Factual Matrix
The petitioner, Delhi Metro Rail Corporation (DMRC), is a government-owned entity in India, while the respondent, Delhi Airport Metro Express Private Limited (DAMEPL), is a consortium including Reliance Infrastructure and a Spanish company, established to manage the Delhi Airport Metro project. In 2008, DAMEPL was awarded a contract to build and operate the metro line connecting key locations in Delhi.
Under the agreement, DAMEPL was given exclusive rights to manage the project, while DMRC was responsible for land acquisition and construction costs. DAMEPL was required to complete the project within two years and maintain it until 2038.
In April 2012, DAMEPL sought to postpone its concession fee payments due to delays from DMRC in providing access to stations. Despite the metro line operating since February 2011, DAMEPL faced challenges with retail operations and requested DMRC’s assistance.
After a series of communications, a stakeholders’ meeting was held in July 2012, leading to the formation of a Joint Inspection Committee to address DAMEPL’s claims of defects in the project. On July 8, 2012, DAMEPL stopped operations, citing safety concerns and listed defects they believed were caused by DMRC’s construction failures. They argued these defects severely impacted their ability to fulfill the contract and demanded DMRC fix the issues within 90 days, warning that failure to do so would allow them to terminate the agreement.
Tribunal’s Findings
The tribunal’s findings imply that the analysis in the DMRC v. DAMEPL[1] focuses on validity of the termination notice issued by DAMEPL, addressing critical issues surrounding defects in the civil structure which as assumed by them had a material adverse effect on the performance of their obligations under the 2008 agreement and DMRC’s failure in curing it or taking effective steps to cure it resulted into the termination of the contract by DAMPEL.
Key issues addressed by Tribunal and what was its interpretation
The first step was to prove there were defects found in the civil structure, secondly these defects had material adverse effect by which it needs to be proven that the nature of defects adversely effected DAMPEL’s performance under the concession agreement and at last that DAMRC failed to cure it or take effective steps to cure it.
In short Tribunal found significant structural issues and concluded that DMRC failed to rectify the defects under period of 90 days provided resulting in the breach of its obligations and material adverse effect on DAMPEL. What is more important to highlight is that Tribunal’s evaluation found the CMRS Certificate irrelevant in determining the termination of the agreement giving the reasoning that the certificate imposed operational restrictions that contradicted the line’s intended high-speed functionality. It is critical to note that tribunal framed it’s analysis within the context of the Concession Agreement, particularly focusing on clause 29.5.1(i), which outlines the consequences of failing to cure defects.
What went in the High Court
Both the single judge and the division bench of the High Court focused on the application of the Section 34 of Arbitration and Conciliation Act 1996[2] subsequent to the award provided by the Tribunal.
The single judge bench was of the opinion that judiciary should maintain minimal interference as long as the award was reasonable and plausible. Reasoning being the principle underscores the judiciary’s respect for the autonomy of the arbitral process and it’s findings which is also envisaged in section 34 of the Arbitration and Conciliation Act 1996.[3]
Division Bench can be seen putting aside the award considering it perverse and patently illegal. It discussed how there was an ambiguity in the interpretation of clause 29.5.1(i) of the Concession Agreement pertaining to the cure period and the lack of such clarity renders the immediate termination ex-facie invalid. Moreover, the reasoning given by Tribunal on the consideration of the CMRS Certificate was found to be erroneous on the basis that the CMRS Certificate was binding on the tribunal and the issues of defects and material adverse effects were not separate from the certificate’s significance since it shows if the metro line has met safety and operational standards mandated by regulatory authorities and it intends to ensure that the line is safe for public use and can operate. Hence, should have been considered as evidence of compliance and by not doing so the award is faulty in nature.
Analysing both the stances
The approach by the single judge bench can be characterised as exercise of judicial restraint, emphasizing that deference to the arbitral tribunal’s findings unless there is a clear violation of principles or a patently unreasonable conclusion. In contrast the division bench can be seen as scrutinizing the tribunal’s award[4] and the dispute to ensure legal and procedural correctness of the Tribunal’s award. It points out the lacunae in the approach of the tribunal’s understanding of the cure period and its immediate effect on the termination. The differing approaches highlight the tension between respecting arbitral autonomy to be considered crucial for the mechanism of alternate dispute resolution and ensuring legal and procedural correctness in arbitral awards.
Hon’ble Supreme Court’s dictum
Upholding the Tribunal’s view on minimal judicial interference, the Supreme Court emphasized that the interpretation of contract provisions falls within the Tribunal’s domain and even if an alternate interpretation was possible the Tribunal’s interpretation should prevail, it also did not find any ambiguity in the date of termination of agreement. Validity of CMRS Certificate in deciding the award was one of the most contentious issues between the single judge bench and division bench resolving which the Supreme Court held that DMRC did not argue before the Tribunal regarding the conclusive nature of it to prove that the defects were cured or that effective remedial steps had been taken. Hence implying that failure to raise all relevant arguments before the arbitral tribunal may lead to limit the scope of judicial review as appellate courts unlikely consider arguments not presented at the arbitration stage and since the Tribunal comprised of technical experts (comprising engineers) its approach of treating these issues differently and separating the CMRS certificate from the defects cannot render Tribunal’s findings erroneous.
Hence, the Supreme Court upheld the arbitral award granted by the Tribunal.
The case was once again appealed for review but dismissed. Hence as a last resort it was repealed under Article 136 of the Constitution of India which provides for a Constitutional remedy available to a person whose review petition has been dismissed by the Supreme Court and is considered a mechanism to correct a grave miscarriage of justice.[5] The same was argued against by Respondent’s Counsel. According to the counsel the curative petition was non maintainable and the court should not revisit the Tribunal’s conclusions. Hence, the hon’ble judge’s reasoning in this case revolves around the application and scope of curative jurisdiction to address instances of miscarriage of justice, especially after all other legal remedies have been exhausted. Let’s try to breakdown and understand it at levels-
- The hon’ble judge affirms that curative jurisdiction can be invoked under Article 136 of the Indian Constitution in instances of gross miscarriage of justice since declining it would result in irreparable harm and be oppressive to judicial conscience. Moreover in the judgment of Rupa Hurra Case[6] it was determined that the court could reconsider a final judgment post review dismissal to rectify a miscarriage of justice. For example: To ensure flexibility in addressing unique and severe instances of injustice. The court also validated the significance by highlighting a critical procedural requirement of certification by a senior advocate to ensure that only substantial claims are considered.[7]
- The scope of judicial review under section 34 of the Arbitration and Conciliation Act was also highlighted and it was held that an arbitral award can be set aside if it is found to be in conflict with public policy or if it is deemed “patently illegal.” The Supreme Court clarified that an award lacking adequate reasoning could be considered “patently illegal,” reinforcing the necessity for arbitral tribunals to provide clear justifications for their decisions.
- A significant aspect of the judgment was the court’s critique of the tribunal’s interpretation of the termination clause in the Concession Agreement. The tribunal’s failure to define what constituted “effective steps” to cure defects led to a flawed decision and overlooking critical evidence like CMRS Certificate deemed a gross miscarriage of justice, warranting the intervention. Hence, determining the pivotal role CMRS Certificate plays in the court’s reasoning and upholding its binding nature of the certificate.
The judgment illustrates the delicate balance between respecting arbitral awards and ensuring that justice is served. By emphasizing the importance of adequate reasoning in arbitral decisions and the necessity of curative jurisdiction in cases of gross injustice, the court reinforced the principles that govern arbitration in India, an interplay between arbitration law and judicial oversight, particularly in complex contractual disputes.
In the opinion of the author, the Supreme Court has erred in its judgment.[8] This can be proved from the comparative analysis of judicial dictum set in various countries. In recent cases from different jurisdictions that follow the precedent of judicial restraint in arbitration matters
- Halliburton Co. v. Chubb Bermuda Insurance Ltd. (2020), United Kingdom[9]:
In this case, the UK Supreme Court revisited the principles of judicial intervention in arbitration awards. The issue involved whether an arbitrator’s decision could be challenged based on an apparent bias. The Supreme Court reaffirmed the principle that judicial review of arbitration awards should be limited and deferred to the expertise of the arbitrators. The court emphasized that parties choose arbitration for its flexibility and efficiency, and judicial intervention should only occur in exceptional circumstances. The decision underscores the UK’s commitment to respecting arbitration as an autonomous and private dispute resolution mechanism, aligning with the principles of judicial restraint.
- Sasol Chemicals (USA) LLC v. Xi’an Xianyang 5th Element Chemical Co., Ltd. (2020), United States:
In this recent US case, the Court of Appeals for the Fifth Circuit addressed the grounds for vacating an arbitration award. The issue cantered around whether the arbitrator’s interpretation of the contract was erroneous and against public policy. The court reiterated the limited scope of judicial review in arbitration matters, emphasizing that courts should not reevaluate the merits of the arbitrator’s decision. The decision reflects the US judiciary’s adherence to the principle that judicial interference in arbitration awards should be minimal, respecting the parties’ choice of arbitration as a preferred method of dispute resolution.
Conclusion
In conclusion, the comparison with recent judgments from the United Kingdom and the United States highlights a consistent trend towards judicial restraint in arbitration matters. Both the UK Supreme Court in Halliburton Co. v. Chubb Bermuda Insurance Ltd. and the US Court of Appeals in Sasol Chemicals (USA) LLC v. Xi’an Xianyang 5th Element Chemical Co., Ltd. reaffirmed the limited scope of judicial review over arbitration awards, emphasizing respect for the parties’ autonomy in choosing arbitration as a dispute resolution mechanism.
Contrary to these principles, the judgment in DMRC v. DAMEPL by the Indian Supreme Court appears to have deviated from this trend. By reportedly expanding its role in reviewing arbitration awards to ensure compliance with public policy, the Supreme Court potentially overstepped the bounds of judicial restraint observed in other jurisdictions. This departure may lead to increased uncertainty and undermine the efficiency and finality typically associated with arbitration proceedings.
The essence of arbitration lies in its flexibility and the parties’ ability to select arbitrators and control the process to resolve disputes expeditiously and privately. Excessive judicial intervention, as suggested in DMRC v. DAMEPL, risks diluting these advantages and imposing unnecessary delays and costs on arbitration proceedings. Therefore, while acknowledging the Indian Supreme Court’s prerogative to uphold public policy, the divergence from international standards of judicial restraint in arbitration, as evidenced by the UK and US cases, suggests a need for a more circumspect approach. Upholding the integrity of arbitration requires courts to intervene sparingly and only where absolutely necessary to protect fundamental legal principles. Thus, the decision in DMRC v. DAMEPL, with its broader implications for arbitration practice in India, may benefit from a reconsideration aligned with global trends favouring minimal judicial interference in arbitration awards.
[1] 2024 SCC OnLine SC 522.
[2] The Arbitration And Conciliation Act, 1996, s 34.
[3] Ridhi (2023) ‘court cannot modify arbitral award under Section 34 of Arbitration Act’: Supreme Court reiterates, SCC Times. Available at: https://www.scconline.com/blog/post/2023/08/23/court-cannot-modify-arbitral-award-under-s34-arbitration-act-supreme-court-reiterates/ (Accessed: 25 July 2024).
[4] Kapoor, S.K. and Ahsan, S. (no date) Challenging and enforcing arbitration awards: India, Challenging and Enforcing Arbitration Awards: India – Global Arbitration Review. Available at: https://globalarbitrationreview.com/insight/know-how/challenging-and-enforcing-arbitration-awards/report/india (Accessed: 25 July 2024).
[5] Anandan, A. (2020) Explained-what is curative petition?, Live Law, https://www.livelaw.in/know-the-law/explained-what-is-curative-petition-151681 (Accessed: 25 July 2024).
[6] Rupa Ashok Hurra v. Ashok Hurra, (2002) 4 SCC 388.
[7] Mahajan, S. Inadequate reasoning in arbitral award: What the Supreme Court held, Bar and Bench – Indian Legal news. Available at: https://www.barandbench.com/news/inadequate-reasoning-in-arbitral-award-what-the-supreme-court-held (Accessed: 25 July 2024).
[8] Misra, U. et al. (2024) Three steps forward, one step back? The Indian Supreme Court’s annulment of an award, Kluwer Arbitration Blog. Available at: https://arbitrationblog.kluwerarbitration.com/2024/04/28/three-steps-forward-one-step-back-the-indian-supreme-courts-annulment-of-an-award/ (Accessed: 25 July 2024).
[9] (2018) EWCA Civ 817.
Author: Noopur Yadav
Juris Centre 