Introduction
In a previous post we had covered the effect
of the arbitral tribunal’s failure to issue an arbitral award despite efflux of
time in a time bound arbitration.[2] If
an arbitration is not time bound, what then would constitute delay in issuance
of an arbitral award and would such delay be sufficient ground to set aside an
award? In a recent decision of the High Court of Delhi, this issue cropped up
once again. [3]
Facts
The concessionaire Petitioner
entered into a turnkey contract for drilling of offshore wells for the purpose
of oil/gas exploration with the Respondent. Under the contract the Respondent
was to carry out obligations within strict timeframes. The deadlines were not
met and the Petitioner terminated the contract. The Respondent invoked the
arbitration clause and asked inter alia for
compensation for unlawful termination of the contract. The Petitioner
countersued for damages for failure to complete the obligations in due time.
The Arbitral Tribunal heard
the parties at length and commenced working on the award in 2001. The award was
however, issued only in 2004. The tribunal ruled in favour of the Respondent
but allowed certain counterclaims of the Petitioner.
The Petitioner challenged the
award in the High Court of Delhi under S. 34 of the A&C Act 1996.
Submissions
Amongst the various
submissions made, the Petitioner challenged the award on the ground that it was
against public policy, having been issued almost three years after it was
reserved for being pronounced; the expeditious pronouncement of awards being in
the interest of public policy.
The Respondent resisted the challenge
by submitting that the award was issued without undue delay. The Respondent
further submitted that even if the award was delayed, the Petitioner had never
raised any objection to such delay and had thus waived its right to object at
this belated stage. The Respondent further submitted that delay itself was not
sufficient cause for an award to be set aside.
Decision
The learned single judge of the High Court of Delhi
held that delay in making of an arbitral award by itself was not sufficient
ground to strike down the award unless it led to circumstances which made the
award patently illegal and hence against public policy. The Court further held
that the Petitioner by failing to object to the delay in issuance of the award
had in fact waived its rights to so challenge it. The Court concluded that
there was no ground to set aside the award and dismissed the petition.
Analysis
Undue delay in rendering decisions has been
held to be ground enough to overturn the courts’ decisions. In this regard see R.C. Sharma v. Union of India [4] and Kanhaiyalal v. Anupkumar
[5]. But can an analogy be drawn to delay
in issuing arbitral awards?
It must be noted that the Arbitration Act,
1940 permitted the Court to enlarge time for issuance of an award.
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…
No such provision is contained in the present
Act of 1996. But the absence of Court’s power to extend time would not go so
far so as to support the proposition that undue delay in issuance of the award
is ground enough to set aside the award.
Under S. 34 of the Act of 1996 the Court can
set aside the award on several grounds including the award being in conflict
with the public policy of India.
In ONGC v. Saw Pipes Ltd.[6] the Supreme
Court of India while expanding the scope of the words “public policy” to
include patently illegal awards, made an observation as under
“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.”
In HarjiEngineering Works Pvt. Ltd. v. Bharat Heavy Electricals Ltd.[7] the Delhi High Court remarked that
“It is
natural and normal for any arbitrator to forget contentions and pleas raised by
the parties during the course of arguments, if there is a huge gap between the
last date of hearing and the date on which the award is made. An Arbitrator
should make and publish an award within a reasonable time. What is reasonable
time is flexible and depends upon facts and circumstances of each case. In case
there is delay, it should be explained. Abnormal delay without satisfactory
explanation is undue delay and causes prejudice… 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 mechanisms.”
The Delhi High Court set aside the award
though there were other factors which also influenced its decision in this
regard.
It would seem that the decision in Harji Engineering Works Pvt. Ltd. v. Bharat
Heavy Electricals Ltd. has expanded the already overstretched ratio in ONGC v. Saw Pipes Ltd. by classifying
delay in making of an award to be an act against public policy of India.
However a discerning interpretation of the decision can lead to the conclusion
that delay in issuing the award by itself is not sufficient but the nature of
delay and its circumstances and consequences ought to be examined in order for
it to be ground enough to set aside the award.
In Peak Chemical Corporation Inc. vs National Aluminium [8] the Delhi High Court was once again asked
to decide upon this issue. The Court held that:
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. As will be discussed hereafter, the impugned Award sets out
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. Another factor that requires to be accounted for
is that the dispute between the parties has been pending since 1996. It would
not be in the interests of justice to set aside the impugned Award only on the
ground of delay and remand it for a fresh determination.
The approach in Peak Chemical seems sensible as delay in itself should not vitiate
an arbitral award. An examination of the reasons for delay and its consequences
is a must. Where the delay is occasioned by mischief or with an intent to drag
proceedings or where the delay is for no plausible explanation, it can vitiate
an award. Where such delay results in illegality, i.e. where the parties
submissions are forgotten or overlooked and hence not considered in the award,
or where the delay gives sufficient reason to speculate on the credibility,
independence and impartiality of the tribunal, the same can vitiate the award.
In Unionof India v. Niko Resources Ltd.[9] the delay in issuance of the award was
found to vitiate the award, moreso as the dissenting arbitrator had made a note
in the award that the inexplicable delay in rendering the award was occasioned
by the delayed circulation of the draft award by the two other members of the
tribunal who seemed to have an unusual predetermined agreement upon the draft.
In the case under review another aspect was
enunciated, which aspect is be examined by the court while deciding whether
delay in issuing an award can be ground enough to set it aside. The Court must
look into the action/inaction on part of the parties to determine whether a
party has waived its right to object to such inordinate delay. Thus where a
party was aware of the growing delay and did not object or challenge the arbitrator’s
mandate under S. 14(2) on grounds of failure to act without undue delay, the
party is deemed to have acquiesced in such delay and cannot be permitted to
raise this ground to challenge the award.
Conclusion
The approach can be summarized as under. Delay
in pronouncement of the award by itself cannot be sufficient ground for setting
aside the award. The following aspects have to be examined:
- The reason for the delay and whether any plausible explanation is forthcoming
- The circumstances surrounding the delay
- The consequences of the delay including the effect it has had on the award (including whether any issues or submissions thereon have been overlooked in the award)
- Whether the party seeking to set aside the award has acquiesced in the delay and waived his rights to so challenge the award.
Thus on a case to
case basis the consequences of such investigation can only decide whether delay
in rendering the award can itself render the award nugatory.
[1] Copyright Economic Laws Practice. Authored by Mr. Vikram
Nankani and Mr. Alok N. Jain
[2] Bharat Oman Refineries Ltd. v. Mantech
Consultants, Appeal No. 702 of 2011 decided on 2nd May 2012
[3] Arbitration Appeal No. 12 of 2012 decided
on 9th April 2012
[4] (1976) 3 SCC 574
[5] (2003) 1 SCC 430
[6] (2003) 5 SCC 705
[7] 2008 (4)
Arb LR 199 (Del)
[8] O.M.P. No.
160/2005
[9] O.M.P. No. 192 of 2010 decided on 2nd July 2012
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