# DELHI AIRPORT METRO EXPRESS PVT. LTD v. DELHI METRO RAIL CORPORATION LTD

- **Citation:** [2021] 5 S.C.R. 984
- **Court:** Supreme Court of India
- **Decided:** 2021-09-09
- **Case number:** Civil Appeal No. 5627 of 2021
- **Bench:** L. Nageswara Rao, S. Ravindra Bhat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delhi-airport-metro-express-pvt-ltd-v-delhi-metro-rail-corporation-ltd-35025
- **Pages:** 38

## Headnote

Arbitration and Conciliation Act, 1996: s. 34 - Interference
with the arbitral award - Scope of - On facts, arbitration clause
invoked on account of dispute pertaining to Metro Rail project
between the parties - Arbitral tribunal held the termination notice
issued by the appellant was valid and on basis of 'Adjusted Equity'
passed an award of Rs.2782.33 crore, along with interest, in favour
of the appellant - Single Judge of the High Court dismissed the
petition u/s. 34 for setting aside the award - However, the Division
Bench partly set aside the award - On appeal, held: While deciding
applications u/s. 34, the courts are mandated to strictly act in
accordance with and within the confines of s. 34, refraining from
appreciation or re-appreciation of matters of fact as well as law -
Courts do not sit in appeal against the arbitral award - Permissible
grounds for interference with a domestic award u/s. 34(2-A) on the
ground of patent illegality is when the arbitrator takes a view which
is not a possible one, or interprets a clause in the contract which no
fair-minded or reasonable person would, or commits an error of
jurisdiction by wandering outside the contract and dealing with
matters not allotted to them - 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' - 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 - 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 erroneous - Judgment of the Division
Bench of the High Court set aside and the arbitral award in the
favour of the appellant is restored.
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985
Allowing Civil Appeal No.5627 of 2021 and dismissing Civil
Appeal No.5628 of 2021, the Court
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

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SUPREME COURT REPORTS
[2021] 5 S.C.R.
 [2021] 5 S.C.R. 984
984
DELHI AIRPORT METRO EXPRESS PVT. LTD.
v.
DELHI METRO RAIL CORPORATION LTD.
(Civil Appeal No. 5627 of 2021)
SEPTEMBER 09, 2021
[L. NAGESWARA RAO AND S. RAVINDRA BHAT, JJ.]
Arbitration and Conciliation Act, 1996: s. 34 - Interference
with the arbitral award - Scope of - On facts, arbitration clause
invoked on account of dispute pertaining to Metro Rail project
between the parties - Arbitral tribunal held the termination notice
issued by the appellant was valid and on basis of 'Adjusted Equity'
passed an award of Rs.2782.33 crore, along with interest, in favour
of the appellant - Single Judge of the High Court dismissed the
petition u/s. 34 for setting aside the award - However, the Division
Bench partly set aside the award - On appeal, held: While deciding
applications u/s. 34, the courts are mandated to strictly act in
accordance with and within the confines of s. 34, refraining from
appreciation or re-appreciation of matters of fact as well as law -
Courts do not sit in appeal against the arbitral award - Permissible
grounds for interference with a domestic award u/s. 34(2-A) on the
ground of patent illegality is when the arbitrator takes a view which
is not a possible one, or interprets a clause in the contract which no
fair-minded or reasonable person would, or commits an error of
jurisdiction by wandering outside the contract and dealing with
matters not allotted to them - 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' - 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 - 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 erroneous - Judgment of the Division
Bench of the High Court set aside and the arbitral award in the
favour of the appellant is restored.
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985
Allowing Civil Appeal No.5627 of 2021 and dismissing Civil
Appeal No.5628 of 2021, the Court
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
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RAIL CORPORATION LTD.
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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
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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
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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
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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
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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]
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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]
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State of Rajasthan v. Puri Construction Co. Ltd. and
Another (1994) 6 SCC 485 : [1994] 3 Suppl. SCR 616
- referred to.
Case Law Reference
(2020) 2 SCC 455
relied on
Para 23
[2012] 4 SCR 122
relied on
Para 23
[2019] 7 SCR 522
referred to
Para 23
[1993] 3 Suppl. SCR 22
referred to
Para 26
[1994] 3 Suppl. SCR 616
referred to
Para 35
[2014] 13 SCR 895
held not good law
Para 42
CIVIL APPELLATE JURISDICTION : Civil Appeal No.5627
of 2021.
From the Judgment and Order dated 15.01.2019 of the High Court
of Delhi at New Delhi in FAO (OS) (COMM) No.58 of 2018.
With
Civil Appeal No.5628 of 2021.
Tushar Mehta, SG, Harish N. Salve, J. J. Bhatt, P. S. Narsimha,
Parag Tripathi, Ajit Sinha, Sr. Advs., Ms. Anjali Chandurkar, Mahesh
Agarwal, Ms. Megha Mehta, Nishant Rao, Biswabara Dash, E. C.
Agrawala, Tarun Johri, Advs. for the appearing parties.
The Judgment of the Court was delivered by
L. NAGESWARA RAO, J.
Leave granted.
1. Whether in exercise of its power under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereinafter, 'the 1996 Act'), the
Division Bench of the Delhi High Court was right in interfering with the
award dated 11.05.2017 passed by the Arbitral Tribunal in favour of the
Appellant -Delhi Airport Metro Express Pvt. Ltd. (hereinafter, 'DAMEPL'
or the 'Concessionaire'), is the question that arises for consideration in
these Appeals.
2. Delhi Metro Rail Corporation Ltd. (hereinafter, 'DMRC'), a
joint venture of the Government of India and the Government of National
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Capital Territory of Delhi, proposed implementation of the Airport Metro
Express Line project in New Delhi, from New Delhi Railway Station to
Dwarka Sector 21 via Indira Gandhi International Airport, New Delhi
(hereinafter, 'AMEL'). The approximate length of the project was 22.7
kilometers. It was decided to develop the project by engaging a
concessionaire for financing, design, procurement, installation of all
systems (including but not limited to rolling stock, overhead electrification,
track, signaling and telecommunication, ventilation and air conditioning,
automatic fare collection, baggage check-in and handling, depot and other
facilities). DMRC had to undertake design and construction of basic
civil structure for the project, which was in the nature of a public private
partnership.
3. The bid of a consortium comprising Reliance Energy Limited
(renamed as Reliance Infrastructure Limited) and M/s Construcciones
y Auxiliar de Ferrocarriles, S.A. was accepted by DMRC, by issuing a
letter of acceptance on 21.01.2008. Thereafter, on 25.08.2008, a
Concession Agreement was entered into between DMRC and DAMEPL
for design, installation, commissioning, operation and maintenance of the
AMEL. It was agreed between the parties that all civil works as well as
appointment of consultants, land acquisition and other clearances from
the Government and other authorities have to be obtained by DMRC
and the design, supply, installation, testing and commissioning of various
systems like rolling stock, power supply, overhead equipment, signalling,
track system, platform, screen doors, ventilation, architectural finishing
etc. were to be provided by DAMEPL. As the work could not be
completed in time, extensions were granted and finally, safety clearances
were obtained from the Commissioner of Metro Railway Safety
(hereinafter, the 'CMRS' or 'Commissioner') on 10.01.2011. The date
of commercial operation was achieved on 23.02.2011.
4. On 22.03.2012, DAMEPL requested DMRC for a joint
inspection of viaduct and its bearings before expiry of the defect liability
period of the civil contractors. Another letter was written by DAMEPL
on 23.05.2012, complaining of issues relating to the design and quality in
the installation of viaduct bearings. It was mentioned in the said letter
that there were signs of girders having sunk at some locations as a result
of deformations/cracks. DMRC responded to the said letter of DAMEPL
on 08.06.2012 by which DAMEPL was informed that inspections were
carried out at the locations pointed out by DAMEPL and no bearings
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were found damaged. However, DMRC admitted that grouting material
filled above/below the bearings was damaged/loosened for which action
would be taken to repair them on priority. Due to the said defects, DMRC
advised DAMEPL to impose speed restrictions as deemed necessary in
the interest of safety.
5. The Ministry of Urban Development, Government of India
convened a meeting of all the stakeholders on 02.07.2012. The views of
all the parties relating to the defects were obtained and a Joint Inspection
Committee was formed. An interim report was submitted by the Joint
Inspection Committee after inspection on 4th& 5th July, 2012.
Subsequently, DAMEPL stopped operations of the Line on 08.07.2012.
6. A notice was issued by DAMEPL on 09.07.2012, asking DMRC
to cure the defects in DMRC's works within a period of 90 days from
the date of the notice, failing which it shall be treated as a breach having
Material Adverse Effect on the Concessionaire under the Concession
Agreement. In the said notice dated 09.07.2012, 'a non-exhaustive list
of defects' was set out by DAMEPL. Thereafter, a number of meetings
were conducted between the parties which were attended by SYSTRA,
the original design consultant for the viaduct sections. It appears from
the record that DMRC had also engaged some other agencies for carrying
out the repair work.
7. DAMEPL issued a notice dated 08.10.2012 terminating the
Concession Agreement as, according to it, the defects that were pointed
out in the notice dated 09.07.2012 were not cured within a period of 90
days, resulting in an Event of Default under the Concession Agreement.
DMRC invoked arbitration under Article 36.2 of the Concession
Agreement on 23.10.2012. On 22.01.2013, the Line was restarted with
reduced speed after a certificate sanctioning resumption was issued by
the Commissioner on 18.01.2013. According to DAMEPL, it agreed to
operate the Line only as an agent in public interest and on instructions of
DMRC, although DAMEPL's stance was not accepted by DMRC.
DAMEPL stopped its operations on 30.06.2013 and handed over the
Line to DMRC on the next day.
8. At this stage, it is relevant to refer to Article 36 of the Concession
Agreement which refers to dispute resolution. Article 36.2.2, read with
Article 36.2.3, provides that all disputes, whatsoever arising between
the parties, out of, touching upon or relating to construction, measuring,
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operation or effect of the Concession Agreement or the breach thereof,
shall be settled through arbitration by reference to a sole arbitrator, where
the total value of claims do not exceed Rs.1,500,000/-. Beyond this limit,
the dispute shall be referred to three arbitrators who will be selected
from a panel of engineers with requisite qualifications and professional
experience relevant in the field to which the Concession Agreement
relates. The panel shall be from serving or retired engineers of government
departments or of public sector.
9. The main issue that arose for determination before the Arbitral
Tribunal constituted under the Concession Agreement is the validity of
the termination notice dated 08.10.2012. DMRC claimed that the
termination notice issued by DAMEPL is illegal, as DMRC had taken
various steps honouring its obligations under the Concession Agreement.
A direction was sought from the Arbitral Tribunal to DAMEPL to take
over operations of the AMEL under the Concession Agreement, and in
the alternative, to grant compensation of Rs.3,173 crore with interest of
18% per annum. Further monetary reliefs were sought by DMRC. The
claim of compensation sought by DMRC was dependent on the
determination of the main issue, i.e., the validity of the termination notice
dated 08.10.2012.DMRC also raised an issue on the real motive of
DAMEPL to terminate the Concession Agreement. DAMEPL justified
the termination as being in conformity with the Concession Agreement
and consequently, filed a counter claim seeking an amount of Rs.3,470
crore as termination payment along with interest and further amounts as
detailed in the counter claim, on the ground that DMRC did not cure the
defects in the civil structure in terms of the cure notice dated 09.07.2012.
 As DMRC did not comply with its obligations under Article 29.5.1(i),
DAMEPL justified the termination notice dated 08.10.2012 and the
consequent claim of termination payment from DMRC under Article
29.5.2.
10. The Arbitral Tribunal formulated the following primary issues
for consideration in relation to the termination notice dated 08.10.2012: -
"i) Were there any defects in the civil structure of the airport
metro line?
(ii) If there were defects, did such defects have a material
adverse effect on the performance of the obligation of
DAMEPL under CA?
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(iii) If there were defects in the civil structure, which had a
material adverse effect on the performance of the obligations
under the CA by DAMEPL, have such defects been cured by
DMRC and / or have any effective steps been taken within a
period of 90 days from the date of notice by DAMEPL to cure
the defects by DMRC and thus were DMRC in breach of the
CA as per 29.5.1 (i)?"
11. In assessing whether the defects pointed out by DAMEPL
were cured and/or effective steps to cure them were taken by DMRC
within the time stipulated in the notice dated 09.07.2012, the Arbitral
Tribunal undertook an in-depth analysis of the defects in the civil structure
and steps taken for their repair/rectification. Insofar as the existence of
defects is concerned, the Arbitral Tribunal concluded that there were as
many as 1551 cracks in 367 girders, i.e., 72 % of the girders were affected
by such cracks. Reports of inspections conducted at the behest of DMRC,
giving mapping data of the cracks, were relied upon by the Tribunal to
hold that such cracks were spread in a large number of girders. The
Tribunal referred to the meeting dated 02.07.2012 conducted by the
Ministry of Urban Development during which the Managing Director,
DMRC expressed his views that the cracks occurred during "lowering"
and not during operations. The evidence of Mr. Muls of Systra was
considered by the Arbitral Tribunal to hold that they were not sure of the
cause of the cracks. On account of such large numbers of cracks in the
base slab of the pre-stressed concrete girders in about a year of train
operation, coupled with unreliable measurement of crack depth and nonserious inspection of the repairs by an agency appointed by DMRC, the
Arbitral Tribunal was of the opinion that these defects adversely impacted
the integrity of the structure. As effective steps were not taken within
the cure period of 90 days, the Tribunal held that DMRC was in breach
of the Concession Agreement, resulting in Material Adverse Effect on
the Concessionaire.
12. As far as twist in the girders were concerned, the Arbitral
Tribunal found that there were about 80 girders with twists varying
between 10 to 20 mm which had not been rectified and no effective
steps were taken to cure the defects in such girders. The defects pointed
out by DAMEPL regarding gaps between the shear key and the girder
being more than 25 mm and between 10 mm to 25 mm were not addressed
and only gaps below 10 mm were addressed by some grinding, detailed
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methodology for which was not brought out by DMRC in its evidence,
as per the findings of the Arbitral Tribunal. Therefore, the Tribunal
concluded that these defects were neither cured nor effective steps
taken by DMRC within the cure period up to 08.10.2012, constituting a
material breach on the part of DMRC. On the basis of the above findings
and findings in relation to other defects, deficiencies and constraints in
the civil structure of the AMEL which are not referred to herein, the
Arbitral Tribunal concluded that the defects had not been cured within
the cure period of 90 days from 09.07.2012 nor had effective steps been
taken to cure such defects. Ergo, the termination notice issued by
DAMEPL on 08.10.2012 was valid.
13. Having decided on the validity of the termination notice, the
Tribunal went on to consider certain legal issues so as to determine
questions around specific performance of the contract, or alternatively,
the award of damages and the outcome of the counter claim filed by
DAMEPL. One such issue considered by the Arbitral Tribunal was
whether the issue of certificate by the Commissioner on 18.01.2013,
giving clearance for resuming operations of the AMEL, showed that the
defects were duly cured. After examining the certificate issued by the
Commissioner, the Arbitral Tribunal held that while the Commissioner
had sanctioned resumption of services, certain conditions were imposed,
essentially relating to the restriction of speed up to 50 km per hour, which
had a material bearing on the prime purpose of the AMEL intended to
serve as a high-speed connectivity line. Moreover, the Commissioner
himself recognized that the operation of the Line had to be regularly
monitored. The subsequent operation of the Line by DMRC was found
to be not relevant for determining the validity of the termination notice
dated 09.07.2012. The Arbitral Tribunal answered this issue in favour
of DAMEPL. On consideration of the counter claim of DAMEPL, the
principal issue that came up before the Arbitral Tribunal was on
determination of the amount of Termination Payment payable by DMRC
under the Concession Agreement. In this regard, the Tribunal had to
determine the quantum payable under each component of Termination
Payment, one of which was 'Adjusted Equity'. DAMEPL sought payment
of an amount of Rs.3,470 crore as Termination Payment. In this total, an
amount of Rs.685 crore, which had been infused by DAMEPL's promoter,
was factored in by DAMEPL for the purposes of calculating 'Adjusted
Equity'. Relying on the relevant clauses of the Concession Agreement,
the Tribunal first sought to determine the portion of funds that would
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qualify as 'Equity' under the Concession Agreement, which would then
be used for arriving at the figure of 'Adjusted Equity'. Out of Rs.685
crore which was sought to be slotted under the head 'Equity' by
DAMEPL, an amount of Rs.611.95 crore was determined to be 'Equity'
by the Tribunal, on the basis of the evidence produced and the construction
of the relevant provisions of the Concession Agreement. Thereafter, the
Tribunal worked out 'Adjusted Equity' at Rs.983.02 crore and awarded
a total amount of Rs.2782.33 crore, along with further interest, as
Termination Payment to be made to DAMEPL.
14. DMRC filed a petition under Section 34 of the 1996 Act for
setting aside the award of the Arbitral Tribunal dated 11.05.2017 in the
Delhi High Court, which was dismissed by the learned Single Judge of
the High Court by a judgement dated 06.03.2018 observing that grounds
for interference had not been made out by DMRC. The learned Single
Judge held that the findings recorded by the Arbitral Tribunal on facts,
law and interpretation of the Concession Agreement were all within the
realm of the Arbitral Tribunal and they needed no intervention by the
Court exercising its power under Section 34 of the 1996 Act. He was
also of the view that the Court cannot substitute its view when there are
two views possible and the view taken by the Arbitral Tribunal is a
plausible one.
15. DMRC filed an appeal under Section 37 of the 1996 Act read
with Section 13 of the Commercial Courts, Commercial Division and
Commercial Appellate Division of High Courts Act, 2015 (the title since
amended to Commercial Courts Act, 2015), challenging the correctness
of the judgment passed by the learned Single Judge on 06.03.2018
dismissing the objections filed by DMRC under Section 34 of the 1996
Act. The Division Bench reversed the judgement of the learned Single
Judge and allowed the appeal filed by DMRC. The award passed by the
Arbitral Tribunal was partly set aside. The parties were left to invoke
the arbitration clause for adjudication of the issues that were not decided
by the Division Bench. The judgement of the Division Bench dated
15.01.2019 is assailed in these Appeals.
16. DMRC has also filed SLP (C) No.8311 of 2019 challenging
the correctness of the aforesaid judgement of the Division Bench in
relation to the issues of grant of interest, waiver of the termination notice
due to DAMEPL's conduct of operating the project for more than five
months from 22.01.2013, refusal by the Division Bench to grant relief of
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specific performance of the Concession Agreement and non-consideration
of the issue pertaining to the real reason for the termination of the
Concession Agreement by DAMEPL.
Reasons given by the Division Bench for setting aside the
award
17. The Division Bench of the High Court held that the award of
the Arbitral Tribunal had recorded two different termination dates. As
the Tribunal had based its reasoning on the validity of the termination
notice on two different dates leading to confusion and ambivalence as to
the termination notice and the date of termination, the award was found
to be suffering from the vices of perversity, irrationality and patent
illegality. The High Court observed that in deciding the question on defects
in the civil structure and whether effective steps were taken to cure the
defects, the Arbitral Tribunal had committed serious error by holding,
without 'reason', that the vital evidence of the sanction granted by the
CMRS for resumption of commercial operations of the AMEL and the
fact that DMRC had successfully operated the AMEL from 30.06.2013
till the date of the award without any adverse incident were
inconsequential. The High Court found fault with the Arbitral Tribunal in
virtually negating the certificate issued by the CMRS under the Delhi
Metro Railway (Operation and Maintenance) Act, 2002 (hereinafter,
'the Delhi Metro Act') and held that the cumulative effect of the findings
of the award on this issue 'shocked the conscience of the court'.
18. On the issue of Adjusted Equity, while considering the approach
taken by the Arbitral Tribunal for computation of the amounts payable
under Article 29.5.2, the High Court was of the opinion that the Tribunal's
reasoning was completely flawed and perverse. The High Court ruled
that the reasoning adopted by the Tribunal was patently illegal and the
conclusion reached after doing so, was one which no reasonable person
would have come to. According to the High Court, the treatment of
Rs.611.95 crore as 'Equity' by the Tribunal, on the ground that such a
project could not have been executed with only Rs.1 lakh as equity funded
by DAMEPL's promoter (in terms of share capital), was based on an
assumption that the debt-to-equity ratio is commonly 60:40 or 80:20,
contrary to the evidence on record. This was held to be an egregious
mistake committed by the Tribunal. The High Court also found fault
with the award which ignored the resolution passed by the board of
directors of DAMEPL on 16.03.2011, by which the amount of Rs. 611.95
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crore was converted to subordinated debt. The High Court held that
'Adjusted Equity' under the Concession Agreement does not contemplate
funds recognized as subordinated debt to be treated as 'Equity'. With
respect to the interpretation of the various provisions of the Concession
Agreement and the resultant conclusions on 'Adjusted Equity', the High
Court held that the findings of the Tribunal on this issue were in violation
of Sections 28(1)(a) and 28(3) of the 1996 Act, as elaborated in Associate
Builders v.Delhi Development Authority1, as contractual provisions
had been interpreted in a way no fair-minded and reasonable person
would.
19. In light of the reasons mentioned, the High Court set aside the
conclusions of the Arbitral Tribunal on the validity of the termination
notice and that Rs.611.95 crore was 'Equity' for the purpose of Article
29.5.2 of the Concession Agreement. Consequently, the award of
Rs.2,782.33 crore to DAMEPL was set aside. In view of the above
findings, the High Court considered the direction for payment of interest
to have become infructuous. The High Court felt that it would be
inappropriate to hear the parties on the issue of restitution at that stage
and granted liberty to the parties to move appropriate applications under
the 1996 Act to seek remedies available to them.
Contours of the Court's power to review arbitral awards
20.