Arbitration | When Delay In Pronouncing Arbitral Award Can Be Ground To Set It Aside : Supreme Court Explains

The Supreme Court on Friday (October 31) delivered a key ruling under the Arbitration & Conciliation Act, 1996, clarifying that while mere delay in pronouncing an arbitral award does not invalidate it, an inordinate and unexplained delay making the decision ineffective or unworkable can render the award void. The Court further held that an award lacking consequential relief and forcing parties to seek redress again in court is contrary to public policy and therefore unenforceable.

A bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma addressed two important questions:

a. What is the effect of undue and unexplained delay in the pronouncement of an arbitral award upon its validity?

Answering the issue, the Court 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. 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.”

b. Is an arbitral award that is unworkable, in terms of not settling the disputes between the parties finally but 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?

Answering the issue, the Court observed:

“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 this Court under Article 142 of the Constitution of India are made out, in terms of the Constitution Bench decision in Gayatri Balasamy vs. ISG Novasoft Technologies Limited (supra), this Court would be justified in exercising such jurisdiction.”

Background

The case arose from a Joint Development Agreement (JDA) executed in 2004 between Lancor Holdings Ltd., a property developer, and landowners led by Prem Kumar Menon. Under the JDA, both parties were to share the constructed property equally upon completion.

A dispute emerged over whether construction had been completed as per contractual terms. The developer, claiming completion, used a copy of a power of attorney (the original being held in escrow) to execute sale deeds for its 50% share. The landowners, however, contended that the construction was incomplete and challenged the developer's actions.

The matter proceeded to arbitration before a retired High Court judge, who reserved the award in July 2012 but pronounced it only in March 2016, nearly four years later without offering any explanation for the delay.

The crucial point of controversy was that an award passed by the arbitrator declared the developer's sale deed as void but declined to provide any consequential relief leaving parties no option, but to re-litigate the issue before the Court.

Court Found Award To Be Defective On Grounds Of Inordinate Delays And Failure To Grant Effective Relief

The judgment authored by Justice Sanjay Kumar in a detailed judgment, outlined two defects in the award, firstly the award was passed with inordinate delays as no explanation was given by the arbitrator for passing an award with over 3 years of delay.

“The Arbitrator in this case took nearly 4 years to conclude that he had no equitable relief to offer both parties but held in favour of one side in all respects, leaving it to the parties to start litigating again. He conveniently opined that proper pleadings and evidence had not been placed before him and, therefore, he was constrained to relegate the parties to another round of litigation, ignoring the fact that he had already altered their positions and had benefitted one party at the expense of the other. This approach on the part of the Arbitrator, after dithering for nearly 4 years, served absolutely no purpose and reflected total non-application of mind. The delay in the making of the Award resulted in nearly four valuable years passing away with no benefit to show for it. When the public policy underlying resort to arbitration is to make it a time-saving mechanism for resolving disputes, this unexplained and pointless delay of the Arbitrator in concluding the matter clearly pitted his ineffective and futile Award against the public policy of India.”

Further, on the point of failure to grant an effective relief, the Court said that “the very objective of the exercise would be lost if, after the entire process, an arbitrator fails to resolve the disputes between the parties and leaves them high and dry with advice to initiate a fresh round of arbitration/litigation once again.”

“The undue delay and wavering attitude of the Arbitrator, contributing to his rudderless Award, are utterly shocking, to say the least, as he totally lost sight of the very purpose of the exercise. Further, owing to the pointless Award passed by him with a delay of nearly 4 years, the parties were left with no option but to litigate once again in relation to a contract dating back to the year 2004! The Award is, therefore, liable to be set aside as it is in clear conflict with the public policy of India and is also patently illegal.”, the court added.

Invoking its extraordinary powers under Article 142, the Court refused to re-send the dispute to arbitration and passed an order:

"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. Further, as the respondents have to be compensated for the works undertaken by them for the completion of the building, we consider it 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. This arrangement, in our considered opinion, 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."

Cause Title: M/s. Lancor Holdings Limited versus Prem Kumar Menon and others

Citation : 2025 LiveLaw (SC) 1056

Click here to read/download the judgment

Appearance:

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. 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. Varun Kanwal, Adv. Ms. Rohini moosa, Adv. Mr. Zafar J., Adv. Mr. P.B. Suresh, Sr. Adv. Mr. Vipin Nair, AOR Mr. Udayaditya Banerjee, Adv. Mr. Aditya Narendranath, Adv. Ms. M.B. Ramya, Adv. Ms. Deeksha Gupta, Adv. Ms. Madhavi Yadav, Adv. 1 Ms. V. Krithi Sahitya, Adv. Mr. Saday Mondal, Adv.