21 June 2024 Akshay Sewlikar ArbitrationLinks

Indian Supreme Court annuls arbitral award by exercising extraordinary power of curative review

In Delhi Metro Rail Corporation Ltd. (“DMRC”) v. Delhi Airport Metro Express Pvt. Ltd. (“DAMEPL”), 2024 SCC Online SC 522 (decision dated 10 April 2024) the Indian Supreme Court set aside a US$960 million domestic arbitration award, on the grounds of a “grave miscarriage of justice”. In this post we take a look at this judgment.

Background

In 2008, DAMEPL secured a contract under a public-private partnership model for the construction, operation and maintenance of an airport metro in New Delhi (“the Agreement”). Under the Agreement, DAMEPL was to complete the work within two years of the contract. It was thereafter entitled to operate and maintain the airport metro until August 2038.

On 8 July 2012, DAMEPL stopped the operations of the metro, and on the next day, it issued a notice to DMRC citing various defects including faulty construction and deficient designs in civil works associated with the project, which according to DAMEPL affected project safety, giving DMRC 90 days to cure the defects (being the responsibility of DMRC).

On 8 October 2012, DAMEPL terminated the Agreement, as it alleged that the defects had still not been cured. Thereafter, on 23 October 2012 DMRC initiated arbitration proceedings, seated in India, under the Agreement.

Both parties entered into negotiations and made representations to the Commissioner of Metro Railway Safety (CMRS) who allowed the line to be reopened in January with additional safety measures (including strict speed restrictions and monitoring) in place. This included a speed limit of 50kph amongst other restrictions.

On 30 June 2013, DAMEPL halted operations and handed over the line to DMRC. The tribunal was finally constituted in August 2013.

Arbitral Award against DMRC

On 11 May 2017, a three-member Tribunal passed a unanimous award in favour of DAMEPL. The Tribunal found that there were various defects which amounted to a breach of DMRC's obligations under the Agreement. This in turn resulted in a material adverse effect on the concessionaire. The Tribunal further held that since the purpose of the line was to serve as a high-speed line, the CMRS’ sanction requiring imposing speed and monitoring restrictions, meant that the purpose of project was not served.

Setting aside proceedings before High Court and Supreme Court

The parties subsequently engaged in a protracted legal battle before various levels of Indian courts:

  • On appeal against the award by DMRC, a single judge of the High Court upheld the award. He observed that so long as the award was reasonable and plausible, no interference was warranted even if an alternate view was possible.
  • The division bench of the High Court, on a further appeal by DMRC, however, partly set aside the award on the grounds that it was patently illegal.
  • The Supreme Court, in an appeal by DAMEPL, reinstated the award on the ground that no interference was warranted since the Tribunal’s determination that the defects had not being cured was a finding of fact.
  • DMRC then filed a review petition before the Supreme Court (which asks the Court to reconsider its own order) which was also dismissed.

Curative review by the Supreme Court

As a last resort, DMRC filed a curative petition to the Supreme Court. This is an exceptional jurisdiction of the Indian Supreme Court, to allow it to correct a “grave miscarriage of justice” or to prevent an abuse of its processes. The Supreme Court reiterated this position as a matter of principle.

However, it then undertook a detailed analysis on merits of the award and found that this threshold was made out on the facts. In particular, the Supreme Court held that the Arbitral Tribunal had unreasonably found the contract required complete curing of any defects by the DMRC when the contract provided that DMRC was required to “cure such breach or take effective steps for curing such breach” (Clause 29.5.1(i)). In doing so, the Tribunal had failed to explain what amounted to an 'effective step' and how the steps taken by DMRC were not effective. The Supreme Court further held that Arbitral Tribunal ignored vital evidence. For example, in the joint application before the CMRS, some of the defects were entirely, cured, and DMRC took steps to cure the remaining ones. In light of this, the Supreme Court held that the award was “patently illegal”.

Conclusion

In this case, there were four rounds of challenges to the award before the Indian courts - including two before the Supreme Court. The award was then set aside almost seven years after it was rendered. Whilst some might argue that there will always be exceptional cases requiring review, others may see this as another unfortunate example of the Indian courts taking an approach contributing to long delays, high costs and a lack of finality in Indian seated arbitration.

Akshay Sewlikar would like to thank Sai Anukaran for his assistance with this article.