Unexplained Seven-Year Delay Conflicts With Public Policy: Madras High Court Sets Aside ₹51.48 Lakh Arbitral Award Under Section 34 Arbitration Act Against TN Housing Board
Safiya Malik
The High Court of Madras, Single Bench of Justice N. Anand Venkatesh set aside an arbitral award directing payment of ₹51.48 lakh with interest to a contractor in its dispute with a state housing authority, holding that the award was vitiated by patent illegality and conflicted with India’s public policy due to an unexplained delay of more than seven years in delivering the decision after final hearing. The dispute arose from a construction contract for residential flats, involving claims and counterclaims over the final bill, encashment of bank guarantees, taxes, and rectification-related works. The Court left it open to the parties to appoint a fresh arbitrator limited to receiving final submissions and issuing the final award within a stipulated time frame.
The proceedings arose from a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside an arbitral award dated 30 July 2020. The dispute originated from a construction contract relating to the construction of 560 HIG flats at the S.A.F. Games Village, Koyambedu. The contract value was approximately ₹61.98 crores, with a stipulated completion period of twelve months. Disputes arose alleging delay and non-compliance, leading to arbitral proceedings.
Earlier, a three-member arbitral tribunal had passed an award on 10 January 2000, which was set aside due to the absence of one arbitrator’s signature. Subsequently, by a judicial order dated 26 February 2007, a sole arbitrator was appointed. The arbitral proceedings commenced with a preliminary hearing on 28 April 2008.
The claimant raised claims including non-payment of the final bill, encashment of bank guarantees, reimbursement of statutory levies, and costs of rectification works. The respondent raised counterclaims relating to additional sales tax, costs of incomplete works, and excess payments. No oral evidence was led; instead, documentary evidence comprising 25 exhibits on the claimant’s side and 10 exhibits on the respondent’s side was marked. The sole arbitrator ultimately awarded a sum of ₹51.48 lakhs with interest.
The Court examined whether the arbitral award suffered from infirmities warranting interference under Section 34. It observed that “Section 34 of the Act does not postulate delay in the delivery of an arbitral award as a ground, in itself, to set it aside,” while also noting that “inordinate delay in the pronouncement of an arbitral award has several deleterious effects.” Relying on recent Supreme Court precedent, the Court stated that each case must be assessed on its own facts to determine whether unexplained delay had an adverse impact on the award.
The Court recorded those final arguments before the sole arbitrator concluded on 24 November 2013 and the matter was adjourned for passing of the award. It noted that “since no order was passed for more than seven years, the petition was reopened,” and that thereafter, no effective oral or written submissions were made before the award was rendered. The Court observed that “the last time the Sole Arbitrator heard the parties was in the year 2013 and thereafter, the Award has been passed only based on the materials that were available.”
On public policy, the Court held that “the public policy underlying resorting to arbitration is to make it a time saving mechanism for resolving disputes,” and that an award passed after an unexplained delay of over seven years was “certainly in conflict with the Public Policy of India.”
Regarding interest, the Court stated that the arbitrator “after having delayed the passing of the Award for more than seven years, has also imposed interest” for the entire period, including the delayed years. It observed that “it will be unreasonable to mulct the petitioner with interest even for the period of delay in passing the Award,” and concluded that such an approach “certainly suffers from patent illegality.”
The Court also recorded that arguments advanced in 2013 “certainly cannot be recollected in the year 2020,” and that the award was passed without affording an effective opportunity to present the case, particularly in light of the intervening pandemic.
The Court held that “the Award passed by the Sole Arbitrator dated 30.07.2020, is liable to be interfered with for infraction under Section 34(2)(b)(ii) and under Section 34(2A) of the Act. This Original Petition stands allowed and the Award passed by the Sole Arbitrator dated 30.07.2020, is hereby set aside.”
It was “left open to the parties to agree upon the appointment of a fresh Arbitrator only for the purpose of making their submissions (oral and/or written) and for passing the final Award, within a stipulated time frame. There shall be no order as to costs,” and ordered that the connected miscellaneous applications stood closed.
Advocates Representing the Parties
For the Petitioners: Mr. J. Ravindran, Additional Advocate General, assisted by Mr. S. Aravindran, for Fox Mandal Associates
For the Respondents: Mr. P. J. Rishikesh, Advocate
Case Title: The Tamil Nadu Housing Board v. M/s. N.C.C. Ltd.
Neutral Citation: 2025: MHC:2775
Case Number: Arb O.P.(COM.DIV.) No. 35 of 2022
Bench: Justice N. Anand Venkatesh
