The Arbitration And Conciliation (Amendment) Bill 2021

The Arbitration and Conciliation (Amendment) Bill, 2021 was introduced in Lok Sabha on February 4, 2021.  It seeks to amend the Arbitration and Conciliation Act, 1996.  The Act contains provisions to deal with domestic and international arbitration and defines the law for conducting conciliation proceedings.  The Bill replaces an Ordinance with same provisions promulgated on November 4, 2020.

• Automatic stay on awards:  The 1996 Act allowed a party to file an application to set aside an arbitral award (i.e., the order given in an arbitration proceeding).  Courts had interpreted this provision to mean that an automatic stay on an arbitral award was granted the moment an application for setting aside an arbitral award was made before a court.  In 2015, the Act was amended to state that an arbitral award would not be automatically stayed merely because an application is made to a court to set aside the arbitral award.

• The Bill specifies that a stay on the arbitral award can be provided (even during the pendency of the setting aside of the application) if the court is satisfied that: (i) the relevant arbitration agreement or contract, or (ii) the making of the award, was induced, or effected by fraud or corruption.  This change was to be effective from October 23, 2015.

Issues raised with respect to proposed amendment to Section 36 of the Act:

• It is very easy for the losing party to allege corruption and obtain an automatic stay on enforcement of the arbitral award. Thereafter, the parties will have to wait for enforcement till final disposal by the Court. This defeats the very objective of alternate dispute mechanism by drawing parties to Courts and making them prone to prolonged litigation.
• Legislation does not define Fraud/ Corruption.
• Retrospective application of Amendment Act (from 2015) with respect to automatic stay may open floodgates of litigation.
• Amendment will affect enforcement of contracts and ultimately affect ease of doing business in India.

Benefits:

• Would bring about parity among all the stakeholders in the arbitration process.
• All the stakeholders get an opportunity to seek unconditional stay on enforcement of arbitral awards where the agreement or contract is “induced by fraud or corruption”.
• Checking misuse of the provisions under Arbitration and Conciliation Act, 1996 would save the taxpayers money by holding those accountable who siphoned off of them unlawfully.

Drawbacks:

• 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.
• India aims to become a hub of domestic and international arbitration. Through the implementation of these legislative changes, resolution of commercial disputes could take longer duration now onwards.

Arbitration Council of India

• Constitutional Background: The Constitution of India, Article 51, India is obliged to endeavour to:
• Foster respect for international law and treaty obligations in the dealings of organised peoples with one country.
• Encourage settlement of international disputes by arbitration. ACI is a step in realisation of this constitutional obligation.
• Objective: The Arbitration and Conciliation (Amendment) Act, 2019 seeks to establish an independent body called the Arbitration Council of India (ACI) for the promotion of arbitration, mediation, conciliation and other alternative dispute redressal mechanisms.
• Arbitration: It is a process in which disputes resolve between the parties by appointing an independent third party who is an impartial and neutral person called arbitrator. Arbitrators hear both the parties before arriving at a solution to their dispute.
• Conciliation: It is a process in which disputes resolve between the parties by appointing a conciliator who helps (amicable) the disputed parties to arrive at a negotiated settlement. Settling the dispute without litigation, it is an informal process. He does so by lowering tensions, improving communication, interpreting issues, providing technical help.

Composition of the ACI:

• The ACI will consist of a Chairperson who is either:

1. A Judge of the Supreme Court; or
2. A Judge of a High Court; or

• Chief Justice of a High Court; or

1. An eminent person with expert knowledge in conduct of arbitration.
2. Other members will include an eminent arbitration practitioner, an academician with experience in arbitration, and government appointees.

Appointment of Arbitrators: 

• Under the Act, the Supreme Court and High Courts may designate arbitral institutions, which parties can approach for the appointment of arbitrators.
• For international commercial arbitration, appointments will be made by the institution designated by the Supreme Court.
• For domestic arbitration, appointments will be made by the institution designated by the concerned High Court.
• In case there are no arbitral institutions available, the Chief Justice of the concerned High Court may maintain a panel of arbitrators to perform the functions of the arbitral institutions.
• An application for appointment of an arbitrator is required to be disposed of within 30 days.