2021 Arbitration Amendment in India: Critical Analysis of Automatic Stay
Introduction
The Arbitration and Conciliation Act, 1996 (The Act), has been a comprehensive legal framework for governing the alternative dispute resolution mechanisms of arbitration and conciliation in India. The act is primarily based on the UNCITRAL model law, which has provided the Indian framework its skeleton on which the legislature builds its law.
The Indian arbitration is conducted within the aegis of the Arbitration and Conciliation Act, 1996. The Legislature has, from time and again, made various efforts to make India an attractive destination for international parties to also come for a robust dispute resolution.
The Act has been amended by the legislature from time to time so as to make the country a pro-arbitration hub. These amendments were made with a view to enhance the rank of India in ease of doing business.
The Act was amended majorly in 2015, then in 2019, though it is yet to be notified, and most recently in 2021. While the 2015 amendment brought in the highest number of changes with respect to the automatic stay on the arbitral awards, the appointment of arbitrators by the High Court or Supreme Court, the time limit to dispose of an arbitral proceeding, etc., the 2021 amendment dealt only with two major issues: clarification regarding grounds for the automatic stay on arbitral awards and qualifications of the arbitrators.
This being the latest amendment to date, it has, as of now, settled the position of the Indian legal system with respect to the two issues.
Changes Brought in by the 2021 Amendment: [1]
Amendment to Section 36(3)
The 2021 Amendment has inserted the following proviso in Section 36(3) after the already given proviso:
“Provided further that where the Court is satisfied that a prima facie case is made out that—
- the arbitration agreement or contract, which is the basis of the award; or
- the making of the award,
was induced or affected 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.”
Amendment to Section 43J
The next major change brought in by the amendment in Section 43J, wherein the original text of the Act has to be substituted by—
“43J. The qualifications, experience, and norms for accreditation of arbitrators shall be such as may be specified by the regulations.”
Removal of the Eighth Schedule
Further, the Amendment has directed the removal of the Eighth Schedule of the Act.
Also Read: Abdel-Hady v Commonwealth of Australia [2026]: Unlawful Detention, Rule of Law & Lessons for India
Critical Evaluation
Automatic Stay on Arbitral Awards
Under the 2021 Amendment, the most controversial or the most talked about change brought by it was the ‘Automatic Stay’ on the arbitral award in case the award or the arbitration agreement was induced by fraud or corruption. [2]
This question of automatic stay has been in question since its inception, as in 1996, the courts interpreted this provision in such a manner that whenever any application for setting aside of award was made, an automatic stay on the award was granted by the court.
However, this position was reversed by the 2015 amendment, which provided that there is no automatic stay on awards just because an application for setting aside is filed under section 34 of the Act.
But the legislature again brought in the Automatic Stay provision during the pendency of the setting aside application on the grounds of fraud or corruption in either the arbitration agreement or the award given by the tribunal. [3]
Fraud or Corruption in the Arbitration Agreement
The problem with this provision of the 2021 amendment is that if the parties have to raise the allegations with respect to fraud or corruption in the Arbitration Agreement upon which the proceedings have to be conducted, then why are they given the time to raise this after an award has been made?
Fraud or corruption in the making of the arbitration contract is something that should be raised even before the proceedings have begun in front of the arbitral tribunal.
Similarly, for arbitral awards induced by fraud or corruption, the Act already provides for the setting aside of such awards under the scheme of Section 34(2)(b) as them being against the public policy of India.
Further, no more justifiable explanation is provided for adding these two as a ground for granting of automatic stay on the arbitral award.
Criteria for Determining Fraud or Corruption
The amendment further does not provide for any criteria to determine fraud or corruption, unlike the standards given under Section 34 for setting aside of the award, i.e., “establish on the basis of the record of the arbitral tribunal,” which makes the provisions scheme very clear as to what the parties have to show for getting the award set aside, which is not the case under the amended Section 36.
In such a situation where no standards are prescribed for assessing fraud or corruption, this has created a lot of ambiguity and vagueness within the provision, which can even result in businesses not going for arbitration if such an ambiguous scheme is established.
Retrospective Applicability
Another point of consideration is the retrospective applicability of the said provision.
This move has given the parties a free hand to file for an application for automatic stay on the grounds of fraud or corruption, which in turn led to more burden on the courts to decide the application, thereby defeating the whole purpose of the promotion of the alternate dispute resolution mechanism.
Conclusion
The 2021 amendment on one side has made a positive reform by deleting the provision and schedule regarding the qualifications of the arbitrators and leaving it for the ACI to roll out regulations for the same; on the other hand, it has brought in such a change that has increased the judicial interference in the arbitral proceeding and has given a lot of power in the hands of the traditional judicial system to oversee the functioning of the Alternate Dispute Resolution mechanisms.
While this change has opened a new door for the parties to delay the implementation of the arbitral awards, it has also undermined the efficacy and finality that arbitration is supposed to ensure.
Thus, the legislature now must see the repercussions of the changes introduced and bring in a new change to undo whatever harm is being caused by their act and leave it for the experts to decide as to what is to be the path of arbitration in the future.
Bibliography
- The Arbitration and Conciliation (Amendment) Act, No. 3 of 2021, INDIA CODE (Mar. 11, 2021), https://legalaffairs.gov.in/sites/default/files/arbitration-and-conciliation%28amendment%29act-2021.pdf
- Shubham Joshi, Implications of the Arbitration and Conciliation (Amendment) Act, 2021, RGNUL Student Research Review (Apr. 20, 2021, updated Oct. 5, 2023), https://www.rsrr.in/post/implications-of-the-arbitration-and-conciliation-amendment-act-2021-ensuring-un-ease-of-doing-b
- Soumitra Bose, Unconditional Stay of Arbitral Awards: A Step Back for Arbitrations in India, Lexology (Dec. 2, 2021),
https://www.lexology.com/library/detail.aspx?g=e25e0d92-67f9-49c0-8877-6d0e38e7b374
