Delhi Airport Metro Express Pvt. Ltd. vs Delhi Metro Rail Corporation Ltd.

HELD: 1.1 A cumulative reading of the UNCITRAL Model Law and Rules, the legislative intent with which the Arbitration and Conciliation Act, 1996 is made, Section 5 and Section 34 of the 1996 Act would make it clear that judicial interference with the arbitral awards is limited to the grounds in Section 34. While deciding applications filed under Section 34 of the Act, courts are mandated to strictly act in accordance with and within the confines of Section 34, refraining from appreciation or reappreciation of matters of fact as well as law. [Para 22][1004-E-F] 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;

Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306 : [2012] 4 SCR 122 – relied on.

Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131 : [2019] 7 SCR 522 – referred to.

1.2 The limited grounds available to courts for annulment of arbitral awards are well known to legally trained minds. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. That apart, several judicial pronouncements of this Court would become a dead letter if arbitral awards are set aside by categorising them as perverse or patently illegal without appreciating the contours of the said expressions. [Para 24][1007-H; 1008-A-D]

1.3 Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the arbitral tribunal would not fall within the expression ‘patent illegality’. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression ‘patent illegality’. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression ‘patent illegality’. [Para 25][1008-D-G]

1.4 Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression ‘public policy of India’ and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. [Para 26][1008-H; 1009-A-B]

Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)(2019) 15 SCC 131 : [2019] 7 SCR 522;

Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 : [1993] 3 Suppl. SCR 22 – referred to.

2.1 As there is no ambiguity in the findings of the arbitral tribunal regarding the time given for curing the defects and the effective date of termination of the Concession Agreement, the findings of the Division Bench that there is an ambivalence in the award concerning the date of termination, having a bearing on the final outcome of the award is not accepted. The arbitral tribunal in its award clearly held that DMRC failed to cure the defects before the expiry of 90 days from the initial notice laying down the non-exhaustive list of defects issued on 09.07.2012. The said conclusion is the outcome of interpretation of Article

29.5.1 of the Concession Agreement by the tribunal. An attempt was made by the Counsel for the Respondent to impress upon this Court that as the termination notice would become effective only after 90 days from the date of its issue, i.e., 08.10.2012, DMRC could avail this period as well to address the defects and if the defects stood cured or effective steps were taken within this additional 90-day period, the termination notice became defunct and should not be effectuated. Construction of a provision of the Concession Agreement is within the domain of the arbitral tribunal. The view taken by the arbitral tribunal that the defects have to be cured within 90 days from the date of the cure notice, failing which DAMEPL is entitled to terminate the Concession Agreement, is a possible interpretation of Article 29.5.1. The findings of the arbitral tribunal are not interfered with on this point, even assuming a different view can be taken on a reading of the said Article. [Para 31][1012-F-H; 1013-A-D]

2.2 The arbitral tribunal was called upon by the parties to decide whether there was a breach of the Concession Agreement due to the fault of DMRC and whether the defects pointed out by DAMEPL were cured within the period specified in the notice dated 09.07.2012. Safety of the AMEL was not an issue that fell for determination by the arbitral tribunal, though DAMEPL had insisted on not continuing operations of the Line citing safety concerns arising from the defects in its structural integrity. It is no doubt true that the Commissioner is the competent authority to determine the safety of the AMEL. It is also beyond cavil that the Commissioner would not have granted permission to restart the AMEL unless it was of the opinion that restarting of commercial operations would not pose a danger to the public. However, the certificate by itself cannot come to the rescue of DMRC to show that the defects pointed out by DAMEPL were cured within the expiry of 90 days from 09.07.2012. The finding of the arbitral tribunal that the defects were not cured is one of fact which cannot be interfered with by the court. [Para 33][1014C-F]

2.3 The CMRS certificate was relied upon by DMRC before the arbitral tribunal as a strong piece of evidence to support its case that the defects were cured. DMRC did not contend before the tribunal that the CMRS certificate is binding and is conclusive of the defects being cured/effective steps taken to cure the defects. The conditions imposed by the Commissioner relating to speed restrictions and close monitoring of the Line, according to the tribunal, support the contention of DAMEPL that the defects were not fully cured. The issue before the tribunal was whether the defects were cured within 90 days from the notice dated 09.07.2012 and the certificate dated 18.01.2013 is relevant for deciding the said issue. The High Court’s view that the issue of the CMRS certificate being dealt with separately has a bearing on the tribunal’s determination of the validity of the termination notice cannot be accepted. The members of the arbitral tribunal, nominated in accordance with the agreed procedure between the parties, are engineers and their award is not meant to be scrutinised in the same manner as one prepared by legally trained minds. In any event, it cannot be said that the view of the tribunal is perverse. Therefore, the High Court’s opinion that the award of the tribunal on the legality of the termination notice is vitiated due to the vice of perversity cannot be accepted. [Para 34][1014F-H; 1015-A-B]

2.4 The Division Bench referred to various factors leading to the termination notice, to conclude that the award shocks the conscience of the court. The discussion in the impugned judgement amounts to appreciation or re- appreciation of the facts which is not permissible under Section 34 of the 1996 Act. The Division Bench further held that the fact of the AMEL being operated without any adverse event for a period of more than four years since the date of issuance of the CMRS certificate, was not given due importance by the arbitral tribunal. As the arbitrator is the sole judge of the quality as well as the quantity of the evidence, the task of being a judge on the evidence before the tribunal does not fall upon the court in exercise of its jurisdiction under Section 34. On the basis of the issues submitted by the parties, the arbitral tribunal framed issues for consideration and answered the said issues. Subsequent events need not be taken into account. [Para 35][1015-B-E]

2.5 The conclusion of the Division Bench that the award of the arbitral tribunal suffers from patent illegality and shocks the conscience of the court is held to be erroneous. [Para 36][1015E-F]

2.6 The tribunal focused on two components of Termination Payment, which are ‘Debt Due’, and 130 % of the ‘Adjusted Equity’. The tribunal was correct in holding that the amount of Rs.611.95 crore advanced by DAMEPL’s promoter would qualify for inclusion under the definition of ‘Equity’ on a plain reading of the said definition. Construction of the contract is within the jurisdiction of the tribunal and merely because another view is possible, the court cannot interfere with such construction and substitute its own view. [Para 39][1018-F-G; 1019-A-B]

2.7 The opinion of the tribunal is that the amount of Rs.611.95 crore was an amount advanced by DAMEPL’s promoter which was not disputed by DMRC. The submission advanced by DMRC, that it was only the equity share capital as is understood within the meaning of the Companies Act, 2013 which is liable to be paid by DMRC under Article 29.5.2, was rejected by the Ttribunal. The view taken by the tribunal that the amount contributed by a member of the consortium or by shareholders to meet the ‘Concessionaire’s Capital Costs’ in any form, including where such funds are classified as subordinated debt, cannot be treated as ‘Subordinated Debt’ in terms of its definition in the Concession Agreement, is a reasonable and possible view. On the other hand, the Division Bench of the High Court relied upon the board resolution dated 16.03.2011 and held that the tribunal ought not to have treated the said amount as ‘Equity’ after the share application money was converted into subordinated debt. After a detailed consideration of the relevant clauses of the Concession Agreement, the High Court held that the tribunal had committed a serious error in its tabulation of ‘Adjusted Equity’ by completely ignoring the evidence on record. [Para 41][1019-G-H; 1020-A-C]

2.8 Even assuming the view taken by the High Court is not incorrect, a possible view expressed by the tribunal on construction of the terms of the Concession Agreement cannot be substituted by the High Court. This view is in line with the understanding of Section 28(3) of the 1996 Act as a ground for setting aside the arbitral award. No case has been made out by the High Court to establish violation of Section 28(3). Having carefully examined the Concession Agreement, the findings recorded by the tribunal and the findings recorded by the Division Bench, it cannot be held that the opinion of the tribunal on inclusion of Rs.611.95 crore under ‘Equity’ is a perverse view. It cannot be said that the tribunal did not consider the evidence on record, especially the resolution dated 16.03.2011 passed by DAMEPL’s board of directors. Also, there is no fault with the approach of the tribunal that the understanding of the term equity as per the Companies Act, 2013 is not relevant for the purposes of determining ‘Adjusted Equity’ in light of the express definition of the term in the Concession Agreement. The support placed by the Division Bench on the interpretation of Section 28(1)(a) of the 1996 Act as adopted in Associate Builders’s case is, therefore, no longer good law. The findings of the High Court are set aside and the award by the tribunal in respect of the computation of Termination Payment under Clause 29.5.2 is upheld. [Para 42][1020-C-H]

Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 : [2014] 13 SCR 895 – held not good law.

Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI)(2019) 15 SCC 131 : [2019] 7 SCR 522 –

referred to.

2.9 As regards the ground of challenge in SLP(c) No. 8311 of 2019, as the participation of DAMEPL in several meetings held after issuance of the termination notice dated 09.07.2012 and its decision to continue operating the AMEL was without prejudice, the tribunal rejected the submission of DMRC that the doctrine of waiver applied and that DAMEPL was estopped from terminating the Concession Agreement after having actively participated in the process of rectifying the defects pointed out. The Division Bench of the High Court approved the said finding on the ground that the decision of the tribunal could not be held to be flawed within the limited scrutiny afforded to courts under Section 34 of the 1996 Act. The Division Bench of the High Court rightly refrained from interfering with the findings on waiver by the tribunal. The prayer for a direction to DAMEPL for specific performance of its obligations under the Concession Agreement to operate the AMEL was refused by the tribunal. The Division Bench of the High Court in its judgment observed that the said findings had not been challenged before the High Court. Therefore, there is no reason for this Court to adjudicate on the point of specific performance of the Concession Agreement. [Para 43, 44][1021-B-E]

2.10 The tribunal awarded interest in accordance with the terms of the Concession Agreement on termination payment. DMRC contended before the High Court that the award in respect of interest had to be set aside on the ground that it would result in unjust enrichment. After a thorough consideration of Article

29.8 and Article 36.2.6.1 of the Concession Agreement, the High Court has rightly refused to interfere with the findings by the tribunal relating to interest and there is no cause for interference. The judgment of the Division Bench of the High Court is set aside. [Para 45, 46][1021-E-G]

State of Rajasthan v. Puri Construction Co. Ltd. and Another (1994) 6 SCC 485 : [1994] 3 Suppl. SCR 616 – referred to.