In a significant ruling on the scope of Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996, the Delhi High Court has restored the unanimous arbitral award, holding that the Single Judge erred in setting it aside on a mere ‘possibility of forgetting’ arguments, without identifying any specific finding vitiated by delay. The Court said that a mere delay in rendition of an arbitral award is insufficient to invoke Section 34 of the Arbitration and Conciliation Act, 1996.
A court cannot set aside an arbitral award merely because the passage of time may have weakened the arbitrator’s memory, and there must be a positive demonstration that the delay impacted the findings, and the party challenging the award must point to a specific submission that was left unaddressed. Further, a plea of non-arbitrability under Clause 13 of the insurance policies, having not been specifically raised in the Statement of Defence before the Arbitral Tribunal, could not be raised for the first time in Section 34 proceedings, added the Court.
The High Court also explained that the Arbitral Tribunal’s detailed findings on financial duress, coercion, and abuse of dominant bargaining position under Sections 15 and 16 of the Indian Contract Act, 1872, effectively addressed the maintainability of the dispute, as the dispute was only about quantum, which was squarely arbitrable under Clause 13.
The Division Bench comprising Justice C. Hari Shankar and Justice Vinod Kumar noted that the Single Judge had acknowledged that mere delay is not by itself a ground to set aside an arbitral award, as held by the Supreme Court in Lancor Holdings Limited v. Prem Kumar Menon [2025 SCC OnLine SC 2319]. However, despite this correct starting point, the Single Judge proceeded to set aside the award on a mere ‘possibility of forgetting’ arguments by the Tribunal, without identifying any specific submission that was left unaddressed or any specific finding that was demonstrably affected by the delay.
The Bench observed that the Insurance Company had not specifically pleaded, in its Statement of Defence before the Arbitral Tribunal, any objection to the arbitrability of the dispute in the light of Clause 13, and the only plea actually raised was that the claims stood discharged by accord and satisfaction on account of the unconditional discharge vouchers signed by UHPL. A reading of the Statement of Defence confirmed that the Insurance Company did not categorically deny its liability to pay UHPL, and the dispute was only about the quantum payable, which squarely fell within the scope of arbitrable disputes under Clause 13.
The Arbitral Tribunal had, in fact, examined the accord and satisfaction plea exhaustively in paragraphs 15 to 32 of the award, applying Section 15 (coercion) and Section 16 (undue influence) of the Indian Contract Act, 1872, and recording detailed findings that the discharge vouchers were obtained under financial duress and abuse of dominant bargaining position by the Insurance Company, added the Court.
The Bench further noted that the three-member Tribunal consisted of a retired Judge of the Supreme Court, a retired Chief Justice of the Jammu & Kashmir High Court, and a retired Judge of the Delhi High Court, and that the delay was reasonably explained by the COVID-19 pandemic and the parties’ own delay in filing written submissions. The Insurance Company had, notably, not raised any objection regarding the delay at any stage before the Tribunal, nor had it filed any application under Section 14(2) of the 1996 Act seeking termination of the mandate on the ground of inordinate delay, and the plea was raised only when it found the award going against it. Further, the counsel for the Insurance Company could not point to even a single argument urged before the Tribunal that had escaped its attention in the award, a fact the Bench found to be decisively fatal to the challenge premised on delay.
Briefly, Unison Hotels Private Limited (UHPL) insured its hotel property, the Grand, Vasant Kunj, New Delhi with IFFCO Tokio General Insurance Company Limited by taking two insurance policies for the period 1 April 2007 to 31 March 2008. One is a Standard Fire and Special Perils (Material Damage) Policy (MD Policy) for Rs. 186.44 crores and a Fire Loss of Profit (Business Interruption) Policy (LOP Policy) for Rs. 100 Crores. On 26 January 2008, a fire broke out in the lower ground floor of the Enoki Restaurant and spread rapidly through the air duct passage, causing serious damage to the hotel. UHPL claimed Rs. 68.64 crores under the MD Policy and Rs. 100 crores under the LOP Policy. The Insurance Company however paid Rs. 20 crores and Rs. 30 crores respectively as part-payment on 30 January 2012, treating the claims as ‘fully and finally settled’.
UHPL disputed the settlement and invoked arbitration under Clause 13 of the Policies, which was common to both. After a gap of approximately two years between reserving and pronouncement, the Arbitral Tribunal found the settlement not voluntary and proceeded to adjudicate the claims on merits, ultimately awarding Rs. 65.12 crores along with 9% simple interest per annum and Rs. 50 lakhs as costs. The Insurance Company challenged the award, primarily contending that the award was vitiated by inordinate and unexplained delay and that the dispute was not arbitrable under Clause 13. A Single Judge of the Delhi High Court allowed the petition and set aside the award, holding that the delay was not adequately explained and had adversely impacted the Tribunal’s findings, particularly on the jurisdictional question under Clause 13.
