Arbitration Award Challenge: Supreme Court Allows Additional Evidence in Section 34 Proceedings

The Supreme Court of India recently delivered a significant judgment in the case of M/s Alpine Housing Development Corporation Pvt. Ltd. vs. Ashok S. Dhariwal and Others. This case addresses the scope of judicial review in arbitration proceedings and whether a party challenging an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, can adduce additional evidence. The judgment clarifies the applicability of the pre-2019 amendment to Section 34 and the conditions under which evidence beyond the arbitral tribunal’s record may be considered.

Background of the Case

The dispute arose from an arbitration award dated March 12, 1998, which was an ex-parte award. The respondents challenged this award under Section 34 of the Arbitration Act but had not presented any evidence during the arbitration proceedings. They later filed an application to introduce additional evidence, which the trial court rejected. However, the Karnataka High Court reversed this decision, permitting the respondents to adduce evidence.

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Feeling aggrieved, M/s Alpine Housing Development Corporation Pvt. Ltd., the party in whose favor the arbitral award was passed, appealed before the Supreme Court.

Arguments by the Appellant

• The appellant contended that the 2019 amendment to Section 34(2)(a) replaced the phrase “furnish proof” with “establish on the basis of the record of the arbitral tribunal.”
• This amendment limited the scope of judicial review, restricting courts from considering any evidence beyond the arbitral record.
• Allowing additional evidence would defeat the purpose of speedy resolution, which is a key objective of arbitration.
• The High Court erred by permitting the respondents to introduce fresh evidence, thereby prolonging the dispute.

Arguments by the Respondents

• The respondents argued that the arbitration commenced under the Arbitration Act, 1940, but was later conducted under the Arbitration and Conciliation Act, 1996, without their consent.
• Since the award was passed before the 2019 amendment, the unamended Section 34(2)(a), which used the phrase “furnish proof,” should apply.
• They had challenged the arbitration process from the beginning and had not participated due to concerns over bias and procedural irregularities.
• They sought to introduce evidence proving that the arbitration award was unenforceable due to subsequent developments, such as the municipal corporation’s refusal to grant necessary approvals.

Supreme Court’s Observations

• “The amendment of Section 34(2)(a) by Act 33/2019 substantially changes the scope of judicial review in arbitration matters.”
• “Since the arbitration proceedings commenced before the amendment, the pre-2019 version of Section 34(2)(a), which allowed furnishing of proof, shall apply.”
• “An application under Section 34 is a summary proceeding. However, if exceptional circumstances exist, courts may allow limited additional evidence.”
• “The refusal of municipal authorities to approve the project due to regulatory changes occurred after the arbitral award. This fact could not have been before the arbitral tribunal and, therefore, merits consideration.”
• “The purpose of the 2019 amendment was to restrict challenges to arbitral awards and ensure that reviews are limited to the arbitral record. However, in cases predating the amendment, procedural fairness demands some flexibility.”

Final Judgment

• The Supreme Court dismissed the appeal, affirming the High Court’s decision to allow additional evidence.
• The Court clarified that while arbitration is meant to be a speedy process, courts should not overlook procedural fairness.
• The appellant was also permitted to present contrary evidence, including proof that authorities had later agreed to consider the requested approvals.
• The lower court was directed to expedite the Section 34 proceedings and ensure prompt resolution.

Legal Precedents Considered

• Fiza Developers vs. AMCI (India) Pvt. Ltd. (2009): Affirmed that evidence beyond the arbitral record is generally not required in Section 34 proceedings.
• Emkay Global Financial Services Ltd. vs. Girdhar Sondhi (2018): Clarified that additional evidence should only be allowed in exceptional cases.
• Canara Nidhi Ltd. vs. M. Shashikala (2019): Held that courts should avoid prolonging arbitration challenges but may permit evidence in rare situations.
• Gemini Bay Transcription Pvt. Ltd. vs. Integrated Sales Service Ltd. (2022): Reinforced that arbitral award challenges must be based on the arbitral record, except in exceptional cases.

Implications of the Judgment

• The ruling reaffirms that the pre-2019 amendment version of Section 34(2)(a) applies to arbitration proceedings initiated before the amendment.
• It establishes that courts may consider additional evidence in arbitration challenges if a strong justification is provided.
• The judgment balances the need for speedy resolution in arbitration with the principles of procedural fairness.
• It sets a precedent for similar cases where post-award developments impact the enforceability of arbitral awards.

Conclusion

The Supreme Court’s decision in this case provides clarity on the evolving role of judicial intervention in arbitration matters. While it upholds the principle that arbitration should be free from excessive court interference, it also recognizes the need for procedural fairness, particularly in cases where new evidence arises after an arbitral award. The judgment serves as an important precedent for future arbitration-related disputes, ensuring that justice is not compromised in the pursuit of efficiency.

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Petitioner Name: M/s Alpine Housing Development Corporation Pvt. Ltd..
Respondent Name: Ashok S. Dhariwal and Others.
Judgment By: Justice M.R. Shah, Justice C.T. Ravikumar.
Place Of Incident: Bengaluru, Karnataka.
Judgment Date: 19-01-2023.

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