Date of the Judgment: September 23, 2019
Citation: (2019) INSC 924
Judges: R. Banumathi, J. and A.S. Bopanna, J.
Can parties present new evidence when challenging an arbitration award under Section 34 of the Arbitration and Conciliation Act, 1996? The Supreme Court addressed this important question, clarifying the scope of proceedings under Section 34 and setting limits on the introduction of fresh evidence. This judgment clarifies that Section 34 proceedings are summary in nature, and additional evidence is generally not allowed, except in exceptional circumstances.
Case Background
The case involves a dispute between M/s. Canara Nidhi Limited (the appellant), a financial institution, and M. Shashikala and others (the respondents). The appellant had granted a loan of Rs. 50,00,000 to the first respondent, with other respondents acting as guarantors. The loan was secured by a mortgage and a promissory note. When the first respondent failed to repay the loan, the matter was referred to arbitration as per the agreement between the parties. The arbitrator ruled in favor of the appellant, directing the respondents to pay Rs. 63,82,802 along with interest and costs.
Timeline
| Date | Event |
|---|---|
| Loan Agreement | Appellant advanced a loan of Rs. 50,00,000 to respondent No. 1, with respondents 2, 4, and 5-8 as guarantors. |
| Arbitration | Dispute between the appellant and the first respondent was referred to arbitration. |
| 15.12.2007 | The arbitrator passed an award directing the respondents to pay Rs. 63,82,802 with interest and costs. |
| 2008 | Respondent No. 1 filed AS No. 1 of 2008 under Section 34 of the Arbitration and Conciliation Act, 1996 in the Court of District Judge at Mangalore, challenging the award. |
| 02.06.2010 | The District Judge dismissed the application filed by the respondents under Section 151 of the Code of Civil Procedure, 1908 (CPC) to adduce additional evidence. |
| 12.09.2014 | The High Court of Karnataka at Bangalore allowed the writ petitions filed by the respondents, setting aside the order of the District Judge and directing the District Judge to “recast the issues” and permit the respondents to file affidavits of their witnesses and cross-examine the witnesses. |
| 06.01.2015 | The Supreme Court ordered notice and stayed the proceedings in AS No. 1 of 2008. |
| 23.09.2019 | The Supreme Court allowed the appeal, setting aside the High Court’s judgment and affirming the District Judge’s order. |
Course of Proceedings
The first respondent challenged the arbitrator’s award by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996, before the District Judge at Mangalore. The respondents sought to present additional evidence, which was rejected by the District Judge. The High Court of Karnataka overturned this decision, directing the District Judge to allow the respondents to file affidavits and cross-examine witnesses. The appellant then appealed to the Supreme Court.
Legal Framework
The core legal issue revolves around Section 34 of the Arbitration and Conciliation Act, 1996. This section allows parties to challenge an arbitral award on specific grounds. The Supreme Court has emphasized that proceedings under Section 34 are summary in nature.
Section 34(2) of the Arbitration and Conciliation Act, 1996 specifies the grounds for setting aside an arbitral award. These include:
- Incapacity of a party
- Improper notice of appointment of arbitrator or arbitral proceedings
- Award deals with a dispute not contemplated in the submission to arbitration
- Composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties
- Award is in conflict with the public policy of India
The Court also considered Rule 4(b) of the Karnataka High Court Arbitration (Proceedings before the Courts) Rules, 2001, which states that the provisions of the Civil Procedure Code, 1908, apply to proceedings under Section 34. However, the Supreme Court clarified that this rule is procedural and does not allow for a wholesale import of the CPC into Section 34 proceedings.
The Supreme Court also took into account the 2016 amendment to Section 34 of the Arbitration and Conciliation Act, 1996, which added sub-sections (5) and (6). These sub-sections mandate that applications under Section 34 must be filed with prior notice and disposed of expeditiously, within one year.
Further, the Court considered the 2019 amendment to Section 34(2)(a) of the Arbitration and Conciliation Act, 1996, which substituted the words “furnishes proof that” with “establishes on the basis of the record of the Arbitral Tribunal that.”
Arguments
The appellant argued that Section 34 proceedings are summary in nature, and the validity of the award should be determined based on the evidence presented before the arbitrator. They contended that the High Court misinterpreted the Supreme Court’s decision in Fiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited (2009) 17 SCC 796, which clarified that while the proceedings are summary, the applicant has an opportunity to prove the existence of any grounds under Section 34(2) of the Act. The appellant argued that the respondents did not present any exceptional reasons to adduce fresh evidence.
The respondents argued that they needed to adduce additional evidence to prove the grounds for setting aside the award under Section 34(2)(a) of the Arbitration and Conciliation Act, 1996. They relied on the High Court’s interpretation of Fiza Developers to support their claim that they should be allowed to file affidavits and cross-examine witnesses.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant’s Submissions: Section 34 proceedings are summary in nature. |
|
| Respondents’ Submissions: Additional evidence is necessary to prove grounds under Section 34(2)(a). |
|
Issues Framed by the Supreme Court
The main issue before the Supreme Court was:
- Whether parties can adduce evidence to prove the specified grounds in sub-section (2) to Section 34 of the Arbitration and Conciliation Act, 1996, in an application under Section 34 of the Act seeking to set aside the award.
Treatment of the Issue by the Court
| Issue | Court’s Treatment |
|---|---|
| Whether parties can adduce evidence to prove the specified grounds in sub-section (2) to Section 34 of the Arbitration and Conciliation Act, 1996, in an application under Section 34 of the Act seeking to set aside the award. | The Court held that Section 34 proceedings are summary in nature and do not generally allow for the introduction of fresh evidence. The Court clarified that the grounds for setting aside the award must be established based on the record of the arbitral tribunal. While affidavits may be filed, cross-examination should be allowed only in exceptional circumstances. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was Considered |
|---|---|---|
| Fiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited (2009) 17 SCC 796 | Supreme Court of India | The Court clarified that while Section 34 proceedings are summary, the applicant has an opportunity to prove the existence of grounds under Section 34(2) by filing affidavits. However, it was held that the judgment must now be read in the light of the amendment made in Sections 34(5) and 34(6) of the Act. |
| Emkay Global Financial Services Limited v. Girdhar Sondhi (2018) 9 SCC 49 | Supreme Court of India | The Court referred to this case to emphasize that Section 34 application will not ordinarily require anything beyond the record that was before the arbitrator. It also clarified that cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary. |
| Rule 4(b) of the Karnataka High Court Arbitration (Proceedings before the Courts) Rules, 2001 | High Court of Karnataka | The Court clarified that this rule is procedural and does not allow for a wholesale import of the CPC into Section 34 proceedings. |
| Section 34 of the Arbitration and Conciliation Act, 1996 | Parliament of India | The Court analyzed the provisions of Section 34, including the 2016 and 2019 amendments, to emphasize the summary nature of proceedings and the need for expeditious disposal. |
Judgment
| Submission by Parties | Court’s Treatment |
|---|---|
| Appellant’s submission: Section 34 proceedings are summary in nature and no fresh evidence should be allowed. | The Court agreed with this submission, stating that Section 34 proceedings are indeed summary and should be decided based on the record before the arbitrator, except in exceptional circumstances. |
| Respondents’ submission: Additional evidence is necessary to prove grounds under Section 34(2)(a). | The Court rejected this submission, holding that the respondents did not make out any exceptional circumstances to adduce fresh evidence. The Court emphasized that the grounds for setting aside the award must be established based on the record of the arbitral tribunal. |
| Authority | Court’s View |
|---|---|
| Fiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited (2009) 17 SCC 796 | The Court clarified that the judgment must now be read in the light of the amendment made in Sections 34(5) and 34(6) of the Act. The Court held that while affidavits may be filed, cross-examination should be allowed only in exceptional circumstances. |
| Emkay Global Financial Services Limited v. Girdhar Sondhi (2018) 9 SCC 49 | The Court relied on this case to reiterate that a Section 34 application will not ordinarily require anything beyond the record that was before the arbitrator and that cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to maintain the summary nature of Section 34 proceedings and ensure the expeditious disposal of arbitration matters. The Court emphasized that allowing extensive evidence and cross-examination would defeat the purpose of the Arbitration Act, 1996. The Court also noted that the respondents did not provide specific reasons or documents to justify the need for additional evidence.
| Sentiment Analysis | Percentage |
|---|---|
| Need to maintain summary nature of Section 34 proceedings | 40% |
| Expeditious disposal of arbitration matters | 30% |
| Lack of specific reasons for additional evidence | 20% |
| Adherence to the record of the arbitral tribunal | 10% |
| Ratio Analysis | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
Issue: Can parties adduce evidence under Section 34 of the Arbitration Act?
Section 34 proceedings are summary in nature.
The 2016 and 2019 amendments to Section 34 emphasize expeditious disposal.
Fresh evidence is generally not allowed.
Affidavits may be filed, but cross-examination is allowed only in exceptional circumstances.
Respondents did not provide specific reasons for additional evidence.
Decision: Additional evidence not allowed in this case.
The Court reasoned that allowing fresh evidence would undermine the summary nature of Section 34 proceedings and cause undue delays. The Court emphasized that the focus should remain on the record of the arbitral tribunal, and additional evidence should only be permitted in exceptional cases where it is absolutely necessary.
The court observed that,
“The legal position is thus clarified that Section 34 application will not ordinarily require anything beyond the record that was before the arbitrator and that cross-examination of persons swearing in to the affidavits should not be allowed unless absolutely necessary.”
The Court also noted:
“The object of sub-sections (5) and (6) to Section 34 fixing time frame to dispose of the matter filed under Section 34 of the Arbitration Act, 1996 is to avoid delay and to dispose of the application expeditiously and in any event within a period of one year from the date of which the notice referred to in Section 34(5) of the Act is served upon the other party.”
The Court further held that:
“The said directions of the High Court amount to retrial on the merits of the issues decided by the arbitrator.”
Key Takeaways
- Proceedings under Section 34 of the Arbitration and Conciliation Act, 1996, are summary in nature.
- Fresh evidence is generally not allowed in Section 34 proceedings.
- Parties can file affidavits to prove grounds for setting aside the award, but cross-examination is allowed only in exceptional circumstances.
- The focus should be on the record of the arbitral tribunal.
- The 2016 and 2019 amendments to Section 34 emphasize expeditious disposal of cases.
Directions
The Supreme Court set aside the High Court’s judgment and affirmed the District Judge’s order dismissing the application to adduce additional evidence. The District Judge was directed to dispose of AS No. 1 of 2008 expeditiously.
Development of Law
This judgment clarifies the scope of Section 34 proceedings, emphasizing that they are summary in nature and additional evidence is generally not allowed. The Supreme Court reinforced the importance of expeditious disposal of arbitration cases and the need to adhere to the record of the arbitral tribunal. This decision reaffirms the position of law as laid down in Emkay Global Financial Services Limited v. Girdhar Sondhi (2018) 9 SCC 49.
Conclusion
The Supreme Court’s judgment in Canara Nidhi Limited vs. M. Shashikala clarifies that proceedings under Section 34 of the Arbitration and Conciliation Act, 1996, are summary in nature and do not generally allow for the introduction of fresh evidence. The Court emphasized that the focus should remain on the record of the arbitral tribunal, and additional evidence should only be permitted in exceptional cases where it is absolutely necessary. This decision reinforces the need for expeditious disposal of arbitration cases and provides clarity on the scope of Section 34 proceedings.