Adducing Evidence Under Section 34 of the Arbitration Act

It has been well established that proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) are summary in nature.The scope of enquiry in any proceedings under Section 34 of the Act has been restricted to consider 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 which are specific. In a recent decision passed by the Supreme Court in Canara Nidhi Limited vs. M. Shashikala^[1], it was held that under Section 34 of the Act, cases 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 and only in exceptional circumstances should additional evidence be adduced. However, this position of law has not always been the case. With there being a change after the 2015 Amendment, we witnessed two new sub-sections^[2] being inserted to Section 34 of the Act, which has played a role in the change in understanding of the law with regards to adducing evidence under Section 34 of the Act.Through this article we aim to trace the development of law on adducing evidence under Section 34 of the Act.

Pre 2015 Amendment

Under Section 34 (2) (a), it has been stated that a “party making the application furnishes proof”, which could lead to a natural conclusion that a party will have to plead and prove the grounds mentioned in Section 34(2) of the Act.The High Courts in India all have their separate rules on arbitration. The rules on arbitration by some High Courts do allow for all provisions of the Civil Procedure Code, 1908 (“CPC”) to be applicable, in fact Rule 4(b) of the Karnataka High Court Arbitration Rules^[3] provides that all provisions of the CPC shall be applicable to an application under Section 34 of the Act insofar as they could be made applicable.

The Supreme Court inFiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited and Anr^[4] (“Fiza Developers Decision”) was considering the issue of whether issues as contemplated under Order XIV Rule 1 of the CPC should be framed in an application under Section 34 of the Act and held that framing of issues is not required as the proceedings are summary in nature. However, the Court further went on to add that 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, and as a result the Court allowed the applicant in the case to file affidavits of the applicant’s witnesses as “proof” and granted the respondent-defendant an opportunity to place their evidence by affidavit. With regards to cross-examination of the witnesses the Court held that “… 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.”^[5] 

The 2015 Amendment

Section 34 of the Act was amended by Act 3 of 2016 by which sub-sections (5) and (6) of Section 34 were added to the with effect from 23.10.2015.  Sub-section (5) directed parties to ensure a notice is given to the other party before initiating any proceeding under Section 34 of the Act^[6]. Whereas, sub-section (6) requires Courts to dispose of an application under Section 34 of the Act within a year from the date the notice under sub-section (5) was filed^[7]. Thus, after the 2015 amendment there was now a definite time period within which the courts were to decide an application under Section 34 of the Act.

Clarification to the Fiza Developers Decision

While it was widely recognized that the Fiza Developers Decision was correct in holding that proceedings under Section 34 of the Act are summary in nature, there was a need to clarify the correct position in law after the 2015 Amendment especially with the insertion of sub-section (5) and sub-section (6). After the 2015 Amendment there were conflicting judgments arising out different High Courts of the country and there was a need for a clarification with regards to the correct position of law. The Supreme Court in Emkay Global Financial Services Limited v. Girdhar Sondhi^[8](“Emkay Decision”) clarified that the Fiza Developers Decision must be read in light with sub-sections (5) and (6) of the Act and stated that an application for setting aside an arbitral award would not ordinarily require anything beyond the record that was before the arbitrator. The Court further clarified that only if there were matters not contained in the record before the arbitrator, and would be relevant for determining issues arising under Section 34(2)(a), only then they maybe brought to the notice of the Court by way of affidavits filed by both parties. With regards to cross-examination of the witnesses swearing the affidavits the Court held that cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary.

Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India

The High Level Committee chaired by Justice B.N. Srikrishna had also commented on the inconsistencies that had been brought about with the phrase“party making the application furnishes proof”. The High Level Committee noted that opportunity to furnish proof in proceedings under Section 34 of the Act had led to inconsistent practices by various High Courts who had begun insisting on proceedings under Section 34 of the Act to be conducted in the manner of that of a regular civil suit despite the Fiza Developers Decision wherein it was held that proceedings under Section 34 of the Act should not be conducted in the same manner as civil suits, with regards to framing of issues under Rule 1 of Order 14 of the CPC^[9]. To ensure that proceedings under Section 34 of the Act were decided expeditiously the High Level Committee proposed that Section 34 of the Act be amended and the phrase “party making the application furnishes proof” should be substituted with the words “establishes on the basis of the Arbitral Tribunal’s record that.” This change has been accepted by the legislature and therefore as a result in the 2019 Arbitration Act, Section 34 (2)(a) of the Act now reads as

 “(2) An arbitral award may be set aside by the Court only if —

(a) “establishes on the basis of the Arbitral Tribunal’s record that….”

Present Position in Law

In light of the 2019 amendment and 2015 amendment to the Act, it is evident that the intention of the legislature is to ensure proceedings under Section 34 of the Act are resolved expeditiously and any application under Section 34 of the Act must be read in light of the decisions set forth in Fiza Developers Decision and the Emkay Decision. In this context the recent judgment of the Supreme Court in Canara Nidhi Limited vs. M. Shashikala^[10] becomes even more relevant for it has been clarified that only in exceptional circumstances should evidence in the form of affidavits and cross-examination of those witnesses be permitted. If there does exist any exceptional circumstance wherein parties are required to adduce evidence in the form of an affidavit, then it must be indicated as to what point a party intends to adduce evidence for and should disclose specific documents or evidence that would be required to be produced. Thus if an exceptional circumstance does arise, then there must be specific averments in the affidavit as to the necessity and relevance of the additional evidence sought to be adduced which would be beyond the record that was before the arbitrator.