CONSUMER COURTS CANNOT ENTERTAIN COMMERCIAL PURPOSE COMPLAINTS

 

 

The Consumer Protection Act 1986 and subsequent amendment in 1993 and 2002 as also the Consumer Protection Act of 2019 clearly stipulates that a consumer shall be the one who does not avail services or goods for commercial purposes. If it is so, the provision of Consumer Protection Act shall not be attracted. The law as evolved shows what may constitute “commercial purpose”. The great deal, of course, depend upon the facts and circumstances of each case, as what could constitute “commercial purpose” is not defined in the Act. Ordinarily, "commercial purpose" shall encompass within its ambit manufacturing/industrial activity or business -to -business transactions between commercial entities. In other words, the purchase of the good or service should have a close and direct nexus with a profit- generating activity. Thus, the dominant intention or dominant purpose for the transaction and as to whether the same was to facilitate some kind of profit generation for the purchaser and/or their beneficiary. If the dominant purpose, behind purchasing the good or service was for the personal use and the consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, then the same shall not be construed as commercial purpose. If a purchase was for the purpose of "generating livelihood by means of self employment" then, the same shall clearly be out of commercial purposes. What is of significance that personal livelihood aspect did not find mention in the 1986 Act and subsequently, the said aspect was made part of the act vide Amendments in 1993 and 2002 in the Consumer Protection Act, 1986.

The Section 2(1)(d)(ii) of the Act excludes a person who avails of services for ‘any commercial purpose. The explanation to the provision shows that if the services availed by him were exclusively for the purposes of earning his livelihood by means of self-employment, then the same shall not be construed as commercial purposes.

Section 2(1)(d) of the said Act, as it exists today, which is as follows: “2.Definition. (1) In this Act, unless the context otherwise requires, (a)…………………………………………………… ………………………………………

(d) “consumer” means any person who,—

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is 6 made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purpose;

Explanation.—For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment;”

HISTORICAL PERSPECTIVES

The legislature upon finding that, though, there were various provisions contained in various enactments to protect the consumers and provide relief to them, yet it was felt necessary to protect the consumers from the exploitation and to save them from adulterated and substandard goods and services and to safeguard the interests of the consumers. In order to provide for better protection of the interests of the consumer, the Consumer Protection Bill was introduced in the Parliament. Perusal of the ‘Statement of Objects and Reasons’ of the said Act would show that the said Act seeks to provide for better protection of the interests of consumers and for that purpose, to make provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and for matters connected therewith. One of the objects for enacting the said Act was the right to be heard and to be assured that consumers’ interests will receive due consideration at appropriate forums. To provide speedy and simple redressal to consumer disputes, a quasi judicial machinery was sought to be set up at the district, State and Central levels. It will be apposite to refer to the preamble of the said Act, which reads thus:

“An Act to provide for better protection of the interests of consumers and for that purpose to make provision for the establishment of consumer councils and other authorities for the settlement of consumers’ disputes and for matters connected therewith.”

Over the space of time it was realized that the commercial purposes and its ambit required further specification and further, in order to plug loopholes and enlarge the scope of areas covered, the legislature brought certain amendments to the said Act by the Consumer Protection (Amendment) Act, 1993  (In short “1993 Amendment Act”). One of the objects of the said Act was to enable the consumers, who are self-employed, to file complaints before the redressal agencies, where goods bought by them exclusively for earning their livelihood, suffer from any defect. By subsection (5) of Section 2 of the 1993  Amendment Act, the following amendments were effected to the definition of the term ‘consumer’:

“(5) in clause (d),

(A) in sub clause (ii), for the word “hires”, in both the places where it occurs, the words “hires or avails of” shall be substituted;

(B) after sub clause (ii), the following Explanation shall be     inserted at the end, namely:‘

Explanation. For the purposes of sub clause (i), “commercial purpose” does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment’;”

Thus, it is apparent that by virtue of 1993 Amendment Act, insofar as services are concerned, wherever the word “hires” was used, the same was substituted by the words “hires or avails of”.

In he said 1993 Amendment Act, insofar as Section 2(1)(d)(i) is concerned, an Explanation was provided to the effect that ‘commercial purpose’ does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood by means of self-employment. It could thus be seen that though the original Act of 1986 excluded a person from the ambit of definition of the term ‘consumer’ whenever, such purchases were made for commercial purpose. However, vide the amendment and by the Explanation, which is an exception to an exception, even if a person made purchases for ‘commercial purpose’, he was included in the definition of the term ‘consumer’, if such a person bought and used such goods exclusively for earning his livelihood by means of self-employment.

The legislative intent is clear, that though the purchases for commercial purposes are out of the ambit of the definition of the term ‘consumer’ in the said Act, if a person buys and uses such goods exclusively for earning his livelihood by way of self employment, he would still be entitled to protection under the said Act.

As hiccups still persisted and with a view to avoid the bottleneck and impediments as regards the implementation of various provisions of the said Act and with a view to facilitate quicker disposal of consumer complaints, and to make the said Act more effective by removing various lacunae, the legislature amended the said Act by the Consumer Protection (Amendment) Act, 2002 (In short  “the 2002 Amendment Act”). One of the objects for bringing out the 2002 Amendment Act was “exclusion of services availed for commercial purposes from the purview of the consumer disputes redressal agencies”.

It could thus be seen that the legislature noticed the mischief, that though Section 2(1)(d)(i) of the said Act kept out of its purview the goods purchased for commercial purpose, the said restriction was not found in Section 2(1)(d)(ii) of the said Act. As such, in order to bring Section 2(1)(d)(ii) at par with Section 2(1)(d)(i), the following amendment was effected to in clause (d):

“(c) in clause (d), (i) in sub clause (ii), the following words shall be inserted at the end, namely: “but does not include a person who avails of such services for any commercial purpose”;

The following Explanation was substituted, namely:

‘Explanation.—For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment’;”

By virtue of the 2002 Amendment Act, the legislature clearly provided that a person, who avails of such services for any commercial purpose would be beyond the ambit of definition of the term ‘consumer’.

The Explanation, which is an exception to an exception, which earlier excluded a person from the term ‘commercial purpose’, if goods were purchased by such a person for the purposes of earning his livelihood by means of self-employment, was substituted and the Explanation was made applicable to both clauses (i) and (ii). It can thus clearly be seen that by the 2002 Amendment Act, though the legislature provided that whenever a person avails of services for commercial purposes, he would not be a consumer; it further clarified that the ‘commercial purpose’ does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self employment.

What is therefore conspicuously evident is that the legislature’s clearly intended that if a person buys goods for commercial purpose or avails services for commercial purpose, ordinarily, he would have been out of the ambit of the term ‘consumer’, by virtue of Explanation, which is now common to both Sections 2(1)(d)(i) and 2(1)(d)(ii), he would, however,  still come within the ambit of the term ‘consumer’, if purchase of such goods or availing of such services was exclusively for the purposes of earning his livelihood by means of self-employment.

LAW ON THE ASPECT

(1)      Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and others, (2020) 2 SCC 265; 

(2)    Paramount Digital Colour Lab and others vs. AGFA India Private Limited and others, (2018) 14 SCC 81;

(3)    Sunil Kohli and another vs. Purearth Infrastructure Limited, (2020) 12 SCC 235; (

(4)     CBI, AHD, Patna vs. Braj Bhushan Prasad and others, (2001) 9 SCC 432.

(5)    Laxmi Engineering Works vs. P.S.G. Industrial Institute, (1995) 3 SCC 583

(6)    Cheema Engineering Services vs. Rajan Singh, (1997) 1 SCC 131

(7)    Kalpavruksha Charitable Trust vs. Toshniwal Brothers (Bombay) Pvt. Ltd. and another, (2000) 1 SCC 512

(8)    SHRIKANT G. MANTRI VERSUS PUNJAB NATIONAL BANK1 2022 LiveLaw (SC) 197  CIVIL APPEAL NO.11397 OF 2016; FEBRUARY 22, 2022

The Consumer Protection Act is a special statute and is enacted with the purpose of providing a speedy and simple redressal to consumer disputes. It provides a summary procedure so that the consumer disputes are settled without undue delay. If the definition of the word ‘consumer’ is expanded, so as to include in it a person who avails of such services for any commercial purpose, the very purpose of the said Act would be defeated. No commercial dispute between the service provider and the availer/recipient of the service could be included in the definition of the word ‘consumer’ as in that event this will open floodgates of complaints.

The purpose of the said Act has been succinctly described by Supreme Court in the case of Laxmi Engineering Works vs. P.S.G. Industrial Institute, (1995) 3 SCC 583 which is as under:

 “10. A review of the provisions of the Act discloses that the quasi-judicial bodies/authorities/ agencies created by the Act known as District Forums, State Commissions and the National Commission are not courts though invested with some of the powers of a civil court. They are quasi-judicial tribunals brought into existence to render inexpensive and speedy remedies to consumers. It is equally clear that these forums/ commissions were not supposed to supplant but supplement the existing judicial system. The idea was to provide an additional forum providing inexpensive and speedy resolution of disputes arising between consumers and suppliers of goods and services. The forum so created is uninhibited by the requirement of court fee or the formal procedures of a court. Any consumer can go and file a complaint. Complaint need not necessarily be filed by the complainant himself; any recognized consumers' association can espouse his cause. Where a large number of consumers have a similar complaint, one or more can file a complaint on behalf of all. Even the Central Government and State Governments can act on his/their behalf. The idea was to help the consumers get justice and fair treatment in the matter of goods and services purchased and availed by them in a market dominated by large trading and manufacturing bodies. Indeed, the entire Act revolves round the consumer and is designed to protect his interest. The Act provides for “business-to-consumer” disputes and not for “business-to business” disputes. This scheme of the Act, in our opinion, is relevant to and helps in interpreting the words that fall for consideration in this appeal.”

The object of the amendment, therefore, was to help the consumers get justice and fair treatment in the matter of goods and services purchased and availed by them in a market dominated by large trading and manufacturing bodies. It has been held that the entire Act revolves round the consumer and is designed to protect his interest. It provides for “business-to-consumer” disputes and not for “business-to-business” disputes. It has been held that forums/commissions provided by the said Act are not supposed to supplant but supplement the existing judicial system. The idea was to provide an additional forum providing inexpensive and speedy resolution of disputes arising between consumers and suppliers of goods and services.  In the case of Laxmi Engineering Works (supra), the Supreme Court, while considering the scope of the definition of the expression ‘consumer’ with relation to Section 2(1)(d)(i) of the said Act and the Explanation added by 1993 Amendment Act, observed thus:

“11. Now coming back to the definition of the expression ‘consumer’ in Section 2(d), a consumer means insofar as is relevant for the purpose of this appeal, (i) a person who buys any goods for consideration; it is immaterial whether the consideration is paid or promised, or partly paid and partly promised, or whether the payment of consideration is deferred; (ii) a person who uses such goods with the approval of the person who buys such goods for consideration; (iii) but does not include a person who buys such goods for resale or for any commercial purpose. The expression ‘resale’ is clear enough. Controversy has, however, arisen with respect to meaning of the expression “commercial purpose”. It is also not defined in the Act. In the absence of a definition, we have to go by its ordinary meaning. ‘Commercial’ denotes “pertaining to commerce” (Chamber's Twentieth Century Dictionary); it means “connected with, or engaged in commerce; mercantile; 11 having profit as the main aim” (Collins English Dictionary) whereas the word ‘commerce’ means “financial transactions especially buying and selling of merchandise, on a large scale” (Concise Oxford Dictionary). The National Commission appears to have been taking a consistent view that where a person purchases goods “with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit” he will not be a ‘consumer’ within the meaning of Section 2(d)(i) of the Act. Broadly affirming the said view and more particularly with a view to obviate any confusion — the expression “large scale” is not a very precise expression — Parliament stepped in and added the explanation to Section 2(d)(i) by Ordinance/ Amendment Act, 1993. The explanation excludes certain purposes from the purview of the expression “commercial purpose” — a case of exception to an exception. Let us elaborate: a person who buys a typewriter or a car and uses them for his personal use is certainly a consumer but a person who buys a typewriter or a car for typing others' work for consideration or for plying the car as a taxi can be said to be using the typewriter/car for a commercial purpose. The explanation however clarifies that in certain situations, purchase of goods for “commercial purpose” would not yet take the purchaser out of the definition of expression ‘consumer’. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of self-employment, such purchaser of goods is yet a ‘consumer’. In the illustration given above, if the purchaser himself works on typewriter or plies the car as a taxi himself, he does not cease to be a consumer. In other words, if the buyer of goods uses them himself, i.e., by self-employment, for earning his livelihood, it would not be treated as a “commercial purpose” and he does not cease to be a consumer for the purposes of the Act. The explanation reduces the question, what is a “commercial purpose”, to a question of fact to be decided in the facts of each case. It is not the value of the goods that matters but the purpose to which the goods bought are put to. The several words employed in the explanation, viz., “uses them by himself”, “exclusively for the purpose of earning his livelihood” and “by means of self-employment” make the intention of Parliament abundantly clear, that the goods bought must be used by the buyer himself, by employing himself for earning his livelihood”.

In the case of Cheema Engineering Services vs. Rajan Singh, (1997) 1 SCC 131 the Supreme Court held that the manufacture and sale of bricks in a commercial way may also be to earn livelihood. As such, the question as to whether the complainant used the machinery for the manufacture of bricks alone or with members of his family and as to whether the same was for earning his livelihood, were the questions of fact to be decided on the basis of evidence.

In the case of Kalpavruksha Charitable Trust vs. Toshniwal Brothers (Bombay) Pvt. Ltd. and another, (2000) 1 SCC 512 this Court considered the question as to whether the machines purchased by the Charitable Trust for use in the Diagnostic Centre were meant for ‘commercial purpose’ or not. It was sought to be urged on behalf of the Trust that the T rust was not carrying out a profit making activity and as such, the purchase of diagnostic machines would not come within the ambit of the term ‘commercial purpose’. It was, therefore, sought to be urged that it would fall within the definition of the term ‘consumer’. This Court held that the finding of the National Commission that the machinery was installed for commercial purpose and as such, the Trust was not a ‘consumer’ within the meaning of the said Act, required no interference.

In the case of Paramount Digital Colour Lab (supra), the Supreme Court was considering the case of unemployed graduates, who had started a business of photography in partnership for self-employment and for their livelihood. For the said purpose, they had purchased an advanced photo processing, developing and printing machine. It was the case of the appellants therein that the respondents, despite having the knowledge that the machine was not working properly, had unfairly and carelessly sold the same to the appellants. As such, the appellants were required to file a complaint under the said Act. The State Commission had allowed the complaint. In appeal, the National Commission held that the appellants were not the consumers as envisaged under Section 2(1)(d) of the said Act, since the purchase of the machine was for commercial purpose. Reversing the view taken by the National Commission and upholding the view taken by the State Commission, the Supreme  Court observed thus:

“ In this case, since the appellants have purchased the machine, Section 2(1)(d) of the Act is applicable. “Consumer” as defined under Section 2(1)(d) of the Act does not include a person who obtains goods for a “commercial purpose”. The Explanation supplied to Section 2(1)(d) clarifies that “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of “self-employment”. If both these provisions are read together, it leads to the conclusion that if a person purchased the goods for consideration not for any commercial purpose, but exclusively for the purposes of earning his livelihood by means of “self-employment”, such purchaser will come within the definition of “consumer”. If a person purchases the goods for a “commercial purpose” and not for the purposes of earning his livelihood by means of “self-employment”, such purchaser will not come within the definition of “consumer”. It is therefore clear, that despite “commercial activity”, whether a person would fall within the definition of “consumer” or not would be a question of fact in every case. Such question of fact ought to be decided in the facts and circumstances of each case”.

 “Self-employment” necessarily includes earning for self. Without earning generally there cannot be “self-employment”. Thus, if a person buys and uses the machine exclusively for the purposes of earning his livelihood by means of “self-employment”, he definitely comes within the definition of “consumer”. In the matter on hand, the quality of ultimate production by the user of the machine would depend upon the skill of the person who uses the machine. In case of exigencies, if a person trains another person to operate the machine so as to produce the final product based on skill and effort in the matter of photography and development, the same cannot take such person out of the definition of “consumer”.”

In the case of Lilavati Kirtilal Mehta Medical Trust (supra), the Supreme Court after considering the earlier judgments held thus:

To summarise from the above discussion, though a strait jacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is “for a commercial purpose”:

(1) The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, “commercial purpose” is understood to include manufacturing/ industrial activity or business-to-business transactions between commercial entities.

(2)  The purchase of the good or service should have a close and direct nexus with a profit generating activity.

(3) The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. It has to be seen whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.

(4)  If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of “generating livelihood by means of self-employment” need not be looked into.”

It is thus clear, that the Supreme Court has held that the question, as to whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, “commercial purpose” is understood to include manufacturing / industrial activity or business-to-business transactions between commercial entities; that the purchase of the good or service should have a close and direct nexus with a profit-generating activity; that the identity of the person making the purchase or the value of the transaction is not conclusive for determining the question as to whether it is for a commercial purpose or not? What is relevant is the dominant intention or dominant purpose for the transaction and as to whether the same was to facilitate some kind of profit generation for the purchaser and/or their beneficiary. It has further been held that if the dominant purpose behind purchasing the good or service was for the personal use and the consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, then the question of whether such a purchase was for the purpose of “generating livelihood by means of self-employment” need not be looked into.

In the case of Sunil Kohli (supra), the Supreme  Court on the basis of the evidence, clearly found that the complainants wanted to dispose of property in Denmark and wanted to come down to Delhi to start a business. It has further been found that for this purpose, the premises in question were booked. As such, said case was a case wherein the commercial premises were booked by the appellants therein, who had left their employment in Denmark and purchased the premises only for the purposes of starting their business for earning their livelihood by way of self-employment. Therefore, the said case was a case wherein the appellants therein had availed of the services exclusively for earning their livelihood by means of self-employment.

In the above backdrop, the Supreme Court recently had occasion to deal with the issue in 1 2022 LiveLaw (SC) 197  CIVIL APPEAL NO.11397 OF 2016 (judgment delivered on  FEBRUARY 22, 2022)  in a matter captioned as SHRIKANT G. MANTRI VERSUS PUNJAB NATIONAL BANK , the Supreme Court has held that it is not in dispute that the appellant was already engaged in the profession of stockbroker, much before he availed of service of the overdraft facility from the respondent-Bank. It is also not in dispute that he was also acting as a stockbroker for the respondent-Bank. It is also not in dispute that the appellant took the overdraft facility and also sought enhancement of the same from time to time in furtherance of his business as a stockbroker and for the purpose of enhancing the profits therein. As already held by the Supreme Court in the case of Laxmi Engineering Works (supra), the terms “services availed by him”, “exclusively for the purpose of earning his livelihood” and “by means of self-employment” will have to be given its meaning, as intended by the legislature. The said terms will have to be construed in context with the purpose for which the said Act is enacted.

The legislative history as to how Section 2(1)(d) of the said Act has come in its present form from the original form stands described. The amendments incorporated by the 1993 Amendment Act as well as by the 2002 Amendment Act would clearly show that the legislative intent is to keep the commercial transactions out of the purview of the said Act and at the same time, to give benefit of the said Act to a person who enters into such commercial transactions, when he uses such goods or avails such services exclusively for the purposes of earning his livelihood by means of self-employment. In the above case, the National Commission has come to a finding that the appellant had opened an account with the respondent-Bank, took overdraft facility to expand his business profits, and subsequently from time to time the overdraft facility was enhanced so as to further expand his business and increase his profits. The relations between the appellant and the respondent was purely “business to business” relationship. As such, the transactions would clearly come within the ambit of ‘commercial purpose’. It cannot be said that the services were availed “exclusively for the purposes of earning his livelihood.

No doubt, in  Internet and Mobile Association of India vs. Reserve Bank of India, (2020) 10 SCC 274 it is held that the services of the Bank provide lifeline for any business, trade or profession. It is also obvious that without involvement of bank there could be any worthwhile work. However, the ‘business to business’ relationship cannot be construed as consumer disputes, thereby defeating the very purpose of providing speedy and simple redressal to consumer disputes. The appellant was therefore held to be raising a commercial dispute and that is clearly excluded under the Consumer Protection Act and no consumer complaint shall lie.

REMARK

It could thus be seen, that when a person avails a service for a commercial purpose, to come within the meaning of ‘consumer’ as defined in the said Act, he will have to establish that the services were availed exclusively for the purposes of earning his livelihood by means of self-employment. There cannot be any straitjacket formula and such a question will have to be decided in the facts of each case, depending upon the evidence placed on record.

The aforesaid dicta clearly encapsulates that a clear commercial transaction for profit generating purpose may ex facie be treated as commercial dispute and as such the Consumer Commissions cannot be approached for redressal, though, civil action may lie. However, any transaction for the livelihood, though, may have a trap of commercial transaction, but if the same is for perusal livelihood, it cannot be treated as commercial purpose and therefore, within the meaning of section 2(1)(d)(ii) and as per the explanation, the person, who availed of goods and services shall be treated as consumer and therefore Consumer complaint in this regard before the appropriate Consumer Commission shall lie.

                                                   Anil K Khaware

                                           Founder & Senior Associate

Societylawandjustice.com

    

 

 

 

 

 

 

JUVENILE JUSTICE ACT: THE OBJECT AND ACHIEVEMENT

 

JUVENILE JUSTICE ACT: The object AND achieveMENT

 

The Juvenile Justice Act was comprehensively enacted in the name of The Juvenile Justice (Care and Protection of Children) Act 2015 and periodically the provisions were amended with a view to reach out to the victim in effective way. The constitution, more particularly, Article 15(3) and Article 39 clause (e) & (f) as well as Article 45 and Article 47 contains power and stipulates duties on the authorities in this regard. It is emphasized therein that basic needs of children are met and the rights of children are protected. The same is also in sync with article 21 of Constitution of India relating to Right to Life and Personal Liberty. What is required to be noted further is that Juvenile Justice (Care and Protection of Children) Act, 2000 was enacted earlier, but it was felt that a comprehensive provisions are required. In the backdrop of standards prescribed in the convention on the Rights of the Child and the United Nation Rules for the Protection of Children and Co-operation in respect of Inter country Adoption (1993) and such other International Instruments. 

Though the object as set out under the Act is laudable, still, the same has been achieved only partially. The India is a nation of youth and the children. The children, being the precursor of youth are also in vast numbers. The age group of children and adolescents shall inevitably be the backbone of tomorrow and therefore, adequate emphasis is required to ensure their welfare and gradual progression to maturity in a better environment, if not in an ideal environment. The vast majority of children who are in slums and are not blesses with prosperity are often victim of circumstances. No doubt, the welfare schemes existed and government of the days have worked hard for catering to this segment and law and legislation have also been enacted. However, the moot question shall be : is it adequate? Or how much is too much?

The provision of existing law and amendments in Juvenile Justice Act in the backdrop of above shall be anaylyzed. Unfortunately, the children are perceived as a commodity for sale despite the law and welfare measures in favour of the children.      

There is no denying that despite the progress made by the nation, since independence, the lot of children have not improved substantially.

The existing Act of 2015 is sought to be amended yet again and The Juvenile Justice (Care and Protection of Children) Amendment Bill, 2021 was introduced in Lok Sabha on March 15, 2021 and is also stated to have been passed from Rajya Sabha.  The Bill amends the Juvenile Justice (Care and Protection of Children) Act, 2015.  The Statement of Objects and Reasons of the 2021 Bill inter alia states that adoption cases have witnessed significant delay in courts.  Further, it states that adoption cases are non-adversarial in nature and can be dealt through a well laid out process. 

THE PRELUDE TO JUVENILE JUSTICE ACT 2015

The Law Commission of India have made recommendation in 1993 inter alia seeking prohibition of sale of children and various high courts of India has emphasized the need for implementing the recommendation of Law Commission. However, there was no much headway in this regard for quite some time. The Juvenile Justice (Care & Protection of Children) Act 2000 was earlier enacted, but it was felt that with a view to give fillip to the prevailing situation, a comprehensive legislation prescribing various measures shall be necessary. The bill seeks to laid down a proscription to the prevailing situation. The Juvenile Justice (Care & Protection of Children) Act 2015 was enacted for catering to the prevailing situation, still, the amendment was felt necessary and therefore the 2021 Bill seeks to achieve that. The proposed amendment through 2021 Bill has however introduced some feature, which may not have helped the cause.

In any case, the Juvenile Justice (Care & Protection of Children) Act 2015 is amended and the same are likely to be notified as about to be notified as The Juvenile Justice (Care & Protection of Children) Act 2021. A “juvenile” as per the Act is a person less than 18 years of age.  We also know that the Juvenile Justice (Care and Protection of Children) Act, 2015 addresses children in conflict with law and children in need of care and protection.  India is a signatory to the United Nations Convention on the Rights of the Child, at Hague Convention on Protection of Children and Co-operation in respect of Inter-country Adoption in 1993 and it is only natural that the Act may be seen as India's commitment to child rights. The India is obligated to initiate and take all appropriate measures to ensure the rights of children with regard to juvenile justice, care and protection, and adoption.

The offence against the children is defined and offences are made cognizable. As per Sec6tion 154 of the Criminal Procedure Code, the police is mandated to register F.I.R, if a cognizable offence is disclosed and investigation shall be the necessary corollary to that. Though, since then, progress is made but the contemplated amendment could well turn out that progressing by making one forward step may be hit and that may be akin to take a step back. The cognizable offences are investigated by the police and that is the mandate in law, however, the proposed amendment seeks to suggest that the offences hitherto, cognizable shall be non cognizable. Therefore, in the event complaint is reported, the victim is to approach courts of law i.e courts of Metropolitan Magistrate or Judicial Magistrate, as the case may be,  u/s 156(3) of Cr.P.C for seeking registration of F.I.R. What could have been achieved as a matter of course, shall now be subject to the orders passed by Magistrate. The courts in any case are overburdened with their respective roster and if such a case is also to flow on them, the delay shall be inevitable. Moreover, many children , their parents or organization supporting them may not be as resourceful and therefore, the proposed amendment needs a fresh look. The Juvenile Justice (Care & Protection of Children) Amendment Act 2021 deserves a relook. No doubt, there are also provision of free legal aid, but many does not have the wherewithal to approach for the legal aid. That apart, the delay owing to the pre-requisites of a direction from a courts of Magistrate may inevitably delay the process.

INFRASTRUCTURE and Lack of availability and limited capacity of institutions

The infrastructure and institutions set up under the Act are far from adequate.  The 2015 Act provides for setting up one or more Juvenile Justice Boards (JJBs) and Child Welfare Committees (CWCs) in every district.  The Standing Committee on Human Resource Development (2015) had noted that statutory bodies under the Juvenile Justice Act, 2000 including JJBs and CWCs were not present in many states. Moreover, several bodies existed only on paper, and were not functioning.  Further, populous districts which were likely to produce larger caseloads had inadequate CWCs.  

The National Legal Services Authority (2019) noted that only 17 of 35 states/Union Territories (UTs) had all basic structures and bodies required under the Act in place For example, states such as Assam, Bihar, and Haryana, did not have CWCs in all districts. The Standing Committee on Human Resource Development (2015) also noted that CWCs and JJBs lack authority to manage their financial and human resources and are dependent on the state or district administration.  Due to lack of infrastructure or specific funds, action taken by them was limited and delayed.  It recommended greater financial allocation, training and cadre-building for various bodies.  

Child-care institutions (CCIs): 

CCIs refer to institutions including open shelters and specialised adoption agencies, which provide care and protection to children in need of such services.  As of March 2020, there were 2,162 CCIs across India.  The Committee on review exercise of CCIs (2018) noted that many CCIs fail to provide even the basic amenities or services to the children including individual bedding, proper nutrition and diet.  The hon’ble Supreme Court has recently recommended that state governments should evaluate CCIs across India to ensure that minimum standards of care are being complied with.  The Committee also noted that despite registration being mandatory under the 2015 Act, only 32% of total CCIs across the country were registered.  Though the Supreme Court has already recommended that all children in CCIs be registered compulsorily and the same be verified and validated.  

Role of High Courts: 

The Supreme Court has also requested the Chief Justice of every High Court to register proceedings on its own motion to ensure effective implementation of the Act.  It was also suggested that Juvenile Justice Committees should be set up in every district and should comprise of High Court judges, who have a constitutional obligation to protect the fundamental rights of children.

The features of proposed amendment may be anlysed hereinafter:

        ISSUE OF ADOPTION & DELAY

The 2015 Act empowered Central Adoption Resource Authority (CARA) to regulate and promote adoptions in India.  In 2017, the Madhya Pradesh High Court noted that children declared legally free for adoption were not being given timely referrals by CARA.  The Court recommended that the Steering Committee of CARA may monitor and investigate the conduct of CARA.  Further, action must be taken against individuals responsible for the delay. 

 

The Juvenile Justice (Care and Protection of Children) Act, 2015 states that adoption of a child is final on the issuance of an adoption order by the civil court.  The 2021 Bill, however, provides that instead of the court, the District Magistrate (including Additional District Magistrate) will issue such adoption orders. The issue of adoption and its requisites entails law and the same has to stand judicial scrutiny and therefore delegating the power to executive authority may have inherent pitfalls. If the idea of early decision was the driving factor, then the same is contrary to the proposal that offence under the Act shall be non-cognizable and delay is inbuilt there and therefore expedition appears to be not the object.  The order of adoption may also hit roadblock, given the nature and act being judicial and ought to be passed by courts of law. 

Under the Act, once prospective adoptive parents accept a child, an adoption agency files an application in a civil court to obtain the adoption order.  The adoption order issued by the court establishes that the child belongs to the adoptive parents.  The Bill provides that instead of the court, the District Magistrate (including Additional District Magistrate) will perform these duties and issue all such orders. 

Appeals: The Bill provides that any person aggrieved by an adoption order passed by the District Magistrate may file an appeal before the Divisional Commissioner, within 30 days of such order.  Such appeals should be disposed within four weeks from the date of filing of the appeal.

The Act provides that there will be no appeal for any order made by a Child Welfare Committee concluding that a person is not a child in need of care and protection.  The Bill removes this provision.

Incidence of crime:

Under the Indian Penal Code, 1860 (IPC), the minimum age at which any person can be charged for a crime is seven years^.  The total number of children arrested year wise has shown a trend of significant increase in number. The Children in the 16-18 years’ age group account for majority of children arrested. More than half of the children were arrested for offences such as theft, causing hurt, burglary, and riots.  

Under the 2015 Act offences committed by juveniles are categorised as heinous offences, serious offences, and petty offences.  Serious offences include offences with Three (3) to Seven (7) years of imprisonment.  The present Bill adds that serious offences will also include offences for which maximum punishment is imprisonment of more than seven years, and minimum punishment is not prescribed or is less than seven years.    

Serious offences: The Act provides that the Juvenile Justice Board will inquire about a child who is accused of a serious offence.  Serious offences are those for which the punishment is imprisonment between three to seven years.  The Bill adds that serious offences will also include offences for which maximum punishment is imprisonment of more than seven years, and minimum punishment is not prescribed or is less than seven years.

Designated Court: The Act has designated court for trying juvenile cases.

The Act, hitherto, provided that offences against children that are punishable with imprisonment of more than seven years, will be tried in the Children’s Court (equivalent to a Sessions Court).  Other offences (punishable with imprisonment of less than seven years) will be tried by a Judicial Magistrate.  The Bill amends this to provide that all offences under the Act will be tried in the Children’s Court.  

Offences against children:

The Act earlier provided that an offence under the Act, which is punishable with imprisonment between three to seven years will be cognizable (where arrest is allowed without warrant) and non-bailable.  The present Bill, however, now provides that such offences will be non-cognizable and non-bailable.

Child Welfare Committees (CWCs): 

The Act provides that states must constitute one or more CWCs for each district for dealing with children in need of care and protection.  It provides certain criteria for the appointment of members to CWC.  For instance, a member should be:

(i)          involved in health, education, or welfare of children for at least seven years, or

(ii)        a practicing professional with a degree in child psychology, psychiatry, law, or social work.

The Bill adds certain criteria for a person to be ineligible to be a member of the CWC.  These include: (i) having any record of violation of human rights or child rights, or (ii) being a part of the management of a child care institution in a district.

The Juvenile Justice (Care and Protection of Children) Act, 2015 states that adoption of a child is final once a civil court issues an adoption order. The Bill seeks to amend this to provide for the District Magistrate (including the Additional District Magistrate) to issue such adoption orders instead.  Any person aggrieved by such an adoption order may file an appeal with the Divisional Commissioner.  

Lack of judicial scrutiny in adoption orders

Under the Act, adoption of a child is final once a court issues an adoption order.  With this, the child becomes the lawful child of his adoptive parents with all the rights, privileges, and responsibilities that are given to a biological child.  The Bill shifts the power to issue adoption orders from the court to the district magistrate (including the additional district magistrate).  The question is whether it is appropriate for an administrative authority to issue adoption orders instead of a judicial body. 

The SOR of the Bill states that adoption cases are non-adversarial in nature and can be dealt as per the process laid out.  Adoption of a child is a legal process which creates a permanent legal relationship between the child and adoptive parents.  When deciding on adoption, courts review documents, ensure necessary procedures have been complied with, and conduct an inquiry of the child and adoptive parents.  This helps ensure that due consideration is given to the wishes of the child, and the adoption is for the welfare of the child.  It may be argued that determining whether the adoption is in the best interests of the child requires judicial training and competence.  

Further, the Bill provides that any person aggrieved by an adoption order, may file an appeal before the Divisional Commissioner.  Thus, it does not provide for judicial overview even at the appeal stage as well.  District Magistrates and Divisional Commissioners are trained to be administrators and perform functions of the government.  They may not have the competence to issue adoption orders or hear appeals related to them.  Vesting of such core judicial functions with them may also raise concerns of separation of powers between the executive and the judiciary.  

Note that, since the Juvenile Justice (Care and Protection of Children) Act, 2000 (replaced by the 2015 Act) came into force, the power to issue adoption orders has rested with the courts. There are several countries such as United Kingdom, Germany, France, and several states in the United States of America, where adoption orders are issued only by the court. 

   

                           REMARK

From the broad canvas of above discussion what may emerge is that the proposed amendments as per 2021 Bill which may be notified in due course raises many questions that it seeks to answer. The fact that the several offences against the Act is made non- cognizable could be construed as a step back in as much as involving Magistracy for direction to register F.I.R under the proposed amendment shall be cumbersome and adding to the woes of overburdened Magistracy. Moreover, delay is inbuilt in it and hence, the victim is likely to suffer. Apart from that, even if legal aid could be made available to a child or victim, the fact remains that time shall be consumed and the same may be wrangled into procedural complicacies. The issue of adoption, on the other hand is a legal act and trained judicial prowess in pith and substance shall be necessary. In this backdrop, according the power on District Magistrate and even the Appellate Authority being an Executive body in this regard may be counter- productive. The procedure that adoption entails and the law is quite elaborate in this regard and therefore judicial pondering over the issue is a must. The proposed amendments therefore seeks to relegate many issue from the 2015 Act and the same are not desirable and should be done away with.

                                           Anil K Khaware

                                           Founder & Senior Associate

                                           Societylawandjustice.com

ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2021: IS IT NECESSARY?

 

ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2021: IS IT NECESSARY?

 

The Arbitration and Conciliation Act, 1996 (“Act”) in India has been a subject of periodical amendments with a view to cater to situation arising in the midst of implementation of law. The 1996 Act was a comprehensive legislation, enacted with a view to provide industry friendly ambience, close on the heels of economic liberalization. It was felt then that the country has to provide a wherewithal for a robust and effective rederessal mechanism, which should not be time consuming. The expeditious and effective legal redressal mechanism is perceived as essential for ease of doing business.  

Recently, the Act is sought to be revamped and Arbitration and Conciliation (Amendment) Act, 2021 (“2021 Amendment”) is in place. The 2021 Amendment has added the following text to Section 36(3) of the Act, after the proviso, which pertains to the enforcement of the arbitral award:

“Provided further that where the Court is satisfied that a prima facie case is made out that, — (a) the arbitration agreement or contract which is the basis of the award; or (b) the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally, pending disposal of the challenge to the award under Section 34 of A & C Act 1996.

Explanation – For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.

The aforesaid amendment and provision is the crux of the discussion. The 2021 Amendment, resurrects the power of the Indian Courts to grant an unconditional stay on the enforcement of an Arbitral Award, where the underlying Arbitration Agreement or contract or making of the Arbitral Award is induced by fraud or corruption. The amendment has elicited criticism, and disconcert within the arbitration community. This is, because, such power to grant an unconditional stay on the enforcement of an arbitral award existed prior to the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”), which resulted in an onslaught of challenges to delay the enforcement proceedings. This mischief was addressed by the 2015 Amendment, which scrapped the unconditional stay on the enforcement proceedings and instead empowered the courts to impose conditions on the stay of the enforcement proceedings so as to dissuade the prospective losing parties, from filing frivolous and unwarranted challenges. The 2021 Amendment, however, has done the reverse, and have undone the efforts of the 2015 Amendment to a certain extent and has revived the unconditional stay regime again. What is more perplexing is that the stay could be granted on vague grounds of fraud or corruption. Since the 2021 Amendment has now already been notified by the Central Government. Whether the amendment shall aid and facilitate India as a pro-arbitration jurisdiction and still if it accords a conducive environment for the businesses to operate in India is question that needs answer.

It is beyond doubt that addition of an Extra Layer of Judicial Scrutiny is envisaged. The first part of the 2021 Amendment seeks to address, inter alia, two situations: First, unconditional stay on the enforcement of the Arbitral Award if the “arbitration agreement or the contract, which is the basis of the award,” was induced or effected by fraud or corruption. Second, unconditional stay on the enforcement of the Arbitral Award, if the “making of the award by the Arbitral Tribunal” was induced by fraud or corruption. Interestingly, it is observed that such situations have already been envisioned and adequately addressed by the existing provisions of the Act.

The hon’ble Supreme Court has already held in ONGC Vs Saw Pipes Ltd AIR 2003 SC 2629 that award against public policy may not stand judicial scrutiny.

The Law Commission of India in the 246^th Report  had sought to curb the wide interpretation of ‘public policy’  in ONGC Case (Supra) so as to insulate arbitral award from needless objections. In that backdrop,  parliament had amended the Act effective from 23^rd of October 2015. Therefore, sub-sec(2A) in Section 34 of the Act provided patent illegality will be one of the grounds of violating public policy only in cases of domestic arbitral awards. The proviso added makes it more clear stating that this ground cannot be invoked in case of erroneous application of law or by re-appreciation of the evidence.

Fraud or corruption in the arbitration agreement or contract:

If the parties intend to plead and prove the allegations of fraud or corruption pertaining to the arbitration agreement or the contract, the appropriate forum to raise such contentions is the Arbitral Tribunal per se or at the stage of reference. The Arbitral Tribunal is competent to determine the issues of fraud alleged by the parties. The Arbitral Tribunal is competent to evaluate comprehensive and voluminous evidence and conduct an in-depth scrutiny to determine whether the Arbitration Agreement or the contract is vitiated by fraud or corruption. If the parties are not satisfied with the Arbitral Tribunal’s findings or if the Arbitral Tribunal does not consider the allegations of fraud even after parties have raised it, the parties have an option to take recourse to the filing of an application for the setting aside of the award under Section 34 of the Act and even if the parties are still not content with the decision of the Section 34 application, parties could prefer appeal against the order of the Section 34 application under Section 37(1)(c) of the Act.

Fraud or corruption at the time of making of award:

Section 34(2)(b) [Explanation 1](i) explicitly provides an opportunity to the parties to seek setting aside the award, if the making of the award by the Arbitral Tribunal was induced by fraud or corruption under the ambit of the award being against the public policy of India. If the parties are not satisfied with the setting aside proceedings, the same is appealable under Section 37(1)(c) of the Act. The 2021 Amendment does not seem to provide any justifiable additional ground or relief that an aggrieved party may resort to, should they face a situation of fraud as envisioned by the 2021 Amendment. The enactment of the 2021 Amendment is merely akin to instituting an additional level of judicial scrutiny in the form of an extra layer of appellate review, that too in the form of an interim measure without any adequate safeguards. The consequences of this additional scope of interference could be catastrophic.

Disregarding minimal judicial intervention:

The A & C Act 1996 was enacted to secure the object of minimum judicial interference and relative ease in the judicial rederesal mechanism that was envisaged under it. However, 2021 Amendment could lead to an increase in the excessive judicial interference in an arbitration proceeding which is antithetical to the very purpose of opting for arbitration as a method of dispute resolution, i.e., minimal judicial intervention as enshrined under Section 5 of the Act to avoid the ordeals of a traditional litigation process. Moreover, it will put an immense strain on already overburdened courts and the pendency of cases in India. This will most likely add to the delay in enforcing the arbitral awards in India.

Tool for harassment:

If seen from another yardstick, the 2021 Amendment may become a potent tool for the losing parties to harass the opponents by pleading fraud or corruption in every arbitration proceeding so as to procrastinate the enforcement of the Arbitral Award, just as most applications under Section 34 of the Act allege a violation of public policy. This may not only add to the costs, inconvenience, and delay of the dispute resolution process but may also end up increasing the misery of the innocent parties. This may discourage the parties to opt for arbitration as a dispute resolution mechanism, as the parties will eventually have to subject itself to the ordeals of the delayed court proceedings to seek relief. The moot point therefore is whether the 2021 amendment is incentivizing the delinquent? The check and balance is already part of the Act in as much as Section 34 of the 1996 Act is otherwise self contained. The robust dispute resolution mechanism is always perceived as the need and the same had been well entrenched in the act even before the current amendment and therefore the moot question is that whether the amendment was at all necessary in the aforesaid context.   

Prospective Uncertainty

The 2021 Amendment seems to be marred with several inconsistencies, ambiguities, and uncertainty in its application, giving rise to certain undesirable consequences. As stated, the additional ground at the stage of enforcement is accorded to an aggrieved party and the latter may plead fraud or corruption at the time of the enforcement proceedings, even when the parties did not plead fraud or corruption before the Arbitral Tribunal. This potentially means that a party can get an unconditional stay on the enforcement of an award on a ground which that party might not even have invoked at any time, before, the application for setting aside of the award.

Lack of criteria:

What is ironical is that the 2021 Amendment does not stipulate any standard or criterion on which fraud or corruption is to be assessed, unlike the standards laid down under Section 34 of the Act, which mandates a party to “establish on the basis of the record of the Arbitral Tribunal” should the parties seek to invoke the grounds under Section 34 for the setting aside of the Arbitral Award. In the absence of a clear prescribed standard, there is ambiguity, uncertainty, and vagueness in invoking and justifying the grounds under Section 36 of the Act introduced by the 2021 Amendment. In effect it may unwittingly dissuade a business entity from subjecting themselves to a dispute resolution mechanism owing to uncertainty. Moreover, the 2021 Amendment presents no clarity with respect to parties adducing additional evidence beyond the Tribunal’s record to plead and prove the allegations of fraud or corruption, especially at the enforcement stage. If a party is allowed to adduce additional evidence at the stage of filing an application for stay of the award, effectively, the Act will then ingrain two-time scrutiny of an Arbitral Award with similar grounds, but different standards and at different stages. The predicament in this context could be galore, as, while, under a Section 34 of the Act, challenge by a party may only relate to the record of the Tribunal, but. now, under a Section 36(2) proceeding, a party can adduce additional evidence. This will create an unwarranted hierarchy and may lead to complexity of the process resulting into prolonging the enforcement of the award.

Now, if we take a situation that if the court does not allow the parties to adduce additional evidence and restricts their pleading to the record of the Arbitral Tribunal, there may be two implications.  It may in the context be practically difficult for the courts to form a prima facie view and satisfy itself that the Arbitration Agreement or the contract which is the basis of the award, or the making of the award itself are induced by fraud or corruption, unless the courts examine the dispute on merits which, if taken recourse to, is antithetical to the intent and purpose of Section 34 and Section 36 of the Act. Secondly, it will be challenging to plead and prove fraud or corruption without adducing any additional document or evidence, especially if the plea is being taken for the first time at the enforcement stage due to its inherent nature and wide ambit. What may further add to the dilemma in as much as there may not be any fundamental difference between a Section 34 proceeding and a Section 36 proceeding and this may eventually lead to multiplicity of proceedings.

Risk to arbitrator’s reputation:

There is also a risk of tainting the Arbitrator’s reputation if the courts are in a rush to grant an unconditional stay merely on a prima facie view that the making of the award was induced by fraud or corruption. In practice, it may have significant implications on the functioning of the Arbitrators and issues of Arbitrator immunity if they are under constant pressure that their award is going to get unconditionally stayed on the grounds of fraud or corruption without comprehensive scrutiny by the courts.

Retrospective Applicability?

The second part of the 2021 Amendment, which mentions the explanation to the additional proviso, pertains to the retrospective applicability of the 2021 Amendment. In essence, it gives a free license to the parties to make an application under Section 36(2) of the Act and invoke the grounds of fraud or corruption envisaged under the additional proviso to Section 36(3) of the Act in “all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015”. This could potentially give rise to multiple scenarios over lack of procedural clarity. First, the parties may invoke the fresh grounds of fraud and seek unconditional stay under the 2021 Amendment, by way of an amendment application, in the pending applications of Section 36(2) of the Act where the plea of fraud was not initially taken. Second, the parties may move an application to withdraw their pending Section 36(2) application with leave to file a fresh Section 36(2) application that may possibly give the parties an opportunity to incorporate the grounds of fraud and make use of the 2021 Amendment. Third, the parties may also look to file a fresh Section 36(2) application with a fresh cause of action in a pending arbitration proceeding where another Section 36(2) application has already been disposed of, to take another shot at delaying the enforcement of the arbitral award. The scenarios mentioned above are not exhaustive, and the parties may find a novel way to seek recourse to the 2021 Amendment, though, that may not really be necessary. This may lead to a flurry of Section 36(2) applications in the absence of safeguards for eliminating false, vexatious, and frivolous enforcement applications for an unconditional stay.

Of course, a lot will depend on how courts will interpret the explanation to the additional proviso and how much leeway the Courts are going to give to the parties to introduce the pleas of fraud and corruption empowered by the 2021 Amendment in the above-mentioned scenarios. Moreover, what uniform standards various Commercial Courts, High Courts and the Supreme Court are going to establish will be crucial since there will always be a risk of conflicting standards and jurisprudence, which may lead to a catastrophic result of opening floodgates of litigation, thereby breaking down the very soul of an arbitration proceeding, i.e., effective, speedy, user friendly, and cost-effective dispute resolution. Interestingly, the arbitration statutes of the pro-arbitration jurisdictions such as Singapore, Hong Kong, or England or even the UNCITRAL Model Law on International Commercial Arbitration do not offer any provisions for unconditional stay of the domestic arbitral award at the stage of enforcement.

In fact, the Indian jurisprudence also emphasises the fact that there is no scope for an unconditional stay on the enforcement of an arbitral award under the Act and that any such unconditional stay can thwart the execution of the arbitral awards for many years, thereby defeating the purpose and effectiveness of the arbitration proceedings.

Conclusion

The A7 C Act 1996 was amended in 2015 with a view to redress the problems of high costs and long timeframes that dispute resolution entailed. Through this amendment of 2015, the provision of an automatic stay of an arbitral award under Section 36 of the act was taken away, in case of admission of a Section 34 application. The 2021 Amendment of Section 36 stipulates an automatic stay on an arbitral award if the court is satisfied that there is a prima facie case for fraud or corruption in the relevant Arbitration Agreement, contract or making of the award. This is a step back from the 2015 amendment as it brings back automatic stay, though with the caveat, as stated.

While the ailments that the 2021 Amendment is attempting to cure is unclear and ambiguous. The side effects of the 2021 Amendment appears to be comprehensive. The provision of judicial intervention in execution /enforcement through stipulated unconditional stay may lead to the multiplicity of proceedings. This may encourage some frivolous challenges. Apart from that the prescription of arbitrator’s liability coupled with the dilution of the 2015 Amendment and failure in upholding the basic principles of minimum judicial intervention by virtue of the 2021 Amendment may not augur well with India’s objective of becoming a pro-arbitration hub. We know that already road blocks are felt while seeking the enforcement of a judgment or an award, still, the amendment shall lead to a sudden shift from Indian courts’ pro-enforcement approach. The empowering of the courts to grant an unconditional stay on the enforcement of an arbitral award is therefore detrimental to the vested right of enforcement, finality, and binding nature of an arbitral award. The safeguards to the aggrieved parties already existed in A & C Act 1996 and also through 2015 Amendment Act and the 2021 amendment should have been avoided. 

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com                                                     ----