Arbitration has firmly established itself as one of the most expeditious and effective means of resolving disputes within our legal framework. This preference for arbitration can be attributed to the sanctity accorded to the arbitral process and the general perception among the Courts that the arbitral Tribunal holds the final say on matters of fact and contractual interpretation.
In 2015, the Arbitration and Conciliation Act, 1996 ("the Act") underwent an amendment that further streamlined the arbitration process, both in terms of the proceedings before the Tribunal and the Court's role in addressing challenges to arbitral awards. The 2019 amendment further restricted the scope of interference by Courts, by confining the examination under Section 34 of the Act only to the record before a Tribunal. This amendment raises intriguing questions.
What happens when a party wishes to introduce a recently discovered document that could potentially undermine the claim of the victorious party in arbitration? What if a crucial document that was never presented before the Tribunal suddenly becomes relevant in Court proceedings objecting to an arbitral award? Is the Court permitted to consider such documents and evidence in support of these objections?
This article embarks on an examination of the law governing the introduction of additional evidence and documents during Section 34 proceedings under the Act, which deal with challenges to arbitral awards.
Before the 2019 amendment, Section 34(2)(a) of the Act mandated that a party must "furnish proof" that an award should be set aside based on the grounds specified in Section 34. The term "furnishes proof " in Section 34(2)(a) clearly encompassed materials before the Tribunal and any additional documents or evidence presented by a party to establish that an award should be set aside. Consequently, the scope of review was not limited to the materials on record before the Tribunal, and the Court could consider such materials even if they were not presented before the Tribunal. However, the party was required to demonstrate to the Court that, despite due diligence, it couldn't have discovered this evidence or documents earlier and was thus unable to present them to the Tribunal.
This approach found support in a series of judicial decisions:
Delhi High Court's Perspective: In the case of Sandeep Kumar v. Ashok Hans, the Delhi High Court ruled that parties were not obligated to adduce evidence in a Section 34 petition. The Tribunal's record was deemed sufficient to establish whether the grounds under Section 34 of the Act were made out.
Preserving the Arbitration Process: Sial Bioenergie v. SBEC System underscored the importance of preserving the efficiency of the arbitration process. Permitting parties to introduce evidence while challenging an award was seen as potentially undermining the Act's very purpose.
Supreme Court's Stance: In Fiza Developers & Inter-Trade (P) Ltd. v. AMCI (India) (P) Ltd., the Supreme Court took it a step further by allowing Courts to permit parties to submit affidavits as evidence and, if necessary, order cross-examination before arguments. This marked a notable evolution in the treatment of evidence in arbitration proceedings.
Extending the Precedent: Following the Supreme Court's lead, the Punjab & Haryana High Court in Punjab State Industrial Corporation Ltd. v. Sunil K. Kansal affirmed that Courts could allow parties to file affidavits as evidence and even permit cross-examination when warranted. The Calcutta High Court similarly aligned itself with this precedent in WEB Techniques & Net Solutions (P) Ltd. v. Gati Ltd.
These rulings collectively established a legal landscape where the Court's purview extended beyond the Tribunal's record, enabling parties to introduce additional evidence and documents under specific circumstances.
Recognizing the need for consistency in handling Section 34 proceedings and to expedite arbitration, the High-Level Committee, chaired by Justice BN Shrikrishna, proposed crucial amendments to the Act. The committee specifically focused on amending Section 34(2)(a) of the Act, aiming to ensure uniform practices among High Courts and swift Section 34 proceedings. The committee recommended substituting the phrase "furnishes proof that" with "establishes on the basis of the Arbitral Tribunal's record that"
The proposed amendment was subsequently incorporated into the Arbitration and Conciliation (Amendment) Bill, 2018. The legislature passed this bill on August 30, 2019, giving it the force of law. This amendment replaced "furnishes proof" with "establishes on the basis of the record of the Arbitral Tribunal" signalling a substantial shift in how Courts handle challenges to arbitral awards. The legislative intent was clear: arbitration should be a time-bound process, and the Courts' role in addressing award challenges should be minimized.
The 2019 amendment introduced a fundamental change in the scope of Court examination, confining such examination exclusively to the record before the Tribunal. This amendment is a significant step towards streamlining arbitration and limiting Court interference.
On a plain reading, under the amended Section 34(2)(a), a Court dealing with a Section 34 petition can now only rely on the materials presented before the arbitral Tribunal. The Court appears to be prohibited from considering any extraneous documents or evidence furnished by a party to support their challenge to an award. This further narrows the scope of Court intervention.
While the legislative intent is clear, and the amendment aims to maintain the efficiency and expediency of the arbitration process, it also raises certain practical questions and issues.
The 2019 amendment's strict adherence to the Tribunal's record has practical implications that deserve attention:
Limited Scope of Court Examination: The amendment limits the Court's ability to examine evidence and documents to only what was before the Tribunal. This restricts the Court's authority to consider new evidence, even if it could potentially alter the outcome of the case. This limitation might be seen as a double-edged sword as it expedites the process but may hinder justice in exceptional cases.
The Fraud Exception: Parties seeking to introduce additional evidence or documents may demonstrate that a fraud has been played on them. While considering the objections to the award, the Court’s would certainly have regard to the principle ‘fraud vitiates all acts’ and it would be interesting to see how the Court’s deal with cases in which a plea of fraud is taken.
Exceptional Cases: While a plain reading of the provision does not carve out any exception, the Courts may evolve a standard for "exceptional cases" where further documents, affidavits, and evidence can be considered. Determining what qualifies as an exceptional case is subjective and could be a potential source of contention.
As of now, there are no judicial precedents specifically addressing the impact of the 2019 amendment. However, several recent Supreme Court judgments have touched on the issue of the amendment vis-à-vis introducing additional evidence and documents during the Section 34 Petition stage:
Emkay Global Financial Services Limited vs. Girdhar Sondhi: In this pre-amendment case, the Supreme Court noted the Justice BN Shrikrishna Committee's proposed amendments, which were eventually implemented in 2019. The Supreme Court held that the Act's objective is to provide a speedy resolution of arbitral disputes, and in most cases, an application to set aside an arbitral award should not require anything beyond the record available to the arbitrator. However, the Court acknowledged exceptions, allowing for additional affidavits and even cross-examination in rare cases. In this decision, the Supreme Court notices the 2018 Bill and the language contained therein and has by way of a passing reference held that post the 2019 amendment the procedure to call for further evidence stands dispensed with.
Canara Nidhi Limited vs. M. Shashikala and Others: The Supreme Court reiterated the principles from Fiza Developers and Emkay, affirming that in exceptional circumstances, parties may be granted the right to submit affidavits and cross-examine witnesses.
Alpine Development Corporation P. Ltd. v. Ashok S. Dhariwal & Ors.: This recent Supreme Court decision also pertained to a pre-amendment case. While the 2019 amendment was noted, its specific implications were not discussed in detail because the award in question was passed in 1998, and the Supreme Court applied the unamended provisions. The Court emphasized that, ordinarily, the Tribunal's record should suffice to decide Section 34 objections, but in exceptional cases, additional documents, affidavits, and evidence could be considered.
The 2019 amendment to the Act, ushered in a new era in the arbitration landscape by significantly restricting the Court's examination to the Tribunal's record. This amendment was motivated by the desire to expedite the arbitration process and minimize Court interference.
While this amendment brings clarity and efficiency to the arbitration process, it also raises practical challenges, particularly in "exceptional cases". The fine balance between streamlining the process and ensuring justice in unique situations remains a contentious debate.
As of now, the judicial response to this amendment has been limited, and further cases will likely shape its interpretation and application. Nonetheless, it is evident that arbitration, with the 2019 amendment, is evolving into an even more time-bound and efficient mechanism for resolving disputes, aligning with the global trend towards faster and more effective dispute resolution mechanisms.
Saurabh Seth is a practicing advocate specializing in civil and commercial litigation. He heads the Chambers of Saurabh Seth.
The author would like to acknowledge the efforts of Sumeera Seth and Neelam Deol, Advocates for their invaluable inputs in compiling this piece.
The author would also like to acknowledge the assistance of Sukrit Seth and Sumer D Seth, Advocates.