Articles 29th Apr 2024

Delhi Airport Metro: An Obstacle Course for Arbitral Awards

Authors

Naresh Thacker Partner | Mumbai
Ashna Contractor Senior Associate | Mumbai

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  • The decade long dispute with the government over the construction of the Delhi Airport Metro was thought to have finally hit the end of the road with the Supreme Court’s (“SC”) 2021 decision in favour of an entity led by Anil Ambani’s Reliance Infrastructure Ltd. This month however, in a rare exercise of its curative powers, the SC reversed its earlier decision and set aside the INR 8000 crore arbitral award in favour of the Reliance Infra led entity. The SC’s decision has far reaching implications on the expectation of finality and the extent of court scrutiny in arbitration.

  • Background

    A 2008 Concession Agreement formalized a public-private partnership between the government-owned Delhi Metro Rail Corporation (DMRC) and the Reliance Infra led consortium’s special purpose vehicle Delhi Airport Metro Express Pvt. Ltd. (DAMEPL), for the construction and operation of the Delhi Airport Metro. In 2012, disputes arose when DAMEPL terminated the Concession Agreement due to DMRC’s failure to cure certain defects. Arbitration proceedings were conducted before a three-member tribunal, all engineers. In 2017, a unanimous award (the Award) for over INR 3000 crores (plus interest) was issued in DAMEPL’s favour. But matters did not end here.

    DMRC challenged the Award before the Delhi High Court. Their challenge failed. Unrelenting and aggrieved, DMRC filed an appeal before a larger bench of the Delhi High Court. Here they succeeded and the Award was partly set aside. Now DAMEPL, being the aggrieved party, took matters further and filed a Special Leave Petition (SLP) before the SC. The SC restored the Award. DMRC then tried to have the SC review its decision, but the SC refused. Just when DAMEPL thought its victory was secured, DMRC made a final attempt by filing a curative petition before the SC. In its decision, the SC did a complete 180 – it reversed its earlier decision and set aside the Award.

  • Key Findings of the Supreme Court

    The SC’s key findings were:

    • In case of miscarriage of justice, the SC may invoke its curative jurisdiction to revisit the arbitral tribunal’s conclusions.
    • Section 34(2A) of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”) allows the Court to set aside a domestic award if it suffers from “patent illegality”.
    • Interpreting a contract in an unreasonable manner is impermissible. A patent illegality arises when an arbitrator adopts a view which is not a possible view.
    • After an award is challenged in Court and an appeal is filed pursuant to such challenge, a party has a further constitutional right to approach the SC under Article 136 of the Constitution i.e. effectively a third stage of challenge. However, such interference must be sparing.
    • The Award suffers from patent illegality because (a) the arbitral tribunal overlooked express terms of the Concession Agreement’s termination clause; and (b) the arbitral tribunal overlooked vital evidence that went to the root of the matter.
  • Implications of the SC’s decision for the future

    The SC’s decision marks yet another swing of the judicial pendulum in India’s arbitration landscape as it goes back and forth on its pro-arbitration stance. The SC’s decision creates the potential for a domestic arbitral award to have to go through a 5-stage obstacle course through the Indian courts before its fate is finally determined. Stage 1 – a challenge under Section 34 of the Arbitration Act; stage 2 – an appeal under Section 37 of the Arbitration Act; stage 3 – an SLP before the SC; stage 4 – a review petition before the SC; and now stage 5 – a curative petition.

    Section 34 of the Arbitration Act, modelled along the lines of the UNCITRAL Model Law, provides limited grounds for challenging an award. The SC acknowledges this. It also notes that it must only sparingly exercise its powers of constitutional remedy in an SLP. This re-affirms that a challenge to an arbitral award must not involve revisiting matters of fact or merit. However, the SC appears to consider Section 34(2A), which provides that an arbitral award may be set aside if it is found to be patently illegal, to be an expansion of its power to scrutinize domestic arbitral awards.

    In its 2021 decision, the SC noted that the Award, passed by an arbitral tribunal comprising of engineers, is not meant to be scrutinized in the same manner as one prepared by legally trained minds. However, the SC’s decision now finds patent illegality in the Award on the basis of a technical contractual interpretation of a termination clause. With this level of scrutiny, the SC demands a legal robustness from the arbitration process that may not be aligned with the interests of commercial parties looking for speedy dispute resolution through a self-selected mechanism. This is despite the proviso to Section 34(2-A) which specifies that “an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

    The SC’s decision  has seemingly opened up the scope of what constitutes patent illegality and how it may be established. It is significant that the SC has ignored its own previous warning about the worrying trend of courts overturning arbitral awards by re-examining facts.

    The SC has cautioned that its curative jurisdiction should not be used to open the floodgates of court intervention in arbitration. However, given the open-endedness of the ground of “patent illegality”, arbitral awards remain vulnerable to multiple challenges going forward. The SC’s decision therefore raises important questions for the future – what are the legal contours for establishing patent illegality and to what extent does it allow for delving into matters of contractual interpretation? What must parties and practitioners be weary of when selecting arbitrators and attempting to ensure a robust award? And what can Indian courts do to reinstate faith in the finality of the arbitration process so that commercial parties can bank on their outcomes?

    The Delhi Airport Metro case has no doubt opened up a can of worms.

    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:

    Naresh Thacker, Partner, Email – nareshthacker@elp-in.com  

    Ashna Contractor, Senior Associate – Emailashnacontractor@elp-in.com

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.