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India Amends Arbitration Law Relating To Enforcement Of Awards Tainted By Fraud And Arbitrator Qualifications

by Nicholas Peacock, Nihal Joseph

November 2020

This article was first published on Herbert Smith Freehills Arbitration Notes, here

In a little heralded development, the Government of India passed the Arbitration and Conciliation (Amendment) Ordinance 2020 (the “Ordinance”) on 4 November 2020 to amend the Indian Arbitration and Conciliation Act 1996 (the “Act”) with immediate effect. The Ordinance introduces provisions to stay the enforcement of arbitral awards tainted by fraud, and deletes certain provisions from the Act relating to qualification and accreditation of arbitrators.

Stay on enforcement

An important change introduced by the Ordinance concerns the power of the Indian court to stay enforcement of an award where an application has been made to set it aside. A court must now grant an unconditional stay on the enforcement of an award if 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 itself was “induced or effected” by fraud or corruption. The stay shall continue until the application to set aside the award is decided.

By way of background, under Section 34 of the Act, a party to an arbitral award made in India may apply to the Indian court to have it set aside on the grounds, amongst other things, that the award conflicts with the public policy of India, which includes circumstances where the making of the award was induced or affected by fraud or corruption.

Prior to 2015, Section 36 of the Act was applied such that enforcement of an award would be stayed where an application was made under Section 34 until that application had been decided. This incentivised losing parties to challenge awards on any grounds to prevent their enforcement. An amendment to the Act passed in 2015 (discussed in our prior blog post here) modified Section 36 such that the filing of an application to set aside an award would not by itself render the award unenforceable, unless the court in its discretion granted a stay based on a separate application.

The Ordinance now restricts this discretion in that a court must stay an award unconditionally if it is satisfied that a prima facie case of fraud is made out. The amendment is deemed to have been inserted from 23 October 2015, and applies to all court cases arising out of arbitral proceedings, irrespective of whether the arbitration or court proceedings were commenced before or after this date.

The Ordinance notes that the change was made to address concerns raised by stakeholders. While the court already had the discretion to stay enforcement where the award was being challenged, the mandatory nature of the stay where a prima facie case of fraud is made out will inevitably incentivise challenges on that basis. It will be interesting to see how judges deal with such challenges.

While this amendment addresses challenges to awards made in India, it should not apply to the enforcement of foreign awards under a separate part of the Act, although the Indian court has the discretion (under Section 48) to refuse enforcement of a foreign award where it finds that the award was induced or affected by fraud.

Norms for accreditation of arbitrators

The Ordinance has also deleted the Eighth Schedule to the Act dealing with the qualifications and experience of an arbitrator, which provided that a person would not be qualified to be an arbitrator in an arbitration seated in India unless he or she is an advocate, accountant or company secretary under Indian law, or an officer of the Indian Legal Service, or holding a particular degree and/ or having public sector experience. This provision was understood effectively to exclude foreign nationals from acting as an arbitrator on arbitrations seated in India.

Section 43J of the Act now states that: “The qualifications, experience and norms for accreditation of arbitrators shall be such as may be specified by the regulations.” It is possible that these regulations would be framed by the Arbitration Council of India, which is to be formed pursuant to the Arbitration and Conciliation (Amendment) Act 2019 (discussed in our blog post here).

Nicholas Peacock

Nick Peacock primarily advises banks, corporate clients and financial institutions. A solicitor advocate, he specialises in international arbitration and has extensive experience in commercial litigation and alternative dispute resolution. Nick has also acted on regulatory disputes, high-value complaints and internal investigations. Chambers Asia-Pacific 2011 states that he ‘has helped to put the arbitration team on the map’.

 

Nick has appeared before arbitral tribunals in Europe and Asia, as well as in the London High Court. He also sits as an arbitrator. He was previously based in Singapore, where he headed the firm’s Singapore international arbitration practice. Nick is a member of the firm’s India executive and leads the India international arbitration practice from London. He has also spent time on a secondment to a major global investment bank.

 

In addition to his arbitration practice, Nick also advises and acts for clients on competition litigation matters, including 'follow-on' damages claims arising from investigations by national and European competition authorities.

Nihal Joseph

Nihal specialises in international commercial arbitration, with a particular focus on the energy, mining and technology sectors. He has been involved in representing clients based in various jurisdictions under the rules of major arbitral institutions including the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC). 

 

Nihal joined Herbert Smith Freehills in 2015 and is currently based in London, having also spent six months with the international arbitration group in Hong Kong. 

 

Nihal's experience includes advising and representing:

 

  • a leading Chinese oil and gas company and its overseas subsidiary as claimants in a multi-billion dollar arbitration administered by the SIAC related to their investment in a European oil company
  • a mining company on an ICC arbitration in London in relation to the development of a major power project in India and related claims
  • an Asian private equity firm in HKIAC arbitration proceedings against another leading private equity firm, arising out of the sale of its shareholding in a Korean company
  • a global technology company in relation to contractual and anti-trust claims concerning the provision of services on mobile phones, including potential LCIA arbitration
  • a West African gas company on disputes under long term gas supply agreements
The views expressed by authors are their own and do not necessarily reflect the views of Resourceful Internet Solutions, Inc., Arbitrate.com or of reviewing editors.
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