2025 (11) TMI 74 - SC - Indian Laws

Article 142 used to validate registered sale deeds, award Rs.10 crore recovery and forfeit company security deposits

M/s. Lancor Holdings Limited Versus Prem Kumar Menon and others

SC allowed the appeal and, invoking Article 142 to finally end protracted proceedings, directed that the registered sale deeds executed in favour of the ... Effect of undue and unexplained delay in the pronouncement of an arbitral award upon its validity - Setting aside of arbitral award that is unworkable, on grounds of perversity, patent illegality and being opposed to the public policy of India? If so, would it be a fit case for exercise of jurisdiction under Article 142 of the Constitution - whether or not the construction of the building was completed as per the agreed terms? - HELD THAT:- The exercise of jurisdiction under Article 142 of the Constitution is the only viable alternative in this case as the other alternative would be to set aside the Award, thereby relegating the parties to another round of arbitration/litigation after 16 years! Doing so would be a travesty of justice and nothing short of making a mockery of the process to the extent of shaking the very faith and trust that parties necessarily have to repose when they resort to arbitration to settle their disputes. As observed in Gayatri Balasamy [2025 (5) TMI 566 - SUPREME COURT (LB)], the power under Article 142 can be exercised where it is required and necessary to bring the litigation or dispute to an end as it would not only end protracted litigation, but would also save parties' money and time. That apart, as already noted, relegating the parties to fresh arbitration/litigation after setting aside the Award is not even a plausible option in this case as it is not possible to turn back the clock and restore the parties to the status quo ante, owing to the developments after delivery of possession of the respondents’ share of the building in 2010, resulting in creation of third-party interests. The undeniable fact as on date is that the respondents are enjoying their 50% share of the building by putting the same to beneficial use, while the Company has been divested of occupation and use of its 50% share since passing of the Award. The Company resorted to patent illegality in executing registered sale deeds in its own favour on the strength of a photocopy of the second power-of-attorney, the original of which remained with the escrow agent, HDFCL, knowing fully well that this course of action on its part was opposed to the terms of the contract. The Company must necessarily be penalized for this illegal action. Further, it is not possible at this stage to determine with precision the incomplete works that were there in the building which were attended to by the respondents at that time. However, the fact remains that the respondents would have expended funds and effort to complete the building in all respects so as to put their share therein to beneficial use and they deserve to be compensated therefor. The equities and the interest of justice would be sufficiently served by directing that the execution of the sale deeds by the Company on 19.12.2008, though unlawful in its inception as it was based on a violation of the agreement terms and was without obtaining the original power-of-attorney from the escrow agent, HDFCL, should be treated as lawful and valid at this stage, instead of requiring their cancellation and execution of fresh sale deeds involving payment of higher stamp duties and registration charges. This would, however, be at the cost of penalizing the Company for such violation, by directing forfeiture of the security deposits of Rs. 6.82 crores. Further, as the respondents have to be compensated for the works undertaken by them for the completion of the building, we consider it appropriate to grant a sum of Rs. 3.18 crores under this head, so as to bring the amount payable by the Company to a round figure of Rs. 10 crores. Delay in the delivery of an arbitral award, by itself, is not sufficient to set aside that award. 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. 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, thereby attracting Section 34(2)(b)(ii) of the Act of 1996 or Section 34(2A) thereof, as it may also be vitiated by patent illegality. Further, it would not be necessary for an aggrieved party to invoke the remedy under Section 14(2) of the Act of 1996 as a condition precedent to lay a challenge to that delayed and tainted award under Section 34 thereof - 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, on one hand, leaving them with no choice but to initiate a fresh round of arbitration/litigation but the arbitrator, in the meanwhile, also changed their positions, irrevocably altering the pre-existing balance between the parties prior to the arbitration, 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. It would therefore be liable to be set aside under Section 34(2)(b)(ii) and/or Section 34(2A) of the Arbitration and Conciliation Act, 1996. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether undue and unexplained delay in the pronouncement of an arbitral award affects its validity and can be a ground to set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996. 2. Whether an arbitral award that is unworkable - i.e., does not finally settle disputes but irrevocably alters parties' positions and compels further litigation - is liable to be set aside on grounds of perversity, patent illegality and being opposed to the public policy of India; and if so, whether the Court may exercise jurisdiction under Article 142 to do complete justice. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of undue and unexplained delay in pronouncement of an arbitral award Legal framework: Section 34 of the Arbitration and Conciliation Act, 1996 provides limited grounds for setting aside arbitral awards; pre-amendment the statute did not prescribe a time-limit for pronouncement of awards; Section 29A (inserted retrospectively) mandates timelines for domestic awards and permits party/Court extensions; Section 14(1)(a) and (2) address termination of an arbitrator's mandate for failure to act without undue delay. Precedent treatment: The Court considered a range of judicial approaches - some high court decisions set aside awards for inordinate unexplained delay (treated as contrary to public policy), while other decisions held delay, by itself, not to vitiate awards unless delay produced patent illegality or prejudiced the process. International and doctrinal authorities emphasise arbitrators' duty to avoid undue delay and warn that excessive delay may ground removal or invalidation where substantial injustice results. Interpretation and reasoning: The Court holds that delay alone is not automatically a ground to set aside an award under Section 34. Each case must be examined on its facts to determine whether delay had an explicit adverse impact on the award's findings - e.g., lapses arising from memory loss, selective recollection, failure to consider contentions, or manifest unfairness - which would render the award in conflict with public policy (Section 34(2)(b)(ii)) or show patent illegality (Section 34(2A)). The Court recognises practical limits of Section 14(2) remedy (risk of antagonising arbitrator, practical disincentives) and thus holds that invocation of Section 14(2) is not a mandatory precondition before challenging a delayed award under Section 34; both remedies operate independently. Ratio vs. Obiter: Ratio - delay is not per se a ground under Section 34; however, unexplained/undue delay that demonstrably and adversely affects the integrity, fairness or correctness of the award can render it contrary to public policy or patently illegal and therefore amenable to setting aside. Obiter - discussion of practical disincentives to resort to Section 14(2) and doctrinal citations on international practice. Conclusions: Delay must be tested for its adverse effect on the award's findings; unexplained, inordinate delay that materially undermines fairness, completeness or accuracy of the award may vitiate it under public policy/patent illegality grounds; exhaustion of Section 14(2) is not a jurisdictional prerequisite to a Section 34 challenge. Issue 2 - Unworkable arbitral award that irrevocably alters positions and leaves parties to relitigate; power under Article 142 Legal framework: Section 34(2)(b)(ii) (public policy of India) and Section 34(2A) (patent illegality) provide limited grounds to set aside domestic awards; Article 142 of the Constitution permits this Court to do 'complete justice' in a cause or matter, subject to restraint and not to be used to re-write awards on merits or contravene core statutory scheme. Precedent treatment: The Court relies on prior rulings which define public policy to include fundamental policy of Indian law, justice/morality and patent illegality; recent constitutional jurisprudence circumscribes Article 142 - it may be used to bring finality where necessary and not to modify awards on merits, and can be used where an award is perverse, patently illegal, or opposed to public policy and where practical realities (e.g., irreversible changes, third-party rights) make fresh adjudication futile. Interpretation and reasoning: The Court emphasises arbitration's public policy objective - speedy, efficacious dispute resolution with minimal court intervention. An award that fails to resolve disputes finally yet alters parties' positions irrevocably (creates third-party rights, changes possession, grants one party benefit without corresponding relief to other) undermines that objective. Where the arbitrator's indecision or delay produces an award that is unworkable, one-sided, or leaves essential remedial questions undecided such that parties are forced into another litigation cycle, the award may be contrary to public policy and patently illegal. In such exceptional circumstances, setting aside alone may not be adequate or practical; Article 142 can be invoked to craft a final, equitable remedy so as to end protracted litigation, provided the Court does not rewrite the award's merits but seeks to effect complete justice in consonance with the Act's objectives and constitutional limits. Ratio vs. Obiter: Ratio - an unworkable award that fails to settle disputes but alters parties' positions irrevocably can be set aside as being against public policy and patently illegal; in appropriate exceptional circumstances where reversal would be impracticable and parties' positions intervened by third-party rights, the Court may exercise Article 142 to mould relief to do complete justice. Obiter - policy reflections on arbitration's aims and academic citations cautioning against speed at cost of correctness. Conclusions: An award that leaves the dispute unresolved while irreversibly changing parties' positions is liable to be set aside under Section 34(2)(b)(ii)/34(2A). If setting aside would lead to further futile litigation or cannot restore status quo due to intervening third-party rights or irreversible acts, the Court may, with caution, exercise Article 142 to give a final equitable disposition that aligns with arbitration's objectives and the parties' rights without re-deciding the merits beyond permissible limits. Application of principles to the present case (brief) The Court found that the arbitrator reserved the award and pronounced it after nearly four years without adequate explanation; the delay contributed to vacillation, repetitive reasoning and failure to provide equitable, final relief though the arbitrator had earlier passed interim orders that irrevocably altered positions and resulted in third-party rights. The arbitrator's construction of contract clauses (notably the Project Architect/Completion/Handover provisions) was found perverse and contrary to the contract's plain terms. The award left key remedial issues undecided while divesting one party of its share and enriching the other without corresponding compensation - an unworkable outcome that offended public policy and exhibited patent illegality on the face of the award. Remedial outcome and principles governing relief Given irreversible developments, practical impossibility of restoring status quo, and equitable considerations (including penalising the wrongful unilateral acts by the party that executed sales without entitlement), the Court exercised Article 142 to mould relief: treating certain unlawful conveyances as valid for present purposes but penalising the wrongdoer by forfeiture/monetary compensation to achieve finality and justice. The Court underscored the narrow compass for Article 142 - it must not rewrite awards on merits but may be used to end protracted litigation where necessary to give complete justice consonant with the statute's objectives. Overall ratio (succinct) Delay in pronouncement of an arbitral award is not, by itself, a ground for setting aside; where delay is undue, unexplained and demonstrably prejudicial to the integrity and correctness of the award such that the award is perverse, patently illegal or opposed to public policy, it may be set aside under Section 34(2)(b)(ii)/34(2A). Where setting aside alone would produce injustice or be impracticable because of irreversible consequences, the Court may, in exceptional cases and within constitutional limits, exercise Article 142 to mould a final equitable remedy to do complete justice.