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Supreme Court holds that Long delay in pronouncing the award after reserving for award vitiates the award

Overview

In this case, the Delhi High Court basically clarified whether an unexplained delay in delivery of an arbitral award can be considered as a ground to set it aside. A petition was filed under Section 34 of Arbitration and Conciliation Act, 1996 by IFFCO Tokyo General Insurance Company challenging the arbitral award which was passed in the favour of the respondents, Unison Hotels Private Limited. 

The matter was not merely related to the quantum of money, but it raised a question as to the time period under which an arbitral award has to be delivered. The court had to examine that to what extent the validity of an arbitral award is affected when it is delayed by two years. 

 

Facts

The matter arose from two insurance policies taken by the respondent, Unison Hotels Pvt. Ltd. from the petitioner, IFFCO Tokio General Insurance Company, valid from 1 April 2007 to 31 March 2008. 

On 26 January 2008, the hotel caught fire and the insurance amount was claimed from the petitioner. During the pendency of the case, a certain amount was paid by the insurance company to the respondent and on 30 January 2012, the claim was treated as final and completed.

Following this, the respondent invoked the arbitration clause as mentioned in the insurance policy and an arbitral tribunal was appointed. The petitioner argued that since the claim had already been fully settled, there was no dispute to be settled in the first place. It was also alleged that once the settlement is accepted, the matter cannot be reopened through arbitration. Unison Hotels responded by saying that the settlement was involuntarily made while claiming the existence of the dispute.

The arbitral tribunal held that the settlement was not voluntary and decided to hear the matter based on merits. The award was reserved on 6 March 2021 and was finally delivered on 6 March 2023, two years later. Due to this, the petitioner approached the Delhi High Court for setting aside the award on the basis of a delay of two years in the delivery of the award.

 

Legal Issues

  • Whether delay in delivering an arbitral award, can be considered as a ground to set it aside.
  • Whether the arbitral tribunal was just and reasonable while determining the existence of an arbitral dispute.
  • Whether the delay caused affected the reasoning of the tribunal when it comes to the case of final settlement.

 

Decision

The Delhi High Court stated that the delay alone cannot be a ground to set aside an arbitral award. However, if the reasons behind the delay cannot be explained properly and affects the quality of the reasoning of the tribunal, then it can be considered as a valid ground and the award can be set aside. 

In this case, the delay was caused due to COVID-19 pandemic, but still a large gap persisted, even after it came to an end. The Delhi High Court referred to the case of Lancor Holdings Ltd. v. Prem Kumar Menon and observed that one of the core feature of arbitration is efficiency. When there is a long gap in delivery of an award, it creates a question as to whether the arguments made by the parties were properly considered by the arbitrators.

Since there was an unexplained delay in delivery of the award, the court held the award to be unsustainable, and it was set aside.

 

Case Reference :- O.M.P. (COMM) 197/2023, I.A. 20470/2023 & I.A. 30914/2025  (SJB, Delivered by Avneesh Jhingan, J.) IFFCO Tokio General Insurance Company Ltd.    Vs. Unison Hotels Pvt. Ltd.