Supreme Court Upholds Arbitration Award in Delhi Metro Dispute: DAMEPL Wins Against DMRC (2021)

Introduction

Date of the Judgment: September 09, 2021

Citation: 2021 INSC 585

Judges: L. Nageswara Rao, J. and S. Ravindra Bhat, J.

Can a court interfere with an arbitral award simply because it disagrees with the arbitrator’s interpretation of a contract? The Supreme Court of India addressed this critical question in a dispute between Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) and Delhi Metro Rail Corporation Ltd. (DMRC). The core issue revolved around the validity of the termination of a concession agreement for the Delhi Airport Metro Express Line. The Supreme Court’s decision clarifies the extent to which High Courts can intervene in arbitral awards under Section 37 of the Arbitration and Conciliation Act, 1996. This judgment was authored by Justice L. Nageswara Rao, with Justice S. Ravindra Bhat concurring.

Case Background

Delhi Metro Rail Corporation Ltd. (DMRC) initiated the Airport Metro Express Line project in New Delhi, connecting New Delhi Railway Station to Dwarka Sector 21 via Indira Gandhi International Airport. The project, approximately 22.7 kilometers long, was to be developed through a public-private partnership, with DMRC responsible for the basic civil structure and a concessionaire for the systems.

A consortium of Reliance Energy Limited and M/s Construcciones y Auxiliar de Ferrocarriles, S.A. won the bid, and a Concession Agreement was signed on August 25, 2008, between DMRC and Delhi Airport Metro Express Pvt. Ltd. (DAMEPL). DAMEPL was responsible for the design, installation, commissioning, operation, and maintenance of the Airport Metro Express Line (AMEL). The commercial operation of the line began on February 23, 2011, after obtaining safety clearances on January 10, 2011.

On March 22, 2012, DAMEPL requested a joint inspection of the viaduct and its bearings. By May 23, 2012, DAMEPL complained about design and quality issues in the viaduct bearings, noting signs of girders having sunk. DMRC responded on June 8, 2012, acknowledging damage to the grouting material but denying damage to the bearings. DMRC advised DAMEPL to impose speed restrictions for safety.

Following a meeting on July 2, 2012, a Joint Inspection Committee was formed. DAMEPL stopped operations on July 8, 2012, and on July 9, 2012, issued a notice to DMRC to cure the defects within 90 days, failing which it would be considered a breach of the Concession Agreement. DAMEPL terminated the agreement on October 8, 2012, citing DMRC’s failure to cure the defects. DMRC then invoked arbitration on October 23, 2012. The line was restarted with reduced speed on January 22, 2013, after a clearance from the Commissioner of Metro Railway Safety (CMRS) on January 18, 2013, but DAMEPL stopped operations again on June 30, 2013, handing over the line to DMRC the next day.

Timeline

Course of Proceedings

DMRC invoked arbitration under Article 36.2 of the Concession Agreement on October 23, 2012, after DAMEPL terminated the agreement. The Arbitral Tribunal was constituted as per the agreement, to settle the dispute. DMRC sought a direction for DAMEPL to resume operations and compensation of Rs. 3,173 crore with 18% interest. DAMEPL filed a counter-claim for Rs. 3,470 crore as termination payment, asserting that DMRC had failed to cure the defects as per the cure notice dated July 9, 2012.

The Arbitral Tribunal ruled in favor of DAMEPL, holding that the termination notice was valid because DMRC had failed to cure the defects within the stipulated 90-day period. The Tribunal awarded DAMEPL Rs. 2,782.33 crore as termination payment, along with interest.

DMRC then filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the arbitral award. A Single Judge of the Delhi High Court dismissed DMRC’s petition on March 6, 2018, stating that the Tribunal’s findings were within its jurisdiction and did not warrant intervention.

DMRC appealed under Section 37 of the Arbitration and Conciliation Act, 1996, read with Section 13 of the Commercial Courts Act, 2015. The Division Bench of the Delhi High Court reversed the Single Judge’s decision on January 15, 2019, partly setting aside the arbitral award. The Division Bench directed the parties to invoke the arbitration clause again for unresolved issues. DAMEPL appealed this decision to the Supreme Court.

Legal Framework

The core of this case involves the interpretation and application of the Arbitration and Conciliation Act, 1996, particularly Sections 34 and 37, which deal with the setting aside of arbitral awards and appeals against such orders. The Supreme Court also examined the Concession Agreement between DAMEPL and DMRC, focusing on Article 29.5.1, which outlines the conditions for termination due to a DMRC Event of Default.

Section 34 of the Arbitration and Conciliation Act, 1996, specifies the grounds on which a court can set aside an arbitral award. These grounds are limited to ensure minimal judicial interference in the arbitral process. The 2015 amendment to Section 34 further clarified the scope of judicial review, emphasizing that courts should not re-appreciate evidence or substitute their views for those of the arbitrator.

Article 29.5.1 of the Concession Agreement states:

“The Concessionaire may after giving 90 (ninety) days notice in writing to DMRC terminate this Agreement upon the occurrence and continuation of any of the following events (each a “DMRC Event of Default”), unless any such DMRC Event of Default has occurred as a result of Concessionaire Event of Default or due to a Force Majeure Event.
(i) DMRC is in breach of this Agreement and such breach has a Material Adverse Effect on the Concessionaire and DMRC has failed to cure such breach or take effective steps for curing such breach within 90 (ninety) days of receipt of notice in this behalf from the Concessionaire…”

The Delhi Metro Railway (Operation and Maintenance) Act, 2002, and the rules made thereunder, were also considered, particularly concerning the role and authority of the Commissioner of Metro Railway Safety (CMRS) in certifying the safety of the metro railway.

Arguments

DAMEPL’s Arguments:

• 
  The High Court incorrectly interfered with the Arbitral Tribunal’s award, which was based on factual findings and a correct interpretation of the Concession Agreement.
• 
  The defects in the civil structure were not cured within the 90-day notice period, justifying the termination of the agreement.
• 
  The CMRS certificate did not prove that the defects were cured. The conditions imposed for restarting the AMEL, such as speed restrictions, showed that the defects were not fully rectified.
• 
  The Arbitral Tribunal’s interpretation of ‘Adjusted Equity’ was correct, including the funds brought in by DAMEPL’s promoter. The High Court should not have overturned this interpretation.

DMRC’s Arguments:

• 
  The Arbitral Tribunal’s award was against public policy because it ignored the CMRS certificate, which is the sole authority on metro railway safety.
• 
  The 90-day cure period should be calculated from the termination notice, not the initial notice of defects. DMRC had taken effective steps to cure the defects within this extended period.
• 
  The Arbitral Tribunal incorrectly interpreted ‘Adjusted Equity’ by including subordinated debt, which was converted from share application money. The Tribunal should have only considered the share capital.
• 
  DAMEPL waived its right to terminate the agreement by participating in reconciliation and operating the line for several months.

Submissions Table

Issues Framed by the Supreme Court

• Whether in exercise of its power under Section 37 of the Arbitration and Conciliation Act, 1996, the Division Bench of the Delhi High Court was right in interfering with the award dated 11.05.2017 passed by the Arbitral Tribunal in favour of the Appellant – Delhi Airport Metro Express Pvt. Ltd.

Treatment of the Issue by the Court

Authorities

The Supreme Court referred to several key authorities to support its decision:

Cases:

• 
  Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 – The court discussed the interpretation of “public policy of India” and the limitations on judicial review of arbitral awards.
• 
  Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131 – The court emphasized the limited grounds for judicial interference in arbitral awards after the 2015 amendment to the Arbitration and Conciliation Act, 1996.
• 
  Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 – The court discussed the meaning of “fundamental policy of Indian law” in the context of public policy.
• 
  Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited. (2020) 2 SCC 455 – The court reiterated that courts must strictly adhere to the grounds specified in Section 34 while reviewing arbitral awards.
• 
  Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another 2021 SCC OnLine SC 8 – The court emphasized the limited grounds for setting aside arbitral awards.
• 
  Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306 – The court reiterated the need for courts to show restraint while examining arbitral awards.
• 
  State of Rajasthan v. Puri Construction Co. Ltd. and Another (1994) 6 SCC 485 – The court highlighted that the arbitrator is the sole judge of the quality and quantity of evidence.

Legal Provisions:

• 
  Section 34 of the Arbitration and Conciliation Act, 1996 – This section specifies the grounds on which a court can set aside an arbitral award.
• 
  Section 37 of the Arbitration and Conciliation Act, 1996 – This section deals with appeals against orders setting aside or refusing to set aside arbitral awards.
• 
  Article 29.5.1 of the Concession Agreement – This article specifies the conditions for termination due to a DMRC Event of Default.
• 
  The Delhi Metro Railway (Operation and Maintenance) Act, 2002 – This act governs the operation, maintenance, and regulation of the metro railway in the National Capital Region.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49]: The court clarified the limited scope of judicial interference in arbitral awards, emphasizing that courts should not re-appreciate evidence or substitute their views for those of the arbitrator.
• Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) [(2019) 15 SCC 131]: The court reiterated the limited grounds for judicial interference in arbitral awards after the 2015 amendment to the Arbitration and Conciliation Act, 1996.
• Renusagar Power Co. Ltd. v. General Electric Co. [1994 Supp (1) SCC 644]: The court discussed the meaning of “fundamental policy of Indian law” in the context of public policy.
• Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited. [(2020) 2 SCC 455]: The court reiterated that courts must strictly adhere to the grounds specified in Section 34 while reviewing arbitral awards.
• Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another [2021 SCC OnLine SC 8]: The court emphasized the limited grounds for setting aside arbitral awards.
• Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran [(2012) 5 SCC 306]: The court reiterated the need for courts to show restraint while examining arbitral awards.
• State of Rajasthan v. Puri Construction Co. Ltd. and Another [(1994) 6 SCC 485]: The court highlighted that the arbitrator is the sole judge of the quality and quantity of evidence.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of minimal judicial interference in arbitral awards, as mandated by the Arbitration and Conciliation Act, 1996. The Court emphasized that the High Court had overstepped its boundaries by re-evaluating the factual findings and interpretations of the Arbitral Tribunal. The Court also highlighted that the Arbitral Tribunal’s interpretation of the Concession Agreement, especially regarding the cure period and the definition of ‘Adjusted Equity’, was a possible and reasonable view, even if not the only one. The Court underscored the importance of respecting the arbitrator’s expertise and the finality of arbitral awards.

Fact:Law Ratio

The court’s reasoning was heavily influenced by legal considerations, particularly the limited scope of judicial review under the Arbitration and Conciliation Act, 1996. While factual aspects were considered, the court primarily focused on the legal principles governing the setting aside of arbitral awards.

The Supreme Court’s reasoning was based on a step-by-step analysis, starting with the High Court’s decision, then analyzing the Arbitral Tribunal’s findings, and finally applying the relevant legal principles.