Annual Arbitration Review 2018

M/s Emkay Global Financial Services ltd. v. Girdhar Sondhi Civil Appeal No. 8367 of 2018

Reading Time: 4 minutes

Judgment: M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi

 

Citation:(2018) 9 SCC 49

 

Court: Supreme Court of India

 

Coram: Rohinton Fali Nariman and Indu Malhota, JJ.

 

Date: August 20, 2018

 

Overview:This case presented two different issues before the Court. Firstly, the court had to decide whether they are permitted to go beyond the records presented before an arbitral tribunal to set aside arbitral awards. The second issue was with respect to the seat of arbitration. As a seat had been designated by the agreement, would it act as an exclusive jurisdiction or the parties could initiate proceedings at any other place. The court held that it was not permissible for the courts to go beyond the record which had been presented before the arbitrator. With regard to the seat, it was held that as an exclusive jurisdiction clause was present in the agreement, the parties could not initiate proceedings anywhere else.

 

Issue: Whether Courts can look beyond the record presented before an arbitral tribunal to set aside arbitral awards or not? Another issue pertained to whether the moment a seat is designated in arbitration, it becomes akin to an exclusive jurisdiction clause or not.

 

Factual background:

 

The dispute arose between M/s Emkay Global Financial Services Ltd. (“Appellant”), who was a registered broker with the National Stock Exchange (“NSE”) and Mr. Girdhar Sondhi (“Respondent”) who was the Appellant’s client. The Respondent had initiated arbitration proceedings against Appellant and claimed an amount of INR 7,36,620 in arbitration.

 

The arbitration proceedings took place under an agreement dated July 3, 2008 and the NSE bye-laws. Under the agreement, exclusive jurisdiction was granted to the courts in Mumbai. Similarly, under the NSE bye-laws, exclusive jurisdiction was also granted to the courts of Mumbai. The bye-laws further prescribed seats of arbitration for different regions, geographical locations for conducting arbitrations etc. NSE referred the present dispute to a sole arbitrator who conducted proceedings at Delhi and passed an award dated December 8, 2009 wherein he rejected the claim of Respondent.

 

Subsequently, the Respondent filed an application to set aside the award under Section 34 of the Arbitration Act before District Court in Delhi. The District Court dismissed the application under Section 34 on the ground that it would not have the jurisdiction in light of the exclusive jurisdiction clause. However, on appeal, the Delhi High Court held that the issue of jurisdiction in the present case was a question of fact and parties were not allowed to lead evidence on it. Accordingly, the High Court directed District Court to decide this question (in relation to existence of territorial jurisdiction of Delhi Courts) after framing a specific issue and permitting parties to lead evidence on it.

 

Analysis:

Against this order, a challenge was raised before the Supreme Court where the court examined the nature of its jurisdiction in a Section 34 challenge to an award. The appellant argued that both the bye laws and the agreement contained an exclusive jurisdiction clause for Mumbai, that a mini trial was impermissible under Section 34 and that the only proof that could be allowed would be in the form of affidavits setting only the new facts that arose before the arbitrator that did not form a part of the record. The Appellant relied on the decision of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors.[1]. The Respondent argued that the seat of arbitration was Delhi and that therefore Delhi courts would have exclusive jurisdiction. The Supreme Court relying on the Indus Mobile decision held that given the exclusive jurisdiction clause, the courts of Mumbai would alone have jurisdiction to hear a Section 34 petition.[2]

 

The next question was as to whether in a Section 34 application, evidence may be led, issues framed and a matter may be decided in the form of a mini trial. In arriving at its decision, the Supreme Court examined a number of decisions of various high courts and in particular its own decision in the case of Fiza Developers & Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr.[3]The case of Fiza Developershad held that a Section 34 challenge is in the nature of a summary proceeding and that although evidence can be led in such matters, no issues are framed. The question before the Supreme Court in the present case was also regarding the nature of a Section 34 petition i.e. whether mini trial is at all permissible at the stage of proceedings under Section 34 of the Act?

 

The Supreme Court also considered the newly proposed amendment to Section 34 in the 2018 Amendments to the Act which aims at substituting the words “furnishes proof that” with “establishes on the basis of the record of the arbitral tribunal that” thereby indicating that the matter is required to proceed on the basis of the documents and evidence on record and that fresh evidence would not be taken at that stage.[4]

 

It had been held by Fiza Developersthat no issue can be framed at Section 34 stage (being a summary procedure) is good law. In view of the amendments to the Act, i.e. Sections 34(5) and 34(6), requiring speedy disposal of Section 34 challenges, the Supreme Court has declared that ordinarily, nothing beyond the arbitral tribunal’s record needs to be looked at, during the Section 34 stage. In rare cases however, when matters are beyond the record of the arbitral tribunal, parties should bring the issues to the Court’s notice by way of affidavits. Cross-examination at the Section 34 stage should not be allowed unless absolutely necessary.

 

Conclusion:

The Emkay case has brought clarity and has virtually obviated a mini trial at the Section 34 stage. This would go a long way in reducing the time taken in deciding challenges to domestic arbitral awards. The case leaves open to the Courts to allow parties to file affidavits in appropriate cases where the grounds cannot be proved from the arbitral tribunal’s record and, if absolutely necessary, cross-examine those who file affidavits. However, it also indicated that after the Proposed Amendments are passed, there may be no room for leading evidence in Section 34 proceedings at all. It is believed that this may raise certain concerns. There may be situations where parties may want to bring on record certain facts which came to light post the arbitral proceedings.

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

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

[3]Fiza Developers & Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr, (2009) 17 SCC 796

 

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

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