M/S Canara Nidhi Limited V. M. Shasikala and Ors
|
NAME
OF CASE |
M/S Canara Nidhi Limited V. M. Shasikala and
Ors |
|
CITATION |
AIR
2019 SC 4544 |
|
DATE
OF JUDGEMENT |
23rd September, 2019 |
|
APPELLANT |
M/S Canara Nidhi Limited |
|
RESPONDENT |
M. Shashikala and Ors |
|
BENCH/
JUDGE |
R. Banumathi and A.S. Bopanna |
|
STATUTES
INVOLVED |
Arbitration and Conciliation Act, 1996 |
M/S Canara Nidhi Limited V. M. Shasikala and Ors
Before the Hon’ble Supreme Court of India
INTRODUCTION
In M/s Canara Nidhi Limited v. M.
Shashikala and Others, the Supreme Court considered the issue of
whether parties seeking to set aside an arbitral award can adduce evidence to
prove the grounds specified in Section 34 (2) of the Arbitration Act (which
deals with grounds such as party incapacity, award not valid under law under
which it was made, lack of notice, dispute beyond scope etc.)
Facts of the Case
· Appellant is the financial institution, and the
appellant advanced a loan of Rs.50,00,000/- to respondent No.1 and respondent
Nos.2, 4 and 5 to 8 were the guarantors in respect of such loan. The loan was
secured by a mortgage with deposit of title deeds and respondent No.1 is also
said to have executed a demand promissory note for repayment of the loan. There
was an arbitration clause in the agreement to resolve dispute between the
parties. It is alleged that the first respondent did not repay the loan and
failed to discharge the liabilities arising out of the transaction. The dispute
between the appellant and the first respondent was referred to arbitration to
the third Respondent-Arbitrator. Before the arbitrator, both the parties
adduced oral and documentary evidence. The arbitrator passed an award dated
15.12.2007 and directed the respondents to pay an amount of Rs.63,82,802/- with
interest on Rs.50,00,000/- at 14% per annum from 11.08.2000 and cost of Rs.
52,959/-.
· Assailing the award, respondent No.1 filed AS No.1
of 2008 under Section 34 of the Act in the Court of District Judge at
Mangalore. Before the District Judge, respondent Nos.1 and 2 filed an
application under Section 151 CPC to permit the respondents to adduce evidence.
The appellant filed objections to the said application. By the order dated
02.06.2010, the learned District Judge dismissed the said application. Holding
that the grounds urged in the application can very well be met with by the
records of the arbitration proceedings and by perusing the arbitral award, the
learned District Judge further held that in any event, there is no necessity of
adducing fresh evidence in the application filed under Section 34 of the Act.
· Aggrieved by the dismissal of their application
under Section 151 CPC, respondent Nos.1 and 2 filed writ petitions before the
High Court under Articles 226 and 227 of the Constitution of India. The High
Court by the impugned judgment allowed the writ petitions and directed the
learned District Judge to recast the issues and allow respondent Nos.1 and 2 to
file affidavits of their witnesses and further allow cross-examination of the
witnesses.
Issues Before the Court
- Will a Section 34 application require anything
beyond the record that was before the arbitrator?
- Should the cross-examination of persons
swearing in to the affidavits be allowed under any circumstances?
- What is the validity of the judgment dated
12.09.2014 passed by the High Court of Karnataka at Bangalore in Writ
Petition Nos.18374-75 of 2010 (GM-RES)? Are appeals allowed for the
same?
Arguments From Appellant
The
counsel on behalf of the appellants submitted that it was well- settled that
proceedings under Section
34 of the Act are summary in nature and the
scope of the said proceedings is very limited. It was submitted that the
validity of the award has to be decided on the basis of the materials produced
before the arbitrator and there is no scope for adducing fresh evidence before
the court in the proceedings under Section 34 of the Act. The learned counsel submitted that the
High Court, in the present case, misread the ratio of the decision of the
Supreme Court in Fiza Developers. It was inter alia urged that in any event, in
the present case, respondent Nos.1 and 2 did not make out any exceptional grounds
for permission to lead fresh evidence in the proceedings under Section
34 of the Act andthe learned District Judge
rightly rejected the application filed by respondent Nos.1 and 2 for permission
to lead evidence. The learned counsel urged that the High Court erred in
interfering with the order passed by the trial court in interlocutory
application.
Arguments From Respondent
Ms E.R
Sumathy, counsel appearing on behalf of the respondents, argued that in order
to prove the grounds stated in the application filed under Section
34 of the Act adducing additional evidence is necessary. It was submitted
that respondent Nos.1 and 2 sought to adduce evidence to prove the grounds
enumerated under Section 34(2)(a) of the Act. The learned counsel
submitted that the grounds for setting aside the award are specific and
therefore, necessarily respondent Nos.1 and 2 will have to plead and prove the
grounds mentioned in Section 34(2) of the Act and prove the same and the
High Court rightly allowed the writ petitions giving an opportunity to
respondent Nos.1 and 2 to adduce evidence in the proceedings under Section
34 of the Act.
The learned
counsel for respondent Nos.1 and 2 submitted that in view of Rule 4(b) of the
High Court of Karnataka Arbitration (Proceedings before the Courts) Rules,
2001, (Karnataka High Court Arbitration Rules) all the proceedings of the Civil
Procedure Code, 1908 shall apply to such proceedings and therefore, the High
Court rightly allowed the writ petitions and permitted respondent Nos.1 and 2
to file their own affidavits and also the affidavits of the witnesses. Rule
4(b) of the Karnataka High Court Arbitration Rules provides that all the
proceedings of the Civil Procedure Code shall apply to such proceeding/application
filed under Sections 14 or 34 of the Act insofar as they could be
made applicable.
Judgement
- The question falling for
consideration is whether the present case is such an exceptional
circumstance that it was necessary to grant opportunity to respondent
Nos.1 and 2 to file affidavits and to cross-examine the witnesses is made
out. The affidavit filed by the respondents along with application filed
under Section 151 CPC does not indicate as to what point the first
respondent intends to adduce except stating that the first respondent
intends to adduce additional evidence relating to the subject of dispute.
The affidavit does not disclose specific documents or evidence required to
be produced except stating that the first respondent intends to adduce
additional evidence or otherwise the first respondent will be subjected to
hardship in the arbitration suit filed by her under Section 34 of the Act.
As rightly contended by the learned counsel appearing for the appellant
that there are no specific averments in the affidavit as to the necessity
and relevance of the additional evidence sought to be adduced.
- By perusal of the award, it is
seen that before the arbitrator, respondent No.1 filed her written
statement and other respondents also filed separate written statements. It
was contended that the documents were forged. Both parties adduced oral
and documentary evidence.
- The appellant led evidence by
examining two witnesses Balakrishna Nayak (PW-1) and B.A. Baliga (PW-2)
and exhibited documents P1 to P47. Respondent Nos.1 and 2 also examined
five witnesses viz. M. Shashikala (RW-1), Mamatha @ Mumtaz Hameed (RW-2)
Latha (RW-3), Chitralekha Umesh (RW-4) and B.R. Nagesh (RW-5). Respondent
Nos.1 and 2 also produced documentary evidence Ex.-R1 to R13.
- As held by the District Judge,
the grounds urged in the application can very well be considered by the
evidence adduced in the arbitration proceedings and considering the
arbitral award. Further, the application filed by respondent Nos.1 and 2
seeking permission to adduce evidence, no ground was made out as to the
necessity of adducing evidence and what was the nature of the evidence
sought to be led by respondent Nos.1 and 2.
- The proceedings under Section
34 of the Act are summary proceedings and is not in the nature of a
regular suit. By adding sub-sections (5) and (6) to Section 34 of the Act,
the Act has specified the time period of one year for disposal of the
application under Section 34 of the Act. The object of sub-sections (5)
and (6) to Section 34 fixing time frame to dispose of the matter filed
under Section 34 of the Arbitration Act, 1996 is to avoid delay and to
dispose of the application expeditiously and in any event within a period
of one year from the date of which the notice referred to in Section 34(5)
of the Act is served upon the other party.
- In the arbitration proceedings,
the parties had sufficient opportunity to adduce oral and documentary
evidence. The High Court did not keep in view that respondent Nos.1 and 2
have not made out grounds that it is an exceptional case to permit them to
adduce evidence in the application under Section 34 of the Act.
- Supreme Court finally concluded
stating, the impugned judgment dated 12.09.2014 passed by the High Court
of Karnataka at Bangalore in Writ Petition Nos.18374-75 of 2010 (GM-RES)
is set aside and these appeals are allowed. The order of the District
Judge dismissing the application filed under Section 151 CPC in AS No.1 of
2008 is affirmed. The learned District Judge shall take up AS No.1 of 2008
and dispose of the same expeditiously in accordance with law.
Conclusion
The Supreme Court while rejecting the Respondent's contentions held that the Karnataka High Court Arbitration Rules, 2001 were merely procedural. The Apex Court relied on Fiza Developers and Inter-Trade Private Limited vs AMCI (India) Private Limited and Anr[1] (2009) 17 SCC 796, wherein it was made clear that there was no automatic import of all the provisions of the Code of Civil Procedure, 1908 into Section 34 proceedings, as doing so would defeat the purpose and object of the Arbitration Act.
Although in Fiza Developers, it was further
held that applications under Section 34 are summary proceedings with a
provision for an opportunity to be afforded to the applicants to file
witnesses' affidavits to prove the grounds under Section 34(2), the same was
considered by the Justice B.N. Srikrishna Committee which while taking
cognizance of the inconsistencies in the decisions in relation to the
opportunity to furnish proof in proceedings under Section 34 recommended
amending Section 34(2) and substituting the phrase “furnishes proof that” with
“establishes on the basis of the Arbitral Tribunal's record that”. Following
the recommendation and the subsequent amendment, the Supreme Court in Emkay
Global Financial Services Limited v. Girdhar Sondhi[2],
2018 SCC OnLine SC 1019 held that if issues were to be framed and oral
evidence be taken in a summary proceeding under Section 34 of the Arbitration
Act, the object of speedy resolution of arbitral disputes would be defeated. It
was further held that the decision in Fiza Developers although a step in the
right direction, must be read in light of the amendment made in Sections 34(5)
and (6). The Supreme Court reiterated the legal position clarified in Emkay
Global and held that ordinarily an application for setting aside an award will
not require anything beyond the record before the arbitrator, and only when
absolutely necessary, will filing of affidavits be allowed Cross examination of
persons swearing in to the affidavits will be allowed only in exceptional
cases. Applying these principles in the facts of the Canara Nidhi Limited case,
the Supreme Court held that the affidavit filed by the Respondents contained no
specific averments as to the necessity and relevance of the additional evidence
sought to be adduced, nor the nature of the evidence sought to be adduced.
Therefore, upholding the order of the District Judge, the Supreme Court held
that no exceptional case was made out to permit the Respondents to adduce
evidence in the Section 34 proceedings and that the award and the evidence
adduced in the arbitration proceedings, where the parties had sufficient
opportunity to adduce oral and documentary evidence, were enough to consider
whether the grounds urged in the Section 34 application were made out to set
aside the award. Note that the 2019 Amendments to the Arbitration Act also
introduce the language “establishes on the basis of the record of the arbitral
tribunal that” in place of “furnishes proof that” in Section 34(2).
Related Provisions
- Section 34[3]
Application for setting aside arbitral award. —
(1) Recourse to a Court against an arbitral award may be made only by an
application for setting aside such award in accordance with sub-section (2) and
sub-section (3).
(2) An arbitral award may be set aside by the Court only if—
(a) the party making the application furnishes proof that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law for
the time being in force; or
(iii) the party making the application was not given proper notice of
the appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can
be separated from those not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless such agreement
was in conflict with a provision of this Part from which the parties cannot
derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that—
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
(4) On receipt of an application under sub-section (1), the Court may,
where it is appropriate and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in order to give the arbitral
tribunal an opportunity to resume the arbitral proceedings or to take such
other action as in the opinion of arbitral tribunal will eliminate the grounds
for setting aside the arbitral award.
- Rule 1 Order XIV of Code of
Civil Procedure 1908 "Framing of issues"[4]
(1) Issues arise when a material
proposition of fact or law is affirmed by the one party and denied by the
other.
(2) Material propositions are those propositions of law or fact which a
plaintiff must allege in order to show a right to sue or a defendant must
allege in order to constitute his defence.
(3) Each material proposition affirmed by one-party and denied by the other
shall form the subject of distinct issue.
(4) Issues are of two kinds:
(a) issues of fact,
(b) issues of law.
(5) At the first hearing of the suit the Court shall, after reading the plaint
and the written statements, if any, and 71[after examination under rule 2 of
Order X and after hearing the parties or their pleaders], ascertain upon what
material propositions of fact or of law the parties are at variance, and shall
thereupon proceed to frame and record the issues on which the right decision of
the case appears to depend.
(6) Nothing in this rule requires the Court to frame and record issues where
the defendant at the first hearing of the suit makes no defence.
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