Supreme Court: In a matter where the Arbitrator had reserved his arbitral award but pronounced it nearly three years and eight months later, without providing a definite resolution, and without offering any explanation of substance for the delay, the Division Bench of Sanjay Kumar* and Satish Chandra Sharma, JJ. held the following:
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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. Further, 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.
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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. Further, 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 Ltd., 2025 SCC OnLine SC 986, the Court would be justified in exercising such Jurisdiction.
Issues
(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?
Analysis and Decision
The Court observed that the issue of delay in the delivery of an arbitral award is relevant only in the context of the period prior to the insertion of Section 29A in the Arbitration and Conciliation Act, 1996 which introduced stringent timelines for the passing of an arbitral award. During that earlier period, the question of whether a long delay in the issuance of an award could affect its validity, to the extent of being set aside under Section 34 of the Act of 1996, had been considered by various High Courts.
The Court noted that, under the statutory scheme, Section 23 of the Arbitration Act, 1940, provided that the Court shall, by order, refer a matter in difference in any suit to the arbitrator and specify such time as it considered reasonable for the making of the award. Section 28(1) of the Act of 1940 empowered the Court, if it thought fit, to enlarge the time for making the award, regardless of whether the original time had expired or whether the award had been made. Section 28(2) dealt with the enlargement of time with the consent of the parties and stipulated that any provision in the arbitration agreement empowering the arbitrator to extend the time without party consent would be void.
However, the Act of 1996 did not contain any such time stipulations until the insertion of Section 29A through Amendment Act No. 3 of 2016, which had retrospective effect from 23-10-2015. This amendment mandatorily fixed the time for the making of domestic arbitral awards, requiring them to be pronounced within 12 months from the date of completion of pleadings under Section 23(4) of the Act of 1996. Power to extend this period was conferred upon the parties under Section 29A(3), subject to a maximum period of six months, while Section 29A(4) empowered the Court to grant further extension if sufficient cause was shown.
Prior to the insertion of Section 29A, in cases where an arbitrator failed to act without undue delay, recourse was available under Section 14 of the Act of 1996. Section 14(1)(a) provided that the mandate of an arbitrator would stand terminated if the arbitrator became de jure or de facto unable to perform functions, or for other reasons failed to act without undue delay. Section 14(2) allowed a party, if a controversy arose concerning the grounds under Section 14(1)(a), to apply to the Court to decide on the termination of the arbitrator’s mandate, unless otherwise agreed.
The Court observed that, although Section 14(2) provided a statutory remedy for long delays, in practice, parties were unlikely to invoke it due to the risk of antagonizing the arbitrator. If an arbitrator, after being subjected unsuccessfully to a Section 14(2) proceeding, continued with the arbitration, they might develop bias against the party who challenged them. Consequently, despite this statutory remedy, its practical utility was limited.
Furthermore, Section 34(2)(b) of the Act of 1996 allowed for setting aside an award if it was in conflict with the public policy of India. Explanation 1 clarified that an award would violate public policy if it contradicted fundamental notions of morality or justice or if it was induced by fraud or corruption. However, it would be difficult for a party to establish bias arising from an arbitrator’s resentment after an unsuccessful Section 14(2) application. Therefore, parties rarely approached the Court unilaterally under Section 14(2), given the inherent risks involved.
The Court observed that it was perhaps for this reason that the Act of 1996 was amended, with retrospective effect from 23-10-2015, to curb possible delays on the part of arbitrators more effectively. The Statement of Objects and Reasons dated 25-11-2015 for Amendment Act No. 3 of 2016 noted that the Act of 1996 had been enacted to provide for the speedy disposal of arbitration-related cases with minimal court intervention. However, over time, certain difficulties in the application of the Act emerged.
Accordingly, amendments were proposed to facilitate and encourage alternative dispute resolution mechanisms, particularly arbitration, to ensure a more user-friendly, cost-effective, and expeditious disposal of cases, reflecting India’s commitment to improving its legal framework and reducing delays in justice delivery. One such amendment required that an arbitral tribunal make its award within 12 months from the date it entered upon the reference. The parties were given the liberty to extend this period by up to six months, beyond which further extension could only be granted by the Court upon sufficient cause being shown.
On the issue of a “dilatory arbitrator,” the Court referred to Russell on Arbitration1, which provides that an arbitral tribunal is required to conduct proceedings and adopt procedures that avoid unnecessary delay. A refusal or failure to conduct proceedings or make an award with reasonable dispatch may result in the removal of the tribunal. However, such delay must be truly exceptional and cause substantial injustice to the applicant. What constitutes “reasonable dispatch” depends on the circumstances; for instance, a decision in a documents-only case may be expected more quickly than in an arbitration requiring extensive witness testimony. A delay of 12 months in publishing an award was described as inordinate and capable of supporting an application to have the award set aside.
The Court, however, observed that the undeniable fact remained that Section 34 of the Act of 1996 did not treat delay in the delivery of an arbitral award as a ground, by itself, to set it aside. Nevertheless, it acknowledged that an inordinate delay in the pronouncement of an award had several deleterious effects. The passage of time invariably weakened human memory, making it nearly impossible for an arbitrator to have total recall of oral evidence adduced by witnesses or the submissions and arguments presented by the parties or their counsel. Even detailed notes taken during proceedings were only a poor substitute for what was fresh in the mind immediately after the hearings concluded.
More importantly, the unexplained delay gave rise to unnecessary and wholly avoidable speculation and suspicion among the parties. Absolute faith and trust in the arbitration system were essential for its proper functioning; once that trust was undermined, it could lead to a breakdown of the system, a situation to be avoided at all costs.
The Court further noted that, in the usual course, long delays in the delivery of arbitral awards were not the norm. However, when instances of undue delay did occur, each case needed to be examined on its own facts to determine whether the delay materially impacted the final decision of the arbitral tribunal, thereby vitiating the award. The Court emphasised that a balance must be maintained between the speed of arbitration and the meaningful content of the award.
Importantly, the Court clarified that it was not necessary for an aggrieved party to invoke the remedy under Section 14(2) as a precondition to challenging a delayed or tainted award under Section 34; the two provisions operated independently.
Consequently, the Court emphasised that it would need to examine whether the present arbitral award suffered from such infirmities due to delay, whether its validity was thereby compromised, and whether it failed to resolve the disputes between the parties, particularly if interim orders during the proceedings had altered the parties’ positions irreversibly.
Upon careful consideration of the arbitral award in question, the Court observed that the repeated digressions and vacillations by the Arbitrator clearly reflected that the delay on his part had contributed to his demonstrable indecisiveness. At one stage, the Arbitrator had noted that the situation created by the Company was highly complex and required careful handling, which caused some delay in devising a proper relief or award that “would be equitable to both parties.” However, ultimately, the Arbitrator did not provide any relief that was equitable to both parties and instead rendered an award entirely in favor of the respondents.
The Court observed that arbitration, as an alternative dispute resolution mechanism, is intended to serve as a substitute for time-consuming and costly litigation in courts. Its primary aim is to facilitate the settlement of disputes between parties with minimal judicial intervention. Section 34 of the Arbitration and Conciliation Act, 1996, is structured to limit the grounds on which an arbitral award can be set aside, reflecting the intention that awards should generally be final and binding. However, the very objective of arbitration is undermined if, after the entire process, an arbitrator fails to resolve the disputes between the parties and instead directs them to initiate fresh litigation or arbitration.
In the present case, the Arbitrator took nearly four years to conclude that no equitable relief could be granted to either party, yet he rendered a decision entirely in favor of one party. By doing so, he altered the positions of the parties and conferred benefits on one at the expense of the other.
The Court said that the Arbitrator justified this approach by claiming that proper pleadings and evidence had not been presented. However, this was untenable, as the delay had already materially affected the parties’ positions. The Court held that such conduct demonstrated a total non-application of mind and rendered the Award ineffective and futile. The nearly four-year delay, coupled with the Arbitrator’s failure to provide meaningful relief, ran counter to the public policy underlying arbitration, which seeks to provide a timely, efficient, and equitable resolution of disputes.
The Court held that the undue delay and indecisive conduct of the Arbitrator, which culminated in a rudderless Award, were utterly shocking, as he completely lost sight of the fundamental purpose of the arbitration process. Moreover, due to the futile Award rendered after nearly four years, the parties were left with no choice but to initiate fresh litigation concerning a contract dating back to 2004. Consequently, the Award is liable to be set aside, being in clear conflict with the public policy of India and patently illegal
Faced with the question of the appropriate course of action at this advanced stage, the Court observed that merely setting aside the Award would compel the parties to resort to arbitration or litigation once again. However, such a course was not feasible, given the significant developments that had occurred pursuant to the Arbitrator’s interim and final directions. The respondents had been granted possession of their share of the building in 2010 and had subsequently inducted third parties into their allotted floors under lease deeds. The effects of the Arbitrator’s interim orders were, at this point, irreversible. Accordingly, the Court held that this was a fit case for the exercise of its powers under Article 142 of the Constitution, so as to do complete justice, rather than sending the parties into yet another round of arbitration or litigation, thereby avoiding further costs and expenditure of valuable time.
The Court viewed that the exercise of jurisdiction under Article 142 of the Constitution was the only viable course of action in the present case. The alternative, i.e. simply setting aside the Award, would have compelled the parties to engage in yet another round of arbitration or litigation after more than sixteen years, resulting in a travesty of justice and a mockery of the arbitration process, thereby undermining the essential faith and trust that parties must repose in arbitration.
[Lancor Holdings Limited v. Prem Kumar Menon, Civil Appeal Nos. 10074-10075 of 2024, decided on 31-10-2025]
*Judgment Authored by: Justice Sanjay Kumar
Advocates who appeared in this case:
For Appellant(s): Dr. A.M. Singhvi, Sr. Adv. Mr. Siddharth Bhatnagar, Sr. Adv. Mr. Amol Chitale, Adv. Mr. Kalyani Bhide Gharote, Adv. Ms. Shrika Gautam, Adv. Mr. Yuvraj Kashyap, Adv. Mr. Nadeem Afroz, Adv. Ms. Shweta Singh Parihar, Adv. Mr. Sarthak Sharma, Adv. Mrs. Pragya Baghel, AOR
For Respondent(s): Mr. C. A. Sundaram, Sr. Adv. Mr. M. Gireesh Kumar, Adv. Mr. Ankur S. Kulkarni, AOR Mr. Sanjay Singh, Adv. Mr. Tarun, Adv. Mr. P.B. Suresh, Sr. Adv. Mr. Vipin Nair, AOR Mr. Udayaditya Banerjee, Adv. Mr. Aditya Narendranath, Adv. 1 Mr. P B Sashaankh, Adv. Ms. M.B. Ramya, Adv. Ms. Deeksha Gupta, Adv. Ms. Puspita Basak, Adv.
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1. Russel on Arbitration 24th Edition. Chapter 7 (Para 7-127).