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M/S. Canara Nidhi Limited v. M. Shashikala & Ors.

Civil Appeal · 2019 INSC 1068Decided 23 Sept 2019
Civil Appeal Nos. 7544-7545 of 2019
Justice R. Banumathi · Justice A.S. Bopanna

Background

A financial institution had obtained an arbitral award directing a borrower and guarantors to repay a loan with interest. The borrowers challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 and sought permission to lead fresh oral evidence and cross-examine witnesses to prove their grounds for setting aside the award. The District Judge refused this request, holding the existing arbitration record was sufficient, but the High Court reversed this and directed the District Judge to "recast the issues" and allow fresh affidavits and cross-examination. The lender appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that proceedings under Section 34 are summary in nature and, per its own binding precedent in Fiza Developers and the later ruling in Emkay Global, ordinarily should be decided only on the record that was already before the arbitrator, with no need to frame issues or conduct a mini-trial; fresh affidavits should be allowed only in exceptional cases, and cross-examination almost never. Since the borrowers' affidavit had not specified what new evidence they actually wanted to lead or why, and both sides had already had a full opportunity to present evidence before the arbitrator, the Court found no exceptional circumstance justifying a retrial. It set aside the High Court's order, restored the District Judge's refusal to allow fresh evidence, and directed the District Judge to dispose of the Section 34 challenge expeditiously on the existing record.

Lesson Learnt

A court asked to set aside an arbitration award cannot be turned into a fresh trial: parties are generally limited to the record that was already before the arbitrator, and courts should allow new evidence or cross-examination only in genuinely exceptional, specifically justified circumstances.

Official source (sci.gov.in)View Judgment (PDF)

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