In a prolonged legal dispute between Delhi Metro Rail Corporation (DMRC) and Delhi Airport Metro Express Private Limited (DAMEPL) regarding the termination of a concession agreement for the Airport Metro Express Line project, the Supreme Court of India has rendered a landmark ruling, placing a significant milestone in India’s arbitration landscape. This article delves into the verdict of the apex court in the curative petition filed by DAMEPL, in which the court has deviated from the norm and brought down barricades previously set up concerning interference with an arbitral award.
The background
A concession agreement was entered into between the DMRC and DAMEPL for the design, construction, commissioning, operation and maintenance of the Airport Metro Express Line project in New Delhi. As per the terms of the agreement, DAMEPL was obligated to complete the project within two years, followed by a maintenance period extending until August 2038. However, in view of delays and alleged defects, DAMEPL terminated the agreement, prompting the DMRC to initiate arbitration proceedings. The award favoured DAMEPL, but the DMRC challenged it before Delhi High Court.
In the challenge proceedings under section 34 of the Arbitration and Conciliation Act, 1996, the single bench of the high court upheld the award, stating that an arbitral award cannot be set aside merely because an alternative perspective exists, as long as the tribunal’s view is plausible. However, on appeal, the division bench partially set aside the award, deeming it perverse and blatantly illegal for overlooking crucial facts and evidence. The decision of the division bench was challenged before the apex court in a special leave petition.
Supreme Court perspective
The Supreme Court set aside the decision of the division bench and restored the award. Against this, the review petition by the DMRC was also dismissed in November 2021. The aggrieved DMRC preferred a curative petition, where a few moot points came up for consideration, including the maintainability of the petition and the restoration of the award by the apex court.
The bench comprising Justices DY Chandrachud, BR Gavai and Surya Kant, drawing inference from Rupa Ashok Hurra v Ashok Hurra & Anr (2002), held that while curative petitions are exceptional, they are warranted in cases of abuse of process and gross miscarriage of justice. The bench reiterated the test of “manifest injustice”, which allows curative petitions only in the rarest cases where a clear case of severe injustice is evident.
Regarding the limited scope of interference of courts with arbitral awards, the court, while referring to the landmark judgments of Associate Builders v DDA and Ssangyong Engineering and Construction v NHAI, opined that although the interpretation of a contract is exclusively within the domain of the arbitrator, the construction of a contract by the tribunal in a manner that no fair-minded or reasonable person would take would make grounds for patent illegality, calling for the court’s interference with the award. The decision of the arbitral tribunal must therefore not be perverse or irrational, i.e. where the findings are based on ignorance of material evidence or facts, and it must not be based on the irrelevant material.
The court ruled that the tribunal’s interpretation of contract termination due to the DMRC’s failure to fully cure defects within the specified period did not align with the parties’ intent. They intended for the DMRC to take “effective steps” to address defects, and not necessarily to completely cure them within the timeframe. The parties aimed to allow each other the opportunity to rectify defects or take effective measures, even if they did not entirely resolve the issues within the cure period, thus rendering the finding of the tribunal patently illegal.
The Supreme Court’s decision had a multifold impact on the DMRC, particularly the financial strain on it that skyrocketed during the covid-19 pandemic. An adverse judgment could have added to the organisation’s already precarious financial situation.
The apex court’s discretionary power to entertain a curative petition is also significant, as such cognisance is taken in exceptional cases where a clear miscarriage of justice is evident. By deviating from the norm and overturning the award through a curative petition, the Supreme Court has shown its pivotal role in striking a balance between legal principles and equitable considerations, thereby safeguarding the integrity of a contract and upholding the arbitral principles.
From another perspective, it is pertinent that such interference cannot be a precedent for courts to constantly go into the merits of an award. As pointed out by the apex court, the curative jurisdiction should be sparingly exercised to prevent the floodgates from opening or creating unnecessary layers of court.
This calls for a level-headed approach in Indian arbitral jurisprudence. In future, this case shall stand as a beacon of legal clarity amid the intricacies of public-private partnerships, guiding future arbitrators and acting as an example for upholding the integrity of arbitration while exercising caution in judicial intervention.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
