17 Apr 2024
The Apex Court had earlier refused to interfere in exercise of its review jurisdiction
In an interesting development, a three-judge bench of the Hon’ble Supreme Court, while exercising its extraordinary curative jurisdiction, has set aside the judgment of the two-judge bench in Delhi Airport Metro Express Private Limited vs. Delhi Metro Rail Corporation Ltd, (2022) 1 SCC 131. The judgment is significant as it not only reiterates the scope for invocation of curative jurisdiction, but also emphasizes the power of courts to set aside an arbitral award on the ground of failure to consider vital evidence. [Delhi Metro Rail Corporation Ltd vs. Delhi Airport Metro Express Private Limited, 2024 SCC OnLine SC 522]
The genesis of the dispute was a concession agreement entered between Delhi Metro Rail Corporation Ltd (DMRC) and Delhi Airport Metro Express Private Limited (DAMEPL) in 2008 for the purpose of providing metro rail connectivity between New Delhi Railway Station and the Indira Gandhi International Airport and other points within Delhi. Under the agreement, DAMEPL was granted exclusive rights, license and authority to implement the project, while DMRC was to undertake clearances and bear costs relating to land acquisition, and civil structures.
On 09.07.2012, DAMEPL issued a notice to DMRC containing a list of defects, which according to DAMEPL, affected the performance of its obligations under the 2008 agreement. The cure notice stated that the defects were attributable to faulty construction and deficient designs, which affected project safety. DMRC was therefore requested to cure the defects within 90 days, failing which it was stated that it would be considered that a material breach, entitling DAMEPL to terminate the 2008 agreement. Thereafter, on 08.10.2012 DAMEPL issued a notice terminating the 2008 agreement, in terms of clause 29.5.1 of the 2008 agreement, on the ground that the aforesaid defects had not been cured within the ‘cure period’. Clause 29.5.1(i) entitled the concessionaire to terminate the agreement if DMRC “failed to cure such breach or take effective steps for curing such breach” within the cure period. Consequently, DMRC initiated arbitration proceedings under the 2008 agreement.
It is relevant to mention that on 19.11.2012, both parties had made a joint application to the Commissioner of Metro Railway Safety (CMRS) for re-opening of the line, which had earlier been halted, for public carriage of passengers. Following this application, after inquiry and inspection, the CMRS issued sanction on 18.01.2013. This sanction was subject to certain conditions including speed restrictions.
In May 2017, a three-member tribunal passed an award in favour of DAMEPL inter alia holding that DAMEPL was entitled to the termination payment in terms of the 2008 agreement. The tribunal noted that there were defects which compromised the integrity of the structure of the metro line, which were not cured by DMRC in the cure period. This, as per the tribunal, amounted to a breach of DMRC’s obligations under the 2008 agreement resulting in a material adverse effect on the concessionaire.
The issue pertaining to the CMRS certificate was framed as follows: “H. Did the issuance of certificate by CMRS show that the defects were duly cured?” On the aforesaid issue, the tribunal held that the CMRS sanction mandated rigorous monitoring of operations of the line and imposed a speed restriction. Since the purpose of the line was to serve as a high-speed line, the tribunal found that the speed restrictions meant that this purpose was not served and therefore, the CMRS certificate or the subsequent operation of the line were not relevant in deciding the issues before it.
Assailing the award, DMRC instituted an application under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court. The Single-Judge of the High Court upheld the award and dismissed the petition. This gave rise to an appeal under Section 37 before a Division Bench of the High Court. The Division Bench of the High Court partly set aside the award as perverse and patently illegal inter alia on the ground that the award overlooked the legal effect of the CMRS certificate which was binding on the tribunal. Further, it held that the award erroneously treated the CMRS certificate as irrelevant to the issue of the validity of the termination by wrongly separating the issue of defects and material adverse effects from the issue of the certificate.
Against the decision of the Division Bench of the High Court, DAMEPL moved a Special Leave Petition under Article 136 of the Constitution before the Apex Court. A two-judge bench of the Supreme Court allowed the appeal, and restored the award, holding that the tribunal comprised of engineers and the award could not be scrutinized in the same manner as an award drawn by a legally trained mind. Thereafter, a review petition assailing the aforesaid decision was also dismissed. Finally, DMRC invoked the curative jurisdiction of the Supreme Court under Article 142 of the Constitution of India.
The following issues were framed by a three-judge bench of the Court in the curative petition:
(i) Whether the curative petition is maintainable?
(ii) Whether the Supreme Court was justified in restoring the arbitral award which had been set aside by the Division Bench of the Delhi High Court?
Answering the first issue in affirmative, the Court held that its jurisdiction, while deciding a curative petition, extended to cases where the Court acts beyond its jurisdiction, resulting in a grave miscarriage of justice. Reliance was placed on the judgment of the Constitution Bench in Rupa Hurra vs. Ashok Hurra, 2002 4 SCC 388, wherein it was laid down that the Court may entertain a curative petition to prevent abuse of its process and to cure a gross miscarriage of justice.
With respect to the second issue, the Court noted that in addition to the grounds on which an arbitral award can be assailed laid down in Section 34(2), there is another ground for challenge against domestic awards. Under Section 34(2-A) of the Arbitration Act, a domestic award may be set aside if the Court finds that it is vitiated by ‘patent illegality’ appearing on the face of the award. The Court, after examining the relevant judicial precedents in this regard, held that a ‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of ‘patent illegality’.
The Apex Court held that while adjudicating the merits of a Special Leave Petition and exercising its power under Article 136, it must be slow in interfering with a judgement delivered in exercise of powers under Section 37. Unlike the exercise of power under Section 37, which is akin to Section 34, the Court (under Article 136) must limit itself to testing whether the court acting under Section 37 exceeded its jurisdiction by failing to apply the correct tests to assail the award. In light of the said observation, the Court held that there was a fundamental error in the manner in which the two-judge bench had dealt with the challenge to the decision of the High Court. The Division Bench found the award to be patently illegal since it ignored the vital evidence of CMRS certification in deciding the validity of termination. The Court agreed with the said finding of the Division Bench of the High Court and held that the interpretation of the termination clause by the tribunal was unreasonable. It noted that Clause 29.5.1(i) used two separate phrases, “cure” and “effective steps to cure”. The Tribunal found that since certain defects remained after the cure period, this was indicative of the fact that the defects were not cured and that no effective steps were taken. However, the fact that defects existed at the end of the cure period does not explain whether effective steps were taken. Even the decisions of the Single Judge of the High Court and the two-judge bench of the Court were similarly silent on the aspect of ‘effective steps’. The Supreme Court further held that given the Tribunal’s framing of Issue H, it was bound to be answered in the negative since the CMRS certificate does not conclude that the defects were completely cured.
Finally, the Apex Court held that the structure and safety of the project, as certified by the CMRS, were relevant before the Tribunal, making the CMRS certificate a vital piece of evidence in deciding the issue. Since the ‘effective steps’ aspect was overlooked, the CMRS certificate was erroneously deemed to be irrelevant. The tribunal, therefore, reached a conclusion not possible for any reasonable body of persons to arrive at. Accordingly, the curative petitions were allowed and the parties were restored to the position in which they were on the pronouncement of the judgement of the Division Bench. The Supreme Court noted that it had applied the standard of ‘grave miscarriage of justice’ in the exceptional circumstances of this case where the arbitration has been perverted by the tribunal to provide an undeserved windfall to DAMEPL. While concluding its judgment, the Court sounded a note of caution against the exercise of curative jurisdiction as a matter of ordinary course.
In an interesting development, a three-judge bench of the Hon’ble Supreme Court, while exercising its extraordinary curative jurisdiction, has set aside the judgment of the two-judge bench in Delhi Airport Metro Express Private Limited vs. Delhi Metro Rail Corporation Ltd, (2022) 1 SCC 131. The judgment is significant as it not only reiterates the scope for invocation of curative jurisdiction, but also emphasizes the power of courts to set aside an arbitral award on the ground of failure to consider vital evidence. [Delhi Metro Rail Corporation Ltd vs. Delhi Airport Metro Express Private Limited, 2024 SCC OnLine SC 522]
The genesis of the dispute was a concession agreement entered between Delhi Metro Rail Corporation Ltd (DMRC) and Delhi Airport Metro Express Private Limited (DAMEPL) in 2008 for the purpose of providing metro rail connectivity between New Delhi Railway Station and the Indira Gandhi International Airport and other points within Delhi. Under the agreement, DAMEPL was granted exclusive rights, license and authority to implement the project, while DMRC was to undertake clearances and bear costs relating to land acquisition, and civil structures.
On 09.07.2012, DAMEPL issued a notice to DMRC containing a list of defects, which according to DAMEPL, affected the performance of its obligations under the 2008 agreement. The cure notice stated that the defects were attributable to faulty construction and deficient designs, which affected project safety. DMRC was therefore requested to cure the defects within 90 days, failing which it was stated that it would be considered that a material breach, entitling DAMEPL to terminate the 2008 agreement. Thereafter, on 08.10.2012 DAMEPL issued a notice terminating the 2008 agreement, in terms of clause 29.5.1 of the 2008 agreement, on the ground that the aforesaid defects had not been cured within the ‘cure period’. Clause 29.5.1(i) entitled the concessionaire to terminate the agreement if DMRC “failed to cure such breach or take effective steps for curing such breach” within the cure period. Consequently, DMRC initiated arbitration proceedings under the 2008 agreement.
It is relevant to mention that on 19.11.2012, both parties had made a joint application to the Commissioner of Metro Railway Safety (CMRS) for re-opening of the line, which had earlier been halted, for public carriage of passengers. Following this application, after inquiry and inspection, the CMRS issued sanction on 18.01.2013. This sanction was subject to certain conditions including speed restrictions.
In May 2017, a three-member tribunal passed an award in favour of DAMEPL inter alia holding that DAMEPL was entitled to the termination payment in terms of the 2008 agreement. The tribunal noted that there were defects which compromised the integrity of the structure of the metro line, which were not cured by DMRC in the cure period. This, as per the tribunal, amounted to a breach of DMRC’s obligations under the 2008 agreement resulting in a material adverse effect on the concessionaire.
The issue pertaining to the CMRS certificate was framed as follows: “H. Did the issuance of certificate by CMRS show that the defects were duly cured?” On the aforesaid issue, the tribunal held that the CMRS sanction mandated rigorous monitoring of operations of the line and imposed a speed restriction. Since the purpose of the line was to serve as a high-speed line, the tribunal found that the speed restrictions meant that this purpose was not served and therefore, the CMRS certificate or the subsequent operation of the line were not relevant in deciding the issues before it.
Assailing the award, DMRC instituted an application under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court. The Single-Judge of the High Court upheld the award and dismissed the petition. This gave rise to an appeal under Section 37 before a Division Bench of the High Court. The Division Bench of the High Court partly set aside the award as perverse and patently illegal inter alia on the ground that the award overlooked the legal effect of the CMRS certificate which was binding on the tribunal. Further, it held that the award erroneously treated the CMRS certificate as irrelevant to the issue of the validity of the termination by wrongly separating the issue of defects and material adverse effects from the issue of the certificate.
Against the decision of the Division Bench of the High Court, DAMEPL moved a Special Leave Petition under Article 136 of the Constitution before the Apex Court. A two-judge bench of the Supreme Court allowed the appeal, and restored the award, holding that the tribunal comprised of engineers and the award could not be scrutinized in the same manner as an award drawn by a legally trained mind. Thereafter, a review petition assailing the aforesaid decision was also dismissed. Finally, DMRC invoked the curative jurisdiction of the Supreme Court under Article 142 of the Constitution of India.
The following issues were framed by a three-judge bench of the Court in the curative petition:
(i) Whether the curative petition is maintainable?
(ii) Whether the Supreme Court was justified in restoring the arbitral award which had been set aside by the Division Bench of the Delhi High Court?
Answering the first issue in affirmative, the Court held that its jurisdiction, while deciding a curative petition, extended to cases where the Court acts beyond its jurisdiction, resulting in a grave miscarriage of justice. Reliance was placed on the judgment of the Constitution Bench in Rupa Hurra vs. Ashok Hurra, 2002 4 SCC 388, wherein it was laid down that the Court may entertain a curative petition to prevent abuse of its process and to cure a gross miscarriage of justice.
With respect to the second issue, the Court noted that in addition to the grounds on which an arbitral award can be assailed laid down in Section 34(2), there is another ground for challenge against domestic awards. Under Section 34(2-A) of the Arbitration Act, a domestic award may be set aside if the Court finds that it is vitiated by ‘patent illegality’ appearing on the face of the award. The Court, after examining the relevant judicial precedents in this regard, held that a ‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of ‘patent illegality’.
The Apex Court held that while adjudicating the merits of a Special Leave Petition and exercising its power under Article 136, it must be slow in interfering with a judgement delivered in exercise of powers under Section 37. Unlike the exercise of power under Section 37, which is akin to Section 34, the Court (under Article 136) must limit itself to testing whether the court acting under Section 37 exceeded its jurisdiction by failing to apply the correct tests to assail the award. In light of the said observation, the Court held that there was a fundamental error in the manner in which the two-judge bench had dealt with the challenge to the decision of the High Court. The Division Bench found the award to be patently illegal since it ignored the vital evidence of CMRS certification in deciding the validity of termination. The Court agreed with the said finding of the Division Bench of the High Court and held that the interpretation of the termination clause by the tribunal was unreasonable. It noted that Clause 29.5.1(i) used two separate phrases, “cure” and “effective steps to cure”. The Tribunal found that since certain defects remained after the cure period, this was indicative of the fact that the defects were not cured and that no effective steps were taken. However, the fact that defects existed at the end of the cure period does not explain whether effective steps were taken. Even the decisions of the Single Judge of the High Court and the two-judge bench of the Court were similarly silent on the aspect of ‘effective steps’. The Supreme Court further held that given the Tribunal’s framing of Issue H, it was bound to be answered in the negative since the CMRS certificate does not conclude that the defects were completely cured.
Finally, the Apex Court held that the structure and safety of the project, as certified by the CMRS, were relevant before the Tribunal, making the CMRS certificate a vital piece of evidence in deciding the issue. Since the ‘effective steps’ aspect was overlooked, the CMRS certificate was erroneously deemed to be irrelevant. The tribunal, therefore, reached a conclusion not possible for any reasonable body of persons to arrive at. Accordingly, the curative petitions were allowed and the parties were restored to the position in which they were on the pronouncement of the judgement of the Division Bench. The Supreme Court noted that it had applied the standard of ‘grave miscarriage of justice’ in the exceptional circumstances of this case where the arbitration has been perverted by the tribunal to provide an undeserved windfall to DAMEPL. While concluding its judgment, the Court sounded a note of caution against the exercise of curative jurisdiction as a matter of ordinary course.