Inordinate delay in pronouncement of arbitral award has deleterious effects: SC

New Delhi, Oct 31 (PTI) The Supreme Court on Friday said an inordinate delay in pronouncing an arbitral award has several "deleterious effects" and, if unexplained, such a delay would give rise to wholly-avoidable speculation in the minds of the parties.

The apex court said absolute faith and trust in the system is essential to make it work the way it is intended to and once that belief is shaken, it would lead to a breakdown of the system itself, a situation that is to be eschewed at all costs.

A bench of Justices Sanjay Kumar and Satish Chandra Sharma delivered its verdict on appeals in a matter in which the arbitrator reserved his arbitral award on July 28, 2012 and pronounced it only on March 16, 2016, with no definite resolution of the matter.

It noted that significantly, no explanation worth the name was offered by the arbitrator for the delay.

The bench framed two questions that arose for its consideration in the matter, including what is the effect of an undue and unexplained delay in the pronouncement of an arbitral award upon its validity.

Answering the question, the bench said a delay in the delivery of an arbitral award, by itself, is not sufficient for the award to be set aside.

"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," the bench said.

"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...," it added.

The bench said the very basis of the public policy underlying the process of arbitration is that it is less time-consuming and results in speedier resolution of disputes.

It also referred to amendments to the Arbitration and Conciliation Act, 1996.

The bench said it is an undeniable fact that section 34 of the Act does not postulate a delay in the delivery of an arbitral award as a ground, in itself, to set it aside.

Section 34 deals with an application for setting aside an arbitral award.

"There is no gainsaying the fact that inordinate delay in the pronouncement of an arbitral award has several deleterious effects," the bench said.

It said the passage of time invariably debilitates frail human memory and it would be "well-nigh impossible for an arbitrator to have total recall of the oral evidence", if any, adduced by witnesses and the submissions and arguments advanced by the parties or their lawyers.

The bench observed that even if detailed notes were made by the arbitrator during the process, those would be a poor substitute to what is fresh in the mind immediately after the conclusion of the hearings in the case.

"More importantly, such delay, if unexplained, would give rise to unnecessary and wholly-avoidable speculation and suspicion in the minds of the parties," it said.

The bench said it must also recognise that in the usual course, a long delay in the passing of arbitral awards is not the norm.

Referring to the matter, the bench said it is of the opinion that exercising jurisdiction under Article 142 of the Constitution is the only viable alternative in the case as the other alternative would be to set aside the award, thereby relegating the parties to another round of arbitration or litigation after 16 years.

"Doing so would be a travesty of justice and nothing short of making a mockery of the process to the extent of shaking the very faith and trust that parties necessarily have to repose when they resort to arbitration to settle their disputes," it said.

The bench noted that the core dispute that arose between the parties in the matter was whether or not the construction of a building in Chennai was completed in accordance with the agreed terms.

It noted that while the respondents had claimed that the building was not completed as agreed upon, the petitioner company had said the structure stood completed in July 2008, when it applied for a completion certificate.

The bench said the undeniable fact as on date is that the respondents are enjoying their 50 per cent share of the building by putting the same to beneficial use, while the company has been divested of occupation and use of its 50 per cent share since the passing of the award.

"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 December 19, 2008 ... should be treated as lawful and valid at this stage...," it said.

The bench said the company would pay Rs 10 crore to the respondents within three months.

"Upon making the full payment of this amount, the company would be entitled to take possession of its 50 per cent share in the building, in keeping with the terms of the JDA (Joint Development Agreement) with regard to the apportionment and sharing of the built-up areas and the common areas, apart from the share in the land itself," it said. PTI ABA RC