Arbitration ordinance: Reopening the floodgates to litigation

It’s no secret that public sector undertakings (PSUs) and authorities ministries are the most important litigators in our nation and arbitration awards in opposition to authorities our bodies are invariably challenged within the courts.

By Ila Kapoor & Ananya Aggarwal

The urgency to cross a presidential ordinance on amendments to the Arbitration & Conciliation Act, 1996, on November 4, 2020, has taken the authorized group unexpectedly. That is the third modification to the arbitration legislation previously 5 years and the second within the final two years. Nonetheless, in contrast to others, this modification has been caused with none dialogue in Parliament, public feedback or exhaustive Regulation Fee reviews.

The preamble states that “the amendments have been essential to make sure that all of the stakeholder events get a chance to hunt unconditional keep of enforcement of arbitral awards the place the underlying arbitration settlement or contract or making of the arbitral award are induced by fraud or corruption”. However, actually, this safety already existed beneath the earlier laws. Practitioners are involved that the ordinance will open the floodgates to litigation with extra dropping events searching for an unconditional keep of enforcement of awards in opposition to them. There may be additionally a priority that it’s going to increase the courtroom’s intervention on the time of challenges to enforcement of awards. Invariably, there can be delays within the award creditor having the ability to fructify his award, placing on the very root of arbitration, which guarantees its person a speedy and conclusive decision of disputes.

The ordinance additionally deletes the Eighth Schedule to the Arbitration Act, which was launched by the 2019 amendments and which lays down standards for an individual to be appointed as an arbitrator. It required the arbitrator to be certified as an advocate beneath the Indian Advocates Act, thereby excluding overseas practitioners from the position. An extra requirement was that the arbitrator be conversant with the Structure of India, industrial legal guidelines, labour legal guidelines, and so on, even when the arbitrator was an engineer, chartered accountant, and so on. The schedule was a lot criticised for impinging on social gathering autonomy by limiting their selection of arbitrator. The Eighth Schedule had not but been notified, and whereas its elimination is a optimistic step, it couldn’t have been the explanation for the pressing passing of the ordinance with none dialogue in Parliament.

Previous to the overhaul of the prevailing arbitration regime by the 2015 amendments to the Arbitration Act, events would normally problem the award in opposition to them, sanguine within the data that the courts would keep the enforcement of the award, usually for years to return. The 2015 amendments particularly offered that mere submitting of a problem wouldn’t render the award unenforceable and that it was the courtroom’s discretion whether or not or to not grant a keep on the enforcement of an award topic to such circumstances because the courtroom deemed match. Considerably, regardless that the 2015 amendments did away with automated keep on the award, the power to problem the award and search a keep of its enforcement on the grounds of fraud or corruption within the arbitration settlement, contract or making of the award was obtainable to the events even previous to the ordinance.

So, what’s the new modification? Previous to this ordinance, granting of keep was a discretionary energy of the courts. They might additionally keep the operation of the award unconditionally, if justified by the grounds raised by the events. The ordinance appears to have made it obligatory for the courts to grant an unconditional keep if a prima facie case is made out for existence of fraud or corruption. It’s cheap to foretell that majority of awards will now be challenged within the courts together with an software to remain their enforcement on the grounds of fraud or corruption.

There isn’t a clear steering as to the extent of enquiry a decide should undertake earlier than reaching a prima facie opinion. Problem proceedings are typically within the nature of abstract proceedings and are restricted to the paperwork already submitted to the arbitrator. Nonetheless, it might be tough to type a prima facie opinion on the existence of fraud or corruption with out going into the deserves. This has significantly enlarged the scope of the courtroom’s interference at this stage of problem proceedings and is prone to be misused by award debtors.

The ordinance makes this modification relevant retrospectively to all courtroom proceedings arising out of arbitral proceedings, whether or not they begin earlier than or after the 2015 amendments. Due to this fact, events will be capable of make such an software even in enforcement proceedings which are pending and a keep on enforcement of award had not been sought earlier—thereby creating hurdles and delaying the proceedings.

It’s no secret that public sector undertakings (PSUs) and authorities ministries are the most important litigators in our nation and arbitration awards in opposition to authorities our bodies are invariably challenged within the courts. This downside was recognised by the Division of Justice, Ministry of Regulation & Justice, which got here up with an ‘Motion Plan to scale back Authorities Litigation’ in 2017, the place it candidly accepted that “roughly 46% of the full pending instances in courts pertain to the Authorities. This consists of instances regarding Public Sector Undertakings in addition to different autonomous our bodies.” To cut back pendency, the motion plan steered that the federal government undertake alternate dispute decision mechanisms. This step coupled with the 2015 amendments was profitable in lowering the pendency of instances from 76,708 in 2018 to 58,638 in 2019, as offered on the LIMBS web site of the Division of Authorized Affairs, Ministry of Regulation & Justice. The NITI Aayog had additionally tried to discourage problem to arbitral awards by laying down tips requiring PSUs and authorities our bodies to deposit 75% of the full award quantity in courtroom, in the event that they determined to problem arbitral award in opposition to them. Regardless of these efforts, authorities entities proceed to problem the enforcement of awards on the grounds of ‘public coverage’, as is clear from the issues of Vedanta Ltd, Reliance Industries Ltd and Devas Multimedia.

The ordinance might defeat the goals of those progressive actions if it takes us again to a time the place, tempted by the promise of an unconditional keep, events as a matter after all begin one other spherical of litigation to stall the enforcement of an arbitral award in opposition to them. Within the case between Devas Multimedia and Antrix Company, which is part of the ISRO, although the Supreme Courtroom had stayed the operation of the award in opposition to Antrix Company, it allowed Devas to method the Excessive Courtroom to hunt a deposit of the arbitral quantity. The ordinance could now open up the chance for Antrix to hunt an unconditional keep.

The ramifications of this ordinance inside the Indian arbitration regime and its impact on India’s picture as an arbitration hub are but to be seen. A lot will depend upon the best way the supply is interpreted by the courts and the convenience with which this reduction is granted. Enforcement regimes instantly influence the convenience of doing enterprise in India and consequently the influx of overseas funding. One can solely hope that the amendments caused by the ordinance will not be misused in a approach that will set the clock again on India’s progress in aligning itself with worldwide arbitration jurisprudence.

Kapoor is companion and Aggarwal is principal affiliate, Shardul Amarchand Mangaldas

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