2023 (1) TMI 795 - SC - Indian Laws

Validity of arbitration proceedings/constitution of the arbitral tribunal - ex-parte proceedings - seeking permission to adduce evidence - whether the applicant can be permitted to adduce evidence to support the ground relating to Public Policy in an application filed under Section 34 of the Arbitration Conciliation Act, 1996? HELD THAT - In the present case the arbitration proceedings commenced and even the award was declared/passed by the arbitral tribunal in the year 1998, i.e., prior to section 34(2)(a) came to be amended vide Act 33/2019. Apart from the fact that it was conceded by the learned counsel appearing on behalf of the appellant before the High Court that the law prevailing prior to the amendment of Section 34(2)(a) by Act 33/2019 shall be applicable, even otherwise, we are of the opinion that the arbitration proceedings commenced and even the award was declared prior to the amendment of Section 34(2)(a) by Act 33/2019, Section 34(2)(a) pre-amendment shall be applicable - subsequent to the amendment of section 34(2)(a), the words furnishes proof have been substituted by the words establishes on the basis of the record of the arbitral tribunal . In that view of the matter, we hold that in case of arbitration proceedings commenced and concluded prior to the amendment of section 34(2)(a) by Act 33/2019, pre-amendment of section 34(2)(a) shall be applicable. Whether in an application filed under section 34(2)(a) pre-amendment where the requirement is that the party making an application has to furnish proof , whether such an applicant can be permitted to adduce evidence by way of affidavit or otherwise? - HELD THAT - The applications under sections 34 of the Act are summary proceedings; an award can be set aside only on the grounds set out in section 34(2)(a) and section 34(2) (b); speedy resolution of the arbitral disputes has been the reason for enactment of 1996 Act and continues to be a reason for adding amendments to the said Act to strengthen the aforesaid object; therefore in the proceedings under section 34 of the Arbitration Act, the issues are not required to be framed, otherwise if the issues are to be framed and oral evidence is taken in a summary proceedings, the said object will be defeated; an application for setting aside the arbitral award will not ordinarily require anything beyond the record that was before the arbitrator, however, if there are matters not containing such records and the relevant determination to the issues arising under section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both the parties the cross-examination of the persons swearing in to the affidavits should not be allowed unless absolutely necessary as the truth will emerge on the reading of the affidavits filed by both the parties. Whether the present case is such an exceptional case that it is necessary to grant opportunity to the respondents to file affidavits and adduce evidence and whether any case is made out for the same? - HELD THAT - The event of refusal to amalgamate the plots is subsequent to the passing of the award and therefore naturally the same shall not be forming part of the record of the arbitral tribunal. Even otherwise, it is required to be noted that the award of the arbitral tribunal was an exparte award and no evidence was before the arbitral tribunal on behalf of the respondents. We are not opining on whether the arbitral tribunal was justified in proceeding with the further proceedings ex-parte or not. Suffice it to record that before the arbitral tribunal, such evidence was not there and nothing was on record on the amalgamation of the plots - a strong exceptional case is made out by the respondents to permit them to file affidavits/adduce additional evidence. However, at the same time, the appellant also can be permitted to cross-examine and/or produce contrary evidence. The High Court has not committed any error in permitting the respondents to file affidavits/additional evidence in the proceedings under section 34 of the Arbitration Act. Appeal dismissed.

Issues Involved
1. Applicability of pre-amendment Section 34(2)(a) of the Arbitration and Conciliation Act, 1996.
2. Permissibility of adducing additional evidence in an application under Section 34 of the Act.
3. Interpretation of "furnish proof" in Section 34(2)(a) and its applicability to Section 34(2)(b).
4. Consideration of subsequent developments and their impact on the enforceability of the arbitral award.
5. Whether exceptional circumstances exist to allow additional evidence in Section 34 proceedings.

Detailed Analysis

1. Applicability of Pre-Amendment Section 34(2)(a)
The arbitration proceedings and the award in question were conducted and issued before the amendment of Section 34(2)(a) by Act 33/2019. The Supreme Court held that the pre-amendment provisions apply, as the amendment brought a substantial change. Pre-amendment, an arbitral award could be set aside if the party making the application "furnishes proof" that the grounds set out in Section 34(2)(a) and (b) are satisfied. Post-amendment, the requirement shifted to "establishes on the basis of the record of the arbitral tribunal."

2. Permissibility of Adducing Additional Evidence
The Court examined whether the applicant can be permitted to adduce evidence to support the ground relating to public policy in an application filed under Section 34. It referred to several precedents, including Fiza Developers, Emkay Global, and Canara Nidhi, which established that Section 34 applications are summary proceedings and generally should not require anything beyond the record before the arbitrator. However, in exceptional cases, additional evidence may be permitted if it is relevant to the determination of issues arising under Section 34(2)(a).

3. Interpretation of "Furnish Proof" and Applicability to Section 34(2)(b)
The Court rejected the appellant's argument that the requirement of "furnishing proof" under pre-amendment Section 34(2)(a) does not apply to Section 34(2)(b). It held that even for establishing that the arbitral award is in conflict with public policy, evidence might need to be led. The Court emphasized that if such evidence is necessary to prove that the award conflicts with public policy or that the subject matter is not arbitrable, it should be allowed.

4. Consideration of Subsequent Developments
The Court addressed the appellant's submission that subsequent developments (such as the refusal to grant permission for amalgamation of plots) should be considered in execution proceedings rather than in Section 34 proceedings. The Court held that grounds under Section 34(2)(b), like conflict with public policy, could be raised immediately after the award is passed and do not need to wait until execution proceedings.

5. Exceptional Circumstances for Allowing Additional Evidence
The Court found that the present case constituted an exceptional circumstance warranting the allowance of additional evidence. The respondents sought to introduce evidence of the refusal of permission to amalgamate plots, which occurred after the arbitral award and was not part of the arbitral record. Given that the award was ex-parte and no evidence was presented by the respondents during arbitration, the Court deemed it appropriate to allow additional evidence to be filed via affidavits. The appellant would also be permitted to cross-examine and produce contrary evidence.

Conclusion
The Supreme Court upheld the High Court's decision to permit the respondents to file additional evidence in the Section 34 proceedings. The Court emphasized the need for a speedy resolution of arbitration disputes and directed the lower court to expedite the final decision on the Section 34 application. The appeal was dismissed with no order as to costs.

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