Delhi High Court: Whether seeking termination of mandate of an arbitrator under Section 14 is a prerequisite to a petition for setting aside an award

In Harji Engineering Works Pvt. Ltd. vs. BHEL 153 (2008) DLT 489 and later the Division of the Delhi High Court in BWL Limited vs. Union of India 2012 SCC Online Del 5873 inter alia held that the inordinate delay in pronouncement of award requires the award to be set aside. On the other hand, the decision of Peak Chemical Corporation Inc. vs. National Aluminium Co. Ltd. 188 (2012) DLT 680 inter alia hold that an award is not liable to be set aside merely on the ground of delay. In addition, the decision of Union of India vs. Niko Resources Ltd. & Ors. 191 (2012) DLT 668, holds that the remedy of Section 14 of the Arbitration & Conciliation Act, 1996 (Act) ought to have exhausted first before assailing the award under Section 34 of the Act and having failed to do so, the award could not challenge on this ground later. It is interesting to note that the decision of Peak Chemical was relied upon by the Ld. Single Judge in BWL Limited v. Union of India OMP 771 and 772/2010 (judgment dated 04.07.2012) and was later reversed by the Division Bench in BWL Limited vs. Union of India 2012 SCC Online Del 5873 but on the issue of inordinate delay and not on the issue of whether Section 14 is sine qua non for Section 34 in the given scenario.

In Harji Engineering, a delay of three years between the last effective hearing and the making of the award was held sufficient to set aside the award in question. The Ld. Single judge observed that the Act does not prescribe specific period for making and publishing the award but the underlying principle and policy of law that arbitration proceedings should not unduly prolonged and delayed, remains intact and embodied. The Ld. Single Judge placed reliance on the decision of Bhogilal Purushottam Shah vs. Chimanlal Amritlal Shah & Ors. AIR (1928) Bom 49 wherein it was held that “undue delay leads to termination of the mandate of the arbitrator. 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. Is case there is delay, it should be explained. Abnormal delay without satisfactory explanation is undue delay and causes prejudice. It defeats the very purpose and the fundamental basis for alternative dispute redressal. Delay which is patently bad and unexplained, constitutes undue delay and therefore unjust. Courts have limited power to set aside an award as provided in Section 34 of the Act. The Act, therefore, imposes additional responsibility and obligation upon an Arbitrator to make and publish an award within a reasonable time and without undue delay.”

In BWL Ltd., the Division Bench of the Delhi High Court was concerned with a lapse of approximately three and a half years between the conclusion of hearings and the clarificatory hearings being scheduled by the arbitrator. After clarifications were obtained, a further two and a half years passed before the award was made. The Division Bench, expressly approving Harji Engineering (supra), reversed the order of the Single Judge (who relied on relied upon the decision in Peak Chemicals, discussed later hereinafter), observing that the arbitrator had “evinced his supine negligence and indifference to the matter” and therefore, the delay was fatal to the award.

The decision in Peak Chemicals concerns a four and a half year delay in making of an award in which Harji Engineering was cited but distinguished. The Court observed that 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 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. The Court observed that since the dispute in that case was pending since 1996 and even the Arbitrator who passed the Award had since expired. Therefore, it would not be in the interest of justice to set aside the Award only on the ground of delay and remand it for a fresh determination considering the time and money already spent in the arbitral proceedings. It is pertinent to note that the Division Bench in BWL Ltd. (supra) reversed the order of the Ld. Single Judge in BWL Limited v. Union of India OMP 771 and 772/2010 (judgment dated 04.07.2012) where Peak Chemicals (supra) was followed.

In Niko Resources, although the Court held a similar delay of over four years to be “indeed extraordinary”, the decision in Peak Chemicals was relied upon to hold that the delay does not per se vitiate the award. The learned Single Judge of the Delhi High Court held that the remedy of approaching the Court under Section 14 of the Act for termination of the mandate of the arbitrator ought to be invoked prior to a challenge on this ground under Section 34. The Court further observed 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. What also should weigh with the Court when faced with a situation where an Award is sought to be challenged on the ground of delay is to consider the costs incurred and the time spend in the arbitral proceedings. If delay alone was to be the factor, then, as is happening not infrequently these days, many an Award would be vulnerable to invalidation on this ground alone. It would be the facts and circumstances of a given case which would determine if the delay is so unconscionable as to vitiate the Award.

Recently, in MMTC Lt v. Gian Gupta O.M.P. (COMM) 355/2016 decided on 6 January 2020, Ld. Single Judge of the Delhi High Court inter alia held that the dictum of Niko Resources does not provide for a mandatory recourse to Section 14(2) in order to mount a challenge under Section 34 on these grounds. The Court noted that in Niko Resources case, the Court has only elucidated upon an alternative remedy which may appropriately be invoked in these circumstances. In addition, the Court cited another case (Satya Prakash vs. North Delhi Municipal Corp. (2017) 161 DRJ 99) wherein the Delhi High Court had upheld a challenge under Section 34 on the ground of delay even though an application under Section 14 had been made to the arbitrator and subsequently withdrawn as the award was made in the meanwhile.

In MMTC, the award was reserved on 27.11.2007 but pronounced only on 20.12.2013 (after almost 6 years). Considering the authorities of Harji Engineering and BWL Ltd., the Ld. Single Judge held that the award is unsustainable since inordinate delay per se vitiates an award. Further, the Ld. Single Judge also observed that both Peak Chemicals and Niko Resources acknowledge that the question of whether an award is vitiated by delay would depend upon the facts and circumstances of each case.

The question that requires to be considered is whether the ratio of Niko Resources, that the remedy of approaching the Court under Section 14 of the Act for termination of the mandate of the arbitrator ought to be invoked prior to a challenge on this ground under Section 34, has been constructively set aside by the Division Bench in BWL Ltd ? It is pertinent to mention that this question was neither directly decided either by the Ld. Single Judge in judgment dated 04.07.2012 in OMP 771 and 772/2010 nor it was decided by the Division Bench in BWL Ltd. Therefore, for this proposition, it appears that there are two conflicting judgements passed by the Ld. Single Judges of the Delhi High Court in Niko Resources and MMTC Lt.

Disclaimer: The views expressed on this post are mine and do not reflect the views of the organisation(s) I am engaged with