DMRC vs DAMEPL: SC broadens scope of court intervention in arbitral awards | Economy & Policy Analysis

Recently, the Supreme Court (SC), in the judgment of Delhi Metro Rail Corporation Ltd (DMRC) vs Delhi Airport Metro Express Pvt Ltd (DAMEPL), set aside the arbitral award by exercising its curative jurisdiction. Perusing this judgment, one gets reminded of the quote said by Justice Burrough that “Public Policy is an unruly horse where once you stride on it you do not know where it is going to take you”. The recent judgment rendered by the SC has proved that the same applies to the arbitration regime in India. The Arbitration Amendment Act, 2015 was enacted with the intent of reducing the courts’ interference in arbitral awards to make India an arbitration hub. However, acting contrary, the Supreme Court, by exercising its extraordinary curative jurisdiction under Article 142 of the Constitution of India, has interfered with the arbitral award and quashed it. This has now raised the issue of wide interference with the arbitral award. The SC vide this judgment has enlarged the scope for courts to interfere with the arbitral award.

The DMRC and the consortium comprising Reliance Infrastructure Limited and Construcciones Y Auxiliar de Ferrocarriles SA, Spain namely, Delhi Airport Metro Express Ltd, entered into an agreement in 2008 for the construction, operation, and maintenance of the DAMEPL. The concession agreement envisaged a public-private partnership for providing metro rail connectivity between New Delhi Railway Station and the Indira Gandhi International Airport and other points within Delhi. The DAMEPL was granted the exclusive right to manage the project as a commercial enterprise. DMRC was supposed to look after the clearances and costs regarding the land acquisition, and civil structures, whereas the DAMEPL was supposed to carry out other things such as the design, supply, installation, testing, and commissioning of railway systems. The DAMEPL sought deferment of the concession fee in 2012 owing to the delays in providing access to the stations by DMRC. The operations were stopped by the DAMEPL in July, 2012, and thereafter, the arbitration proceedings were initiated in October, 2012. The arbitration proceedings were conducted by the tribunal comprising three members. The three-member tribunal passed the arbitral award in favor of the DAMEPL.

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Aggrieved by the arbitral award, the DMRC filed an application under Section 34 of the Arbitration & Conciliation Act (hereinafter referred to as ‘the Act’) which was dismissed by the Single Judge of the Delhi High Court. DMRC, then filed an appeal under section 37 of the Act against the dismissal of the section 34 application, and the same was partially allowed by the Division bench of the Delhi High Court. The DAMEL then approached the Supreme Court by filing an appeal under Article 136 of the Constitution of India and the same was allowed meaning thereby, that the division judgment of the high court was set aside. After that, the review petition was filed which was again rejected and then the curative petition was filed by the DMRC before the SC. The apex court made an unprecedented move by setting aside the award in its curative jurisdiction.

The Investors’ Viewpoint

A robust dispute mechanism is essential to attract foreign investors. It boosts the economy and helps the country become an international hub of arbitration, consequently generating employment opportunities. A reasonable investor gives paramount importance to the dispute resolution mechanism of the country s/he is investing in. For instance, investors notice the approach of courts of that particular country regarding certain issues. An investor looks for comfort and therefore, desires a strong and effective dispute resolution mechanism so that the business cannot be subjected to any kind of hindrance or prolonged litigation.

Although the arbitration regime in India is more focused on not subjecting the arbitral award to court interference, it has been observed over time that when the investor files for the execution of the arbitral award, courts in the country have developed this tendency of giving wide interpretation to public policy and thereby, set aside the arbitral award.

A perusal of the judgment in DMRC vs DAMEPL would show that the SC has interpreted the terms of the contract and that too, in its curative jurisdiction meaning thereby that by exercising its power which is supposed to be used in the rarest of the rare cases as per the Rupesh Kumar Hurra vs Ashok Hurra judgment, the SC has interpreted the terms of the contract between the parties. This has now opened floodgates and has paved the way for prolonged litigation.

Curative jurisdiction was not appropriate in the present case. To check whether a particular award is patently illegal or not, the court is not supposed to go into the merits of the award. It is a settled principle that patently illegal means that ‘on the face of it’ the arbitral award is against the fundamental policy, therefore, it is patently illegal. The SC in the present case, in its curative jurisdiction, decided the case on merits and interpreted the terms of the contractor thereby, acting contrary to the settled principles. An arbitrator is the one who interprets the terms of the contract but the Apex Court, vide its verdict, has made an unprecedented approach and has therefore broadened the scope of the court’s intervention in the arbitral award.

The government is trying hard to make India an investment hub. Since investors give a lot of importance to dispute resolution mechanisms in a country, it becomes necessary to provide a robust framework for the resolution of disputes. If the investor’s interests are not safeguarded, the financial growth of the country will be adversely impacted. Not only the government, the judiciary is also responsible in formulating an effective framework for dispute resolution in the country by passing progressive judicial pronouncements. This judgment poses various challenges and might hamper the financial growth of the nation.