1

Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  5139   OF 2009 (Arising out of SLP(C) No.16281 of 2009)

Fiza Developers & Inter-Trade P. Ltd.   ……. Appellants Vs. AMCI(I) Pvt. Ltd. & Anr.  .… Respondents  

O R D E R

R.V. Raveendran, J.

The  respondent  has  entered  appearance  through  caveat.  Leave granted.  Heard the learned counsel.

2. Certain  disputes  between  respondent  and  appellant  were  referred  to  arbitration.  The  Arbitrator  made  an  award dated 14.9.2005 directing the appellant to pay to  the  first  respondent,  a  sum  of  Rs.57.6  crores  with  interest.   The  appellant  filed  an  application  under  Section 34 of the Arbitration and Conciliation Act, 1996

2

(in short ‘Act’) before the City Civil Court, Bangalore  for setting aside the said award.  The respondent filed  its  written  statement,  resisting  the  claim.   The  appellant made an application under Order XIV Rule 1 and  3 of Code of Civil Procedure (‘Code’ for short) read with  Rule  4(b)  of  the  High  Court  of  Karnataka  Arbitration  (Proceedings before the Courts) Rules, 2001 (‘Rule’ for  short)  requesting  the  Court  to  frame  issues  in  the  matter. The civil court rejected the application by an  Order dated 12.9.2006.  

3. The petitioner’s Writ Petition challenging the said  order  was  dismissed  on  12.9.2008.  The  learned  Single  Judge was of the view that applications under section 34  were  not  necessarily  in  the  nature  of  a  adversarial  proceeding where a dispute between two parties requires  adjudication  by  the  court;  that  there  is  a  legal  presumption in favour of the award being valid; and that  whether the opposite party joins issue or not, the person  challenging the award has to make out one of the grounds  enumerated under section 34(2) of the Act. Therefore, he  held that there is no need for the court to frame issues,  as is done in a civil suit. The writ appeal filed by the  petitioner was dismissed by the impugned order, affirming  the  decision  of  the  learned  Single  Judge.  Feeling

3

aggrieved, the appellant has filed this appeal by special  leave.

4. Sri  P.P.  Rao,  learned  Senior  Counsel  for  the  appellant,  submitted  that  section  34(2)  of  the  Act  requires the party making the application to prove the  existence of one of the grounds enumerated therein, to  set aside an award. He contended that if the respondent  filed  a  written  statement  contesting  the  application  under section 34 of the Act, the court will have to frame  issues  to  focus  the  attention  of  the  parties  on  the  specific questions in controversy requiring adjudication,  so that evidence can be led by the parties with reference  to  the  issues.  He  submitted  that  unless  issues  were  framed, the evidence led by parties would not be precise  and to the point, but lengthy and meandering. He also  contended  that  Rule  4(b)  of  the  Rules  requires  an  application under section 34 of the Act, to be dealt with  and decided as a suit under the Code of Civil Procedure,  and therefore it is obligatory for the court to frame  issues in proceedings under section 34 of the Act.   5. On  the  other  hand,  Sri  P.  Vishwanatha  Shetty,  learned  counsel  for  the  respondents,  contended  that  having regad to the scheme of the Act, and the need to

4

dispose of the applications under Section 34 of the Act  expeditiously, such proceedings are clearly intended to  be  summary  in  nature,   and  therefore  issues  were  not  required to be framed.  

6. The question that therefore arises for consideration  is whether ‘issues’ as contemplated under Order 14 Rule 1  CPC should be framed in applications under section 34 of  the Act.  

Need for framing issues

7. The object of issues is to focus upon the questions  on which evidence has to be led and to indicate the party  on whom the burden of proof lies. Rules 1 of Order 14 of  the  Code  dealing  with  framing  of  issues  is  extracted  below:

“1. Framing of issues – (1) Issues arise when a  material proposition of fact or law is affirmed by  the one party and denied by the other. (2) Material propositions  are those  propositions  of law or fact which a plaintiff must allege in  order to show a right to sue or a defendant must  allege in order to constitute his defence. (3) Each  material  proposition  affirmed  by  one  party  and  denied  by  the  other  shall  form  the  subject of a distinct issue. (4) Issues are of two kinds - (a) issues of fact,  and (b) issues of law.

5

(5) At the first hearing of the suit, the Court  shall,  after  reading  the  plaint  and  the  written  statements,  if  any,  and  after  examination  under  Rule 2 of Order X and after hearing the parties or  their  pleaders,  ascertain  upon  what  material  propositions of fact or of law the parties are at  variance, and shall thereupon proceed to frame and  record the issues on which the right decision of  the case appears to depend.  (6) Nothing  in  this  rule  requires  the  Court  to  frame and record issues where the defendant at the  first hearing of the suit makes no defence.”

In Makhan Lal Bangal v. Manas Bhunia [2001 (2) SCC 652],  this Court held that the issues are important as they  determine the scope of a trial by laying down the path  for  the  trial  to  proceed,  free  from  diversions  and  departures. This Court observed:  

“The evidence shall be confined to issues and the  pleadings. No evidence on controversies not covered  by  issues  and  the  pleadings,  shall  normally  be  admitted, for each party leads evidence in support  of issues the burden of proving which lies on him.  The object of an issue is to tie down the evidence  and arguments and decision to a particular question  so that there may be no doubt on what the dispute  is. The judgment, then proceeding issue-wise would  be  able  to  tell  precisely  how  the  dispute  was  decided.”

There is no doubt that framing of issues is necessary in  every contested regular civil suit. Equally clear is the  position that in proceedings which are intended to be  summary in nature, issues are not framed. Proceedings for  setting  aside  ex  parte decrees,  proceedings  for

6

restitution,  proceedings  for  execution  and  proceedings  for  permission  to  sue  as  an  indigent  person,  are  illustrative of summary proceedings which are governed by  the  Code,  where  issues  are  not  framed.  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 necessary.  We hasten to add that when it is said issues are not  necessary,  it  does  not  mean  that  evidence  is  not  necessary.

Scope of proceedings under section 34 of the Act

8. Section 34 of the Act deals with applications for  setting aside arbitral awards. Sub-section (1) provides  that 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  (3).  Relevant  portion of sub-section (2) of Section 34 is extracted  below:  

7

“(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  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 decision 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  (b) the Court finds that - (i) the  subject  matter  of  the  dispute  is  not  capable of settlement by arbitration under the law  for the time being in force, or  (ii) the  arbitral  award  is  in  conflict  with  the  public policy of India. Explanation : xxxxxx

8

Sub-section (3) makes it clear that an application for  setting  aside  the  award  has  to  be  made  within  three  months (extendable by not more than thirty days).  

9. 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. 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.  Section 34 of the Act makes it clear than an Arbitral  award can be set aside on the grounds enumerated in sub- section (2) of section 34 and on no other ground. Sub- section (3) of Section 34 provides that an application  for setting aside may not be made after three months and  the maximum delay that can be condoned is    only 30  days. In other words, the maximum period for challenging  an award is three months plus 30 days, even if there is  sufficient  cause  for  condonation  of  a  longer  period  delay.  Section  36  provides  that  an  award  shall  be

9

enforced in the same manner as if it were a decree of the  court, but only on the expiry of the time for making an  application to set aside the arbitral award under section  34, or such application having been made, only after it  has  been  refused.  Thus,  until  the  disposal  of  the  application  under  Section  34  of  the  Act,  there  is  an  implied prohibition of enforcement of the arbitral award.  The  very  filing  and  pendency  of  an  application  under  Section  34,  in  effect,  operates  as  a  stay  of  the  enforcement of the award.  

10. 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.  

11. The  scope  of  enquiry  in  a  proceeding  under  section 34 is restricted to consideration whether any one  of the grounds mentioned in sub-section (2) of Section 34  exists for setting aside the award. We may approvingly  extract the analysis relating to ‘Grounds of Challenge’  from the  Law & Practice of Arbitration and Conciliation

1 0

by  Shri  O.  P.  Malhotra  [First  Edition,  Page  768,  Para  (I) 34-14]:  

“Section 5 regulates court intervention in arbitral  process.  It  provides  that  notwithstanding  anything  contained in any other law for the time being in  force in India, in matters governed by Part I of this  Act, the court will not intervene except where so  provided  in  this  Part.  Pursuant  to  this  policy,  section 34 imposes certain restrictions on the right  of  the  court  to  set  aside  an  arbitral  award.  It  provides, in all, seven grounds for setting aside an  award. In other words, an arbitral award can be set  aside only if one or more of these seven grounds  exists. The first five grounds have been set forth in  section 34(2)(a). In order to successfully invoke any  of these grounds, a party has to plead and prove the  existence of one or more of such grounds. That is to  say, the party challenging the award has to discharge  the burden of poof by adducing sufficient credible  evidence to show the existence of any one of such  grounds.  The rest two grounds are contained in      section  34(2)(b)  which  provides  that  an  award  may  be  set  aside  by  the  court  on  its  own  initiative  if  the  subject matter of the dispute is not arbitrable or  the impugned award is in conflict with the public  policy of India.”  

The grounds for setting aside the award are specific.  Therefore  necessarily  a  petitioner  who  files  an  application will have to plead the facts necessary to  make out the ingredients of any of the grounds mentioned  in sub-section (2) and prove the same. Therefore, the  only  question  that  arises  in  an  application  under  section 34 of the Act is whether the award requires to be  set  aside  on  any  of  the  specified  grounds  in  sub-  section (2) thereof. Sub-section (2) also clearly places

1 1

the  burden  of  proof  on  the  person  who  makes  the  application.  Therefore,  the  question  arising  for  adjudication as also the person on whom the burden of  proof is placed is statutorily specified.  Therefore, the  need  for  issues  is  obviated.  Framing  of  issues  is  necessary  only  where  different  types  of  material  propositions of fact or law are affirmed by one party and  are denied by the other and it is therefore necessary for  the court to identify the issues and specify the party on  whom  the  burden  to  prove  the  same  lies.  When  this  exercise has already been done by the statute, there is  no  need  for  framing  the  issues.  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.

What is the effect of Rule 4(b) of the Karnataka Rules ?

12. We may now examine whether rule 4(b) of the rules  framed by the High Court of Karnataka require framing of  issues.  Rule 4 relied on by the appellant deals with

1 2

“contents  of  application”  and  clause  (b)  which  is  relevant is extracted below:

“(b) Application under section 14 or section 34  shall be registered as an arbitration suit, the  applicant being treated as the plaintiff and the  parties to the award other than  the  applicant  being  treated  as defendants and the proceedings  thereafter shall be continued as in the case of a  suit  and  all  the  provisions  of  the  Civil  Procedure  Code,  1908,  shall  apply  to  such  proceeding  insofar  as  they  could  be  made  applicable.”

It  is  no  doubt  true  that  the  rule  require  that  an  application under Section 34 should be registered as an  ‘arbitration  suit’  and  that  the  proceedings  shall  be  conducted as in the case of a suit and all provisions of  Civil Procedure Code which apply to such proceedings  in  so far as they could be made applicable.   Rule 4 will  have to read with Rule 12 which deals with “Applicability  of the Civil Procedure Code, 1908”. It reads as under:  

“Subject  to  what  is  provided  for  in  the  Arbitration and Conciliation Act and these Rules,  the provisions of the Code of Civil Procedure and  Karnataka Civil Rules of Practice may be applied  to the proceedings under the Act to the extent  considered necessary or appropriated by the court  of Judicial Authority.”

Rule 12 makes it clear that the provisions of Code will  be applicable only to the extent considered necessary or  appropriate by the court. Thus there is no wholesale or  automatic import of all the provisions of the Code, into

1 3

proceedings under section 34 of the Act, as that will  defeat the very purpose and object of the Act. As already  noticed, the Code deals with and makes provisions for  regular  civil  suits  as  well  as  summary  suits  and  proceedings.  Therefore,  rule  4(b)  cannot  be  read  or  understood  as  making  applicable  all  provisions  of  the  Code, which apply to regular civil suits, to proceedings  under section 34. The Rules were made to give effect to  the provisions of the Act and should be understood in  consonance with the specific provisions and the object of  the Act.  

Conclusions:

13. Before concluding, there is a need to clarify the  observation by the High Court that a proceeding under  section  34  may  not  be  in  the  nature  of  adversarial  proceedings. In an adversarial process, each party to a  dispute  presents  its  case  to  the  neutral  adjudicator  seeking to demonstrate the correctness of his own case  and the wrongness of the other. [See : P.Ramanatha Iyer’s  Advanced Law Lexicon, Third Edition, Vol.I, Page 152].  

While an applicant in an application under section 34 is  interested in getting an order setting aside an award,  his opponent is equally interested in ensuring that it is

1 4

not set aside, but upheld. While an applicant presents  his case to the Judge to prove that the award is liable  to be set aside, the respondent puts forth his case to  refute  the  claim  of  the  applicant  that  the  award  is  liable to be set aside. An application under section 34  in that sense is adversarial in nature. But proceedings  under section 34 differ from regular civil suits in a  significant aspect. In a regular civil suit, in the event  of failure to file a defence, it will be lawful for the  court to pronounce the judgment on the basis of facts  contained in the plaint [Vide Order VIII Rule 5(2) of the  Code]. But in an application under section 34, even if  there is no contest, the court cannot on the basis of the  averments  contained  in  the  application,  set  aside  the  award. Whether there is contest or not, the applicant has  to prove one of the grounds set out in section 34(2)(a)  and (b). Even if the applicant does not rely upon the  grounds  under  clause  (b),  the  Court,  on  its  own  initiative, may examine the award to find out whether it  is liable to be set aside on either of the two grounds  mentioned  in  section  34(2)(b).  It  is  perhaps  in  this  sense, the High Court has stated that the proceedings may  not be adversarial. Be that as it may.   

1 5

14. Having  regard  to  the  object  of  the  Act,  that  is  providing  an  expeditious  alternative  binding  dispute  resolution process with minimal court intervention, it is  difficult to envisage proceedings under section 34 of the  Act as full-fledged regular civil suits under Code of  Civil Procedure. Applications under section 34 of the Act  are summary proceedings with provision for objections by  the defendant/respondent, 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 defendant/respondent to place  his evidence by affidavit. Where the case so warrants,  the  court  permits  cross-examination  of  the  persons  swearing  to  the  affidavit.  Thereafter,  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.  

1 6

15. We therefore find no reason to interfere with the  impugned  order  of  the  High  Court.  The  appeal  is  dismissed. As the award is of the year 2005, we request  the  City  Civil  Court  to  dispose  of  the  application  expeditiously.

_____________________J (R. V. Raveendran)

____________________J (B. Sudershan Reddy)

New Delhi;       July 27, 2009.