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

New Delhi: 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.