Delhi Metro Rail Corporation (Petitioner, hereinafter referred as ‘DMRC’) is wholly owned Government Company held by Government of India and National Capital Territory of Delhi whereas Delhi Airport Metro Express Private Limited (Respondent, hereinafter referred as ‘DAMEPL’) is special purpose vehicle incorporated for construction, operation and maintenance of Delhi Airport Metro Express Limited. This special purpose vehicle is formed by the consortium of Reliance Infrastructure Limited and Auxiliar de Ferrocarriles SA, Spain.
DAMEPL bagged contract in 2008 which envisaged public –private partnership for providing metro rail connection between New Delhi Railway Station and Indira Gandhi International Airport and other points of Delhi. Under this agreement, DAMEPL has been given exclusive rights to implement the project including undertaking the designs, supply, testing and commissioning of railway system whereas DMRC has to undertake clearances and bear cost w.r.t land acquisition and civil structures. The work has to be completed by DAMEPL within two years along with the maintenance of Airport Metro Line till 2038.
The Metro Line was running well without any defects till 2011but in 2012 DAMEPL halted the operations alleging that it is unsafe to operate the line. It also issued notice to DMRC stating the list of defects which affect the performance of duties as per Agreement of 2008. The notice indicated that there are flaws because of poor construction and inadequate designs, which compromise the safety of project. Therefore, DMRC was requested to cure the defects within 90 days failing which would be called as ‘material breach’ and that would entitle DAMEPL to terminate the agreement. The defects were not cure din ‘cure period’ and ultimately DAMEPL terminated the contract in 2012.
DMRC initiated arbitration proceedings and in between both parties filed joint application before the Commissioner of Metro Rail Safety (hereinafter referred as ‘CMRS’) w.r.t. speed safety of metro line. After inquiry, the CMRS has issued sanction in January, 2013 for re-opening of Airport Metro Line. This sanction includes certain conditions w.r.t speed restrictions. DAMEPL carried operations for few months and later on the project was again handed over to DMRC in June 2013.
TRIBUNAL AWARD
In August 2013, arbitral tribunal was constituted and it passed unanimous award in favor of DAMEPL stating that DAMEPL is entitled to termination payment of Rs 2782.33 crores along with the interest along with the expenses incurred for operating Airport Metro Line and bank guarantee and security deposits and DMRC was entitled to 46.04 crores as concession fee during that period.
To assail the award, DMRC filed an application under Section 34[1] with Delhi High Court but it was dismissed by Single Judge.[2] It gave rise to appeal before Division Bench of High Court under Section 37.[3] The appeal was partly allowed by the Division Bench.[4] Against the decision of Division Bench, DAMEPL filed Special Leave Petition before Supreme Court.[5] The appeal was allowed and two-judge bench restored the award. Further the Review Petition to challenge the award was dismissed, hence this curative petition before honorable Apex Court.
ISSUES
- Whether the Curative Petition is maintainable before the Apex Court?
- Whether the Apex Court was justified in reinstating the arbitral award that had been overturned by High Court on the ground of patent illegality?
ARGUMENTS
Petitioner argued that the defects in the metro rail line has no ‘material adverse effect’ on DAMEPL’s performance of obligations as per the agreement, therefore termination was invalid. Additionally, the sanction certificate was issued on joint application by both the parties after thorough inspection by the Commissioner. The Tribunal has not taken into account the binding nature of the CMRS sanction since DAMEPL neither raised nor deliberated upon the issue of speed, and it was irrelevant to the termination. The metro rail line was smoothly operating for five and half year which has been ignored by the tribunal. Thus, the operation of metro line demonstrates that inspite the defects were defects present, it did not make the metro unviable nor did they hinder obligations of DAMEPL under the agreement.
Additionally, the Apex Court is justified to intervene the decision because miscarriage of justice is linked with patent illegality as per decision in Rupa Hurra Case.[6] The intervention of High Court under Section 37 was justified because jurisdiction exercised under Section 34 was erroneous.
Respondent has argued that curative petition before the Apex Court is not maintainable because the arbitrator is the sole judge w.r.t to quality of evidence and has provided award after 68 hearings. Also, there has been more than 2 years since the award has been restored and review has also been rejected. As per Rupa Hurra case (supra), the Court is not allowed to sit as Court of Appeal over a judgment in review petition because review jurisdiction is narrow and it does not mean complete re-hearing of a judgement. The proceedings of Curative Petition cannot be treated as second review. Additionally, DAMEPL has completed the project and has operated without any payment from January 2013 to June 2013 hence by any chance it has not been enriching itself.
HELD
- Curative Jurisdiction- Invocation Principle
In Rupa Hurra Case, the Apex Court has dealt with question whether relief could be sought against final judgment of the Court when review petition has also been dismissed. At this point Court has held that there may be certain scenarios where reconsideration of final judgement could be required. Such situation would be those where declining of reconsideration would cause irreparable injustice.[7] Court further emphasized that curative petition may be entertained a) to prevent abuse of process of law and b) to cure miscarriage of justice.[8] Therefore, the curative jurisdiction is not exhaustive and there are certain procedural requirement which need to fulfilled (like certificate by Senior Advocate) for filing such petition.
- Limited scope of Court’s Intervention with Arbitral Award
Grounds have been delineated in Section 34 for setting aside an arbitral award. It includes setting aside of award on ground of public policy, subject matter not capable of settlement as per arbitration law, award vitiated by patent illegality.[9] A domestic award could be set aside if the Court found that it is tainted by evident ‘patent illegality’ on the face of the award.[10]
In case of Associate Builders v Delhi Development Authority[11], the Court held that patent illegality arises when arbitrator has taken a view which is impossible and could not be taken by a reasonable person. Court while emphasizing on section 28(1) (a) and 28(3) held that arbitrator must take into account contractual terms[12] while deciding and award should not be irrational. An award is called perverse when it is based on a) no evidence or b) based on irrelevant material or c) ignored vital evidence.[13] It could also be said as ‘Patent illegal’ when award violates provisions of arbitration statute, such as award based on lack of reasoning, making it unreasoned decision. Additionally, breach of fundamentals of natural justice would also result in patent illegality, for instance, arbitrator has allowed recording of evidence in absence of opposite party.
In case of Ssangyong Engineering & Construction Co Ltd v NHAI[14], the court has relied upon reasoning of Associate Builders Case (supra). In essence it can be concluded that award would be patently illegal when arbitrator has arrived on it in such a manner where no other reasonable person could have arrived at it.
The judgment reusing to set aside an award is appealable under Section 37. It has been held in various precedents that jurisdiction under Section 37 is akin to jurisdiction of Court in Section 34, therefore restricted to those grounds of challenge only.[15] As it has been clearly provided in Section 37(3) that no further appeal lies to order which is passed under this section but this does takes away the constitutional remedy. Hence, the decision under Section 37 could be appealed under Article 136 (Special Leave Petition) which is exceptional and discretionary to court.[16] For this, Court applies settled principles like decision is based on error of law and fact or jurisdiction and limits itself to test whether Court while availing Section 37 has exceeded its jurisdiction by not applying correct test to challenge the award.
- Patent Illegality of an Award
There are key essentials which have been laid down in various precedents (Associate Builders Case) to find whether an award is patently illegal or not. The Division Bench of High Court has held that award was perverse as it ignored the vital evidence (i.e. sanction report of Commissioner). However, Apex Court in Appeal held that award was not perverse because firstly the factual findings (such as of 90 days cure period and DAMEPL was entitled to terminate contract) could not be interfered with.[17] Secondly, the sanction report regarding safety was not in issue, rather tribunal was deciding on whether the defects has been cured within cured period or not. Finally, Apex Court in appeal has disagreed with Divison Bench and further held that CMRS sanction has no bearing with respect to validity of termination of contract.
Here, now by invoking curative jurisdiction, the Apex Court has focused that as per agreement, DAMEPL has right to terminate it when DMRC either ‘fails to cure breach’ or ‘fails to take effective measure to cure defects’. Court emphasized that though tribunal has found that the defects have existed but it is still unclear whether effective steps have been initiated in the cure period or not. The Supreme Court interpreted that by mentioning ‘effective steps’ in the agreement, the parties have clearly intended to give each other the opportunity to either fix defects or take effective steps to address them, even if those steps didn’t fully cure those defects within the cure period. Court held that incremental progress w.r.t curing defects even though it does not fully eliminate defects would be acceptable to avoid termination of agreement.
The Court has further held that vital evidence were not taken into consideration by the arbitral tribunal as it wrongly interpreted the CMRS sanction w.r.t to speed imposition and restrictions which ultimately meant that defects were not fully cured. Court held that sanction does indicate that the defects have not been fully cured but the ‘effective steps’ aspect cannot be overlooked and thus CMRS certificate is not irrelevant. It means steps have been taken though defects have remained. Thus as per Supreme Court, Arbitral Tribunal has failed to consider the critical evidence presented through the CMRS certificate regarding safety and effective measures, and it solely concentrated on the conditions imposed by CMRS related to speed and inspections. Tribunal also failed to explain why steps taken by DMRC could not be covered under ‘effective steps’ as per agreement’s termination clause.
CONCLUSION
The interference by two-judge bench of Supreme Court with the decision of Division Bench of High Court has cause miscarriage of justice in the present situation. It was correctly held by the Division Bench that award was suffered from patent illegality as the findings of the Bench were based on record and there was no misappreciation of facts or law. This court has erred in justifying the intervention with decision of Division Bench by invoking Special Leave Petition. By setting aside the judgment of Division Bench, this court has restored the illegality and it has caused miscarriage of justice which allowed invocation of curative jurisdiction under Article 142 as per Rupa Hurra case. Court also clarified that the invocation of curative jurisdiction is not an ordinary course. Hence, curative petition is allowed in this case.
[1]Arbitration and Conciliation Act 1996, Section 34
[2]OMP (COM) 307/2017 & OMP (I) (COMM) 200/2017 (‘Single Judge Bench’)
[3]Arbitration and Conciliation Act 1996, Section 37
[4]FAO(OS)(COM) 58/2018 & CM Nos. 13434/2018 (‘Division Bench’)
[5] The Constitution of India, Article 136
[6] Rupa Hurra v Ashok Hurra, (2002) 4 SCC 388 (India).
[7] Rupa Hurra v Ashok Hurra, (2002) 4 SCC 388 Paragraph 42 (India).
[8] Rupa Hurra v Ashok Hurra, (2002) 4 SCC 388 Paragraph 49 (India).
[9] Id. at 1
[10] Arbitration and Conciliation Act 1996, Section 34 (2A)
[11] Associate Builders v Delhi Development Authority (2015) 3 SCC 49 (India).
[12] Arbitration and Conciliation Act 1996, Section 28
[13] Associate Builders v Delhi Development Authority, (2015) 3 SCC 49 Paragraph 31 (India).
[14] Ssangyong Engineering & Construction Co Ltd. v NHAI, (2019) 15 SCC 131 (India).
[15] Konkan Railways v Chenab Bridge Project Undertaking, 2023 INSC 742, Paragraph 14 (India).
[16] Chandi Prasad Chokhani v State of Bihar, AIR 1961 SC 1708 (India).
[17] Civil Appeal , Paragraph 31
Author: Reena
Juris Centre 