On 9 September 2021, the Supreme Court of India, while overruling the decision passed by the Division Bench of Delhi High Court which had set aside the arbitral award, reiterated the scope for interference by courts while examining arbitral awards.

Brief Factual Background

Delhi Metro Rail Corporation (DMRC), a joint venture of Government of India and Government of Delhi, entered into a concession agreement (Concession Agreement) with Delhi Airport Metro Express Pvt. Ltd. (DAMEPL), a consortium between Reliance Infrastructure Limited and Construcciones y Auxillar de Ferrocarriles, S.A. As per the Concession Agreement DAMEPL was entrusted with designing, installation, maintenance, and operation of a portion of the Airport Metro Express Line project in New Delhi (AEML), wherein DMRC had undertaken to design and construct civil structure of the project.

During the defect liability period, DAMEPL noticed certain defects in construction of AEML and accordingly issued a notice to DMRC to cure the defects. Despite various meetings held between the parties, the defects as pointed out by DAMEPL remained allegedly unresolved. Accordingly, DAMEPL stopped all work and issued a notice to DMRC terminating the Concession Agreement. DMRC invoked arbitration under the Concession Agreement.

The Arbitral Tribunal (Tribunal), after having conducted a detailed analysis of the matter, concluded that DMRC had not cured the defects as pointed by DAMEPL and was, therefore, in violation of the Concession Agreement. The Tribunal accordingly held the termination notice to be valid and, on grounds of adjusted equity, passed a total award of INR 2,782.33 crore with interest in favour of DAMEPL. The award was subsequently challenged by DMRC under Section 34 of the Arbitration and Conciliation Act, 1996 (Act), which was dismissed by a Single Judge Bench of the Delhi High Court. DMRC made a further appeal under Section 37 of the Act before the Division Bench of the Delhi High Court, which partly set aside the arbitral award on the ground of it suffering from vices of perversity, irrationality, and patent illegality. As for issues not decided by the Division Bench, the parties were allowed to invoke the arbitration clause for adjudication of the disputes, especially for specific performance of the Concession Agreement by DAMEPL. Aggrieved, DAMEPL moved to the Supreme Court under a special leave petition (SLP), while DMRC also preferred a separate SLP inter-alia for specific performance of the Concession Agreement.

Issues and Findings of the Supreme Court

The issue before the Supreme Court was whether the Division Bench had erred in setting aside the award of the Tribunal by deviating from the well-settled principles for interference under Sections 34 and 37 of the Act.

The Supreme Court examined the contours of the court's power to review arbitral awards and held that the principal objective of the Act was to minimize the supervisory role of courts in arbitral processes, and that judicial interference with arbitral awards is limited to the grounds as specified in Section 34 of the Act.

The Supreme Court examined each provision and aspect of Section 34 of the Act in depth, especially words of import used in the section such as 'public policy of India‘, ‘patent illegality', and ‘fundamental policy of India' and how courts have interpreted such words in context of the Act.

That in so far as public policy of India was concerned, the same was constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law and secondly, that such award is against the basic notions of justice and morality as understood in Associate Builders v Delhi Development Authority [(2015) 3 SCC 49] (Associate Builders).

The Supreme Court held that the expression ‘public policy of India' under Section 34(2)(b)(ii) of the Act, would mean the ‘fundamental policy of Indian law', and the understanding of ‘fundamental policy of Indian law' may be drawn from Ssangyong Engineering and Construction Co. Ltd. v National Highways Authority of India [(2019) 15 SCC 131] (Ssangyong), which held that the same is in accordance with understanding of the Supreme Court in Renusagar Power Co. Ltd. v General Electric Co. [1994 Supp (1) SCC 644], wherein it was held that the violation of the Foreign Exchange Regulation Act, 1973, a law enacted and enforced in national economic interest and disregarding the Supreme Court, would be a gross contravention of fundamental policy of Indian law.

Similarly, patent illegality under Section 34(2A) of the Act, means patent illegality appearing on the face of the award, where such illegality goes to the root of the matter but which does not amount to error of law, erroneous application of law, or contravention of law not linked to public policy or public interest, unless the interpretation of the arbitrator is such that it wanders outside the realms of any fair-minded or reasonable person. However, conclusions of an arbitrator which are based on no evidence or have been passed by ignoring vital evidence are perverse and can be set aside on grounds of patent illegality.

Essentially, contravention of a statute not linked to public policy or public interest cannot be a ground to set aside an arbitral award on grounds of being contradictory to fundamental policy of India or patent illegality.

That said, the Supreme Court has reiterated that Section 34 of the Act does not permit courts to be a judge of evidence perused by the arbitrator in the course of arbitration proceedings.

The Supreme Court,  on the basis of scope of interference under section 34  of the Act, concluded that the impugned decision of the Division Bench was erroneous to the extent that it amounted to appreciation or re-appreciation of facts already decided by the arbitral tribunal which was not permissible under the Act.


The judgment reinforces the earlier views of the Supreme Court regarding expressions such as patent illegality and fundamental policy of India and scope for judicial interference in arbitral awards. The Supreme Court has, in no unequivocal terms, stated that construction of terms of contract cannot be substituted by courts and that this was in line with the understanding of Section 28(3) of the Act, as held in Associate Builders and thereafter upheld in Ssangyong case.

After the recent proclamation of Supreme Court in wanting to appoint young knowledgeable lawyers as arbitrators in order to speed up the arbitral process, these decisions further show how committed the Supreme Court remains to ensure that arbitrations are considered as an effective alternative remedy entailing speedy resolution and minimum grounds for interference by courts.

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