SC quashes ₹7687-crore arbitral award against DMRC’s DAMEPL as ‘patently illegal’

A three-judge Bench exercised the apex court’s rare powers under Article 142 in a curative petition filed by DMRC to lift the “exorbitant” liability off the public utility’s shoulders

April 10, 2024 11:37 am | Updated April 11, 2024 09:38 am IST - NEW DELHI:

File photo for representational purpose only.

File photo for representational purpose only. | Photo Credit: The Hindu

The Supreme Court on Wednesday quashed an arbitral tribunal award directing the Delhi Metro Rail Corporation (DMRC) to pay ₹7,687 crore to Delhi Airport Metro Express Private Limited (DAMEPL), a special purpose vehicle of Reliance Infrastructure Limited and Spain’s Construcciones Y Auxiliar de Ferrocarriles SA.

A three-judge Bench of Chief Justice of India D.Y. Chandrachud, Justices B.R. Gavai and Surya Kant exercised the apex court’s rare powers under Article 142 of the Constitution in a curative petition filed by DMRC to lift the “exorbitant” liability off the public utility’s shoulders.

Chief Justice Chandrachud, who authored the 39-page judgment, said DMRC had suffered a “grave miscarriage of justice” from the arbitral award of 2017.

“The process of arbitration was perverted by the arbitral tribunal to provide an undeserved windfall to DAMEPL,” the Supreme Court observed.

The Supreme Court also set aside its own judgment of 2021 in the case. A two-judge Bench of the apex court had upheld the 2017 arbitral award, overruling the decision of a Division Bench of the Delhi High Court. The Division Bench of the High Court had found the arbitral award against DMRC perverse and irrational.

In a scathing comment about the apex court’s unwarranted interference in 2021, Chief Justice Chandrachud observed that “by setting aside the judgment of the Division Bench, this court had restored a patently illegal award which saddled a public utility with an exorbitant liability”.

Public-private partnership

DAMEPL had bagged the contract for the construction, operation and maintenance of the Delhi Airport Metro Express Ltd in 2008. The concession agreement had envisaged a public-private partnership for providing metro rail connectivity between New Delhi Railway Station and the Indira Gandhi International Airport and other points within the national capital.

However, trouble began when DAMEPL complained of defects in the structural design and gave DMRC 90 days to cure the flaws.

DMRC, the court found, took “effective steps” to repair the defects during the 90 days. However, DAMEPL handed out its notice for termination of the contract. DMRC later submitted in court that DAMEPL chose to end the contract after it had found the project financially viable.

Attorney General R. Venkataramani and senior advocate K.K. Venugopal, for DMRC, said the running speed for trains on the metro line was currently 120 kmph. The tribunal had ignored the fact that the line had already been operating smoothly for five and a half years.

They had argued that the Division Bench of the High Court had found the arbitral award “patently illegal” since the tribunal had ignored the vital evidence of Commissioner Metro Rail Safety (CMRS) certification of the metro line while deciding the validity of the termination of the agreement.

The tribunal had also overlooked the fact that the express terms of the agreement had stipulated that if “effective steps” were taken during the cure period by DMRC, the contractual power to terminate could not be exercised by DAMEPL.

CMRS certificate

Agreeing with DMRC, the three-judge Bench headed by Chief Justice Chandrachud observed how even the Supreme Court, in 2021, had incorrectly considered the CMRS certificate to be irrelevant to the question of the validity of the termination. The structure and safety of the project, as certified by the CMRS, were relevant. The CMRS certificate was a vital piece of evidence about the safety of the structure, the judgment said on Wednesday.

“There was no valid basis for this court [in 2021] to interfere… The interference by this court has resulted in restoring a patently illegal award. This has caused a grave miscarriage of justice,” Chief Justice Chandrachud concluded.

The April 10 judgment ordered the discontinuation of execution proceedings before the High Court for enforcing the arbitral award. It directed any amount deposited by DMRC, following the 2021 judgment, to be refunded.

The DMRC has paid ₹2,599.18 crore of the decretal amount, while the remaining ₹5,088 crore is outstanding as on January 31, 2024. “The part of the awarded amount, if any, paid by the petitioner as a result of coercive action is liable to be restored in favour of the petitioner,” the court ordered.

Chief Justice Chandrachud said the court’s curative jurisdiction was a rare remedy, not to be used by the apex court in the ordinary course.

“The curative jurisdiction should not be used to open the floodgates and create a fourth or fifth stage of court intervention in an arbitral award,” Chief Justice Chandrachud noted.

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