- ELP Arbitration Update – Delhi Airport Metro Express Private Limited versus Delhi Metro Rail Corporation
DISCRETION TO GRANT INTEREST AVAILABLE WITH THE ARBITRAL TRIBUNAL ONLY IN ABSENCE OF AGREEMENT TO THE CONTRARY: SUPREME COURT INTERPRETS SECTION 31(7)(b); UPHOLDS PARTY AUTONOMY
Delhi Airport Metro Express Private Limited versus Delhi Metro Rail Corporation
In a move to strengthen India’s arbitration jurisprudence, the Apex Court has in its recent decision of Delhi Airport Metro Express Private Limited versus Delhi Metro Rail Corporation, held that the term “unless otherwise agreed by the Parties” as appearing in Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 must be given absolute effect to. Therefore, in the event the contract entered into between the parties, consists of clauses pertaining to awarding of interest, the same will have to necessarily be given effect to and the discretion to award interest as conferred to the Arbitral Tribunal under section 31(7)(a) of the Act shall be lost.
The Appellant, Delhi Airport Metro Express Private Limited (DAMEPL) and the Respondent, Delhi Metro Rail Corporation (DMRC) entered into a Concession Agreement in August 2008 (Concession Agreement) for execution of certain civil works.
Sometime in 2012, after disputes arose between the parties DAMPEL terminated the Concession Agreement. Aggrieved by the said termination, DMRC invoked arbitration as per the terms of the Concession Agreement. An arbitral award was passed in the said proceedings on May 11, 2017 (Award), in favor of DAMEPL.
Overview of the Proceedings
Contentions raised by DAMPEL
DAMPEL contended before the Supreme Court, that (i) the amount under Section 31(7)(a) of the Act would include the principal amount of the Termination Payment along with the amount of interest granted by the arbitral tribunal from the date of cause of action till the date of the Award and (ii) the sum arrived at under Section 31(7)(a) (which is principal plus interest) shall further carry interest at the rate awarded by the arbitral tribunal, from the date of the Award till the date of payment. DAMPEL heavily relied on the Supreme Court’s decision in Hyder Consulting (UK) Limited v Governor, State of Orissa through Chief Engineer to support its contention.
Contentions raised by DMRC
Per contra, DMRC contended that since there is a specific agreement between the parties under the Concession Agreement as to how the interest would be awarded and since the same has been awarded by the arbitral tribunal in accordance with the agreement, the interest as sought by DAMPEL under Section 31(7) of the Act cannot be awarded.
Findings of the Court
The Supreme Court upon analysis of its previous decision in Hyder Consulting (supra) and upon literal interpretation of Section 31(7)(a) of the Act, held that the terms “unless otherwise agreed by the parties” as appearing in Section 31(7)(a) would assume significance. Thus the power of the arbitral tribunal to award interest would operate only in the absence of an agreement to the contrary. In other words, in the event there is an agreement between the parties pertaining to interest (as to the rate of interest or the period for grant of interest or in the event the parties have contracted out of grant of interest), the arbitral tribunal would lose its discretion to award the same under Section 31(7) of the Act and must be guided by the agreement between the parties. Since in the present case, there was a categorical clause directing payment of interest and the period for payment of the same, the Court held that arbitral tribunal was justified in giving effect to the terms of the agreement over Section 31(7)(a) of the Act. The Court therefore held that the Award is passed in consonance with the provisions of Section 31(7)(a) and in consonance with the phrase “unless otherwise agreed between the parties”. The Supreme Court thus upheld the order of the Single Judge, in rejecting DAMPEL’s contention in the execution petition.
Additionally, since in the case of Hyder Consulting (supra), there was no agreement to the contrary (as is the scenario in the present case), the same was distinguished by the Court on factual grounds.
The Supreme Court’s decision in the present case reinforces the supremacy of party autonomy in the arbitration apparatus and further demonstrates India’s favorable approach towards alternate dispute resolution. This judgement strengthens the fact that a contract shall and will be construed as the bedrock, guiding the resolution of any and all disputes between the parties. Going forward, commercial parties submitting to arbitration, must consider every provision in their contract carefully and negotiate their terms keeping in mind the overarching scheme of the Act (that is encouraging party autonomy) and the decisions such as the present one.
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