REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   7544-7545    OF 2019 (Arising out of SLP(C) Nos.35673-74 of 2014)

M/S. CANARA NIDHI LIMITED      ...Appellant

VERSUS

M. SHASHIKALA AND OTHERS          …Respondents

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2. In the application under Section 34 of the Arbitration and

Conciliation Act, 1996 (the Act) seeking to set aside the award,

whether the parties can adduce evidence to prove the specified

grounds  in  sub-section  (2)  to  Section  34  of  the  Act,  is  the

question falling for consideration in these appeals.  

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3. These  appeals  arise  out  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) in

and by which the High Court set aside the order passed by the

District  Judge and  directed  the District  Judge to  “recast  the

issues” and permit respondent Nos.1 and 2 to file affidavits of

their  witnesses  and also  permitting  cross-examination  of  the

witnesses.   

4. Brief  facts  which  led  to  filing  of  these  appeals  are  as

under:-

The 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

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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/-.

5. 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.

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6. 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.   After  referring  to  the

judgment in Fiza Developers and Inter-Trade Private Limited v.

AMCI (India) Private Limited and another (2009) 17 SCC 796,

the High Court observed that in order to prove the existence of

the grounds under Section 34(2) of the Act, respondent Nos.1

and 2 are permitted to file affidavits of their witnesses.  In the

impugned  judgment,  the  High  Court  concluded  that  the

reasoning of the District Judge not permitting respondent Nos.1

and  2  to  file  their  own  affidavits  and  affidavits  of  other

witnesses  to  prove  their  case  is  erroneous  and  opposed to

settled principles of  law.   As pointed out  earlier,  the learned

District Judge was directed to “recast the issues” and the court

below was directed to permit  respondent Nos.1 and 2 to file

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affidavits  of  their  witnesses  and  extend  corresponding

opportunity to the appellant to place their evidence by affidavit.

Being aggrieved,  the  appellant  has  preferred these appeals.

This  Court  ordered  notice  vide  order  dated  06.01.2015  and

further ordered that there shall be stay of the proceedings in AS

No.1 of 2008.

7. Assailing the impugned judgment, Mr. S.N. Bhat, learned

counsel  appearing for the appellant  submitted that  it  is  well-

settled  that  proceedings  under  Section  34  of  the  Act  is

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 and

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the 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.  

8. Reiterating the findings of the impugned judgment of the

High Court, Ms. E.R. Sumathy, learned counsel appearing for

respondent Nos.1 and 2 submitted 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.

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9. 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.   

10. 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

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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.

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.  

11. In  Fiza  Developers,  the  question  which  arose  for

consideration by the court was whether issues as contemplated

under  Order  XIV Rule  1  of  Civil  Procedure Code should  be

framed in  the application under  Section 34 of  the Act.   The

court held that framing of issues as contemplated under Order

XIV Rule 1 CPC is not required in an application under Section

34 of the Act which proceeding is summary in nature.  In paras

(14),  (17),  (21) and (24) of  Fiza Developers,  it  was held as

under:-

“14. In  a  summary  proceeding,  the  respondent  is  given  an

opportunity to file his objections or written statement. Thereafter,

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the court will permit the parties to file affidavits in proof of their

respective stands, and if necessary permit cross-examination by

the other side, before hearing arguments. Framing of issues in

such proceedings is not necessary. We hasten to add that when

it  is  said  issues  are  not  necessary,  it  does  not  mean  that

evidence is not necessary.

……..

17. The scheme and provisions of the Act disclose two significant

aspects relating to courts  vis-à-vis  arbitration.  The first  is  that

there should be minimal interference by courts in matters relating

to  arbitration.  Second  is  the  sense  of  urgency  shown  with

reference  to  arbitration  matters  brought  to  court,  requiring

promptness in disposal.

……….

21. We may therefore examine the question for consideration by

bearing three factors in mind. The first is that the Act is a special

enactment and Section 34 provides for a special  remedy. The

second is that an arbitration award can be set aside only upon

one of the grounds mentioned in sub-section (2) of Section 34

exists. The third is that proceedings under Section 34 requires to

be dealt with expeditiously.

……..

24. In other words, an application under Section 34 of the Act is

a  single  issue  proceeding,  where  the  very  fact  that  the

application  has  been  instituted  under  that  particular  provision

declares the issue involved. Any further exercise to frame issues

will only delay the proceedings. It is thus clear that issues need

not be framed in applications under Section 34 of the Act.”

12. Though  this  Court  held  that  the  applications  under

Section 34 of the Act are summary proceedings, an opportunity

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to the aggrieved party has to be afforded to prove existence of

any of the grounds under Section 34(2) of the Act.  This court

thus  permitted  the  applicant  thereon  to  file  affidavits  of  his

witnesses in proof thereof.  In para (31) of  Fiza Developers,

this Court held as under:-

31. Applications  under  Section  34  of  the  Act  are  summary

proceedings  with  provision  for  objections  by  the  respondent-

defendant, followed by an opportunity to the applicant to “prove”

the existence of any ground under Section 34(2). The applicant

is  permitted  to  file  affidavits  of  his  witnesses  in  proof.  A

corresponding opportunity is given to the respondent-defendant

to place his evidence by affidavit. Where the case so warrants,

the court permits cross-examination of the persons swearing to

the  affidavit.  Thereafter,  the  court  hears  arguments  and/or

receives written submissions and decides the matter. This is of

course  the  routine  procedure.  The  court  may  vary  the  said

procedure, depending upon the facts of any particular case or

the local rules. What is however clear is that framing of issues as

contemplated under Rule 1 of Order 14 of the Code is not an

integral part of the process of a proceedings under Section 34 of

the Act.”

13. After referring to the judgment in Fiza Developers, in the

impugned judgment, the High Court held that respondent Nos.1

and 2 are to be afforded an opportunity to file their and their

witnesses’ affidavits in proof of their case to prove the grounds

set out in Section 34(2)(a) of the Act.   

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14. After  the decision in  Fiza Developers,  Section 34 was

amended by Act 3 of 2016 by which sub-sections (5) and (6) of

Section 34 were added to the Principal Act w.e.f. 23.10.2015.

Sub-sections  (5)  and  (6)  to  Section  34  of  the  Act  read  as

under:-

“34. Application for setting aside arbitral award.—

(1)-(4)  ……..    

(5) An application under this section shall be filed by a party only

after issuing a prior notice to the other party and such application

shall be accompanied by an affidavit by the applicant endorsing

compliance with the said requirement.

(6)  An  application  under  this  section  shall  be  disposed  of

expeditiously, and in any event, within a period of one year from

the date  on which the notice  referred to  in  sub-section (5)  is

served upon the other party.”

15. The  judgment  in  Fiza  Developers was  considered  by

Justice  B.N.  Srikrishna  Committee  which  reviewed  the

institutionalisation of the arbitration mechanism and pointed out

that opportunity to furnish proof in proceedings under Section

34 of the Arbitration Act has led to inconsistent practices.  The

said Committee reported as under:-

“5.  Amendment to Section 34(2)(a) of the ACA: Sub-section (2)

(a) of Section 34 of the ACA provides for the setting aside of

arbitral awards by the court in certain circumstances. The party

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applying for setting aside the arbitral award has to furnish proof

to  the  court.  This  requirement  to  furnish  proof  has  led  to

inconsistent  practices  in  some High  Courts,  where  they  have

insisted  on  Section  34  proceedings  being  conducted  in  the

manner as a regular civil suit. This is despite the Supreme Court

ruling in  Fiza Developers & Inter-Trade (P) Ltd. v.  AMCI (India)

(P) Ltd.  (2009) 17 SCC 796 that proceedings under Section 34

should not be conducted in the same manner as civil suits, with

framing of issues under Rule 1 of Order 14 of the CPC.

In  light  of  this,  the  Committee  is  of  the  view  that  a  suitable

amendment  may  be  made  to  Section  34(2)(a)  to  ensure  that

proceedings under Section 34 are conducted expeditiously.

Recommendation: An amendment may be made to Section 34(2)

(a) of the Arbitration and Conciliation Act, 1996, substituting the

words ‘furnishes proof that’ with the words ‘establishes on the

basis of the Arbitral Tribunal’s record that’.”

[Report  of  Justice  B.N.  Srikrishna  Committee  quoted  in Emkay  Global  Financial  Services  Ltd.  v.  Girdhar  Sondhi (2018) 9 SCC 49]

16. Based upon Justice B.N. Srikrishna Committee’s report,

Section  34  of  the  Principal  Act  has  been  amended  by

Arbitration and Conciliation (Amendment) Act, 2019 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.”

17. After  referring  to  Justice  B.N.  Srikrishna  Committee’s

report and other judgments and observing that the decision in

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Fiza Developers must be read in the light of the amendment

made  in  Section  34(5)  and  Section  34(6)  of  the  Act  and

amendment to Section 34 of the Arbitration Act, 1996, in Emkay

Global Financial Services Limited v. Girdhar Sondhi  (2018) 9

SCC 49, it was held as under:-

“21. It  will  thus  be  seen  that  speedy  resolution  of  arbitral

disputes has been the reason for  enacting the 1996 Act,  and

continues to be the reason for adding amendments to the said

Act to strengthen the aforesaid object. Quite obviously, if issues

are  to  be  framed  and  oral  evidence  taken  in  a  summary

proceeding under Section 34, this object will  be defeated. It is

also on the cards that if  Bill  No. 100 of 2018 is passed, then

evidence  at  the  stage  of  a  Section  34  application  will  be

dispensed with altogether. Given the current state of the law, we

are of the view that the two early Delhi High Court judgments in

Sandeep Kumar v. Ashok Hans 2004 SCC OnLine Del 106, Sial

Bioenergie v. SBEC Systems 2004 SCC OnLine Del 863, cited

by  us  hereinabove,  correctly  reflect  the  position  in  law as  to

furnishing proof  under Section 34(2)(a).  So does the Calcutta

High Court judgment in WEB Techniques and Net Solutions (P)

Ltd. v. Gati Ltd. 2012 SCC OnLine Cal 4271. We may hasten to

add that if the procedure followed by the Punjab and Haryana

High Court judgment in Punjab SIDC Ltd. v. Sunil K. Kansal 2012

SCC Online P&H 19641 is to be adhered to, the time-limit of one

year would only be observed in most cases in the breach. We

therefore  overrule  the  said  decision.  We  are  constrained  to

observe that Fiza Developers was a step in the right direction as

its ultimate ratio is that issues need not be struck at the stage of

hearing a Section 34 application, which is a summary procedure.

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However,  this  judgment  must  now be read in  the light  of  the

amendment  made  in  Sections  34(5)  and  34(6).  So  read,  we

clarify the legal position by stating that an application for setting

aside an arbitral award will not ordinarily require anything beyond

the record that was before the arbitrator. However, if there are

matters not  contained in such record,  and are relevant  to the

determination of issues arising under Section 34(2)(  a  ), they may

be brought to the notice of the Court by way of affidavits filed by

both  parties.  Cross-examination  of  persons  swearing  to  the

affidavits should not be allowed unless absolutely necessary, as

the truth will emerge on a reading of the affidavits filed by both

parties. We, therefore, set aside the judgment in Girdhar Sondhi

v. Emkay Global Financial Services Ltd. 2017 SCC OnLine Del

12758 of the Delhi High Court and reinstate that of the learned

Additional  District  Judge  dated  22-9-2016.  The  appeal  is

accordingly allowed with no order as to costs.”

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.  

18. 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

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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.

19. 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

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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

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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.

The said directions of the High Court amount to retrial on the

merits of the issues decided by the arbitrator. When the order of

the District Judge dismissing the application filed by respondent

Nos.1 and 2 does not suffer from perversity, the High Court, in

exercise of its supervisory jurisdiction under Articles 226 and

227 of the Constitution of India, ought not to have interfered

with the order passed by the District Judge and the impugned

judgment cannot be sustained.

20. In the result,  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

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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. No costs.

…………………………..J.                                                                   [R. BANUMATHI]

…………………………..J.                                                              [A.S. BOPANNA]

New Delhi; September 23, 2019

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