M/S EMKAY GLOBAL FINANCIAL SERVICES LTD. versus GIRDHAR SONDHI on 20 August 2018

1. The parties hereto agree to abide by the provisions of theDepositories Act, 1996, SEBI (Depositories and Participants)Regulation, 1996 Bye-Laws and Operating Instructions issuedDby CDSL from time to time in the same manner and to the sameextent as if the same were set out herein and formed part of thisAgreement.”

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“Arbitration

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11. The parties hereto shall, in respect of all disputes anddifferences that may arise between them, abide by the provisionsrelating to arbitration and conciliation specified under the Bye-Laws.”

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“Jurisdiction

12. The parties hereto agree to submit to the exclusive jurisdictionof the courts in Mumbai in Maharashtra (India).”

4. Though the bye-laws referred to in the agreement are underGthe provisions of the Depositories Act, 1996, it is common ground thatthe arbitration proceeding took place under the National Stock Exchangebye-laws. Under these bye-laws, Chapter VII speaks of dealings bytrading members and grants exclusive jurisdiction to the civil courts inMumbai in relation to disputes that arise under the bye-laws as follows:

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“CHAPTER VII

DEALINGS BY TRADING MEMBERS.

Jurisdiction.

(1) (a) Any deal entered into through automated trading systemof the Exchange or any proposal for buying or selling or anyacceptance of any such proposal for buying and selling shall bedeemed to have been entered at the computerised processingunit of the Exchange at Mumbai and the place of contracting asbetween the trading members shall be at Mumbai. The tradingmembers of the Exchange shall expressly record on their contractnote that they have excluded the jurisdiction of all other Courtssave and except, Civil Courts in Mumbai in relation to any disputearising out of or in connection with or in relation to the contractnotes, and that only the Civil Courts at Mumbai have exclusivejurisdiction in claims arising out of such dispute. The provisionsof this Byelaw shall not object the jurisdiction of any court decidingany dispute as between trading members and their constituentsto which the Exchange is not a party.”

5. The bye-laws go on to describe the relevant authorityprescribing regulations for creation of seats of arbitration for differentregions, or prescribing geographical locations for conducting arbitrations,and prescribing the courts which shall have jurisdiction for the purposeof the Act – see Chapter XI dealing with Arbitration – clause 4(a)(iv).Equally, under sub-clause (xiv), the place of arbitration for each referenceand the places where the Arbitrator can hold meetings have also to bedesignated. It is common ground that the National Stock Exchangereferred the dispute to one Shri Mahmood Ali Khan, who held sittings inDelhi, and delivered an award dated 08.12.2009, whereby theRespondent’s claim was rejected. The Respondent then filed a Section34 application under the Arbitration and Conciliation Act, 1996 on17.03.2010 before the District Court, Karkardooma, Delhi. By a judgmentdated 22.09.2016, the learned Additional District Judge referred to theexclusive jurisdiction clause contained in the agreement, and stated thathe would have no jurisdiction to proceed further in the matter and,therefore, rejected the Section 34 application filed in Delhi. In an appealfiled before the High Court, a learned Single Judge of the Delhi HighCourt held as follows:

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A“4. Accordingly, since the impugned judgment decides thedisputed question of fact without allowing parties to lead evidencei.e. depositions supported by documentary evidence, and withoutopportunity to the other side to cross-examine the witnesses whogive depositions, it is necessary that the disputed questions offact as regards existence of territorial jurisdiction of the courtsBat Delhi be decided by the court below after framing an issue tothis effect and permitting the parties thereafter to lead evidenceon the same.

5. I may hasten to add that I have not made any observationsone way or the other, for or against any of the parties herein, onCthe aspect of territorial jurisdiction, and this issue of territorialjurisdiction will be decided by the courts below after parties haveled evidence keeping in mind that if part of cause of action isproved to have arisen in Mumbai and there is an exclusivity clauseconferring territorial jurisdiction of the Mumbai courts, then evenDif Delhi courts otherwise have jurisdiction, possibly the courts atDelhi would not exercise territorial jurisdiction.

6. Parties to appear before the District and Sessions Judge, EastKarkardooma Courts, Delhi on 7[th] November, 2017 and theDistrict and Sessions Judge will now mark the objections underESection 34 of the Arbitration and Conciliation Act to a competentcourt for disposal in accordance with law and the observationsmade in the present order.”[1]

6. Learned counsel appearing on behalf of the Appellant has reliedupon the exclusive jurisdiction clause contained both in the agreementFas well as the bye-laws of the National Stock Exchange. According tohim, this case is squarely covered by a recent judgment of this Court inIndus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt.Ltd. and Ors., (2017) 7 SCC 678. He also referred to Section 34 andstated that, given the conspectus of judgments of the High Courts andone judgment of this Court, when Section 34(2)(a) speaks of a partyGmaking an application who “furnishes proof” of one of the grounds inthe sub-section, such proof should only be by way of affidavit of factsnot already contained in the record of proceedings before the Arbitrator.Further, a mini-trial at this stage is not contemplated, as otherwise, the 1 Girdhar Sondhi v. M/s. Emkay Global Financial Services Ltd., FAO 222 of 2017H(decided on 11.10.2017).

whole object of speedy resolution of arbitral disputes would be stultified.Consequently, the learned Single Judge was incorrect in referring backthe parties to the District Judge to first frame an issue, and then decideon evidence, including the opportunity to cross-examine witnesses whogive depositions.

7. Learned counsel for the Respondent, on the other hand,supported the impugned judgment, and argued that as the seat of arbitrationwas at Delhi, the courts at Delhi would have jurisdiction, even thoughthere is an exclusive jurisdiction clause vesting such jurisdiction only inthe courts at Mumbai.

8. Section 34(2)(a) states as follows:

“34. Application for setting aside arbitral award.— (1)Recourse to a Court against an arbitral award may be madeonly by an application for setting aside such award in accordancewith 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 towhich the parties have subjected it or, failing any indicationthereon, under the law for the time being in force; or

(iii) the party making the application was not given propernotice of the appointment of an arbitrator or of the arbitralproceedings or was otherwise unable to present his case;or

(iv) the arbitral award deals with a dispute not contemplatedby or not falling within the terms of the submission toarbitration, or it contains decisions on matters beyond thescope of the submission to arbitration:

Provided that, if the decisions on matters submitted toarbitration can be separated from those not so submitted,only that part of the arbitral award which contains decisionson matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral A

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944SUPREME COURT REPORTS

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procedure was not in accordance with the agreement ofthe parties, unless such agreement was in conflict with aprovision of this Part from which the parties cannotderogate, or, failing such agreement, was not in accordancewith this Part; or……

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9. The effect of an exclusive jurisdiction clause was dealt withby this Court in several judgments, the most recent of which is thejudgment contained in Indus Mobile Distribution Pvt. Ltd. (supra).In this case, the arbitration was to be conducted at Mumbai and wasCsubject to the exclusive jurisdiction of courts of Mumbai only. Afterreferring to the definition of “Court” contained in Section 2(1)(e) of theAct, and Section 20 and 31(4) of the Act, this Court referred to thejudgment of five learned Judges in Bharat Aluminium Co. v. KaiserAluminium Technical Services Inc., (2012) 9 SCC 552, in which, theconcept of juridical seat which has been evolved by the courts in England,Dhas now taken root in our jurisdiction. After referring to several judgmentsand a Law Commission Report, this Court held:

“19. A conspectus of all the aforesaid provisions shows that themoment the seat is designated, it is akin to an exclusive jurisdictionclause. On the facts of the present case, it is clear that the seatof arbitration is Mumbai and Clause 19 further makes it clearthat jurisdiction exclusively vests in the Mumbai courts. Underthe Law of Arbitration, unlike the Code of Civil Procedure whichapplies to suits filed in courts, a reference to “seat” is a conceptby which a neutral venue can be chosen by the parties to anarbitration clause. The neutral venue may not in the classicalsense have jurisdiction — that is, no part of the cause of actionmay have arisen at the neutral venue and neither would any ofthe provisions of Sections 16 to 21 of CPC be attracted. Inarbitration law however, as has been held above, the moment“seat” is determined, the fact that the seat is at Mumbai wouldvest Mumbai courts with exclusive jurisdiction for purposes ofregulating arbitral proceedings arising out of the agreementbetween the parties.

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20. It is well settled that where more than one court hasjurisdiction, it is open for the parties to exclude all other courts.

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For an exhaustive analysis of the case law, see Swastik Gases(P) Ltd. v. Indian Oil Corpn. Ltd. [Swastik Gases (P) Ltd. v.Indian Oil Corpn. Ltd., (2013) 9 SCC 32 : (2013) 4 SCC (Civ)157]. This was followed in a recent judgment in B.E. SimoeseVon Staraburg Niedenthal v. Chhattisgarh Investment Ltd.[B.E. Simoese Von Staraburg Niedenthal v. ChhattisgarhInvestment Ltd., (2015) 12 SCC 225 : (2016) 1 SCC (Civ) 427].Having regard to the above, it is clear that Mumbai courts alonehave jurisdiction to the exclusion of all other courts in the country,as the juridical seat of arbitration is at Mumbai. This being thecase, the impugned judgment [Datawind Innovations (P) Ltd. v.Indus Mobile Distribution (P) Ltd., 2016 SCC OnLine Del 3744]is set aside. The injunction confirmed by the impugned judgmentwill continue for a period of four weeks from the date ofpronouncement of this judgment, so that the respondents maytake necessary steps under Section 9 in the Mumbai Court. Theappeals are disposed of accordingly.”

10. Following this judgment, it is clear that once courts in Mumbaihave exclusive jurisdiction thanks to the agreement dated 03.07.2008,read with the National Stock Exchange bye-laws, it is clear that it is theMumbai courts and the Mumbai courts alone, before which a Section 34application can be filed. The arbitration that was conducted at Delhiwas only at a convenient venue earmarked by the National StockExchange, which is evident on a reading of bye-law 4(a)(iv) read with(xiv) contained in Chapter XI.

11. However, the matter does not rest here. The learned SingleJudge went on to remand the matter for a full-dressed hearing on whathe referred to as a ‘disputed question of fact’ relating to jurisdiction.

12. What is meant by the expression “furnishes proof” in Section34(2)(a)? In an early Delhi High Court judgment, Sandeep Kumar v.Dr. Ashok Hans,[2] a learned Single Judge of the Delhi High Courtspecifically held that there is no requirement under the provisions ofSection 34 for parties to lead evidence. The record of the Arbitrator washeld to be sufficient in order to furnish proof of whether the groundsunder Section 34 had been made out.

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A13. Again, a learned single Judge of the Delhi High Court in SialBioenergie v. SBEC Systems,[3] stated:

“5. In my view the whole purpose of the 1996 Act would becompletely defeated by granting permission to the applicant/JDto lead oral evidence at the stage of objections raised against anBarbitral award. The 1996 Act requires expeditious disposal ofthe objections and the minimal interference by the Court as isevident from the Statement of Objects and Reasons of the Actwhich reads as follows:—

“4. The main objectives of the Bill are as under:—

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(ii) To make provision for an arbitral procedure which is fair,efficient and capable of meeting the needs of the specificarbitration.”

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(v) to minimize the supervisory role of courts in the arbitralprocess.

6. At the stage of the objections which are any way limited inscope due to the provisions of the Act to permit oral evidenceEwould completely defeat the objects underlying the 1996 Act.The process of oral evidence would prolong the process of hearingobjections and cannot be countenanced.

7. Furthermore the Supreme Court in FCI v. Indian Council forArbitration, 2003 (6) SCC 564 had summarized the ethosFunderlying the Act as follows:—

“The legislative intent underlying the 1996 Act is to minimize thesupervisory role of the Courts in the arbitral process and nominate/appoint the arbitrator without wasting time leaving all contentiousissues to be urged and agitated before the arbitral tribunal itself.”

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8. Accordingly, I see no merit in these applications and the prayermade therein is rejected.”

14. We now come to a judgment of this Court in Fiza Developers& Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr., (2009)

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17 SCC 796. In this case, the question that was posed by the Court waswhether issues as contemplated under Order XIV Rule 1 of the Code ofCivil Procedure, 1908 should be framed in applications under Section 34of the Arbitration and Conciliation Act, 1996. This Court held:

“14. In a summary proceeding, the respondent is given anopportunity to file his objections or written statement. Thereafter,the court will permit the parties to file affidavits in proof of theirrespective stands, and if necessary permit cross-examination bythe other side, before hearing arguments. Framing of issues insuch proceedings is not necessary. We hasten to add that whenit is said issues are not necessary, it does not mean that evidenceis not necessary.”

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“17. The scheme and provisions of the Act disclose twosignificant aspects relating to courts vis-à-vis arbitration. Thefirst is that there should be minimal interference by courts inmatters relating to arbitration. Second is the sense of urgencyshown with reference to arbitration matters brought to court,requiring promptness in disposal.

18. Section 5 of the Act provides that notwithstanding anythingcontained in any other law for the time being in force, in mattersgoverned by Part I of the Act, no judicial authority shall interveneexcept where so provided in the Act.”

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“21. We may therefore examine the question for considerationby bearing three factors in mind. The first is that the Act is aspecial enactment and Section 34 provides for a special remedy.The second is that an arbitration award can be set aside onlyupon one of the grounds mentioned in sub-section (2) of Section34 exists. The third is that proceedings under Section 34 requiresto be dealt with expeditiously.”

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“24. In other words, an application under Section 34 of the Actis a single issue proceeding, where the very fact that theapplication has been instituted under that particular provision A

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declares the issue involved. Any further exercise to frame issueswill only delay the proceedings. It is thus clear that issues neednot be framed in applications under Section 34 of the Act.”

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“31. Applications under Section 34 of the Act are summaryBproceedings 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 applicantis permitted to file affidavits of his witnesses in proof. Acorresponding opportunity is given to the respondent-defendantCto place his evidence by affidavit. Where the case so warrants,the court permits cross-examination of the persons swearing tothe affidavit. Thereafter, the court hears arguments and/orreceives written submissions and decides the matter. This is ofcourse the routine procedure. The court may vary the saidprocedure, depending upon the facts of any particular case orDthe local rules. What is however clear is that framing of issuesas contemplated under Rule 1 of Order 14 of the Code is not anintegral part of the process of a proceedings under Section 34 ofthe Act.”

15. A Punjab and Haryana High Court judgment in M/s PunjabEState Industrial Development Corporation v. Mr. Sunil K. Kansal,[4]after referring to our judgment in Fiza Developers (supra) held:

“30. In view of the above, we answer the question of law framedas follows:

(i) The issues, as required under Order XIV Rule 1 of theFCode as in the regular suit, are not required to be mandatorilyframed by the Court. However, it is open to the Court to framequestions which may arise for adjudication.

(ii) The Court while dealing with the objections under Section34 of the Act is not bound to grant opportunities to the partiesGto lead evidence as in the regular civil suit. The jurisdiction ofthe Court being more akin to the appellate jurisdiction;

(iii) The proceedings before the Court under Section 34 of theAct are summary in nature. Even if some questions of fact or H4 2012 SCC OnLine P&H 19641 [CR No. 4216 of 2011 (decided on 11.10.2012)].

mixed questions of law and/or facts are to be decided, thecourt while permitting the parties to furnish affidavits inevidence, can summon the witness for cross-examination, ifdesired by the other party. Such procedure is keeping in viewthe principles of natural justice, fair play and equity.”

16. The Calcutta High Court in WEB Techniques and NetSolutions Pvt. Ltd. v. M/s. Gati Ltd. and Anr.,[5] after referring toFiza Developers (supra), held that oral evidence is not required undera Section 34 application when the record before the Arbitrator wouldshow whether the petitioners had received notice relating to hisappointment.

17. In Cochin Shipyard Ltd. v. Apeejay Shipping Ltd., (2015)15 SCC 522, this Court, in a case arising out of the Arbitration Act, 1940,did not follow the decision in Fiza Developers (supra), as objections tobe filed under Sections 30 and 33 of the 1940 Act did not require anykind of oral evidence to be led.

18. A recent report of the Justice B.N. Srikrishna Committee toreview the institutionalization of the arbitration mechanism in India hasfound:

“5. Amendment to Section 34(2)(a) of the ACA

Sub-section (2)(a) of section 34 of the ACA provides for thesetting aside of arbitral awards by the court in certaincircumstances. The party applying for setting aside the arbitralaward has to furnish proof to the court. This requirement tofurnish proof has led to inconsistent practices in some HighCourts, where they have insisted on section 34 proceedings beingconducted in the manner as a regular civil suit. This is despitethe Supreme Court ruling in Fiza Developers & Inter-Trade P.Ltd. v. AMCI (I) Pvt. Ltd. & Anr. that proceedings under section34 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 suitableamendment may be made to section 34(2)(a) to ensure thatproceedings under section 34 are conducted expeditiously.

5 2012 SCC OnLine Cal 4271 [C.O. No. 1532 of 2010 (decided on 02.05.2012)].

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ARecommendation: An amendment may be made to Section34(2)(a) of the Arbitration and Conciliation Act, 1996, substitutingthe words “furnishes proof that” with the words “establishes onthe basis of the arbitral tribunal’s record that”.”

19. We have been informed that the Arbitration and ConciliationB(Amendment) Bill of 2018, being Bill No.100 of 2018, contains anamendment to Section 34(2)(a) of the principal Act, which reads asfollows:

“In section 34 of the principal Act, in sub-section (2), in clause(a), for the words “furnishes proof that”, the words “establishesCon the basis of the record of the arbitral tribunal that” shall besubstituted.”[6]

20. One more recent development in the law of arbitration needsto be adverted to. After the decision in Fiza Developers (supra), Section34 was amended by Act 3 of 2016, by which sub-sections (5) and (6)Dwere added to the principal Act with effect from 23.10.2015. Section34(5) and 34(6) reads as under:

“34. Application for setting aside arbitral award.—

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(5) An application under this section shall be filed by a party onlyEafter issuing a prior notice to the other party and such applicationshall be accompanied by an affidavit by the applicant endorsingcompliance with the said requirement.

(6) An application under this section shall be disposed ofexpeditiously, and in any event, within a period of one year fromFthe date on which the notice referred to in sub-section (5) isserved upon the other party.”

21. In a recent judgment of this Bench in The State of Biharand Ors. v. Bihar Rajya Bhumi Vikas Bank Samiti, SLP (Civil) No.4475 of 2017 (decided on 30.07.2018), this Court, after holding that theGperiod of one year mentioned in the aforesaid sub-section is directory,went on to hold:

“27. We are of the opinion that the view propounded by theHigh Courts of Bombay and Calcutta represents the correct state H6 Bill No.100 of 2018, THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2018, p. 3.

of the law. However, we may add that it shall be the endeavourof every Court in which a Section 34 application is filed, to stickto the time limit of one year from the date of service of notice tothe opposite party by the applicant, or by the Court, as the casemay be. In case the Court issues notice after the period mentionedin Section 34(3) has elapsed, every Court shall endeavour todispose of the Section 34 application within a period of one yearfrom the date of filing of the said application, similar to what hasbeen provided in Section 14 of the Commercial Courts,Commercial Division and Commercial Appellate Division of HighCourts Act, 2015. This will give effect to the object sought to beachieved by adding Section 13(6) by the 2015 Amendment Act.

28. We may also add that in cases covered by Section 10 readwith Section 14 of the Commercial Courts, Commercial Divisionand Commercial Appellate Division of High Courts Act, 2015,the Commercial Appellate Division shall endeavour to disposeof appeals filed before it within six months, as stipulated. Appealswhich are not so covered will also be disposed of as expeditiouslyas possible, preferably within one year from the date on whichthe appeal is filed……”

22. It will thus be seen that speedy resolution of arbitral disputeshas been the reason for enacting the 1996 Act, and continues to be thereason for adding amendments to the said Act to strengthen the aforesaidobject. Quite obviously, if issues are to be framed and oral evidencetaken in a summary proceeding under Section 34, this object will bedefeated. 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 dispensedwith altogether. Given the current state of the law, we are of the viewthat the two early Delhi High Court judgments, cited by us hereinabove,correctly reflect the position in law as to furnishing proof under Section34(2)(a). So does the Calcutta High Court judgment (supra). We mayhasten to add that if the procedure followed by the Punjab and HaryanaHigh Court judgment (supra) is to be adhered to, the time limit of oneyear would only be observed in most cases in the breach. We thereforeoverrule the said decision. We are constrained to observe that FizaDevelopers (supra) was a step in the right direction as its ultimateratio is that issues need not be struck at the stage of hearing a Section34 application, which is a summary procedure. However, this judgment A

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Amust now be read in the light of the amendment made in Section 34(5)and 34(6). So read, we clarify the legal position by stating that anapplication for setting aside an arbitral award will not ordinarily requireanything beyond the record that was before the Arbitrator. However, ifthere are matters not contained in such record, and are relevant to thedetermination of issues arising under Section 34(2)(a), they may beBbrought to the notice of the Court by way of affidavits filed by bothparties. Cross-examination of persons swearing to the affidavits shouldnot be allowed unless absolutely necessary, as the truth will emerge on areading of the affidavits filed by both parties. We, therefore, set asidethe judgment of the Delhi High Court and reinstate that of the learnedCAdditional District Judge dated 22.09.2016. The appeal is accordinglyallowed with no order as to costs.

Devika Gujral Appeal allowed.

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