In a move that might bring relief to many parties aggrieved by the outcome of arbitral awards against them, the President of India promulgated an Ordinance to make an addition to Section 36 of the Arbitration and Conciliation Act, 1996. The amendment enables such parties to seek unconditional stay on the enforcement of awards during pendency of setting aside proceedings initiated under Section 34, wherein the enforcing Court is satisfied that either the contract or the arbitration agreement or the making of the arbitral award was induced by means of fraud or corruption. It reads as follows:
“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.”
Explanation.— For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.”
Prior to the amendment, Section 36 enabled Courts to enforce an arbitral award, even during pendency of setting aside proceedings under Section 34 filed against it, unless filed within three months either from the date the award was received by the party concerned, or from the date on which a request for corrections under Section 33 had been disposed of by the arbitral tribunal. Sec. 36 reads as follows:
“Enforcement.—Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.”
While this move is certainly welcomed by the parties unhappy with the award itself or in the manner in which it is made, one cannot disregard that it does indeed add another layer or hurdle to the enforcement of an arbitral award. While the Ordinance speaks of fraud or corruption, it does not streamline the process for adjudication of such claims, thereby leaving the interpretation upon the Courts which will necessarily have to conclude their findings via the rigmarole of antediluvian procedural laws. Speaking purely from experience, the possibility of aggravated number of frivolous fraud claims from aggrieved parties who try to resist enforcement at any cost, cannot be ruled out. This means that given India’s ignominious track record of judicial backlog and delays, by enhancing the scope for interference by overzealous Courts and unfair losing parties, only adds to the perception of India as an unfriendly arbitral jurisdiction.
Another issue that will definitely concern arbitrators is the possibility of baseless fraud claims against them, exposing them to needless humiliation. Speaking purely from experience, the possibility of highly learned arbitrators coming across cantankerous client representatives intimidating them by threatening the former’s integrity simply with the object of delaying proceedings, cannot be disregarded.
The new Ordinance has removed Eighth Schedule from the Act. Further, it amends Section 43J by adding the following:
“43J. The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”
If the object behind amendment to Section 43J and removal of the Eighth Schedule is to encourage highly experienced arbitrators including those from international jurisdictions as being touted, the new insertion to Sec 36 will have to be realistically brought in synchronicity immediately.
Given that the Central Government is working very hard at making India an arbitration friendly regime, this move appears antithetical to the Government’s idéologie proclamée, and unless a more comprehensive mechanism is envisaged for resolution of specific arbitral disputes by special Courts, these reforms are anything but beneficial to the interest of parties.