to courts and increasing the likelihood of litigation.

1. Lack of definition - The words 'fraud and ‘corruption’ have not been defined. This allows the party who wants to delay the enforcement of the award to initiate proceedings in bad faith. This results in succumbing to the genuine claims and awards to the heat of unnecessary litigation.

The second change was substitution of section 43-J.[18] It is pertinent to note that under the Act, foreigners (such as a foreign academic, a foreign-registered lawyer, or a former foreign officer) are ineligible to serve as certified arbitrators. This was due to the restrictions imposed by the Act's Eighth Schedule, which was included by the 2019 Amendment. The 2020 amendment omitted the entire schedule and stated that the qualifications, requirements and other necessities for accreditation of an arbitrator would be decided by ‘regulations’. This can be interpreted to mean that the parties are now free to choose their own arbitrator.  The Amendment Act, by amending Section 43J, gives the Commission the authority to consider the appointment of international arbitrators, which is supported by UNCITRAL Model Law provisions. However, the making of these regulations and the makers of these regulations are not disclosed. It is urged that these regulations be decided by consulting academicians, stakeholders and scholars so that these can effectively remedy the loopholes of the omitted schedule.

Conclusion

The Indian Arbitration and Conciliation 1996 has been amended three times  in the past 6 years. This has been done in an attempt to make India a centre for arbitration and make changes to accommodate the interest of international parties. However, it is pertinent to note that the amendments are done with lack of proper application of mind and in a haste. This is evident from the fact that the eighth schedule was inserted by the 2019 amendment and before it was implemented it was again amended in less than a year.

The intent of the Indian policy makers to streamline the arbitration regime and accommodate the claims of the international arbitration community is evident from the repeated attempts to amend the laws governing arbitration in India. It is appreciated that India has adopted a positive approach towards addressing the concerns of the international as well as national community and taken significant steps to rectify the error and bridge the gap between what is and what ought to be.

It is submitted that the new proviso requires clarity with respect to the meaning of the terms ‘fraud’ and ‘corruption’ without which the amendment remains ambiguous and opens doors to exploitative claims done in order to delay the award. Therefore, an exhaustive list of explanations is required that describes what constitutes fraud and corruption. It is also submitted that clarity ought to be given on the fact whether or not such claims are to be discussed in the tribunal proceedings. This therefore has an ability to defy the entire purpose of ADR by increasing cases of litigation and litigation costs. It increases the burden on the courts and creates hurdles in enforcing arbitral awards by allowing parties to take a second shot at lost claims.

The substitution of section 43J is a positive step however lack of clarity regarding the ‘regulations’ is something that needs immediate attention. 

To conclude, it is submitted that the policy makers adopt laws that address the barriers in the ADR process such that it does not require frequent amendment and yet streamlines the ADR regime. It is urged that ambiguity be resolved at the earliest in order to make enforcement of arbitral awards unhindered and cost efficient.

[1] Arbitration and Conciliation Act, 1996

[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958

[3] Supra note , Part 1A

[4] Yasachandra Devarakonda, ‘A CASE OF MISGUIDED LEGISLATION – CRITICAL ANALYSIS OF THE 2019 ARBITRATION AMENDMENT BILL’, Student Reporter, INBA

[5] Supra note 1, 8th schedule

[6] Subhiksh Vasudev, ‘The 2019 amendment to the Indian Arbitration Act: A classic case of one step forward two steps backward?’

[7]Supra note 1, s 11

[8] Supra note 1, clause 9 s 11

[9] Supra note 4

[10] BCCI v. Kochi Cricket pvt. Ltd, 2018 (Civil Appeal Nos. 2879-2880 of 2018 along with other civil appeals)

[11] Supra note 1, Section 87

[12]Arbitration and Conciliation (Amendment) Act, 2015

[13] Supra note 4

[14] Supra note 10

[15]  Supra note 1, s 36(3)

[16]  Supra note 1, s 34

[17]  Supra note 1, s 34(2A)

[18]   Supra note 1, s 43(j)