Delhi Airport Metro Express Pvt. Ltd. vs Delhi Metro Rail Corporation Ltd.

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Delhi Airport Metro Express Pvt. Ltd. vs Delhi Metro Rail Corporation Ltd.

CITATION	AIR 2021 SC 708
DATE OF JUDGMENT	September 9, 2021
COURT	In the Supreme Court of India
APPELLANT	Delhi Airport Metro Express Pvt. Ltd.
RESPONDENT	Delhi Metro Rail Corporation Ltd.
BENCH	S. Ravindra Bhat, L. Nageswara Rao

INTRODUCTION

The Delhi Metro Rail Corporation (DMRC) signed a concession agreement with Delhi Airport Metro Express Pvt. Ltd. (DAMEPL), a consortium of Reliance Infrastructure Limited and Construcciones y Auxillar de Ferrocarriles, S.A. The agreement required DAMEPL to design, install, maintain, and operate a part of the Airport Metro Express Line project in New Delhi. However, during the defect liability period, DAMEPL discovered defects in the construction of AEML and notified DMRC asking them to fix them. Despite several meetings, DMRC could not resolve the issues, forcing DAMEPL to terminate the Concession Agreement. DMRC invoked arbitration under the Concession Agreement, but the Arbitral Tribunal concluded that DMRC had failed to fix the defects and was in violation of the agreement. The Tribunal awarded DAMEPL INR 2,782.33 crore with interest. DMRC challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, but a Single Judge Bench of the Delhi High Court dismissed the challenge. DMRC then appealed to the Division Bench of the Delhi High Court, which partially set aside the arbitral award due to its vices of perversity, irrationality, and patent illegality. DAMEPL appealed to the Supreme Court, while DMRC filed a separate Special Leave Petition for the specific performance of the Concession Agreement.

FACTS OF THE CASE

Delhi Metro Rail Corporation Ltd. proposes a 22.7 km Airport Metro Express Line project in New Delhi, with DMRC and DAMEPL collaborating on civil works, consultants, land acquisition, and system design.
DAMEPL asked for a joint inspection of the viaduct and bearings due to girder sinking from deformations and cracks before the contractor’s liability period ended.
DAMEPL stopped operations after an interim report by the Joint Inspection Committee on July 4th and 5th, 2012. DAMEPL asked DMRC for a 90-day work defects correction, to avoid adverse effects.
In 2012, DAMEPL terminated the Concession Agreement due to uncured defects, leading to an Event of Default. DMRC invoked arbitration, restarted the Line.
The Arbitral Tribunal found that DMRC breached the contract by not rectifying 80 girders with twists of 10-20 mm, resulting in a valid termination notice from DAMEPL. The Arbitral Tribunal passed an award that directed DMRC to pay Rs. 2,782 Crores along with interest to DAMEPL.
DMRC applied for a patent award based on patent illegality and public policy in India under Section 34 of the Arbitration and Conciliation Act. The single judge dismissed the application, prompting DMRC to appeal under Section 37.
The Division Bench set aside the award of Rs. 2,782 Crores, deeming it irrational due to confusion caused by two different termination dates.
DAMEPL and DMRC filed Special Leave Petitions before the Supreme Court, seeking specific performance after the Division Bench’s judgment.

ISSUES RAISED

Was the judgment of the Division Bench of Hon’ble Delhi High Court an error by deviating from the well-established principles under Sections 34 and 37 of the Act, when it set aside the award?

CONTENTIONS OF APPEALENT

DAMEPL claimed that their access to the structures was limited by DMRC, which resulted in alleged defects not being discovered during the civil contractors’ defect liability period.
DAMEPL challenged the judgment of the Division Bench, arguing that it violated Sections 34 and 37 of the Act. They contended that the findings of the Arbitral Tribunal were not reviewable under Section 34 and that alternative interpretations could not be substituted.
They also mentioned that the Division Bench argued that the cure notice issued on 09 July 2012, giving DMRC 90 days to cure defects, could have been the reason for the confusion regarding two separate termination dates, as it expired on 08 October 2012.

CONTENTIONS OF REPONDENT

DMRC claims the Airport Metro Line was cleared by CMRS in Jan 2013 and no defects were found since. DAMEPL argues the CMRS certificate doesn’t support DMRC’s claim due to the line’s speed restrictions and inspection requirements.
DAMEPL claimed they were asked to continue running the line until 30.06.2013 after the termination of the Concession Agreement on 07.01.2013.
The dispute concerns Rs.685 crores, initially recorded as share application money but later shown as “Subordinate Debt” by DAMEPL. DAMEPL claims that Rs.670.77 crores from M/s Reliance Infrastructure Ltd. was used for project assets. DMRC is aggrieved by the treatment of Rs.611.5 crores as equity, stating that the interest amount would be zero.

JUDGEMENT

The Supreme Court has ruled that the Division Bench’s decision to set aside an arbitral award was erroneous. The court found that the decision deviated from the principles for interference under Sections 34 and 37 of the Arbitration Act. The court emphasized that the Act aims to minimize the supervisory role of courts in arbitral processes. Judicial interference with arbitral awards is limited to the grounds specified in Section 34. The court interpreted words like ‘public policy of India’, ‘patent illegality’, and ‘fundamental policy of India’ in the context of the Act. The court concluded that contravention of a statute not linked to public policy or public interest cannot be a ground to set aside an arbitral award. The court reiterated that Section 34 does not permit courts to judge evidence perused by the arbitrator in arbitration proceedings.

ANALYSIS

The Supreme Court of India has restated its position on patent illegality, which is considered a fundamental policy in India. The court has emphasized that judicial interference in arbitral awards should be minimal and that courts should not substitute the interpretation of contract terms, in accordance with Section 28(3) of the Act. The recent appointment of young lawyers as arbitrators is a clear indication of the court’s commitment to ensuring speedy resolution of disputes through arbitration, while minimizing court interference. These decisions demonstrate the court’s dedication to promoting arbitration as an effective alternative remedy.

CONCLUSION

The recent Supreme Court ruling clarified the scope of interference that courts can have under Section 34 of the Act, emphasizing the importance of a civil court approach in adjudicating appeals. The court also emphasized India’s commitment to promoting the arbitral process and maintaining public confidence in it. In construction disputes, arbitral awards are often challenged by the award-debtor, leading to financial difficulties for the award-holder. The court recognizes the impact of such challenges and urges all parties involved to work together towards a speedy resolution of such disputes.

REFERENCES

This article is written by Biraj Kumar Sarkar , student of Surendranath Law College, Calcutta University (CU); Intern at Legal Vidhiya.

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