ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2021

I. INTRODUCTION

The latest Arbitration and Conciliation (Amendment) Bill, 2021 (referred as the Bill) seeks to
change the Arbitration and Conciliation Act of 1996 in two important respects (referred as the
Act). The Bill, in my opinion, suggests some major reforms that will propel India's potential
to become a centre of international commercial arbitration. It does, however, have a clause
that will extend the collateral proceedings involving arbitration in India.

II. THE AMENDMENTS

The first amendment introduced by the Bill aims to lift the current limitation in the Act that
barred foreign persons from serving as arbitrators in arbitrations held in India. In 2019,
Section 43J was added to the Act and the Eighth Schedule, adding this limit. Currently,
Section 43J allows arbitrators to follow the requirements outlined in the Act's Eighth
Schedule. The Eighth Schedule, in particular, establishes types of individuals entitled to serve
as arbitrators, excluding, among other things, attorneys licenced in overseas jurisdictions,
international academicians, and officers from serving as arbitrators. This implementation was
criticised as being too conservative because it limited parties' ability to nominate foreign
persons as arbitrators in India-seated arbitrations. This adoption was also at odds with India's
status as an arbitration-friendly centre, as parties were barred from naming foreign persons as
arbitrators based on their nationality. As a result, the Bill seeks to omit the will provide that
the credentials, expertise, and standards for arbitrator accreditation will be those required by
regulations. The Bill's Statement of Objects and Reasons recognises that an amendment was
necessary to facilitate India as a centre of International Commercial Arbitration by drawing
eminent arbitrators to the nation's arbitration room. By excluding the Eighth Schedule, the
Bill has eliminated the stringent stipulations. Nationality restrictions are not likely to be
included in the rules, which could be published later.

The Bill's 2nd amendment proposes delaying the execution of an arbitral award until it is
challenged under Section 34 of the Act. Section 36 of the Act dictates the granting of a stay
of execution on an arbitral decision that is being challenged. It should be remembered that
Section 36 of the Act was revised in 2015 1 to delete the provisions for an unconditional stay
in execution of an arbitral award when it is being appealed under Section 34 of the Act. As a
result of the 2015 reform, the Enforcement Court was given the authority to extend a stay of
execution on the award as required in the interest of justice.

The Bill proposes an amendment to Section 36(3) of the Act that requires the Enforcement
Court to stay the award unconditionally on hold until the resolution of the appeal to the award
under Section 34 where a prima facie argument is made out to prove that either:

(a) the arbitration arrangement or contract on which the award is based; or

(b) the reward itself was caused or influenced by bribery or misconduct.

III. IMPACT OF THE AMENDMENT

The suggested reform is a welcome change in that it clarifies that bribery in the "making of
an offer" is a basis for obtaining an absolute stay on the execution of an arbitral award.
However, an allegation of wrongdoing in the processing of the award can only be made after
the award has been finally delivered, the aggrieved party must be granted every chance to
secure a stay on the award's implementation before substantial and irreparable harm is
incurred and the award-holder who is a party to the corruption earns undue benefit.

It can be noted that a challenge centered on corruption or fraud in the creation of an arbitral
award will actually depend on Section 34(2)(b), which allows the court to put down the
arbitral award whether the court finds it to be contradictory to Indian public policy. The
explanation to Section 34(2)(b) states that an award would be found in violation with Indian
public policy regardless of whether it was triggered or affected by fraud. As a consequence,
relief under Section 34(2)(b) requires a court to make a conclusive determination of
wrongdoing before setting aside an award on the grounds of conflict with Indian public
policy. Given the significant time gap for a court to draw such a decision, it left it up to the
Compliance Court's discretion not to interfere with the award's execution, even though the
award itself is under such challenge of fundamentals. This raised the risk of irreparable
damage to the aggrieved party, especially given the growing judicial proclivity to regard
arbitral awards as sacred unless set aside under Section 34 of the Act.

1
The Arbitration and Conciliation (Amendment) Act, 2015
The Bill, on the other hand, requires that if a prima facie case of misconduct in the making of
the award is created, the Enforcement Court be under a constitutional duty to stay the
enforcement without any conditions. As a result, it elevates the plea of fraud above all other
ground of challenge applicable under Section 34 by excluding the Compliance Court's
jurisdiction over both the stay of enforcement proceedings and the terms of such stay. An
allegation of corruption in the award's making can be presented only when the award is
already made, and as such it strikes at the core of the arbitral award. In terms of this, the
proposed amendment balances the rights of the award-holder and the aggrieved party by
establishing the stay, but only if a prima facie case of fraud is identified before the
Enforcement Court.

The provision of the Bill, on the other hand, that makes such a stay obligatory in the presence
of a prima facie view of wrongdoing in the arbitration arrangement or contract underlying,
may have been agitated at different stages of the arbitration process. According to the
Supreme Court in A. Ayyasamy v. A. Parmasivam 2, a simple accusation of misconduct does
not exclude the case from the leaugue of arbitration, and only when the accused fraud was of
such a complex and dangerous nature that it was considered fit only for a civil court to
adjudicate the facts, could a reference to arbitration be denied. When a court determines that
the claims of misconduct are best handled by litigation, the reference becomes obligatory.
Further, in Vidya Drolia & Ors. v. Durga Trading Company & Ors. 3, the SC stated that courts
should take a prima facie view of the fairness of the agreement/contract when determining
Section 8 and Section 11 applications. As a result, it is fair to presume that charges of
wrongdoing may have been presented at the time the case was referred for arbitration in order
to assess the arbitrability of the dispute. Furthermore, even though a court refers a dispute to
arbitration after rejecting the corruption claim, a complainant may allege wrongdoing in the
contractual obligation before the tribunal at any point before filing the statement of defence
under Section 16(2) at any time. Specifically, the Supreme Court has stated unequivocally
that the Arbitral Tribunal is the preferred authority to determine all issues of non-
arbitrability4, including non-arbitrability based on bribery or wrongdoing in the arbitration
2
(2016) 10 SCC 386

3
2020 (12) ADJ 359

4
Ibid
agreement/ contract. Furthermore, under Section 37(2), a court sitting on appeal of an arbitral
tribunal's judgement granting jurisdiction to a fraud plea will revisit the fraud element of the
underlying contract. As a result, bribery or wrongdoing in the underlying contract may
theoretically be investigated and determined at different times, including before the tribunal
is formed and before the tribunal itself, prior to the award's implementation. Although fraud
in the making of the award can be agitated only after the award is made, fraud in the
arrangement underlying the arbitration award must have been subjected to several checks of
fire before the point of execution. As a result, a mandatory clause that treats misconduct in
the arrangement to the same level as fraud in the making of an arbitral award is not only
needless, but rather harmful to justice by bringing new life to contentions that, preferably,
should have received quietus by the time the arbitration award is pronounced.

Furthermore, the above proviso will have a fascinating side effect of broadening the breadth
of the grounds applicable under Section 34 for appealing the award. As previously noted,
Section 34 involves bribery or misconduct in the award-making process as a basis for
challenge. There is, however, no express clause that lists wrongdoing in the underlying
contract as an available basis for setting aside the grant. Though a finding or discovery of
wrongdoing will strike at the heart of the deal, the legislation seems to have intended to limit
the application of Section 34 to objections surrounding fraud or misconduct in the award-
making process, rather than the arbitration arrangement or the contract itself. As previously
said, the limited reach was arguably emphasised by the fact that there may have been several
chances to agitate and resolve the matter of wrongdoing in the underlying arrangement prior
to the issuance of the award. However, the Bill's proposed provision gives an award-debtor
the right to file a prima facie lawsuit before the Enforcement Court alleging bribery or
misconduct in the underlying contract. In the event that such a prima facie complaint is
produced, the Enforcement Court shall stay the enforcement proceedings until the court with
authority under Section 34 of the Act has finally settled the appeal. What this means is that
the bribery or corruption plea must be taken under Section 34 in order to secure a stay under
the revised Section 36. As a consequence, though bribery or misconduct in the underlying
contract is not an overt ground under Section 34, as a result of the revised Section 36, it must
now be read into the purpose and effect of Section 34.

Besides that, under the amended clause, the award-debtor only has to create prima facie
arguments in order to seek an unconditional stay. This suggests that the argument does not
have to be proven to the nth degree, but only a case that can be said to be founded if the proof
presented in support of it is believed 5. In the case of Gopal Krishan Kapoor v. Ramesh
Chander Nijhawan & Ors.6, the Delhi High Court observed that a "prima facie case" would
mean a case that is not likely to fail due to some technical fault and is based on any material
that, if admitted by the court, would allow the appellant to seek the relief prayed for by him
and would, therefore, warrant an investigation. The Bombay High Court, in H.R. Noshir C.
Gokhale v. Bharucha & Ors7 held that in determining whether a prima facie argument for a
specific point has been established, a court of law is not required to consider the facts or
determine the integrity of the witnesses, but only has to see if that case can be considered to
be approved if the evidence presented by the party in question on the point were accepted at
face value. Based on the precedent established by the Supreme Courts and numerous High
Courts regarding the establishment of a prima-facie case, it is perfectly clear that the
threshold to create a prima-facie case is low since no evidence or argument must be proven to
obtain interim relief. It may thus be claimed that even after all of the various reviews, where
the problem of wrongdoing in the underlying arrangement would have passed through more
stringent tests and obstacles prior to approaching the stage of arbitral award, an award-debtor
would be presented with a solution to secure an unconditional stay on the execution of the
award, by meeting the low threshold of creating a prima-facie case.

The amendment has changed the procedure and resulted in a very confusing system in which
the award-debtor pleads misconduct or wrongdoing as a ground before the court exercised
jurisdiction under Section 34 and establishes a prima facie argument before the Compliance
Court under Section 36 to obtain an unconditional stay in enforcement. The smoother route
would have been to bring a prima facie case before the court under Section 34, and after that,
to allow a representation before the Enforcement Court and secure the stay. In this way, the
fraud plea and the prima facie case will both be heard in the same session. Enabling the
Enforcement Court to decide the prima facie fraud plea while granting the court concurrent
authority under Section 34 to reach a definitive finding on the same plea might have an
unfavourable impact on the efficacy and utility of alternative dispute resolution. Based on
5
Martin Burn Ltd. v. R.N. Banerjee AIR 1958 SC 79

6
9 (1973) DLT 390

7
AIR 1969 Bom 177
precedent established by the Supreme Courts and numerous High Courts regarding the
establishment of a prima-facie case, it is perfectly clear that the threshold to create a prima-
facie case is low since no evidence or argument must be proven to obtain interim relief. It is
also important to remember that an award is similar to a federal court order, and the statute
states that an Execution Court cannot go above or behind the decree to refuse compliance.
The Bill contradicts this tenet because the Enforcement Court will now have the authority to
form a prima facie judgement on the charge of wrongdoing even on the contract that forms
the basis of the substantive conflict between the parties, after taking into account both facts
and prior rulings by the courts and the arbitral tribunal.

IV. CONCLUSION

There are additional unintended consequences. Since two different courts must hear the same
guilty plea simultaneously, two separate platforms for the same matter can result in an
inconsistency. The Bill fails to allow for the likelihood that the court hearing the application
for putting aside under Section 34 would be affected by the prima facie case presented before
the Enforcement Court. In contrast, where an award-debtor receives a stay by presenting a
prima facie case, the court assessing the Section 34 application should adhere to a statutory
schedule. Alternatively, an award recipient can be left with a stay order, which prohibits the
award from being implemented for an infinite amount of time before the Section 34 appeal is
finally decided. This jeopardises the pace at which arbitration proceedings are held.

It is not hidden that India has been working hard to establish its position in the global
arbitration domain. The amendment's clear aim is to prevent the continuation of fraud.
However, the way in which it is proposed risks stifling India's development in the Arbitration
domain and, in its good efforts, could be dragging the mechanism a few steps behind.