Supreme Court’s judgment in Delhi Metro Rail Corporation Ltd. vs. Delhi Airport Metro Express Pvt. Ltd: A setback for arbitration in India?
Introduction
The Supreme Court’s 2024 ruling in Delhi Metro Rail Corporation Ltd. vs. Delhi Airport Metro Express Pvt. Ltd. (DMRC Judgment) has cast a shadow over India’s reputation as an arbitration-friendly jurisdiction. By entertaining a curative petition to revisit a commercial dispute, the Court’s judgment has unsettled settled principles in arbitration law, specifically regarding the finality of awards. In this article, we analyse the facts, the Court’s reasoning, and critique its potential impact on the Indian arbitration landscape.
Factual background
In 2008, the consortium led by Delhi Airport Metro Express Private Limited (DAMEPL) was entrusted with the responsibility of designing, constructing, and operating the Airport Metro Express Line Project, a major public-private partnership project in New Delhi aimed at connecting key transportation hubs. According to the terms of the concession agreement, the state-owned Delhi Metro Rail Corporation (DMRC) was tasked with acquiring necessary government clearances and bearing the costs of civil works, while DAMEPL was responsible for the project’s operational and technical aspects, such as the design, installation, and commissioning of critical infrastructure.
The project, initially slated for completion within two years, faced delays, leading to extensions. By February 2011, the project was deemed ready for commercial operations, with safety clearances in place. However, in March 2012, DAMEPL raised concerns regarding the structural integrity of the viaduct and bearings, citing cracks and deformities that posed a risk to the safety of the metro line. In response, DMRC acknowledged the issue but maintained that only the grouting material around the bearings was damaged, not the bearings themselves. They assured DAMEPL that repairs would be prioritized.
A joint inspection of the structure organized in July 2012 by the Ministry of Urban Development revealed various structural concerns. Consequently, DAMEPL ultimately halted operations in July 2012 due to safety issues, issuing a formal notice to DMRC for rectification of defects within the 90-day cure period. When DMRC failed to resolve the issues within the stipulated time, DAMEPL proceeded to terminate the concession agreement in October 2012, citing the failure of DMRC to cure the defects. In response, DMRC initiated arbitration proceedings challenging this termination.
In January 2013, the Commissioner of Metro Railway Safety (CMRS) conducted a further inspection and granted conditional approval for the resumption of operations, though with specific speed and safety restrictions. Despite this, DAMEPL continued to raise concerns about the project’s safety and ultimately handed over the operations to DMRC in June 2013. DMRC assumed full responsibility for the project in July 2013.
Arbitration proceedings
During the arbitration, DMRC argued that it addressed the defects promptly by consulting the original design consultant and engaging with the Ministry of Urban Development, with DAMEPL actively involved. DMRC also claimed that DAMEPL’s termination was due to financial difficulties, not defects, and sought the termination’s reversal. In response, DAMEPL asserted that the defects were caused by DMRC’s faulty design and remained unresolved within the 90-day cure period, justifying termination due to a material adverse event.
The Arbitral Tribunal found that over 70% of the girders had cracks, with inadequate assessment and repairs by DMRC. It also noted unaddressed twists and gaps in the structure, undermining its integrity. The Arbitral Tribunal concluded that DMRC breached its obligations, causing significant damages to DAMEPL. The CMRS’s conditional approval to operate, with speed restrictions, was deemed insufficient, as the project was intended for high-speed use. Thus, the Arbitral Tribunal found the CMRS certification issued in January 2013 irrelevant to the core issues. The Arbitral Tribunal found in favor of DAMEPL, awarding INR 75 billion.
The Delhi High Court initially upheld the award, but the Division Bench later disagreed on the significance of CMRS certification and partially allowed the appeal. DAMEPL moved to the Supreme Court, which set aside the decision of the Division Bench and restored the arbitral award. The review petition of DMRC against the above judgment of the Supreme Court was also dismissed in November 2021. DMRC then filed a curative petition. In this context, a curative petition is the final legal remedy in India to address serious miscarriages of justice after a review petition has been dismissed. Curative petitions are exceptional, not routine, and can be dismissed with penalties if lacking merit.
Supreme Court’s ruling in the Curative Petition
In an unexpected move, the Supreme Court entertained the curative petition of DMRC, which is effectively the fifth round of challenge to the award.
The Supreme Court held that under the terms of the concession agreement, DAMEPL had the right to terminate the contract if DMRC failed to take “effective steps” to address defects. The Court emphasized that while the arbitral tribunal acknowledged the existence of defects, it remained unclear whether DMRC had taken “effective steps” to cure them within the 90-day cure period. The Court interpreted the phrase “effective steps” in the agreement to mean that the parties intended to provide an opportunity to remedy defects, even if those steps did not result in the complete resolution of the issues within the cure period. Accordingly, the Court found that incremental progress in addressing the defects, even if not fully curing them, would be sufficient to prevent termination of the agreement.
Further, the Court found that the Arbitral Tribunal had failed to properly consider critical evidence, particularly the CMRS certificate, in its decision. While the Arbitral Tribunal had interpreted the CMRS’s sanction regarding speed restrictions and impositions, concluding that the defects were not adequately addressed, the Supreme Court held that the CMRS certificate indicated that while the defects had not been fully resolved, it did not negate the fact that “effective steps” had been taken. Therefore, the Court ruled that the CMRS certificate was relevant, as it demonstrated that action had been taken, even if the defects persisted.
Our Thoughts
The DMRC Judgment presents a concerning setback for the promotion of arbitration as an effective and efficient dispute resolution mechanism in India. The decision injects a sense of uncertainty for parties seeking swift and fair resolution of disputes.
A key issue with the judgment is the Court’s use of the curative petition process to revisit the merits of a commercial dispute. Curative petitions were originally intended to address rare instances of miscarriages of justice, such as violations of natural justice or undisclosed conflicts of interest. By applying this remedy to an arbitration case, the Court risks expanding its scope beyond its intended purpose, which could have far-reaching consequences for the integrity of arbitration in India.
Moreover, the Court’s excessive focus on procedural requirements, such as the CMRS certificate, undermines the core principles of arbitration. While it is essential for Arbitral Tribunals to consider all relevant evidence, arbitration’s flexibility relies on the expertise of specialized tribunals in technical matters. Requiring them to justify their findings with the same level of legal reasoning as a court of law could inhibit the efficiency and expertise-based nature of arbitration. This ruling sets a troubling precedent, where courts may increasingly interfere with arbitral awards based on technicalities, even when the findings are factually sound.
The judgment also sends a discouraging signal to both domestic and international stakeholders about India’s arbitration environment. Investors and businesses value certainty and finality in dispute resolution, and this decision undermines both. By introducing the possibility of judicial intervention after an arbitral award, it casts doubt on India’s commitment to providing a stable and arbitration-friendly legal framework. This could deter parties from choosing arbitration as their preferred method for resolving disputes, particularly in commercial contexts where speed and finality are paramount.
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