2019 (9) TMI 959 - SC - Indian Laws

Summary disposal of arbitration proceedings - Whether the parties can adduce evidence to prove the specified grounds in sub-section (2) to Section 34 of the Arbitration and Conciliation Act, 1996? - HC allowed the respondents to produce additional evidences. HELD THAT - 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. Order of HC set aside - Appeal allowed.

Issues Involved:
1. Whether parties can adduce evidence to prove the specified grounds in sub-section (2) to Section 34 of the Arbitration and Conciliation Act, 1996.
2. Validity of the High Court's direction to "recast the issues" and permit affidavits and cross-examination of witnesses.
3. Nature and scope of proceedings under Section 34 of the Act.
4. Applicability of the Civil Procedure Code in proceedings under Section 34.
5. Impact of amendments to Section 34 by the Arbitration and Conciliation (Amendment) Act, 2019.

Detailed Analysis:

1. Adducing Evidence to Prove Grounds under Section 34(2):
The Supreme Court examined whether parties can adduce evidence to prove the grounds specified in Section 34(2) of the Arbitration and Conciliation Act, 1996. It was argued by the appellant that the proceedings under Section 34 are summary in nature and should be decided based on the materials produced before the arbitrator, without fresh evidence. This argument was supported by the precedent set in Fiza Developers, which emphasized minimal court interference and expeditious disposal of arbitration-related matters.

2. High Court's Direction to Recast Issues and Permit Affidavits:
The High Court had directed the District Judge to "recast the issues" and allow the respondents to file affidavits and cross-examine witnesses. This decision was based on the interpretation of Fiza Developers, which allowed filing of affidavits and cross-examination if necessary. However, the Supreme Court found that the High Court misinterpreted the ratio of Fiza Developers and emphasized that the proceedings under Section 34 should not be conducted like a regular civil suit, with framing of issues and extensive evidence.

3. Nature and Scope of Proceedings under Section 34:
The Supreme Court reiterated that Section 34 proceedings are summary in nature and should focus on whether any of the grounds mentioned in Section 34(2) are made out to set aside the award. The judgment highlighted that the proceedings should be based on the record before the arbitrator and that cross-examination should be allowed only if absolutely necessary.

4. Applicability of Civil Procedure Code:
The respondents argued that under Rule 4(b) of the Karnataka High Court Arbitration Rules, the provisions of the Civil Procedure Code (CPC) should apply to Section 34 proceedings. The Supreme Court clarified that Rule 4(b) is procedural and does not imply a wholesale import of CPC provisions into arbitration-related proceedings, as it would defeat the purpose of the Arbitration Act, 1996. The Court held that framing of issues and extensive evidence are not required in Section 34 proceedings.

5. Impact of Amendments to Section 34:
The Supreme Court referred to the amendments made to Section 34 by the Arbitration and Conciliation (Amendment) Act, 2019, which substituted "furnishes proof that" with "establishes on the basis of the record of the Arbitral Tribunal that." This amendment aimed to ensure that Section 34 proceedings are conducted expeditiously and based on the existing record. The Court emphasized that cross-examination and additional evidence should be limited and only allowed in exceptional circumstances.

Conclusion:
The Supreme Court set aside the High Court's judgment, which had allowed the respondents to adduce additional evidence and cross-examine witnesses. The Court affirmed the District Judge's order dismissing the application for additional evidence, emphasizing that the grounds for setting aside the award should be based on the record before the arbitrator. The proceedings under Section 34 are summary in nature and should be disposed of expeditiously, within the stipulated one-year period. The case was remanded to the District Judge for expeditious disposal in accordance with law.

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