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 [Civil Appeal Nos. 7544-7545 of 2019 (Arising out of SLP (C) Nos. 35673-74 of 2014)], it was held that under Section 34 of the Act, cases should be decided only regarding 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, the situation has changed after the 2015 amendment.
Setting Aside Arbitral Award and its Grounds
The Arbitration Act of 1940 provides three kinds of remedies against arbitral awards namely, rectification, remission and setting aside of the Arbitral Award. However, the present position is different in the sense that that now the remedies have been clubbed into two. The Supreme Court has highlighted that “an arbitrator is a judge appointed by the parties and as such an award passed by him is not lightly interfered with.” (Indu Engineering and Textiles Ltd. v. Delhi Development Authority (2001)3 SCR 916). However, since the main goal of the award is to provide legitimate award in the interest of justice, hence the Court is vested with the power to keep a check on the Arbitrator’s actions. Keeping this goal in mind the law provides remedies against the Arbitral Awards. Section 34 of the Arbitration and Conciliation Act, 1996 gives power to the Court or the Judiciary to intervene in the Arbitration process to set aside the award rendered by the Arbitration Tribunal. This section deals with the procedure for the application and also the grounds for setting aside the arbitral award. Moreover, a limitation period has also been set within which the application has to be filed with the Court.
Section 34 of the 1996 Act is in accord with Article 34 of the UNCITRAL Model Law and also to section 30 of the Arbitration Act, 1940. The scope of section 34 is limited in comparison to section 30 of the Arbitration Act,1940. The grounds on which an award can be challenged under section 34 are limited.
Section 34(2) (a) of the Arbitration and Conciliation Act, 1996 provides the grounds on which the Court can set aside the arbitral award, if the party proves that:
- a party was under some incapacity,
- The arbitration agreement is not valid under the Law to which the parties to the Agreement have subjected it.
- No proper notice of the appointment of the arbitrator or the proceeding had been provided.
- The dispute dealt by the arbitral award does not fall within the terms of the submission to arbitration, or the award contains a decision beyond the scope of the submission to arbitration.
- The composition of the tribunal was not in accordance with the agreement of the parties.
Under Section 34 (2) (b) of the Arbitration Act, the court may set aside the award if:
- The subject matter of the dispute cannot be settled through Arbitration
- The award passed conflicts with the public policy of India.
The Section before 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 prove the grounds provided in Section 34(2) of the Act. The High Courts in India all have their separate rules on arbitration.
The Supreme Court in Fiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited and Anr ((2009) 17 SCC 796) 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 the 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.
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 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. 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. Thus, after the 2015 amendment, there was now a definite time within which the courts were to decide an application under Section 34 of the Act.
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, conflicting judgments were 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 (2018) 9 SCC 49, 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 may-be 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 necessary.
Present Position in Law
In light of the 2019 amendment and 2015 amendment to the Act, it is evident that the legislature intends 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 outlined 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 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.
The amendments brought under Section 34 of the Act under the Arbitration and Conciliation (Amendment) Act, 2015 have resolved many issues to a great extent and at the same time least judicial intervention and has also clarified to a certain extent the term “public policy of India” which was not precise before the amendment and adding patent illegality is another ground. Another tool for curbing judicial intervention under section 34 after the amendment has been the insertion of subsection 6 which sets a time limit for courts to settle the dispute within one year. As most of the arbitrators appointed are government employees who are appointed by the central government and usually are retired judges, they are adapted to the habit of conducting the proceeding strictly according to procedures and law. On the other hand, when the other side of the coin is analysed it is seen that the main purpose for the parties to choose Arbitration is to resolve their mutual legal rights and liabilities through an arbitral tribunal instead of going through the long procedure of Courts. Hence it calls for limited or no intervention of the Courts. However, since the main aim of the Award is to ensure delivery of legitimate award in the interest of justice, hence law permits the Courts to intervene in the arbitral proceedings to keep a check on the Arbitrator. Hence a balanced approach is required to bring out the true object of the Act.