ARTICLE
24 April 2024

Supreme Court Exercises Curative Intervention – DMRC vs DAMEPL

PL
Phoenix Legal
Contributor
Phoenix Legal is a full service Indian law firm offering transactional, regulatory, advisory, dispute resolution and tax services. The firm advises a diverse clientele including domestic and international companies, banks and financial institutions, funds, promoter groups and public sector undertakings. Phoenix Legal was formed in 2008 and now has 14 Partners and 65 lawyers in its two offices (New Delhi and Mumbai) making it one of the fastest growing law firms of the country.
This unprecedented action has catalysed discussions on the emergence of a potential fifth stage of judicial intervention in arbitral awards.
India Litigation, Mediation & Arbitration
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In a landmark judgement, the Supreme Court (Court) has embarked on an unprecedented course by revisiting a judgment of its division bench in the case of Delhi Metro Railway Corp (DMRC) versus Delhi Airport Metro Express (DAMEPL), through a curative petition.

This unprecedented action has catalysed discussions on the emergence of a potential fifth stage of judicial intervention in arbitral awards.

Factual Background

The dispute revolves around a public private partnership contract (executed in 2008) between DMRC and DAMEPL (a specialized entity formed by a consortium comprising Reliance Infrastructure Limited and Constructions Y Auxiliar de Ferrocarriles SA, Spain.) for the construction and maintenance of the Delhi Airport Metro Express Line.

The agreement granted DAMEPL exclusive rights and authority to execute the project, with a completion timeline set at two years, followed by maintenance obligations until August 2038.

However, DAMEPL terminated the agreement, citing alleged defects and safety concerns which caused material adverse effects on the performance of its obligations, coupled with DMRC's failure to cure the issues within the specified timeframe. The termination led DMRC to invoke the arbitration clause of the agreement. The Arbitral Tribunal unanimously ruled in favour of DAMEPL grating termination payment, expenses for operating the project, refund of the bank guarantee and security deposit.

DMRC contested this decision by filing an application under Section 34 of the Arbitration and Conciliation Act 1996 before the Delhi High Court, which was dismissed by a single-judge bench. The Division Bench of the High Court, however partially overturned the Award citing that the arbitral award ignored the ambiguity in the date of termination and the justification for the termination.

DAMEPL then pursued relief through a Special Leave Petition (SLP), resulting in a two-judge bench of the Court allowing the appeal and reinstating the arbitration award. This decision of the Court was challenged by DMRC through a review petition which was dismissed, paving the way for the current curative petition.

Issues

The Court deliberated on two pivotal issues in this case:

  1. The Court examined the admissibility of the curative petition
  1. The Court assessed whether its ruling to reinstate the arbitral award, which had been overturned by the High Court's division bench, was warranted in light of the evidence and legal arguments presented.

Analysis

The Court exercised its inherent powers under Article 142 in addressing the miscarriage of justice perpetuated by the erroneous interpretation of contractual provisions by relying on the judgement in Rupa Hurra1. However, it cautioned against the indiscriminate use of curative jurisdiction, emphasizing its exceptional nature and the need to avoid creating additional layers of judicial intervention.

The Court astutely observed that the Tribunal, in its adjudication, veered off course from the very tenets of contractual interpretation, thereby precipitating a cascade of legal anomalies. Furthermore, the Court made a keen observation regarding the Tribunal's shortcomings in interpreting the termination clause. It held that the appeal court could have relied upon Section 34(2)(A) of the Arbitration Act to set aside an award vitiated by 'patent illegality' appearing on the face of the award.

Central to the Court's deliberations was the discernment of "effective steps" as enshrined within the termination clause, which stated that if effective steps were taken during the cure period, the contractual power to terminate could not be exercised. The Court noted the Tribunal's oversight in discounting vital evidence, the total absence of analysis and reasoning if at all 'effective steps' were taken to cure breaches, including the operational status of the project and the regulatory approval obtained from the Commissioner of Metro Railway Safety (CMRS). Such myopic disregard for foundational evidence, the Court opined, engendered a palpable miscarriage of justice and undermined the sanctity of contractual obligations.

Building upon the observations, the Court annulled the arbitral award, reinstating the parties to their pre-arbitration status. Additionally, it halted the execution proceedings in the High Court and meticulously directed the return of any amounts to DMRC, if applicable.

Conclusion

Though this judgement has opened a pandoras box in terms of now being potentially misused by parties to invoke the curative jurisdiction, it also resonates the vital fact that the terms of the contract are supreme and ought ot be analysed carefully. One key takeaway for entities engaged in PPP contracts would be that their actions have to be completely in tandem with the contract to avoid such scenarios in the future.

Footnote

1. 2002 4 SCC 388.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
24 April 2024

Supreme Court Exercises Curative Intervention – DMRC vs DAMEPL

India Litigation, Mediation & Arbitration
Contributor
Phoenix Legal is a full service Indian law firm offering transactional, regulatory, advisory, dispute resolution and tax services. The firm advises a diverse clientele including domestic and international companies, banks and financial institutions, funds, promoter groups and public sector undertakings. Phoenix Legal was formed in 2008 and now has 14 Partners and 65 lawyers in its two offices (New Delhi and Mumbai) making it one of the fastest growing law firms of the country.
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