Full Opportunity, But Not Forever: Delhi HC Interprets Section 18 Of Arbitration And Conciliation Act, 1996

The Judgment passed by the Delhi High Court's Division Bench in Fortuna Skill Management Pvt. Ltd. v. Jaina Marketing & Associates¹provides a holistic clarification and interpretation of the Section 18 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) which enshrines the principle of “full opportunity to present his case”, by affirming the Arbitral Tribunal's rejection of the Appellant's belated attempt to introduce additional evidence. This judgment underscores the necessity of balancing procedural right under Section 18 of the A&C Act against the fundamental objectives of efficiency and finality inherent in arbitral proceedings.

Facts

The dispute between Fortuna Skill Management Pvt. Ltd. (Appellant) and Jaina Marketing & Associates (Respondent) arose from a commercial relationship centred on after-sales services for electronic equipment. Disputes arose over reconciliation of accounts between the parties, with the Respondent claiming an outstanding amount of Rs. 3,36,01,782/- from the Appellant. The Respondent relied heavily on three declaration letters executed by the Appellant's representatives, acknowledging debts totalling Rs. 8,03,87,690/-. After unsuccessful attempts at amicable settlement, the Respondent invoked Arbitration proceedings.

During arbitral proceedings, both parties filed their respective pleadings and led evidence. The Appellant contended that reconciliation should be based on Customer Relation Management (CRM) system data, which purportedly showed that the Appellant was entitled to recover Rs. 1.69 crores from the Respondent. However, after the completion of final arguments on behalf of the Claimant (Respondent herein), the Appellant sought to file an application dated 03.09.2022, seeking permission to place on record physical copies of “delivery challans”.

The Appellant asserted that these challans, generated from the Claimant's CRM portal and acknowledged by the Claimant, would demonstrate a significant discrepancy of Rs. 3,13,22,635/- between the value of returned spare parts as per the challans and the credit actually given by the Claimant in its ledger. The Respondent opposed this application, emphasizing that their witness had not been cross-examined on the aspect of delivery challans or any purported short or absent credit. They further highlighted the belated stage of the application, arguing that allowing these documents would “completely derail the Arbitration” and necessitate a virtual recommencement of evidence.

The Arbitral Tribunal rejected the Application vide its Order dated 10.10.2022 and the Final Award was passed in favour of the Claimant. The Objection Petition filed under Section 34 of A&C Act challenging the said Award was dismissed by the Ld. Single Judge. Aggrieved by the same, the present Appeal was filed under Section 37 of the A&C Act by the Appellant before the High Court of Delhi.

Issues

1. Whether an Arbitral Tribunal can refuse to admit additional evidence sought to be filed at a belated stage after completion of final arguments
2. Whether the refusal to admit such evidence constitutes a violation of Section 18 of the Arbitration and Conciliation Act, 1996, which mandates equal treatment and full opportunity to present one's case
3. Whether the principles of natural justice require arbitrators to admit relevant evidence regardless of the procedural stage at which it is sought to be introduced
4. What constitutes a “full opportunity” under Section 18 and whether it grants parties an unlimited right to adduce evidence at any stage of proceedings

Arbitral Tribunal's findings on Application to file Additional Documents

On 10.10.2022, the Arbitral Tribunal rejected the Appellant's Application. The Tribunal noted that the delivery challans were within the Appellant's knowledge at the pleading stage, and no valid reasons were provided for the delay in filing them. It specifically stated that filing documents due to the Tribunal's queries was not a valid ground for such a late submission and agreed with the Claimant that admitting new documents at that stage would “relegate the arbitration proceedings to the stage of trial”.

Final Award

Arbitral Tribunal vide Award dated 19.08.2023 awarded claim of Rs. 14,98,700/- and interest at 9% per annum to the Claimant (i.e. the Respondent herein) from the date of filing the Statement of Claim upto the date of award and future interest at the same rate upto the date of payment.

Findings of the Single Judge in Section 34 Petition

On merits, the Ld. Single Judge dismissed the objection petition upholding the Arbitral Tribunal's findings and its decision to reject the Application for additional evidence. The Ld. Single Judge emphasized that the Arbitral Tribunal was accurate in disallowing an application that would revert the case to the witness examination stage. The Ld. Single Judge also rejected the Appellant's argument that their witness statement should have been treated as secondary evidence under Section 65(g) of the Indian Evidence Act, noting that the Indian Evidence Act, 1872 is not strictly applicable to arbitral proceedings and that there was no averment regarding the delivery challans in the witness' affidavit.

Analysis of findings of Division Bench in present Appeal

a. Interpretation of Section 18: The Scope of “Full Opportunity”

The Court provided an in-depth analysis of Section 18 of the A&C Act, noting its verbatim reproduction of Article 18 of the UNCITRAL Model Law. Drawing from the travaux préparatoires (preparatory works) of Article 18, the Court highlighted that the drafters' primary concern was to “place limits on the right to be heard so as to prevent its abuse by unscrupulous parties who might otherwise seek extension after extension.” It was specifically noted that the phrase “at any stage of the proceedings” was deliberately deleted from earlier drafts to prevent the prolongation of proceedings.

Citing the Singapore Court of Appeal's decision in China Machine New Energy Corporation v. Jaguar Energy Guatemala LLC², the Delhi High Court clarified that the “full opportunity” is “not an unlimited one” and is “impliedly limited by considerations of reasonableness and fairness.” The overarching inquiry is whether the proceedings were conducted fairly, and the tribunal's decision should be assessed within the range of what a "reasonable and fair-minded tribunal" might have done under the circumstances. The judgment in Pradyuman Kumar Sharma v. Jays Agar M. Sancheti³ was extensively relied upon by the Court to conclude that Section 18 “cannot be construed as conferring an unbridled right to any party... to seek to file additional documents/adduce additional evidence, regardless of the stage of the proceedings” and that “under the guise of full opportunity, a party cannot be permitted to delay and/or frustrate the arbitration proceedings”.

b. Court's Reasoning on Belated Evidence

The High Court unequivocally affirmed the Arbitral Tribunal's reasoning and the Single Judge's decision to reject the Appellant's application to introduce additional "delivery challans". The Court characterized the Appellant's attempt as “clearly lacking in bona fides” and "thoroughly misconceived". A critical factor in this determination was that the documents were within the Appellant's knowledge at the pleadings stage, yet no valid reasons were provided for the significant delay in their submission. The Court underscored that allowing such documents at the “fag end of arbitral proceedings,” particularly after the Claimant's final arguments had concluded, would have "completely derailed the arbitration" and "relegated the arbitration proceedings to the stage of trial," effectively necessitating a virtual recommencement of evidence.

The Court carefully distinguished the K.K. Velusamy judgment⁴, relied upon by the Appellant, by noting that the judgement pertained to Order 18 Rule 17 of the Code of Civil Procedure and was rendered in the peculiar facts of that particular case.

The Court also noted that the Arbitral Tribunal had duly taken note of the following judgments while arriving at the conclusion of rejecting the application, being Asia Pacific Breweries v. Superior Industries⁵, Sri Ramanand v. Delhi Development Authority⁶, Polyflor Ltd. v. Sh AN Goenka⁷, Crocs INC USA v. Liberty Shoes⁸, Gold Rock World Trade Ltd v. Veejay Lakshmi Engineering Works Ltd⁹, Haldiram (India) Pvt Ltd v. Haldiram Bhujiawala¹⁰ and Fats Inc v. Zen Technological Ltd.¹¹

c. Applicability of Indian Evidence Act

The Court reaffirmed that the Indian Evidence Act, 1872, is “not strictly applicable to arbitral proceedings”. Consequently, the Appellant's contention that their witness statement could be considered secondary evidence under Section 65(g) for the delivery challans was deemed "wholly misconceived." This was further supported by the absence of any reference to these challans in the witness's affidavit itself.

Conclusion

The Judgment passed by the Division Bench of the Hon'ble Delhi High Court in this case represents a significant pronouncement in Indian arbitration law. The High Court strongly endorsed the Arbitral Tribunal's decision to reject the Appellant's belated application to introduce additional evidence, characterizing it as a dilatory tactic rather than a legitimate exercise of its right to present its case.

The case serves as a warning to parties regarding the imperative of presenting all relevant evidence at the appropriate stage of arbitral proceedings. The Appellant's failure to produce its own account books and the belated attempt to introduce delivery challans were central to these findings. This Judgment also reinforces that arbitrators possess the discretion to reject such belated submissions to maintain the integrity and efficiency of the process, thereby preventing proceedings from reverting to earlier stages. It underscores that procedural rights, while fundamental, are not absolute and must be exercised with diligence and strategic foresight. The Court's firm stance against belated evidence and dilatory tactics necessitates that lawyers adopt a proactive approach to evidence collection, presentation, and adherence to timelines from the very inception of an arbitration.

In conclusion, Fortuna Skill Management Pvt. Ltd. v. Jaina Marketing & Associates serves as an affirmation of the principles of efficiency and finality in arbitration. By consistently upholding the procedural decisions of arbitral tribunals, especially those aimed at promoting efficiency and preventing delays, the High Court sends a clear signal to both domestic and international parties that arbitration in India is a reliable and definitive dispute resolution mechanism.

Footnotes

1. 2024 SCC OnLine Del 4685

2. [2020] SGCA 12.

3. 2013 SCC OnLine Bom 453.

4. (2011) 11 SCC 275

5. (2009) 109 DRJ 497

6. 2016 SCC OnLine Del 4925

7. 2016 SCC OnLine Del 2333

8. 2018 SCC OnLine Del 10325

9. (2007) 143 DLT 113

10. (2009) 109 DRJ 639

11. (2008) 103 DRJ 693

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