"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.

Tuesday, August 28, 2012

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

In the last post on this topic, we had briefly dealt with the law on setting aside arbitral awards for undue delay in passing the award. In this post, we discuss two recent cases on this issue.

NIKO Resources:
In Union of India v. NIKO Resources & Anr.(pdf)*, the tribunal consisted of three retired judges of the Supreme Court- Mr. Justice DP Wadhwa, Mr. Justice PN Bhagwati, and Mr. Justice MH Kania. Mr. Justice PN Bhagwati was nominated by NIKO. Mr. Justice DP Wadhwa was appointed by the court and both the arbitrators appointed Mr. Justice MH Kania, who was the presiding arbitrator.

Final arguments were heard in August 2005 and the tribunal reserved its award. An application was filed in the interim by NIKO, which was heard by the tribunal in November 2006. Mr. Justice Wadhwa had apparently circulated his draft award to the other members of the tribunal but did not receive comments from the tribunal. Further, it appears that the other two arbitrators drafted and passed the award in August 2009 without consulting with Mr. Justice Wadhwa, therefore making him conclude: "We exchanged letters in which I expressed my disappointment  and anguish about I do not know where and when both of them met to discuss the draft Award. If that being so, it appears to me rather unusual."

The other two judges in their joint award stated that for "several reasons" they could not have a meeting with the other member of the tribunal and when they received his arbitral award, they had "basic differences" in "approach and reasoning" and therefore they had to write a separate award. The majority also held that the delay caused was on account of health problems. The majority award was in favour of NIKO.

Union of India challenged the award on the ground (among others) that there was an extraordinary delay of four years since the final arguments concluded and the explanation regarding health problems was unsatisfactory.

The Delhi High Court held that it is true that there was an extraordinary delay of four years in passing the award (such awards shall hereafter be called "Delayed Awards"). Even if NIKO's 2006 application is taken into consideration, the award was passed only after three years. Importantly, the court found that if the tribunal unreasonably delays the parties in pronouncing the award, two options were available to the parties: (1) approach the tribunal and pray for expediting the award, (2) if that is not successful, invoke Section 14. As regards the second option, the High Court felt that the decision of the Delhi High Court in Progressive Career Academy v. FIIT JEE did not cover the situation where there was extraordinary delay in pronouncing the arbitral award. Having held so, the court held:
"Given the scheme of the Act, it might be appropriate to exhaust the above remedy before the stage of challenge to the Award. It hardly needs to be stated that delay per se is not identified as one of the grounds under Section 34 of the Act. It would have to be shown that the Award suffered from patent illegality on account of such delay."
Importantly, the court held that in setting aside Delayed Awards, courts should have consideration to the time and expenses incurred by the parties and that if delay alone was the reason for setting aside, several awards would have to be set aside.

However, the court found, after relying on PEAK Chemicals (discussed in the last post) that the majority, having received the draft award of Mr. Justce Wadhwa, did not deal with the points raised therein. These aspects were important as the failure, according to the court had vitiated the award. Nevertheless, the court clarified: "Consequently, while in the present case the delay in pronouncement of the Award per se does not vitiate it, the delay appears to have led to the Award being vitiated by patent illegality for the reasons discussed hereafter."

Subsequently, the court went on to conclude that the majority suffered from patent illegality as it sought to "rewrite the PSC by deeming an amendment to the the PSC to include the 36" pipeline as a part of the Development Plan and deeming a changed Delivery Point when there was no approval to such change" and that it overlooked several facts which led to the conclusion opposite to the one reached by the majority.

Essar Oil:
In Oil India Limited v Essar Oil Limited (pdf), a similar question arose before the Delhi High Court. Disputes between the parties were referred to a three member arbitral tribunal consisting of Retired judges- Mr. Justice R.S. Pathak, former Chief Justice of India (Presiding Arbitrator), Mr. Justice Rajinder Sachar, retired Chief Justice of High Court of Delhi and Mr. Justice J.K. Mehra, retired judge of Delhi High Court. The presiding arbitrator and Mr. Justice J.K. Mehra decided in favour of Essar while allowing some counter-claims of OIL.
Relying on Harji Engineering and other decisions, OIL contended in the Delhi High Court that the award was delivered more than three years after it was reserved and the extraordinary delay therefore rendered the award contrary to the public policy of India. When it was pointed out that in Peak Chemical, the court held that delay per se did not constitute a ground for setting aside the arbitral award, OIL stated that since both the judgements held opposite views, the matter was to be referred to a larger bench. The court took notice of Harji Engineering, Peak Chemicals and NIKO Resources. On NIKO Resources, the court held: 
"In a subsequent decision in Union of India v. Niko Resources 2012 V AD (Del) 573 the Court noticed both the above decisions and further explained the circumstances under which the delay in pronouncement of the Award could be but one factor, among others, that might persuade the Court to set it aside. It was explained that when an Award was challenged on the ground of delay in its pronouncement, the Court would examine the facts and circumstances and ascertain if such delay had led to the Award being rendered patently illegal or opposed to the public policy of India. On the facts of Niko Resources it was observed that the delay in that case had indeed led to an invalid Award being passed."
In view of the observations in NIKO Resources, the Court rejected OIL’s prayer to get the matter referred to a larger Bench.
The court held that although the applicable Rules of the Indian Council of Arbitration provided for two years as the outer limit for the conclusion of arbitration proceedings, since OIL participated in the arbitration proceedings with the knowledge that that the said provision or requirement had not been complied with but without objecting thereto in writing, OIL is deemed to have waived its right to object to such non-compliance, in line with Rule 58 of the Rules of the ICA. The court suggested that OIL should have persuaded the arbitral tribunal to expedite delivering the award and could have approached the relevant court under Section 14 for terminating the mandate of the tribunal for unreasonable delay. The court also noted the inconsistency in the plea of OIL that a portion of the award against it should be set aside on the ground of unreasonable delay while the portion of the award in its favour should not be set aside.
The court proposed to apply the NIKO Resources test- “examine if the delay in the pronouncement of the impugned Award has led to its being vitiated in law” - and found the following: 
  • The impugned Awards, both the majority and the dissenting Awards, are detailed and reasoned and deal with each claim and counter claim at great length.
  •  The passage of time since the reserving the Award has not led to any plea or submission of the parties being overlooked. Unlike in Union of India v. Niko Resources Ltd. where this Court found that the majority Award had failed to deal with the issues raised in the dissenting Award, in the present case the majority Award deals with each of the issues dealt with by the dissenting Award.
Consequently, the court concluded: “It cannot therefore be said that delay in pronouncement of the Award has rendered it patently illegal or opposed to the public policy of India.”

Having briefly surveyed the legal position under the 1996 Act on the issue, we'll critically evaluate the law on the same in the next post. 

[*- Disclaimer: the author has worked in the past as an employee of one of the parties to this case but before the application for setting aside was made.] 

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