Arbitration and Conciliation (Amendment) Ordinance,2020


On November 4th, 2020, President Ram Nath Kovind perpetuated through the 71st amendment in the Arbitration and Conciliation Act 1996. The ordinance guarantees that all parties have the right to request an unconditional stay of execution of arbitral awards where bribery or misconduct is caused by the underlying arbitration arrangement or the making of the arbitral award. The key objective of the 2020 ordinance is to resolve the issues posed by stakeholders by the prior enactment of the Arbitration and Conciliation (Amendment) Act 2019 on that all stakeholders’ parties are given an opportunity to request unconditional stay of execution of the awards passed where fraud is caused by the underlying arbitration agreement rendering the arbitral award. Since the pandemic has led to the shutdown of every working place including the Parliamentary session and the President is confident that there are circumstances that make it appropriate for him to take urgent action; the President of India has promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2020. Amendments: 1. Section 36: • A proclamation has been added in form of the proviso in Section 36 of the Act, stating that where a prima-facie case of fraud or corruption has been raised, the Court must grant an unconditional stay, that is, now the court will have powers, author and jurisdiction to order stay unconditionally in currently awaiting the disposal of the challenge made to the award under Section 34 which enlighten the application for setting aside an arbitral award, if and only if the court is satisfied. • If the agreement or award is challenged and proved to be induced by fraud or corruption, an unconditional stay on an award would be granted by the court of competent jurisdiction. • Section 36(2) of the Act provides that if an application to set aside the award has been lodged in the court pursuant to section 34, the filing of such an application shall not on its own initiative, make the award unenforceable unless the court grants and orders to stay the execution of the award in compliance with the provisions of subsection 3 in respect of a separate application made for that reason. • Section 36 (3) provides that when an application has been filed for a stay in any kind of operation of the award, then under certain circumstance as the court thinks fits and is satisfied then has full authority to grant the stay and has to mandatorily record the reasons in writing as to why they stay order has been granted. • All stakeholders will have the opportunity to enjoy such an unconditional stay. It will apply to all arbitration proceedings, irrespective of whether arbitral or court proceedings have been initiated before or after the Arbitration and Conciliation (Amendment) Act, 2015, has been initiated. • "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 affected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.". The rationale for the newly added proviso explained that that clause would be obligatory for all court cases arising out of or in connection with the arbitral proceedings, irrespective of whether the arbitral or court proceedings were started before or after the start of the amendment act of 2015. 2. Section 43J: • The Ordinance also substitutes Section 43J of the Act to state that the credentials, competence, and conventions for certification of arbitrators should mandatorily be such as may be defined by the regulations.' • As a consequence to the amendment in section 43J, the Eighth Schedule of the Act, which deals with credentials and experience of an arbitrator, has been excluded/ removed after the said enactment. However, the Ordinance is silent on the name of the legislation that will govern the qualifications, the requirements for arbitrators' accreditation. In cases where intrinsic has prohibition by fraud or corruption has been 'prima-facie' demonstrated in court, the Ordinance will prove very beneficial. It will be fascinating, however, to see how courts view the obligation of proving a fraud or corruption 'prima-facie' case. The Ordinance may also be checked in cases where it is used by parties to stop the execution of an award by filing an application for Section 36 and wasting valuable court time. In formulating a test for the approval of an unconditional stay on the execution of the award, the courts would have to be vigilant. Now, let us start by reviewing the fraud identified in section 17 of the Indian Contract Act, 1872, and section 447 of the Companies Act, 2013. Both of these sections provide an expansive description that includes acts of deceit, concealment of the truth, and induction in order to obtain a wrongful benefit or to inflict wrongful loss. Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties & Ors., the Supreme Court has recognized the issue of conflicts involving claims of fraud and reiterated its prior opinion that if the conflict between the parties falls under section 17 of the Contract Act or involved fraud in the execution of the contract amounting to fraud, that would be a civil error and would be arbitral. Furthermore, pursuant to section 19 of the Contract Act, any party whose consent to an agreement was caused by such fraud may at the discretion of that party, consider such an agreement to be null and void and, accordingly, that party will not be obliged to fulfill its obligations under that agreement. Under section 18 of the Special Relief Act, which allows for exemptions to performance in cases of fraud, the error of fact, or misrepresentation, similar protection is also provided. "The dispute resolution process has an enormous impact on the Indian economy and the global perception of doing business in India, as noted. The current government is keen to push our nation to achieve the goal of becoming an international commercial arbitration hub." We need to move towards a strategy of minimal judicial intervention with arbitral awards and swift resolution of Court challenges to such awards in order to accomplish this. Until these needs are fulfilled the judiciary and legislation have to work together for the same.

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