India introduces unconditional stay on enforcement of arbitral awards tainted by fraud

On 4 November 2020, the Government of India passed the Arbitration and Conciliation (Amendment) Ordinance, 2020, amending the Arbitration and Conciliation Act 1996 (‘the Act’) in two key respects. First, the amendment requires Indian courts to stay the enforcement of arbitration awards that appear tainted by fraud or corruption. Second, it introduces changes to the qualification required of arbitrators to be appointed in arbitrations seated in India.

Stay on Enforcement Proceedings

A party dissatisfied with an arbitral award made in an arbitration award seated in India can seek recourse from the Indian courts in either having the award set aside or in obtaining the courts’ refusal to enforce the award.

Section 34 of the Act sets out the basis on which the Indian courts can  set aside an arbitral award. Thus the courts can set aside the award where the arbitration agreement was invalid, the arbitration did not comply with the agreed procedure or where the arbitral award conflicts with Indian public policy, including where the making of the award involved fraud or corruption.

Section 36 states that an application to set aside the award under Section 34 would not operate to stay the award’s enforcement. Thus a winning party would not have to wait for the setting aside application to be dealt with before asking the court to enforce the award. Such power for the courts to allow the award’s enforcement ensures that the winning party need not delay enforcement due to what could be frivolous setting aside applications.

The losing party nevertheless has some protection in that it can apply to the court under section 36(3) for a stay of the enforcement. If such an application is made, section 36(3) gives the court discretion to order the award’s enforcement stayed.

The amendment enacted on 4 November 2020 has restricted that discretion. Now, where the losing party can show on a prima facie basis that the arbitration agreement or the contract containing that agreement, or the arbitration award itself, was procured or effected by fraud or corruption, the court must stay the enforcement of the award. The prima facie standard effectively requires the party opposing enforcement to show credible evidence of the fraud or corruption.

The aim of the amendment appears to be to give a losing party stronger means to fend off an arbitration award obtained through fraud or corruption. It can challenge such awards knowing there is less risk the award will be enforced in the meanwhile. It is unclear how the Indian courts will interpret or apply the prima facie standard that the party alleging fraud or corruption must meet.

Too lax an interpretation could result in delay in enforcing awards where allegations of fraud or corruption ultimately lack merit. Thus the manner in which courts deal with such cases will provide guidance on how the balance between monitoring fraud and corruption and the need to provide finality to arbitral awards can be achieved.

The amendment is deemed to have taken effect on 23 October 2015. As such it will affect all pending applications seeking to stay of the enforcement or arbitration awards on the applicable grounds of fraud or corruption, including those made before 23 October 2015.

Arbitrators’ qualifications

The amendments passed on 4 November 2020 also removed the Eighth Schedule to the Act. This Schedule was introduced in 2019 and set out the qualifications and accreditations necessary for arbitrators appointed in Indian-seated arbitrations.

Specifically, the Schedule required such arbitrators to be qualified under Indian law as an advocate, company secretary or accountant, to hold considerable experience in the public sector, or be an officer if the Indian Legal Service. As a consequence of these requirements, foreign nationals were effectively precluded from accepting appointments as arbitrators in Indian-seated arbitrations.

The 4 November amendments do away with these requirements, providing instead that the experience, qualification and norms for accreditation or arbitrators in such arbitrations will be dictated by regulations announced by the Government. The criteria under such regulations are yet to be provided for by the Government.

Accordingly, it is yet unclear if this amendment signals the possibility that foreign nationals can be appointed in arbitrations seated in India. Such a move would likely be welcomed for example by non-Indian parties to such arbitrations. Whether or not this happens, this amendment can be seen as part of India’s efforts to improve the provision of arbitration as a means for resolving disputes in India, and the Government’s regulations concerning arbitrators’ qualifications will likely reflect a commitment to arbitrators meeting high professional standards.