What Is Effect Of Undue & Unexplained Delay In Pronouncement Of Arbitral Award Upon Its Validity? Supreme Court Explains

The Supreme Court has explained as to what is the effect of undue and unexplained delay in the pronouncement of an arbitral award upon its validity.

The Court was hearing Civil Appeals in which following two questions arose for consideration –

(i) What is the effect of undue and unexplained delay in the pronouncement of an arbitral award upon its validity?

(ii) Is an arbitral award that is unworkable, in terms of not settling the disputes between the parties finally while altering their positions irrevocably thereby leaving them no choice but to initiate further litigation, liable to be set aside on grounds of perversity, patent illegality and being opposed to the public policy of India? If so, would it be a fit case for exercise of jurisdiction under Article 142 of the Constitution?

The two-Judge Bench comprising Justice Sanjay Kumar and Justice Satish Chandra Sharma observed, “Delay in the delivery of an arbitral award, 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, whereby that award would stand vitiated due to the lapses committed by the arbitral tribunal owing to such delay. It is only when the effect of the undue delay in the delivery of an arbitral award is explicit and adversely reflects on the findings therein, such delay and, more so, if it remains unexplained, can be construed to result in the award being in conflict with the public policy of India, thereby attracting Section 34(2)(b)(ii) of the Act of 1996 or Section 34(2A) thereof, as it may also be vitiated by patent illegality.”

The Bench added that it would not be necessary for an aggrieved party to invoke the remedy under Section 14(2) of the Act of 1996 as a condition precedent to lay a challenge to that delayed and tainted award under Section 34 thereof.

Senior Advocates A.M. Singhvi and Siddharth Bhatnagar represented the Appellant, while Senior Advocates C. A. Sundaram and P.B. Suresh represented the Respondents.

Brief Facts

The Arbitrator reserved his arbitral award in July 2012 but pronounced it only in March 2016 i.e., nearly three years and eight months later, with no definite resolution of the matter. Significantly, no explanation worth the name was offered by him for the delay.

Court’s Observations

The Supreme Court in view of the above facts, noted, “We are conscious of the fact that the Company resorted to patent illegality in executing registered sale deeds in its own favour on the strength of a photocopy of the second power-of-attorney, the original of which remained with the escrow agent, HDFCL, knowing fully well that this course of action on its part was opposed to the terms of the contract. The Company must necessarily be penalized for this illegal action.”

The Court said that it is not possible at this stage to determine with precision the incomplete works that were there in the building which were attended to by the Respondents at that time, however, the fact remains that the Respondents would have expended funds and effort to complete the building in all respects so as to put their share therein to beneficial use and they deserve to be compensated therefor.

“Given these facts, we are of the opinion that equities and the interest of justice would be sufficiently served by directing that the execution of the sale deeds by the Company on 19.12.2008, though unlawful in its inception as it was based on a violation of the agreement terms and was without obtaining the original power-of-attorney from the escrow agent, HDFCL, should be treated as lawful and valid at this stage, instead of requiring their cancellation and execution of fresh sale deeds involving payment of higher stamp duties and registration charges. This would, however, be at the cost of penalizing the Company for such violation, by directing forfeiture of the security deposits of ₹6.82 crores”, it remarked.

The Court further said that as the Respondents have to be compensated for the works undertaken by them for the completion of the building, it is appropriate to grant a sum of ₹3.18 crores under this head, so as to bring the amount payable by the Company to a round figure of ₹10 crores.

“This amount shall be paid by the Company to the respondents within three months from today, be it in lump sum or in instalments. Upon making the full payment of this amount, the Company would be entitled to take possession of its 50% share in the building, in keeping with the terms of the JDA with regard to the apportionment and sharing of the built-up areas and the common areas, apart from the share in the land itself. The parties would then be at liberty to deal with and enjoy their respective shares in the building”, it directed.

The Court added that this arrangement would bring the curtains down and end this litigation while doing justice to both parties, who would otherwise be required to initiate a fresh round of arbitration/litigation, involving more time and money.

Conclusion

With respect to the second issue, the Court observed that the very basis and public policy underlying the process of arbitration is that it is less time-consuming and results in speedier resolution of disputes between the parties.

“If that premise is not fulfilled by an unworkable arbitral award that does not resolve the disputes between the parties, on one hand, leaving them with no choice but to initiate a fresh round of arbitration/litigation but the arbitrator, in the meanwhile, also changed their positions, irrevocably altering the pre-existing balance between the parties prior to the arbitration, then such an arbitral award would not only be in conflict with the public policy of India but would also be patently illegal on the face of it. It would therefore be liable to be set aside under Section 34(2)(b)(ii) and/or Section 34(2A) of the Arbitration and Conciliation Act, 1996”, it also noted.

The Court, therefore, concluded that if the necessary conditions for exercise of power by the Court under Article 142 of the Constitution of India are made out, in terms of the Constitution Bench decision in Gayatri Balasamy v. ISG Novasoft Technologies Limited, the Court would be justified in exercising such jurisdiction.

Accordingly, the Apex Court allowed the Appeals.

Cause Title- M/s. Lancor Holdings Limited v. Prem Kumar Menon and Others (Neutral Citation: 2025 INSC 1277)

Appearance:

Appellant: Senior Advocates A.M. Singhvi, Siddharth Bhatnagar, AOR Pragya Baghel, Advocates Amol Chitale, Kalyani Bhide Gharote, Shrika Gautam, Yuvraj Kashyap, Nadeem Afroz, and Sarthak Sharma.

Respondents: Senior Advocates C. A. Sundaram, P.B. Suresh, AORs Ankur S. Kulkarni, Vipin Nair, Advocates M. Gireesh Kumar, Sanjay Singh, Tarun, Varun Kanwal, Rohini Moosa, Zafar J., Udayaditya Banerjee, Aditya Narendranath, M.B. Ramya, Deeksha Gupta, Madhavi Yadav, V. Krithi Sahitya, and Saday Mondal.

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