Supreme Court holds that the words “furnishes proof” do not mean that parties need to be cross-examined in Section 34 Petitions

                                                                                           -Gunjan Chhabra                                                                                                             Partner, Arbitration & Dispute Resolution

In a judgment of the Supreme Court, delivered by Justices R.F. Nariman and Indu Malhotra, M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi[1], it has been held that the leading of evidence is not essential while challenging an award under Section 34 of the Arbitration & Conciliation Act, 1996 (Act).

Section 34(2) of the Act provides that an arbitral award may be set aside on certain basis. Sub section (a) of Section 34(2) of the Act, provides that a party is permitted to “furnish proof” of the grounds provided therein[2]. In the present case, what had transpired was that a petition under Section 34 had been filed before a district judge who had simply held the court did not have jurisdiction since the seat of arbitration was at Mumbai and the agreement between the parties also provided for Mumbai Courts to have exclusive jurisdiction. The judgment of the District Court had been challenged on the ground that the District judge had decided the question of jurisdiction, ie. question of fact, without directing parties to lead evidence, which was against the express mandate of Section 34(2), to allow the party to “furnish proof”.

The Supreme Court analyzed judgments of various courts which had conflicting views on the subject. Two judgments of the Delhi High Court[3] and one judgment of the Calcutta High Court held that “furnishing proof” did not mean leading evidence and allowing cross-examination. Such an interpretation would lead to full fledged trials which would be against the spirit of Arbitration & Conciliation Act, 1996. The record of the tribunal was sufficient.  However, another judgment of the Punjab and Haryana High Court[4] held that the courts while permitting parties to furnish affidavits in evidence, can summon the witnesses for cross-examination, if desired by the other party.

While upholding the judgments of Delhi High Court and Calcutta High Court, the Supreme Court has overruled the judgment of the Punjab and Haryana High Court.

More importantly a judgment of the Supreme Court of India Fiza Developers & Inter-Trade Private Ltd. v. AMCI (India) Pvt. Ltd. and Anr.[5] was also analyzed by this bench. The question before the Court in that case was whether issue framing as contemplated under Order XIV Rule 1 of the Code of Civil Procedure, 1908 was mandatory in a Section 34 Petition. While the Supreme Court judgment upheld the summary nature of a Section 34 Petition and held that it was not necessary to frame issues, it also held that to “prove” the existence of grounds under Section 34(2), “The applicant is permitted to file affidavits of his witnesses in proof. A corresponding opportunity is given to the respondent-defendant to place his evidence by affidavit.” The Fiza Developersjudgment had received several different interpretations by different individuals.

Infact it was the Fiza Developers judgment of the Supreme Court, which was relied upon by the Punjab & Haryana High Court as well.

The Bench in the present case also relied upon a recent report of Justice B.N. Srikrishna Committee which had observed that the requirement of furnishing proof in Section 34 had led to inconsistent practices in some High Courts where they had insisted on Section 34 proceedings being conducted like civil suits, which was the reason why amendment to Section 34(2)(a) was warranted. This amendment is also proposed in the Arbitration and Conciliation (Amendment) Bill, 2018, which reads that in Section 34 of the Act the words “furnishes proof that” should be substituted with “establishes on the basis of the record of the arbitral tribunal that”.

Keeping in mind the purpose of the expedient dispute resolution mechanism of the Act, the committee report as well as the proposed Amendment, the Supreme Court has held as follows:-

“… 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-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.”

This judgment is a step in the right direction and re-affirms the soon to be passed Arbitration and Conciliation (Amendment) Bill, 2018. This judgment also seems to lead to a conclusion that this particular amendment to Section 34(2)(a) is meant to be a clarificatory rather than prospective. This means that this particular provision will have a retrospective effect. Another function that the judgment serves is to clarify the circumstances in which parties may need to lead evidence in a Section 34 Petition. Thus affidavits need to be filed only regarding such matters which do not form part of the arbitral record.

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[1] C.A. No. 8367 of 2018, Supreme Court of India, decided on 20th August, 2018

[2] 34(2)(a) of the Act provides that the arbitral award may be set aside if the party making the application furnishes proof that, “… (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration….; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this Part…”,

[3] Sandeep Kumar v. Dr. Ashok Hans (2004)3ArbLR306; Sial Bioenergie v. SBEC Systems AIR 2005 Del 95.

[4] M/s Punjab State Industrial Development Corporation v. Mr. Sunil K. Kansal2012SCCOnLineP&H19641

[5] (2009)17SCC796

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