Unpacking the DMRC Case: Key Aspects Explained

In a major relief for the petitioner, Delhi Metro Rail Corporation Ltd., the Supreme Court recently held that the restoration of the arbitral award passed over five years ago, in favour of the respondent, Delhi Airport Metro Express Pvt. Ltd. resulted in a grave miscarriage of justice.[1] This decision, taken in the exercise of the Court’s curative jurisdiction, referred to the Tribunal’s unreasonable interpretation of the termination clause in the concession agreement and overlooking of vital evidence.

Facts of the case

This case pertains to a 2008 concession agreement which envisaged a public-private partnership for providing metro rail connectivity between New Delhi Railway Station and the Indira Gandhi International Airport and other points within Delhi. The Airport Express Line opened in February 2011 but services ceased in the subsequent year as it was considered unsafe to operate. Thereafter, the respondent issued a cure notice listing certain defects which affected the performance of its obligations under the agreement. In October 2012, the respondent issued a notice terminating the agreement stating that the defects were not cured within the 90-day cure period. Consequently, arbitration proceedings were initiated (after conciliation failed).

The three-member Arbitral Tribunal, constituted in August 2013, passed a unanimous award in May 2017, in favour of the respondent. The same was upheld by the Single Judge Bench of the Delhi High Court but the Division Bench, on appeal, set aside the award. However, the award was restored by a two-Judge Bench of the Supreme Court. After the review petitions came to be dismissed, the present curative petitions were filed.

In the meantime, based on a joint application by the parties, the Commissioner of Metro Railway Safety (CMRS) provided sanction, subject to certain conditions, for the re-opening of the AMEL after which operations commenced in January 2013. A few months later, the line was handed over to the petitioner.

Miscarriage of justice as a ground for entertaining curative petition

The Apex Court, in its decision in Rupa Hurra v. Ashok Hurra,[2] specified that a curative petition could be entertained to prevent abuse of its process and to cure a gross miscarriage of justice. While examples were provided in this regard, the Court refrained from presenting an exhaustive list of grounds on which a curative petition could be entertained, in the said decision. With this in mind, the Court proceeded to determine whether there was a grave miscarriage of justice in the present case.

Termination clause under the concession agreement

As per terms of the 2008 agreement, the concessionaire was entitled to terminate the same if the petitioner “failed to cure such breach or take effective steps for curing such breach” within the cure period. Highlighting this aspect, the Court observed, “The Tribunal did not appreciate the individual import of the two phrases separately from each other. This was not a matter of mere ‘alternate interpretation’ of the clause, but an unreasonable and uncalled for interpretation of the clause, which frustrated the very provision, and which no reasonable person would have accepted considering the terms of the clause.” It was also pointed out that the Tribunal failed to deliberate on whether the steps taken by the petitioner during the cure period were “effective” or not.

Likewise, the Single Judge Bench of the Delhi High Court and the two-Judge Bench of the Supreme Court also did not refer to the aspect of “effective steps”, as reflected in the abovementioned clause, in their decisions.

Vital evidence overlooked by the Arbitral Tribunal

The Court laid emphasis on the change in the respondent’s stance considering that its cure notice, which stated that the project was not safe for operations, was issued months after it preferred a joint application before the Commissioner. Noting that the steps taken by the petitioner led to this change in position, the Court remarked that the arbitral award did not explain as to why the steps taken during the cure period were not “effective” and this gap resulted from the Tribunal “wrongly separating” the issue of termination of agreement and the CMRS certificate.

Additionally, the CMRS certificate was held to be a vital piece of evidence especially considering that the cure notice was premised on safety, which fell within the domain of the Commissioner under the Metro Railways (Operation and Maintenance) Act, 2002. In light of these circumstances, the arbitral award was termed as unreasoned.

Decision of the Apex Court

The Supreme Court agreed with the view taken by the Division Bench of the Delhi High Court, observing that it applied “the correct test in holding that the arbitral award suffered from the vice of perversity and patent illegality”. Holding that the judgment of the two-Judge Bench resulted in a miscarriage of justice, by interfering with the decision of the Division Bench of the Delhi High Court, the Supreme Court allowed the curative petitions.

Conclusion

This judgment has reiterated various principles of law and stands as a testimony to the evolution of the concept of judicial review. India as a pro-enforcement country has been significantly scrutinised, as a result, it is anticipated that the consequence of this judgment will be favourable. Categorising the award as irrational only on the grounds of insufficient evidence, disregarding crucial evidence and taking into account irrelevant material serves as a touchstone for setting aside an award. The grounds for claiming patent illegality may only be relied upon if it can be demonstrated that no reasonable person would have arrived at such an award.

Moreover, the judgment touches upon the interplay of the Court’s jurisdiction under the Arbitration and Conciliation Act, 1996, and the Constitution of India. The Apex Court has clearly stated that unlike the power vested under Section 37, which is similar to Section 34, the Court under Article 136 should focus on determining if appropriate tests were used to assail the award by the Court acting under Section 37.

The judgment also emphasises the importance of considering the intention of the parties while entering into a contract. This is evident in the Court’s identification of two components namely, “curing of defects” and “taking effective steps to cure defects”. The Court acknowledged that the parties had the intention to see incremental progress, which refers to taking appropriate measures to rectify any defaults, as a means to prevent a breach of the concession agreement and subsequent termination.

Lastly, it is important to mention that the Court has exercised its jurisdiction only under exceptional circumstances on the ground of grave miscarriage of justice thereby allowing the curative petition.

This judgment has reiterated various principles of law and stands as a testimony to the evolution of the concept of judicial review. India as a pro-enforcement country has been significantly scrutinised, as a result, it is anticipated that the consequence of this judgment will be favourable. Categorising the award as irrational only on the grounds of insufficient evidence, disregarding crucial evidence and taking into account irrelevant material serves as a touchstone for setting aside an award. The grounds for claiming patent illegality may only be relied upon if it can be demonstrated that no reasonable person would have arrived at such an award.

POST A COMMENT