Govt issues ordinance to amend arbitration law for stakeholder parties

The government on Wednesday issued an ordinance to amend the arbitration law to ensure that all stakeholder parties get an opportunity to seek an unconditional stay on enforcement of arbitral awards where the arbitration agreement or contract is "induced by fraud or corruption".

The ordinance which further amends the Arbitration and Conciliation Act, 1996 also does away with the 8th Schedule of the Act which contained the necessary qualifications for accreditation of arbitrators.

This provision had faced criticism from some quarters that the conditions prescribed in the law came in way of India getting the benefit of having foreign arbitrators.

"But that was not the case and a wrong impression had got created. Still, to do away with that impression, the concerned schedule has been dropped," a government functionary explained.

Now, the qualifications based on which arbitrators will be accredited will be prescribed by regulations, which will be framed by a proposed arbitration council.

Till recently, an arbitration award was enforceable even if an appeal was filed against it in the court under Section 36 of the law. But the court could grant a stay on the award on conditions as it deemed fit.

As per the latest amendment brought through the ordinance, if the award is being given on the basis of an agreement based on fraud or corruption, then the court will not impose a condition to stay the award and grant an unconditional stay during the pendency of the appeal if it has been challenged under Section 34 of the arbitration law.

The Law Ministry ordinance said the amendment was necessary "to address the concerns raised by stakeholders after the enactment of the Arbitration and Conciliation (Amendment) Act, 2019 and to ensure that all the stakeholder parties get an opportunity to seek an unconditional stay of enforcement of arbitral awards where the underlying arbitration agreement or contract or making of the arbitral award are induced by fraud or corruption."

In Section 36 of the Arbitration and Conciliation Act, 1996, sub-section (3), after the proviso, a clause has been inserted which states that "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 effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award."

The provision will come into effect retrospectively from October 23, 2015, the ordinance states.