FIZA DEVELOPERS & INTER-TRADE P. LTD.versusAMCI (I) PVT. LTD. & ANR.

                           [2009] 12 S.C.R. 1


            FIZA DEVELOPERS & INTER-TRADE P. LTD.                     A
                                    v.
                      AMCI (I) PVT. LTD. & ANR.
                    (Civil Appeal No. 5139 of 2009)
                             JULY 27, 2009
                                                                       8
             [R.V. RAVEENDRAN AND 8. SUDERSHAN
                          REDDY, JJ.]

          ARBITRATION AND CONCILIATION ACT, 1996:
                                                                      c
           s. 34(2) - Application for setting aside an award -
      Framing of issues - HELD: Framing of issues as
      contemplated under Or. 14, r. 1 CPC is not an integral part of
      the process of proceedings u/s 34 of the Act - Having regard
      to the object of the Act in providing an expeditious alternative D
      binding dispute resolution process with minimal court
.,.   intervention, proceedings u/s 34 are summary in nature and
      are not envisaged as full-fledged regular suits under CPC -
      An application uls 34 has to be considered, bearing three
      factors in mind (i) that the Act is a special enactment and s.34
      provides for a special remedy; (ii) that an arbitration award can E
      be set aside only if one of thtJ grounds mentioned in sub-s.
      (2) of s.34 .exists; and (iii) that proceedings u/s 34 require to
~     be dealt with expeditiously - Burden of proof is on the pe~on
      who makes the application - Therefore, the question arising
      for adjudication as also the person on whom the burden of F
      proof is placed are statutorily specified - Framing of issues
      is necessary only where different types of material proposition
      of fact or law are affirmed by one party and denied by the other
      and it is, therefore, necessary for court to identify the issues
      and specify the party on whom the burden to prove the same G
;k    lies - When this exercise has already been done by the
      statute, there is no need to frame the issues - An application
      uls 34 of the Act is a single issue proceeding, where the very
      fact that the application has been instituted under the·
                                        1                               H
    2        SUPREME COURT REPORTS               [2009] 12 S.C.R.


A 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 an application
  uls 34 of the Act - Code of Civil Procedure, 1908 - Or. 14,
  r. 1 - High Court of Karnataka Arbitration (Proceedings before
B the Courts) Rules, 2001 - r.4(b) r/w r.12.

        s. 34 - Proceedings under - Nature of - Adverscirial or
    otherwise - Explained.

       Law & Practice of Arbitration and Conciliation by O.P.
C Malhotra, First Edition, Page 768; and Advanced Law Lexicon
  by P. Ramanatha Iyer, Third Edition, Vol. I, Page 152 -
  referred to.

     HIGH COURT OF KARNATAKA ARBITRATION
D (PROCEEDINGS BEFORE THE COURTS) RULES, 2001:
       r. 4(b) rlw r12 - Proceedings under - Nature of - Though
  r.4(b) requires an application u/s 34 of 1996 Act to be
  registered as an arbitration suit attracting provisions of CPC,
  r.4 has to be read with r.12 which makes it clear that provisions
E of CPC will be applicable only to the extent considered
  necessary - Rules were made to give effect to the provisions
  of the Act and should be understood in consonance with
  specific provisions and object of the Act - Arbitration and
  Conciliation Act, 1996 - s. 34(2) - Code of Civil Procedure,
F 1908 - Or. 14, r.1.

        CODE OF CIVIL PROCEDURE, 1908:

         Or. 14, r. 1 - Framing of issues - HELD: The object of
  issues is to focus upon the questions on which evidence has
G to be led and to indicate the party on whom burden of proof
  lies - Framing of issues is necessary in every contested            .J.
  regular civil suit - But in proceedings which are intended to
  be summary in nature, issues are not framed - However, when
  it is said that issues are not necessary, it does not mean that
H
         FIZA DEVE~OP~R$ &. INTER·TRADE P. LTD. v.                     3
                  AM01 0) PVT. LTD. & ANR.
     evidence is not necessary - Arbitration and Conciliation Act,          A
     1996 - s.34.

          Makhan Lal Bangal V. Manas Bhunia 2001 (2) sec 652,
     relied on,.

                             Case Law Reference:                            B

          2001 (a) sec ss2            relied on              para 7

          CIVIL AP PELLATE JURISDICTION : Civil Appeal No.5139
-1   of 2009.
                                                                            c
         From the Judgment & Order dated 27.2.2009 of the High
     Court of Karnataka at Bangalore in Writ Appeal No. 1681 of
     2008.

         P.P. Rao, C. Paramasivam, P. Ramesh, R. Aneeshan,                  D
     Rakesh K. Sharma for the Appellants.

          P.V. Shetty, G.N. Reddy, Vijay Kumar for the Respondents.

          The Order of the Court was delivered by
                                                                            E
                                     ORDER

         R.V. RAVEENDRAN, J. 1. The respondent has entered
     appearance through caveat. Leave granted. Heard the learned
~    counsel.
                                                                            F
           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           G
     Conciliation Act, 1996 (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          H
    4        SUPREME COURT REPORTS                [2009] 12 S.C.R.


A 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
B
  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
c valid; and that whether the opposite party joins issue or not, the
  person challenging the award has to make out one of the
  gr~unds 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
D dismissed by the impugned order, affirming the decision of the
  learned Single Judge. Feeling aggrieved, the appellant has filed
  this appeal by special leave.                                          .J


       4. Sri P.P. Rao, learned Senior Counsel for the appellant,
E 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
                                                                          '
F 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
G
  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.
H       5. On the other hand, Sri P. Vishwanatha Shetty, learned
          • ·-
      q-           FIZA DEVELOP~S & INTER-TRADE P. LTD. v.                       5
                  AMCI (I) PVT. LTD. '& ANR. [R.V. RAVEENDRAN, J.]

                 counsel for the respondents, contended that having regard to         A
                 the scheme of the Act, and the need to 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.
                                                                                      B
                     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
                                                                                      c
                      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         D
                     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   E
                     sue or a defe"ndant 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
                                                                                      F
                     issue.

                     (4) Issues are of two kinds - (a) issues of fact, and (b)
                     issues of law.
..4


                     (5) At the first hearing of the suit, the Court shall, after     G
                     reading the plaint and the written statements, if any, and
      y              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
                                                                                      H
     6         SUPREME COURT REPORTS                   [2009] 12 S.C.R.


 A        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."
 B
         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
 C 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
 D        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
 E
          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
 F nature, issues are not framed. Proceedings for setting aside
    ex parte decrees, proceedings for 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
 H proceedings is not necessary. We hasten to add that when it
              FIZA DEVELOPERS & INTER-TRADE P. LTD. v.                         7
             AMCI (I) PVT. LTD. & ANR. [R.V. RAVEENDRAN, J.]
            is said issues are not necessary, it does not mean that                A
,      -'   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          B
            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:
                                                                                   c
                "(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                          D

                (ii) the arbitration agreement is not valid under the law to
-       ~
                which the parties have subjected it or, failing any indicatic~in
                thereon, under the law for the time being in force; or

                (iii) the party making the application was not given proper        E
                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      F
                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
                                                                                   G
                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       H
    8        SUPREME COURT REPORTS                   [2009] 12 S.C.R.


A        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

B
         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
c
         (ii) the arbitral award is in conflict with the public policy of
         India.

         Explanation : xxxxxx

D         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
E   significant aspects relating to courts vis-a-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
F   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
                                                                                 --
G   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
H   period delay. Section 36 provides that an award shall be
                 FIZA DEVELOPERS & INTER-TRADE P. LTD. v.                      9
                AMCI (I) PVT. LTD. & ANR. [R.V. RAVEENDRAN, J.]

               enforced in the same manner as if it were a decree of the court,     A
.   ..(        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       B
               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   c
               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 .           D

                   . 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 -.E
               relating to 'Grounds of Challenge' from the Law & Practice of
               Arbitration and Conciliation by Shri 0. 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       F
                   other law for the ti[Tie 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
                                                                                    G

          'I
                   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         H
                                                                              ·-
    10       SUPREME COURT REPORTS                 [2009] 12 S.C.R.


A        plead and 1prove the existence of one or more of such
         grounds. That is to say, the party challenging the award has
         to discharge the burden of proof by adducing sufficient
         credible evidence to show the existence of any one of such
         grounds.
B
         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."
c
    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
D   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 the burden of
    proof on the person who makes the application. Therefore, the
E   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      +
F   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

G
    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.

H
    i="IZA DEVELOPERS & INTER-TRADE P. LTD. v.                    11
   AMCI (I) PVT. LTD. & ANR. [R..V. RAVEENDRAN, J.]

  What is the effect of RJ1e 4(b) of the Karnataka Rules ?              A

       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 "contents
  of application" and clause (b) which is relevant is extracted
                                                                        8
  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                    C
       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."
                                                                        D
        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                  E
   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           F
      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."
                                                                        G
     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
 proceedings under section 34 of the Act, as that will defeat the       H
                                                                                 •
    12       SUPREME COURT REPORTS                   [2009] 12 S.C.R.


A 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
B 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:
c
          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
D   to the neutral adjudicator seeking to demonstrate the
    correctness of his own case and the wrongness of th~ other.
    [See : P.Ramanatha /yer's Advanced Law Lexicon, Tbird                    ~
    Edition, Vol.I, Page 152]. While an applicant in an application
    under section 34 is interested in getting an order setting aside
E   an award, his opponent is equally interested in ensuring that it
    is 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
F
    nature. But proceedings under section 34 differ from regular
    civil suits in a significant aspect. In a regular civil suit, in the



G
    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
H
       FIZA DEVELOPERS & INTER-TRADE P. LTD. v.                      13
      AMCI (I) PVT. LTD. & ANR. [R.V. RAVEENDRAN, J.]
     upon the grounds under clause (b), the Court, on its own              A
     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.                                                               B

           14. Having regard to the object of the Act, that is providing
     an expeditious alternative binding dispute resolution process
.J   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         C
     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     D
._   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      E
     Court may vary the said procedure, depending upon the facts
     of any particular case or the local rules. What is however clear
-t   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.                              F

          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.
                                                                           G
     R.P.                               ..         Appeal dismissed.