While Section 34 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) does not expressly mention inordinate or unexplained delay in passing of the Award as a ground for setting aside of the Award, there are judgments of the Supreme Court of India as well as of various High Courts which observe that after conclusion of the arguments, the Arbitral Tribunal must expeditiously pass an Award and there should not be any inordinate delay in passing of the Award.
However, none of the judgments as discussed herein provide an objective and a practical answer to the question what constitutes inordinate delay and in what circumstances would inordinate delay be fatal for an arbitral award?
Additionally, whether recourse to Sections 14 and 15 of the A&C Act, before raising the ground of inordinate delay under Section 34 of the A&C Act, is mandatory or not seems to be another issue plaguing the Courts for over a decade now.
In Harji Engg. Works Pvt. Ltd. v. Bharat Heavy Electricals Ltd. (“Harji Engg.”), a Single Judge of the Delhi High Court set aside an Award noting a delay of more than 3 years since the last effective hearing. While setting aside the Award, the Court emphasized on the fundamental purpose of the A&C Act, i.e., expeditious and time – bound adjudication. At a more conceptual level, it was also noted that when there is a substantial time gap between the last effective hearing and the pronouncement of the Award, it would be natural for the Arbitrators to forget the contentions raised by the parties. The judgment in Harji Engg. was approved by the Division Bench of the Delhi High Court in BWL Ltd. v. UOI (“BWL Ltd.”). In BWL Ltd., after noting instances where judgments of Courts were set aside for being passed after more than six months since the conclusion of the arguments, the Court applied the same principle in the context of Arbitration and set aside an Award which was passed “nearly 5 years after original hearing was concluded”.
In Peak Chemical Corporation Inc. v. National Aluminium Co. Ltd. (“Peak Chemical”), the delay in the pronouncement of the Award was more than 4 years. Accordingly, a Single Judge of the Delhi High Court, after noting the judgement of Harji Engg., observed that whether delay in itself in the pronouncement of an Award would vitiate it would “depend on the facts and circumstances of each case”. It was observed that Section 34 of the A&C Act does not expressly provide for setting aside of an Award solely on the ground of delay. Eventually, the Court refused to set aside the Award on the ground of delay primarily because the Award was comprehensive and detailed. Another factor was that the disputes between the parties had been pending for a long time, and the Arbitrator had also passed away since the passing of the Award.
In Union of India v. Niko Resources Ltd. (“Niko Resources”), a Single Judge of the Delhi High Court noted the judgements in Harji Engg. as well as Peak Chemical and observed that in accordance with the scheme of the A&C Act, the aggrieved party is to first approach the Arbitral Tribunal itself “with a prayer for expediting the Award”. If the same is not successful, the aggrieved party is to then approach the Court under Section 14(2) of the A&C Act and accordingly observed “it might be appropriate to exhaust the above remedy before the stage of challenge to the Award.” Interestingly, in Niko Resources, the Court proceeded to set aside the Award by observing “while in the present case the delay in pronouncement of the Award per se does not vitiate it, the delay appears to have led to the Award being vitiated by patent illegality for reasons discussed hereafter”.
Notably, in BWL Ltd., the rulings in Peak Chemicals as well as Niko Resources were not analysed.
In Eagle Earth Movers v. The General Manager, Southern Railway, a Single Judge of the Madras High Court refused to set aside an Award noting that the delay of 8 months cannot held to be inordinate.
In M/s. Satya Parkash & Brothers Pvt. Ltd. v. North Delhi Municipal Corporation (“Satya Prakash”), the Single Judge of the Delhi High Court followed the judgments in Harji Engg. and BWL Ltd. and set aside the Award which was passed after a delay of more than four years since the conclusion of the arguments.
In K. Dhanasekar v. Union of India, a Single Judge of the Madras High Court set aside an Award which was passed after a delay of about 3 years and 7 months.
In Gian Gupta v. MMTC Ltd., the delay in the passing of the Award was more than 6 years. After noting the judgements in Harji Engg. as well as BWL Ltd., a Single Judge of the Delhi High Court set aside the Award on the ground of inordinate delay and distinguished the judgements of Peak Chemical and Niko Resources by holding that even therein, it was held that the question of whether an Award is vitiated by delay would be considered in light of specific facts of each case. Additionally, it was also held that Niko Resources does not state that recourse to Section 14(2) of the A&C Act, in order to mount a challenge under Section 34 of the A&C Act on the ground of delay, is mandatory.
In Director General, Central Reserve Police Force v. Fibroplast Marine Private Limited, the delay was of more than one and half years in passing of the Award. After observing “that inordinate, and unexplained delay in rendering the award makes it amenable to challenge under Section 34(2)(b)(ii) of the A&C Act”, the Court interestingly did not discuss the conflict between Harji Engg. and Peak Chemical by observing “it is not necessary to further examine whether there is any conflict in between the two decisions” as “in the present case, the delay in making the award is not the sole reason for setting aside the award”.
In HR Builders v. Delhi Agricultural Marketing Board, a Single Judge of the Delhi High Court set aside an Award passed after a delay of about 2 years and 8 months.
In Department of Transport, GNCTD v. Star Bus Services Pvt. Ltd. and Unique Builders v. Union of India, the Delhi High Court and the Madras High Court respectively followed the judgements in Harji Engg. as well as K. Dhanasekar to set aside the Award on the ground of inordinate and unexplained delay.
In GL Litmus Events Pvt. Ltd. v. Delhi Development Authority, while setting aside an Award on account of delay of 19 months, the Single Judge of the Delhi High Court observed that an Award which has been passed after inordinate and unexplained delay is contrary to the public policy and is thus liable to be set aside under Section 34(2)(b)(ii) of the A&C Act without going into the merits of the dispute. It was also noted that judgments of Peak Chemical as well as Niko Resources have been distinguished on multiple occasions.
Recently, the Supreme Court was faced with the similar issue in M/s Lancor Holdings Limited v. Prem Kumar Menon (“Lancor Holdings”). In Lancor Holdings, the Arbitrator reserved the award in July 2012 but pronounced it only in March 2016, i.e., nearly three years and about eight months. After analysing multiple judgments, including those discussed hereinabove, the Supreme Court observed that delay “by itself, is not sufficient to set aside that award. However, each such case would have to be examined on its own individual facts to ascertain whether that delay had an adverse impact on the final decision of the arbitral tribunal”.
Therefore, in effect, the judgment of the Supreme Court in Lancor Holdings does not do much in clarifying the impact of delay in pronouncement of an arbitral award and neither does it provide any objective and practical solutions.
At the outset, the authors respectively disagree with the rationale behind the judgment in Peak Chemical insofar as it takes into account the comprehensive and detailed nature of the Award. As expounded in multiple judgments including Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., an Award must contain intelligible and adequate reasoning to withstand the scrutiny of Section 34 of the A&C Act.
Therefore, given the scheme of the A&C Act, the authors agree with the rulings in Harji Engg., Fibroplast Marine and GL Litmus, among others, that an Award passed after inordinate and unexplained delay would be contrary to the public policy of Indian law and thus amenable to challenge under Section 34(2)(b)(ii) of the A&C Act.
The authors also submit that resolution of the conflict between Gian Gupta and Niko Resources with respect to approaching the Court under Section 14 of the A&C Act before raising the ground of inordinate delay under Section 34 of the A&C Act, would not solve the issue. In the opinion of the authors, approaching the Court under Section 14 of the A&C Act in such a situation is akin to ‘putting the cart before the horse’ as at this stage, delay is not crystalised. While under Section 14 of the A&C Act, parties can approach the Court if the Arbitrator has failed to conclude the proceedings as per Section 29A of the A&C Act, however, in practise, parties approach the Court under Section 29A of the A&C Act for extension of the mandate even after the conclusion of arguments. Another problem is the fate of such Applications under Section 14 of the A&C Act if the Award is passed during its pendency which was also noted in the Satya Prakash judgment.
Pertinently, there can be no straight-jacket formula while adjudicating whether the delay in a given case is serious enough to vitiate an Award. What amount of delay is enough to vitiate an Award under Section 34 would-be fact dependent, leading to uncertainty. Additionally, while the insertion of Section 29A of the A&C Act has definitely led to a positive change, delays in pronouncement of Award still occur on regular basis as seen from the above. It is for this reason that the authors contend that the Supreme Court missed an opportunity to bring greater clarity to the law in Lancor Holdings.
Therefore, the authors believe that the Parliament must amend the A&C Act to the effect that notwithstanding Section 29A of the A&C Act, an Arbitrator ought to pronounce the Award within a period of 6 months from the conclusion of arguments. While the same would not defeat the purpose of insertion of Section 29A, it would also ensure that Arbitrators have a reasonable amount of time to conclude arbitral proceedings.
Raghav Bhatia is an Advocate practicing before the Supreme Court of India and High Court of Delhi.
Rohan Bhatia is also an Advocate.