Faculty of Law, Aligarh Muslim

University
2023

ADR

(Project)

On

‘Effect of Arbitration and conciliation amendment

act 2021 on Indian Framework: Analysis &

Justification’

Submitted by: Submitted to:

Name- Shrishti Thenuan Prof. Syed Ali Nawaz Zaidi

Roll No. 19BALLB013

Enrolment No. GK1816

IX Sem Section A
Index

1. Introduction

2. Major changes/object

3. Effect Of the Amendment on Indian Framework: Analysis and Justification

4. Section 34

5. Rationale

6. Effect On the Scope of Qualification of Arbitrator

7. Challenges to applicability in India

8. Conclusion

9. Bibliography
Introduction

In this project I will be analysing the recent amendment to the law relating to arbitration in
the year 2021 and what effects it has on the existing law as well as the major changes brought
about relating to the qualification of arbitrators, arbitral awards, challenges to the the law as
well as the justification and purpose of the amending act.

In March, Parliament passed the Arbitration and Conciliation Amendment Act 2021. The Act
is the third amendment in six years to the Arbitration and Conciliation Act 1996 (principal
Act). This indicates that both the judiciary and government favour promoting Alternative
Dispute Resolution as a consistent practice. However, the amendments also present certain
shortcomings. For example, many have argued that it could interfere with arbitral awards due
to the law’s vague definitions.

Alternate Dispute Resolution (ADR) is the mechanism that resolves disputes out of the court.
Although this mechanism is developing, it has gained more popularity than litigation. The
emergence of ADR globally can be attributed to its efficiency and time-saving mechanism.
Due to many pending cases in the Indian judiciary, justice delivery requires an optimal
amount of time. However, ADR could reduce this time, providing disputing parties with
broad scope for negotiation.

There are various methods of ADR, like arbitration, mediation, conciliation and negotiation.
Still, there is a specific form used to resolve disputes in many parts of the world. The process
of ADR manifested its central emergence in developing countries, like India and African
subcontinents, the economics of legal suit could be daunting. Thus, most parties tend towards
out of the court dispute resolution. Moreover, they want less interruption of courts in dispute
settlements because of the delays.
In India, governance of arbitration got initiated by the Arbitration Act of 1889, and further,
the Arbitration Act 1940 compiled the law governing different methods of ADR mechanism.

After that, in 1996, a significant amendment was incorporated in the Arbitration Act. The
same followed through in the 2015 and 2019 Amendment Acts. Recently, amends were made
to the principal Act, introducing the 2021 (Amendment) Act to match the level of
International Arbitration law.

On March 10, 2021, the Parliament passed the recent amendment in Rajya Sabha, amending
the Arbitration and Conciliation Act 1996.

Object

The object of the amendment act can be summarised in following points:

• The Lok Sabha has passed the Arbitration and Conciliation (Amendment) Bill, 2021

to check misuse by “fly-by-night operators” who take advantage of the law to get

favourable awards by fraud.

• The Bill intends to replace the Arbitration and Conciliation (Amendment) ordinance

issued in November, 2020.

The 2021 Amendment in the Arbitration and Conciliation Act 1996 is the third amendment to
the principal Act in the last six years. This reassures that the Indian legislature is updating
ADR mechanisms to meet international standards. The significant changes brought by this
amendment Act are:

• The amendment allows an automatic stay on enforcement of any arbitral awards if the
courts find any clear evidence that the award is influenced by fraud or corruption.
This change has been incorporated under Section 36 of this Act using Section 2 of the
principal Act.

• Secondly, it omitted the Eighth Schedule from the principal Act, which specified the
arbitrator’s qualifications, experience, and norms to be followed.1

Effect Of the Amendment on Indian Framework: Analysis and

The Indian judiciary has adopted a pro-arbitration approach, allowing the enforcement of
almost all foreign awards in India. Further, India is one of the signatories to the New York
Convention. That means if a disputing party from India received any arbitral awards from a
country that is a signatory of this particular convention and that award is given in a territory
that India has recognised as a convention country, then the award is enforceable in India.
However, to date, there are only 50 countries that the Indian government has recognised.

1
Changes to arbitration law, The Indian Express (2021), [Link]
arbitration-law-get-lok-sabha-nod-7186439/ (last visited October 19, 2023).
In India, the process of enforcing awards can be identified in two stages, initiated by filing an
execution petition. The national courts must determine whether the awards strictly adhere to
the Arbitration and Conciliation Act 1996. So, once it satisfies these conditions, the awards
become enforceable and are considered a decree passed by the court.

The Supreme Court of India, in ONGC v. Western Geco2 and Associate Builders v. Delhi
Development Authority3, stated that only in the rarest of rare cases a foreign award could
be successfully refused for enforcement. Otherwise, the general law is always in support of
enforcement of the awards.

Section 36 (3)

The 2021 amendment to the principal Act mainly targeted the provisions of arbitration
awards. As per Section 34 of the principal Act, a party can request the court to set aside the
arbitral award, further amended in the Arbitration and Conciliation (Amendment) Act 2015.
It was decided that no automatic stay will be granted in executing an arbitral award just
because of a mere application to set aside the award. But 2021 Amendment Act is different
from the decision.

The new amendment has added a statutory provision under section 36(3) of the Act. The
new provision states that if the court has prima facie evidence that the arbitral award is
affected by fraudulent activity and corruption, the court can put an unconditional or complete
stay on the award. However, several members of Parliament criticised this addition.

According to them, this change will affect the pro-arbitration approach taken by the Indian
judiciary towards enforcement of the foreign awards. The concern is that one party to dispute

2
ONGC v. Western Geco (2014) 9 SCC 263 (India).
3
Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 (India).
will forever have a disadvantage. Thus, it could lose due to corruption allegations, which will
result in staying the award. 4

It is also argued that implementing this change will affect the sole feature of ADR, and it will
no longer be considered an out-of-court settlement. But the major concern to this amendment
is that the particular legislation doesn’t even define fraud and corruption, based on which the
change has been brought.

So, it is clear that the definition will vary according to the merits of the cases, creating a
challenging situation for the defendant on whom the allegation of fraud gets imposed.

Rationale

With the introduction of the new clause in section 36 of the Arbitration and Conciliation
(Amendment) Act, 2021, it has become essential to check whether there is prima facie
evidence of fraud and corruption, resulting in a barrier to the enforcement of the arbitral
award. Which ultimately altered the scheme of the Act of 1996.

Supreme Court of India has discussed the issue in the case of Hindustan Construction
Company Limited v. Union of India.5 Para 3 of the judgement shows that challenges made
under Sections 34 and 37 of the Arbitration and Conciliation Act 1996 resulted in the stay
on the arbitral award, and it ate six years to enforce that award. This shows how difficult
it will be to enforce an award if any prima facie evidence of fraud and corruption comes
before the court regarding that award.

4
Supra note 1
5
Hindustan Construction Company Limited v. Union of India, 2019 SCC OnLine SC 1520
Another point of controversy arises with the term ‘fraud’ and ‘corruption’. These terms are
not examined under Civil Procedure Code to put a stay on any decree.6 So, the 2021
amendment included a new ground to resist the award, whereby we can expect that a party in
a disadvantageous position as per the arbitral award will make every attempt to uphold that
the agreement of the arbitration outcome is affected by fraud and corruption.

Supreme Court of India, in Swiss Timing Ltd. v. Commonwealth Games, held that if the
contract or the agreement is alleged to be influenced by the fraud, it will not affect the
arbitration clause contained in it. The contract may become void or voidable, but the
arbitration agreement remains unaffected. Further Supreme Court of India also distinguished
‘fraud simpliciter’ and ‘serious allegation of fraud’ in A. Ayyasamy v. A. Paramasivam and
after that in Avitel Post Studioz Ltd. v. HSBC PI Holdings Ltd.

This distinction also determines whether the case is under the competence of the arbitral
tribunal. But the amendment Act of 2021 didn’t deal with this distinction and failed to
categorise the seriousness of the fraudulent activity to grant an unconditional stay on the
arbitral award.

The 2015 Amendment Act affected the rights of the award debtor by abolishing the automatic
stay on the arbitral award. In contrast, the 2021 Amendment Act affects the rights of the
award holder by including the clause in section 36 under which the court can grant a stay on
the arbitral award, provided prima facie evidence of fraud and corruption. Moreover, the
recent change affected the procedure and substantive rights of the award holder.

6
Avatar Singh ‘Arbitration & Conciliation and Alternative Dispute Resolution Systems’ (Eastern Book
Company, 12th Edn. 2022)
Effect On the Scope of Qualification of Arbitrator

The qualification of the arbitrator is a point of contention while dealing with the process of
arbitration in dispute settlement. However, Arbitration and Conciliation (Amendment) Act
2019 had introduced Section 43J in the parent Act, which dealt with the eligibility,
qualifications, and norms to be followed for recognising a person officially as an arbitrator.

This Section further developed the Eighth Schedule of the Act, which provides us with a
comprehensive list of eligibility criteria that an arbitrator needs to possess. This Schedule
talks about specific educational qualifications such as ten years of experience in recognised
fields like science and technology. Apart from those, certain norms and guidelines are
mentioned in the Schedule to abide by the arbitrator being neutral while settling disputes.
Although these guidelines are broad, it was viewed as a limitation for foreign lawyers to Act
as arbitrators in India.

The 2021 Act substituted section 43J and simultaneously removed Eighth Schedule from
the parent Act. This indicates that the parties are now free to appoint their arbitrator from
any domain irrespective of their educational and professional qualifications. The 2021
Amendment has given substitution to Section 43(j) of the Act and also deleted the 8th
schedule from the main Act. It stated that the parties can appoint the arbitrator regardless of
their qualifications. The Lok Sabha appreciated the Bill by stating that it will attract eminent
arbitrators from foreign countries and will also add to making India a global hub of
International Arbitration.

The members of the Lok Sabha have appreciated this approach. They have stated that it will
facilitate India with international arbitrators, further raising the commitment level of Indian
arbitration at the global stage. Amendment of section 43J provided the freedom to appoint an
international arbitrator as per the provisions of United Nations Commission on
International (UNCITRAL) Model laws.
Challenges To Applicability in India

Arbitration and Conciliation (Amendment) Act, 2021 has several inconsistent and ambiguous
characteristics that may affect its application in India. The uncertain nature of the new
changes incorporated in the parent Act may lead to an undesirable consequence. For example,
the 2021 Act added a new ground, fraud and corruption. As a result, the arbitral tribunal has
to enforce an award irrespective of any plea advanced in this context.

This Act doesn’t categorise these grounds, which implies that every case will be viewed
differently. Therefore, it will depend upon the tribunal to decide the degree and extent of the
fraud and corruption to put an unconditional stay on that award. The 2021 Amendment
Act7 also restricts the parties from adducing evidence before the arbitral tribunal
during the enforcement stage of the award. This approach leads to two significant
complexities.

Firstly, it will be difficult to plead and prove the influence of fraud and corruption without
adducing evidence before the tribunal. Secondly, there will be no primary separation between
Section 34 and Section 36 proceedings, resulting in multiple uncertain proceedings. For
arbitrators, the other major drawback is if the awards granted by the arbitrator is going to get
constant unconditional stay based on the charge of fraud and corruption without justifiable
inspection over the matter, their reputation and efficiency could be questioned.

India already lags behind when it comes to the enforcement of international contracts and
agreements. The Bill can further hamper the spirit of Make in India campaign and deteriorate
rankings in Ease of Doing Business Index.

7
Arbitration and Conciliation (Amendment) Act, 2021 (3 of 2021)
India also aims to become a hub of domestic and international arbitration.8 Through the
implementation of these legislative changes, resolution of commercial disputes could take
longer duration now onwards.

8
Hindustan Construction Company Limited v. Union of India, 2019 SCC OnLine SC 1520
Conclusion

India needs to strengthen out-of-court settlements given the overburdening cases. Moreover,
these settlements have various advantages for litigation. Although they are still considered a
secondary mechanism to solve disputes, their adequacy has been questioned several times. As
a result, the awards arising out of these proceedings cannot be enforced.

Arbitration is an alternative dispute resolution process, which is very similar to litigation.

Recent amendments have been incorporated in the parent Act to meet the level of
international arbitration law. Two significant changes have been incorporated by virtue of the
amendment Act of 2021, due to which several doubts and questions were raised. The recent
change in the Act added that if the court has prima facie evidence of fraud and
corruption on the arbitral award, then an unconditional stay will be executed over that
award, ultimately acting as a restriction over arbitral awards.

This can lead to many other issues while dealing with such matters. However, the omission of
the Eighth Schedule opens up a wide scope for the international arbitrator to practice
arbitration in India, which meet the level of UNCITRAL Model laws.
Bibliography

In this project following sources have been referred:

Book:

• Avatar Singh ‘Arbitration & Conciliation and Alternative Dispute Resolution

Systems’ (Eastern Book Company, 12th Edn. 2022)

Act:

• Arbitration and Conciliation (Amendment) Act, 2021 ( Act 3 of 2021)

Case Laws:

• ONGC v. Western Geco (2014) 9 SCC 263 (India).

• Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 (India).

• Hindustan Construction Company Limited v. Union of India, 2019 SCC OnLine

Website:

• Changes to arbitration law, The Indian Express (2021),

[Link]

nod-7186439/ (last visited October 19, 2023).