Proceedings under Section 34 of Arbitration Act summary in nature, additional evidence cannot be permitted: Supreme Court

The Supreme Court has held that proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 are summary in nature and parties cannot be allowed to adduce additional evidence to prove specific grounds of challenge..A Bench of Justices R Banumathi and AS Bopanna held that in order to ensure expeditious disposal of Arbitration cases, only evidence placed before the Arbitration Tribunal and referred to in pleadings made before the tribunal should be considered..“The proceedings under Section 34 of the Act are summary in nature. The scope of enquiry in the proceedings under Section 34 of the Act is restricted to a consideration 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 setting aside the award are specific. It is imperative for expeditious disposal of cases that the arbitration cases under Section 34 of the Act 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.”.In the instant case, the appellant, a financial institution, had advanced a loan to the first Respondent and some of the other respondents stood as guarantors for the same. When the Respondent failed to repay the loan as per the terms agreed to between the parties, a reference was made to an Arbitration Tribunal in conformity with the agreement between the parties. The Tribunal passed an arbitration award which was challenged before the District Judge..An application under Section 151 of the Code of Civil Procedure (CPC) for adducing additional evidence and for cross-examination of certain witnesses was moved by Respondents 1 and 2 but the same was dismissed by the District Judge. The Judge held that the grounds urged in the application can be met by referring to the record of the arbitration proceedings and bringing fresh evidence was not necessary..Aggrieved by this, the respondents approached the Karnataka High Court. The High Court, allowing their petition, directed the District Judge to recast the issues and allow the Respondents to file affidavits for their evidence and cross-examination of witnesses. This decision of the High Court prompted the appellants to move the Supreme Court in appeal..The appellant submitted before the Supreme Court that proceedings under Section 34 are summary in nature and are on a limited scope. The validity of the award needs to be decided based on the material produced before the tribunal and therefore there is no necessity to adduce fresh evidence. Further, it was argued that there were no exceptional grounds made out in the instant case for the Respondents to be allowed to adduce evidence..The Respondents countered this by arguing that to prove specific grounds for challenging the award, it was necessary for the Respondents to adduce evidence. Arbitral awards can be set aside on very specific grounds enumerated under Section 34 and to prove the grounds under Section 34(2), in this case, adducing evidence was pertinent. The Respondents also invoked the High Court of Karnataka Arbitration (Proceedings before the Courts) Rules, 2001. Rule 4(b) of the rules makes the provisions of CPC applicable to such proceedings..The Supreme Court, however, placed reliance on the precedent set in the Fiza Developers case which clarified the position vis-a-vis the Karnataka Arbitration Rules and said,.“Rule 4(b) of Karnataka High Court Arbitration Rules, in our view, are only procedural. In Fiza Developers, the Supreme Court noticed Rule 4(b) of Karnataka High Court Arbitration Rules and made it clear that there is no wholesale or automatic import of all the provisions of Civil Procedure Code into the proceedings under Section 34 of the Act as that will defeat the very purpose and object of the Arbitration Act, 1996.”.Although in Fiza Developers case, an opportunity was afforded to the parties to adduce evidence, the Court also pointed out that the Arbitration Act was amended thereafter based on the recommendations of the Justice BN Srikrishna Committee’s report. The effective amendment was as under:. “7. Amendment of Section 34.—In Section 34 of the principal Act, in sub-section (2), in clause (a), for the words “furnishes proof that”, the words “establishes on the basis of the record of the Arbitral Tribunal that” shall be substituted.”.Therefore, taking into account the amendment to the Act and subsequent precedents, the Court noted that the decision in the Fiza Developments case was to be read in light of the amendment. It, therefore, clarified the legal position on this issue by holding that Section 34 application will not ordinarily require anything beyond the record that was before the arbitrator and that cross-examination of persons should not be allowed unless absolutely necessary..“The legal position is thus clarified that Section 34 application will not ordinarily require anything beyond the record that was before the arbitrator and that cross-examination of persons swearing in to the affidavits should not be allowed unless absolutely necessary.”.Finding that in the present case no exceptional case was made out to permit the Respondents to adduce evidence to prove a specific ground under Section 34, the Court set aside the decision of the High Court and upheld the findings of the District Judge..[Read Judgment].Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.