"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.

Monday, September 3, 2012

Conclusion- Undue Delay Cannot Constitute Reason for Setting Aside the Arbitral Award-

In the last two posts (here and here), we had discussed the recent developments in the law on setting aside arbitral awards for unreasonable delay in passing the award after conclusion of hearings (hereafter "Delayed Awards"). this post is aimed at critically analysing the law on the said issue. 

From Harji to Essar:

The journey from Harji Engineering in 2008 till Essar Oil in 2012 represents a sea but subtle change in the law on the issue. This would be apparent if we tabulate the results of each of the four cases:

Delay (years)
Whether Set Aside

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 and should therefore be set aside.
Whether delay in the pronouncement of the award after conclusion of final arguments would vitiate the award depends on facts and circumstances. If the award comprehensively the facts as pleaded by the parties, the evidence, the submissions of counsel, the analysis of the facts and evidence, and the detailed reasons issue-wise and if the dispute between the parties has been long pending, it is not in the interests of justice to set aside the impugned Award only on the ground of delay.
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 and should therefore be set aside.
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.

In the first post on this topic, we had dealt with Harji Engineering where it was held that extensive delay that is unexplained or unsatisfactorily explained in passing the award after final hearing is “unjust”. In addition, the court found that since the arbitrator pronounced the award “without finally concluding the hearings”, the award was “contrary to principles of fair play and justice”. It is not wholly clear from a prima facie reading of the judgement if undue delay alone constituted sufficient ground for setting aside the award. However, one would not be wrong in concluding that the court's  view was that an award which was passed three years after the last effective hearing without satisfactory explanation for the delay defeated “the very purpose and the fundamental basis for alternative dispute redressal”, that delay that was "patently bad and unexplained" was "unjust" and that the award was liable to be set aside for being contrary to public policy.

In the same post, we had discussed Peak Chemical where Muralidhar, J. was not as unequivocal as Sanjiv Khanna, J. was in Harji Engineering. The former was not convinced that a Delayed Award could be contrary to the "public policy" of India. One would note that Sanjiv Khanna, J. reached the opposite conclusion in Harji Engineering. After discussing ONGC v. SAW Pipes and stating that "award could be set aside if it is contrary to... (c) justice...", he held that a delayed award was unjust. In Peak Chemical, Muralidhar, J. was not too convinced about applying Harji Engineering especially considering the following reasons (a) the award was comprehensive,  (b) the arbitrator had expired thereby eliminating any chance of remanding it again and (c) a arbitrating again meant that parties had to again incur costs and time. The judge did not state he disagreed with Sanjiv Khanna but only "distinguished" the facts in Peak Chemical and held that facts and circumstances would dictate as to whether a Delayed Award was bad. In Peak Chemical the judge held it didn't. While Muralidhar, J. seems to have actually questioned setting aside a Delayed Award by noting that he didn't think "public policy" could be stretched to cover such irregularities, he seems to have not wanted to actually contradict Sanjiv Khanna. This led to an ambiguous situation. However, Muralidhar, J. who was the judge in Peak Chemical, had an opportunity to clarify the legal position in NIKO Resources. In NIKO Resources, Muralidhar, J. reiterated his stance that delay in passing arbitral award was not a ground for setting aside the award. Curiously, the judge held: "It would have to be shown that the Award suffered from patent illegality on account of such delay." In other words, according to the judge, the award can be set aside only if the delay caused the award to be patently illegal. 

Thus, both Peak Chemical and NIKO Resources contradict with Harji Engineering on whether a Delayed Award per se is liable to be set aside under Section 34. According to Harji, it is, and according to Peak Chemical (and NIKO Resources) it is not. Muralidhar, J. disagreed with the suggestion of counsel for Oil India in Oil India Limited v. Essar Oil Limited (Essar Oil) to refer the matter to a larger bench owing to the contradiction between Harji Engineering and Peak Chemical and held: "In any event, as explained in Peak Chemical Corporation Inc., the decision in Harji Engg. turned on its own facts. The decision in Harji Engg. should not be understood as laid down as an inviolable law that irrespective of the facts and circumstances of a case, if there is delay in pronouncing an Award then it should be set aside. OIL is therefore mistaken in concluding that there is a conflict between the decisions in Harji Engg. and Peak Chemical Corporation Inc." This is not true. It is doubted if Harji Engineering carves out any exception to the proposition that Delayed Awards should be set aside under the "public policy" ground in Section 34. In fact, the cases cited in Harji Engineering seem to state that unreasoned delay will vitiate the award. For example, in Kesholal Ramdayal Kahar v. Laxman Rao Ramkrishna Rao Deshpande AIR 1940 Nag. 386, the court held:
"What is necessary in such a case of arbitration is that once an arbitrator is appointed the parties to the arbitration are entitled to insist that the arbitration should be proceeded with reasonable speed and if there be an unreasonable delay which is unexplained and not justified by the circumstances of the case the parties to arbitration will be justified in revoking the reference and if an award is given after a long delay he will be entitled to ask the Court not to file the award."  
In any case, Muralidhar, J attempted to further clarify the law in Essar Oil when he referred to NIKO Resources and held: "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." Two points to be noted on this test:
  • As per ONGC v. SAW Pipes, an award that is patently illegal is contrary to the public policy of India. Patent illegality, according to a commentary on the 1996 Act means: "The expressions ‘patent illegality’, ‘blatant illegality’, and ‘error of law apparent on the face of the record’ have synonymously been used to denote the illegalty or error of law which goes to the root of the matter, or is violative of constitutional or statutory provisions or is inconsistent with the law established by judicial decisions" [O.P. MALHOTRA & INDU MALHOTRA, THE LAW AND PRACTICE OF ARBITRATION AND CONCILIATION 1175 (2006)]. Thus, where it is apparent on the face of the award that the award is illegal, it is liable to be struck down. Therefore, how does it matter is the patent illegality was caused by, say, lack of legal expertise of the arbitrator or delay in passing the award or any other reason? 
  • Although Muralidhar, J. held in NIKO Resources that the the delay in that case had indeed led to an invalid Award being passed, the court has not precisely stated how the delay has led to the award becoming patently illegal. The draft award by Justice Wadhwa was circulated soon after the conclusion of the hearings; the majority award was published in 2009; Justice Wadhwa published his award in December 2009; the majority award does not deal with the dissenting points of Justice Wadhwa. But how did the court presume that it was the delay that caused the majority arbitrators to not deal with the contentious points raised by the draft dissenting award? In fact the majority award clarified this aspect: "We received his draft Award in good time but on reading it we found that there were basic differences in our approach and reasoning and it could hardly be expected that we all would be able to agree upon a common Award." Whether the award was patently illegal is a different question. But the court was perhaps not right in concluding that the delay caused the patent illegality. In any case, as stated above, it  does not matter whether the patent illegality was caused due to the unreasonable delay in passing the award after conclusion of hearings or for any other reason.
Whether a Delayed Award is liable to be struck down?
Muralidhar J. was right to state in NIKO Resources that the parties should approach the tribunal first and request it to pass the award within reasonable time and in case the tribunal fails to do so, the court must be approached under Section 14 of the 1996 Act for termination of the mandate of the arbitrator.

In arbitration, it is not only the effort of the tribunal to decide the dispute but also of the parties to ensure that the dispute is resolved swiftly and efficiently. Having agreed to arbitration, a party cannot wait till the tribunal commits a mistake and then go to court after the award and challenge it. Would the party have questioned the Delayed Award if it had been in its favour? Therefore, delay per se should not be a ground for setting aside the arbitral award.

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