In application for setting aside arbitral award, cross examination/Trial should not to be allowed-SC

In application for setting aside arbitral award, cross examination / Trial of persons swearing to affidavits should not be allowed unless absolutely necessary – Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2479 (2018) 08 SC

Important Case Laws Cited/relied upon:
Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors., (2017) 7 SCC 678
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552
Sandeep Kumar v. Dr. Ashok Hans (2004) 3 Arb LR 306
Sial Bioenergie v. SBEC Systems AIR 2005 Del 95.
Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr., (2009) 17 SCC 796.
M/s Punjab State Industrial Development Corporation v. Mr. Sunil K. Kansal 2012 SCC OnLine P&H 19641
WEB Techniques and Net Solutions Pvt. Ltd. v. M/s. Gati Ltd. and Anr 2012 SCC OnLine Cal 4271
Cochin Shipyard Ltd. v. Apeejay Shipping Ltd., (2015) 15 SCC 522

The present appeal involve a dispute between the Appellant, who was a registered broker with the National Stock Exchange (NSE), and the Respondent, its client, with respect to some transactions in securities and shares.

The Respondent had initiated an arbitration proceeding against the Appellant Company, claiming an amount which was rejected by the Sole Arbitrator vide an Arbitration Award.

As per the agreement entered, the arbitration was subject to by laws under the Depositories Act, 1996, however the arbitration proceeding took place under the NSE byelaws. These bye-laws, provided for dealings by trading members and granted exclusive jurisdiction to the civil courts in Mumbai in relation to disputes that arise under the bye-laws.

The National Stock Exchange referred the dispute to a sole arbitrator, who held sittings in Delhi, and delivered an award rejecting the Respondent’s claim. The Respondent then filed a Section 34 application under the Arbitration and Conciliation Act, 1996 before the District Court Delhi. The Additional District Judge (ADJ) referred to the exclusive jurisdiction clause contained in the agreement, and stated that he would have no jurisdiction to proceed further in the matter and, therefore, rejected the Section 34 application filed in Delhi.

Thereafter, in an appeal a Single Judge of the Delhi High Court remanded the matter to District and Sessions Judge, Delhi for a full-dressed hearing referring to as a ‘disputed question of fact’ relating to jurisdiction. The learned Single Judge stated that the issue of territorial jurisdiction will be decided by the court after parties have led evidence keeping in mind that if part of cause of action is proved to have arisen in Mumbai and there is an exclusivity clause conferring territorial jurisdiction of the Mumbai courts, then even if Delhi courts otherwise have jurisdiction, possibly the courts at Delhi would not exercise territorial jurisdiction.

Aggrieved by the remand order, the present appeal before the Hon’ble Supreme Court came to be filed by the appellant.

Referring to Section 34 related to Application for setting aside arbitral award, the appellant contended that, given the conspectus of judgments of the High Courts and Hon’ble 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.

It was also submitted that a mini-trial at this stage was not contemplated, as otherwise, the whole object of speedy resolution of arbitral disputes would be stultified. Consequently, the learned Single Judge was incorrect in referring 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.

The Hon’ble Supreme Court observed that the effect of an exclusive jurisdiction clause was dealt with by it in several judgments. In the he most recent judgment, the Court referring to the judgment of the Constitution Bench and a Law Commission Report held that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. It was clarified that under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction.

Therefore, following its earlier judgment, the Hon’ble Supreme Court opined that it was clear that once courts in Mumbai have exclusive jurisdiction under the agreement, read with the National Stock Exchange bye-laws, it was 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.

In view of the remand of the matter by the learned Single Judge of Delhi High Court for a Trial on what he referred to as a ‘disputed question of fact’, the Hon’ble Supreme Court went on to clarify as to what is meant by the expression “furnishes proof” in Section 34(2) (a).

The Hon’ble Supreme Court observed that learned Single Judge of the Delhi High Court on two occasions specifically held that there is no requirement under the provisions of Section 34 for parties to lead evidence and permitting oral evidence would completely defeat the objects underlying the 1996 Act. The process of oral evidence would prolong the process of hearing objections and cannot be countenanced.

The Hon’ble Supreme Court observed that in a previous judgment, it dealt with a question as to whether issues as contemplated under Order XIV Rule 1 of the Code of Civil Procedure, 1908 should be framed in applications under Section 34 of the Arbitration and Conciliation Act, 1996? The Hon’ble Supreme Court had answered the question in negative and held that that framing of issues as contemplated under the Code is not an integral part of the process of a proceedings under Section 34 of the Act.

However the Punjab and Haryana High Court had held that the proceedings before the Court under Section 34 of the Act are summary in nature. Even 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 crossexamination, if desired by the other party. Such procedure is keeping in view the principles of natural justice, fair play and equity.

It was further observed that the Calcutta High Court had 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 Hon’ble Supreme Court also observed that a recent report of the Justice B.N. Srikrishna Committee to review the institutionalization of the arbitration mechanism in India had recommended an amendment to Section 34(2)(a) of the Arbitration and Conciliation Act, 1996, substituting the words “furnishes proof that” with the words “establishes on the basis of the arbitral tribunal’s record that”.

The Hon’ble Supreme Court also observed that the Arbitration and Conciliation (Amendment) Bill of 2018, (Bill No. 100 of 2018) contains an amendment to Section 34(2)(a) of the principal Act, which reads as follows:

“In section 34 of the principal Act, in sub-section (2), in clause (a), for the words “furnishes proof that”, the words “establishes on the basis of the record of the arbitral tribunal that” shall be substituted.”

The Hon’ble Supreme Court further observed that Section 34 was amended by Act 3 of 2016, by which sub-sections (5) and (6) were added to the principal Act with effect from 23.10.2015. The amended sub-section provides that an application shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. Also, the application shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice is served upon the other party.

It was observed that in a recent judgment of the Court, the period of one year mentioned in the aforesaid sub-section was held to be directory.

Thus, the Hon’ble Supreme Court opined that the 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. If issues are to be framed and oral evidence taken in a summary proceeding under Section 34, this object will be defeated.

It was observed that if the said Bill No. 100 of 2018 is passed, then evidence at the stage of a Section 34 application will be dispensed with altogether. The Hon’ble Supreme Court opined that the two early Delhi High Court judgments correctly reflect the position in law as to furnishing proof under Section 34(2)(a). So does the Calcutta High Court judgment. However, the Court overruled the decision of the Punjab and Haryana High Court which if adhered to, the time limit of one year would only be observed in most cases in the breach.

The Hon’ble Supreme Court observed that as held by it earlier, the 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). 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.

Accordingly, the Hon’ble Supreme Court set aside the judgment of the Delhi High Court and reinstated the order of the ADJ.

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