Judicial jolt: With ₹8000 crore on the line, SC’s ruling in favor of DMRC underscores the gravity of arbitration in public-private partnerships | Photo Credit: Shanker Chakravarty

The Supreme Court recently delivered an important judgment on the legal battle between the Delhi Metro Rail Corporation (DMRC) and the Delhi Airport Metro Express Private Ltd (DAMEPL).

The case, stemming from disputes over the termination of a concession agreement for the Airport Metro Express Line Project (AMEL Project), witnessed a convoluted legal trajectory, culminating in the SC’s examination of the curative petition filed by DMRC.

The conflict goes back to 2008, when DAMEPL (consortium of Reliance Infrastructure Ltd and a Spanish company) was awarded a concession agreement for developing and operating the AMEL project in collaboration with DMRC.

The project encountered several setbacks, including delays in construction and operational glitches, causing friction between the parties. Ultimately, invoking safety concerns and alleging structural deficiencies, DAMEPL issued a termination notice to DMRC, triggering a legal feud.

Before the arbitral tribunal, DMRC contended that it promptly rectified the identified defects. It attributed the termination of the Concession Agreement to DAMEPL’s financial exigencies rather than the safety issued raised by DAMEPL. DAMEPL argued that DMRC’s “remedial efforts” fell short of the contractual obligations; hence the termination. The arbitral tribunal decided the matter in favour of DAMEPL, ruling that DMRC’s remedial measures to cure the defects were inadequate. Subsequently, the arbitral award was put through two rounds of challenge before the Delhi High Court. While the single judge upheld the tribunal’s award, the divisional bench set it aside.

The matter then reached the Supreme Court, which restored the arbitral award, in favour of the single judge’s decision. A review petition in this regard was also allowed in the same terms. Ultimately, DMRC preferred a curative petition before the SC.

The significance of SC’s decision is two-fold. Firstly, it comes at a time when DMRC is grappling with financial strains. The arbitral award along with accrued interest swelling to ₹8000 crore would have posed a substantial threat to DMRC’s financial stability if it had been upheld.

Secondly, if allowing a special leave to appeal was rare, it was even rarer for curative petitions to be entertained. The SC, in terms of the landmark decision in Rupa Hurra vs Ashok Hurra, has been reluctant to interfere with its own judgments, reserving such action for only the most extraordinary circumstances.

The SC ruled in favour of DMRC and restored the parties to the same position in which they were on the pronouncement of the decision of the Division Bench of the High Court.

The apex court noted that in terms of the concession agreement, DAMEPL could have terminated the contract only if the DMRC failed to “cure” or “take effective steps” to cure the defects alleged by DAMEPL within the stipulated timeline under the concession agreement.

However, the arbitral tribunal opined that although DMRC took steps to cure the defects, the concession agreement’s termination was justified since the defects were ultimately not cured.

The SC held that the decision of the arbitral tribunal was in stark contradiction to the contractual terms, which suggested that even if a party had taken “effective steps” towards remedying the defects, termination of the Concession Agreement would not be justified.

It was noted that the arbitral tribunal did not give any reasons for whether the steps taken by DMRC even constituted an effective step to cure defects or not. Therefore, the apex court held that the arbitral award suffered from “patent illegality”. Accordingly, the curative petitions came to be allowed and the arbitral award was set aside.

The SC’s decision to overturn the arbitral award in a curative petition is rare and not to be taken as the standard practice. The court issued a caveat in this regard, emphasizing that interference with the arbitral process and awards should be rare and must lie within the framework outlined in the Arbitration and Conciliation Act. Such interventions should be sparingly employed, only to maintain the integrity of the arbitral system.

(The writers are advocates at Trinity Chambers, Delhi)

Published on May 19, 2024