[Madhav Goel and Anjali Sharma are researchers at the TrustBridge Rule of Law Foundation]
In April 2024, the Supreme Court of India in Delhi Metro Rail Corporation v. Delhi Airport Metro Express Private Limited (‘DMRC v. DAMEPL’) overturned an arbitral award of nearly Rs. 8,000 cr against the DMRC which was to be paid to DAMEPL, a joint venture between Reliance Infrastructure Limited and Construcciones Auxiliar de Ferrocarriles, S.A., Spain (CAF). The Supreme Court invoked its extraordinary powers under Article 142 of the Constitution of India to hear a curative petition filed by DMRC in respect of an earlier order of the Court upholding the award. This has brought finality to the nearly decade long contractual dispute between DAMEPL and DMRC, which began with arbitration in 2013.
The Supreme Court’s use of its extraordinary curative jurisdiction powers to overturn a commercial contractual dispute has been the subject of much debate and criticism in recent legal scholarship (see, e.g., here, here, and here). In this post, we provide an overview of the dispute and its journey through arbitration and subsequent litigation, an analysis of the main arguments in support of and against this judgment, and highlight the implications of this judgment for the state of commercial dispute resolution in the country.
On the one hand, this judgment brings into focus the role of courts in reviewing arbitral awards, and the grounds for such review, namely highly subjective grounds such as patent illegality. It sets a precedent that large value awards against the state might find judicial consideration on grounds of public interest. It further highlights the challenges of timeliness, consistency and finality in contract enforcement, especially in the face of the multiple avenues of appeal that the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) along with the Constitution of India provide. On the other hand, the judgment may be viewed as a course correction by the Court of its earlier action of overturning a judgment of the High Court using its powers under Article 136. In doing so, the Court has, in fact, preserved public interest in the face of a perverse and irrational award. This side raises questions about the quality and effectiveness of the arbitration itself, which took nearly four years to arrive at an outcome which could not withstand judicial scrutiny.
Brief History of the Dispute
Table 1 provides a brief timeline of the project, the dispute, the arbitration and the subsequent litigation in courts.
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Table 1: Timelines and events in the DAMEPL – DMRC Dispute |
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Phases |
Timeline |
Description |
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Phase 1: Project announcement to implementation |
April 2007 to February 2011 |
July 2010: Original expected project completion date. February 2010: Airport Metro Express link opened to passengers after safety clearance from the Commissioner of Metro Rail Safety (CMRS). Safety clearance with conditions and reduced speed. |
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Phase 2: Dispute and arbitration |
March 2012 to May 2017 |
March 2012: DAMEPL raised the matter of civil contract works defects. July 2013: DAMEPL handed over operation of the line to DMRC. August 2013: Arbitral tribunal constituted. May 2017: Award of Rs. 2,993 cr plus interest in favour of DAMEPL. |
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Phase 3: Litigation in courts |
May 2017 to April 2024 |
March 2018: Delhi HC dismissed Section 34 petition filed by DMRC. Jan 2019: Division Bench of Delhi High Court allows the Section 37 appeal filed by DMRC and sets aside the award on grounds of patent illegality. September 2021: Supreme Court allows the appeal by DAMEPL. Sets aside the judgment of the Division Bench. September 2021: DAMEPL files enforcement petition under Section 36. April 2024: SC allows curative petition filed by DMRC and sets aside the award. |
The resolution of the dispute between DAMEPL and DMRC took nearly 11 years to attain finality. Four years were taken by the arbitral tribunal to pass an award. The litigation in Delhi High Court under sections 34 and 37 of the Arbitration Act took around two years, and nearly three years were spent in the Supreme Court between the first review by the Supreme Court and the curative petition.
The Apex Court’s Decision: The Two Sides of the Argument
We present a summary of both sides to the debate – whether the Court erred in overturning the award or whether its decision is actually a correct exercise of its curative and extraordinary powers under Articles 137 and 142.
Perspective #1 – The Supreme Court’s decision is flawed
First, the Supreme Court’s curative jurisdiction should not have been used to overturn an arbitral award that had been upheld after three rounds of litigation – two in the High Court and one in the Supreme Court itself. It is well settled law that the Supreme Court’s curative jurisdiction is to be exercised sparingly and in rare cases to prevent grave miscarriages of justice or irremediable injustice. The procedures involved in hearing and deciding a curative petition also present substantial hurdles that may dissuade the filing of curative petitions (see Order XLVIII, Supreme Court Rules, 2013). Further, it is noteworthy that the Arbitration Act itself provides limited grounds for overturning an arbitral award, and the legislative intent is to uphold arbitral awards unless the award debtor can make a plausible case surrounding one of the few procedural grounds in section 34 of the Arbitration Act.
Given the constricted ambit of curative petitions and the limited scope of interference under sections 34 and 37 of the Arbitration Act, the Supreme Court’s decision to set aside its own judgment to overturn an arbitral award is puzzling. This is especially so when the judiciary itself has repeatedly emphasized the need to have a pro-arbitral award policy to build India into an arbitration hub. Further, the reasoning used by the Supreme Court in overturning the award is intriguing. Under its curative jurisdiction, it undertook a complete review of the merits of the arbitral award and held it to be patently illegal under section 34(2A) of the Arbitration Act, an exercise the Supreme Court had already undertaken while upholding the award previously.
Second, one of the key reasons why the Supreme Court entertained this curative petition was because it felt that a grave miscarriage of justice had been done and a public utility would be saddled with a substantial liability. This reasoning seems to be unimpressive for invoking special powers under Article 142 to set aside commercial arbitration awards against the state. In India, the state has a large presence in business, both directly and indirectly. The Union Government alone procures nearly Rs. 10 trillion worth of goods, services and works every year and much of this is from the private sector. Nearly 75% of this procurement is high value procurement by agencies such as NHAI, Ministry of Road Transport and Highways, Metro Rail Corporations and PSUs such as Bureau of Pharma PSUs of India (BPPI) and Food Corporation of India. If the public exchequer argument is applied to disputes in commercial contracts where the state is a party, it will open a pandora’s box. The state’s incentive of being a rational commercial actor in such contracts will reduce, since it will have greater confidence of obtaining subsequent judicial relief in high stakes disputes. Private parties will also take note of this judgment and factor it in their cost of doing business with the state. Once a cost threshold is breached, some private persons may simply stop doing business with the state, thereby reducing competition in, and the quality of, public procurement. Further, the Court’s decision, instead of aiding the cause of consistency and finality in contractual disputes, appears to have created another avenue of challenge. This may further dissuade private parties from engaging with the state in complex and large scale projects.
Third, the Court did clarify that its review and curative jurisdiction should not be used to create a fourth or fifth stage of court intervention in an arbitral award. However, there is a substantial possibility that when the stakes are high,aggrieved parties (especially the state) will litigate arbitral awards all the way to the Supreme Court, including through the review and curative petition route. How subsequent benches of the Supreme Court deal with these cases remains to be seen. But given that the avenue has been opened, there is reason to believe that there may be many more such casesbased on the precedent set in DMRC v. DAMEPL.
Perspective #2 – The Supreme Court justifiably intervened and set aside the award
The above criticism aside, it may be argued that the Supreme Court in fact corrected its earlier erroneous decision of using Article 136 to interfere with a decision of the Division Bench of the Delhi High Court. In doing so, it has aided the cause of limited court intervention in arbitral awards since the initial adjudication by the Supreme Court was itself uncalled for.
Section 34 of the Arbitration Act already places a fairly high bar for a court to interfere with the arbitral award. Section 37 presents an even steeper challenge for it does not enable the appellate court to take a full review of the award on merits, but empowers the court to only assess whether the lower court has correctly exercised its powers under section 34. Therefore, ordinarily, the decision of the appellate court under section 37 should be the end of the matter as far as the validity of the arbitral award is concerned. This is evident from the scheme of the Arbitration Act and is desirable from the perspective of efficiency in contract enforcement. Given this, the Supreme Court should not have granted special leave to DAMEPL to appeal and then set aside the decision rendered by the appellate court under section 37. Its substantive review of the award would set a precedent for future appeals of this nature. The decision in DMRC v. DAMEPL corrects this exercise of judicial discretion and cautions against letting appeals to the Supreme Court become another avenue for challenging arbitral awards. Through its recent judgment, the Court has potentially arrested any tendency of parties to appeal awards in the Supreme Court under Article 136.
Finally, it can be argued that the Supreme Court has protected public interest by ensuring that the state does not have to suffer twice – firstly, because of a faulty arbitration process followed by a prolonged litigation process, and then by being saddled with a large value award. One may argue that in this instance the ground of protection of public interest warranted the Supreme Court invoking its extraordinary powers under Article 142.
Conclusion
The two perspectives on DMRC v. DAMEPL throw up some important issues for consideration, both from the perspective of policy and practice. First, that the law regarding challenge to arbitral awards under sections 34 and 37 of the Arbitration Act is still unsettled. De jure the Arbitration Act provides clarity on the scope of review of awards by the courts under these sections. However, the manner in which courts apply these is still not entirely clear. Second, grounds such as “patent illegality” under section 34(2A) of the Arbitration Act create significant possibilities for subjective interpretation by courts on a case to case basis. Third, the legal framework (the Arbitration Act and the Constitution read together) provides too many avenues to challenge an arbitral award. Fourth, multiple avenues of appeal combined with an inconsistent exercise of judicial powers renders the policy intent of the Arbitration Act to improve contract enforcement timelines and certainty ineffective. The High Court’s opposing view in the section 34 and section 37 review, and the Supreme Court’s decision to undertake three rounds of review (special leave petition, review petition and curative petition) finally overturning its own previous judgment highlight this issue. Fifth, they highlight the challenges of contracting, risk allocation, contract management and litigation practices that private parties encounter when dealing with the state. There is a need for comprehensive reform within the state, both as a contracting party and as a litigant in courts. Finally, it raises concerns about the clarity, consistency and efficiency of arbitration as a dispute resolution mechanism in India. Rather than resulting in faster, cheaper resolution of commercial contractual disputes, arbitration is becoming as (if not more) expensive, tedious, and protracted as civil litigation. In fact, only recently, the Government of India has cited unfairness and expenses involved in arbitration and asked its departments/entities to not invoke arbitration in high value disputes. This is yet another clarion call for the legal system to rethink arbitrations, and more broadly, the future of commercial dispute resolution and contract enforcement in India.
– Madhav Goel & Anjali Sharma