India: Supreme Court Reiterates The Principle Of Judicial Non-Intervention In The Arbitral Process

The Hon'ble Supreme Court in a recent judgment in Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.¹ reiterated the principle of judicial non-intervention in the arbitral process while upholding the validity of a multi-billion arbitral award rendered in the said matter. In this article, we briefly discuss the facts and circumstances which led to the aforementioned judgment of the Hon'ble Supreme Court.

Brief facts

In the instant matter, the Delhi Metro Rail Corporation Ltd. (DMRC), proposed the implementation of the Airport Metro Express Line project (AMEL) which was to be developed by engaging a concessionaire. A bid of consortium comprising of Reliance Energy Limited (renamed as Reliance Infrastructure Limited) and M/s Construcciones y Auxiliar de Ferrocarriles, S.A. namely Delhi Airport Metro Express Pvt. Ltd. (DAMEPL) was accepted by DMRC for engaging in a public private partnership for development of AMEL.

DAMEPL and DMRC entered into an agreement (Concession Agreement) dated 21 August 2008 for development of the AMEL. It was agreed amongst the parties that all civil works, land acquisition, and other clearances from the Government would be handled by DMRC while supply, installation, testing, and commissioning of various systems were to be handled by DAMEPL. The work could not be completed in time and accordingly, extensions were granted for the development of AMEL. The commercial operation date was achieved on 23 February 2011. On 22 March 2012, DAMEPL requested DMRC to conduct a joint inspection of viaduct and its bearing before expiry of defect liability period of civil contractors.

Disputes arose amongst the parties in relation to certain design and quality issues in the project construction. DAMEPL stopped operations of the line on 8 June 2012. A notice was issued by DAMEPL on 9 June 2012 requiring DMRC to cure the defects in DMRC's works within the prescribed period of 90 days. Thereafter, a number of meetings were conducted between the parties. Ultimately, DAMEPL terminated the Concession Agreement on 8 October 2012 as the defects were not cured by DMRC resulting in default under the Concession Agreement. Aggrieved by DAMEPL's termination of the Concession Agreement, DMRC invoked arbitration under the Concession Agreement. In the meanwhile, from 22 January 2013 to 30 June 2013, the operations under AMEL were resumed by DAMEPL with reduced speed of trains. According to DAMEPL, it agreed to resume operation of the under the AMEL only on instructions of DMRC and in public interest. However, on 1 July 2013, DAMEPL handed over the operations of AMEL to DMRC.

The matter proceeded to arbitration where the main issue concerned the validity of the termination notice dated 8 October 2012. DMRC claimed that the termination notice issued by DAMEPL was illegal as DMRC had allegedly taken steps to honor its commitments under the Concession Agreement. DMRC sought a direction from the arbitral tribunal to DAMEPL to take over operations of the AMEL or to grant in alternative, inter alia, compensation of INR 31.73 billion with interest of 18% per annum. DAMEPL justified the termination of Concession Agreement stating that DMRC did not cure the defects and sought an amount of INR 34.7 billion as termination payment along with interest and other amounts in its counter claim.

The arbitral tribunal found, amongst other things, that there were as many as 1551 cracks in 367 girders, i.e., 72% of the girders under the AMEL were affected by cracks. The arbitral tribunal held that such defects adversely impacted the integrity of the structure and held DMRC to be in breach of Concession Agreement. The arbitral tribunal further held that DMRC did not take any effective steps to cure the defects. Accordingly, the termination notice issued by DAMEPL was held to be valid and DAMEPL was awarded a total of INR 27.8233 billion payment in termination payment.

DMRC filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for setting aside the award of the arbitral tribunal dated 11 May 2017. The single judge of the Delhi High Court dismissed the Section 34 petition observing that no grounds for interference had been made out by DMRC. DMRC then filed an appeal under Section 37 of the Arbitration Act read with Section 13 of the Commercial Courts Act, 2015. The division bench reversed the judgment of the single judge and allowed the appeal filed by DMRC. The award passed by the arbitral tribunal was partly set aside. The judgment of the division bench was then challenged by both the parties in the present appeals before the Hon'ble Supreme Court of India.

Held

The arbitral tribunal at the outset, delineated the contours of the court's powers to review arbitral awards. The Apex Court observed that in respect of Part I of the Arbitration Act, Section 5 imposed a bar on intervention by a judicial authority except when provided for statutorily. An application for setting aside an arbitral award could only be made within the four walls of the grounds mentioned under Section 34 of the Arbitration Act. The Hon'ble Supreme Court relied upon a catena of judgments to hold that the courts under Section 34 of the Arbitration Act must refrain from appreciating or re-appreciating matters of fact as well as law.²

The Hon'ble Supreme Court then referred to the decision in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)³ to stress upon the restraint to be shown by courts while examining validity of arbitral awards. The Apex Court observed that there was a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the case to come to a conclusion that the award needs intervention. It was emphasized that such an approach would lead to corrosion of the object of the Arbitration Act.

Commenting upon patent illegality, the Hon'ble Supreme court held that not every error of law committed by arbitral tribunal would fall within the expression 'patent illegality'. The Apex Court also observed that it was not open for courts to re-appreciate evidence to conclude that an award suffered from patent illegality as the courts did not sit in appeal against an arbitral award.

The Apex Court found no fault in the findings of the arbitral tribunal. Accordingly, DAMEPL's appeal was allowed and the judgment of the division bench was set aside.

Comments

The instant judgment adds to the series of judicial precedents that have time and again highlighted the limited scope of reviewing the validity of arbitral awards in proceedings initiated under Section 34 of the Arbitration Act. The position in law is now settled that the courts may interfere with an arbitral award only under the grounds provided in Section 34 of the Arbitration Act. Further, if two views are possible on an issue, the courts may not interfere with the arbitral award merely because the other view appears more plausible. It is utmost important for the courts in India to recognize the objects of arbitration and exercise restraint in reviewing arbitral awards to bring Indian arbitral regime at par with other modern jurisdictions.

Footnotes

1. Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd., 2021 SCC OnLine SC 695.

2. Uttarakhand Purv Sainik Kalyan Nigam Limited. v. Northern Coal Field Limited, 2020 2 SCC 455; Bhaven Construction Through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another, 2021 SCC OnLine SC 8; and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, 2019 15 SCC 131.

3. Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI), 2019 14 SCC 131.

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