Delay Must Cause ‘Perversity’ to Set Aside Arbitral Award, Delay Alone not Enough: Supreme Court

The Supreme Court of India ruled that mere delay in delivering an arbitral award isn’t enough to set it aside. Only when such a delay causes perversity or affects the fairness of the decision can the award be invalidated.

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NEW DELHI: In a landmark ruling, the Supreme Court of India has held that an “undue and unexplained delay” in the pronouncement of an arbitral award cannot, by itself, be a ground for setting aside the award. However, if such a delay has an adverse impact on the decision, leading to perversity or patent illegality, then the award may be struck down as being against the public policy of India.

This principle was laid down in the judgment of M/s. Lancor Holdings Limited v. Prem Kumar Menon & Others (2025 INSC 1277), where the apex court examined a delay of nearly four years between the reservation and pronouncement of an arbitral award.

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Background

The dispute originated from a Joint Development Agreement (JDA) dated December 17, 2004, concerning a 1.116-acre property in Chennai.
Under the JDA:

• The developer (Lancor Holdings Ltd.) was to construct a building at its own cost.
• The landowners were to receive 50% of the built-up area, while the developer retained the other 50% share.
• The developer paid ₹6.82 crores as refundable, interest-free security deposits, to be returned 15 days after the “Handover Date.”

Clause 6 of the JDA defined the Handover Date as when:

1. The architect certifies that construction is complete and fit for occupation.
2. The developer applies to the CMDA for a completion certificate.
3. The developer offers possession in writing after fulfilling the first two conditions.

A Power of Attorney (POA) allowing the developer to sell its 50% share was held in escrow with HDFC Limited, to be released only upon the Handover Date.

The Dispute and Arbitration

Lancor claimed that the Handover Date occurred on October 20, 2008, relying on:

• An Architect’s Certificate dated October 10, 2008, and
• A CMDA application dated July 29, 2008.

However, the landowners disputed this, alleging that the building was incomplete.
Despite this, the developer executed five sale deeds in its favour on December 19, 2008, using a photocopy of the POA while the original remained in escrow.

The matter was referred to arbitration before Justice K.P. Sivasubramaniam (Retd.).

• The developer sought a refund of ₹4.82 crores.
• The landowners sought a declaration that the sale deeds were void.

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The Arbitral Award and the Four-Year Delay

• The award was reserved on July 28, 2012, but pronounced on March 16, 2016 — a delay of 3 years and 8 months.
• The Arbitrator ruled in favor of the landowners, declaring the sale deeds and Architect’s Certificate illegal.
• However, he failed to resolve monetary claims, leaving key issues “open” and advising parties to seek “appropriate proceedings.”

This indecisive award effectively failed to resolve the dispute, despite a prior interim order that had already changed the parties’ positions.

Supreme Court’s Analysis

The Supreme Court clarified a vital point of law:

“Delay in the delivery of an arbitral award, by itself, is not sufficient to set aside that award. However, each case must be examined to determine whether such delay adversely impacted the final decision.”

In this case, the Court found that the delay had a direct and adverse impact on the Arbitrator’s reasoning and conclusions. It was observed that:

• The award was riddled with repetition and indecisiveness, reflecting a loss of clarity over time.
• The unexplained delay rendered the award ineffective and futile.
• The award was therefore in conflict with the public policy of India.

The Court also termed the award “perverse” for:

• Misinterpreting Clause 6 of the JDA,
• Erroneously holding that power and water connections were required for the Architect’s Certificate, and
• Leaving both parties without a meaningful resolution.

Given that the dispute had persisted for 16 years, the Court held that sending the parties back to fresh litigation would be a “travesty of justice.”

Exercising its extraordinary powers under Article 142 of the Constitution, the Supreme Court provided a final and binding resolution.

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Final Directions:

1. The five sale deeds (Dec 19, 2008) are treated as lawful and valid.
2. The developer must pay a total of ₹10 crores to the landowners:
   • ₹6.82 crores as forfeited security deposits, and
   • ₹3.18 crores as compensation for works done by the landowners.
3. The payment must be made within three months.
4. Upon full payment, the developer gains possession of its 50% share in the property.
5. The appeals were allowed in these terms.

Case Title:
M/s. Lancor Holdings Limited versus Prem Kumar Menon and others
CIVIL APPEAL NOs. 10074-10075 OF 2024

READ JUDGMENT

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