Section 27 of the Arbitration and Conciliation ActReading Between the Lines

Bar & Bench April 30 2018
Payal Chawla on Domestic Arbitrations

Payal Chawla

Section 27 of the Arbitration and Conciliation Act, 1996 (the Act) makes a provision for the arbitral tribunal to seek the assistance of the court in taking evidence. Such assistance can be sought by the tribunal on its own accord, or by a party to the dispute, with the approval of the tribunal.

It provides,

"(T)he court may, within its competence and according to its rules on taking evidence, execute the request by ordering that the evidence be provided directly to the arbitral tribunal."

The use of the words ‘may’ and ‘execute’ have been the basis of significant deliberation as to the extent of power courts can exercise while deciding applications under s.27 of the Act. A perusal of the different judgments of various High Courts, at first blush, appear to be somewhat confounding on these aspects.

The Bombay High Court, in Montana Developers v. Aditya Developersplaced reliance on the decisions of National Insurance Company Limited v. S.A. Enterprises and Thiess Iviinecs India v. NTPC Limitedand appears to disagree with the decisions of Reliance Polycrete Ltd. v. National Agricultural Co-operative Marketing Federation of India, Bharat Heavy Electricals Limited v. Silor Associates S.A. and Silor Associates SA v. Bharat Heavy Electrical Limited.

It was observed by the High Court that the latter category of judgments did not consider the effect of s.5 of the Act. In fact, one is left with the distinct impression that there are contrary judgments of different courts.

However, on closer introspection, the judgments reveal little divergence, but the same is not readily discernable. The consistent legal position that emerges from the various decisions is that the court does not have the ‘adjudicatory’ power to go behind the decision of the arbitral tribunal, but can exercise some discretionary power. What that discretionary power is, has not been defined, but has been expounded by various decisions.

If there is no legal infirmity that calls for the exercise of the court’s discretionary power, the court would be duty bound to ‘execute’ the request of the arbitral tribunal without interfering on the merits of the evidence. In other words, judicial scrutiny, while subsistent, is not unbridled.

One of the earlier decisions on this issue was delivered by the Madras High Court in 2006, in the matter of Ennore Port Ltd. vs. Hindustan Construction Co. LtdThe Court, while dismissing an application under s.27, held that a close perusal of s.27 conferred discretion on the court and that the court was not expected to pass an order automatically.

In this matter, the arbitral tribunal had granted permission to the applicant against a third party to the arbitral proceedings - the Superintendent of Police, CBI - to produce the charge-sheet together with annexures which had been filed in a criminal proceeding to the Chairman of the arbitral tribunal. The application before the Court was resisted by the Respondent.

The Court declined the request on the ground that the production of the charge-sheet before the arbitral tribunal would ‘jeopardise the interest of the respondent before the criminal court’. Even as the Court stated it had discretion, it recognised that the arbitrator is the ‘sole judge of quality as well as quantity of evidence’. The Court in Ennore set the early tone on the nature of the court’s discretion under s.27.

A few months later, the Delhi High Court in Hindustan Petroleum Corporation Ltd. v. Ashok Kumar Garg declined a request made under s.27 on the ground that the arbitral tribunal failed to apply its mind on whether the evidence to be produced was relevant or not. According to the Court, since s.27 application can only be made by the arbitral tribunal itself or a party after seeking the permission of the arbitral tribunal, an obligation is imposed on the arbitral tribunal to apply its mind and not mechanically direct an application to be filed before the court.

The Court recognised that while detailed reasons need not be specified, the application of mind by the tribunal was a prerequisite, and should be such that it is evident from the order passed by the tribunal. Importantly, however, the Court in the Hindustan Petroleum judgment appears to concur with the view that the power of the court under s.27 is only executory.

In this context, it may be relevant to mention Article 27 of the UNCITRAL Model Laws, which only prescribes the court to execute the request, which was quoted in the judgment. More recently, the Bombay High Court in Montana Developers held that the power of the court under s.27 is not an ‘adjudicatory’ power.

On an entirely separate note, the analysis of the Hindustan Petroleum judgment would be incomplete without mentioning that the judgment was passed in writ jurisdiction under Article 227 of the Constitution. It remains unclear how the writ was maintainable since the same would be in the teeth of the Constitution Bench judgment of S.B.P. v. Patel Engineering Ltd.

The judgment of the Division Bench in the matter of Bharat Heavy Electrical Limited v. Silor Associates SA is a similar case.

Coming back to the issue at hand, the Delhi High Court, in Reliance Polycrete (supra)did not permit the summoning of foreign witnesses, even whilst accepting their relevance. The Court declined the request on the ground that the court neither possessed the requisite power to summon foreign witnesses (who are not parties to the litigation) nor had the power to enforce its order through suitable action, which could result in depriving the opponent of cross-examination of the witnesses.

The Supreme Court in Delta Distilleries Ltd. v. United Spirits Ltd., finding no infirmity with the order of the arbitral tribunal inter alia on the production of allegedly privileged documents, upheld the order of the Single Judge. Although the Court did not get into a discourse of the power of the court under s.27, it did not simplicitor execute the order passed by the arbitral tribunal either.

In the matter of Silor Associates SA (supra)the Single Judge was of the view that the arbitral tribunal had operated on a mistaken assumption that it did not have the power to order production of documents, which was available to the tribunal under s.19 of the Act. The s.27 application was therefore premature. In such a situation, the Court was of the opinion that where the arbitral tribunal had operated on a mistaken belief, the court was not only entitled to but duty bound to correct the error.

The Court explicated that the arbitral tribunal is empowered on its own to direct a party to produce documents without taking recourse to s.27 of the Act. When the arbitral tribunal exercises such power and the party against whom such order is passed fails to comply with the tribunal’s direction, the aggrieved party has two options – one, to ‘require the arbitral tribunal to draw an adverse inference against the defaulting party’ or two, ‘to require the arbitral tribunal to enforce the direction to produce the relevant document with the assistance of the court by resort to Section 27 of the Act’.

The court in Silor appears to make a distinction as to when the court can exercise its discretion and where the court is duty bound to execute the order of the arbitral tribunal under s.27. The decision of the Single Judge was upheld in appeal by the Division Bench.

In 2016, the issue of s.27 once again came up for consideration before the Delhi High Court in the matter of Thiess Iviinecs (supra). The Court placed reliance on S.5 of the Act ascribing minimal judicial interference. The Court observed that the nature of power under s. 27 was limited to executing the request of the tribunal and there is nothing in s.27 whereby the court can determine the admissibility, relevance, materiality, and weight of any evidence. If a party is prejudiced by the order under s.27, it can only challenge the same under s.34.

A similar view had also been taken by the Bombay High Court in National Insurance Company (supra) whereby the Court had held that at the stage of a s.27 application, it cannot go into the validity and correctness of the order passed by the arbitrator and ‘whether particular documents or presence of a particular witness would be necessary for the proper adjudication of the dispute’ was the domain of the arbitrator and not the court. The decision of Theiss Iviinecs was followed by the Bombay High Court in Montana Developers (supra).

The judgments are consistent to the extent that the court cannot interfere with the decision of the arbitral tribunal on merits of the evidence and that the arbitral tribunal is the master of the proceedings.

It is unclear if the judgments of National Insurance Company, Theiss Iviinecs, and Montana Developers were opposed to the discretionary power of the court under s. 27 entirely, particularly since some discretion flows directly from s. 27(3), which the court in Silor interprets to state that the court ‘"may" decline the request of the tribunal, if either it is not within the competence of the court to make an order on the request, or the request is not in accordance with the rules of the court on taking evidence’ [Silor Associates (supra)].

To sum up, the exposition of the law appears to be:

  1. The power of the court under s.27 is not ‘adjudicatory’ and the court cannot second-guess the arbitral tribunal on admissibility, relevancy, materiality, and weight of any evidence.
  2. However, the court does retain some discretionary power and can decline the request of the arbitral tribunal:
    1. if such request is beyond the competence of the court, for instance, summoning foreign witnesses;
    2. if such request is not in accordance with the rules of court for taking evidence;
    3. where a party may be prejudiced in a criminal proceeding;
    4. documents sought are privileged/confidential and the arbitral tribunal may have incorrectly ordered their production;
    5. the arbitral tribunal has passed the order without application of mind;
    6. the arbitral tribunal has passed an order based on a misconception of the law.
  3. But where no such infirmity exists that calls for the exercise of the court’s discretionary power, the court must necessarily execute the request of the arbitral tribunal.

Payal Chawla is the founder of JusContractus, a Delhi based full-service law firm, with the primary focus on arbitrations. The author recognises the assistance of Ms. Hina Shaheen and Ms. Aastha Bhardwaj, advocates at JusContractus. For feedback contact payalchawla@juscontractus.com. 

This article is for informational purposes only, and is not intended to provide, and should not be relied on for legal advice. Readers are advised to seek independent legal advice in relation to their peculiar facts and circumstances.