Oral Evidence In Application To Set Aside Arbitral Award Shouldn’t Be Allowed Unless Absolutely Necessary: SC [Read Judgment]

‘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.’

The Supreme Court has held that 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, the bench of Justice RF Nariman and Justice Indu Malhotra clarified in Emkay Global Financial Services Ltd vs. Girdhar Sondhi.

Background

In the arbitration agreement between a stock exchange broker and his client, there was an exclusive jurisdiction clause vesting such jurisdiction only in the courts in Mumbai. The arbitration was conducted and the client’s claim got rejected. Section 34 petition, which was filed in Delhi district court, was rejected citing lack of jurisdiction.

The high court, in the appeal, referred back the parties to the district judge to first frame an issue and then decide on evidence, including the opportunity to cross-examine witnesses who give depositions.

Against this high court judgment, the broker approached the apex court, contending that when Section 34(2)(a) speaks of a party making an application who “furnishes proof” of one of the grounds in the sub-section, such proof should only be by way of affidavit of facts not already contained in the record of arbitration proceedings.

On the jurisdiction aspect, the bench, referring to decision in Indus Mobile Distribution Pvt Ltd v. Datawind Innovations Pvt. Ltd. and Ors , observed: “It is clear that once courts in Mumbai have exclusive jurisdiction thanks to the agreement dated 03.07.2008, read with the National Stock Exchange bye-laws, it is clear that it is the Mumbai courts and the Mumbai courts alone, before which a Section 34 application can be filed. The arbitration that was conducted at Delhi was only at a convenient venue earmarked by the National Stock Exchange, which is evident on a reading of bye-law 4(a)(iv) read with (xiv) contained in Chapter XI.”

With regard to the question of remand, the bench noted an early Delhi High Court decision in Sandeep Kumar v. Dr. Ashok Hans, which specifically held that there is no requirement under the provisions of Section 34 for parties to lead evidence. It also observed that in Fiza Developers & Inter-Trade Pvt Ltd v. AMCI (India) Pvt Ltd and Anr, it has been 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.

The court also took note of proposed amendment to be brought to the Act and observed: “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 is also on the cards that if Bill No.100 of 2018 is passed, then evidence at the stage of a Section 34 application will be dispensed with altogether.”

The bench also overruled the decision of Punjab and Haryana High Court in M/s Punjab State Industrial Development Corporation v.  Sunil K Kansal, that had held that, 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.

The bench, setting aside the high court order, said: “We may hasten to add that if the procedure followed by the Punjab and Haryana High Court judgment (supra) is to be adhered to, the time limit of one year would only be observed in most cases in the breach. We therefore overrule the said decision. We are constrained to observe that Fiza Developers (supra) 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, this judgment must now be read in the light of the amendment made in Section 34(5) and 34(6). So read, we clarify the legal position by stating that 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-examinationn 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.”