Supreme Court of India: Whether there is any requirement to lead evidence in application for setting aside an award?

Supreme-Court-of-India-1_85138_730x419

In the case of M/S Emkay Global Financial Services Ltd. v. Girdhar Sondhi, (Civil Appeal No. 8367 of 2018 (Arising out of SLP (Civil) No.33248 of 2017)) the Supreme Court of India dealt with the interpretation of “furnish proof” while challenging an award under Section 34 of the Indian Arbitration Act (the Act). In other words, the Court addressed the issue of whether there is any requirement to lead evidence in an application to challenge an award under the Act. Detailed case analysis given below:

Factual Matrix

In the instant case, under the arbitration clause, the arbitration was subject to Bye-laws. The arbitration proceeding took place under the National Stock Exchange Bye-laws. Under these Bye-laws, Chapter VII granted exclusive jurisdiction to the civil courts in Mumbai in relation to disputes that arise under it. Dispute arose between the parties and the Respondent initiated arbitration proceedings. An award was passed against the Respondent by the sole arbitrator. The Respondent challenged this award under Section 34 of the Act in the District Court of Delhi which was rejected in the light of exclusive jurisdiction clause. This was further appealed in Delhi High Court, wherein the Single Judge 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.

Arbitration Clause

Arbitration

11 The parties hereto shall, in respect of all disputes and differences that may arise between them, abide by the provisions relating to arbitration and conciliation specified under the Bye-Laws.

Jurisdiction

12 The parties hereto agree to submit to the exclusive jurisdiction of the courts in Mumbai in Maharashtra (India).”

Applicable Legal Principles

Section 34(2)(a) states as follows:

“34 Application for setting aside arbitral award.—

(1)Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if

(a) 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:

Provided that, if the decisions on matters submitted to arbitration can be separated from

those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; 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; or…….”

Parties’ Contention

The Appellant pleaded the exclusive jurisdiction clause contained both in the agreement as well as the bye-laws of the National Stock Exchange. It referred Section 34 of the Act and stated that, given the conspectus of judgments of the High Courts and one judgment of the Supreme Court, 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 proceedings before the Arbitrator.

The Respondent argued that as the seat of arbitration was at Delhi, the courts at Delhi would have jurisdiction, even though there is an exclusive jurisdiction clause vesting such jurisdiction only in the courts at Mumbai.

Analysis

The Court noticed that the effect of an exclusive jurisdiction clause was dealt with by it in the most recent judgment of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors., (2017) 7 SCC 678. In that case, the arbitration was to be conducted at Mumbai and was subject to the exclusive jurisdiction of courts of Mumbai only. After referring to the definition of “Court” contained in Section 2(1)(e) of the Act, and Section 20 and 31(4) of the Act, this Court referred to the judgment of five learned Judges in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, in which, the concept of juridical seat which has been evolved by the courts in England, has now taken root in our jurisdiction.

For the interpretation of “furnishes proof” in Section 34(2)(a), the Court relied on following judgments:

(a) Sandeep Kumar v. Dr. Ashok Hans, (2004) 3 Arb LR 306 wherein Delhi High Court 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.

(b) Sial Bioenergie v. SBEC Systems, AIR 2005 Del 95 wherein the Delhi High Court inter alia held that if the Court would allow the process of oral evidence at the time of hearing the objection against the award under Section 34 of the Act, then it would prolong the process of hearing objections and it would completely defeat the objects of the Act.

(c) Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr., (2009) 17 SCC 796, wherein the Supreme Court dealt with the question whether issues as contemplated under the Indian Code of Civil Procedure, 1908 should be framed in challenge to the award under Section 34 of the Act. Along with other observations, the Court held that applications under Section 34 of the Act are summary proceedings with provision for objections by the respondent-defendant, followed by an opportunity to the applicant to“prove”the existence of any ground 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. Where the case so warrants, the court permits cross-examination of the persons swearing to the affidavit. Thereafter, the court hears arguments and/or receives written submissions and decides the matter. This is of course the routine procedure. The court may vary the said procedure, depending upon the facts of any particular case or the local rules. What is however clear is that framing of issues as contemplated under Rule 1 of Order 14 of the Code is not an integral part of the process of a proceedings under Section 34 of the Act.

(d) WEB Techniques and Net Solutions Pvt. Ltd. v. M/s. Gati Ltd. and Anr, wherein the Calcutta High Court after referring to Fiza Developers (supra), 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 cited the Arbitration and Conciliation (Amendment) Bill of 2018, being Bill No.100 of 2018, contains an amendment to Section 34(2)(a) of the principal Act, and proposed substitution of “furnishes proof that”, with “establishes on the basis of the record of the arbitral tribunal that”

Conclusions

Relying on Indus Mobile (Supra), the Court held that once courts in Mumbai have exclusive jurisdiction, read with the National Stock Exchange Bye-laws, it is clear that it is the Mumbai courts and the Mumbai courts alone, before which an award can be challenged under Section 34 of the Act. The arbitration that was conducted at Delhi was only at a convenient venue earmarked by the National Stock Exchange.

What is meant by the expression furnishes proof in Section 34(2) (a)?

After relying on several earlier judgments, the Court clarified 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.

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