Arbitration
Arbitration is a form of Alternative Dispute Resolution. ADR methods enjoy significant advantages such as lower costs, greater flexibility of process, higher confidentiality, greater likelihood of settlement, choice of forum, choice of solutions etc. Having said that one of the most popular widely recognised and practised forms of ADR is Arbitration.
Arbitration Law in India has always been trending since its inception, in 1940. The present date arbitration law is a formation of several promulgations and ordinances passed by the government of India to meet the economic reforms taking place in the country from time to time. Arbitration Law in India, is primary contained in the Act of 1996. An Act that was passed to consolidate the laws relating to domestic, international arbitration and its enforcement. In an attempt to make arbitration a preferred mode of settlement of commercial disputes and making India a hub of international commercial arbitration some major amendments were introduced in the year to 2015 and 2019. The amendment of 2019 was a composition of several such amendments.
The Arbitration and Conciliation (Amendment Act), 2021 (“2021 Amendment”) is the most recent intervention in, what appears to be, the Indian Parliament’s endless attempts to tinker with the scheme and intent of the Arbitration and Conciliation Act, 1996 (“1996 Act”). The 2021 Amendment, which was passed into law on 10 March 2021 follows the Arbitration and Conciliation (Amendment) Ordinance, 2020 promulgated by the President of India in November 2020.
Key Elements of an Arbitration Agreement:
a.) Consent: - An arbitration cannot happen without the consent of the parties. The consent is contained within an arbitration agreement. This agreement clearly specifies the desire of the parties to arbitrate their dispute. In other words, they clearly note that in the event of a dispute between them they would not go to the court, instead they will proceed to arbitrate their dispute. This agreement takes the form of a binding contract. As per section 7 of the Act, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
b.) Presiding Authority - The Authority adjudicating the dispute is better known as the arbitral tribunal. It is similar to a judge that presides over a court of law. The presiding authority is known as the arbitrator, who is in charge of deciding the disputes between the parties. Just like the judge an arbitrator also has several responsibilities set out in the code. The arbitrator is under oath to perform its duties. He is bound to take decisions and conduct proceedings in a neutral and impartial manner. One of the key features of an Arbitration Agreement is the fact that the parties are free to choose their presiding authority. This legislative clause not only inspires confidence in the arbitrators but also the process and the decisions taken. The Act also has provisions for removing arbitrators, if found guilty of not being neutral and independent.
c.) Seat of arbitration - The seat of arbitration determines the courts which would exercise jurisdiction over the arbitration proceeding. In absence of such an agreement, the 1996 Act solely operates within the territory of India.
d.) Party autonomy and procedure - Arbitration gives the parties the choice to select applicable laws, especially if the arbitration is an international commercial arbitration. Additionally, there is an enormous flexibility to choose the procedure that shall be applicable. The Rules of the arbitration can be self - governed, however, the said rules have to be in the spirit of Public Interest of India.
e.) Finality of outcome - No appeal lies against an arbitral award, however, an arbitral award can only be set aside if the said award suffers from as invalid arbitration agreement, party's incapacity to enter into an agreement, independence and impartiality of an arbitrator, unfair procedure, etc.
Amendment of 2021
The over-cautious approach under the Arbitration Act, 1940, where the imprimatur of the Court was a pre-requisite to the enforcement of an arbitral award, was done away with by the 1996 Act. In fact, in conferring direct enforceability upon arbitral awards, the 1996 Act went a step further than the UNCITRAL Model Law (“Model Law”) which allowed an award-debtor to resist the award at both the challenge stage (Article 34) and at the enforcement or recognition stage (Article 36). At the outset is evident that the 2021 Amendment undermines this trajectory.
By the 2021 Amendment, disposal of a Section 36 application would (in most cases) require the Court to form a prima facie view that there has been no fraud or corruption in securing the contract or in the making of the award. The fact that such a finding shall nonetheless be subject to the eventual decision in the Section 34 application does not mitigate the hurdle since, on average, the final disposal of such proceedings (including appeals to the Supreme Court) which may be expected to take up to six years (See Paragraph 3 of the HCC Case). In this manner, the 2021 Amendment reintroduces the hurdle to enforcement (in cases of alleged fraud or corruption), representing a retrogression in the arbitral regime.
Nullifies the 2015 Amendment
Even within the realm of Section 36 proceedings, the 2021 Amendment could cause substantial mischief.
One of the major reasons for bringing in the 2015 Amendment was the observation of the Supreme Court in National Aluminium Company, that the automatic stay jurisprudence left “no discretion in the court to put the parties on terms” which defeated “the very objective of the alternate dispute resolution system”. This grievance found succour with the 246th Law Commission Report as well, which recognised the paralytic effect of the same and recommended changing the law.
The legislative antidote to allay such concerns was to confer upon the Court powers to deal with enforcement claims akin to those conferred upon civil courts under Order 41 Rule 5 of the Civil Procedure Code, 1908 (“CPC”) (See Proviso to Section 36 of the 1996 Act inserted by the 2015 Amendment). The exercise of such powers to stay enforcement of an award under the CPC is well-established and requires illustration that “substantial loss may result to the party applying for stay of execution unless the order is made” (See Order 41, Rule 5(3)(a), CPC).
With the 2021 Amendment Act, the illustration of a prime facie case would entitle the party to procure an “unconditional” stay, thereby obliterating any discretion to balance the competing equities which would doubtless vary from case to case in staying the enforcement of an arbitral award. In this respect, the 2021 Amendment re-introduces the stultification of judicial discretion resulting in ‘paper awards’, which led to the 2015 Amendment in the first place.
Further, the 2021 Amendment includes grounds such as ‘fraud’ and ‘corruption’ which are not explicitly contemplated under the CPC for staying a decree. These additional grounds now relate exclusively to arbitral proceedings, suggesting a fundamental distrust in the arbitral process, thereby creating inexplicable discrimination between civil proceedings and arbitral proceedings.