Arbitration and conciliation by Arya Kudchadker at LexCliq

Alternate Dispute Resolution (ADR) is the mechanism that resolves disputes out of the court. Although this mechanism is developing, it has gained more popularity than litigation.

The emergence of ADR globally can be attributed to its efficiency and time-saving mechanism. Due to many pending cases in the Indian judiciary, justice delivery requires an optimal amount of time. However, ADR could reduce this time, providing disputing parties with broad scope for negotiation.

There are various methods of ADR, like arbitration, mediation, conciliation and negotiation. Still, there is a specific form used to resolve disputes in many parts of the world.

The process of ADR manifested its central emergence in developing countries, like India and African subcontinents, the economics of legal suit could be daunting. Thus, most parties tend towards out of the court dispute resolution.[1] Moreover, they want less interruption of courts in dispute settlements because of the delays.

In India, governance of arbitration got initiated by the Arbitration Act of 1889[2], and further, the Arbitration Act 1940 [3]compiled the law governing different methods of ADR mechanism.

After that, in 1996, a significant amendment was incorporated in the Arbitration Act.[4] The same followed through in the 2015[5] and 2019[6] Amendment Acts. Recently, amends were made to the principal Act, introducing the 2021 (Amendment) Act to match the level of International Arbitration law.

On March 10, 2021, the Parliament passed the recent amendment in Rajya Sabha, amending the Arbitration and Conciliation Act 1996.[7]

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The Arbitration and Conciliation Amendment Act 2021 brought a significant change to the enforcement of arbitral awards. It was stated that the Bill would act against the increasing rate of corruption in securing arbitral awards.

Changes Brought By The Arbitration And Conciliation Amendment Act 2021
The 2021 Amendment in the Arbitration and Conciliation Act 1996 is the third amendment to the principal Act in the last six years. This reassures that the Indian legislature is updating ADR mechanisms to meet international standards.[8] The significant changes brought by this amendment Act are:

The amendment allows an automatic stay on enforcement of any arbitral awards if the courts find any clear evidence that the award is influenced by fraud or corruption. This change has been incorporated under Section 36 of this Act using Section 2 of the principal Act.
Secondly, it omitted the Eighth Schedule from the principal Act, which specified the arbitrator’s qualifications, experience, and norms to be followed.[9]
Effect Of The Amendment On Indian Framework: Analysis And Justification
The Indian judiciary has adopted a pro-arbitration approach, allowing the enforcement of almost all foreign awards in India.

Further, India is one of the signatories to the New York Convention.[10] That means if a disputing party from India received any arbitral awards from a country that is a signatory of this particular convention and that award is given in a territory that India has recognised as a convention country, then the award is enforceable in India. However, to date, there are only 50 countries that the Indian government has recognised.[11]

In India, the process of enforcing awards can be identified in two stages, initiated by filing an execution petition. The national courts must determine whether the awards strictly adhere to the Arbitration and Conciliation Act 1996.[12] So, once it satisfies these conditions, the awards become enforceable and are considered a decree passed by the court.

The Supreme Court of India, in ONGC v. Western Geco[13] and Associate Builders v. Delhi Development Authority,[14] stated that only in the rarest of rare cases a foreign award could be successfully refused for enforcement. Otherwise, the general law is always in support of enforcement of the awards.

The 2021 amendment to the principal Act mainly targeted the provisions of arbitration awards. As per Section 34 of the principal Act, a party can request the court to set aside the arbitral award, further amended in the Arbitration and Conciliation (Amendment) Act 2015.[15]

It was decided that no automatic stay will be granted in executing an arbitral award just because of a mere application to set aside the award.

But 2021 Amendment Act is different from the decision.

The new amendment has added a statutory provision under section 36(3) of the Act.

The new provision states that if the court has prima facie evidence that the arbitral award is affected by fraudulent activity and corruption, the court can put an unconditional or complete stay on the award.[16] However, several members of Parliament criticised this addition.

According to them, this change will affect the pro-arbitration approach taken by the Indian judiciary towards enforcement of the foreign awards. The concern is that one party to the dispute will forever have a disadvantage. Thus, it could lose due to corruption allegations, which will result in staying the award. [17]

It is also argued that implementing this change will affect the sole feature of ADR, and it will no longer be considered an out-of-court settlement. But the major concern to this amendment is that the particular legislation doesn’t even define fraud and corruption, based on which the change has been brought.

So, it is clear that the definition will vary according to the merits of the cases, creating a challenging situation for the defendant on whom the allegation of fraud gets imposed.

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