Monday, 21 October 2019

Supreme Court: Court should permit recording of evidence in proceeding U/S 34 of Arbitration Act in exceptional circumstances

 Based upon Justice B.N. Srikrishna Committee’s report,
Section 34 of the Principal Act has been amended by
Arbitration and Conciliation (Amendment) Act, 2019 as under:-
“7. Amendment of Section 34.—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.”
17. After referring to Justice B.N. Srikrishna Committee’s
report and other judgments and observing that the decision in

Fiza Developers must be read in the light of the amendment
made in Section 34(5) and Section 34(6) of the Act and
amendment to Section 34 of the Arbitration Act, 1996, in Emkay
Global Financial Services Limited v. Girdhar Sondhi (2018) 9
SCC 49, it was held as under:-
“21. 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. Given the current state of the law, we
are of the view that the two early Delhi High Court judgments in
Sandeep Kumar v. Ashok Hans 2004 SCC OnLine Del 106, Sial
Bioenergie v. SBEC Systems 2004 SCC OnLine Del 863, cited
by us hereinabove, correctly reflect the position in law as to
furnishing proof under Section 34(2)(a). So does the Calcutta
High Court judgment in WEB Techniques and Net Solutions (P)
Ltd. v. Gati Ltd. 2012 SCC OnLine Cal 4271. We may hasten to
add that if the procedure followed by the Punjab and Haryana
High Court judgment in Punjab SIDC Ltd. v. Sunil K. Kansal 2012
SCC Online P&H 19641 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 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 Sections 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-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. We, therefore, set aside the judgment in Girdhar Sondhi
v. Emkay Global Financial Services Ltd. 2017 SCC OnLine Del
12758 of the Delhi High Court and reinstate that of the learned
Additional District Judge dated 22-9-2016. The appeal is
accordingly allowed with no order as to costs.”
The legal position is thus clarified that Section 34 application
will not ordinarily require anything beyond the record that was
before the arbitrator and that cross-examination of persons
swearing in to the affidavits should not be allowed unless
absolutely necessary.
18. The question falling for consideration is whether the
present case is such an exceptional circumstance that it was
necessary to grant opportunity to respondent Nos.1 and 2 to file
affidavits and to cross-examine the witnesses is made out. The

affidavit filed by the respondents along with application filed
under Section 151 CPC does not indicate as to what point the
first respondent intends to adduce except stating that the first
respondent intends to adduce additional evidence relating to
the subject of dispute. The affidavit does not disclose specific
documents or evidence required to be produced except stating
that the first respondent intends to adduce additional evidence
or otherwise the first respondent will be subjected to hardship in
the arbitration suit filed by her under Section 34 of the Act. As
rightly contended by the learned counsel appearing for the
appellant that there are no specific averments in the affidavit as
to the necessity and relevance of the additional evidence
sought to be adduced.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7544-7545 OF 2019

M/S. CANARA NIDHI LIMITED  Vs M. SHASHIKALA A

R. BANUMATHI, J.
Dated:September 23, 2019

Leave granted.
2. In the application under Section 34 of the Arbitration and
Conciliation Act, 1996 (the Act) seeking to set aside the award,
whether the parties can adduce evidence to prove the specified
grounds in sub-section (2) to Section 34 of the Act, is the
question falling for consideration in these appeals.

3. These appeals arise out of the judgment dated
12.09.2014 passed by the High Court of Karnataka at
Bangalore in Writ Petition Nos.18374-75 of 2010 (GM-RES) in
and by which the High Court set aside the order passed by the
District Judge and directed the District Judge to “recast the
issues” and permit respondent Nos.1 and 2 to file affidavits of
their witnesses and also permitting cross-examination of the
witnesses.
4. Brief facts which led to filing of these appeals are as
under:-
The appellant is the financial institution and the appellant
advanced a loan of Rs.50,00,000/- to respondent No.1 and
respondent Nos.2, 4 and 5 to 8 were the guarantors in respect
of such loan. The loan was secured by a mortgage with
deposit of title deeds and respondent No.1 is also said to have
executed a demand promissory note for repayment of the loan.
There was an arbitration clause in the agreement to resolve
dispute between the parties. It is alleged that the first
respondent did not repay the loan and failed to discharge the
liabilities arising out of the transaction. The dispute between

the appellant and the first respondent was referred to
arbitration to the third respondent-Arbitrator. Before the
arbitrator, both the parties adduced oral and documentary
evidence. The arbitrator passed an award dated 15.12.2007
and directed the respondents to pay an amount of
Rs.63,82,802/- with interest on Rs.50,00,000/- at 14% per
annum from 11.08.2000 and cost of Rs.52,959/-.
5. Assailing the award, respondent No.1 filed AS No.1 of
2008 under Section 34 of the Act in the Court of District Judge
at Mangalore. Before the District Judge, respondent Nos.1 and
2 filed an application under Section 151 CPC to permit the
respondents to adduce evidence. The appellant filed objections
to the said application. By the order dated 02.06.2010, the
learned District Judge dismissed the said application. Holding
that the grounds urged in the application can very well be met
with by the records of the arbitration proceedings and by
perusing the arbitral award, the learned District Judge further
held that in any event, there is no necessity of adducing fresh
evidence in the application filed under Section 34 of the Act.

6. Aggrieved by the dismissal of their application under
Section 151 CPC, respondent Nos.1 and 2 filed writ petitions
before the High Court under Articles 226 and 227 of the
Constitution of India. The High Court by the impugned
judgment allowed the writ petitions and directed the learned
District Judge to “recast the issues” and allow respondent
Nos.1 and 2 to file affidavits of their witnesses and further allow
cross-examination of the witnesses. After referring to the
judgment in Fiza Developers and Inter-Trade Private Limited v.
AMCI (India) Private Limited and another (2009) 17 SCC 796,
the High Court observed that in order to prove the existence of
the grounds under Section 34(2) of the Act, respondent Nos.1
and 2 are permitted to file affidavits of their witnesses. In the
impugned judgment, the High Court concluded that the
reasoning of the District Judge not permitting respondent Nos.1
and 2 to file their own affidavits and affidavits of other
witnesses to prove their case is erroneous and opposed to
settled principles of law. As pointed out earlier, the learned
District Judge was directed to “recast the issues” and the court
below was directed to permit respondent Nos.1 and 2 to file

affidavits of their witnesses and extend corresponding
opportunity to the appellant to place their evidence by affidavit.
Being aggrieved, the appellant has preferred these appeals.
This Court ordered notice vide order dated 06.01.2015 and
further ordered that there shall be stay of the proceedings in AS
No.1 of 2008.
7. Assailing the impugned judgment, Mr. S.N. Bhat, learned
counsel appearing for the appellant submitted that it is wellsettled
that proceedings under Section 34 of the Act is
summary in nature and the scope of the said proceedings is
very limited. It was submitted that the validity of the award has
to be decided on the basis of the materials produced before the
arbitrator and there is no scope for adducing fresh evidence
before the court in the proceedings under Section 34 of the Act.
The learned counsel submitted that the High Court, in the
present case, misread the ratio of the decision of the Supreme
Court in Fiza Developers. It was inter alia urged that in any
event, in the present case, respondent Nos.1 and 2 did not
make out any exceptional grounds for permission to lead fresh
evidence in the proceedings under Section 34 of the Act and

the learned District Judge rightly rejected the application filed
by respondent Nos.1 and 2 for permission to lead evidence.
The learned counsel urged that the High Court erred in
interfering with the order passed by the trial court in
interlocutory application.
8. Reiterating the findings of the impugned judgment of the
High Court, Ms. E.R. Sumathy, learned counsel appearing for
respondent Nos.1 and 2 submitted that in order to prove the
grounds stated in the application filed under Section 34 of the
Act adducing additional evidence is necessary. It was
submitted that respondent Nos.1 and 2 sought to adduce
evidence to prove the grounds enumerated under Section 34(2)
(a) of the Act. The learned counsel submitted that the grounds
for setting aside the award are specific and therefore,
necessarily respondent Nos.1 and 2 will have to plead and
prove the grounds mentioned in Section 34(2) of the Act and
prove the same and the High Court rightly allowed the writ
petitions giving an opportunity to respondent Nos.1 and 2 to
adduce evidence in the proceedings under Section 34 of the
Act.

9. The proceedings under Section 34 of the Act are
summary in nature. The scope of enquiry in the proceedings
under Section 34 of the Act is restricted to a consideration
whether any of the grounds mentioned in Section 34(2) or
Section 13(5) or Section 16(6) are made out to set aside the
award. The grounds for setting aside the award are specific. It
is imperative for expeditious disposal of cases that the
arbitration cases under Section 34 of the Act should be decided
only with reference to the pleadings and the evidence placed
before the arbitral tribunal and the grounds specified under
Section 34(2) of the Act.
10. The learned counsel for respondent Nos.1 and 2
submitted that in view of Rule 4(b) of the High Court of
Karnataka Arbitration (Proceedings before the Courts) Rules,
2001, (Karnataka High Court Arbitration Rules) all the
proceedings of the Civil Procedure Code, 1908 shall apply to
such proceedings and therefore, the High Court rightly allowed
the writ petitions and permitted respondent Nos.1 and 2 to file
their own affidavits and also the affidavits of the witnesses.
Rule 4(b) of the Karnataka High Court Arbitration Rules

provides that all the proceedings of the Civil Procedure Code
shall apply to such proceeding/application filed under Sections
14 or 34 of the Act insofar as they could be made applicable.
Rule 4(b) of Karnataka High Court Arbitration Rules, in our
view, are only procedural. In Fiza Developers, the Supreme
Court noticed Rule 4(b) of Karnataka High Court Arbitration
Rules and made it clear that there is no wholesale or automatic
import of all the provisions of Civil Procedure Code into the
proceedings under Section 34 of the Act as that will defeat the
very purpose and object of the Arbitration Act, 1996.
11. In Fiza Developers, the question which arose for
consideration by the court was whether issues as contemplated
under Order XIV Rule 1 of Civil Procedure Code should be
framed in the application under Section 34 of the Act. The
court held that framing of issues as contemplated under Order
XIV Rule 1 CPC is not required in an application under Section
34 of the Act which proceeding is summary in nature. In paras
(14), (17), (21) and (24) of Fiza Developers, it was held as
under:-
“14. In a summary proceeding, the respondent is given an
opportunity to file his objections or written statement. Thereafter,

the court will permit the parties to file affidavits in proof of their
respective stands, and if necessary permit cross-examination by
the other side, before hearing arguments. Framing of issues in
such proceedings is not necessary. We hasten to add that when
it is said issues are not necessary, it does not mean that
evidence is not necessary.
……..
17. The scheme and provisions of the Act disclose two significant
aspects relating to courts vis-à-vis arbitration. The first is that
there should be minimal interference by courts in matters relating
to arbitration. Second is the sense of urgency shown with
reference to arbitration matters brought to court, requiring
promptness in disposal.
……….
21. We may therefore examine the question for consideration by
bearing three factors in mind. The first is that the Act is a special
enactment and Section 34 provides for a special remedy. The
second is that an arbitration award can be set aside only upon
one of the grounds mentioned in sub-section (2) of Section 34
exists. The third is that proceedings under Section 34 requires to
be dealt with expeditiously.
……..
24. In other words, an application under Section 34 of the Act is
a single issue proceeding, where the very fact that the
application has been instituted under that particular provision
declares the issue involved. Any further exercise to frame issues
will only delay the proceedings. It is thus clear that issues need
not be framed in applications under Section 34 of the Act.”
12. Though this Court held that the applications under
Section 34 of the Act are summary proceedings, an opportunity

to the aggrieved party has to be afforded to prove existence of
any of the grounds under Section 34(2) of the Act. This court
thus permitted the applicant thereon to file affidavits of his
witnesses in proof thereof. In para (31) of Fiza Developers,
this Court held as under:-
31. Applications under Section 34 of the Act are summary
proceedings with provision for objections by the respondentdefendant,
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.”
13. After referring to the judgment in Fiza Developers, in the
impugned judgment, the High Court held that respondent Nos.1
and 2 are to be afforded an opportunity to file their and their
witnesses’ affidavits in proof of their case to prove the grounds
set out in Section 34(2)(a) of the Act.

14. After the decision in Fiza Developers, Section 34 was
amended by Act 3 of 2016 by which sub-sections (5) and (6) of
Section 34 were added to the Principal Act w.e.f. 23.10.2015.
Sub-sections (5) and (6) to Section 34 of the Act read as
under:-
“34. Application for setting aside arbitral award.—
(1)-(4) ……..
(5) An application under this section 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.
(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from
the date on which the notice referred to in sub-section (5) is
served upon the other party.”
15. The judgment in Fiza Developers was considered by
Justice B.N. Srikrishna Committee which reviewed the
institutionalisation of the arbitration mechanism and pointed out
that opportunity to furnish proof in proceedings under Section
34 of the Arbitration Act has led to inconsistent practices. The
said Committee reported as under:-
“5. Amendment to Section 34(2)(a) of the ACA: Sub-section (2)
(a) of Section 34 of the ACA provides for the setting aside of
arbitral awards by the court in certain circumstances. The party

applying for setting aside the arbitral award has to furnish proof
to the court. This requirement to furnish proof has led to
inconsistent practices in some High Courts, where they have
insisted on Section 34 proceedings being conducted in the
manner as a regular civil suit. This is despite the Supreme Court
ruling in Fiza Developers & Inter-Trade (P) Ltd. v. AMCI (India)
(P) Ltd. (2009) 17 SCC 796 that proceedings under Section 34
should not be conducted in the same manner as civil suits, with
framing of issues under Rule 1 of Order 14 of the CPC.
In light of this, the Committee is of the view that a suitable
amendment may be made to Section 34(2)(a) to ensure that
proceedings under Section 34 are conducted expeditiously.
Recommendation: An amendment may be made 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’.”
[Report of Justice B.N. Srikrishna Committee quoted in
Emkay Global Financial Services Ltd. v. Girdhar Sondhi
(2018) 9 SCC 49]
16. Based upon Justice B.N. Srikrishna Committee’s report,
Section 34 of the Principal Act has been amended by
Arbitration and Conciliation (Amendment) Act, 2019 as under:-
“7. Amendment of Section 34.—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.”
17. After referring to Justice B.N. Srikrishna Committee’s
report and other judgments and observing that the decision in

Fiza Developers must be read in the light of the amendment
made in Section 34(5) and Section 34(6) of the Act and
amendment to Section 34 of the Arbitration Act, 1996, in Emkay
Global Financial Services Limited v. Girdhar Sondhi (2018) 9
SCC 49, it was held as under:-
“21. 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. Given the current state of the law, we
are of the view that the two early Delhi High Court judgments in
Sandeep Kumar v. Ashok Hans 2004 SCC OnLine Del 106, Sial
Bioenergie v. SBEC Systems 2004 SCC OnLine Del 863, cited
by us hereinabove, correctly reflect the position in law as to
furnishing proof under Section 34(2)(a). So does the Calcutta
High Court judgment in WEB Techniques and Net Solutions (P)
Ltd. v. Gati Ltd. 2012 SCC OnLine Cal 4271. We may hasten to
add that if the procedure followed by the Punjab and Haryana
High Court judgment in Punjab SIDC Ltd. v. Sunil K. Kansal 2012
SCC Online P&H 19641 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 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 Sections 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-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. We, therefore, set aside the judgment in Girdhar Sondhi
v. Emkay Global Financial Services Ltd. 2017 SCC OnLine Del
12758 of the Delhi High Court and reinstate that of the learned
Additional District Judge dated 22-9-2016. The appeal is
accordingly allowed with no order as to costs.”
The legal position is thus clarified that Section 34 application
will not ordinarily require anything beyond the record that was
before the arbitrator and that cross-examination of persons
swearing in to the affidavits should not be allowed unless
absolutely necessary.
18. The question falling for consideration is whether the
present case is such an exceptional circumstance that it was
necessary to grant opportunity to respondent Nos.1 and 2 to file
affidavits and to cross-examine the witnesses is made out. The

affidavit filed by the respondents along with application filed
under Section 151 CPC does not indicate as to what point the
first respondent intends to adduce except stating that the first
respondent intends to adduce additional evidence relating to
the subject of dispute. The affidavit does not disclose specific
documents or evidence required to be produced except stating
that the first respondent intends to adduce additional evidence
or otherwise the first respondent will be subjected to hardship in
the arbitration suit filed by her under Section 34 of the Act. As
rightly contended by the learned counsel appearing for the
appellant that there are no specific averments in the affidavit as
to the necessity and relevance of the additional evidence
sought to be adduced.
19. By perusal of the award, it is seen that before the
arbitrator, respondent No.1 filed her written statement and other
respondents also filed separate written statements. It was
contended that the documents were forged. Both parties
adduced oral and documentary evidence. The appellant led
evidence by examining two witnesses Balakrishna Nayak
(PW-1) and B.A. Baliga (PW-2) and exhibited documents P1 to

P47. Respondent Nos.1 and 2 also examined five witnesses
viz. M. Shashikala (RW-1), Mamatha @ Mumtaz Hameed (RW-
2), Latha (RW-3), Chitralekha Umesh (RW-4) and B.R. Nagesh
(RW-5). Respondent Nos.1 and 2 also produced documentary
evidence Ex.-R1 to R13. As held by the District Judge, the
grounds urged in the application can very well be considered by
the evidence adduced in the arbitration proceedings and
considering the arbitral award. Further, the application filed by
respondent Nos.1 and 2 seeking permission to adduce
evidence, no ground was made out as to the necessity of
adducing evidence and what was the nature of the evidence
sought to be led by respondent Nos.1 and 2. The proceedings
under Section 34 of the Act are summary proceedings and is
not in the nature of a regular suit. By adding sub-sections (5)
and (6) to Section 34 of the Act, the Act has specified the time
period of one year for disposal of the application under Section
34 of the Act. The object of sub-sections (5) and (6) to Section
34 fixing time frame to dispose of the matter filed under Section
34 of the Arbitration Act, 1996 is to avoid delay and to dispose
of the application expeditiously and in any event within a period

of one year from the date of which the notice referred to in
Section 34(5) of the Act is served upon the other party. In the
arbitration proceedings, the parties had sufficient opportunity to
adduce oral and documentary evidence. The High Court did
not keep in view that respondent Nos.1 and 2 have not made
out grounds that it is an exceptional case to permit them to
adduce evidence in the application under Section 34 of the Act.
The said directions of the High Court amount to retrial on the
merits of the issues decided by the arbitrator. When the order of
the District Judge dismissing the application filed by respondent
Nos.1 and 2 does not suffer from perversity, the High Court, in
exercise of its supervisory jurisdiction under Articles 226 and
227 of the Constitution of India, ought not to have interfered
with the order passed by the District Judge and the impugned
judgment cannot be sustained.
20. In the result, the impugned judgment dated 12.09.2014
passed by the High Court of Karnataka at Bangalore in Writ
Petition Nos.18374-75 of 2010 (GM-RES) is set aside and
these appeals are allowed. The order of the District Judge
dismissing the application filed under Section 151 CPC in AS

No.1 of 2008 is affirmed. The learned District Judge shall take
up AS No.1 of 2008 and dispose of the same expeditiously in
accordance with law. No costs.
…………………………..J.
[R. BANUMATHI]
…………………………..J.
[A.S. BOPANNA]
New Delhi;
September 23, 2019

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