The Delhi High Court has ruled that inordinate and unexplained delay in rendering the arbitral award is in conflict with the public policy of India and is amenable to challenge under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Single Bench of Justice Vibhu Bakhru held that award of damages arbitrarily and without any basis also falls foul of the public policy of India.
The petitioner Director General of Central Reserve Police Force floated a tender inviting bids. The respondent Fibroplast Marine Pvt. Ltd. submitted its bid and was declared successful. Thereafter, the parties entered into an agreement. After certain disputes arose between the parties, the respondent invoked the agreement to refer the disputes to arbitration. The respondent filed a petition under Section 11 of the A&C Act before the Delhi High Court for appointment of an arbitrator. A sole arbitrator was appointed by the Court to adjudicate the disputes under the aegis of the Delhi International Arbitration Centre (DIAC). The arbitrator passed an award in favour of the respondent, along with costs and interest. The petitioner filed a petition under Section 34 of the A&C Act against the arbitral award before the Delhi High Court.
The petitioner Director General of Central Reserve Police Force submitted before the High Court that there was an inordinate delay in rendering the award and that the award was rendered eighteen months after the conclusion of the hearing. The petitioner averred that there was no explanation for the inordinate delay. Thus, the petitioner contended that the arbitral award was liable to be set aside.
The petitioner added that the award was also contrary to the rules of the Delhi International Arbitration Centre (DIAC), which expressly requires the arbitral proceedings to be completed within a period of six months. The petitioner added that the award amount was fixed without any basis and was ex facie, perverse. The petitioner averred that the awarded amount exceeded the total consideration agreed between the parties under the agreement.
The respondent Fibroplast Marine Pvt. Ltd. submitted that the record of the case was voluminous and thus the Arbitral Tribunal required sufficient time to examine the dispute. The respondent averred that the arbitral award was based on sufficient material.
Rule 36.2 of the DIAC Rules, 2007 provides that an arbitral tribunal must render the final award within a period of six months from the date on which it receives the file. However, Rule 36.3 provides that an arbitral tribunal may extend the same upto a further period of six months.
The Court noted that there was an inordinate delay in rendering the award and that the hearing before the Arbitral Tribunal spanned for more than two years.
The Court held that the reason for ensuring that the arbitral award is rendered within a reasonable time is to ensure that the efficacy of the oral submissions is not lost, and a large gap between the hearing of the submissions and the rendering of an award would be against the purpose of ensuring an expeditious adjudication of disputes.
The Court noted that the parties had submitted to arbitration under the aegis of DIAC and had agreed that the award would be rendered within the stipulated period. The Court observed that the parties had participated in the arbitration proceedings even after the expiry of the period of one year and thus there was a consensus between the parties for extending the time to make an award.
However, the Court added, the arbitral award was nonetheless required to be made within a reasonable period, and a period of almost one and a half years cannot be considered reasonable.
The Court observed that the Delhi High Court in the case of Harji Engineering Works Pvt. Ltd. versus Bharat Heavy Electricals Ltd. & Anr (2008) had ruled that an arbitral award that is passed after an inordinate and unexplained delay will be contrary to justice. The Court had held that delay which is patently bad and unexplained, constitutes undue delay and is therefore unjust.
The Court thus ruled that an award which defeats justice would be in conflict with the public policy of India. The Court, therefore, held that inordinate and unexplained delay in rendering the arbitral award makes it amenable to challenge under Section 34(2)(b)(ii) of the A&C Act, i.e., on the ground of being in conflict with the public policy of India.
The Court held that there was no ground to find fault with the view of the Arbitral Tribunal that the petitioner was in breach of the agreement and, therefore, the respondent was entitled to be compensated by the petitioner for breach of the agreement. However, the Court ruled that the quantification of the damages awarded by the Arbitral Tribunal was without any basis and the Arbitral Tribunal had also not indicated any calculation in support of its conclusions.
The Court added that the damages awarded by the Arbitral Tribunal were remote and the damages were quantified without any substance. Thus, the Court ruled that the said award was vitiated by patent illegality. The Court held that award of damages arbitrarily and without any basis also falls foul of the public policy of India.
The Court thus ruled that the arbitral award was rendered after an inordinate and unexplained delay. Also, the Court added, the award was vitiated by patent illegality and was in conflict with the public policy of India.
The Court thus set aside the arbitral award and allowed the petition.
Case Title: Director General Central Reserve Police Force versus Fibroplast Marine Pvt. Ltd.
Citation: 2022 LiveLaw (Del) 419
Dated: 04.05.2022 (Delhi High Court)
Counsel for the Petitioner: Mr Praveen Kumar Jain and Ms Bhavna Ruia
Counsel for the Respondent: Mr Sudhanshu Batra, Senior Advocate with Ms Gurinderpal Singh and Ms Jaya Bajpai