FACTS

The Government of India and the Government of National Capital Territory of Delhi entered into a joint venture, the Delhi Metro Rail Corporation Ltd. (hereafter, the Defendant), wherein they executed a Concession Agreement with Delhi Airport Metro Express Ltd. (hereafter, the Plaintiff).

It was proposed that the Airport Metro Express Line (AMEL) Project (hereafter, the Project) in New Delhi would be implemented from New Delhi Railway Station to Dwarka Sector. The approximate length of the said project was 22.7 kilometres. It was decided that the Project would be developed by engaging a Concessionaire and by procuring financing, design and installation of all the systems. The Defendant was responsible for the construction of basic civil structure for the Project.

Shortly after the beginning of the operations, the Plaintiff located certain deformations and cracks in construction done by the Defendant. Since the issue between the parties remained unresolved even after several meetings, the Plaintiff issued a Notice to the Defendant in the month of July stating that the contract would be terminated after 90 days in case the cracks and damages were not repaired within the stipulated time period, and the same would amount to the ‘Event of Default’ under the Concession Agreement.

The Plaintiff, vide a Termination Notice, after three months, in October finally terminated the contract with the Defendant stating that the cracks and damages were not fixed within the period of 90 days which in turn resulted in ‘Event of Default’ under the Concession Agreement.

Seeking action against such termination, the Defendant invoked Arbitration under the relevant provision of the Concession Agreement.

 After a thorough study of the proceedings and detailed report on the condition of the cracks on the AMEL, the Arbitral Tribunal concluded that the Defendant did not fulfil its responsibility to cure the defects in the Project even after repetitive requests by the Plaintiff and was thus, in violation of Concession Agreement.

The Termination Notice sent by the Plaintiff was held valid by the Arbitral Tribunal, and an Award of Rs. 2,783 Crores (with interest) was passed in favour of the Plaintiff.

Consequently, the Defendant filed an Application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter, the Act) in the Delhi High Court (hereinafter, the High Court) wherein the Single Judge dismissed the application stating that the grounds for interference had not been sufficiently made out by the Defendant.

The Defendant challenged the aforementioned judgment of the Single Judge and filed an Appeal under Section 37 of the Act. The Division Bench of the High Court overruled the decision of the Single Judge Bench, and partly set aside the decision of the Arbitral Tribunal.

The Defendant subsequently also filed a Special Leave Petition (SLP) challenging the decision of the Division Bench with regards to issues pertaining to specific performances under the Concession Agreement.

Aggrieved by the decision of the Division Bench and the SLP filed by the Defendant, the Plaintiff filed an Appeal before the Supreme Court.

ISSUES BEFORE THE SUPREME COURT                                                        

• Whether the Division Bench of the High Court erred in setting aside the decision of the Single Judge and the Award of the Arbitral Tribunal?
• Whether the Award passed by the Arbitral Tribunal was liable to be set aside on the ground of Patent Illegality?

CONTENTIONS OF THE PARTIES

The Plaintiff contended that the High Court committed an error while setting aside the Award of the Arbitral Tribunal by misinterpreting the well-established principles and limitations of interference by courts under Sections 34 and 37 of the Act. The Plaintiff persisted on the fact that the findings of the Arbitral Tribunal in addition to the evidence of defects and deformities, and the failure in repairing those defects, are facts which cannot be subjected to review by the Court.

As per the Plaintiff’s contentions, the certificate which was issued by the Commissioner of Metro Railway Safety (CMRS) clearly concluded that the conditions for restarting the operations of AMEL showed that the defects concerned were not repaired.

Furthermore, the Plaintiff argued that the Defendants were duly notified that the Agreement would be terminated if the damages and deformities were not repaired within the period of 90 days. In light of the same, the Plaintiff contended that the observations of the High Court, regarding the Arbitral Tribunal being confused about the calculation of 90 days with respect to the Termination Notice, were clearly unfounded.

Relying on the Delhi Metro Act and Rules, the Defendant contended that the CMRS, being the sole authority to determine the safety of Metro Railway, issued the certificate to the Defendant. Thus, the same amounts to relevant evidence which implies that the defects located by the Plaintiff had been fixed.

The Counsel, on behalf of the Defendant, asserted that the period of reparation of the defects should not be calculated from the initial date of the notice, i.e., in July, but be extended for another 90 days from the date of the Termination Notice. In light of the same, the Defendant argued that the Arbitral Tribunal was erroneous in its interpretation of the relevant provisions of the Concession Agreement pertaining to calculation of the days.

The Defendant further stated that sufficient materials were placed by the Defendant to prove that effective and immediate steps were being taken to cure the defects, which fact was not taken into due consideration by the Arbitral Tribunal. 

DECISION AND FINDINGS

The Supreme Court, while deciding the case, condemned the High Court for setting aside the Arbitral Award and the decision of the Single Judge.

The Supreme Court examined the limitation of a Court’s powers in setting aside Arbitral Awards and held that the principal objective of the Act was to minimise the supervisory role of the Courts in the Arbitral proceedings. The Court further held that such judicial interference with Arbitral Awards is constrained to the grounds and limitations mentioned under Section 34 of the Act.

The Supreme Court, while discussing about the several facets of Section 34, emphasized on phrases such as ‘Public Policy of India’, ‘Patent Illegality’, etc. The Supreme Court stated that it is a well-settled fact that a Domestic Award will be considered to be against the ‘basic notion of morality or justice’ if such Award is in contradiction to the Fundamental Policy of India.

Taking into consideration the 2015 Amendment to the Act, the Supreme Court placed reliance on Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) [(2019) 15 SCC 131], and noted that the phrase “interest of India” was deleted thereafter to prevent Courts from acting unreasonably under the pretext of these words.

The Supreme Court observed that there is a ‘disturbing tendency’ of Courts setting aside Arbitral Awards based on the grounds of perversity or patent illegality. Such tendency and approach would gradually lead to erosion of the primary aim of the Act and the same should be avoided at all costs.

However, the Supreme Court observed that an Arbitral Award cannot be unreasonably set aside under the umbrella of ‘Patent Illegality’; rather, the Award should be assessed on the grounds of being contradictory to the conscience and morality of the court.

Thus, the Supreme Court held that the decision of the High Court is erroneous in setting aside the Arbitral Award on the basis of the Patent Illegality. In the backdrop of the same, the Supreme Court set aside the judgment of the Division Bench of the High Court.

AMLEGALS REMARKS

The present case discusses in detail the Court’s powers to set aside an Arbitral Award by the Arbitral Tribunal and the scope of such judicial interference.  Since the 2015 Amendment, terms such as ‘Patent Illegality’, ‘Public Policy of India’, etc., have been widely referred to in several judgments. On many occasions, the Judiciary misinterprets the need for application of such grounds for setting aside an Arbitral Award.

 The Supreme Court has discussed the importance of Arbitration as an Alternative Dispute Resolution mechanism, which is essentially premised on being fast-tracked as compared to litigation. This decision emphasizes the importance of Arbitral proceedings and the findings by the Arbitral Tribunal, which should not be unnecessarily interfered with.

–TEAM AMLEGALS, assisted by Ms. Vaaridhi Jain (Intern)