ABSTRACT:
In the world of commerce, disagreements are bound to arise. However, in today’s fast-moving commercial landscape, relying on traditional litigation can often be both time-consuming and expensive. The formal court system, with its procedural complexity and lengthy timelines, may fall short in delivering timely resolutions. This is where Alternative Dispute Resolution (ADR) methods—particularly arbitration—emerge as a practical and efficient substitute. Arbitration offers a swifter, more cost-effective, and flexible route for settling disagreements, eliminating the need for prolonged courtroom proceedings.
The origins of arbitration can be traced back to ancient societies, where respected community members resolved conflicts based on fairness and customary norms. Over time, arbitration has developed into a formalized and legally endorsed process, widely accepted across the globe for resolving commercial disputes. In India too, arbitration has gained traction, especially in the context of cross-border contracts and international trade engagements.
India’s arbitration framework is anchored in the Arbitration and Conciliation Act of 1996. This legislation was designed to comprehensively govern domestic and international arbitration, as well as conciliation proceedings. Given the increasingly global nature of business and the complexity of commercial transactions, a consistent and harmonized legal structure became essential. The Act aligns Indian arbitration practices with global benchmarks, aiming to reduce court interference, uphold the finality of arbitral awards, and promote India as a favourable destination for arbitration.
Acknowledging the evolving needs of the arbitration landscape, the Indian legislature enacted the Arbitration and Conciliation (Amendment) Act, 2021. It introduced crucial reforms to strengthen transparency and impartiality in the arbitration framework. Two major reforms stand out: (i) the provision allowing courts to impose an automatic stay on arbitral awards tainted by fraud or corruption, and (ii) the removal of the Eighth Schedule, which previously prescribed specific qualifications for arbitrators.
This first reform acts as a safeguard, empowering courts to block the enforcement of awards suspected to be the result of fraudulent or corrupt practices. The second change, through the elimination of the Eighth Schedule, broadens the scope for appointing foreign arbitrators in international commercial arbitration, thereby increasing flexibility and expertise in such cases.
Together, these reforms are designed to improve the reach, effectiveness, and reliability of arbitration in India. By addressing long-standing issues such as procedural bottlenecks and excessive judicial intervention, the 2021 amendment further strengthens arbitration’s role as a dependable and modern alternative to traditional court litigation.
KEYWORDS: International Arbitration, ADR, Judicial Intervention, Domestic Arbitration, Arbitral Award, Section 43J, section 34
INTRODUCTION
Arbitration is one of the key methods of Alternative Dispute Resolution (ADR), increasingly being used by parties who decide to settle their disputes outside the court not following the traditional court system. Arbitration fosters a more cooperative environment where one impartial arbitrator is appointed who acts as a judge, they review evidence, hear arguments and deliver judgements on the basis of facts, without favouring any party to dispute which leads to quicker and more amicable resolutions.
As defined in Section 2(1)(a) of Arbitration and Conciliation Act, 1966, arbitration refers to any arbitration, whether or not administered by a permanent arbitral institution. The primary goal of arbitration is to provide a swift and efficient mechanism for resolving disputes while minimizing judicial intervention and reducing the burden on traditional courts.
India’s arbitration framework has undergone significant evolution since independence. Before the Arbitration and Conciliation Act, 1966, Arbitration was governed by multiple statutes, including the Arbitration Act, 1940, which was often criticized for being outdated and overly reliant on judicial interference. Recognizing the need for a more modern and internationally aligned system, the Indian legislature enacted the Arbitration and Conciliation Act, 1966, drawing heavily from the UNCITRAL Model Law on International Commercial Arbitration. This Act provided a unified legal framework for both domestic and international arbitration, promoting efficiency and reducing judicial delays. However, over time, it became evident that certain areas still required improvement to fully align with global best practices.
To address these gaps, several amendments were introduced, the most recent being the Arbitration and Conciliation (Amendment) Act, 2021. This amendment primarily sought to enhance transparency in arbitration proceedings, ensure the enforceability of arbitration agreements, and introduce safeguards against fraudulent or corrupt arbitral awards. The fact that this was the third amendment in six years reflects India’s strong legislative commitment to fostering a pro-arbitration environment and making the country a preferred hub for dispute resolution.
Key Features of Arbitration and Conciliation Amendment Act 2021
The 2021 Amendment signifies a substantial addition to India’s ongoing pro-arbitration legal reform efforts. Being the third major revision to the Arbitration and Conciliation Act, 1996 in just six years, this amendment reflects the legislature’s dedication to improving the arbitration system and advancing India’s role as a premier venue for dispute resolution. The changes introduced primarily to address the challenges posed by unethical conduct in arbitration, focusing on two core areas: first, the introduction of an automatic stay on arbitral awards where fraud or corruption is suspected, and second, the elimination of the Eighth Schedule, which had set specific qualifications and ethical standards for arbitrators. This analysis evaluates how these developments contribute to strengthening India’s arbitration landscape.
Provision for Automatic stay on Award Enforcement (Section 36 Amendment)
Before the 2015 amendment, Section 34(2)(b)(ii) allowed for an automatic suspension of award enforcement upon filing an application to set aside the award. However, this provision often led to unnecessary delays in enforcement, undermining the efficiency of the arbitration process.
2015 Amendment: Removal of Automatic Stay
The 2015 reform addressed this issue by eliminating the automatic stay. It clarified that simply filing a challenge under Section 34 would not delay enforcement. A separate application requesting a stay had to be submitted, and such a stay could only be granted under specific conditions. This change was aimed at expediting the arbitration process and ensuring timely enforcement of awards.
2021 Amendment: Reintroduction of Stay in Cases of Fraud
The 2021 amendment brought a targeted exception to the rule. It added a provision to Section 36(3) stating that if a court finds preliminary evidence of fraud or corruption either in the arbitration agreement or in the way the award was obtained, it must order an unconditional stay on the award’s enforcement.
This update brings significant benefits:
- Improved Efficiency – By narrowing the scope of judicial intervention and avoiding automatic delays, arbitration proceedings are kept timely and streamlined.
- Investor Confidence – Strengthening the enforceability of awards encourages foreign and domestic investment by providing legal certainty and reinforcing India’s arbitration-friendly reputation.
- Judicial Oversight in Exceptional Cases – The amendment maintains arbitration’s autonomy while ensuring judicial safeguards in cases of misconduct, thus preserving fairness.
Revocation of Section 43J and the Eighth Schedule Pertaining to Arbitrator Eligibility
The 2021 reform also eliminated Section 43J and the Eighth Schedule from the principal Act. These provisions had previously imposed rigid qualification standards for arbitrators, introduced through the 2019 amendment.
A person could be accredited as an arbitrator only if they were:
- An Advocate with at least 10 years of legal practice, or
- A Chartered Accountant (CA), Cost Accountant, or Company Secretary with at least 10 years of professional practice, or
- An Officer of the Indian Legal Service, or
- An Officer in the government with law experience, or
- An Engineer, Architect, or technical expert with at least 10 years of experience, or
- A person having educational qualifications and experience in arbitration or related fields, as may be prescribed.
Background and Criticism of the Eighth Schedule
While intended to improve the quality of arbitration, the Eighth Schedule faced criticism on several fronts:
- Restricted Arbitrator Pool – The strict eligibility requirements excluded many capable individuals, including industry experts, senior executives, and foreign legal professionals who did not meet the statutory criteria but were otherwise well-suited to arbitrate complex matters.
- Barrier to International Participation – By limiting the appointment of foreign arbitrators, the provision discouraged international parties from choosing India as the seat of arbitration.
- Violation of Party Autonomy – Arbitration rests on the principle that parties should have the freedom to choose their own arbitrators. The Eighth Schedule placed limitations that directly conflicted with this principle.
- Incompatibility with Global Standards – Major international arbitration rules (such as UNCITRAL, ICC, LCIA, SIAC) do not enforce such qualification rules, making India less competitive in the global arbitration market.
Positive Impact of the Schedule’s Removal
- Enhanced Party Autonomy – Parties are now free to select arbitrators based on the specific needs of their case without statutory constraints.
- Increased International Appeal – Opening the door to foreign arbitrators strengthens India’s attractiveness for international arbitration and aligns with global expectations.
- Stronger Global Positioning – Aligning India’s arbitration rules with international norms helps promote the country as a neutral and reliable arbitration destination.
- Encouragement of Specialization – The flexibility now allows parties to appoint arbitrators with domain-specific knowledge—such as experts in intellectual property, shipping, or technology—enhancing the quality of arbitration outcomes.
Influence on Arbitration Agreement Validity
Arbitration has long been recognized as a reliable and autonomous method for resolving commercial disputes, with minimal court intervention being a key principle. However, the 2021 amendment to the Arbitration and Conciliation Act brought a pivotal change by modifying Section 36(3). The revised provision allows courts to impose stay on the enforcement of an arbitral award if a prima facie case of fraud or corruption is presented, either in the arbitration agreement or during the arbitral process. This adjustment marks a shift in how arbitration awards are enforced, introducing deeper judicial involvement in verifying the legitimacy of arbitration agreements—potentially challenging the traditionally privileged position arbitration clauses have held in commercial contracts. Although this change aims to promote fairness and transparency, it also raises concerns about excessive judicial interference and the balance between procedural safeguards and the finality of arbitration outcomes.
Prior to this amendment, Section 36(3) granted courts the discretion to stay the enforcement of an award when an application under Section 34 was filed, but there was no automatic stay, nor any mention of fraud or corruption. The new addition to the law allows the court to intervene specifically in instances where corruption or fraud is suspected, fundamentally altering the legal landscape.
Under the revised section, if a court finds a prima facie case of corruption or fraud in the arbitration agreement or the arbitral process, it is now necessary to suspend the enforcement of the award without any conditions until the relevant section 34 procedures have been completed. This provision aims to preserve the fairness and credibility of arbitration by ensuring that awards influenced by dishonest conduct are not enforced.
The amendment introduces several key implications for the enforcement of arbitral awards:
- Enhanced Judicial Oversight to Prevent Fraudulent Awards
The change enables courts to step in at the enforcement stage to block awards obtained through fraudulent or corrupt practices. This not only acts as a safeguard against the misuse of arbitration but also ensures that the process aligns with the broader goals of justice and ethical conduct. - A Thoughtful Adjustment to the Principle of Minimal Intervention
While Indian arbitration law has traditionally emphasized limited judicial involvement, the amendment allows targeted intervention only when credible evidence of fraud or corruption exists. Such approach seeks to strike a balance between upholding party autonomy while also ensuring judicial supervision in exceptional cases. - Protecting Legitimate Grievances and Ethical Standards
The new provision offers protection to parties who may be unfairly bound by arbitral awards tainted by unethical behaviour. By ensuring that such awards can be challenged, the amendment strengthens the credibility of the arbitration framework and discourages misuse for illegitimate ends. - Securing Honest and Willing Participation in Arbitration Process
The courts are now empowered to verify that arbitration clauses were agreed upon voluntarily and without coercion or deception. This promotes fairness in contractual dealings and supports the enforcement of agreements made in good faith. - Supporting India’s Position as a Trusted Arbitration Hub
The reform reflects India’s dedication to promoting a transparent and ethical arbitration system in line with global standards. Rather than undermining arbitration, it boosts trust among both domestic and international stakeholders by ensuring only genuine and fair agreements are upheld, reinforcing India’s reputation as a credible, arbitration-friendly jurisdiction.
Domestic vs. International Arbitration
Domestic Arbitration: Effects of the 2021 Amendment on Domestic Agreements
The 2021 modification to Section 36(3) of the Arbitration and Conciliation Act introduced a significant legal development in the enforcement of domestic arbitral awards. This amendment grants Indian courts the authority to impose an unconditional stay on the enforcement of an award if a prima facie case of fraud or corruption is demonstrated. This shift departs from the previous framework, which largely emphasized judicial non-intervention, and introduces a carefully limited form of oversight aimed at protecting the credibility of arbitration.
By allowing judicial involvement during the enforcement stage, the amendment ensures that awards potentially compromised by unethical behaviour do not receive judicial validation. This serves as a preventive mechanism against the exploitation of arbitration as a tool to formalize dishonest contracts or secure awards through procedural manipulation. However, the scope of this judicial power is intentionally narrow and applies only in exceptional situations, thus maintaining the broader policy in favor of arbitration and minimal court interference.
This reform enhances public confidence in arbitration by ensuring that only procedurally fair and ethically legitimate awards are enforceable. The legislature has sought to strike a delicate balance—preserving the finality and efficiency of arbitration while permitting necessary judicial scrutiny to prevent injustice. Overall, this legal development reinforces the integrity of India’s domestic arbitration framework without compromising its effectiveness or autonomy.
International Arbitration: Continued Ease of Enforcing Foreign Awards Under the New York Convention
While the 2021 Amendment increases judicial oversight in the context of domestic arbitral award enforcement, it deliberately avoids disrupting the established legal regime governing foreign awards. Arbitral decisions rendered in international commercial arbitrations seated outside India continue to be addressed under Part II of the Act, particularly Sections 44 to 52. These provisions are designed to fulfil India’s obligations under the 1958 New York Convention, offering a streamlined process for recognition and enforcement.
Crucially, the expanded judicial powers under Section 36(3)—specifically the ability to grant an automatic stay in cases involving fraud or corruption—do not apply to foreign arbitral awards. This exclusion is intentional and ensures that India remains compliant with international standards and maintains its reputation as a pro-enforcement jurisdiction. Foreign investors and international businesses thus continue to enjoy clarity and confidence in India’s approach to arbitration, knowing that judicial interference remains limited to the specific grounds laid out in the Convention, such as incapacity, invalid agreements, procedural irregularities, or conflicts with Indian public policy.
Moreover, Indian courts have increasingly interpreted public policy exceptions narrowly, reinforcing the principle that only in rare and clearly defined instances should a foreign award be denied enforcement. This trend affirms India’s commitment to international arbitration norms and strengthens its position as a preferred venue for cross-border dispute resolution. By preserving the integrity of the foreign award enforcement framework, the 2021 amendment supports the dual objective of refining domestic arbitration oversight while promoting India’s role as a trusted and globally respected arbitration jurisdiction.
Role of Government and Public Sector Enterprises
The 2021 Amendment to India’s Arbitration and Conciliation Act marks a significant legislative shift, aiming to enhance the autonomy and efficiency of arbitration by limiting excessive judicial involvement. A key innovation introduced through this reform is the emphasis on the timely appointment of arbitrators, particularly as outlined in the revised Section 11 of the Act.Previously, arbitration proceedings in India were frequently delayed due to the judiciary’s involvement in appointing arbitrators, which often led to procedural hold-ups and stalled resolutions. The amendment addresses this persistent issue by encouraging the use of institutional arbitration frameworks and restricting the courts’ function in Section 11 matters to a preliminary determination of whether a valid arbitration agreement exists. This change ensures that courts assess only the existence of such agreements, without engaging with the substantive aspects of the dispute, thereby preserving party autonomy and reinforcing the principle of minimal court interference.
By streamlining the arbitrator appointment process and preventing extended litigation over peripheral issues, the amendment furthers the core aim of promoting quicker and more economical dispute resolution—an essential requirement for both Indian and international commercial actors. Overall, this legal reform demonstrates India’s strong commitment to transforming arbitration into a faster and more reliable method for handling complex commercial disputes, while effectively reducing judicial delays that have historically impeded progress.
Relevant Case Laws
- Alkem Laboratories v. Issar Pharmaceuticals, Bombay HC (5 Feb 2024)
(For Claims of Damages, Proof of Actual Loss is Sine Qua Non”)
Facts:
Alkem Laboratories (respondent in arbitration and award-debtor) entered into a Marketing and Distribution Agreement (MDA) with Issar Pharmaceuticals (claimant and award-holder) concerning the product MELGAIN. Issar alleged that Alkem had breached the agreement by failing to meet the minimum purchase obligations and initiated arbitration proceedings.
The arbitral tribunal ruled to grant damages to Issar. However, the damages were assessed solely on the basis of the product’s sale price, without any concrete proof of loss or cost incurred by Issar.
Alkem challenged the arbitral award before the Bombay High Court, arguing that the calculation of damages lacked a legal basis, and sought a stay on the enforcement of the award.
Key Issues:
- Was the arbitral award defective in law for granting damages without requiring proof of actual financial loss?
- Could the High Court invoke its powers under Section 36(3) of the Arbitration and Conciliation Act, 1996, to impose an unconditional stay based on apparent legal flaws?
Judgement:
- Review of the Merits: The High Court noted a fundamental inconsistency in the tribunal’s reasoning. Although the tribunal acknowledged the requirement of establishing actual loss, it proceeded to award damages solely based on the product price, without adjusting for discounts or costs, and without evidence of monetary harm.
- Failure to Discharge Burden of Proof: The Court held that Issar had not submitted any documentation or material to substantiate actual loss—an essential element in damage claims.
- Apparent Legal Error: The Court concluded that the arbitral award suffered from “patent illegality”—a manifest error on the face of the record.
- Stay of Enforcement: Relying on the evident legal defects, the Court exercised its discretion under Section 36(3) and granted an unconditional stay on the enforcement of the award until the matter is fully adjudicated.
- Mahanagar Telephone Nigam Limited (MTNL) v. Canara Bank & Canara Bank Financial Services Ltd. (CANFINA) (2020) 12 SCC 767
Facts:
In 1992, Mahanagar Telephone Nigam Ltd. (MTNL) raised ₹425 crores through a private placement of non-cumulative secured bonds. Canara Bank’s subsidiary, Canara Bank Financial Services Ltd. (CANFINA), purchased bonds worth ₹200 crores but paid only ₹50 crores upfront. While MTNL made partial payments on these bonds, the 1992 stock market crash left CANFINA in financial distress.
To assist its subsidiary, Canara Bank acquired the bonds from CANFINA and approached MTNL to officially record the transfer. MTNL declined the request, citing CANFINA’s outstanding balance of ₹150 crores. Subsequently, MTNL cancelled the bonds and refunded ₹5.5 crores to Canara Bank, which was refused. Canara Bank then filed a writ petition contesting the bond cancellation. Though not a primary party, CANFINA was added as a pro forma respondent in the case.
Following judicial direction from the Delhi High Court, and later from the Permanent Machinery of Arbitration and AMRCD, the dispute was referred to arbitration. A central question arose—could CANFINA be subjected to arbitration despite not being a formal party to an arbitration agreement?
Key Issues:
- Did a valid arbitration agreement exist among MTNL, Canara Bank, and CANFINA?
- Could CANFINA be compelled to arbitrate as a non-signatory under the “Group of Companies” principle?
Arguments Presented:
MTNL (Appellant):
- Asserted there was no written arbitration agreement signed by all three entities.
- Emphasized that CANFINA never expressly agreed to arbitration.
- Asserted that MTNL and Canara Bank were not bound by any contractual relationship.
- Opposed the inclusion of CANFINA in the arbitration as it was not a signatory.
Canara Bank and CANFINA (Respondents):
- Argued that mutual consent to arbitrate was evident from conduct during court proceedings.
- Produced a draft tripartite agreement reflecting the intention to resolve disputes via arbitration.
- Pointed out that CANFINA took an active role in the arbitral process, suggesting implied consent.
Supreme Court’s Analysis:
On the Arbitration Agreement:
The Court referenced Section 7(4)(c) of the Arbitration and Conciliation Act, which allows an arbitration agreement to be inferred from:
- Claims and counterclaims submitted in writing,
- The conduct of involved parties,
- Court orders or records confirming agreement.
The Court concluded that a valid arbitration agreement did exist among all three entities, even without a formally signed tripartite document.
On Applying the Group of Companies Doctrine:
Although CANFINA had not signed the arbitration agreement, the Court invoked the “Group of Companies” doctrine in its application.
It found that:
- The transaction revolved around the same financial instrument (bonds),
- CANFINA was centrally involved in the transactions,
- It actively got involved in arbitral proceedings,
- Its role was intrinsically linked to both MTNL and Canara Bank within a unified comm commercial arrangement.
CANFINA was considered subject to the terms of the arbitration agreement.
Final Verdict:
- The Court partially ruled in Favor of the appellant.
- It directed that CANFINA be formally included in the arbitration proceedings.
- The matter was directed to the arbitral tribunal for re-examination.
- The Court did not decide on the core dispute regarding the bond transaction—its ruling was limited to the procedural question of arbitration participation.
Mahanagar Telephone Nigam Ltd. v. Canara Bank and Others – Supreme Court Cases
CONCLUSION
The Arbitration and Conciliation (Amendment) Act, 2021 represents a crucial advancement in modernizing India’s arbitration framework. It introduces key reforms aimed at creating a fair, transparent, and internationally aligned dispute resolution system. By allowing unconditional stays on enforcement in instances involving allegations of fraud, removing restrictive qualifications for arbitrators, and reinforcing the principle of party autonomy, the amendment effectively balances the need for judicial oversight with the foundational ideals of limited court involvement and the finality of arbitral decisions.
This legislative change strengthens the legitimacy of arbitration in domestic contexts, while also supporting a favorable legal environment for international investors. It promotes the development of institutional arbitration in India, facilitates the inclusion of foreign arbitrators, and reflects the country’s ambition to become a leading global centre for resolving commercial disputes. Overall, the amendment brings Indian arbitration laws closer to international norms and enhances trust among both domestic and global stakeholders in the country’s legal and commercial dispute resolution infrastructure.
REFERENCES
Impact Of The Arbitration And Conciliation (Amendment) Act, 2021 on India’s Pro Arbitration Outlook
The Arbitration and Conciliation (Amendment) Act, 2021 | Department of Legal Affairs, MoL &J, GoI
Arbitration and Conciliation (Amendment) Act, 2021 | SCC Times