In Sukhbir Singh v. M/s Hindustan Petroleum Corporation Ltd O.M.P. 1118/2014 decided on 16 Jan 2020 by the Delhi High Court, the issue before the Court was whether the arbitrator’s failure to permit cross-examination of the Award Creditor’s witness renders the arbitral award liable to be set aside under Section 34 of the Act for violation of the principles of natural justice. The relevant provisions of the Arbitration & Conciliation Act, 1996 (Act) required for adjudication of this issue raised are Section 18 (Equal treatment of parties), Section 19 (Determination of rules of procedure), Section 24 (Hearings and written proceedings) and Section 34 (Application for setting aside arbitral award) of the Act.
Principles of Natural Justice
In considering this issue in the context of Section 34 of the Act, it is noteworthy that the Supreme Court of India has regularly emphasised adherence to the principles of natural justice as a part of the fundamental policy of Indian law. [ONGC Ltd. vs. Western Geco International Ltd., (2014) 9 SCC 263, Associate Builders vs. Delhi Development Authority (2015) 3 SCC 49, Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 (3) ArbLR 152 (SC)
In this case, the Award Creditor contended that the scope of intervention under Section 34 is limited. However, the Delhi High Court observed that the legitimacy of the arbitral process is well within the scope of the Court’s consideration and therefore, the issue in moot falls within the boundaries of Section 34.
Interpretation of Section 24(1) of the Act
In interpreting the procedural provisions of the Act and assessing the integrity of the arbitral process in a given case, Section 18 of the Act provides the guiding principle. Equal treatment of the parties and grant of full opportunity to present their cases is central to the credibility of arbitration as a binding form of alternative dispute resolution. The procedure determined by a tribunal under Section 19, and any exercise of discretion in procedural matters, must fulfil these requirements. Section 24, which is based upon Article 24 of the UNCITRAL Model Law on Commercial Arbitration, requires interpretation in this context. Section 24, to the extent relevant for the present purposes is reproduced hereunder:
24 Hearings and written proceedings.—(1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials:
[Proviso 1 –] Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held:
[Proviso 2 –] Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for the presentation of evidence or for oral argument on day-to-day basis, and not grant any adjournments unless sufficient cause is made out, and may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause.
While interpreting Section 24(1), the Delhi High Court observed that whether oral hearings are to be held – either for presentation of evidence or for oral arguments – may be a matter upon which the parties have reached agreement. If so, it is clear from the opening words of Section 24(1), and consistent with the doctrine of party autonomy, that their agreement would prevail. Absent such agreement however, the Arbitral Tribunal is vested with discretion to decide this question. It appears from the first proviso to Section 24(1) that the discretion of the arbitrator in this regard is subject to one of the parties requesting an oral hearing. The principle of the provision is that the requirement of due process includes a right to oral hearing at the appropriate stage, if a party so desires. The question to be decided is whether the proviso entitles party to oral hearing at its option, or leaves this matter to the discretion of the Arbitral Tribunal.
The Bombay High Court in Pradyuman Kumar Sharma & Ors. vs. Jaysagar M. Sancheti & Ors., 2013 SCC OnLine Bom 453, on an interpretation of Section 24, held that consideration of an unproven document by an arbitrator would be in violation of the principles of natural justice. A Division Bench of Bombay High Court in Bi-Water Penstocks Ltd. vs. Municipal Corporation of Greater Bombay & Anr., (2011) 3 Mah. L.J. 706 also came to the same conclusion that even though an arbitrator is not bound by technical rules of procedure, the rules of natural justice must be observed, failing which the award would be liable to be set aside.
Further, the Madras High Court in ADV Consultant vs. Pioneer Equity Trade (India) Pvt. Ltd., 2009 SCC OnLine Mad 1072 interpreted proviso to Section 24 to mean that when one of the parties requests for oral hearing, it is the duty of the Arbitral Tribunal to conduct the same unless consent of the parties have been formulated by the Arbitral Tribunal agreeing not to have oral hearing.
The Delhi High Court observed that the above authorities lend support to the conclusion that an interpretation of the first proviso to Section 24(1) in mandatory terms. It may be derived therefrom that a party has a right (at least, in the absence of a prior agreement to the contrary) to cross-examine a witness produced by the other party which is also supported by Mustill & Boyd, Commercial Arbitration, Second edition, 1989, Chapter 22, Paragraph C5 (at pg 308).
However, the Madras High Court in Anand Viswanathan & Ors. vs. Kotak Mahindra Bank Ltd. & Ors.[O.P. No. 726/2011, decided on 26.02.2019] took somewhat contrary interpretation of Section 24 inter alia observing that Section 24 as such gives elbowroom for the Arbitral Tribunal to decide whether oral hearings has to be held at all, but that is controlled by the proviso. Proviso has to be construed strictly from which it is clear that it is imperative on the part of the Arbitral Tribunal to hold oral hearing, if a request is made by a party and the only exception to this rigour is when parties have agreed that no oral hearings shall be held.
Further, in Vinay Bubna vs. Yogesh Mehta & Ors.,1998 SCC OnLine Bom 399, the Bombay High Court inter alia observed that if the parties before the arbitral tribunal seek to lead oral evidence it must be granted as the expression is shall hold oral hearings at the request of the parties. It may be that even in the expression ‘shall’ in a limited number of cases wherein in fact no evidence is required to be led, the tribunal can reject such an application
In Sukhbir the Delhi High Court considering the above two judgments observed that they do not depart from the above interpretation of Section 24 in general terms. However, to the extent that they appear to vest some residuary discretion in the arbitrator, the request for oral hearings can only be declined in exceptional circumstances and for reasons to be recorded. In view thereof the Court held that present case wherein the award was challenged on the ground of breach of natural justice for not allowing Award Debtor’s request to cross examine Award Creditor’s witness was not one which falls in that exceptional category.
Legislative History of the UNCITRAL Model Law
Support for a reading of the proviso to Section 24(1) of the Act in mandatory terms can also be derived from the legislative history of the corresponding provision of the UNCITRAL Model Law. Section 24(1) and its first proviso are based upon Article 24(1) of the Model Law. The use of the word “shall” in the second part of Article 24(1) appears to be a deliberate and considered attempt to incorporate a mandate to the Tribunal to grant a request, if made by either party. This is evident from a perusal of Article 24 of the Draft Model Law considered by UNCITRAL. In the Draft Model Law, the corresponding provision used the directory “may”, rather than the imperative “shall”. In the Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration: Report of the Secretary-General (A/CN.9/264) [as published in the United Nations Commission on International Trade Law Yearbook, 1985 (Vol. XVI)], the following comments were offered with regard to Article 24(1) and (2) of the Draft Model Law, which correspond to 24(1) of the Act:
“Regarding Article 24 (1) and (2)
“The third situation is that the parties have not made any stipulation on the mode of the proceedings. In such case, which appears to be the most common of all three situations, the arbitral tribunal would have discretion under paragraph (1) to decide whether to hold an oral hearing. According to paragraph (2), it would retain this discretion even if a party requests an oral hearing. It is submitted that this latter rule, which appears to be the result of a legislative oversight, should be reconsidered since it may be regarded as not being consistent with article 19(3).”
The UNCITRAL Report on Adoption of the Model Law also underscored the concern expressed in the Analytical Commentary. In the Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration, Article 24 is characterised as an illustration of the general principle of equality and full opportunity. The aforesaid understanding of the Model Law thus supports the reading of the first proviso to Section 24(1) of the Act as a “right” of a party, and therefore as a mandate to the Tribunal.
From the aforesaid materials, and upon an interpretation of Section 24 consistent with the requirements of natural justice, the Delhi High Court held that the first proviso to Section 24(1) requires a party’s request for oral hearings at the stage of evidence or arguments to be granted. Unless the right to require oral evidence or oral arguments has been waived by a prior agreement to the contrary between the parties, the proviso to Section 24(1) expresses a legislative preference for the grant of oral hearing at the request of either party. The judgment of the Supreme Court in V. Tulasamma & Ors. vs. Sasha Reddy, (1977) 3 SCC 99 holds that a proviso carves out an exception to the main provision but cannot destroy the effect of the main provision itself.
This interpretation of the proviso to Section 24 does not fall foul of this principle – the proviso provides for an exception to the general provision, that the arbitrator has discretion on the question of whether or not to permit oral hearings. Having so held, a word of caution is necessary. The right granted in Section 24 does not require an Arbitral Tribunal to countenance unending cross-examination or oral arguments. It is always open to the arbitrator to determine the length and scope of oral hearings, which would necessarily depend upon the facts and circumstances of each case. If a party seeks oral evidence, for example, the Tribunal may be able, after hearing the parties, to determine the points on which evidence is to be led. Similarly, arbitrators can set appropriate time limits for oral arguments. The arbitrators can require an application to be filed by the concerned party, setting out the necessary material to enable the Tribunal to determine these matters. Further, the second proviso to Section 24(1) expressly provides for hearings on a day-to-day basis without unnecessary adjournments. The specific insertion of the second proviso to Section 24(1) in Indian law, which goes beyond the framework of the Model Law, indicates a legislative direction to litigants and arbitrators in the interests of expeditious adjudication.
Applying above interpretation in the facts of the case, the Delhi High Court set aside the award since the arbitrator failed to allow Award Debtor’s request for cross examining Award Creditor’s witness to prove the veracity of fundamental documents relied upon by the Award Creditor and held that such failure renders the award liable to be set aside for violation of the principles of natural justice.