The Unworkable Award: Lancor Holdings and the Shift to Substantive Grounds for Challenging Delayed Awards

[Soumya is a student at National Law University Odisha.] 

Recently, the Supreme Court (SC) in a case of M/s. Lancor Holdings Limited v. Prem Kumar Menon and Others, held that an arbitral award rendered following an inordinate and unexplained delay contravenes the public policy and amounts to patent illegality as provided under Section 34 of the Arbitration and Conciliation Act 1996 (A&C Act). The decision essentially changes the arbitral jurisprudence regarding the grounds of challenging awards based on the issue of delay. It acknowledges that procedural delay has a material impact on the substantive features of an award. Nevertheless, the dependence of the SC on Article 142 of the Constitution and the inconsistent decisions considered by the High Courts (HC) about granting relief in delay cases points to a larger gap. In effect, Indian jurisprudence does not have a guideline for what ought to be termed as being tolerable delay.

This article contends that this judgment rightly points out the pathologies of delay, but it is imperative to embrace a structured framework through a stringent two-pronged test in differentiating between: (1) procedural illegality due to delay itself and (2) the substantive prejudice due to delay under the rules of grounds of public policy under Section 34. 

Legislative Background on Arbitral Delays: Amendments of 2015 and 2019

In India, arbitration was intended to be an effective substitute of the time-consuming litigation. However, when the original 1996 A&C Act was applied, there was little recourse for parties against arbitrators who took excessive time to decide cases. Section 14(1) permitted the appointment of an arbitrator to be terminated due to undue delay, but the section was seldom used as it was feared that it would lead to hostility and bias. The practical usefulness was limited, which caused even the courts themselves to recognise that the provision had been marred by structural reluctance. 

The legislative reaction was in two tranches. First, through the 2015 amendment, Section 29A was introduced to provide a definite timeframe. Now, an arbitral award must be passed within 12 months post the completion of pleadings. The same could be extended to 18 months with agreement between both parties. Any additional extensions may only be allowed by a Court intervention after establishing sufficient cause. Second, the amendment in 2019 further clarified this provision by amending Section 23(4) to ensure that pleadings must be completed within 6 months of the appointment of an arbitrator to do away with unconscionable delays. 

But these legislative interventions had major drawbacks. To begin with, the arbitrations which were initiated prior to the passage of the amendments were still vulnerable to extended delays due to the prospective application of the amendments. The amendment, as a result, failed to provide any resolution to a large portion of pending cases.

Additionally, even though there are strict timelines in Section 29A, there is no clear position on the duration for which an award can be reserved by an arbitrator or an arbitral tribunal, particularly where the parties do not move any applications under Section 29A before the relevant court. 

The Problem: Fragmented Approach and Inconsistent High Court Jurisprudence

The most significant gap exposed by Lancor Holdings is the absence of a clear, predictable threshold for identifying when delay crosses from inconvenience to patent illegality. The HCs have applied inconsistent standards under which delay vitiates the award. In Harij Engineering Works (Private) Limited v. Bharat Heavy Electricals Limited, a single judge bench of the Calcutta HC set aside an arbitral award solely on the ground of a three-year delay from the last effective hearing without substantive examination of the award quality. The decision was grounded in the reasoning that delay without a satisfactory explanation will be contrary to justice and the objectives of arbitration.

Further, the Delhi HC, in GL Litmus Events Private Limited v. Delhi Development Authority, set aside the award delivered after an inordinate and unexplained delay of 19 months under Section 34(2)(b)(ii). The HC also noted a spectrum of cases in the judgment wherein delays ranging from 1.5 to 6 years independently triggered vitiation.

However, the Delhi HC judgments of Union of India v. Niko Resources Limited and Peak Chemical Corporation adopt a contradictory position of law i.e., mere delay is insufficient to set aside an award. The inconsistency in different outcomes creates an untenable situation for the parties, as they cannot predict when delay constitutes grounds for challenge. Hence, this necessitates the establishment of a coherent and predictable threshold in the interest of the parties so that judicial decision-making appears principled rather than ad hoc, preserving the objectives of the A&C Act.

Lancor Judgement: Institutional Implication of a Doctrinal Shift 

This was a case concerning a dispute between the parties arising from a joint development agreement signed between the parties in 2004. The arbitration was initiated in 2009. Following this, the arbitrator reserved the award in July 2012 but pronounced it after a period of almost four years in March 2016, with no reasoning for the same. Above all, the arbitrator did not award substantive relief to the parties, failing to resolve the underlying dispute. This made parties enter into litigation and permanently changed their legal position. The two-judge bench believed that a delay is not enough to vacate an award so long as it does not adversely affect tribunal findings to qualify under Section 34(2A) and 34(2)(b)(ii) of A&C Act. Section 34(2A) stipulates patent illegality as an error of law that goes to the matter, whereas in Section 34(2)(b)(ii) is the ground of public policy.

Further, the SC invoked Article 142 of the Constitution and stated that rescinding the award and referring the parties to a fresh arbitration would not eradicate but add to the injustice. While this invocation assisted in doing justice in this case, it also raises the issue of standardization and doubt over vitiating awards through delay.

The Proposed Two-Pronged Framework: Operationalizing Lancor Holdings

Lancor Holdings marks a significant expansion in the doctrine of the public policy. Although mere delay in delivery is not enough to vitiate an award, unexplained and inordinate delays that have an influence on the ability to make a decision or render it unworkable are a breach of public policy. The decision reflects the principle that procedural delay, when coupled with the demonstrable prejudicial effects, constitutes patent illegality and violation of public policy. Therefore, a standard test or threshold based on the Lancor Judgment of delay being a ground under Section 34 of the A&C Act is proposed.

Procedural illegality of the delay itself 

Courts should apply Section 29A’s 12-month baseline as a statutory reference benchmark even for pre-amendment arbitrations. Delays exceeding the same create a rebuttable presumption of material prejudice unless the award provides substantive justification. Awards should include a reasoned explanation based on why the dispute’s complexity necessitated extended gaps. A graduated scale offers certainty, and delays longer than 36 months of time should be seen to be presumptively indefensible except in extraordinary situations.

Substantive prejudice to the reasoning or finality of award

The question that courts ought to look into is whether the delay has proved to have impacted the substantive reasoning of the award in the form of contradictions, issues left unaddressed or the incoherent relief. In the case of substantive prejudice, delays will have a material impact on the rights of parties since the erosion of memories will influence the capacity of an arbitrator to issue an award that is well reasoned, as recognised by the SC in Lancor Holdings. 

In addition to corrupted reasoning, one should evaluate whether the award fulfilled the instrumental objective of arbitration as giving a final and timely relief. This feature of the substantive inadequacy may be evaluated by the very notion of unworkable awards, which was observed in Lancor Holdings. The legal tribunal also posed the question of whether the delayed award has ultimately brought the dispute to an end or rather facilitated the parties into another wave of legal proceedings. This forms the practical inefficacy of awards because of the failure to cover material claims and change the legal position of the parties due to the delayed timelines. The award in such cases could not serve as a binding final adjudication and essentially defeats the purpose of the arbitration act operating under Section 34. This calibrated approach will enhance India’s arbitration landscape while protecting parties from prolonged and unresolved arbitrations.