1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8367 OF 2018
(ARISING OUT OF SLP (CIVIL) NO.33248 OF 2017)
M/S EMKAY GLOBAL FINANCIAL
SERVICES LTD. … APPELLANT
VERSUS
GIRDHAR SONDHI … RESPONDENT
J U D G M E N T
R.F. NARIMAN, J.
1. Leave granted.
2. The present appeal arises out of a dispute between the Appellant,
who is a registered broker with the National Stock Exchange, and the
Respondent, its client, regarding certain transactions in securities and
shares. The Respondent had initiated an arbitration proceeding against the
Appellant, claiming an amount of Rs.7,36,620/-, which was rejected by the
Sole Arbitrator vide an Arbitration Award dated 08.12.2009.
3. The appeal arises out of an agreement dated 03.07.2008, which
contains the following clauses:
“General Clause
1. The parties hereto agree to abide by the provisions of
the Depositories Act, 1996, SEBI (Depositories and
2
Participants) Regulation, 1996 Bye-Laws and Operating
Instructions issued by CDSL from time to time in the same
manner and to the same extent as if the same were set out
herein and formed part of this Agreement.”
xxx xxx xxx
“Arbitration
11. The parties hereto shall, in respect of all disputes and
differences that may arise between them, abide by the
provisions relating to arbitration and conciliation specified
under the Bye-Laws.”
xxx xxx xxx
“Jurisdiction
12. The parties hereto agree to submit to the exclusive
jurisdiction of the courts in Mumbai in Maharashtra (India).”
4. Though the bye-laws referred to in the agreement are under the
provisions of the Depositories Act, 1996, it is common ground that the
arbitration proceeding took place under the National Stock Exchange byelaws.
Under these bye-laws, Chapter VII speaks of dealings by trading
members and grants exclusive jurisdiction to the civil courts in Mumbai in
relation to disputes that arise under the bye-laws as follows:
“CHAPTER VII
DEALINGS BY TRADING MEMBERS.
Jurisdiction.
(1) (a) Any deal entered into through automated trading
system of the Exchange or any proposal for buying or
selling or any acceptance of any such proposal for buying
and selling shall be deemed to have been entered at the
computerised processing unit of the Exchange at Mumbai
and the place of contracting as between the trading
members shall be at Mumbai. The trading members of the
Exchange shall expressly record on their contract note that
they have excluded the jurisdiction of all other Courts save
and except, Civil Courts in Mumbai in relation to any
dispute arising out of or in connection with or in relation to
the contract notes, and that only the Civil Courts at
Mumbai have exclusive jurisdiction in claims arising out of
such dispute. The provisions of this Byelaw shall not object
3
the jurisdiction of any court deciding any dispute as
between trading members and their constituents to which
the Exchange is not a party.”
5. The bye-laws go on to describe the relevant authority prescribing
regulations for creation of seats of arbitration for different regions, or
prescribing geographical locations for conducting arbitrations, and prescribing
the courts which shall have jurisdiction for the purpose of the Act – see
Chapter XI dealing with Arbitration – clause 4(a)(iv). Equally, under subclause
(xiv), the place of arbitration for each reference and the places where
the Arbitrator can hold meetings have also to be designated. It is common
ground that the National Stock Exchange referred the dispute to one Shri
Mahmood Ali Khan, who held sittings in Delhi, and delivered an award dated
08.12.2009, whereby the Respondent’s claim was rejected. The Respondent
then filed a Section 34 application under the Arbitration and Conciliation Act,
1996 on 17.03.2010 before the District Court, Karkardooma, Delhi. By a
judgment dated 22.09.2016, the learned Additional District Judge referred to
the exclusive jurisdiction clause contained in the agreement, and stated that
he would have no jurisdiction to proceed further in the matter and, therefore,
rejected the Section 34 application filed in Delhi. In an appeal filed before the
High Court, a learned Single Judge of the Delhi High Court held as follows:
“4. Accordingly, since the impugned judgment decides the
disputed question of fact without allowing parties to lead
evidence i.e. depositions supported by documentary
evidence, and without opportunity to the other side to
cross-examine the witnesses who give depositions, it is
necessary that the disputed questions of fact as regards
4
existence of territorial jurisdiction of the courts at Delhi be
decided by the court below after framing an issue to this
effect and permitting the parties thereafter to lead evidence
on the same.
5. I may hasten to add that I have not made any
observations one way or the other, for or against any of the
parties herein, on the aspect of territorial jurisdiction, and
this issue of territorial jurisdiction will be decided by the
courts below after parties have led evidence keeping in
mind that if part of cause of action is proved to have arisen
in Mumbai and there is an exclusivity clause conferring
territorial jurisdiction of the Mumbai courts, then even if
Delhi courts otherwise have jurisdiction, possibly the courts
at Delhi would not exercise territorial jurisdiction.
6. Parties to appear before the District and Sessions
Judge, East Karkardooma Courts, Delhi on 7th November,
2017 and the District and Sessions Judge will now mark
the objections under Section 34 of the Arbitration and
Conciliation Act to a competent court for disposal in
accordance with law and the observations made in the
present order.”1
6. Learned counsel appearing on behalf of the Appellant has relied
upon the exclusive jurisdiction clause contained both in the agreement as well
as the bye-laws of the National Stock Exchange. According to him, this case
is squarely covered by a recent judgment of this Court in Indus Mobile
Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors., (2017) 7
SCC 678. He also referred to Section 34 and stated that, given the conspectus
of judgments of the High Courts and one judgment of this Court, when Section
34(2)(a) speaks of a party making an application who “furnishes proof” of one
of the grounds in the sub-section, such proof should only be by way of affidavit
of facts not already contained in the record of proceedings before the
1 Girdhar Sondhi v. M/s. Emkay Global Financial Services Ltd., FAO 222 of 2017 (decided
on 11.10.2017).
5
Arbitrator. Further, a mini-trial at this stage is not contemplated, as otherwise,
the whole object of speedy resolution of arbitral disputes would be stultified.
Consequently, the learned Single Judge was incorrect in referring back the
parties to the District Judge to first frame an issue, and then decide on
evidence, including the opportunity to cross-examine witnesses who give
depositions.
7. Learned counsel for the Respondent, on the other hand, supported
the impugned judgment, and argued that as the seat of arbitration was at
Delhi, the courts at Delhi would have jurisdiction, even though there is an
exclusive jurisdiction clause vesting such jurisdiction only in the 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
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
6
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……
xxx xxx xxx”
9. The effect of an exclusive jurisdiction clause was dealt with by this
Court in several judgments, the most recent of which is the judgment
contained in Indus Mobile Distribution Pvt. Ltd. (supra). In this case, the
arbitration was to be conducted at Mumbai and was subject to the exclusive
jurisdiction of courts of Mumbai only. After referring to the definition of “Court”
contained in Section 2(1)(e) of the Act, and Section 20 and 31(4) of the Act,
this Court referred to the judgment of five learned Judges in Bharat
Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC
552, in which, the concept of juridical seat which has been evolved by the
courts in England, has now taken root in our jurisdiction. After referring to
several judgments and a Law Commission Report, this Court held:
“19. A conspectus of all the aforesaid provisions shows that
7
the moment the seat is designated, it is akin to an
exclusive jurisdiction clause. On the facts of the present
case, it is clear that the seat of arbitration is Mumbai and
Clause 19 further makes it clear that jurisdiction exclusively
vests in the Mumbai courts. Under the Law of Arbitration,
unlike the Code of Civil Procedure which applies to suits
filed in courts, a reference to “seat” is a concept by which a
neutral venue can be chosen by the parties to an
arbitration clause. The neutral venue may not in the
classical sense have jurisdiction — that is, no part of the
cause of action may have arisen at the neutral venue and
neither would any of the provisions of Sections 16 to 21 of
CPC be attracted. In arbitration law however, as has been
held above, the moment “seat” is determined, the fact that
the seat is at Mumbai would vest Mumbai courts with
exclusive jurisdiction for purposes of regulating arbitral
proceedings arising out of the agreement between the
parties.
20. It is well settled that where more than one court has
jurisdiction, it is open for the parties to exclude all other
courts. 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. Simoese Von Staraburg Niedenthal v.
Chhattisgarh Investment Ltd. [B.E. Simoese Von Staraburg
Niedenthal v. Chhattisgarh Investment Ltd., (2015) 12 SCC
225 : (2016) 1 SCC (Civ) 427]. Having regard to the above,
it is clear that Mumbai courts alone have jurisdiction to the
exclusion of all other courts in the country, as the juridical
seat of arbitration is at Mumbai. This being the case, 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
judgment will continue for a period of four weeks from the
date of pronouncement of this judgment, so that the
respondents may take necessary steps under Section 9 in
the Mumbai Court. The appeals are disposed of
accordingly.”
10. Following this judgment, it is clear that once courts in Mumbai have
exclusive jurisdiction thanks to the agreement dated 03.07.2008, read with the
8
National Stock Exchange bye-laws, it is clear that it is the Mumbai courts and
the Mumbai courts alone, before which a Section 34 application can be filed.
The arbitration that was conducted at Delhi was only at a convenient venue
earmarked by the National Stock Exchange, 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 Single Judge
went on to remand the matter for a full-dressed hearing on what he referred to
as a ‘disputed question of fact’ relating to jurisdiction.
12. What is meant by the expression “furnishes proof” in Section 34(2)
(a)? In an early Delhi High Court judgment, Sandeep Kumar v. Dr. Ashok
Hans,
2
a learned Single Judge of the Delhi High Court specifically held that
there is no requirement under the provisions of Section 34 for parties to lead
evidence. The record of the Arbitrator was held to be sufficient in order to
furnish proof of whether the grounds under Section 34 had been made out.
13. Again, a learned single Judge of the Delhi High Court in Sial
Bioenergie v. SBEC Systems,
3
stated:
“5. In my view the whole purpose of the 1996 Act would be
completely defeated by granting permission to the
applicant/JD to lead oral evidence at the stage of
objections raised against an arbitral award. The 1996 Act
requires expeditious disposal of the objections and the
minimal interference by the Court as is evident from the
Statement of Objects and Reasons of the Act which reads
as follows:—
“4. The main objectives of the Bill are as under:—
(ii) To make provision for an arbitral procedure
2
(2004) 3 Arb LR 306
3 AIR 2005 Del 95.
9
which is fair, efficient and capable of meeting the
needs of the specific arbitration.”
xxx xxx xxx
xxx xxx xxx
(v) to minimize the supervisory role of courts in
the arbitral process.
6. At the stage of the objections which are any way limited
in scope due to the provisions of the Act to permit oral
evidence would completely defeat the objects underlying
the 1996 Act. The process of oral evidence would prolong
the process of hearing objections and cannot be
countenanced.
7. Furthermore the Supreme Court in FCI v. Indian Council
for Arbitration, 2003 (6) SCC 564 had summarized the
ethos underlying the Act as follows:—
“The legislative intent underlying the 1996 Act is to
minimize the supervisory role of the Courts in the arbitral
process and nominate/appoint the arbitrator without
wasting time leaving all contentious issues to be urged and
agitated before the arbitral tribunal itself.”
8. Accordingly, I see no merit in these applications and the
prayer made 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) 17 SCC 796.
In this case, the question that was posed by the Court was whether issues as
contemplated under Order XIV Rule 1 of the Code of Civil Procedure, 1908
should be framed in applications under Section 34 of the Arbitration and
Conciliation Act, 1996. This Court held:
“14. In a summary proceeding, the respondent is given an
opportunity to file his objections or written statement.
Thereafter, 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
10
necessary. We hasten to add that when it is said issues
are not necessary, it does not mean that evidence is not
necessary.”
xxx xxx xxx
“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.
18. Section 5 of the Act provides that notwithstanding
anything contained in any other law for the time being in
force, in matters governed by Part I of the Act, no judicial
authority shall intervene except where so provided in the
Act.”
xxx xxx xxx
“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.”
xxx xxx xxx
“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.”
xxx xxx xxx
“31. Applications under Section 34 of the Act are summary
proceedings with provision for objections by the
11
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.”
15. A Punjab and Haryana High Court judgment in M/s Punjab State
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
framed as follows:
(i) The issues, as required under Order XIV Rule
1 of the Code as in the regular suit, are not
required to be mandatorily framed by the Court.
However, it is open to the Court to frame
questions which may arise for adjudication.
(ii) The Court while dealing with the objections
under Section 34 of the Act is not bound to grant
opportunities to the parties to lead evidence as in
the regular civil suit. The jurisdiction of the Court
being more akin to the appellate jurisdiction;
(iii) The proceedings before the Court under
Section 34 of the Act are summary in nature.
Even if some questions of fact or mixed questions
of law and/or facts are to be decided, the court
while permitting the parties to furnish affidavits in
evidence, can summon the witness for crossexamination,
if desired by the other party. Such
procedure is keeping in view the principles of
4 2012 SCC OnLine P&H 19641 [CR No. 4216 of 2011 (decided on 11.10.2012)].
12
natural justice, fair play and equity.”
16. The Calcutta High Court in WEB Techniques and Net Solutions
Pvt. Ltd. v. M/s. Gati Ltd. and Anr.,
5
after referring to Fiza Developers
(supra), held that oral evidence is not required under a Section 34 application
when the record before the Arbitrator would show whether the petitioners had
received notice relating to his appointment.
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 to be filed under
Sections 30 and 33 of the 1940 Act did not require any kind of oral evidence to
be led.
18. A recent report of the Justice B.N. Srikrishna Committee to review the
institutionalization of the arbitration mechanism in India has found:
“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 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 (I)
Pvt. Ltd. & Anr. 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
5 2012 SCC OnLine Cal 4271 [C.O. No. 1532 of 2010 (decided on 02.05.2012)].
13
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”.”
19. We have been informed that the Arbitration and Conciliation
(Amendment) Bill of 2018, being Bill No.100 of 2018, contains an amendment
to Section 34(2)(a) of the principal Act, which reads as follows:
“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.”6
20. One more recent development in the law of arbitration needs to be
adverted to. After the decision in Fiza Developers (supra), Section 34 was
amended by Act 3 of 2016, by which sub-sections (5) and (6) were added to
the principal Act with effect from 23.10.2015. Section 34(5) and 34(6) reads as
under:
“34. Application for setting aside arbitral award.—
xxx xxx xxx
(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.”
6 Bill No.100 of 2018, THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2018, p. 3.
14
21. In a recent judgment of this Bench in The State of Bihar and Ors. v.
Bihar Rajya Bhumi Vikas Bank Samiti, SLP (Civil) No. 4475 of 2017
(decided on 30.07.2018), this Court, after holding that the period 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
the High Courts of Bombay and Calcutta represents the
correct state of the law. However, we may add that it shall
be the endeavour of every Court in which a Section 34
application is filed, to stick to the time limit of one year from
the date of service of notice to the opposite party by the
applicant, or by the Court, as the case may be. In case the
Court issues notice after the period mentioned in Section
34(3) has elapsed, every Court shall endeavour to dispose
of the Section 34 application within a period of one year
from the date of filing of the said application, similar to
what has been provided in Section 14 of the Commercial
Courts, Commercial Division and Commercial Appellate
Division of High Courts Act, 2015. This will give effect to
the object sought to be achieved by adding Section 13(6)
by the 2015 Amendment Act.
28. We may also add that in cases covered by Section
10 read with Section 14 of the Commercial Courts,
Commercial Division and Commercial Appellate Division of
High Courts Act, 2015, the Commercial Appellate Division
shall endeavour to dispose of appeals filed before it within
six months, as stipulated. Appeals which are not so
covered will also be disposed of as expeditiously as
possible, preferably within one year from the date on which
the appeal is filed……”
22. 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
15
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, 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 (supra). We may hasten to add that if the procedure
followed by the Punjab and Haryana High Court judgment (supra) 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 (supra) 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. However, this
judgment must 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 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. Crossexamination
of persons swearing to the affidavits should not be allowed
unless absolutely necessary, as the truth will emerge on a reading of the
16
affidavits filed by both parties. We, therefore, set aside the judgment of the
Delhi High Court and reinstate that of the learned Additional District Judge
dated 22.09.2016. The appeal is accordingly allowed with no order as to
costs.
……………………………..J.
(R.F. Nariman)
……………………………..J.
(Indu Malhotra)
New Delhi;
August 20, 2018.
17
ITEM No. 1501 Court No. 9 SECTION XIV
(For Judgment)
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No. of 2018
(Arising out of SLP (Civil) No. 33248 of 2017)
M/S. EMKAY GLOBAL FINANCIAL SERVICES LTD. Appellant(s)
VERSUS
GIRDHAR SONDHI Respondent(s)
Date : 20.08.2018 This matter was called on for pronouncement of
judgment today.
For Appellant(s) Mr. Divyakant Lahoti, Adv.
Mr. Parikshit Ahuja, Adv.
For Respondent(s) Mr. Arup Banerjee, Adv.
Hon'ble Mr. Justice Rohinton Fali Nariman
pronounced the judgment of the Bench comprising His
Lordship and Hon'ble Ms. Justice Indu Malhotra.
Leave granted
The appeal is allowed in terms of the signed
reportable judgment.
Pending applications, if any, shall stand disposed
of.
(Shashi Sareen)
ARcumPS
(Saroj Kumari Gaur)
Branch Officer
(Signed reportable judgment is placed on the file)
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8367 OF 2018
(ARISING OUT OF SLP (CIVIL) NO.33248 OF 2017)
M/S EMKAY GLOBAL FINANCIAL
SERVICES LTD. … APPELLANT
VERSUS
GIRDHAR SONDHI … RESPONDENT
J U D G M E N T
R.F. NARIMAN, J.
1. Leave granted.
2. The present appeal arises out of a dispute between the Appellant,
who is a registered broker with the National Stock Exchange, and the
Respondent, its client, regarding certain transactions in securities and
shares. The Respondent had initiated an arbitration proceeding against the
Appellant, claiming an amount of Rs.7,36,620/-, which was rejected by the
Sole Arbitrator vide an Arbitration Award dated 08.12.2009.
3. The appeal arises out of an agreement dated 03.07.2008, which
contains the following clauses:
“General Clause
1. The parties hereto agree to abide by the provisions of
the Depositories Act, 1996, SEBI (Depositories and
2
Participants) Regulation, 1996 Bye-Laws and Operating
Instructions issued by CDSL from time to time in the same
manner and to the same extent as if the same were set out
herein and formed part of this Agreement.”
xxx xxx xxx
“Arbitration
11. The parties hereto shall, in respect of all disputes and
differences that may arise between them, abide by the
provisions relating to arbitration and conciliation specified
under the Bye-Laws.”
xxx xxx xxx
“Jurisdiction
12. The parties hereto agree to submit to the exclusive
jurisdiction of the courts in Mumbai in Maharashtra (India).”
4. Though the bye-laws referred to in the agreement are under the
provisions of the Depositories Act, 1996, it is common ground that the
arbitration proceeding took place under the National Stock Exchange byelaws.
Under these bye-laws, Chapter VII speaks of dealings by trading
members and grants exclusive jurisdiction to the civil courts in Mumbai in
relation to disputes that arise under the bye-laws as follows:
“CHAPTER VII
DEALINGS BY TRADING MEMBERS.
Jurisdiction.
(1) (a) Any deal entered into through automated trading
system of the Exchange or any proposal for buying or
selling or any acceptance of any such proposal for buying
and selling shall be deemed to have been entered at the
computerised processing unit of the Exchange at Mumbai
and the place of contracting as between the trading
members shall be at Mumbai. The trading members of the
Exchange shall expressly record on their contract note that
they have excluded the jurisdiction of all other Courts save
and except, Civil Courts in Mumbai in relation to any
dispute arising out of or in connection with or in relation to
the contract notes, and that only the Civil Courts at
Mumbai have exclusive jurisdiction in claims arising out of
such dispute. The provisions of this Byelaw shall not object
3
the jurisdiction of any court deciding any dispute as
between trading members and their constituents to which
the Exchange is not a party.”
5. The bye-laws go on to describe the relevant authority prescribing
regulations for creation of seats of arbitration for different regions, or
prescribing geographical locations for conducting arbitrations, and prescribing
the courts which shall have jurisdiction for the purpose of the Act – see
Chapter XI dealing with Arbitration – clause 4(a)(iv). Equally, under subclause
(xiv), the place of arbitration for each reference and the places where
the Arbitrator can hold meetings have also to be designated. It is common
ground that the National Stock Exchange referred the dispute to one Shri
Mahmood Ali Khan, who held sittings in Delhi, and delivered an award dated
08.12.2009, whereby the Respondent’s claim was rejected. The Respondent
then filed a Section 34 application under the Arbitration and Conciliation Act,
1996 on 17.03.2010 before the District Court, Karkardooma, Delhi. By a
judgment dated 22.09.2016, the learned Additional District Judge referred to
the exclusive jurisdiction clause contained in the agreement, and stated that
he would have no jurisdiction to proceed further in the matter and, therefore,
rejected the Section 34 application filed in Delhi. In an appeal filed before the
High Court, a learned Single Judge of the Delhi High Court held as follows:
“4. Accordingly, since the impugned judgment decides the
disputed question of fact without allowing parties to lead
evidence i.e. depositions supported by documentary
evidence, and without opportunity to the other side to
cross-examine the witnesses who give depositions, it is
necessary that the disputed questions of fact as regards
4
existence of territorial jurisdiction of the courts at Delhi be
decided by the court below after framing an issue to this
effect and permitting the parties thereafter to lead evidence
on the same.
5. I may hasten to add that I have not made any
observations one way or the other, for or against any of the
parties herein, on the aspect of territorial jurisdiction, and
this issue of territorial jurisdiction will be decided by the
courts below after parties have led evidence keeping in
mind that if part of cause of action is proved to have arisen
in Mumbai and there is an exclusivity clause conferring
territorial jurisdiction of the Mumbai courts, then even if
Delhi courts otherwise have jurisdiction, possibly the courts
at Delhi would not exercise territorial jurisdiction.
6. Parties to appear before the District and Sessions
Judge, East Karkardooma Courts, Delhi on 7th November,
2017 and the District and Sessions Judge will now mark
the objections under Section 34 of the Arbitration and
Conciliation Act to a competent court for disposal in
accordance with law and the observations made in the
present order.”1
6. Learned counsel appearing on behalf of the Appellant has relied
upon the exclusive jurisdiction clause contained both in the agreement as well
as the bye-laws of the National Stock Exchange. According to him, this case
is squarely covered by a recent judgment of this Court in Indus Mobile
Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors., (2017) 7
SCC 678. He also referred to Section 34 and stated that, given the conspectus
of judgments of the High Courts and one judgment of this Court, when Section
34(2)(a) speaks of a party making an application who “furnishes proof” of one
of the grounds in the sub-section, such proof should only be by way of affidavit
of facts not already contained in the record of proceedings before the
1 Girdhar Sondhi v. M/s. Emkay Global Financial Services Ltd., FAO 222 of 2017 (decided
on 11.10.2017).
5
Arbitrator. Further, a mini-trial at this stage is not contemplated, as otherwise,
the whole object of speedy resolution of arbitral disputes would be stultified.
Consequently, the learned Single Judge was incorrect in referring back the
parties to the District Judge to first frame an issue, and then decide on
evidence, including the opportunity to cross-examine witnesses who give
depositions.
7. Learned counsel for the Respondent, on the other hand, supported
the impugned judgment, and argued that as the seat of arbitration was at
Delhi, the courts at Delhi would have jurisdiction, even though there is an
exclusive jurisdiction clause vesting such jurisdiction only in the 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
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
6
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……
xxx xxx xxx”
9. The effect of an exclusive jurisdiction clause was dealt with by this
Court in several judgments, the most recent of which is the judgment
contained in Indus Mobile Distribution Pvt. Ltd. (supra). In this case, the
arbitration was to be conducted at Mumbai and was subject to the exclusive
jurisdiction of courts of Mumbai only. After referring to the definition of “Court”
contained in Section 2(1)(e) of the Act, and Section 20 and 31(4) of the Act,
this Court referred to the judgment of five learned Judges in Bharat
Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC
552, in which, the concept of juridical seat which has been evolved by the
courts in England, has now taken root in our jurisdiction. After referring to
several judgments and a Law Commission Report, this Court held:
“19. A conspectus of all the aforesaid provisions shows that
7
the moment the seat is designated, it is akin to an
exclusive jurisdiction clause. On the facts of the present
case, it is clear that the seat of arbitration is Mumbai and
Clause 19 further makes it clear that jurisdiction exclusively
vests in the Mumbai courts. Under the Law of Arbitration,
unlike the Code of Civil Procedure which applies to suits
filed in courts, a reference to “seat” is a concept by which a
neutral venue can be chosen by the parties to an
arbitration clause. The neutral venue may not in the
classical sense have jurisdiction — that is, no part of the
cause of action may have arisen at the neutral venue and
neither would any of the provisions of Sections 16 to 21 of
CPC be attracted. In arbitration law however, as has been
held above, the moment “seat” is determined, the fact that
the seat is at Mumbai would vest Mumbai courts with
exclusive jurisdiction for purposes of regulating arbitral
proceedings arising out of the agreement between the
parties.
20. It is well settled that where more than one court has
jurisdiction, it is open for the parties to exclude all other
courts. 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. Simoese Von Staraburg Niedenthal v.
Chhattisgarh Investment Ltd. [B.E. Simoese Von Staraburg
Niedenthal v. Chhattisgarh Investment Ltd., (2015) 12 SCC
225 : (2016) 1 SCC (Civ) 427]. Having regard to the above,
it is clear that Mumbai courts alone have jurisdiction to the
exclusion of all other courts in the country, as the juridical
seat of arbitration is at Mumbai. This being the case, 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
judgment will continue for a period of four weeks from the
date of pronouncement of this judgment, so that the
respondents may take necessary steps under Section 9 in
the Mumbai Court. The appeals are disposed of
accordingly.”
10. Following this judgment, it is clear that once courts in Mumbai have
exclusive jurisdiction thanks to the agreement dated 03.07.2008, read with the
8
National Stock Exchange bye-laws, it is clear that it is the Mumbai courts and
the Mumbai courts alone, before which a Section 34 application can be filed.
The arbitration that was conducted at Delhi was only at a convenient venue
earmarked by the National Stock Exchange, 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 Single Judge
went on to remand the matter for a full-dressed hearing on what he referred to
as a ‘disputed question of fact’ relating to jurisdiction.
12. What is meant by the expression “furnishes proof” in Section 34(2)
(a)? In an early Delhi High Court judgment, Sandeep Kumar v. Dr. Ashok
Hans,
2
a learned Single Judge of the Delhi High Court specifically held that
there is no requirement under the provisions of Section 34 for parties to lead
evidence. The record of the Arbitrator was held to be sufficient in order to
furnish proof of whether the grounds under Section 34 had been made out.
13. Again, a learned single Judge of the Delhi High Court in Sial
Bioenergie v. SBEC Systems,
3
stated:
“5. In my view the whole purpose of the 1996 Act would be
completely defeated by granting permission to the
applicant/JD to lead oral evidence at the stage of
objections raised against an arbitral award. The 1996 Act
requires expeditious disposal of the objections and the
minimal interference by the Court as is evident from the
Statement of Objects and Reasons of the Act which reads
as follows:—
“4. The main objectives of the Bill are as under:—
(ii) To make provision for an arbitral procedure
2
(2004) 3 Arb LR 306
3 AIR 2005 Del 95.
9
which is fair, efficient and capable of meeting the
needs of the specific arbitration.”
xxx xxx xxx
xxx xxx xxx
(v) to minimize the supervisory role of courts in
the arbitral process.
6. At the stage of the objections which are any way limited
in scope due to the provisions of the Act to permit oral
evidence would completely defeat the objects underlying
the 1996 Act. The process of oral evidence would prolong
the process of hearing objections and cannot be
countenanced.
7. Furthermore the Supreme Court in FCI v. Indian Council
for Arbitration, 2003 (6) SCC 564 had summarized the
ethos underlying the Act as follows:—
“The legislative intent underlying the 1996 Act is to
minimize the supervisory role of the Courts in the arbitral
process and nominate/appoint the arbitrator without
wasting time leaving all contentious issues to be urged and
agitated before the arbitral tribunal itself.”
8. Accordingly, I see no merit in these applications and the
prayer made 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) 17 SCC 796.
In this case, the question that was posed by the Court was whether issues as
contemplated under Order XIV Rule 1 of the Code of Civil Procedure, 1908
should be framed in applications under Section 34 of the Arbitration and
Conciliation Act, 1996. This Court held:
“14. In a summary proceeding, the respondent is given an
opportunity to file his objections or written statement.
Thereafter, 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
10
necessary. We hasten to add that when it is said issues
are not necessary, it does not mean that evidence is not
necessary.”
xxx xxx xxx
“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.
18. Section 5 of the Act provides that notwithstanding
anything contained in any other law for the time being in
force, in matters governed by Part I of the Act, no judicial
authority shall intervene except where so provided in the
Act.”
xxx xxx xxx
“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.”
xxx xxx xxx
“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.”
xxx xxx xxx
“31. Applications under Section 34 of the Act are summary
proceedings with provision for objections by the
11
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.”
15. A Punjab and Haryana High Court judgment in M/s Punjab State
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
framed as follows:
(i) The issues, as required under Order XIV Rule
1 of the Code as in the regular suit, are not
required to be mandatorily framed by the Court.
However, it is open to the Court to frame
questions which may arise for adjudication.
(ii) The Court while dealing with the objections
under Section 34 of the Act is not bound to grant
opportunities to the parties to lead evidence as in
the regular civil suit. The jurisdiction of the Court
being more akin to the appellate jurisdiction;
(iii) The proceedings before the Court under
Section 34 of the Act are summary in nature.
Even if some questions of fact or mixed questions
of law and/or facts are to be decided, the court
while permitting the parties to furnish affidavits in
evidence, can summon the witness for crossexamination,
if desired by the other party. Such
procedure is keeping in view the principles of
4 2012 SCC OnLine P&H 19641 [CR No. 4216 of 2011 (decided on 11.10.2012)].
12
natural justice, fair play and equity.”
16. The Calcutta High Court in WEB Techniques and Net Solutions
Pvt. Ltd. v. M/s. Gati Ltd. and Anr.,
5
after referring to Fiza Developers
(supra), held that oral evidence is not required under a Section 34 application
when the record before the Arbitrator would show whether the petitioners had
received notice relating to his appointment.
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 to be filed under
Sections 30 and 33 of the 1940 Act did not require any kind of oral evidence to
be led.
18. A recent report of the Justice B.N. Srikrishna Committee to review the
institutionalization of the arbitration mechanism in India has found:
“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 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 (I)
Pvt. Ltd. & Anr. 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
5 2012 SCC OnLine Cal 4271 [C.O. No. 1532 of 2010 (decided on 02.05.2012)].
13
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”.”
19. We have been informed that the Arbitration and Conciliation
(Amendment) Bill of 2018, being Bill No.100 of 2018, contains an amendment
to Section 34(2)(a) of the principal Act, which reads as follows:
“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.”6
20. One more recent development in the law of arbitration needs to be
adverted to. After the decision in Fiza Developers (supra), Section 34 was
amended by Act 3 of 2016, by which sub-sections (5) and (6) were added to
the principal Act with effect from 23.10.2015. Section 34(5) and 34(6) reads as
under:
“34. Application for setting aside arbitral award.—
xxx xxx xxx
(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.”
6 Bill No.100 of 2018, THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2018, p. 3.
14
21. In a recent judgment of this Bench in The State of Bihar and Ors. v.
Bihar Rajya Bhumi Vikas Bank Samiti, SLP (Civil) No. 4475 of 2017
(decided on 30.07.2018), this Court, after holding that the period 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
the High Courts of Bombay and Calcutta represents the
correct state of the law. However, we may add that it shall
be the endeavour of every Court in which a Section 34
application is filed, to stick to the time limit of one year from
the date of service of notice to the opposite party by the
applicant, or by the Court, as the case may be. In case the
Court issues notice after the period mentioned in Section
34(3) has elapsed, every Court shall endeavour to dispose
of the Section 34 application within a period of one year
from the date of filing of the said application, similar to
what has been provided in Section 14 of the Commercial
Courts, Commercial Division and Commercial Appellate
Division of High Courts Act, 2015. This will give effect to
the object sought to be achieved by adding Section 13(6)
by the 2015 Amendment Act.
28. We may also add that in cases covered by Section
10 read with Section 14 of the Commercial Courts,
Commercial Division and Commercial Appellate Division of
High Courts Act, 2015, the Commercial Appellate Division
shall endeavour to dispose of appeals filed before it within
six months, as stipulated. Appeals which are not so
covered will also be disposed of as expeditiously as
possible, preferably within one year from the date on which
the appeal is filed……”
22. 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
15
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, 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 (supra). We may hasten to add that if the procedure
followed by the Punjab and Haryana High Court judgment (supra) 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 (supra) 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. However, this
judgment must 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 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. Crossexamination
of persons swearing to the affidavits should not be allowed
unless absolutely necessary, as the truth will emerge on a reading of the
16
affidavits filed by both parties. We, therefore, set aside the judgment of the
Delhi High Court and reinstate that of the learned Additional District Judge
dated 22.09.2016. The appeal is accordingly allowed with no order as to
costs.
……………………………..J.
(R.F. Nariman)
……………………………..J.
(Indu Malhotra)
New Delhi;
August 20, 2018.
17
ITEM No. 1501 Court No. 9 SECTION XIV
(For Judgment)
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No. of 2018
(Arising out of SLP (Civil) No. 33248 of 2017)
M/S. EMKAY GLOBAL FINANCIAL SERVICES LTD. Appellant(s)
VERSUS
GIRDHAR SONDHI Respondent(s)
Date : 20.08.2018 This matter was called on for pronouncement of
judgment today.
For Appellant(s) Mr. Divyakant Lahoti, Adv.
Mr. Parikshit Ahuja, Adv.
For Respondent(s) Mr. Arup Banerjee, Adv.
Hon'ble Mr. Justice Rohinton Fali Nariman
pronounced the judgment of the Bench comprising His
Lordship and Hon'ble Ms. Justice Indu Malhotra.
Leave granted
The appeal is allowed in terms of the signed
reportable judgment.
Pending applications, if any, shall stand disposed
of.
(Shashi Sareen)
ARcumPS
(Saroj Kumari Gaur)
Branch Officer
(Signed reportable judgment is placed on the file)
