Court says two-year gap between reserving and delivering arbitral award is not enough by itself; delay must be unexplained and must clearly affect the findings in the award.
The Delhi High Court has overturned a Single Judge’s decision that had set aside a unanimous arbitral award in favour of Unison Hotels Private Limited against IFFCO Tokio General Insurance Company Limited, ruling that delay in pronouncing an award cannot, by itself, invalidate it.
A Division Bench comprising Justices C. Hari Shankar and Vinod Kumar held that the arbitral award, reserved on 6 March 2021 and pronounced on 6 March 2023, could not be annulled merely because two years had elapsed. The Court said interference is justified only where the delay is both unexplained and demonstrably harmful to the findings recorded in the award.
The dispute arose from fire damage to Unison Hotels’ property, The Grand, Vasant Kunj, insured under a Standard Fire and Special Perils Policy and a Loss of Profit Policy. After the fire incident of 26 January 2008, the insurer made interim payments and later claimed that the matter had been fully and finally settled through discharge vouchers. Unison Hotels disputed this, alleging coercion and financial duress, and invoked arbitration for the unpaid amounts.
The three-member arbitral tribunal accepted Unison Hotels’ case, held that the settlement was not voluntary, and awarded about Rs. 65.13 crore along with interest and costs. The insurer challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the two-year delay in pronouncing the award rendered it invalid and that the tribunal had failed to properly consider the arbitrability of the dispute under Clause 13 of the insurance policies.
The Single Judge accepted the insurer’s challenge and set aside the award, reasoning that the passage of time may have affected the tribunal’s memory and that the delay compromised the tribunal’s treatment of jurisdictional issues.
The Division Bench disagreed. It held that the legal test laid down by the Supreme Court in Lancor Holdings and C. Velusamy requires a court to examine whether the delay had an explicit adverse impact on the award’s findings. Mere speculation that arbitrators may have forgotten submissions is not enough. The Bench also noted that the tribunal had provided reasons for the delay, including the COVID-19 disruption, delayed written submissions by the parties, and the time needed for the three arbitrators to deliberate and finalize the award.
On the insurer’s argument that the dispute was not arbitrable because liability had not been admitted, the Court found that the defence before the tribunal was essentially one of accord and satisfaction based on discharge vouchers, not a specific objection under Clause 13. It further held that the tribunal had, in substance, addressed the issue by deciding that the discharge vouchers were not voluntary and therefore did not extinguish the claim.
The Court also rejected the argument that the insurer should have first moved under Section 14 for termination of the arbitrators’ mandate. It said Section 14 and Section 34 are independent remedies, and failure to invoke Section 14 does not bar a later challenge.
Finding that the Single Judge had not examined the award on merits and had set it aside on a speculative assumption about faded memory, the Division Bench quashed the impugned order and remanded the Section 34 petition for fresh consideration on merits, uninfluenced by its observations.
Bottom Line :
Arbitration and Conciliation Act, 1996 - Delay in pronouncement of arbitral award by itself is not sufficient to set aside award - Award can be interfered with only when delay is unexplained and its adverse effect explicitly reflects on findings in award - Single Judge erred in setting aside unanimous arbitral award solely because two years elapsed between reserving and pronouncing award - Matter remanded for fresh consideration of Section 34 petition on merits.
Statutory provision(s): Section 4, Section 5, Section 14, Section 29A, Section 34, Section 37 of the Arbitration and Conciliation Act, 1996
