A Change To The Arbitration Law Whose Purpose Is Unclear

Does the recent amendment to arbitration law serve government’s interests? 

(Photographer: Prashanth Vishwanathan/Bloomberg)
(Photographer: Prashanth Vishwanathan/Bloomberg)

Earlier this month, the government sprung a surprise by amending the arbitration law. It promulgated an ordinance, which experts say, was neither preceded by formal or informal stakeholder consultation; nor seems to have emanated from a judicial precedent that went contrary to the legislative intent.

Its purpose is even more unclear since the power the ordinance grants to courts already resides in them.

The Arbitration and Conciliation (Amendment) Ordinance, 2020, states that a court must grant an unconditional stay where a prima-facie case of fraud or corruption has been made out:

  • Either in the making of the award.
  • Or the agreement or contract that forms the basis of an arbitral award.

This amendment is applicable to only those cases where the seat of arbitration is in India. Further, its effect is retrospective—it would apply to all pending cases where parties are seeking enforcement of arbitral awards in courts.

The timing of this ordinance is very suspicious, senior advocate Mukul Rohatgi told BloombergQuint. “It’s come at a time when the Delhi High Court will start the enforcement hearings in the Devas Multimedia-Antrix Corporation matter,” he said.

In 2016, the Permanent Court of Arbitration at the Hague had ruled against the Indian government over the cancellation of a contract between Devas Multimedia and Antrix, the commercial arm of the state-run Indian Space and Research Organisation. Last month, a U.S court directed Antrix to pay up $1.2 billion.

Antrix contested the U.S. court’s jurisdiction. And back home, during the enforcement appeals, it told the Supreme Court that the contract between the two firms was finalised fraudulently.

The ordinance was probably issued and signed a few days before the Devas-Antrix hearing at the Supreme Court. Besides this case, the government has lost a lot of arbitration cases involving significant amounts. For instance, NHAI has hundreds of arbitration claims against it. 
Mukul Rohatgi, Senior Advocate

A query to the Attorney General KK Venugopal, appearing for Antrix, as to the purpose of this Ordinance remained unanswered.

Promod Nair, founding partner at Arista Chambers, agreed that the purpose of the amendment isn’t clear.

In many respects, he said, the amendment to section 36 is a solution in search of a problem. There does not seem to have been a specific problem that had arisen in the interpretation of section 36 which had to be addressed by means of a clarification or modification of the law, Nair said.

Section 36 of the Arbitration Act says when an application is made “for a stay of the operation of the arbitral award, the court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing”. Courts typically direct a deposit of whole or a part of the awarded amounts as a condition for granting stay.

It is difficult to identify a judgment which misinterpreted the legislative intention underlying the provision, or where the discretionary power vested with the courts was not properly exercised in a case involving fraud.
Promod Nair, Founding Partner, Arista Chambers

In practical terms, an Indian court wouldn’t likely require a deposit into court or payment to the respondent in a case where it has reached a prima facie conclusion of fraud, Nair explained.

The amendment has been introduced in a thoughtless manner—it’ll do far more harm than good, Rohatgi pointed out.

For instance, it would prompt all sorts of allegations of fraud from a losing party, Tine Abraham, partner at Trilegal, said.

Given the uncertainty around meaning of fraud or corruption in formation of arbitration agreements, underlying contracts or in the making of arbitral awards, parties contesting an award may misuse the amendment to avoid the requirement for any deposit of funds to obtain a stay.
Tine Abraham, Partner, Trilegal 

The unconditional stay is likely to prolong timelines, she said.