"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Wednesday, August 22, 2012

Whether Undue Delay Can Constitute Reason for Setting Aside the Arbitral Award- Part I

Two recent judgements of the Delhi High Court deal with the question as to whether long delay in passing of award by the arbitral tribunal is sufficient reason for setting aside the arbitral award. The answer to the question, according to these judgements is, it depends on the facts and circumstances. A clear-cut answer to the question is not as easy as have been made out by the Delhi High Court and the previous decisions on this issue. In this post, we critically analyse the law on the issue. It would do good to first look at the law and the reason(s) for the law on the point. 

One of the earliest cases under the 1996 Act is the well-known judgement of the Supreme Court in ONGC v. SAW Pipes wherein the following observations were made:
It is true that under the Act, there is no provision similar to Sections 23 and 28 of the Arbitration Act, 1940, which specifically provided that the arbitrator shall pass award within reasonable time as fixed by the Court. It is also true that on occasions, arbitration proceedings are delayed for one or other reason, but it is for the parties to take appropriate action of selecting proper arbitrator(s) who could dispose of the matter within reasonable time fixed by them. It is for them to indicate the time limit for disposal of the arbitral proceedings. It is for them to decide whether they should continue with the arbitrator(s) who cannot dispose of the matter within reasonable time. However, non-providing of time limit for deciding the dispute by the arbitrators could have no bearing on interpretation of Section 34. Further, for achieving the object of speedier disposal of dispute, justice in accordance with law cannot be sacrificed. In our view, giving limited jurisdiction to the Court for having finality to the award and resolving the dispute by speedier method would be much more frustrated by permitting patently illegal award to operate. Patently illegal award is required to be set at naught, otherwise it would promote injustice.”
The context in which the above observations were made by the Supreme Court needs to be noted. It was the contention of the Counsel for SAW Pipes that the purpose of the court had limited jurisdiction to examine the validity an arbitral award was to afford finality to the arbitral award passed by a body constituted through consensus of the parties. The counsel for ONGC opposed this argument and contended that since the Legislature had not provided for any time limit in the Arbitration and Conciliation Act, 1996 it implied that the said contention of the Respondent does not have any bearing on the interpretation of Section 34. This argument of ONGC’s counsel was rejected through the above quote.  However, the court also rejected the stance of SAW Pipes’ counsel and held that the pursuit of speedier disposal of a dispute does not mean that justice in accordance with law should be sacrificed. 

It is pertinent to note that Sections 23 and 28 of the Arbitration Act, 1940, quoted below, dealt with time limits in arbitrations which were so referred when the disputes were pending as civil suits:
23. Order of reference.
(1) The Court shall, by order, refer to the arbitrator the matter in difference which he is required to determine, and shall in the order specify such time as it thinks reasonable for the making of the award.
(2) Where a matter is referred to arbitration, the Court shall not, save in the manner and to the extent provided in this Act, deal with such matter in the suit. “
28.Power to Court only to enlarge time for making award.
(1) The Court may, if it thinks fit, whether the time for making the award has expired or not and whether the award has been made or not enlarge from time to time the time for making the award.
(2) Any provision in an arbitration agreement whereby the arbitrators or umpire may, except with the consent of all the parties to the agreement, enlarge the time for making the award, shall be void and of no effect.”
No such provision exists under the 1996 Act. 

Harji Engg. Works
Under the 1996 Act, Harji Works seems to be an important decision on the issue. In Harji Engg. Works v. BHEL, the award was challenged on the ground that there was substantial time gap between the final hearing and the award. There was about three years of time gap between the last effective hearing and the award. A Summary of the pertinent portion of the judgement is below:
  • It is natural and normal for an arbitrator to forget contentions and pleas raised by the parties during the course of arguments if there is a huge gap in time between the date of last hearing and the date of award.
  • Abnormal delay by the arbitrator causes undue delay and prejudice.
  • Since the 1996 Act provides for limited grounds on which an arbitral award could be set aside, arbitrator is additionally responsible for publishing the award within reasonable time.
  • A party must be satisfied that the arbitrator had duly considered their contentions before rejecting or accepting them.
  • An award which is passed after a period of three years from the date of last effective hearing, without satisfactory explanation for the delay, will be contrary to justice and would defeat justice. It defeats the very purpose and the fundamental basis for alternative dispute redressal. Delay which is patently bad and unexplained, constitutes undue delay and therefore unjust.
The court also found that the arbitrator had passed the award without concluding the hearings.  Consequently, the court set aside the award.

Peak Chemical
In Peak Chemical Corporation v. NALCO, it was contended that the arbitral award should be set aside as although orders were reserved in the arbitration in August 2000, the award was only pronounced in February 2005. The cour rejected this contention. The court's justifications are summarized below:
  • Whether delay in the pronouncement of the award after conclusion of final arguments would vitiate the award depends on facts and circumstances.
  • "Significantly, delay has not been specified as one of the grounds under Section 34 of the Act for setting aside an Award. It would be straining the language of that provision to hold that delay in the pronouncement of an Award would by itself place it in "conflict with the public policy of India" within the meaning of Section 34 (2) (b) (ii) of the Act."
  • Since the dispute is pending since 1996, it would not be in the "interests of justice" to set aside the award and remand it for fresh consideration by the tribunal. Further, since the arbitrator had expired, fresh arbitration would considerably waste the time and resources of the parties.
Therefore, the court held that "it is not considered expedient to simply set aside the impugned Award on the sole ground of delay in the pronouncement of the Award..."

More on this issue in the next post.


Geoffrey said...

Section 23 of the Arbitration Act of 1940 dealt specifically with arbitration ordered by the Court and it was natural that legislation should provide for a time limit.

Badrinath Srinivasan said...
This comment has been removed by the author.
Badrinath Srinivasan said...

@ Geoffrey, while it is true that the 1940 Act provided for the court to fix time limits, the 1996 Act does not. Several courts, including the Delhi High Court in the recent case of Union of India v. Niko (02.07.2012), have recognised that the 1996 Act does not envisage time limits for passing the award or conclusion of arbitration. Perhaps the Indian legislature thought it fit to adopt position in the UNCITRAL Model Law on ICA, 1985 on this aspect and remain silent on the time within which arbitration proceedings are to be concluded.