Analysis Of The Recent Supreme Court Judgment In: “Delhi Metro Rail Corporation Ltd. V. Delhi Airport Metro Express Pvt. Ltd.”

Analysis Of The Recent Supreme Court Judgment In: “Delhi Metro Rail Corporation Ltd. V. Delhi Airport Metro Express Pvt. Ltd.”

This Article aims to analyse the findings of the Hon’ble Supreme Court in its recent judgment in “Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd 2024 SCC OnLine SC 522”, wherein the Supreme Court has exercised its seldom used “Curative Jurisdiction” and overturned an Award of ₹ 2782.33 Crores plus interest passed by a three-member arbitral tribunal comprising Mr. A.P. Mishra, Mr. S.S. Khurana and Mr. H.L. Bajaj against Delhi Metro Rail Corporation (“DMRC”) in favour of Delhi Airport Metro Express Private Limited (a subsidiary of Reliance Infrastructure) (“DAMEPL”) and thereby cured its own orders and upheld the Division Bench Judgment finding that Award in favour of DAMEPL was suffering from ‘Patent illegality’. The Hon’ble Supreme Court has vide the above exercise of its special jurisdiction under Article 142 reaffirmed its role in doing complete justice between the parties.

Background of the Dispute:

In 2008, Concession Agreement was entered into between Delhi Metro Rail Corporation and Delhi Airport Metro Express Private Limited, for the construction, operation, and maintenance of the Delhi Airport Metro Express Ltd. The Concession Agreement envisaged a public-private partnership for providing metro connectivity inter-alia between New Delhi Railway Station and the Indira Gandhi International Airport and other points within Delhi.

Certain disputes arose between the parties and DAMEPL expressed its intention to halt operations, alleging that the line was unsafe to operate. Operations were stopped on 08.07.2012 on account of certain defects attributable to faulty construction and deficient designs which affected project safety, and in turn, caused a “material adverse effect” on the performance of the obligations under the Concession Agreement. On 09.07.2012, DAMEPL issued the notice to DMRC (“Cure Notice”) and requested them to cure the defects within 90 days.

On 08.10.2012, DAMPEL issued a termination notice (“Termination Notice”) in terms of clause 29.5.1 of the Concession Agreement on account of failure of DAMEPL to cure the defects within the ‘cure period’.

In August 2013, a three-member arbitral tribunal comprising Mr. A.P. Mishra, Mr. S.S. Khurana and Mr. H.L. Bajaj was constituted to resolve the disputes between the parties and on 11.05.2017, the Tribunal passed a unanimous award dated 11.05.2017 (“Award”) in favour of DAMEPL wherein it inter-alia, held that DAMEPL was entitled to the termination payment of ₹ 2782.33 Crores plus interest in terms of the Concession Agreement.

The Award was challenged by DMRC vide an application under Section 34 of the Arbitration and Conciliation Act 1996 (“Arbitration Act”) before the High Court of Delhi, which was dismissed by the Ld. Single-Judge. Thereafter DMRC preferred an appeal under Section 37 of the Act before the Division Bench of the High Court which was partly allowed. Against the decision of the Division Bench, DAMEPL moved a Special Leave Petition under Article 136 of the Constitution of India before the Hon’ble Supreme Court. The Appeal was allowed by the Hon’ble Supreme Court essentially following the requirement of non-interference by courts in interpretations of the Arbitral Tribunal, and the Award in favour of DAMEPL was restored. Against this decision, a Review Petition was filed by DMRC which was dismissed. Thereafter, the curative jurisdiction of the Hon’ble Supreme Court was invoked.

Findings:

The Hon’ble Supreme Court was seized of the issues of maintainability of the Curative Petition as well as the question of whether the earlier judgment warranted interference insofar as it had restored the Award which had been set aside by the Division Bench of the High Court on the ground that it suffered from patently illegality. The Hon’ble Court was considering the question of ‘material adverse effect’ under the concession agreement.

The Hon’ble Supreme Court considered the questions posed therein. Relying on the principles that Curative Jurisdiction may be invoked if there is a miscarriage of justice from the judgments of Rupa Ashok Hurra v. Ashok Hurra, (2002) 4 SCC 388, the Apex Court deemed it necessary in the facts of the instant case, to invoke its special jurisdiction. Once again, the Hon’ble Court has laid down its scope of jurisdiction of and other competent courts while dealing with cases arising out of an application to set aside an arbitral award under Section 34 of the Arbitration Act.

The Hon’ble Supreme Court has extensively analysed the judgment of the Division Bench that held the award to be perverse, irrational, and patently illegal since it ignored the vital evidence of CMRS certification in deciding the validity of termination. At the same, the Hon’ble Court referred to the findings of the Court in Appeal, which did not interfere with the Award as it was of the view that the issued of curing of defects by DMRC since the date of issue Cure Notice i.e. within 90 days, was a factual issue which it could not interfere with. In view of the findings of both the Courts, the Hon’ble Supreme Court has considered the CMRS certificate being relied upon by DMRC throughout to argue that the issuance of the same by the Commissioner showed that the defects in question were being rigorously monitored, as vital fact overlooked by the Arbitral Tribunal. The Hon’ble Court held that there was a fundamental error in the manner in which the Court in Appeal dealt with the challenge to the decision of the High Court. It was held that the Award had overlooked the express terms of clause 29.5.1(i) which stipulated that if “effective steps” were taken during the cure period by DMRC, the contractual power to terminate could not be exercised. Further, it was held that the Award and Court in Appeal incorrectly considered the CMRS certificate to be irrelevant to the validity of the termination.

It was held that the judgment of the Court in Appeal also never tested the relevance of the CMRS certificate vis-à-vis “effective steps” and accepted a reading of the termination clause by the Arbitral tribunal and the Ld. Single Judge that was not even a possible view and could not have been arrived at on any objective assessment. The Apex Court held that the plain words of the clause in Concession Agreement “effective steps” were rendered otiose by the findings in the previous order.

The Hon’ble Court held that the Award overlooked vital evidence and ignored the specific terms of the termination clause. Further, that the Award reached a conclusion which was not possible for any reasonable body of persons to arrive at. It was found that the Award bypassed the material on record and failed to reconcile inconsistencies between the factual averments made in the Cure Notice, which formed the basis of termination on the one hand and the evidence of the successful running of the metro line on the other. The Court referred to judgments of Ashok Builders v DDA, (2015) 3 SCC 49 and Ssangyong Engineering and Construction Co. Ltd. v NHAI, (2019) 15 SCC 131 and held the Arbitral Award to be patently illegal.

Therefore, the Hon’ble Supreme Court arrived at the conclusion that the judgment of the two-judge Bench, which had set aside the judgment of the Division Bench of High Court had resulted in a miscarriage of justice.

Analysis:

In its exercise of the Curative Jurisdiction to restore the parties to the position at which they were when the Award was set-aside, the Hon’ble Supreme Court discontinued the Execution Proceedings and ordered the return of deposit amounts by DMRC. However, at the same time, the Hon’ble Supreme Court clarified that the exercise of the Curative Jurisdiction of this Court should not be adopted as a matter of ordinary course. The Hon’ble Court emphasised that the Curative Jurisdiction should not be used to open the floodgates and create a fourth or fifth stage of court intervention in an Arbitral Award.

However, the Judgment of the Supreme Court in this matter has a crucial impact on all Arbitration Proceedings where contractual terms and conditions are the subject matter of interpretation before Tribunals. The Hon’ble Court’s reminder to strictly adhere to the terms of the Contract and consideration of material evidence will serve as benchmark in the times to come. The Judgment not only reaffirms the judiciary’s role as a guardian of contractual sanctity and rule of law but also in advancing the interests of justice.