Can delay in the delivery of an arbitral award be considered a valid ground for setting aside the award?

Introduction

Arbitration as a dispute resolution mechanism has gained significant popularity and acceptance among parties, primarily due to its advantages over traditional litigation, which is often time-consuming and costly. At its core, arbitration operates on principles designed to ensure efficient and speedy resolution of disputes, with minimal judicial intervention and maximum party autonomy.

The arbitrators bear the responsibility of conducting proceedings in a time-bound manner and delivering a reasoned award. As Professor William W. Park aptly observed, an arbitrator’s main duty lies not in dictating a peace treaty, but in delivery of an accurate award that rests on a reasonable view of what happened and what the law says.¹

Section 34 of the Arbitration Act reflects the legislative intent to restrict and limit the grounds on which an arbitral award may be set aside by a court. It is important to recognize that setting aside an award should not become routine, as an arbitral award represents the culmination of significant investment by the parties. Therefore, courts must exercise caution and intervene only on the limited grounds expressly provided under Section 34.

This article seeks to critically examine whether mere delay in the delivery of an arbitral award can constitute a valid ground for setting aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 (for brevity, hereinafter referred as “Arbitration Act”).

Timelines regarding Delivery of Award: Before the Amendment of 2015

Prior to the 2015 amendment to the Arbitration and Conciliation Act, there was no statutory timeline prescribed for the delivery of an arbitral award. Consequently, courts addressed delays on a case-to-case basis, often assessing whether such delay undermined the fairness of the process.

In Harji Engineering Works Pvt. Ltd. v. Bharat Heavy Electricals Ltd. & Anr.², the Delhi High Court dealt with a situation where the award was pronounced more than three years after the last hearing. The Court observed that, although the Act did not stipulate a specific time frame for delivering an award, undue delay runs contrary to the fundamental principle that arbitration proceedings should be concluded in a time-bound manner. Accordingly, the award in question was set aside with the finding that such delay was detrimental to the settled Principle of Fair Play and Justice.

On contrary, in Peak Chemical Corporation Inc. vs. National Aluminium Co. Ltd.³, the Delhi High Court ruled that delay is delivery of the arbitral award cannot be a valid ground to set aside the award as entertaining such a plea would amount to straining the provision provided under Section 34 of the Arbitration Act and it would not be in the interest of justice to set aside a well-reasoned award, requiring fresh determination.

In the absence of any timeline under the Arbitration Act, the High Courts⁴ relied upon the principle that the arbitrator should make and deliver the award within reasonable time as it is humanly possible for the arbitrator to loose track of the arguments if there is a huge and inordinate gap between the last date of hearing and the date on which said award was delivered. The parties to the dispute have right to be satisfied that arbitrator has appreciated all the evidence, pleadings as well as arguments in entirety before determining their interests in form of arbitral award. Arbitral award should be in consonance with the Principle of Fair Play, justice should not only be done but should manifestly be seen to be done.

While dealing with the question of validity of an arbitral award pronounced after a delay of four years, the High Court of Delhi in Union of India vs. Niko Resources Ltd. and Another⁵ proposed that it would be appropriate for the parties to exhaust the remedy provided against the arbitrator causing undue delay before challenging the award under Section 34 of the Arbitration Act, wherein delay has not even been expressly recognised as a ground to set aside the award.

Such an alternative remedy under Section 14(2) of the Arbitration Act does exist statutorily but has its own caveat. The Arbitrator whose mandate has been unsuccessfully challenged under Section 14(2) of Arbitration Act will have his/ her own bias against the party which subjected him/ her to such challenge. Fearing the possibility of such prejudice at later stage and in the absence of any statutory mandate, the Parties will not be willing to first challenge the mandate under Section 14(2) of the Arbitration Act rather than filing an application to set aside the award.

Statutory Timelines for Delivery of Arbitral Award:

Section 23 of the Arbitration and Conciliation Act, 1940 (hereinafter, referred as ‘Arbitration Act of 1940’) provided that the Court has power to refer the dispute to be settled by arbitration and shall in the same order specify, such time as it deem sufficient to make the award. Section 28(1) of the Arbitration Act, 1940 empowered the Court to enlarge the time for making of award when the delay is justified on reasonable grounds.

In comparison of the Arbitration Act of 1940, no such stipulation regarding the time required to make the arbitral award was provided in the Arbitration Act until the insertion of Section 29A vide Amendment Act No. 3 of 2016 (w.e.f. 23.10.2015). The time limit for making of the award was fixed to 12 months from the date of completion of Proceedings under Section 23(4) of the Arbitration Act. The parties with mutual consent, can extend this period to another 6 months. The Court can further extend this period beyond 6 months under Section 29A(4) of the Arbitration Act but only in exceptional cases, on satisfaction of sufficient cause for such delay.

While dealing with the issue of ‘dilatory arbitrator’, Russel of Arbitration⁶ states that the Arbitrator is expected to conduct proceedings and adopt procedures that would avoid any unnecessary delay, and any delay caused should be truly exceptional in nature on justified grounds.

Test under Section 34 for Setting Aside:

It is true that Section 34 of the Arbitration Act does not stipulate delay in passing of the award as one of the grounds to set aside the arbitral award. At the same time, there is no denial of the fact that inordinate delay in passing of the award is detrimental to the interest of parties. With the passage of time, it would be highly unlikely for the arbitrator to totally recall the oral evidence and submissions made by the parties. Even detailed notes and written submissions cannot be a substitute for the fresh understanding which the Arbitrator has, right after the hearing is concluded. Any delay in pronouncement of arbitral award, if remains unexplained, can give rise to unnecessary suspicion in the minds of parties.

Notably, in usual course, long delay in passing of the arbitral award is not a norm. It is desirable that there is a balance between the duration of arbitration proceedings, making of arbitral award and the decision of the Arbitrator. It is only in such cases wherein the delay in delivery of arbitral award causes adverse effect upon the findings, the award can be set aside.

Recently, the division bench of the Hon’ble Supreme Court of India in M/s. Lancor Holdings Limited vs. Prem Kumar Menon and others⁷ (hereinafter, referred as ‘Lancor Holdings’) held that the delay of 4 years in pronouncement of the arbitral award on the ground that proper pleadings and evidences were not brought on record by the Parties, was found to be unjustified and untenable as such delay materially as well as adversely affected the interest of parties. Such undue delay coupled with the inability of Arbitrator to provide meaningful relief, ran counter to the settled norms of Public Policy which requires efficacious and efficient resolution of dispute. On the basis such findings, the said arbitral award was set aside by the Court under Section 34(2)(b)(ii) of the Arbitration Act. Furthermore, the Court also clarified that for challenging the award under Section 34, invoking the remedy provided under Section 14 of the Arbitration Act is not a pre-condition as both these provisions operate independently.

The Apex Court further clarified in Lancor Holdings that the delay in delivery of arbitral award, by itself, would not be sufficient to set aside that award. The delay should have an adverse impact upon the final decision of the arbitral award. It is only when the effect of such inordinate and unexplained delay in the delivery of award effectively reflects on the findings therein, can be contrary to the Public Policy of India under Section 34(2)(ii) of the Arbitration Act or vitiated by Paten Illegality under Section 34(2A) of the Arbitration Act.

Concluding Remarks:

Delay in delivery of award can not be classified as procedural lapse, but it does have the potential to cause substantive prejudice to the interest of the parties involved. Due to such unexplained delay, the faith of parties in the procedure of arbitration being an efficacious method of dispute resolution, stands diminished. The party may get an apprehension that the award has been prepared on selective submissions and proceedings, thereby affecting the overall fairness of the procedure. The human memory is short, and it is doubtful, whether the arbitrator will remember the substantial part of the hearings which were conducted long ago. The adjudication process in arbitration should rest upon the fundamental principle, Justice must not only be done but must also be seen to be done.

In our understanding, delay in delivery of the arbitral award cannot itself be the sufficient ground to set aside the arbitral award. However, each of such challenge should be judged on their own merits to ascertain that such delay had adversely affected the findings of the Arbitrator in award. If such findings have been adversely impacted due to unexplained and inordinate delay, the same can be a ground to declare the award to be vitiated under Section 34(2)(b)(ii) of the Arbitration Act.

The underlying Public Policy behind the process of arbitration is that the same facilitates speedier resolution of disputes among the parties. It is essential to ensure that the process itself does not detrimentally affect the interests of parties. Delay in delivery of award should be avoided at any cost, unless the same is not possible due to some compelling and justifiable grounds. At the same time, the Court can also not interpret delay as a separate ground to set aside the award under Section 34 of the Arbitration Act, but it can certainly interfere when such delay has adversely affected the interests of the parties by creating an apprehension of prejudice. There is a need to strike a balance by delving into the merits of each challenge rather than attempting to fit every case of delay in fixed rule regarding setting aside of the award under Section 34 of the Arbitration Act.