PRO-ARBITRATION POLICY IN M/S EMKAY GLOBAL FINANCIAL SERVICES LTD. V. GIRDHAR SONDHI

This piece has been authored by Amrit Singh, a third-year student at Institute of Law, Nirma University.

Recently, the Supreme Court of India ruled in the case of M/S Emkay Global Financial Services Ltd. v. Girdhar Sondhi[i] that, at the stage of a challenge to an arbitral award, only the tribunal’s record has to be considered for determining the grounds of challenge. However, if there are certain matters, that are not present in the record and are relevant for determining the challenge under Section 34(2)(a) of the Arbitration and Conciliation Act, 1996, affidavits can be filed by both the parties. Moreover, the courts should allow cross examination only as a last resort, which means, in those cases only where it is ‘absolutely necessary’. In addition to this, the Supreme Court also clarified that the expression ‘seat’ of an arbitration is similar to an exclusive jurisdiction clause.

To set the context, Section 34(2)(a) of the Act provides for the grounds that a party making an application must prove before a court, in order to set aside an arbitral award.

In the above case, there were two major issues that had to be decided by the Supreme Court of India. First, whether the courts of Delhi or Mumbai had the exclusive jurisdiction to deal with the matter Second, whether at the time of making an application to the Court for setting aside the arbitral award, there is a requirement under the provisions of Section 34 of the Arbitration and Conciliation Act, 1996 to lead oral evidence.

The dispute was basically between two parties regarding certain transactions in shares and securities, wherein a broker registered with the National Stock Exchange was the appellant and the respondent was his client. Since the dispute arose, the respondent filed a claim before the arbitral tribunal for a sum of Rs. 7,36,620/- , the same was however rejected by the sole arbitrator.

Aggrieved by the said award, the respondent challenged the same before the District Court, Delhi. The learned Additional District Judge rejected the application made under Section 34 of the Arbitration Act, 1996 on the ground that, clause 12 of the arbitration agreement specifically mentions that the courts in Mumbai have the exclusive jurisdiction.

On an appeal to the High Court, the learned Single Judge of the Delhi High Court held that, since the disputed question of fact was decided without providing parties with an opportunity to lead evidence therefore it would be necessary that the disputed issue regarding territorial jurisdiction of the courts at Delhi be decided only after the issues are framed and the parties have led evidence.

The counsel for the appellant relied on the judgment laid down in the case of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors.,[ii] wherein it was held that, once the a seat is chosen by the parties, subsequently it reflects the nature of an exclusive jurisdiction clause. In this particular case, the seat of arbitration was Mumbai and hence it was held that the courts of Mumbai would only have the exclusive jurisdiction to deal with the matter.

The counsel also brought the attention of the Court to Section 34 of the Arbitration and Conciliation Act, 1996 wherein Section 34(2)(a) reads as follows:

“The party making the application furnishes proof that-..”.

Now according to the counsel, the expression “furnishes proof” would only mean that the proof should be by way of affidavit of facts not already contained in the record of proceedings before the arbitrator. However, the respondent contended that as the seat of arbitration was Delhi, the courts at Delhi would have the jurisdiction to entertain the matter, despite the fact that the arbitration agreement vested jurisdiction in the courts at Mumbai only.

The Supreme Court chose to rely on the judgment laid down in the case of Indus Mobile Distribution Pvt. Ltd. and held that the arbitration agreement vested jurisdiction in the Mumbai courts alone. It was also stated by the Court that Delhi was only the venue of arbitral proceedings and this could be inferred from the National Stock Exchange bye-laws.

Moreover, in the case of Atlas Power v National Transmission,[iii] the major dispute was related to the seat of the arbitration. Mr. Justice Phillips held that the seat of arbitration was London, by considering that numerous authorities establish that the courts of the jurisdiction, England & Wales, regard the choice of seat of an arbitration as akin to an exclusive jurisdiction clause.[iv]

The Supreme Court of India then went ahead to decide the second issue which was related to remanding of the matter for a full hearing. The Delhi High Court in the matter of Sandeep Kumar v. Dr. Ashok Hans[v], held that the parties need not lead evidence because in order to determine as to whether the grounds under Section 34 were fulfilled or not, the arbitrator’s record was held to be sufficient.

The Supreme Court also heavily relied on the judgment laid down in the matter of Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr.[vi]. In this case, the Supreme Court had to decide on the question whether issues as contemplated under Order XIV Rule I of the Code of Civil Procedure, 1908 should be framed in proceedings initiated under Section 34 of the Arbitration and Conciliation Act, 1996. Hence, several important points were discussed by the Hon’ble Supreme Court.

The Court had analysed the main objectives of the Arbitration Act, 1996 which were to limit the interference of the courts in matters related to arbitration and also to dispose the matter quickly. It also stated that the award could be set-aside only on the grounds mentioned under Section 34(2) of the Act. Further, the proceedings that are carried out under Section 34 have to be carried out expeditiously. The Court had thus held that an application under Section 34 is a summary proceeding and framing of issues is not necessary.

In addition to this, the Court also looked at the recommendations of Justice B.N. Srikrishna Committee wherein it was specifically stated that an amendment has to 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”.[vii]

The Court therefore followed the judgment laid down in the case of Fiza Developers & Inter-Trade Pvt. Ltd.and held that the judgment must be read in conjunction with Sections 34(5) and 34(6). Hence, the Supreme Court held that the record of the arbitrator would suffice when an application for setting aside an arbitral award is made. However, it also held that only in exceptional circumstances, if there are matters not contained in such record, cross-examination of persons swearing to the affidavits should be allowed as the truth can also emerge on a reading of the affidavits filed by both parties.

It is to pertinent to highlight that in the case of AQZ v. ARA,[viii] it was held that it is likely that in most cases, the court will have before it material such as the official transcripts and the documents the parties relied on at the arbitration.[ix] Also, as per Order 28 Rule 4 of the Rules of Court (Singapore), the court may allow oral evidence and/or cross-examination when it considers that there may is or may be a dispute as to fact and that to do so would secure the “just, expeditious and economic” disposal of the application.[x] Therefore, it was stated that the Court ought to be aware of the fact that the witnesses would have already been examined once before the arbitral tribunal and hence, the Court can rely on the evidence that was presented before the tribunal.

In this regard, the Singapore Court’s approach, in the case of AQZ, strikes a calibrated balance between acceptable judicial oversight of the international arbitral process on one hand, and the interests of party autonomy and an efficient and flexible dispute resolution process on the other.[xi]

The Supreme Court of India has arrived at an apposite conclusion by pointing out that no party would be allowed to make depositions, lead evidence, or cross examine, as this was not the intention of the drafters of the Arbitration and Conciliation Act, 1996. It is notable that the objective of Arbitration Act is to curtail judicial intervention and ensure quick disposal of cases. Therefore, if a re-trial is allowed at the stage of challenge of an award, then it would harm the purpose and object of the Arbitration Act.

Also, the Supreme Court has rightly held that the furnishing of new evidence and framing of new issues would not be allowed under ordinary circumstances, which means that only if there are certain matters which were not presented before the arbitrator, and are relevant to the determination of issues arising under Section 34(2)(a) of the Arbitration Act, they may be brought to the notice of the Court by the way of filing affidavits. All of this would ultimately result in less time-consumption as this case has brought lucidity by disallowing a trial at the time of challenge of an award under Section 34 of the Arbitration Act.

This judgment is extremely crucial in the current scenario as this would ensure speedy disposal of matters referred to arbitration and would also prevent the interference of courts. Moreover, a trial is essentially not required at the stage of challenge of an award as it then increases the time that is usually taken in order to decide the challenge. Therefore, the Supreme Court has indeed issued a landmark ruling which would further enhance and support the pro-arbitration regime in India.

Responsibility for the information and views set out in this Article lies entirely with the authors. Reproduction is authorised provided the source is duly acknowledged.

[i] M/S Emkay Global Financial Services Ltd. v. Girdhar Sondhi, (2018) 9 SCC 49.

[ii] Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd., (2017) 7 SCC 678.

[iii] Atlas Power v National Transmission [2018] EWHC 1052 (Comm).

[iv] David Hesse, The Seat of Arbitration is Important. It’s That Simple, Kluwer Arbitration Blog (June 10, 2018), http://arbitrationblog.kluwerarbitration.com/2018/06/10/seat-arbitration-important-simple/.

[v] Sandeep Kumar v. Dr. Ashok Hans, 3 Arb LR 306 (2004).

[vi] Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd., AIR 2009 SC 2398.

[vii] Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India (30 July 2017), available at http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.

[viii] AQZ v ARA (2015) SGHC 49.

[ix] Debby Lim, AQZ v ARA (2015) SGHC 49: how the court’s power to hear questions of jurisdiction de novo is exercised, Lexology (May 18, 2015), https://www.lexology.com/library/detail.aspx?g=1ad6e647-7ca1-4c71-a662-37a598b4d3ae.

[x] Darius Chan, The scope of ‘de novo’ review of an arbitral tribunal’s jurisdiction, Singapore Law Blog (October 8, 2015), http://www.singaporelawblog.sg/blog/article/140.

[xi] See id.