Amendment to Section 34 of the Arbitration Act: A Desirable Change?

[By Arnav Maru]

The author is a fourth year student of MNLU Mumbai.

Recently in 2019, both houses of the Parliament passed a Bill to amend the Arbitration and Conciliation Act, 1996 (“the Act”). While the Bill is a successor to its 2018 counterpart, it comes with minimal additions and improvements. This blog post focuses on the amendment sought for section 34 of the Act.

Section 34 deals with the setting aside of an arbitral award by a court. Sub-section (1) of Section 34 states that an award may only be set aside on an application being made for the same in accordance with sub-sections (2) and (3). Sub-section 2, under its two clauses, creates two categories for proceeding with such an application. Under the first, the court will set aside an award if “the party making the application furnishes proof that ..” Under the second, the inquiry is left up to the court by the use of the phrase “the court finds that …” The amendment changes the phrase under clause (a) from “furnishes proof that” to “establishes on the basis of the record of the arbitral tribunal that”.

This change materially alters the scope of the inquiry undertook pursuant to the applications under Section 34. As has been noted by scholars, the arbitral process battles the paradox of seeking help from the same public authorities whose inefficiencies it seeks to escape. Since, section 34 is the sole recourse for seeking judicial intervention in the post-award stage, it needs to strike a fine balance between relying on the judicial system and escaping its various vices. Does the amendment go a step forward in doing so?

The change in phrasing of section 34 means that the court will now have to decide the challenge to the enforcement of the award, solely based on the record of the arbitral tribunal. This would drastically reduce the time taken to dispose a suit, since the judge need only go over the material already available, and not wait for a lengthy evidence production phase of a civil suit. It would also ensure that delaying tactics, which are often employed by advocates in India, do not impede the arbitral process by guaranteeing a summary proceeding.

However, the rigid wording of the amended section may also prevent a legitimate claim in succeeding. The grounds listed under sub section 2 of clause 34 might require extrinsic evidence to be produced to prove certain facts that could not have formed a part of the record of the tribunal. Incapacity of a party, inability of a party to suitably present its case, or the impartiality of an arbitrator may not always be apparent on the face of the record of the tribunal. An absolute embargo on the production of evidence would prove detrimental to genuine claims, based on wholly external facts.

The amendment slightly deviates from a uniform line of judicial reasoning. Starting with the 2004 cases of the Delhi High Court in Sandeep Kumar v. Dr. Ashok Hans [i] and Sial Bioenergie v. SBEC Systems[ii] the judicial position was that there was no rigid requirement of allowing parties to lead oral evidence in section 34 cases. In 2009, Fiza Developers & Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr.[iii] laid down that the proceedings under section 34 are non-adversarial, summary proceedings, and need not follow the procedure of a civil suit, as under the Code of Civil Procedure. The court noted that the parties can file evidence by way of affidavit, and that cross-examination of such evidence may be permitted if the court deems it desirable. In deciding that issues need not be framed by a court, the judgement laid down that the procedure may be varied depending on the facts of a particular case. The same position was restated and resounded in the landmark 2018 case of M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi [iv]. The Supreme Court concluded, while interpreting the phrase “furnishes proof”, that the proceedings will ordinarily be conducted based on the record of the tribunal, save the cases that demand the appreciation of certain other evidence.

While, the amendment is pursuant to the recommendations of the Shrikriashna Committee Report, and in tandem with the general scheme of the Act, inviting minimal judicial intervention to the arbitral process, it has disturbed a rather stable area of the Act and introduced a change not completely warranted in the present situation. The amendment would give the overburdened courts an easy way out of re-appreciating significant and relevant evidence. The prevailing judicial position struck the perfect balance between doing justice to a legitimate applicant and ensuring speedy disposal of cases. This insignificant looking amendment may lead to a significant change in the jurisprudence underlying section 34 and reduce the essential flexibility of procedure required in these cases.

Endnotes

[i] 2004 SCC OnLine Del 106.

[ii] 2004 SCC OnLine Del 863.

[iii] (2009) 17 SCC 796.

[iv] Civil Appeal No. 8367 of 2018.

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