We witnessed an Ordinance on November 4 to bring yet another change in the ever-changing Arbitration and Conciliation Act, 1996, as amended from time to time (Act). For the stakeholders, it is difficult to comprehend what is the tearing hurry to pass such an ordinance without any deliberations/comments, given the last change in the arbitration regime took place only in 2019. Be that as it may be, let’s have brief snapshot of inclusions/amendments through the said ordinance.
There are precisely two significant changes:-
- Unconditional Stay on the enforcement of award if the Court is of the prima facie view that the underlying contract or agreement on which award is based was induced by fraud or corruption. Further, stay on the enforcement of award shall also be granted in the event making of an award is induced by or effected by fraud or corruption.
- Eight Schedule containing norms, qualifications, experience of arbitrators is deleted.
Let us briefly analyze the aforesaid changes one by one:-
- Unconditional Stay on enforcement of arbitral award
As per Section 36(3) of the Act, the Court already had plenary power to grant stay on the arbitral award on such conditions which the Court may deem fit it to impose. Further, under Section 16 of the Act and on the basis of the principle of Kompetenz Kompetenz, arbitral tribunal is always competent to determine its own jurisdiction and one such instance includes whether the matter involves the nitty gritties of fraud element and therefore may refrain itself from exercising its jurisdiction from proceeding in the arbitration matter, on the presence of fraud element. In the event party is not successful in convincing arbitral tribunal with respect to involvement of fraud aspects in the matter, then recourse for party under Section 34 of the Act is anyways available to challenge the award on the ground that the making of the award is induced by the fraud or corruption.
Aforesaid amendment through an Ordinance will tempt the Respondents to act as impediment in enforcement of arbitral award by pleading fraud in underlying arbitration agreement. Further, it is difficult for the Enforcement Court to determine whether there exists fraud in the underlying arbitration agreement or contract. Needless to say that, amendment will also pose grave challenge for the Court to frame a prima facie view whether the contract is induced by fraud or corruption merely on bare reading of documents on record. It is apposite to note that in order to prove the fraud in the contract or to ascertain whether the making of an arbitral award is induced by fraud, Court has to thread barely examine the evidence led by the parties, therefore, we can see a task cut out before the Enforcement Court to examine the veracity of the contract or the award of the arbitral tribunal. Further, what will be the threshold of the prima facie view will again be subjective issue and would surely differs from case to case. Another interesting aspect which has to be seen if parties have not taken a plea of fraud at the inception of the arbitral proceedings then whether they are allowed to take the plea of fraud at the time of enforcement of arbitral award in order to avoid execution of award. Can such plea be allowed at such belated stage in order to stall the enforcement proceedings?
The second limb to the amended proviso of Section 36 of the Act is power to grant unconditional stay by the Court in the event making of award is induced by the fraud or corruption. Again the question arises what is corruption while making arbitral award and how to determine/deal with the allegations of fraud or corruption against arbitral tribunal as the Act failed to deal with the aforesaid issues in a coherent manner. Though there are safeguards for the parties to challenge the mandate of arbitral tribunal in the event arbitral tribunal appears to be partial or biased, however, there exist bottleneck in the Arbitration Act in terms of dealing with the fraud charges/corruption allegations against arbitral tribunal. Moreover, again the question will crop up how a prima facie view can be taken by the Court, while dealing with the issues of corruption.
It is also imperative to understand that jurisdiction of the Enforcement Court is akin to Execution Court having same powers under Code of Civil Procedure. Enforcement Court has to merely enforce the decree as per its terms, and the scope of Court cannot be enlarged so as to enable that court to decide any matter extraneous to the decree or to go behind the decree or to alter or amend it. Enforcement Court has to execute an arbitral award only as per the terms of the award and restrain itself from going into the rational of the award. Aforesaid amendment has given power to Enforcement Court to appreciate the matter on merits, while dealing with the issues of fraud or corruption, which is antithetical to the very purpose/power of such Court.
The Court already had the power under Section 36 (3) of the Act to grant a stay on the enforcement of arbitral award, pending the challenge to the arbitral award. The new amendment would certainly be abused by refractory Respondents, who will make every malafide attempt to delay the enforcement of the arbitral award. Further, the aforesaid insertion of proviso shall 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 Arbitration and Conciliation (Amendment) Act, 2015. Foreseeably, we can anticipate frivolous applications seeking a stay on the operation of the arbitral award.
- Deletion of qualifications, experience and norms for arbitrators stipulated under the Eight Schedule of the Act.
Eight Schedule was brought into the picture of arbitration regime of India by introduction of Section 43J of Amendment Act of 2019. Post Ordinance, Section 43J specifies that qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations. Eight Schedule of the Act was widely debated by the stakeholders right from its inception. One wing had argued that it will restrict the party autonomy in choosing the arbitrators. Further, it was also criticized on the point that it allowed professionals such as Company Secretary, Chartered Accountant to act as an arbitrator having generally no acumen of Legal practitioner. It also demotivated foreign parties to seat their arbitration in India due to inability to appoint foreign legal professionals as an arbitrator. Thus, Eight Schedule was also seen as a hindrance in creating India a global hub of International arbitration. On the other side of the wing, stakeholders argued that Eight Schedule brings some kind of discipline while making choice of arbitrators and also ensure the optimum quality of the arbitrators.
Analytically, Eight Schedule did not serve any fruitful purpose as it discouraged foreign parties to choose India as a seat of arbitration and therefore was sending wrong message to the Global community. Eight Schedule was also a counter attack on the cardinal principle of party autonomy. As far as norms of the arbitrators are concerned, parties are still free to formulate their norms for choosing the arbitrator.
Certainly, there was no need to bring the Ordinance to introduce the changes with respect to unconditional stay on the arbitral award on the ground of fraud or corruption as the said scenario is adequately covered in the other provisions of the Act. Enforcement proceedings, being the summary in nature, Respondent in all likelihood will abuse the said amendment to disallow the winning party to immediately reap the benefits of award. Furthermore, the said amendment will also act as a roadblock for expeditious disposal of the case. Another implication of the amendment will be that it will broaden the scope of Enforcement Court and it will compel Court to go into factual matrix of the case thereby frustrating the very purpose of the role of Executory Courts.
Ordinance surprised many as the same was promulgated in haste without any statement of objectives and comments from stakeholders. Deletion of Eight Schedule can certainly be considered as a positive and forward step in the said Ordinance, especially for the foreign parties to seat their arbitration in India and to enable foreign legal luminaries to act as an arbitrator in India.
Abhinav Mathur is Associate Partner at Chir Amrit Legal LLP, Jaipur. Abhinav’s key areas of interest are Commercial Litigation and Arbitration.Disclaimer: The views or opinions expressed are solely of the author.