Isha, Author
ABSTRACT:
In the business world, disputes are inevitable. However, in today’s fast-paced commercial environment, time is money, and prolonged litigation can be both costly and inefficient. The traditional court system, with its complex and lengthy processes, often fails to provide swift resolutions. This is where Alternative Dispute Resolution (ADR) mechanisms, particularly arbitration, offer an effective alternative. Arbitration provides a faster, cost-efficient, and more flexible approach to resolving disputes without the need for formal court intervention.
Historically, Arbitration dates back to ancient times when community leaders or elders settled disputes based on principles of fairness and natural justice. Today, it has evolved into a structured and legally recognized process, widely used in commercial conflict resolution worldwide. In India, arbitration has gained significant prominence, especially in the context of cross-border agreements and international trade. As businesses continue to expand globally and engage in complex commercial transactions, the need for a strong and efficient arbitration framework has become crucial.
The legal foundation for arbitration in India is established under the Arbitration and Conciliation Act, 1996. This Act was enacted to provide a unified legal framework for arbitration and conciliation proceedings, aligning India’s arbitration laws with international standards. The Act aims to minimize judicial intervention, ensure the finality of arbitral awards, and promote India as a hub for arbitration.
Recognizing the need for continuous improvement, the Indian government introduced the Arbitration and Conciliation (Amendment) Act, 2021. Notably, this article explores how the 2021 amendment strengthens transparency in arbitration, particularly through two major changes: (i) the automatic stay on arbitral awards tainted by fraud and (ii) the removal of the Eighth Schedule to allow a broader and more diverse pool of arbitrators. The amendment introduced crucial safeguards against fraudulent arbitration agreements, ensuring that an unconditional stay could be granted on arbitral awards found to be obtained through fraud or corruption. By reinforcing the enforceability of arbitration agreements, the amendment aimed to strike a balance between minimizing undue judicial interference and upholding the integrity of arbitration proceedings.
Moreover, this reform sought to make arbitration more accessible, efficient, and transparent by addressing key concerns such as procedural delays and excessive court intervention. By streamlining the arbitration process, the amendment further solidifies arbitration as a reliable alternative to traditional litigation.
KEYWORDS: International Arbitration, ADR, Judicial Intervention, Domestic Arbitration, Arbitral Award, Section 43J
INTRODUCTION:
Arbitration is one of the key methods of Alternative Dispute Resolution (ADR), increasingly being used in disputes that would traditionally lead to litigation, such as labr conflicts, divorce cases, and commercial disagreements. Unlike adversarial court proceedings, ADR methods, including arbitration, foster a more cooperative environment where parties can better understand each other’s perspectives, ultimately leading 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 Provisions of Arbitration and Conciliation Amendment Act 2021:
The recent Amendment Act represents an addition to the pro-arbitration framework. It marks the third amendment to the 1996 Act in the last six years, reflecting the legislative intention to enhance the effectiveness of the Arbitration Act of 1996 and position India as a favorable jurisdiction for arbitration. The Amendment Act aims to tackle issues related to unethical practices in obtaining contracts or arbitral awards. There are two main changes brought about by the amendment. Firstly, it permits an automatic stay on awards in specific cases where the court has initial evidence suggesting that the contract leading to the award was influenced by ‘fraud’ and ‘corruption.’ Secondly, the exclusion of the Eighth Schedule from the principal Act, which details the regulations, qualifications, experience, and standards for accrediting arbitrators. This examination will delve into the effects of these changes on India’s pro-arbitration position.
-
Automatic Stay on Enforcement of Arbitral Awards (Section 36 Amendment)
An automatic stay on the enforcement of arbitral awards was granted under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996, prior to the amendment. This stay would come into effect as soon as a party filed an application to set aside the award.
# 2015 Amendment: Removing Automatic Stay
The 2015 Amendment removed the automatic stay and clarified that filing an application under Section 34 does not by itself render an arbitral award unenforceable. Instead, the losing party must separately seek a stay from the court, which may be granted only on specific grounds. Such modification was implemented with the objective of enhancing the efficiency of arbitration procedures and minimizing the occurrence of unnecessary enforcement delays.
# 2021 Amendment: Introducing an Unconditional Stay in Cases of Fraud
The amendment brought change by incorporating a provision within section 36(3) that mandates an automatic suspension of the enforcement of arbitral awards if the court determines there is prima facie evidence of fraud or corruption in either party.
- The procurement of the award, or
- The underlying arbitration agreement.
# Impact on Transparency:
✅ Enhancing Arbitration efficiency – by eliminating automatic stay to avoid unnecessary delays and maintain effectiveness.
✅Boosting Investor Confidence – By reinforcing enforceability, the amendments make India a more arbitration-friendly jurisdiction, attracting global businesses and investors.
✅ Balancing the intervention of judiciary – The 2021 amendment introduces an Exemption in cases of fraud or corruption, ensuring justice while maintaining arbitration’s independence.
-
Removal of the Eighth Schedule regarding Arbitrator Qualification and Ethics
The 2021 amendment act has replaced section 43J and removed the eight schedule of principle act. This means parties can now freely choose arbitrators without qualification restrictions.
The 2019 Amendment to the Arbitration and Conciliation Act of 1996 established Section 43J, addressing the qualifications, experience, and standards for accrediting arbitrators. This regulation was supported by the Eighth Schedule, outlining the requirements for individuals to be recognized as arbitrators in India.
# Why Was the Eighth Schedule Criticized?
Despite being designed to enhance the quality of arbitration, the eight schedule has been subject to several criticism.
❌ Limited the Pool of Arbitrators
- The rigid qualification criteria excluded many experienced professionals who did not fit the prescribed categories but were otherwise well-qualified arbitrators.
- For example, business leaders, subject-matter experts, and judges from foreign jurisdictions could not serve as arbitrators in India-seated arbitrations.
❌ Hindered International Arbitration
- The restrictions on foreign arbitrators made India a less attractive venue for international commercial disputes.
- Many parties in international arbitration prefer neutral arbitrators from jurisdictions outside India.
❌ Contradicted the Principle of Party Autonomy
- An essential principle of arbitration is party autonomy, which refers to the ability of disputing parties to select their own arbitrators.
- By imposing statutory qualifications, the Eighth Schedule restricted this autonomy, making arbitration less flexible.
❌ Not Aligned with Global Arbitration Standards
- Leading international arbitration frameworks (e.g., UNCITRAL, ICC, SIAC, LCIA) do not impose such rigid qualification criteria for arbitrators.
- This made India’s arbitration regime less competitive in comparison to other arbitration-friendly jurisdictions.
# Impact of Removing the Eighth Schedule
✅ Increased Party Autonomy
- Disputing parties can now freely select arbitrators without statutory restrictions.
✅ Encouraged Foreign Arbitrators
- Opened doors for foreign arbitrators in India-seated arbitrations, making India a more global arbitration hub.
✅ Strengthened India’s Position in International Arbitration
- The alignment of Indian arbitration law with international norms enhances India’s competitiveness in arbitration.
✅ Promotes Specialization in Arbitration
- Now, parties can appoint subject-matter experts (e.g., technology experts in IP disputes, maritime specialists in shipping disputes), rather than being limited to a pre-defined list of professionals.
Impact on the Validity of Arbitration Agreements:
Arbitration has been widely recognized as an effective method for resolving commercial disputes independently by the involved parties, with limited interference from the judiciary being a fundamental aspect. Nevertheless, the recent amendment to the arbitration and conciliation act of 2021 has made a significant altercation by revising section 36(3) of the initial act. The incorporation of a clause now enables courts to grant a complete halt on the enforcement of an arbitral award upon showing a prima facie case of fraud or corruption within the arbitration agreement or process. This legal adjustment not only changes the enforcement structure but also prompts more thorough judicial review into the legitimacy of arbitration agreements, challenging the traditionally esteemed status of arbitration clauses in business contracts. While the intention behind the amendment is to enhance fairness and transparency, it raises significant concerns regarding possible judicial overstepping and the equilibrium between procedural protections and the finality of arbitral decisions.
Before the 2021 amendment, Section 36(3) gave courts the discretion to stay award enforcement when an application was filed under Section 34. An automated extension of the stay was not guaranteed and could potentially be subject to conditions. There was no provision addressing fraud or corruption in the arbitration agreement or process.
The 2021 Amendment Act has made a significant impact on arbitration law by introducing a new provision to Section 36(3). This change allows the court to intervene when there are suspicions of fraud or corruption influencing the arbitration agreement or award.
Upon the introduction of the new provision, in a case where the court determines the presence of a prima facie instance of fraud or corruption within the arbitration agreement or award, it is obligated to suspend the award unconditionally until any disputes arising from section 34 are adequately addressed. This provision safeguards the integrity and fairness of the arbitration process by preventing enforcement of awards tainted by fraudulent or corrupt practices.
The amendment has a direct and substantial impact on the way courts assess the validity of arbitration agreements, particularly during the enforcement phase:
- Safeguarding Enforcement: Judicial Scrutiny Against Fraud and Corruption in Arbitral Awards
The amendment introduces a necessary layer of judicial scrutiny at the enforcement stage, allowing courts to ensure that arbitral awards are not enforced if they are founded on fraud or corruption. This safeguard acts as a deterrent against abuse of the arbitration process, ensuring that the enforcement of awards is aligned with the principles of justice and public policy. Parties can find assurance in the fact that arbitration cannot be utilized to legitimize tainted contracts or unethical behavior.
- Balanced Departure from the Doctrine of Limited Intervention
While Indian arbitration law has traditionally upheld minimal court interference, the amendment strikes a measured balance between party autonomy and judicial oversight. By permitting intervention only when a prima facie case of fraud or corruption is established, it ensures that courts remain a check against procedural abuse, while still respecting the integrity of arbitral proceedings in bona fide cases.
- Ensuring Ethical Enforcement and Protecting Aggrieved Parties
The amendment acts as a protective mechanism for genuinely aggrieved parties who might otherwise be forced to comply with awards rooted in fraudulent agreements or misconduct. It helps prevent the misuse of arbitration as a shield for unlawful behavior, and reinforces the credibility of the system by ensuring that only ethically sound agreements are enforced. This increases investor confidence and promotes ethical commercial practices.
- Upholding Voluntary Consent and Fairness in Arbitration Agreements
By allowing courts to assess whether the arbitration agreement was freely and fairly entered into, the amendment prioritizes informed and voluntary consent in arbitral relationships. It ensures that parties are not bound by arbitration clauses inserted through coercion, deception, or undue influence, thereby upholding contractual sanctity and equitable dealings in commercial arrangements.
- Reinforcing Party Autonomy and Global Confidence in Indian Arbitration
The amendment signals India’s commitment to fostering a *clean and trustworthy arbitration ecosystem, aligned with global best practices. Far from discouraging arbitration, it strengthens confidence among domestic and international parties by providing a legal environment where only valid and transparent agreements are upheld. This reinforces India’s image as a mature and responsible arbitration-friendly jurisdiction, committed to the rule of law.
Domestic vs. International Arbitration:
Domestic arbitration: Impact of amendment on domestic agreements.
The 2021 Amendment to Section 36(3) of the Arbitration and Conciliation Act introduced a critical reform in the realm of domestic arbitration enforcement by empowering courts to grant an unconditional stay on the enforcement of an arbitral award upon the establishment of a prima facie case of fraud or corruption. This marks a pivotal shift from the earlier approach that largely favoured non-interference, and introduces a well-calibrated mechanism to uphold the integrity of the arbitration process. By allowing courts to intervene at the enforcement stage, the amendment ensures that awards tainted by unethical practices do not gain legitimacy through judicial execution. It provides an essential safeguard against the misuse of arbitration to validate fraudulent contracts or secure awards through procedural misconduct. At the same time, this intervention is not sweeping; it is narrowly confined to exceptional circumstances, thereby maintaining the overarching pro-arbitration stance of Indian law. The amendment strengthens public trust in arbitration as a dispute resolution mechanism by ensuring that only ethically sound and procedurally fair awards are enforceable. This reform reflects the legislature’s intent to balance commercial finality with judicial oversight, thereby reinforcing the credibility of India’s arbitration ecosystem without undermining its efficiency or autonomy.
International arbitration: Easier enforcement of foreign arbitral awards, especially those under the New York Convention.
The Arbitration and Conciliation (Amendment) Act, 2021, while introducing a higher threshold of judicial scrutiny in the enforcement of domestic arbitral awards, carefully avoids altering the well-established framework for foreign awards. Awards arising from international commercial arbitrations seated outside India continue to be governed by Part II of the Act, specifically Sections 44 to 52, which give effect to India’s obligations under the New York Convention, 1958. The enforcement process for such awards remains streamlined and efficient, with Indian courts allowed to refuse enforcement only on limited and specific grounds—such as the incapacity of a party, invalidity of the arbitration agreement, procedural unfairness, or a violation of Indian public policy.
Importantly, the 2021 Amendment does not extend the new provision for unconditional stay (in case of fraud or corruption) to foreign awards, thereby ensuring that India’s global enforcement commitments remain intact and unhampered. This legislative restraint is significant, as it reinforces India’s pro-arbitration image on the international stage and provides legal certainty to foreign investors and multinational corporations operating in or with India. India’s clear separation between domestic and international enforcement regimes conveys a positive message to global commercial stakeholders, signaling its commitment to respecting international arbitral autonomy and upholding the principles of minimal judicial intervention, which are fundamental to the New York Convention framework.
Moreover, the development of Indian jurisprudence leans towards supporting enforcement, as courts consistently assert that narrowly defined public policy concerns should not obstruct foreign arbitral awards. Thus, the amendment of 2021 not only safeguards the validity of domestic arbitration but also contributes to the overarching goal of establishing the country as a reliable hub for international arbitration, thereby bolstering its growing importance in the global arena of dispute resolution.
# Key Highlights:
- No Interference with International Enforcement
- Strictly Limited Grounds for Refusal
- Respect for Party Autonomy and Finality
- Enhancing Investor Confidence
- Boosting India’s Global Arbitration Image
Role of Government and Public Sector Enterprises:
The 2021 Amendment to the Arbitration and Conciliation Act in India stands out as a pivotal development aimed at bolstering the efficiency and autonomy of the arbitration process by curbing undue judicial interference. One of the groundbreaking reforms introduced by this amendment is the heightened focus on ensuring the prompt appointment of arbitrators, particularly delineated under Section 11 of the Act.
Historically, the arbitration landscape in India was marred by procedural delays arising from the courts’ involvement in appointing arbitrators, consequently impeding the arbitration process. The amendment seeks to redress this issue by promoting institutional arbitration and mandating that courts restrict their role in Section 11 applications to a preliminary assessment of the existence of a valid arbitration agreement. This strategic move serves to confine the court’s intervention solely to ascertaining the agreement’s validity, without delving into the merits of the dispute, thus upholding the principles of party autonomy and arbitration’s ethos of minimal judicial intrusion.
By expediting the arbitrator appointment mechanism and quelling protracted litigation over ancillary matters, this amendment substantiates the overarching objective of ensuring expeditious, cost-effective dispute resolution—an imperative facet for both domestic and international commercial entities. Ultimately, this reform underscores India’s steadfast commitment to metamorphosing arbitration into a swifter, more dependable avenue for resolving intricate commercial disputes, all while diminishing judicial bottlenecks that formerly hindered the process.
Relevant Case Laws:
- Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1
Facts:
The case involved a dispute between a landlord (Durga Trading Corporation) and tenants (Vidya Drolia & others) under a tenancy agreement that included an arbitration clause. When the landlord invoked arbitration, the tenants resisted, arguing that such disputes were non-arbitrable and should be heard by civil courts.
Issues:
- Are disputes between landlords and tenants considered arbitrable under the Transfer of Property Act?
- Which types of disputes are incapable of being resolved through arbitration according to Indian law?
- What is the scope of judicial intervention at the pre-arbitral (referral) stage under Sections 8 and 11 of the Arbitration and Conciliation Act, 1996?
Judgment:
The Supreme Court has established that landlord-tenant disputes falling under the Transfer of Property Act can be subjected to arbitration, unless they are regulated by specific rent control laws. The Court has outlined a four-part criteria for determining which matters are not eligible for arbitration, which includes assessing if the dispute impacts property rights, entails statutory adjudication, involves sovereign functions, or affects third-party rights. Furthermore, the Court has restricted the extent of judicial scrutiny during the referral process to only conducting a preliminary assessment of the arbitration agreement, deferring more profound inquiries to the arbitral tribunal.
- Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd. (2021) 2 SCC 770 / AIRONLINE 2021 SC 6
Facts:
- Bhaven Construction entered into a contract with the respondent for supply of bricks, which included an arbitration clause.
- A dispute arose and Bhaven appointed an arbitrator in 1998.
- The respondent challenged the arbitration, citing:
- Applicability of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992.
- The arbitration process deemed to be outside the allowable timeframe specified in the contract terms.
- Despite this, the arbitrator continued and ruled on jurisdiction.
Issues:
- Whether arbitration under the Arbitration and Conciliation Act, 1996 could proceed despite the Gujarat Act.
- Whether the High Court could interfere in arbitral proceedings under Articles 226 and 227 of the Constitution.
Judgment:
The supreme court has rules in favor of allowing the arbitration to proceed, stating that,
- The Arbitration Act is a self-contained code; judicial interference should be minimal.
- Writ jurisdiction under Articles 226/227 should not be used to bypass arbitration remedies unless exceptional circumstances exist.
- Disputes over applicability of the Gujarat Act should be raised after the award under Section 34, not during ongoing proceedings.
- PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd. (2021) 7 SCC 1
Facts:
- Both parties, incorporated in India, agreed to arbitrate disputes in Zurich, Switzerland
- A dispute arose, leading to arbitration in Zurich, resulting in an award favoring GE Power.
- PASL Wind Solutions challenged the enforcement of this award in India, arguing that two Indian entities cannot opt for a foreign arbitration seat.
Issues:
- Can two Indian parties lawfully select a foreign seat for arbitration
- Does an award from such arbitration qualify as a “foreign award” under the Arbitration Act?
Judgment:
- The Supreme Court upheld the principle of party autonomy, affirming that Indian parties can choose a foreign arbitration seat
- It ruled that awards from such arbitrations are enforceable as “foreign awards” under Part II of the Arbitration Act
- The Court highlighted that this decision does not violate Indian public policy.
CONCLUSION:
The Arbitration and Conciliation (Amendment) Act, 2021 marks a pivotal step toward refining India’s arbitration regime by ensuring a fair, transparent, and globally competitive legal framework. By providing unconditional stays in cases of fraud, eliminating rigid arbitrator qualifications, and promoting party autonomy, the amendment balances the goals of judicial oversight with the principles of minimal intervention and arbitral finality. It fortifies the credibility of arbitration in domestic matters while maintaining an investor-friendly approach to international arbitration. The reform also emphasizes institutional arbitration, encourages foreign participation, and underscores India’s intent to emerge as a global hub for commercial dispute resolution. Overall, the amendment aligns Indian arbitration with international best practices and instills greater confidence among global and domestic stakeholders in India’s legal ecosystem.
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
