Proceedings under Section 34 of the 1996 Act in the District Courts

Many District Courts which hear applications under Section 34 of the Arbitration and Conciliation Act, 1996 in the State of Tamil Nadu adopt different procedures in hearing those applications. Some District Courts have even insisted on oral evidence in the matter. The problem is mainly owing to the lack of guidelines in the civil rules of practice or any other guidelines. This state of affairs is infinitely compounded by the decision of the Supreme Court in Fiza Developers & Inter-Trade P. Ltd. v. AMCI (I) Pvt. Ltd. where the Supreme Court observed:

"The applicant is permitted to file affidavits of his witnesses in proof. A corresponding opportunity is given to the defendant/respondent to place his evidence by affidavit. Where the case so warrants, the court permits cross-examination of the persons swearing to the affidavit. Thereafter, court hears arguments and/or receives written submissions and decides the matter. This is of course the routine procedure."

The court had also ruled that the court under Section 34 was not obligated to frame issues. As stated in Para 6 of the judgement, the question that arose for consideration before the Supreme Court was whether issues have to be framed. The above quoted observations, therefore, have to be taken as obiter. Even some prominent commentaries tend to critique the above quoted part of the judgement in Fiza Developers. [See, for instance, Indu Malhotra, OP Malhotra's The Law & Practice of Arbitration and Conciliation 1276, where the author says that the observations relating to permitting evidence in proceedings under Section 34 requires reconsideration- the author wrongly refers to the para number as para 31 of the judgement. The total number of paras in the judgement is only 15, at least in the copy uploaded in the website of the Supreme Court. The correct para reference should be para 14] 

In any case, the above quoted decision should be treated as obiter. Further, these observations may make sense only in the limited cases where the certain facts providing grounds for setting aside an award emerge after the award is passed. For instance, a party is able to obtain certain documents or information relating to the relationship between the arbitrator and the other party after the award is passed. In such cases, the party seeking to challenge the arbitral award on such a ground may be permitted to place his evidence by affidavit and the other party could be permitted to cross-examine. Such evidence should be limited only to the facts that emerged or which came to be known post the arbitrator reserving the award or after the award. 

The proper procedure that is to be followed by a District Court hearing an application under Section 34 of the Arbitration and Conciliation Act, 1996 is to call for records from the arbitrator or to ask if the parties were willing to produce copies of the arbitral record by consent and then proceed to hear the grounds.

The proceedings under Section 34 of the 1996 Act are in the nature of summary proceedings and are not appeal proceedings under the Code of Civil Procedure, 1908. The parties to the proceedings under Section 34 are to ordinarily confine to their pleadings and evidence presented before the arbitral tribunal. 

Insofar as the State of Tamil Nadu is concerned, the law on the issue has been aptly summarised in the case of Brick Steel Enterprises v. The Superintending Engineer, Public Works Department 2006 (5) CTC 519: MANU/TN/1463/2006, the High Court of Madras observed: 

“The scope of Section 34 is very limited one and whatever documents filed earlier by the parties before the Arbitrator can be filed before the court to support the respective claim. Any new document or new plea would not be entertained while filing the application for setting aside the award under Section 34 and the letting in oral evidence also could not be entertained. If such letting in of oral evidence is allowed, it amounts to enlarging the scope of restricted provision, similar to an appeal proceeding. In the present case the lower Court permitted to take de novo trial by letting in evidence and accepting new documents for the first time which totally alien to arbitration proceedings.” 

The Hon’ble High Court further observed:

“After considering the judgments cited supra, I am of the view that while filing the application for setting aside, parties are not entitled to letting in oral evidence and not allowed to file a fresh document or raise a new plea for the first time before the Court. They are only permitted to file documents which were already filed and considered by the Arbitrator alone, before the Court for the purpose of supporting their claim.” 

The District Courts in the State of Tamil Nadu will do well to follow this judgement of the High Court of Madras in Brick Steel Enterprises. An award-debtor will typically look for ways to have a second chance at leading evidence in Section 34 proceedings. Courts have to be wary of attempts to derail the arbitral award or delay the award-creditor from enjoying the award proceeds.