M/S. Canara Nidhi Limited v. M Shashikala and others, (2019) SCC Online SC 1244 (decided on 23 September 2019)

Relevant Facts:

The dispute between the parties was referred to arbitration which culminated into an award. Both the parties adduced oral and documentary evidence before the arbitrator. The award was challenged by the award debtor under Section 34 of the Arbitration and Conciliation Act 1996 (“Act”) before the District Court at Mangalore along with an application seeking permission to adduce evidence to substantiate the grounds for setting aside the award. The said application was dismissed on 02.06.2010 by the District Court holding that the grounds to set aside the award can be met by examining the records of the arbitration proceedings and by perusing the arbitral award without adducing fresh evidence. This order was appealed before the High Court of Karnataka by way of Writ Petition. The High Court had set aside the District Court’s order vide order dated 12.09.2014 and directed to “recast the issues”. Relying on the Supreme Court decision of Fiza Developers and Inter-Trade Private Limited v AMCI (India) (P) Ltd. and Anr., (2009) 17 SCC 796, the High Court granted permission to the award debtor to place its evidence by affidavit in the proceedings under Section 34 of the Act. This decision of the High Court was further challenged before the Supreme Court.

Issues:

Whether the parties can adduce evidence to prove the specified grounds in Section 34(2), in an application under Section 34 of the Act?

Judgement:

The Supreme Court discussed the judgement in Fiza Developers wherein it was held that the applications under Section 34 of the Act are summary proceedings, but an opportunity was afforded to the aggrieved party to prove existence of any of the grounds under Section 34(2) of the Act. 

Subsequent to Fiza Developers, 2015 Amendment amended Section 34 to insert sub-Section 5 and 6 which essentially show the objective of quick disposal of Section 34 applications. The Court observed that 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 Act has led to inconsistent practices. Based upon Justice B.N. Srikrishna Committee’s report, Section 34(2)(a) of the Act was amended by Arbitration and Conciliation (Amendment) Act, 2019 (“2019 Amendment”) to substitute the words “furnishes proof that” by the words “establishes on the basis of the record of the Arbitral Tribunal”.

It also observed that, after referring to the Srikrishna Committee’s report and other judgements, the Supreme Court in Emkay Global Financial Services Limited v. Girdhar Sondhi (2018) 9 SCC 49 clarified the legal position 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.

In the given facts, the Supreme Court held that there are no specific averments in the affidavit as to the necessity and relevance of the additional evidence sought to be adduced. Further, in the application filed by respondents 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 respondents. In the arbitration proceedings, the parties had sufficient opportunity to adduce oral and documentary evidence.

Finally, the Court reaffirmed that Section 34 proceedings are summary in nature and is not in the nature of a regular suit. It observed that by adding sub-sections (5) and (6) to Section 34 of the Act, it has specified time period for disposal to avoid delay and to dispose of the application expeditiously and in any event within a period of one year.

The Supreme Court ultimately set aside the impugned judgement holding that the High Court should not have interfered under Articles 226, 227 and further affirmed the judgement of the District Court.

Comments:

The Supreme Court has maintained the sanctity of the process involved in disposal of section 34 application by affirming that the principle of “exceptional circumstances” is to be applied in order to allow adducing additional evidence at such stage. The exceptional circumstances will have to be demonstrated for this exception to be allowed by the Courts. Although, the Supreme Court has not clearly articulated what the principle of exceptional circumstances are, it has created ample safeguards by holding that the aggrieved party should plead sufficient grounds justifying the necessity and relevance of adducing additional evidence in order to bring it within the purview of exception.

The present judgement is purposive, objective based and, is of course, imperative for the speedy disposal of Section 34 applications. Since the Court has taken into consideration 2019 Amendment in this judgement, one may not argue that there is absolute prohibition in adducing evidence at Section 34 stage because of 2019 Amendment.