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ELP Arbitration Update – Delhi Airport Metro Express Private Limited versus Delhi Metro Rail Corporation

May 18, 2022
  • Author(s) : Abhileen Chaturvedi ,Tvisha Desai

    • 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[1]

    Introduction
    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[2] 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.

    Background
    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

    • Aggrieved by the Award, DMRC filed a petition under Section 34 of the Act before the Single Judge of the Delhi High Court, challenging the same. However, the Single Judge rejected the challenge and upheld the Award.
    • The order of the Single Judge was then challenged by DMRC before the Division Bench of the Delhi High Court by way of an appeal. The appeal was partly allowed by the Division Bench.
    • Against the part order, an appeal was preferred by DAMPEL before the Supreme Court. The said appeal came to be allowed by the Supreme Court and the order of the Division Bench was set aside, while the order of the Single Judge was restored.
    • DAMPEL thereafter filed an execution petition before the Single Judge of the Delhi High Court for enforcement of the Award. In the execution petition, the Single Judge issued certain directions pertaining to payment to be made by DMRC towards satisfaction of the Award. In the said proceeding, DAMPEL contended that the sum as awarded by the arbitral tribunal, and as specified under Section 31(7)(a) of the Act would include interest for a period from the date on which the cause of action arose to the date on which the award was made.[3] The said contention was rejected by the Single Judge. Consequently, an appeal was preferred by DAMPEL before the Supreme Court against the said order of the Single Judge.

    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[4] 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.

    Analysis
    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.

    We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

    Abhileen Chaturvedi, Partner – Email – AbhileenChaturvedi@elp-in.com
    Tvisha Desai, Associate – Email – tvishadesai@elp-in.com

    • [1] 2022 SCC OnLine SC 549
    • [2] Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 reads as follows:
    • “31. Form and contents of Arbitral Award:
    • (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
    • (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.”
    • [3] It appears that the Arbitral Tribunal did not award interest pendent lite to DAMPEL, that could be awarded as per Section 31(7)(a) of the Act.
    • [4] (2015) 2 SCC 189