Author- Ishika Ahuja
Student at KIIT School of Law
The impact of Arbitration and Conciliation (Amendment) Act, 2021
The first Indian Arbitration Act came into force in 1899. After more than 120 years, Indian arbitration laws are still considered outdated. However, the judgments and amendments in key laws in 1996 clearly expressed the legislature’s intention to develop India as an arbitration-friendly regime.
Alternative Dispute Resolution (ADR) is a mechanism for resolving disputes outside of court. Although this mechanism is still under development, it is more popular than lawsuits.
The global popularity of ADR can be attributed to its efficiency and time-saving mechanisms. Indian Judiciary has a large number of pending cases and therefore requires optimal time to deliver justice. However, ADR can shorten this time and give the disputing parties more space to negotiate.
There are several methods of ADR, including arbitration, mediation, conciliation, and negotiation. However, there are special forms of dispute resolution in many parts of the world.Since the Arbitration and Conciliation Act, 1996 (ACA 1996) was enacted, there have been three key amendments:
1. The Arbitration and Conciliation (Amendment) Act, 2015:
- Introduced Section 8(1C) which allows a court to refer pending suits to arbitration if such a dispute was originally intended for arbitration through a valid arbitration agreement.
- Clarified the grounds for setting aside an arbitral award under Section 34 and provided stricter timeframes for filing such applications.
- Modified the procedure for appointment of arbitrators and arbitral tribunals.
- Empowered the High Court to make rules for handling arbitrations under the Act.
2. The Arbitration and Conciliation (Amendment) Act, 2019:
- Introduced Section 42A, mandating confidentiality in arbitral proceedings unless disclosure is necessary for enforcing the award.
- Added Section 42B providing protection for actions taken in good faith during arbitration.
- Amended Section 34, tightening timelines for challenging awards on grounds of fraud, corruption, or public policy violation.
- Introduced provisions for fast-track arbitrations under Section 29A.
- Established the Arbitration Council of India as a nodal agency for promoting and institutionalizing arbitration.
3. The Arbitration and Conciliation (Amendment) Act, 2021:
- Introduced the most significant changes:
- Automatic stay on enforcement of awards: If a party alleges prima facie case of fraud or corruption, the award’s enforcement is automatically stayed until the court disposes of the challenge.
- Removal of qualifications for arbitrators: The Eighth Schedule prescribing professional qualifications for arbitrators was scrapped, opening the door for anyone to be appointed based on competence and expertise.
- Added provisions for setting aside interim awards and allowing multiple grounds for challenging interim awards.
- Clarified the role of arbitral institutions in administering arbitrations.
These amendments represent a continuous effort to streamline and refine the arbitration landscape in India. While some changes like automatic stay and qualification removal sparked debate, the overall aim remains to foster efficiency, attract global talent, and solidify India’s position as a preferred arbitration hub.
The Arbitration and Conciliation (Amendment) Act, 2021:
The year 2021 witnessed a significant development in the Indian legal landscape with the enactment of the Arbitration and Conciliation (Amendment) Act. This amendment to the 1996 Act aimed to address longstanding concerns about the efficacy and efficiency of arbitration as a dispute resolution mechanism in India. However, the impact of this amendment has been met with mixed reactions, raising concerns about its potential effect on investor confidence and the overall pro-arbitration environment
The Arbitration and Conciliation (Amendment) Bill 2021 was introduced in Sabah on February 4, 2021. This bill aims to amend the Arbitration and Conciliation Law approved in 1996. This law contains provisions for handling domestic and international arbitration and defines the law for conducting arbitration. The mediation procedure of this bill replaces the regulation that was promulgated on November 13, 2019.
Key Provisions of the 2021 Amendment:
- Automatic Stay on Award Enforcement: The most contentious change introduced the provision of an automatic stay on the enforcement of arbitral awards challenged under Section 34 (setting aside) of the Act. This means that upon filing a challenge, the award’s execution is automatically suspended, potentially creating a significant hurdle for the party seeking enforcement. Proponents argue this protects parties from potentially unjust awards, while critics believe it hampers the enforceability of awards and incentivizes frivolous challenges, thereby defeating the purpose of arbitration’s swiftness.
- Qualifications of arbitrators: The Act specified some qualification, experience and accreditation standards for arbitrators in a separate list. The listed requirements include that the arbitrator must be: (i) an advocate under the Advocates Act, 1961 with 10 years of experience or (ii) an officer of the Indian Legal Service, among others. Further, general standards applicable to arbitrators include that they must be familiar with the Constitution of India. The bill repeals the Schedule for Arbitrators and states that the qualifications, experience and standards for accreditation of arbitrators will be specified by regulations.
- Removal of Eighth Schedule: The amendment abolished the Eighth Schedule, which prescribed specific qualifications and experience requirements for arbitrators. This move was intended to attract a wider pool of qualified international and domestic arbitrators, enhancing India’s appeal as an international arbitration hub. However, concerns remain about the potential appointment of unqualified arbitrators, impacting the quality and fairness of arbitral proceedings.
- Streamlining Institutional Arbitration: The amendment streamlined the process for institutional arbitrations by empowering institutions to administer arbitrations under the Act with minimal court intervention. This is expected to expedite proceedings and reduce costs, making institutional arbitration more attractive.
- Increased Judicial Scrutiny: The amendment strengthens judicial oversight by granting courts the power to intervene in certain situations, such as determining arbitrator misconduct or setting aside awards on grounds of public policy. This enhanced scrutiny could potentially lead to delays and challenges, though it also aims to ensure the integrity and fairness of the arbitral process.
Impact and Challenges:
The 2021 Amendment has sparked a heated debate about its potential impact. Supporters argue that it addresses concerns about corruption and ensures fair arbitration proceedings. They believe the automatic stay provision safeguards parties from unjust awards, while the removal of the Eighth Schedule attracts talent and enhances India’s arbitration standing. Further, streamlined institutional arbitration and increased judicial scrutiny are seen as positive developments.
However, critics argue that the automatic stay provision undermines the very essence of arbitration – swift and final dispute resolution. They believe it incentivizes frivolous challenges and deters foreign investors, who rely on the enforceability of awards for business certainty. The removal of the Eighth Schedule raises concerns about the quality of arbitrators and the potential for unqualified individuals conducting arbitration proceedings. Additionally, increased judicial scrutiny could lead to delays and negate the benefits of arbitration’s speed and cost-efficiency.
The Road Ahead:
The true impact of the 2021 Amendment will unfold in the coming years. Courts will play a crucial role in interpreting and applying the new provisions, setting precedents that will shape the future of arbitration in India. The success of the amendment will hinge on its ability to strike a delicate balance between safeguarding fairness and protecting the enforceability of awards. Building trust in the arbitral process, ensuring transparency, and addressing concerns about delays remain key challenges.
Ultimately, the 2021 Amendment presents an opportunity for India to further strengthen its arbitration framework and attract foreign investment. However, it is crucial to address the concerns raised and ensure the amendment achieves its intended goals without undermining the core principles of arbitration. By fostering a pro-arbitration environment that is fair, efficient, and transparent, India can truly position itself as a leading hub for international dispute resolution.
Conclusion:
India’s journey towards a robust arbitration landscape has been marked by continuous amendments and evolving perspectives. While the 2021 Act introduced significant changes, its impact remains a subject of heated debate. The automatic stay provision and removal of arbitrator qualifications represent bold attempts to address concerns about fairness and talent pool diversity, respectively. However, these changes also raise anxieties about enforceability, frivolous challenges, and the quality of arbitral proceedings.
The coming years will be crucial in determining the 2021 Amendment’s true success. Courts hold the key to interpreting its provisions and setting precedents that will shape the future of Indian arbitration. Striking a delicate balance between safeguarding fairness and protecting the enforceability of awards will be essential. Building trust in the arbitral process, ensuring transparency, and addressing concerns about delays are critical challenges that cannot be ignored.
Ultimately, the 2021 Amendment presents both opportunities and risks for India’s arbitration ambition. If handled prudently, it can further strengthen the framework and attract foreign investment. However, neglecting the raised concerns and undermining core arbitration principles could have detrimental consequences. By fostering a pro-arbitration environment that prioritizes fairness, efficiency, and transparency, India can pave the way for becoming a truly leading hub for international dispute resolution.
The road ahead for India’s arbitration landscape remains uncertain. Whether it flourishes into a haven for efficient and reliable dispute resolution or stumbles under the weight of its own reforms will depend on the careful navigation of the challenges and opportunities that lie ahead.
