Supreme Court Exercises Curative Jurisdiction In Setting Aside Arbitral Award Passed Against Delhi Metro Rail Corporation

Summary:

[1]A Three-Judge Bench of the Hon’ble Supreme Court (“Hon’ble SC”) comprising of Hon’ble Chief Justice of India DY Chandrachud, Justice BR Gavai and Justice Surya Kant(“Hon’ble Bench”), in an exercise of its curative jurisdiction, relieved the Delhi Metro Rail Corporation (DMRC) of a huge liability to the tune of Rs 8000 crores approximately by setting aside its 2021 judgment which upheld the arbitral award won by the Delhi Airport Metro Express Private Limited (DAMEPL, Reliance Infrastructure subsidiary) against the DMRC.

Facts:

In 2008, The Delhi Metro Rail Corporation (“DMRC/Petitioner”) entered into a Concession Agreement (“Agreement”) with a consortium led by Reliance Infrastructure Ltd., viz., Delhi Airport Metro Express Pvt. Ltd. (“DAMEPL/Respondent”) for the construction, operation and maintenance of the Delhi Airport Metro Express Ltd (“AMEL”).

Under the Agreement, DAMEPL was granted exclusive rights, license and authority to implement the project and concession in respect of AMEL and the right to manage and operate the Project as a commercial enterprise. DMRC was to undertake clearances and bear costs relating to land acquisition and civil structures, while DAMEPL was to undertake inter-alia, the design, supply, installation, testing and commissioning of railway systems. DAMEPL was to complete the work in two years, and thereafter, to maintain AMEL until August 2038.

In April 2012, certain defects were alleged by DAMEPL, which ultimately led to a stop on operations on 08.07.2012. The very next day, on 09.07.2012, DAMEPL issued a notice to DMRC containing a ‘non-exhaustive’ list of eight defects which according to them, caused a “material adverse effect” to the performance of their obligations under the 2008 Agreement. Therefore, DAMEPL requested DMRC to cure the defects within 90 days (“Cure Period”) from the date of this notice, failing which DAMEPL would be constrained to terminate the Agreement.

After the said Cure Period, i.e., on 8.10.2012, DAMPEL issued a notice terminating the Agreement (“Termination Notice”) in terms of clause 29.5.1 of the Agreement, stating that the defects had not been cured within the said Cure Period. DMRC initiated conciliation under clause 36.1 of the Agreement. Since conciliation did not succeed, the DMRC initiated arbitration proceedings on 23.10.2012 under clause 36.2 of the Agreement.

After an in-depth analysis of the dispute, the Arbitral Tribunal observed that DMRC had primarily failed to cure the defects within the prescribed time, and accordingly this failure constituted a material breach. Thus, the termination notice issued by DAMEPL was valid. The Arbitral Tribunal passed an award that directed DMRC to pay primarily Rs. 2,782 Crores along with interest to DAMEPL.

DMRC filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) praying for setting aside the award on the grounds of patent illegality and being against the public policy of India. Given the narrow scope of interference under Section 34, the learned single judge of the Hon’ble Delhi HC (“Hon’ble HC”) dismissed the application. Aggrieved, DMRC filed an appeal under Section 37 of the Act before the Division Bench. The Division Bench noted that the award suffered from vices of perversity and irrationality. The underlying reason was pointed towards the award that recorded two different termination dates which created confusion. The Division Bench also dissected the award and adopted an alternative view that was also a plausible one but not adopted by the Arbitral Tribunal. Consequently, the award of Rs. 2,782 Crores was set aside.

Distraught by the judgment of the Division Bench, DAMEPL filed a Special Leave Petition (“SLP”) before the Hon’ble SC. Significantly, even DMRC filed a separate SLP praying for specific performance. A two-judge bench of the Hon’ble SC allowed the Appeal, and restored the award. The review petition assailing this decision was also subsequently dismissed. Thus, the Curative Petition.

Issue:

Whether the Division Bench of Hon’ble HC erred in its judgment by setting aside the award and deviating from the settled principles for interference under Sections 34 and 37 of the Act?

Judgment:

Noting the scope of jurisdiction laid down in Rupa Hurra vs. Ashok Hurra (2002) 4 SCC 388 with regards the exercise of Curative Jurisdiction by the Hon’ble SC, the Hon’ble Bench opined the situations in which the curative jurisdiction can be exercised is not intended to be exhaustive, and the jurisdiction of this Court, while deciding a curative petition, extends to cases where the Court acts beyond its jurisdiction, resulting in a grave miscarriage of justice.

Further, the Hon’ble Bench while considering the decisions of the Hon’ble SC in Associate Builders vs. Delhi Development Authority (2015) 3 SCC 49 and Ssangyong Engineering & Construction Co. Ltd. vs. NHAI (2019) 15 SCC 131 summarised that the ground of patent illegality is available for setting aside a domestic award if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the that construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view. A ‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of ‘patent illegality’. An award without reasons would suffer from patent illegality. The arbitrator commits a patent illegality by deciding a matter not within his jurisdiction or violating a fundamental principle of natural justice.

However, the Hon’ble Bench observed that the Hon’ble SC must be slow in interfering with a judgement delivered in exercise of powers under Section 37 unless there is an error in exercising of the jurisdiction by the Court under Section 37.

The Hon’ble Bench observing that the award, being unreasoned on the certain important aspects and overlooking vital evidence, held that the judgment of the two-judge Bench of the Hon’ble SC, which interfered with the judgment of the Division Bench of the Hon’ble HC, has resulted in a grave miscarriage of justice and according allowed the curative petitions upholding the judgment of the Division Bench of the Hon’ble HC.

The Hon’ble Bench also directed that the execution proceedings before the Hon’ble HC for enforcing the arbitral award must be discontinued and the amounts deposited by the petitioner pursuant to the judgment of this Court shall be refunded and the part of the awarded amount, if any, paid by the Petitioner as a result of coercive action is liable to be restored in favour of the Petitioner.

However, the Hon’ble Bench clarified that the exercise of the curative jurisdiction of the Court should not be adopted as a matter of ordinary course. And the same should not be used to open the floodgates and create a fourth or fifth stage of court intervention in an arbitral award, under the SC’s review jurisdiction or curative jurisdiction, respectively.

Analysis:

This is a well-reasoned judgment which explains that the Award suffers from perversity, irrationality and patent illegality in the form of ambivalence as to the date of termination as well as non-consideration of vital evidence. This judgment serves as a good reminder that when there are glaring errors, unfounded interpretations and perverse findings in an arbitral award, the SC can utilise even its curative jurisdiction in order to set aside such arbitral awards.

[1] BEFORE THE HON’BLE SUPREME COURT

Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd : https://www.sci.gov.in/wp-admin/admin-ajax.php?action=get_judgements_pdf&diary_no=237512022&type=j&order_date=2024-04-10

Curative Petition (C) Nos.108-109 of 2022 

Judgment dated 10th April 2024