The DMRC Case –  Assessing Exercise of Curative Jurisdiction in Annulment of Arbitral Award

[Prince Todi is an Associate at AZB & Partners, Mumbai. Yavipriya Gupta is an Advocate practising at the Bombay High Court and the Supreme Court of India]

Perhaps, a pro-arbitration jurisdiction can be characterized as one having consistent laws, with a focus on expeditious adjudication of disputes, minimal judicial intervention, and a presence of strong enforcement framework aimed at ensuring finality of the arbitral awards. While India has taken considerable steps in thwarting legislative inconsistencies, its reputation as an arbitral seat (both amongst the domestic and foreign parties) hasn’t changed much, owing to the endemic judicial delays and the interventionist approach of its courts.

Recently, a three-judge bench of the Supreme Court of India (“SC”) in Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd. (“DMRC case”) set aside an arbitral award (“DMRC award”), in exercise of its curative jurisdiction, an extraordinary remedy which can be exercised only sparingly, in rarest of the rare cases. In other words, even after multiple rounds of reviews of the award by different courts, the SC entertained a curative petition (“CP”) with regards to a commercial dispute between two parties, who had consciously chosen to submit their disputes to arbitration. Pertinently, this marks the first instance where the SC has set aside an arbitral award in a CP.

In this post, the authors explore the ramifications of the SC’s decision, more from a policy standpoint, without delving much into the merits of the decision.

Factual Matrix

In 2008, a concession agreement (“Agreement”) was entered into between Delhi Metro Rail Corporation (“DMRC”) and a consortium led by Reliance Infrastructure Ltd. viz., Delhi Airport Metro Express Pvt. Ltd. (“DAMEPL”) for the construction, operation and maintenance of Delhi Airport Metro Express Ltd. (“AMEL”). Under the Agreement, DAMEPL’s responsibilities included financing, designing, procuring, and installation of the railway systems for AMEL, while DMRC was responsible for undertaking clearances and bearing costs relating to land acquisitions.

Disputes arose between DAMEPL and DMRC in relation to the project and DAMEPL issued a notice to DMRC, inter alia demanding rectification of a list of defects within a 90-day period. Clause 29.5.1(i) of the Agreement specifically granted DAMEPL the authority to terminate the Agreement if DMRC did not rectify the breach or take effective steps to do so within 90 days of receiving notice from DAMEPL. Since DMRC failed to cure the defects within the stipulated period, DAMEPL terminated the Agreement under Clause 29.5.1(i). In 2013, DMRC initiated arbitration proceedings before a three-member Arbitral Tribunal (“Tribunal”) comprising of Engineers, inter alia claiming that it did take effective steps to cure the defects and thus, the termination was invalid. The validity of the termination of Agreement was the key issue for adjudication before the Tribunal.

Tribunal’s Award and the Subsequent Challenges

The Tribunal unanimously passed its award in favour of DAMEPL and inter alia held that DMRC breached its obligations and failed to cure the breach within the stipulated period of 90 days, while also failing to take any effective measures to cure the breach. What followed was five rounds of litigation/review of the DMRC award by various courts, including an unprecedented round where the SC set aside the DMRC award, in exercise of its curative jurisdiction:

1^st Round – DMRC challenged the DMRC award under section 34 of the Arbitration Act, 1996 (“Arbitration Act”) before the Single Bench of the Delhi High Court (“DHC”). However, the DHC dismissed the challenge and upheld the DMRC award on the ground that the award was reasonable and there was no need for interference, even if an alternative view could have been taken in the matter (“section 34 order”).

2^nd Round – Aggrieved by the section 34 order, DMRC filed an appeal before the Division Bench of the DHC under section 37 of the Arbitration Act, which was partly allowed and the DMRC award was partially set aside on the ground of patent illegality (“section 37 order”)

3^rd Round – Aggrieved by the section 37 order, DAMEPL filed a Special Leave Petition (“SLP”) before the SC under Article 136 of the Constitution of India pursuant to which, the SC restored the DMRC award while observing that it was neither perverse nor patently illegal.

4^th and 5^th Round – DMRC then filed a review petition against the aforementioned decision which was dismissed, paving way for yet another round of litigation before the SC in the CP filed by DMRC. It is at this unappealable stageof the CP that the SC set aside the DMRC award on the ground of patent illegality and put the adjudication to a finality.

Analysis

A CP is a judicial innovation under which the SC, as a final resort, can reconsider its decision in the review petition. First introduced by a Constitution Bench of the SC in Rupa Hurra v. Ashok Hurra, a CP can be entertained by the SC, only in rarest of the rare cases, to prevent an abuse of the judicial process; and cure a gross miscarriage of justice. Violation of the principles of natural justice, or the existence of bias by the presiding judges constitute the ex debito justitiae grounds that entitle parties to seek relief under a CP. While not exhaustive, these grounds serve as a guiding principle in determining the admissibility of a CP.

Against this backdrop, it is relevant to note that the grounds on which DMRC assailed the DMRC award in the CP, (inter alia being that the defects did not have any material adverse effect on the obligations under the Agreement; that effective steps were taken by DMRC to cure the defects etc.), were purely factual in nature, requiring a re-interpretation of the Agreement and therefore, clearly fell outside the limited curative jurisdiction of the SC. However, unlike the established position, the SC entertained the CP and took an in-depth view of the merits of the case, only to arrive at a conclusion which can be best explained as an alternate view of the matter. In doing so, the Court overlooked its limited jurisdiction, undertaking an approach which runs contrary to SC’s own rulings, wherein it has held that the issue of interpretation of a contract falls exclusively within the domain of an arbitrator and the courts cannot set aside an arbitral award on a mere possibility of an alternative view on facts or interpretation.

Regardless of the merits of the DMRC case, the concept of reconsidering an arbitral award in a CP also fails the purpose of section 5 of the Arbitration Act, which provides for minimal judicial intervention. This is because, statutorily the Arbitration Act provides for only two rounds of litigations pertaining to reviewing the arbitral award i.e., (i) challenge to the award under section 34 of the Arbitration Act; and (ii) appeal under section 37 of the Arbitration Act. The scope of review and grounds of challenging an award under section 34 are very limited and circumscribed, and do not include any sort of review on the merits of the case or allow reappreciation of evidence by the court. While the decision under section 34 can be appealed under section 37 of the Arbitration Act, however the scope of review therein is further narrowed, particularly if the award has been upheld in the section 34 round. Thus, the scheme of the Arbitration Act is very clear insofar as it limits judicial scrutiny of the awards only to specific junctures and grounds. Given the above, in a situation like the DMRC case, where an arbitral award has already been thoroughly assessed by the judicial fora in the preceding four rounds of litigation (i.e., two rounds under the Arbitration Act mentioned above, and subsequent two rounds before the SC in an SLP and in a review petition), permitting a further review in a CP is simply unconscionable and sets a bad precedent.

A direct ramification of permitting a CP i.e., a 5^th round of review, howsoever narrow its scope may be, is delay in the eventual effective execution of the arbitral award, which can frustrate the very purpose of parties opting for arbitration. This, in fact, adds to the miseries of a judgment creditor stuck in litigations after litigations, despite getting a favourable award from the arbitral tribunal. Interestingly, the SC itself, while hearing the SLP in the DMRC case, had orally emphasized on the importance of timely enforcement of arbitral awards to make India a hub of International Arbitration.

Another facet of this decision which merits a discussion is that the DMRC award was set aside on the ground of patent illegality i.e., a ground which can be invoked only in domestic arbitrations seated in India. Notwithstanding the need of having different tests and parameters for examining the correctness of an award in domestic and international arbitrations, the very possibility that the DMRC award could have survived if it was passed in an India-seated international arbitration gives rise to pertinent questions as to whether the policy of examination of domestic awards on such cornerstones should continue. 

Concluding Remarks

The DMRC case definitely raises eyebrows at the rather unprecedented approach taken by the SC, at a time, when the Legislature is attempting to reform the arbitration regime with a focus on declogging the courts. By setting aside an arbitral award in a curative petition, the SC has opened an additional avenue for parties to keep assailing the arbitral award, ultimately undermining the efficiency and finality of arbitration.  

– Prince Todi & Yavipriya Gupta