Delay No Longer a Blanket Defense: Supreme Court's Nuanced Test for Challenging Arbitral Awards Under Section 34 of the Arbitration and Conciliation Act, 1996

Introduction

The Supreme Court of India (“the Court”), in its landmark judgment dated October 31, 2025, in M/s Lancor Holdings Limited v. Prem Kumar Menon, has fundamentally redefined the jurisprudence surrounding delay in arbitral proceedings and its impact on challenges to arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”). This decision arrives at a critical juncture when Indian courts are grappling with the delicate balance between ensuring expeditious dispute resolution and maintaining the principle of minimal judicial intervention in arbitral awards.

The Court has clarified that mere delay in pronouncing an award, though undesirable, does not ipso facto render it liable to be set aside. Instead, it introduces a prejudice-centric test and interference is warranted only where the delay demonstrably undermines the fairness, validity, or integrity of the arbitral process. This balanced framework safeguards arbitration's finality while addressing systemic inefficiencies.

Factual Matrix and Procedural History

The dispute stemmed from a joint development agreement in the real estate sector between Lancor Holdings Limited and Prem Kumar Menon. Following disputes between the parties, arbitral proceedings were initiated pursuant to the arbitration clause in their agreement. However, the arbitral tribunal took an inordinate period to deliver its award, a delay that subsequently became the central focus of the challenge under Section 34 of the Act.

The award-debtor challenged the arbitral award before the Commercial Court, arguing that the prolonged delay in pronouncing the award vitiated the entire arbitral process and rendered the award susceptible to being set aside. The Commercial Court partly allowed the application, setting aside the award primarily on the grounds that the delay was so substantial as to undermine the integrity of the arbitral process. This decision was subsequently challenged before the High Court, which upheld the Commercial Court's view that delay alone could constitute sufficient ground for setting aside an award under Section 34.

Aggrieved by this decision, the matter reached the Supreme Court, which was called upon to examine whether delay in pronouncing an arbitral award, by itself and without demonstrable prejudice to either party, constitutes a valid ground for setting aside the award under Section 34 of the Act. The Supreme Court's examination of this issue has resulted in a definitive clarification that reshapes the landscape of arbitral award challenges in India.

Supreme Court's Reasoning: Delay, Public Policy, and Complete Justice

Delay Per Se Is Not a Ground Under Section 34

The Court undertook an exhaustive survey of the divergent approaches taken by various High Courts on the question of whether delay in pronouncement of arbitral awards could vitiate such awards. The Court noted that in the pre-Section 29A era, different High Courts had taken varying positions on this issue.

Some High Courts, including decisions such as Harji Engg. Works Pvt. Ltd. v. Bharat Heavy Electricals Ltd., BWL Ltd. v. Union of India, K. Dhanasekar v. Union of India, and GL Litmus Events Pvt. Ltd. v. Delhi Development Authority, held that unexplained and inordinate delay in pronouncement of awards was violative of public policy and could result in setting aside of such awards. These decisions reasoned that it is natural for arbitrators to forget contentions and pleas raised by parties during the course of hearings if there is a huge gap between the last date of hearing and the date of award, and that abnormal delay without satisfactory explanation amounts to undue delay causing prejudice to the parties.

Conversely, other High Courts, as reflected in decisions such as Peak Chemical Corporation Inc. v. National Aluminium Co. Ltd., Union of India v. Niko Resources Ltd., and Oil India Limited v. Essar Oil Ltd., held that delay per se was not a ground to set aside an arbitral award, and that it would depend on the facts and circumstances of each case whether the delay was of such import and impact that it vitiated the award. These decisions emphasized that if the award comprehensively dealt with all aspects of the matter, delay alone would not justify setting it aside.

The Court also referred to its own observations in several decisions on the undesirability of delay in delivery of judgments by Courts, including Anil Rai v. State of Bihar, R.C. Sharma v. Union of India, and Kanhaiyalal v. Anupkumar, wherein it was emphasized that justice delayed is justice denied, and that excessive delay shakes the confidence of litigants in the adjudicatory process.

The Court's Balanced Approach to Delay

The Court noted that the undeniable fact remains that Section 34 of the Act of 1996 does not postulate delay in the delivery of an arbitral award as a ground, in itself, to set it aside. Nevertheless, the Court observed that inordinate delay in the pronouncement of an arbitral award has several deleterious effects. Passage of time invariably debilitates human memory, making it well-nigh impossible for an arbitrator to have total recall of oral evidence and submissions. Such delay, if unexplained, gives rise to unnecessary speculation and suspicion in the minds of parties, shaking their absolute faith and trust in the system.

Acknowledging the authoritative commentaries on arbitration, the Court quoted from Russel on Arbitration and Redfern and Hunter on International Arbitration, which emphasize that arbitral tribunals have a moral obligation to carry out their task with due diligence, and that justice delayed is justice denied. The Court also referred to Professor William W. Park's seminal article "Arbitrators and Accuracy," which balances the need for speed with the requirement for meaningful and accurate awards.

The Court formulated a balanced principle: Delay in the delivery of an arbitral award, by itself, is not sufficient to set aside that award. However, each case must be examined on its own individual facts to ascertain whether the delay had an adverse impact on the final decision of the arbitral tribunal, whereby the award would stand vitiated due to lapses committed owing to such delay. It is only when the effect of undue delay is explicit and adversely reflects on the findings in the award that such delay can be construed to result in the award being in conflict with the public policy of India under Section 34(2)(b)(ii) or vitiated by patent illegality under Section 34(2A) of the Act of 1996.

The Court further clarified that it would not be necessary for an aggrieved party to invoke the remedy under Section 14(2) of the Act of 1996 (for termination of arbitrator's mandate for failure to act without undue delay) as a condition precedent to laying a challenge to a delayed award under Section 34 of the Act. Both provisions operate independently.

Unworkable Awards and the Failure to Resolve Disputes

The Court turned to the second critical aspect: whether an award that is unworkable and fails to settle disputes is liable to be set aside. The Court emphasized that arbitration, as an alternative dispute resolution mechanism, is envisioned as a substitute for time-consuming and costly litigation in courts. The aim is to ensure settlement of disputes with minimum intervention by the court. The very objective of the exercise would be lost if, after the entire process, an arbitrator fails to resolve the disputes between parties and leaves them high and dry with advice to initiate fresh litigation.

Quoting extensively from Professor William W. Park's article "Arbitrators and Accuracy," the Court underscored that an arbitrator's primary duty remains the delivery of an accurate award resting on a reasonably ascertainable picture of reality. The Court observed: "Litigants wanting only quick or cheap solutions can roll dice, and have no need of lawyers.... An arbitrator's main duty lies not in dictating a peace treaty, but in delivery of an accurate award that rests on a reasonable view of what happened and what the law says."

The Court held that the very basis and public policy underlying the process of arbitration is that it is less time-consuming and results in speedier resolution of disputes between the parties. If that premise is not fulfilled by an unworkable arbitral award that does not resolve the disputes between the parties, leaving them with no choice but to initiate a fresh round of litigation while the arbitrator has meanwhile irrevocably altered their positions, then such an arbitral award would not only be in conflict with the public policy of India but would also be patently illegal on the face of it, rendering it liable to be set aside under Section 34(2)(b)(ii) and/or Section 34(2A) of the Act of 1996.

The Court further observed that the concept of "public policy" includes not only fundamental policy of Indian law, interest of India, justice and morality, but also patent illegality. Referring to its decisions in MMTC Limited v. Vedanta Limited and Ssangyong Engineering and Construction Company Limited v. National Highway Authority of India, the Court reiterated that patent illegality means contravention of the substantive law of India, contravention of the Act of 1996, and contravention of the terms of the contract.

Application to the Facts: An Abdication of Duty

Applying these principles to the facts of the case, the Court found the Arbitrator's conduct utterly shocking. The Arbitrator took nearly four years to conclude that he had no equitable relief to offer both parties, yet held entirely in favor of one side, leaving the parties to start litigating again. The Arbitrator conveniently opined that proper pleadings and evidence had not been placed before him, ignoring the fact that he had already altered the parties' positions through his interim order and benefited one party at the expense of the other.

The Court observed that the delay in making the Award resulted in nearly four valuable years passing away with no benefit to show for it. When the public policy underlying resort to arbitration is to make it a time-saving mechanism for resolving disputes, the unexplained and pointless delay clearly pitted the Award against the public policy of India.

The Court found that the repetitions ad nauseam in the Award and the vacillation by the Arbitrator clearly manifested that the delay contributed to demonstrable indecisiveness. The Arbitrator stated that the situation was "very complex" requiring careful handling, which resulted in "some delay" in devising proper relief "equitable to both parties," but ultimately devised no such relief.

The Court concluded that the undue delay and wavering attitude of the Arbitrator, contributing to his "rudderless Award," were utterly shocking, as he totally lost sight of the very purpose of the exercise. The Award was therefore liable to be set aside as it was in clear conflict with the public policy of India and was also patently illegal.

Exercise of Article 142 Powers: Complete Justice

Having held that the Award must be set aside, the Court turned to the question of appropriate relief. The Court noted that merely setting aside the Award would relegate the parties to another round of arbitration or litigation. However, that was not a possible course of action given that much water had flown under the bridge pursuant to the interim and final directions of the Arbitrator.

The Court held this to be a fit case for exercise of jurisdiction under Article 142 of the Constitution to do complete justice, rather than relegating the parties to another round of litigation incurring more costs and time. Referring to the decision in Gayatri Balasamy v. ISG Novasoft Technologies Limited, the Court reiterated that Article 142 power is to be exercised with great care and caution, in consonance with the fundamental principles and objectives behind the Act of 1996. The power should be exercised where it is required and necessary to bring the litigation to an end, saving parties' money and time.

The Court observed that this arrangement would bring the curtains down and end the litigation while doing justice to both parties, who would otherwise be required to initiate fresh arbitration/litigation involving more time and money.

The Takeaway

The judgment represents a significant contribution to India's arbitration jurisprudence by addressing gaps in the law on delayed and ineffective awards. It reaffirms that arbitration must remain faithful to its core purpose: providing parties with a speedy, effective, and final resolution of their disputes. An arbitrator who takes years to deliver an award that resolves nothing while leaving parties worse off than before has failed in his fundamental duty. The Court's willingness to intervene in such exceptional circumstances, including through exercise of Article 142 powers, ensures that the integrity and utility of arbitration as an alternative dispute resolution mechanism is preserved.

This decision strengthens India's position as a jurisdiction committed to maintaining high standards in arbitration practice, where arbitrators are held accountable for timely and effective discharge of their duties, and where courts will not hesitate to step in to ensure that the arbitration process delivers on its promise of fair, efficient, and final dispute resolution.