The 2021 amendments to the Arbitration & Conciliation Act

Introduction

When a tribunal renders an award, a party can file an application in court to annul the award in terms of section 34 of The Arbitration & Conciliation Act, 1996 (“Act”). When the Act was first enacted, an application to annul an award would automatically stay the award’s operation. However, this position changed when the Act was amended in 2015 (“2015 Amendment”); according to the amendment, filing an annulment application would not lead to an automatic stay; a separate application for stay was required to be filed.

The 2015 Amendment did not guarantee an unconditional and automatic stay of the award. A court to which an application was made could exercise its discretion in granting a stay, subject to reasonable terms and conditions. The court could apply provisions related to the stay of a money decree contained in the Code of Civil Procedure, 1908 (“CPC”).

The 2021 Amendment

Parliament amended the Act once again in March 2021 (“2021 Amendment”). One of the most significant changes of the 2021 Amendment is to the manner in which section 34 operates when there is an allegation of fraud or corruption made by a party; the 2021 Amendment re-enables automatic stays on awards, particularly on this ground. To this extent, another material change has been introduced into the Act by adding a proviso under section 36(3).

This proviso states that if courts are prima facie satisfied that (a) the arbitration agreement or container contract; or (b) the making of the award itself was affected by fraud or corruption, the award would be stayed unconditionally, pending the disposal of the annulment application. This amendment has been introduced with retrospective effect effective from October 2015. Under the 2015 Amendment however, awards were stayed at the discretion of the courts, under specific terms and conditions. In this sense, the 2021 Amendment is a significant departure from the existing regime and has been criticized by many as a potential tool for frivolous post-award litigation.

Interpreting ‘Fraud’ & ‘Corruption’

The approach of the courts should be to look at the meanings of ‘fraud’ and ‘corruption’ in other commercial legislations, since it is nowhere defined in the Act. ‘Fraud’, for instance, under section 17 of the Indian Contract Act includes,“any acts committed by a party to a contract […] with intent to deceive another party thereto to enter into the contract”. This definition of fraud makes it necessary for a party to have intentionally deceived another to enter into a contract. ‘Fraud’ under the 2021 Amendment must be interpreted as strictly.

A mere allegation without even prima facie evidence of fraudulent intent should not be taken as a ground to stay an award pending the outcome of the annulment proceedings. The party challenging the award must provide sufficient, clear and convincing evidence to support their claims of fraud. The 2021 Amendment could become an easy method for the losing party to obtain an unconditional, automatic stay of arbitral awards by merely alleging fraud or corruption. It is now the duty of the courts to bridle these terms – whether this is possible remains to be seen.

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