No requirement to lead evidence under Section 34 of Arbitration Act, Supreme Court
News

No requirement to lead evidence under Section 34 of Arbitration Act, Supreme Court

Murali Krishnan

The Supreme Court today held that an application under Section 34 of Arbitration and Conciliation Act, 1996 (Arbitration Act) for setting aside an arbitral award will not ordinarily require anything beyond the record that is before the Arbitrator. There is no requirement under the provisions of Section 34 for parties to lead evidence.

The judgment was delivered by a Bench of Justices Rohinton Nariman and Indu Malhotra which also held that a judgment of the Punjab & Haryana High Court in M/s Punjab State Industrial Development Corporation v. Mr. Sunil K. Kansal is bad law.

The ruling came in the case of M/s Emkay Global Financial Services Limited v. Girdhar Sondhi.

The case can be traced to a Section 34 application filed by the respondent under the Arbitration Act before the District Court, Karkardooma, Delhi. By a judgment dated September 22, 2016, the Additional District Judge referred to the exclusive jurisdiction clause contained in the agreement, and stated that he would have no jurisdiction to proceed further in the matter and, therefore, rejected the Section 34 application filed in Delhi.

In an appeal filed before the Delhi High Court, a Single Judge held that since the impugned judgment decided the disputed question of fact without allowing parties to lead evidence, it is necessary that the disputed questions of fact be decided by the court below after framing an issue to this effect and permitting the parties thereafter to lead evidence on the same.

The Single Judge, therefore, remanded the matter for a full-dressed hearing on what he referred to as a ‘disputed question of fact’ relating to jurisdiction. This led to the appeal in the Supreme Court.

The question before the Supreme Court was the scope of the expression “furnishes proof” in Section 34(2) (a) of the Arbitration Act.

The Supreme Court proceeded to note various judgments rendered in this regard by different High Courts and the Supreme Court.

In an early Delhi High Court judgment, Sandeep Kumar v. Dr. Ashok Hans, a Single Judge of the Delhi High Court had specifically held that there is no requirement under the provisions of Section 34 for parties to lead evidence. The record of the Arbitrator was held to be sufficient in order to furnish proof of whether the grounds under Section 34 had been made out.

In Sial Bioenergie v. SBEC Systems, the Delhi High Court held that the whole purpose of the 1996 Act would be completely defeated by granting permission to the applicant to lead oral evidence at the stage of objections raised against an arbitral award.

The Supreme Court in the case of Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr. was confronted with the question of whether issues as contemplated under Order XIV Rule 1 of the Code of Civil Procedure, 1908 should be framed in applications under Section 34 of the Arbitration and Conciliation Act, 1996.

The Court held that in a summary proceeding, the respondent is given an opportunity to file his objections or written statement. Thereafter, the court will permit the parties to file affidavits in proof of their respective stands, and if necessary permit cross-examination by the other side, before hearing arguments. Framing of issues in such proceedings is not necessary. However, that does not mean that evidence is not necessary.

The Calcutta High Court in WEB Techniques and Net Solutions Pvt. Ltd. v. M/s. Gati Ltd. and Anr. after referring to Fiza Developers, held that oral evidence is not required under a Section 34 application when the record before the Arbitrator would show whether the petitioners had received notice relating to his appointment.

A Punjab and Haryana High Court judgment in M/s Punjab State Industrial Development Corporation v. Mr. Sunil K. Kansal, after referring to the judgment in Fiza Developers held the following:

(i) The issues, as required under Order XIV Rule 1 of the Code as in the regular suit, are not required to be mandatorily framed by the Court. However, it is open to the Court to frame questions which may arise for adjudication.

(ii) The Court while dealing with the objections under Section 34 of the Act is not bound to grant opportunities to the parties to lead evidence as in the regular civil suit. The jurisdiction of the Court being more akin to the appellate jurisdiction;

(iii) The proceedings before the Court under Section 34 of the Act are summary in nature. Even if some questions of fact or mixed questions of law and/or facts are to be decided, the court while permitting the parties to furnish affidavits in evidence, can summon the witness for cross-examination, if desired by the other party. Such procedure is keeping in view the principles of natural justice, fair play and equity.

The Court adverted to all the above judgments. It then held that the object of the Arbitration Act, which is speedy resolution of arbitral disputes, will be defeated, if issues are to be framed and oral evidence taken in a summary proceeding under Section 34.

“It will thus be seen that speedy resolution of arbitral disputes has been the reason for enacting the 1996 Act, and continues to be the reason for adding amendments to the said Act to strengthen the aforesaid object. Quite obviously, if issues are to be framed and oral evidence taken in a summary proceeding under Section 34, this object will be defeated.”

It, therefore, held that the two early Delhi High Court judgments and the Calcutta High Court judgment, correctly reflect the position in law as to furnishing proof under Section 34(2)(a). However as regards the Punjab and Haryana High Court judgment, it held that if the procedure prescribed therein is to be adhered to, the time limit of one year would only be observed in most cases in the breach. It, therefore, overruled that judgment.

The Court further held that the judgment in Fiza Developers was a step in the right direction as its ultimate ratio is that issues need not be struck at the stage of hearing a Section 34 application, which is a summary procedure. However, it also made it clear that the Fiza Developers must now be read in the light of the amendment made in Section 34(5) and 34(6).

Hence, the Court clarified the legal position as follows:

..an application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the Arbitrator. However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both parties. Cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both parties.”

It, therefore, set aside the judgment of the Delhi High Court and reinstated the decision of the Additional District Judge dated September 22, 2016.

Read the judgment below.

Emkay-Global-Financial-Services-limited-v-Girdhar-Sondhi.pdf
Preview
Bar and Bench - Indian Legal news
www.barandbench.com