Arbitration and Conciliation (Amendment) Bill, 2021

  • The Arbitration and Conciliation (Amendment) Bill, 2021 (Bill) was introduced in Lok Sabha on February 04, 2021. The Bill sought to amend the Arbitration and Conciliation Act, 1996 (Act) with a view to achieve the following:
    • To grant unconditional stay of enforcement of arbitral awards, where the underlying arbitration agreement, contracts or arbitral award is induced by fraud or corruption
    • To omit the Eighth Schedule of the Act which laid down the qualifications, experience, and norms for accreditation of arbitrators
    • To specify by regulations, the qualifications, experience, and norms for accreditation of arbitrators
  • The Bill replaces an ordinance with same provisions passed on November 04, 2020.

Automatic stay on awards

  • The Act allowed a party to file an application, under Section 34 of the Act, to set aside an arbitral award. The Courts, generally, interpreted this provision to mean that an automatic stay was granted on an arbitral award under challenge, the moment an application for setting aside such arbitral award was made before a court.
  • However, in 2015, the Act was amended to state that an arbitral award would not be automatically stayed merely because an application is made to a court to set aside the arbitral award.
  • The Bill, introduced and passed in the Parliament, has specified that a stay may be granted on an arbitral award during the pendency of the setting aside application against the arbitral award, if the Court is satisfied of the following:
    • The arbitration agreement was induced or effected by fraud or corruption; or
    • The making of the award was induced or effected by fraud or corruption.
  • The Bill also specifies that the amendment will be effective retrospectively, i.e., from October 23, 2015.

Qualifications of arbitrators

  • Section 47 of the Act will be replaced by Section 43J, which provides that certain qualifications, experience, and accreditation norms for arbitrators will be specified by the Regulations as decided by Arbitration Council of India
  • As a consequence, the Bill has omitted the Eighth Schedule of the Act. It has been stated in the Bill that the qualifications, experience, and norms for accreditation of arbitrators will be specified through regulations.

Our view

  • The purpose of the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) wherein the automatic stay on arbitral award was done away with was to prevent parties from misusing the provisions of the Act under Section 34 as stall tactics to comply with the arbitral award.
  • However, with the re-introduction of the unconditional automatic stay on arbitral award albeit in cases of fraud and corruption seems to defeat the purpose the 2015 Amendment was seeking to achieve. Such that the establishing that the award/arbitration agreement was induced by fraud or corruption cannot be summarily decided.
  • The use of the concept of 'fraud' or 'corruption' widens the gambit of interpretation by the Courts. The Courts will have to be extremely cautious in formulating a test for proving 'fraud' or 'corruption' for granting an unconditional stay on the arbitral award. This amendment may lead to excessive litigation by parties to stall the execution of the award and in turn end up wasting precious time of the Court and defeat the purpose of quick resolution via arbitration. Further, the retrospective application of the Bill may open floodgates of litigation.

Akshay Aluminium Alloys Pvt Ltd v. Prrsaar Commodities Pvt Ltd

OMP (COMM) 48/2021 & IA NO. 1846/2021

Background facts

  • The Multi Commodity Exchange of India Ltd (MCX) is a company incorporated under the Companies Act, 1956 and operates a Commodity Exchange. The Respondent is a Trading Member (TM) of MCX. The Petitioner is a constituent (Client) of PCPL and has a commodity trading account with PCPL, and it trades on the MCX through PCPL.
  • On April 20, 2020, the Petitioner created long positions in Crude Oil Futures. However, the price of Crude Oil Futures traded on New York Mercantile Exchange (NYMEX) saw an unprecedented fall to negative USD 37.63. Thereafter, MCX settled the contracts expiring on the same date first at INR 1 vide its Circular no. MCX/282/2020 and finally at negative INR 2,884 per barrel vide its Circular no. MCX/MCXCCL/282/2020. As a result, the Petitioner suffered a loss of INR. 3,60,62,500.
  • MCX realized the entire financial obligation in respect of the contracts in question purchased by the Petitioner in accordance with the settlement mechanism from the Respondent, as per its aforesaid Circulars. In order to liquidate the debt balance in their account, the Respondent squared off the Petitioner's outstanding positions in commodities of Zinc, Aluminum and Silver. Concededly, the negative value of Crude Oil Futures was an aberration as the implication of the negative value would be that the person holding the said commodity would have to pay an amount of INR 2,884 per barrel as consideration for selling the commodity (Crude Oil) instead of receiving a monetary consideration for the same.
  • In view of the above, both the parties filed separate Writ Petitions before the Delhi High Court (HC) assailing the aforesaid Circulars issued by MCX. Notwithstanding that the Respondent had challenged the aforementioned Circulars, it sought recovery of the amount outstanding from the Petitioner as it had effected the payment for settlement of the contracts purchased by the Petitioner. The Petitioner filed an application under Section 17 of the Arbitration and Conciliation Act, 1996 (Act) before the Arbitral Tribunal, seeking that the arbitral proceedings be listed after the decision is rendered by the Delhi High Court in the two aforesaid Writ Petitions.
  • The Arbitral Tribunal rejected the said application as is expressly stated in its award dated October 21 2020 ('impugned award). The Arbitral Tribunal inter alia found that it did not have the jurisdiction to allow the application since it would amount to adjourning the proceedings sine die and the same was not a measure contemplated under Sub-clause (e) to Section 17(1)(ii) of the A&C Act. Further the Arbitral Tribunal also awarded a total sum of INR 2,81,21,667, including interest in favor of the Respondent.
  • Being aggrieved by the impugned award, the Petitioner filed the present petition under Section 34 of the Act before the HC.

Issue at hand?

  • Whether the Arbitral Tribunal had the jurisdiction to allow the Application filed under Section 17 of the Act by the Petitioner, for the arbitral proceedings to be listed after the decision is rendered in aforesaid two Writ Petitions?

Decision of the Court

  • At the outset, the Petitioner contended that the award ought to be set aside as the Arbitral Tribunal had not decided its application under Section 17 of the Act and had proceeded to decide the main dispute. It was submitted that in this manner, the Arbitral Tribunal had effectively deprived the petitioner from availing its rights of filing an appeal under Section 37 of the Act.
  • It was further contended that the Arbitral Tribunal ought to have appreciated that the entire claim of the Petitioner rested on the circulars issued by MCX, which were challenged before various courts, as a result of which no legally enforceable debt or obligation arose and thus, Petitioner could not be directed to pay the awarded amount.
  • With regards to the aforesaid contentions, HC stated that they lack merit and that where the Arbitral Tribunal had proceeded to hear the disputes on merits, there was no necessity for it to pass any interim orders. More importantly, it was noted that the Arbitral Tribunal had explained that it was not empowered to defer the arbitral proceedings or stay the same pending adjudication of the writ petitions filed before the HC. Further, the subject matter of the writ was also beyond the scope of the controversy before the Arbitral Tribunal.
  • Further, with regards to the contention that the impugned award could be faulted as the Petitioner's right to file an appeal under Section 37 of the Act against any decision regarding its application under Section 17 of the Act had been truncated, was held as bereft of any merit since the Petitioner had been afforded the opportunity of being heard on the merits of the claim made by the Respondent and the said contentions advanced were addressed. Thus, the Court was not persuaded to accept that any principle of natural justice has been violated in any manner.
  • Lastly, the Court held that the grounds on the basis of which the Appellant had challenged the award fails to fall within the scope of Section 34(2) and/or (2A) and therefore it found no reason to interfere with the impugned award.
  • Accordingly, the Court found no reason to interfere with the impugned award and the captioned Petition was disposed off.

Our view

A challenge to an arbitral award must be within the parameters as enlisted in Section 34(2) and/or (2A) of the said Act i.e. a party was under some incapacity, the arbitration agreement is not valid, proper notice of appointment of an arbitrator was not given, the award is in contravention with the fundamental policy of law in India etc. Failing to qualify under the parameters as enlisted in the aforesaid sections will render the challenge ineffective and will be liable to be dismissed. Further, it cannot be that because the Arbitrator did not decide the Application filed under Section 17 of the said Act, the other party's right to file an appeal under Section 37 was lost.

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